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This evening, we bid farewell to the hon. Member for Yeovil (Mr. Laws) just as the Leader of the Opposition moves someone who is generally regarded as a Rottweiler into the shadow portfolio. Tomorrow, there will be a new Liberal Democrat Front-Bench spokesman, so it will be interesting to discover which party leader made the right decision when we reflect on matters at the election. However, I welcome the new Front-Bench spokesmen, the hon. Member for Epsom and Ewell (Chris Grayling), who leads for the Opposition, and in particular I welcome my right hon. Friend the Secretary of State. I should like to give both of them a message, and I shall address the Conservative Opposition first.
The thrust of the motion, although perhaps not the content of the speech made by the hon. Member for Epsom and Ewell, was about restoring confidence in pensions. I have a suggestion that the Opposition might like to think seriously about if they want to restore confidence. In this Parliament, they have as yet issued no set of proposals about welfare reform, let alone pension reform. The decision they have to make is where they draw the line between what risks individuals should bear for their pension provision and what risks we should collectively bear. I suggest that the key dividing line is a pension scheme in the future that ensures that everybody who plays their part fully in society receives a pension that takes them out of means-testing when they retire. The risks involved should be shared by all of us. It is of course desirable that people should have more than that for their pension provision, but that is not a concern for taxpayersbearing that risk is for individuals themselves.
My Government have not yet made that division, so my second piece of advice is addressed to my right hon. Friend the Secretary of State in the decisions he faces. I want to focus on the role of personal accounts. My right hon. Friend was right to say that not everybody has been covered by occupational schemes. There has been a huge number of poor and desperately poor people, and the Labour Government have redistributed more resources to poorer pensioners than any Administration since we established the state retirement pension. The Government deserve huge credit for that, but they way in which they achieved the goal is unstable. They did it largely on the basis of the pension credit, which is means-tested. Therefore, perhaps 40 per cent. of our electors do not know whether it will pay them to save or whether, if they do save, they will be substantially better off. If they are not better off because they are covered by the pension credit, they will see other people who did not bother to save receiving an income through means-testing that is equal to, if not greater than, the one that they end up with. For the reasons that my hon. Friend the Member for Nottingham, South (Alan Simpson) outlined, the message not to save has gone out to people.
I therefore hope that my right hon. Friend the Secretary of State will return to the decision that we make about how adequate the first tier of pension should be if we are then to rely on people building on it through their own efforts. If we do not do that, I will put things much more strongly than the hon. Member for Yeovil. I see a mega mis-selling scandal coming up the tracks and we will not be able to blame Legal and General or the Pru. The House will have put in place what is euphemistically called soft compulsion, making people save for schemes that may pay them little or, as the hon. Gentleman said, nothing.
That is my advice to those on both Front Benches, but may I sound a note of caution about us as politicians? It is undoubtedly true that occupational pensions have been the crown jewels of our pension system and that previous Members of Parliament thought that they were far too good for just a few workers. They thought, We must spread them to their dependants and we must have widows benefits and orphans benefits. We put a strain on occupational schemes that employers never thought would be there when they began to build up the schemes. With the Opposition insisting on tax changes, we ran down the surpluses, and although my right hon. Friend the Secretary of State mounted a great defence of the advance corporation tax changes, my guess with hindsight is that if we had our time again we would not make that change now.
I merely emphasise that this wonderful place, the House of Commons, sometimes gets a fit of self-righteousness and starts legislating in a way that is improper, and we have done that with occupational pensions. I hope that we are about to enter a deadly serious phase of the debate, in which the Opposition address the key question of where we draw the line between when risks should be pooled and when risks should be taken by individuals. I hope that with the new brief that my right hon. Friend has, he will look carefully at how the personal accounts that have to play such a key role in our long-term reforms do not land us with the charge of state mis-selling at the end of the day.
Sir John Butterfill (Bournemouth, West) (Con): It has been a thoughtful debate, but there are fundamental problems that we need to address. The principal difficulties with the funding of occupational pensions are partly the additional benefits that the right hon. Member for Birkenhead (Mr. Field) has identified, but largely increased longevity coupled with a terrible shortage of index-linked gilt securities.
