Pensions (Hansard, 27 February 2003)

§ The Minister for Pensions (Mr. Ian McCartney)
I beg to move,
That the draft Guaranteed Minimum Pensions Increase Order 2003, which was laid before this House on 5th February, be approved. The order imposes no new costs on business, and in my view its provisions are compatible with rights under the European convention on human rights.
This may well be a parliamentary first, in that orders such as this are usually included in the overall debate. I shall be honest with the House: I have just received a message from the Department relating to what I am to say. This is unusual in my case, but I shall stick to the brief that I have been given. I hope that hon. Members who have questions to ask will accept my assurance that I will write to them with technical answers.
A guaranteed minimum pensions increase order is laid every year to prevent a person's contracted-out pension from losing its value because of inflation. The orders were introduced in 1978, at the same time as the state earnings-related pension scheme. Employers who ran good occupational pensions for their employees could contract out of SERPS, provided that they promised to pay their staff pensions that were no less than the guaranteed minimum pension. In return, both employer and employee made reduced national insurance contributions.
The calculation of the GMP is laid down in legislation, and is roughly the same as the SERPS calculation. It is earnings-related, and based on a person's earnings over a maximum of 40 years. If those earnings were not increased in line with inflation, by the time the person retired his pension would be very low as inflation ate into the value of his past earnings. When a person retires, therefore, past earnings are increased to reflect the changes in their value. There is, however, a limit: the earnings are increased by the retail prices index capped at 3 per cent.

§ Mr. David Willetts (Havant)
The Minister has explained that pensions contracted out as part of this formula involve a lower rebate. Will he explain why, in calculating that rebate, the Government Actuary assumes that the rate of return on indexed gilts will rise from 2 per cent. to 3.5 per cent., and will rise by 0.1 per cent. a year over the next 15 years?

§ Mr. McCartney
That is why we employ the Government Actuary: to make such judgments. What a silly question. Why would we pay the Government Actuary not to give us advice?
Let me be honest: one hopes that by the time the advice is given there has been a reshuffle. We should remember some of the things said from the Dispatch Box when the Conservatives were in power, for which they then blamed others. I take full responsibility for the information given by the Actuary, but I assume that he will have used his professional judgment.
The earnings figure used to calculate SERPS is also increased, but in line with average earnings, and is not subject to a cap. When a person retires who has a 456 contracted-out, salary-based pension, his GMP is compared with his notional SERPS entitlement.[Interruption.] I hope that everybody is following me. If SERPS is higher, the difference between the two amounts is paid with his retirement pension. Thus the state makes up the possible shortfall between the level of inflation and the capped amount that the employer is expected to pay. Although GMPs ceased to accrue from 1997, residual rates still exist, so increase orders are still required.
This order is a routine measure to ensure that people's future pensions are not eroded by inflation. This protects the current system, but we are committed to ensuring that the legislation governing how pensions are run is proportionate to the required outcome, and to simplifying as far as possible the burdens placed on employers in this respect. In line with this intention, we announced in the recent Green Paper that we are working with the pensions industry to try to find a workable and affordable solution to the problems associated with the GMP's operation that have been brought to our attention.
I am pleased to say that, as part of our commitment to working with those who will need to operate the system, Department officials are holding meetings with experts in the pensions industry, as well as with those representing scheme members. Only last week, the Department ran a workshop to which those interested in occupational pensions—including the Consumers Association, the national association of pension fund managers and the TUC—were invited. The discussions were particularly fruitful, and indicated some possible ways forward. In addition, we have issued a detailed technical paper on GMPs to widen the debate to include those who cannot attend such meetings. Indeed, I have offered to meet them at their convenience, and I make a similar offer to hon. Members if, after this debate, they feel in need of further information on what I have said.

