§ 7. Mr. Hugo Swire (East Devon)If he will make a statement of the number of final salary schemes that have closed since 1998. [55493]
§ The Secretary of State for Work and Pensions (Mr. Alistair Darling)Since 1998, about 4 per cent. of known defined benefit schemes have notified the pension schemes registry of their closure. The overriding issue is how much is being saved towards a pension. The fact is that most people are not saving enough towards their retirement. Therefore, building on the reforms we have already made, we shall be making further proposals to help individuals and companies to make provisions for retirement. As I said at the previous Work and Pensions Question Time, I expect to publish our proposals this autumn.
§ Mr. SwireWe are now witnessing the demise of the final salary pension scheme with the day-to-day closure of more and more of those schemes. Do the Secretary of State and his Government accept that the increasing burdens they have placed on such schemes since 1997 include the disastrous abolition of advance corporation tax 13 relief, which is responsible for the precarious situation in which many of today's and tomorrow's pensioners find themselves?
§ Mr. DarlingNo. Interestingly, the chairman of the National Association of Pension Funds said in his recent address to the association's annual conference, at which I spoke, that he and his association were not calling for a return to the old ACT system. When we made the changes four or five years ago, we also cut corporation tax. It is now at 30 per cent., something that the party of which the hon. Gentleman is a member never managed to achieve in its 18 years in power. That has helped investors, including pension funds.
The real reason why companies are facing difficulties with their final salary schemes is, first, because of increased longevity, which means that costs are rising; and secondly, because the stock market has fallen quite dramatically, for reasons of which we are all aware. That is putting pressure on them. Their contribution holidays have ended and so on. The annuity rules have nothing to do with the final salary schemes. I can understand why the hon. Gentleman personally may want to see some changes: people in the top 5 per cent. of the income bracket may gain from them. However, the majority would not.
As I have said, we want to build on the reforms that we have already made. We intend to bring forward proposals this autumn, which will build on the recommendations from the Sandler and Pickering reviews. They will help companies and individuals to make better provision for their retirement.
§ Mr. John McFall (Dumbarton)Does the Secretary of State agree that the flight from final salary schemes is down not to FRS17 or the Government's inaction but to the almost £30 billion fall in equities in the market, as indicated by Boots, which moved from equities to bonds? Recognising that there is a £27 billion shortfall in savings, will he take the opportunity to ensure that companies that are not performing as they should by their employees close the savings gap? Otherwise, in future, many pensioners will be in penury.
§ Mr. DarlingMy hon. Friend is right that there is a savings gap. Whether it is £27 billion or something near it, no one can be sure, but what is beyond doubt, as I said earlier, is that most people are not saving enough for their retirement. One of the measures that will help will be to strip away some of the unnecessary regulation in the pensions industry.
We have reached the stage where the buying of pensions has become so complex that even when people want to get a pension and are seriously thinking about making provision for themselves, they are sometimes faced with a five or six-hour selling process. That is why about 10 days ago I advocated setting out perhaps a small range of stakeholder-type products suitable for pension savings. They would be simple, regulated products but the selling of them would not be so bound up in red tape, as it is at present. All these measures are being considered by the Sandler and Pickering reviews. We will publish them in the summer and publish proposals in the autumn.
We are looking at other matters. There are measures that we can take to help individuals and companies to increase the amount of saving. I cite one example, 14 in relation not to pensions but to ISAs. We were criticised heavily by the Conservative party when we replaced PEPs and TESSAs with ISAs. It is a fact that 12 million people, about one in four working adults, have saved £78 billion since ISAs were introduced That shows what can be done with a simple, easy to understand product that removes some of the mystique and complexity that currently surrounds the selling of pensions.
§ Dr. Vincent Cable (Twickenham)Does the Secretary of State agree that the problem is not just that final salary schemes are closing, but that conditions for existing pensioners are often changed retrospectively by employers, and that trustees are proving ineffectual or insufficiently independent? Does he also agree that the arrangements need to be looked at afresh, to breed some confidence in this rather battered sector?
§ Mr. DarlingThere has been criticism of some pension trustees. My hon. Friend the Member for Dumbarton (Mr. McFall) and my right hon. Friend the Member for Birkenhead (Mr. Field) asked about FRS17. In many cases, transparency in companies' affairs might have revealed serious problems with pension funds, particularly smaller funds, which tend not to be examined as efficiently as those of bigger companies. That is an example of how greater transparency and openness would help pensioners.
The hon. Member for Twickenham (Dr. Cable) will doubtless be aware that, as part of our general review of pensions, Brian Davis—former chief executive of Nationwide building society—is examining the operation and powers of the Occupational Pensions Regulatory Authority. When he makes his recommendations later in the year, I hope to build on them, and on the general recommendations put before the House to improve pension provision in this country.
§ David Winnick (Walsall, North)Does my right hon. Friend understand how deeply disappointing it is for long-serving employees to discover that, as a result of changes in their company's pension scheme, they will receive a significantly reduced occupational pension? That is totally unacceptable. What would happen if Members of Parliament and Officers of the House discovered late in the day that their anticipated pension was to be substantially reduced? This issue constitutes a clear injustice in the labour market, and I hope that my right hon. Friend will pursue the matter.