The hon. Member for Nottingham, South (Alan Simpson) mentioned the desirability of further investment in Government securities, but the real yield on index-linked gilts today is below 1 per cent. That is incredibly low, but we have been forcing pension funds
to go into such investments since my party introduced the Pensions Act 1995 and the minimum funding requirement, which I opposed at the time. That has partly contributed to the problem. The huge stock market crash a few years ago was a phenomenon that always happens in equity markets: they go up and down, but overall the direction of the yield is pretty firmly upwardsas is logical in a free western economy. So, the stock market is not the cause of the problem. It is the concentration on index-linked gilts, as being the only way of delivering a pensions promise, that has been a terrible mistake.
I will deal first with state pensions. The present level of the state pension is much too low and the state pension is very unfair to women. I think that 32 per cent. of all women have no pension and almost 4 million have less than a full pension. The Government have tried to address that and I pay tribute to them for some of the things that they have done in recent pensions legislation, which is improving the situation. However, until we move to a pension at a decent levelnot one that provides any luxury, but one that at least offers some sort of standard of living for those who would otherwise not benefitwe are not a civilised society.
The link to earnings must be restored. The Government have said that they will do that, but one wonders when. When pressed, they said, Well, we hope to do it by 2012. However, there is not even a firm promise for 2012 and by the time we get to 2012 a lot of my constituents, and those of other right hon. and hon. Members, may well no longer be here to benefit from the change. I know that people will say that it is not affordable, but there are ways in which it can be made affordable and the Government have latched on to one of them, which is to increase the pension age.
If people are going to live longer and longeras they are thanks to improvements in our medical knowledge and our NHSwe will have to accept that they will probably have to work longer in order to be able to pay for that. That is happening not just here, but in Scandinavia and the United States. It is a reality of increased longevity that increasing the pension age will be the only way to pay for decent pensions in retirement.
Having so many pensioners on means-tested benefits is rather demeaning for them. I know that pension credit is well meaning, but it is intrusive. About 1.7 million people who are entitled to it do not claim it, partly because of the level of intrusion that they feel it involves. I think that the solution is to increase the pension to some sort of a living wage, without any means-testing, and to pay for that by increasing the retirement ageultimately, possibly from 67, which is what has been proposed, to 70. We can restore peoples dignity in that way. Perhaps we can also look at clamping down further on sickness benefits and early retirement, which I will come to later, because there are problems in both the public and the private sector.
When looking at where we are going, we must look in particular at what is happening in the public sector, of which we are a part. Unfortunately, many of the public sector schemes are totally unfunded, so we are mortgaging the future of our children and grandchildren. That is not a responsible way to go
forward. Although we have schemes where there is no contribution or only a very small contribution, that is not a direction in which we can go in the long term. We need known levels of funding from the Exchequer and reasonable levels of funding from those participating in the schemes. That cannot happen overnight because people have contracts of employment; it will only happen in the future, after there has been change to the basis and structure of public sector schemes, but I think that it can be done.
We are already doing some of what is necessary. In some areas of the public sector, the levels of contribution are quite high. Certainly, changes that have been made to fire service schemes, police schemes and armed services schemes have led to substantial contributions being paid. To its credit, the House voted for a substantial increase to its contributions, too, and we now pay 10 per cent., which is far more than is paid in most public sector schemes.
In the rest of the public sector, we have to consider the retirement age. For Members of Parliament, the earlier retirement age ends in 2009, whereas for the rest of the public sector we suggested that it should end in 2013, so I hope that we have set an example that can be followed. Public sector transfer clubs need to end because they are costly to the public sector. Such arrangements do not exist in the private sector: if a person transfers to another scheme in the private sector, they get what their lump of money will buy as they enter the new scheme. It is wrong that we should give the public sector and, indeed, ourselves privileges that do not exist in the private sector.
I agree that personal accounts are an extremely good idea, but they need to be built on because a total of 8 per cent. will not give anyone a very substantial salary. There will be a problem if we retain pension credits, because as the right hon. Member for Birkenhead said, as long as we maintain means-tested benefits there will be a serious problem with possible claims of mis-selling. People will say, Why did I bother to save when it simply means that I will be disqualified from state benefits? There may be ways of overcoming that; for example, there could be an increased level of disregard for income under that structure. There could also be a capital disregard for relatively small pots of pension money. We will have to look hard at the issue if we are to escape the problems of mis-selling.