§ Mr. David Willetts (Havant)
I am grateful to the Minister for what was undoubtedly an entirely accurate, as well as a typically authoritative, account of this order. As the explanatory note points out, the order establishes the basis on which contracted-out occupational pensions have to offer the guaranteed minimum pension in order to be contracted out properly. As the explanatory note makes clear, the order covers contracted-out, defined benefit occupational pension schemes, so I hope that the Minister will be able to answer two questions.
First, he will know that, despite his respect for the professional advice of the Government Actuary, which I share, just about everyone in the actuarial profession believes that the value of the contracted-out rebates—currently about £11 billion to British industry—is no longer actuarially fair. They believe that the cost of providing the guaranteed minimum pension, the uprating of which we are debating, is no longer properly covered by the value of the contracting-out rebate. The general view among actuaries is that the value should be about £12.5 billion—in other words, that the current value is £1.5 billion short. This is a very important point, because it is one reason for the pensions crisis. I know that there are many such reasons, and that not all of them are under the control of Ministers, but the 457 reduction in the contracted-out rebate, compared with the cost of offering contracted-out pensions, is one of the main ones.
I hope that the Minister will not shelter entirely behind the advice of the Government Actuary. Given that this issue is so important to our funded pensions, I hope that he will explain why the Government Actuary uses assumptions to calculate the value of the contracted-out rebate that are out of line with those used in the rest of the industry, and which are particularly out of line with those relating to returns on indexing gilts. That is not considered plausible, and I am afraid that the belief exists in the industry that that obscure assumption was one way in which the Government ensured that the cost of the contracting-out rebate was held down, and was therefore less than was actuarially fair.
That leads to my second concern. We need to know how many pension schemes are still contracted out and therefore covered by the terms of this order, how many are contracted in, and—even more significantly—how many are contracting back in, having been contracted out. The question is whether contracted-out schemes will be re-entering the state system. At the moment, probably the only thing that is keeping them contracted out is the sheer administrative hassle of contracting back in. I fear that one reason why companies are closing their schemes to new members is that by doing so the new alternative defined contribution pensions that they offer instead are often contracted back into the state system. So one reason for the widespread closure of pension schemes for new members—a development that is causing much concern—is that it is used as a mechanism for contracting back in.
The Government Actuary's report—one of the documents that is relevant to our debate—is very explicit. In paragraph 25, on page 10, the Government Actuary explicitly states that he does not know what is going on in respect of contracting out, partly because of the Government's problems with their NIRS2 computer system. He says: The introduction of NIRS2 originally led to a lack of data showing numbers contracted out through different routes. I understand that data is now becoming available, but that it is currently being analysed and validated. Consequently there is, pending the completion of this validation exercise, still uncertainty about the numbers of people contracting-out. So my second query concerns when we will know more about contracting out and contracting back in. That is a fundamental feature of the current crisis in our funded pensions, and I hope that the Minister will be able to address that issue. I am sure that in doing so he would be entirely in order, because the order clearly relates to the regime for contracted-out occupational pension schemes.
The order covers the incomes of millions of pensioners and I hope therefore that I may take this opportunity to confirm what my right hon. Friend the shadow Chancellor said in the Chamber earlier—that it is simply not the case that we are looking for a 20 per cent. reduction across the board in all public expenditure. Having taken that opportunity, I may also say that we will not, of course, oppose the motion, and certainly not in the light of the lucid explanation that we received from the Minister.

§ Mr. Steve Webb (Northavon)
I shall be similarly succinct. The hon. Member for Havant (Mr. Willetts) touched on the key issue. The Government Actuary's report on the order identifies £11 or £12 billion of public money that is spent on contracted-out rebates. However, when I tabled a written question to ask how many people were receiving those rebates, the Government could not tell me. It is breathtaking that £12 billion can be spent without anyone knowing who is receiving it, how many are receiving it and whether the amount is going up or down.
I hope that the Minister will flesh out what the report says on page 10, as quoted by the hon. Member for Havant, and give us some idea of when we will receive the information that is "now becoming available". What worries me most about the lack of that information is that we are in a short consultation period on the Green Paper on pensions, on which the future of the scheme will be based. Without the information, it will be policy-making in a vacuum. That cannot be acceptable. We will support the motion, but I hope that the Minister will tell us when the information, which we need urgently, will become available.

