HC Deb 25 November 2002 vol 395 cc1-4
1. Angela Watkinson (Upminster)

How many employees pay into a final salary pension scheme. [81269]

The Minister for Pensions (Mr. Ian McCartney)

It is estimated that 9.6 million employees pay into final salary schemes. They will, therefore, continue to play a significant role in people's pensions savings. A Green Paper on pensions, to be published shortly, will set out our proposals, which are designed to increase the flexibility and security of final salary schemes and other types of pension provision.

Angela Watkinson

What protection can the Minister offer to my constituents who are so close to retirement that it is too late for them to make alternative pension arrangements? They have contributed to final salary pension schemes all their working lives and now find that those schemes are in severe financial difficulties or are heading for wind-up. Those constituents are suffering severe stress at the prospect of a pension that falls way short of what they formerly expected.

Mr. McCartney

If the hon. Lady could be a bit more specific, I could deal with her point, because there is no point in giving a general answer about the Department's line. If there is a genuine problem, the hon. Lady should write to me and I will offer her a meeting

Mr. David Willetts (Havant)

That is a change of approach.

Mr. McCartney

No, it is not a change of approach—I am just that kind of a Minister.

Mr. David Cameron (Witney)

Does the Minister think that there is any connection between the £25 billion that the Chancellor took out of pension funds and the decision of four out of 10 final salary schemes to close to new members? If he does and presumably he does because he lives on the same planet as the rest of us—what will he tell the hundreds of thousands of people up and down the country, many of whom are in my constituency, whose final salary schemes have been cut and whose income in retirement will be reduced?

Mr. McCartney

I think that I live on the planet more than most Conservative Members of Parliament. It is interesting to note that when the same question was put to the hon. Member for Havant (Mr. Willetts) about the removal of the then tax credit on pension funds, the hon. Gentleman said: Actually, I don't think we'll be doing that. Helping pension funds doesn't mean going back to the same system as we had before, you know. The Conservative party has introduced a red herring. The tax changes made by the Chancellor were designed to ensure increased investment across the entire portfolio, which will assist pension funds greatly in the long term.

Mr. David Crausby (Bolton, North-East)

Does my right hon. Friend agree that the major and recent reason for the decline in final salary schemes—although they have been declining since the 1960s—has been employers' inability to take advantage of pensions contributions holidays, which they enjoyed for so many years? Does he also agree that the only way to reverse the decline permanently is to introduce an element of compulsion for employers and pensioners?

Mr. McCartney

I accept what my hon. Friend says about the very inappropriate pensions holidays that have sometimes been taken. The purpose of the Green Paper is to address that and other issues. I hope that my hon. Friend will wait to see its contents, as it will deal with all issues connected with fairness and security in retirement.

Mr. Frank Field (Birkenhead)

Does my right hon. Friend accept that although some employers use the current circumstances to close their final salary schemes, others wish to keep such schemes open? However, under the existing law and the power of trustees, they know that to do so might at some stage bankrupt their company. They would keep those schemes open, with some relation to salary, if there were greater flexibility in the law. Will the Minister look at this issue in this Green Paper or, as we heard at the weekend, in another one six months later?

Mr. McCartney

My right hon. Friend will be pleased to know that those are among the issues that will be examined in the Green Paper.

Mr. Steve Webb (Northavon)

Does the Minister accept that one of the big problems associated with the closure of final salary schemes is that employers use the opportunity to reduce the amount of their contribution into those schemes? Does he accept that the Government have no power to stop that process and that if they merely produce a Green Paper and more consultation follows, we will have to watch the process continue? Why, then, has the right hon. Gentleman rejected the idea of putting a mandatory floor below employer contributions?

Mr. McCartney

The hon. Gentleman makes that comment before he has even read the Green Paper. The purpose of the Green Paper is to have a long-term agreement to provide security in retirement. That includes responsibilities on the part of the state, the employer and the employee and an effort to refashion, remodel and modernise the pension promise. I hope that at the end of the Green Paper process not only will we have a national debate but there will be a national consensus on where we need to go.

David Cairns (Greenock and Inverclyde)

One of the additional benefits of these schemes is the generous provision of widows' and survivors' benefits. Does my right hon. Friend share my concern at the proposal in the Pickering review to end compulsory provision of such benefits? Does he agree that in this area of pensions, as in so many others, where there is no compulsion there is no provision?

Mr. McCartney

That was among several issues in the report, and we indicated that at this stage it was not a route that we wanted to take. All those issues will have to be considered in the Green Paper. One thing is certain, however: survivors' benefits are extremely important, overwhelmingly for women. It is no intention of this Government, when reviewing the pensions system, to undermine its capacity properly to look after women in retirement.

Mr. Willetts

Can the Minister confirm that the Government are still committed to the promise in their last pensions Green Paper that the proportion of pensioners' income from private savings should rise from 40 per cent. to 60 per cent.?

Mr. McCartney

That is all part of the Green Paper—[Interruption.] The hon. Gentleman has asked me a question so he might like to listen to what I have to say. Since the last Green Paper, we have taken steps in respect of the basic state pension and in relation to poverty. The third step—in this Green Paper—is about how we modernise the arrangements so that the basic state pension and the second-tier pension meet people's needs. That, of course, includes a mixed economy, as was set out in the previous Green Paper. The current Green Paper follows that, and at the end of the debate on it I hope that the hon. Gentleman will agree with the Government's proposals.

Mr. Willetts

I have in my hand the previous Green Paper. It contains a personal foreword by the Prime Minister, which states that the Government are committed to increasing the percentage of pensioners' income that comes from private savings from 40 per cent. to 60 per cent. All I am asking is whether the Minister of State is still committed to that objective of the last Green Paper. It is very simple.

Mr. McCartney

Of course that remains our objective. That is why the Green Paper that will be published soon examines arrangements to secure the continuation of funding by employers and deals with inadequate relationships as regards the costs to employers that run counter to their retaining pensions schemes. We want to give real choice to people who are saving for retirement so that there are secure pension schemes both in the public and private sectors.