I wanted to deal with the problem relating to the purchase of annuities, but that will have to be left for another day. I simply suggest that there may be alternatives that would still give protection to the Treasuryindeed, they would actually increase its total revenuebut that would not take us away from the idea that there needs to be a pot of money from which people draw their pensions.
Tom Levitt (High Peak) (Lab):
In High Peak, we see the effectiveness of the Governments commitment to securing sustainable occupational pensions. In Chapel-en-le-Frith, there is the largest of the 12 British plants of the American-owned company, Federal Mogul, which is one of this countrys premier producers of brake linings for a wide range of vehicles. The name of the original company, Ferodo, is synonymous with
excellence in the world of brake linings. It was established about 100 years ago, but for most of its life, Ferodo was part of the British company Turner and Newall, but it was taken over, pension fund and all, by Federal Mogul in the early 1990s.
To understand why the Turner and Newall pension fund has become such a hot potato in recent years, we must look at what was happening to the company at the turn of the 21st century. By that time, the company had awarded itself 15 years of pension contribution holidays in the previous 25 years, on both Turner and Newalls watch and, latterly, Federal Moguls watch. Yet the fund was still viable, still operating and absolutely huge. In 2001, the company went into administration to protect itself from bankruptcy. The reasons for that had nothing at all to do with the British operation of Federal Mogul.
What was happening was that thousands of claims for damage to peoples health from exposure to asbestos were being lodged in the American courts. Many of those claims were held by the company to be spurious, but some courtsone in Memphis was especially permissivewere allowing millions and millions of dollars worth of claims, to the extent that the viability of the company was being called into question. I do not want to belittle the asbestos issue for a moment. Those whose health has genuinely suffered from exposure to asbestos should be compensated, but in the litigious atmosphere of the United States the claims were excessive, and the company claims that the courts were deciding unreasonably against it. Its business interests got protection from bankruptcy by putting the whole of Federal Mogul, the international company, into administration under American law.
What no one predicted then was that that would make it impossible for the Turner and Newall fund to operate under British law once the company came out of administration. In July 2004 the company concluded that the pension fund was not compliant with British insolvency law and the fund would have to close. It was not close to collapse. It was, as I said, hugeover £1 billion in size, from memorybut the law said that if the fund was not big enough to cover all its potential liabilities, the company could not be released from insolvency. That is a sensible law, in principle, although in this case, the chances of all the funds liabilities being called in at once were infinitely small.
What did that mean? It meant that my constituents, the Turner and Newall pensioners, were looking at a pension of only about 8p for every pound that they would otherwise have expected to receive. There was no safety net. There was no protection. The financial assistance scheme was coming into existence, but it was tiny. It would not cover Turner and Newalls liabilities.
That summer I, along with other right hon. and hon. Members, met Ministers to discuss the potential failure of one of the very biggest pension schemes in the whole country. Fortunately for us, at that time the Pensions Bill was going through Parliament. It created the Pension Protection Fund, a vehicle almost tailor-made for the Turner and Newall situation. We made sure that Ministers were fully aware of the situation and the consequences, should that fund fail.
The PPF emerged from the Pensions Act 2004 as the best possible safety net or lifeboatcall it what you will. Taking over the assets of failed pension schemes
and taking a levy from the pensions industry, the PPF would provide a 100 per cent. payment of existing pensioners pensions and typically 90 per cent. of future ones, albeit frozen at that level and capped then at £25,000 a year. These restrictions add to the stability of the PPF and they are a small price to pay for pensions being saved at all. The only problem that we saw with the PPF in 2004 was that it would not start until 2006. The Turner and Newall fund had to limp on. With injections of cash from the company, it was able to raise its offer to pension fund members to 50p or 60p in the pound, far better than 8p, but nothing like as good as the PPF potential offer would be.
Meanwhile, I continued to act on behalf of my constituents, the largest single group of Turner and Newall pensioners in the country. I co-ordinated the work of an ad hoc cross-party group of MPs, working closely with the trade unions. I presented a national petition to Parliament in support of the Turner and Newall pensioners. I arranged for fund members, including union representatives from my constituency, to meet the American chairman of Federal Mogul to express their grievances here in Parliament. I invited the then Secretary of State for Work and Pensions to Chapel-en-le-Frith to meet aggrieved members of the fund. I spoke at a national rally of occupational pension fund members in Brighton, and I continued to lobby Ministers, the funds independent trustee appointed by the courts, the administrators of the company, the PPF itself and others to ensure that the interests of my constituents were paramount. In short, I was doing my job.
