Salary Linked Pension Schemes (Hansard, 1 July 2002)

§ 2. Ian Lucas (Wrexham)
If he will take steps to support final salary linked pension schemes. [63385]

§ 9. Mr. Tony McWalter (Hemel Hempstead)
What measures he is taking to persuade companies and concerns to continue to provide final salary pension schemes. [63393]

§ The Secretary of State for Work and Pensions (Mr. Andrew Smith)
We have set up wide-ranging reviews of pensions regulation and retail saving, which are to report this month, and the Inland Revenue review on tax simplification, which is to report later in the year. I believe that it is right to consider concerted and radical action to sustain schemes and raise the level of pensions saving.
It is important that policy is informed by accurate statistics on pension contributions. We have now been informed by the Office for National Statistics that there are problems with the series from which they have been estimated in the past, notably on transfers, which, the Office for National Statistics now tells us, are derivable and could be significant. My right hon. Friend the Minister for Pensions is correcting the record in a written answer this afternoon. The Office for National Statistics is to lead a review of the statistics, including external representatives, as a matter of urgency.
We apologise, Mr. Speaker, for figures that were previously given in good faith by Ministers on the level of pension contributions and are now subject to review. My hon. Friend the Financial Secretary is today placing the terms of reference of the review in the Library.

§ Ian Lucas
I am grateful for that thorough reply. Constituents who are employed by Iceland Frozen Foods and by the Caparo group have received notification that their final salary pension schemes have been terminated. 6 Does my right hon. Friend agree that such unilateral action by employers, without discussion or consultation, is reprehensible? If so, what will he do about it?

§ Mr. Smith
I thank my hon. Friend for that question. It is a serious matter when such schemes are closed and I sympathise with him and his constituents. As I said earlier, that is precisely why we need to consider radical and concerted action to sustain schemes, and, as the Government have consistently said, to raise the level of pensions saving. That is why we have established the Pickering review and the Sandler review and why we are considering tax simplification. I shall consider carefully the representations that the TUC, the CBI, pension providers, and the general public make on those important matters.

§ Mr. McWalter
Does not my right hon. Friend agree that there is an increasing tendency for directors to keep their final salary schemes while removing them from their employees? Is not the greatest scandal of all that employers' contributions are being slashed? While they claim simply to be changing the sort of scheme that they are producing, they are also significantly reducing the available resources. Is not it time for compulsion?

§ Mr. Smith
My hon. Friend characteristically makes a pertinent, forceful and timely point. All of us can understand the position of people whose contributions and prospects have been weakened while those who are responsible for their employment are in a more secure position. As part of the review that we are undertaking, it is important to examine ways in which we can secure fairness of treatment so that employees can have the same sort of security that bosses secure for themselves.

§ Mr. Steve Webb (Northavon)
I congratulate the Secretary of State on his appointment, and look forward to a brave new era of constructive dialogue on pensions across the House.
On the subject of dodgy pension statistics, the Secretary of State will be aware that his Department has just published the pensions income series, which shows a marked drop in company pension receipts among the newly retired. Does he think that those are dodgy statistics, or does he think that that has really happened—and, if so, why?

§ Mr. Smith
The advice that we were given by the Office for National Statistics was—as I have described—that the figures relating to pension contributions previously given in a written answer by my right hon. Friend the Minister for Pensions on 16 May included transfers. A footnote pointed out at the time that those transfers existed, but it also said that they were not derivable. The correction that we are making is to say that we are now advised that they could be derived, and also that they may be significant. I am not aware of any other corrections that need to be made. However, the House will be aware of the previous difficulties with pension statistics, and, in light of this experience with the ONS, I think that it would be wise to treat any figures with caution until we see the outcome of the review.

§ Mr. David Willetts (Havant)
May I welcome the Secretary of State to his first Question Time in his new 7 post? It is a pity that, at his first such appearance at the Dispatch Box, he should have to admit that a serious error has been made by his predecessor. I have to tell him that this might not be the only time that he comes to the House to admit mistakes made by his predecessor. Let me explain to the House what the right hon. Gentleman is talking about. Ministers have been boasting that we have been saving £86 billion a year in our pensions; they are now admitting that that included transfers from one form of assets to another, and that it was not new flows. That is a significant mistake in the figures that they have been boasting about in the past months and years.
I welcome the Secretary of State's open admission that the figures that he and his colleagues have been boasting about are wrong, but does he recognise that the amounts that households are saving are now at their lowest level since records began? How on earth could Ministers seriously have believed that we were saving almost 9 per cent. of our national income—which is what they were claiming—when all the evidence suggested that that could not possibly have been the case? If their advisers had told them that the world was flat, would Ministers have believed them?

