Pension Funds

HC Deb 18 July 2002 vol 389 cc401-3

1. Mr. Mark Francois (Rayleigh)

What recent representations he has received from pension funds on the effect of his policies on the value of their investments. [683971]

The Financial Secretary to the Treasury(Ruth Kelly)

The Treasury receives representations from a range of financial services organisations, including pension funds. The Government have introduced reforms that have delivered, and will continue to deliver, a stable economic environment based on low levels of inflation and sustainable growth. This environment is designed to benefit all investors, including pension providers, because it supports longer-term investment and planning.

Mr. Francois

I thank the Minister for that reply. We know that she and the Chancellor take a keen interest in the subject of pensions and of early retirement. Is she aware that the Government's changes to the taxation of pensions are now costing each individual contributing to a pension scheme about £500 a year in tax?

Ruth Kelly

The hon. Gentleman is talking absolute nonsense. The changes in the tax credit system were an essential part of a wider range of corporation tax reforms that included cutting both main and small companies' corporation tax rates. They removed a major distortion in the tax system, and were designed to encourage long-term investment.

John Cryer (Hornchurch)

Does my hon. Friend agree that the trend towards ending final salary pension schemes, which I assume the hon. Member for Rayleigh (Mr. Francois) was hinting at, started long before Labour came into office, about 30 or 40 years ago? The trend has a lot more to do with corporate greed and the pension contribution holidays that were taken in the 1980s during the casino boom that was assisted and encouraged by the then Conservative Government.

Ruth Kelly

My hon. Friend makes some interesting points. The shift from final salary schemes to defined contribution schemes has been going on since the 1960s. There are several reasons for that, including increasing life expectancy. It is not the shift itself which is a disaster, but the fact that companies can use the shift as an excuse to cut contribution rates. Clearly we must establish a consensus. It is the responsibility of employers to provide for their employees. They should not enter into such a shift without giving it very careful consideration.

Mr. Michael Howard (Folkestone and Hythe)

My hon. Friend the Member for Rayleigh (Mr. Francois) was absolutely accurate in his figure. It is a great shame that the Financial Secretary cannot bring herself to accept what are entirely factual and accurate figures concerning the damage caused by the Government's policies. Will she now accept what everyone knows—that, quite apart from the pensions tax, the disproportionate fall in the London stock market, contributed to by the policies of the Chancellor. has hit pension funds hard?

A month ago, to help the Prime Minister defend the pensions tax at Question Time, the Chancellor whispered some advice in his right hon. Friend's ear. Can the Financial Secretary shed light on whether it was on the basis of that advice that the Prime Minister told the House that the stock market was "massively up" on where it was five years ago, or had he misheard the Chancellor?

Ruth Kelly

I find it incredible that the right hon. and learned Gentleman should attempt to blame the Government for a global fall in stock markets. Nor would he expect me, as a responsible financial services Minister, to comment on day-to-day or even month-to-month movements in the stock market. The point is that the economy is fundamentally sound. We, as a Government, are taking the action necessary to make it easier and simpler for people to save and to raise the overall level of saving in the economy.

Miss Anne Begg (Aberdeen, South)

I am concerned that a number of companies are closing their pension schemes, forgetting that they had the good times and forgetting that they have taken pensions holidays. Does my hon. Friend agree that they are using the downturn in the stock market and supposed Government policies as an excuse to end final salary schemes? We must be more honest. Companies are using those things purely as an excuse. The mark of a good employer should be to have a good pension scheme and ensure that employees are well protected in their old age.

Ruth Kelly

I completely agree with my hon. Friend's point. Employers have a responsibility to their employees to provide reasonable terms and conditions and a package that is attractive both from day to day and in the longer term. We are taking these issues extremely seriously. We have recently had two reviews. One—the Pickering review—considered occupational schemes. The other considered private sector personal provision. Key to this is making the system as simple as possible to administer, making it as easy to save as possible. The Government will be responding to those reviews, together with the Inland Revenue review of tax, in the autumn.

Dr. Vincent Cable (Twickenham)

Is the Government's primary concern at present to encourage savings for pensions and long-term investment, or to encourage dis-saving to sustain spending and economic activity?

Ruth Kelly

Of course the Government are committed to increasing long-term levels of saving. I should point out to the House that real gross household savings have been robust in recent years, particularly in long-term retail savings products. Clearly, however, there are issues that we must address. Ron Sandler, when analysing the issues in his recent report, pointed out that long-term savings have been robust, but that there is a problem with middle and lower-income families and their ability to save. That is why he proposed a new range of stakeholder products that will make it easier and simpler for them to do so.

Mr. Dennis Skinner (Bolsover)

Is it not a sad fact that pensions unfortunately have to suffer the vagaries of what happens on the stock exchange, which is nothing more than a glorified betting shop? During the pit strike, for instance, the index fell to below 1,000 points. Yesterday, after the Leader of the Opposition spoke about the vagaries of the stock exchange and falls in the stock market, I went outside and looked at the figures; the index was up by 160 points half an hour after he spoke.

Ruth Kelly

I thank my hon. Friend for those interesting observations. The important point here is that we have the right framework for pensions, based on a partnership between the state, the individual and industry. It is this Government who have tackled pensioner poverty, bringing in the minimum income guarantee. It is this Government who have enabled all pensioners to share in the country's rising prosperity, and it is this Government who next year will bring in pensioner credit, which will make pensioner households significantly better off.