The Turner and Newall fund is undergoing an 18-month assessment to see how the PPF would work. The independent trustee has to satisfy himself, by law, that there is no better alternative available before he will be allowed to take the fund into the PPF, but he will not get a better offer. It is irresponsible of some campaigners on the issue, not least a certain Conservative councillor, Councillor Bingham of Chapel-en-le-Frith, to go round suggesting that a better alternative to the PPF is there for the taking. The implication from local Tories in my constituency is that taxpayers money will be used to save failed pension funds under a Tory Government. That is in direct contradiction to the edict of the hon. Member for Tatton (Mr. Osborne) and it is misleading. It will not happen.
Until yesterday, the hon. Member for Runnymede and Weybridge (Mr. Hammond) was the Opposition pensions spokesman. Today he has moved on, and frankly I am not surprised. Perhaps this, taken from last weeks issue of the Buxton Advertiser, was really the best that the hon. Gentleman had to offer. Speaking 10 days ago in my constituency, he said:
If we can establish the evidence to support the idea of an alternative to PPF I am happy to present that to the government decision-makers for the necessary change in regulations...What we are talking about is whether it is appropriate to change the law to allow schemes like this an alternative rather than to go into PPF.
I do not know what that means. I do not know what the alternative is that he is offering on behalf of the Conservative party, and I am quite sure that he did not either. How will he deliver it without access to
taxpayers money? Does he really believe in his heart that something other than PPF will emerge in the next 12 months to restore the original value of the Turner and Newall fund? It is an irresponsible myth, just like the motion that we are debating. The Tories might have chosen tonights subject for debate, but they have nothing to offer on occupational pensions.
Mr. Nigel Waterson (Eastbourne) (Con): It is a great pleasure to take part in the debate. I feel like a greybeard in this company of new rising stars on the Government Front Bench and departing stars on the Liberal Benches. I begin by adding my own warm welcome to the new Secretary of StateI hope that he knows what he is taking onand the new Minister of State. The revolving door that has all too often been the Department for Work and Pensions in recent years has not always been a happy place for Ministers. Since 1997, we have seen seven Secretaries of State, and since I was appointed to this position, I have shadowed no fewer than four Ministers. I am particularly pleased that we had the usual distinguished and thoughtful contribution from a former Minister, the right hon. Member for Birkenhead (Mr. Field). I genuinely wish the new Ministers well in tackling the continuing pensions crisis.
In recent days, the new Prime Minister has spoken of little else but change. In a short speech at the door of No. 10, he must have mentioned the word eight or nine times. We have heard, and no doubt will continue to hear, of a number of new initiatives across a range of policy areas, but what has been totally missingunless I have failed to spot itis any mention of pensions. This is all the more surprising because polling shows that this is a failure for which most voters hold the former Chancellor to blame. I am pleased that we had the usual authoritative contribution from my hon. Friend the Member for Bournemouth, West (Sir John Butterfill), and we also heard from the hon. Member for High Peak (Tom Levitt) who has been through the Turner and Newall saga from start to finish, as he described.
But when it comes to long-term pensions reform, we Conservatives have taken a wholly responsible and non-partisan position. We have broadly accepted the conclusions of Lord Turner and his colleagues and gone along with the Government on gradually increasing the state pension age, on help for carers especially women, and on restoring the link with earnings for the state pension. Indeed it would have been churlish not to do so given that most of those were in our last election manifesto. In short, we have worked hard to build a genuine consensus on pensions, and I see no reason why that should not continue to be the case.
We have also given our broad support to the proposals for personal accounts. But we still have serious concerns about the design of this new system. Key decisions on that design must be made by politicians, not delegated to unelected people, no matter how expert.
During debates in the House on the Pensions Bill, we flagged up four major concerns, some of which have been discussed today. Those were means testing; the risk of levelling down existing pension provision with the introduction of personal accounts; the potential for mis-selling; and the issue of confidence.
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