§ Mr. Smith
I am grateful to the hon. Gentleman—and, indeed, to the Liberal spokesperson—for his welcome. I want to take issue straight away with what the hon. Member for Havant (Mr. Willetts) said about my predecessor. My predecessor and other Ministers gave those figures in good faith on the basis of advice that they were given, and, indeed, having checked that they were being given the right advice. The hon. Gentleman's remarks were rather a low blow, especially as my predecessor has such a good record on sorting out the basis of pension provision, bringing help to millions of pensioners who were denied it by the Conservatives, and introducing the pension credit, which will ensure for the first time that people who save are rewarded rather than being penalised for their savings as they were under the Conservatives. I believe that we have done the right thing in announcing the correction to these figures, and I hope that the hon. Gentleman will accept it in that spirit.

§ Mr. Willetts
The blow is to the expectations of millions of pensioners. Months ago, the Government had to withdraw their figures for the assets in our pension funds; today they are withdrawing their figures for the flows into those funds. I accept that those errors were made in good faith, and that the Secretary of State, his predecessor and the Minister of State were certainly not deliberately trying to mislead the House. The fact is, however, that the figures were seriously wrong, and that Ministers regularly claimed, on the basis of them, that they showed that the basic structure—

§ Mr. Speaker
Order. During Question Time, I expect questions.

§ Mr. Willetts
Given that the Secretary of State used these false figures to reach the conclusion that the basic structure of pensions was right, will he accept that the conclusion that he drew was wrong, now that the figures have proved to be wrong?

§ Mr. Smith
The conclusions that we drew were, first, that the basic state pension should remain the foundation 8 in retirement and, secondly, that we needed to bring in the minimum income guarantee—now amended in the pension credit—to give extra help to the poorer pensioners. As I have, said, we needed to bring in the pension credit to ensure that savings and modest occupational pensions were rewarded rather than penalised. So far as occupational and personal pensions are concerned, we have initiated reviews to examine the simplification and reform that is needed. We need a national consensus on the way forward on pensions; that will not be helped by the Conservatives proposing the abolition of the basic state pension.

§ Mr. Frank Field (Birkenhead)
In welcoming the Secretary of State to his post, may I draw his attention to the Order Paper, which carries more questions on pensions than at any time since Maxwell stole pension funds from his workers? May I suggest to the Secretary of State that if the population of this country is not to look forward to a leaner, meaner retirement, we need to ensure that more is saved towards our retirement income? Does he accept, therefore, that the Government must introduce radical reforms, perhaps in the autumn, if they wish to reverse the fall of new pension savings to a fifth of what they were five years ago?

§ Mr. Smith
The short answer to both those questions is yes: of course I take note of the number of questions on the Order Paper and of course that quite properly reflects concern in the country at what is happening to some company and occupational pension schemes. We need to consider concerted and radical action to address that situation, and my right hon. Friend is also right—as my predecessor said and as the Government have consistently said—that we need to raise savings in this country and to make building up a savings pot that genuinely provides people with security in retirement easy and accessible.

§ Mr. James Arbuthnot (North-East Hampshire)
I congratulate the Secretary of State on taking this difficult question himself, because what he has said today about statistics is significant. Does he accept that the amount of money being paid into pension funds is significantly lower than his Ministers said previously, and given the Government's raid on advance corporation tax— £5 billion every year—is that a surprise?

§ Mr. Smith
It is difficult reliably to estimate the scale of the correction that will need to be made until we see the outcome of the review, but clearly it could have a significant impact. As to the right hon. Gentleman's allusion to the changes in tax dividends and ACT, I have to say, and it bears repeating time and again, that the reason for making that change was to remove the perverse incentive in the system to distribute dividends rather than to reinvest. What is more, in increasing investment in this country to a level that had not been seen for years, it is having an impact.