§ Mr. DarlingA company scheme involves a contractual agreement between the company concerned and its employees—it is not something that the Government underwrite or stand behind. Of course, the Government do pay money into contracted-out pension schemes and take certain steps through national insurance contributions and tax relief.
On the general proposition, as I have told the House on several occasions, we are considering a range of measures that will help individuals as well as companies. As I said, it is not the accounting standard that is causing the difficulties with certain pension schemes. Not all companies that are deciding to close their pension schemes have to do so; in some circumstances, they could 15 continue with them. Long and hard thought should be given to their obligations to their employees—both current and retired.
§ Mr. David Willetts (Havant)May I invite the Secretary of State to agree with the hon. Member for Bolsover (Mr. Skinner)—sadly, he is not in his place—the hon. Member for Liverpool, Walton (Mr. Kilfoyle) and the many other of his colleagues who have signed early-day motion 1180, which expresses concern at the impact of advance corporation tax on the former registered dockworkers pension scheme? That early-day motion also notes that their dividend income has been reduced by 33 per cent., and that that income could have been reinvested, or provided higher benefits. Instead of the complacency that the Secretary of State has shown this afternoon, why does he not listen to his colleagues? They understand the damage that the tax increase is doing to people's pensions, and everything that their early-day motion says about the dockworkers pension scheme applies to every other pension fund in the country.
§ Mr. DarlingMy right hon. Friend the Minister for Pensions has just reminded me that, under several of the privatisations that took place when the hon. Gentleman was a Minister and his party were in office, pension schemes were sometimes the biggest casualties. I had no idea that the hon. Gentleman has joined the campaign group to which he refers, and I am sure that they will welcome him as a new recruit.
On the hon. Gentleman's central point, I do not accept the underlying proposition that he attributes to the early-day motion—I have not seen it—tabled by my hon. Friends. The changes that we made to the corporation tax regime four years' ago were entirely right. If the hon. Gentleman was right to argue that they were the cause of current problems, one would have expected them to have occurred four years' ago, but they did not. The problems have been provoked by two factors: companies are belatedly waking up to the fact that beneficiaries are living longer; and, for reasons that we all understand, the stock exchange has fallen dramatically. That has concentrated minds in an unprecedented way. Those are the underlying reasons for the current difficulties, and it is the Government's job to ensure that we introduce proposals that can help individuals and companies. That is precisely what we will do later this year.
§ 8. Mr. Mark Hoban (Fareham)If he will make a statement on the availability of occupational pension schemes for future pensioners. [55494]
§ The Minister for Pensions (Mr. Ian McCartney)It is estimated that occupational pension schemes are available to 16.4 million employees, or 66 per cent. of the total number of employees in Great Britain. Many of those employees who do not have access to an occupational scheme will have access to either a stakeholder scheme or the second state pension.
§ Mr. HobanI thank the Minister for his response. Will he ensure that one of the outcomes of the numerous reviews that the Secretary of State outlined in his earlier answers will be a legal and regulatory framework that will 16 ensure that the decline in occupational pension schemes is reversed, so that more occupational pension schemes will be available to future pensioners?
§ Mr. McCartneyThe whole purpose of the reviews is to ensure that we encourage people to save in a way that they have not previously, and that schemes do not suffer overbearing regulation or disproportionate costs. The difficulties of management of such schemes make it less likely that they will continue or even be set up in the first place. I would welcome the hon. Gentleman's views on the proposals when they are published. It is also important that we review proactively the role of the Occupational Pensions Regulatory Authority. It will be the first time that it has been reviewed since its establishment. The purpose of the review is to ensure that the body is recognised as one that represents the interests of pensioners when it considers the general problems of schemes or particular problems connected with the management of schemes.
§ Mr. Tim Boswell (Daventry)Will the Minister of State take any notice of the chairman of the National Association of Pension Funds at its annual conference less than a fortnight ago when he said:
The Government is pursuing policies which have actually undermined company pensions."?Does not the Minister of State feel some regret now that the Budget last month made no reference to pensions or savings? In order to save the time of the House, I shall not invite him to read out the long list of companies that have changed their pension arrangements from defined benefit to defined contribution schemes. Instead, I invite him to name one company that has moved in the opposite direction in the past 12 months.
§ Mr. McCartneyI would prefer to have a proper debate instead of juvenile ping-pong over the issue. So far this Question Time, we have had an adult debate about the issues. The hon. Gentleman asked for a list, so I shall give him one. The companies in question include BAE Systems, BP, British American Tobacco, Diageo, Corns, the John Lewis Partnership and Tesco, among others. However, I do not rest my case on that list. This is the first Government in a long time to set up several reviews in partnership with industry, the outcome of which will be to strip out regulations and burdens on schemes—both continuing and those being set up. This is the first Government to introduce stakeholder arrangements and pension forecasting. All that is being done in partnership with industry and, with all due respect to the hon. Gentleman, it is a hell of a different picture now compared with when he left office a few years ago.