§ Paul Flynn (Newport, West)
I am always astonished by Conservative Front Benchers who present themselves as people with a record on pensions to be proud of. The appropriate response for the Opposition spokesman, especially as he played a major part in the Conservative Government, would be to repeat "mea culpa" for five minutes and then don sackcloth and heap ashes on his head, because their record is so abominable.
I praise the record of the Government, which is remarkable. Since 1997, the Government have achieved the greatest shift in the redistribution of wealth from the rich to the poor since 1945. It is called stealth socialism, and we are almost ashamed of it in case theDaily Mail finds out and attacks us for it. Despite the Government's good record, I have several concerns.
I wish to raise the possibility of restoring the Treasury supplement. That suggestion will cause panic among the civil servants, who will probably have to ring up somebody in retirement to find out what it was all about. The last successful Liberal politician, David Lloyd George, introduced it and until it was abolished in the late 1980s—it was worth 18 per cent. in annual contribution from the taxpayer to the national insurance fund for pensions. That fine principle ensured redistribution.
I welcome many of the Government's changes, especially the pension credit, which undoes the great injustice suffered by those who made contributions for many years from small disposable incomes but found on retirement that they received no value from the contributions whatever. That move is of great benefit, but it is sad to see that the number of pensioners depending on means-testing will increase.
The prime factor in the fact that the very poorest pensioners do not claim income support is the stigma involved. Every hon. Member will know pensioners who take pride in the fact that they have never received a handout in their lives, or claimed benefit. They say that, in their retirement years, they will get what they paid in 459 for but that they will not fill in a form that offers what they regard as a handout. That has been a problem for many years, and it remains one now.
The house magazine for people of my generation isSaga Magazine. It was disappointing to read in an article by Paul Lewis that the Government assume that the take-up of pension credit will be only 67 per cent. That means that very many people will not get the benefit that they have missed before. We need to address that very important problem.
I am very proud of the Government's record on pensions, but we should reconsider restoring the link to make sure that the minimum income guarantee is the basic pension. It is affordable, and would give much satisfaction to the million or so poorest pensioners who do not claim income support.

§ Mr. Oliver Heald (North-East Hertfordshire)
I was not going to respond to this short debate until I heard the remarks of the hon. Member for Newport, West (Paul Flynn). The means-testing to which he referred is important when it comes to uprating the guaranteed minimum pension, but the increases to that pension are under threat in a variety of ways.
The first threat comes from the means test, which erodes pension levels. The second is that the overall picture of pension schemes reveals a huge decline in income levels. In the debate earlier this afternoon, I referred to the Government's miserable performance in taking pensioners out of poverty. For the bottom fifth of the pensioner population, the picture has been absolutely flat, but the gap between rich and poor has widened. I am sure that the hon. Member for Newport, West would not be pleased with that. One of the factors behind those figures is the fact that take-up is so poor.

§ David Winnick (Walsall, North)
Will the hon. Gentleman give way?

§ Mr. Heald
In a moment, as I have three or four other points to make.
The introduction of the occupational pension scheme was probably the most important social welfare reform measure of the 20th century. The number of such schemes has fallen from 130,300 in 1998 to 103,000 now—down 30,000. The number of members of schemes that have started to wind up has risen from 10,000 to 40,000. The pension status of adult employees in 1994–95 I am sorry, I mean 1998—

§ Mr. Andrew Smith
The hon. Gentleman wants to choose the worst possible figure for the Government.

§ Mr. Heald
No, I was being generous to the Government. The date I shall choose, 1994–95, is worse for me. In 1994–95, 64 per cent. of adult employees were in an occupational or personal pension. In 1998, the proportion was 60 per cent. That figure is now 56 per cent. now, which shows the collapse that is happening.

§ Mr. Tim Boswell (Daventry)
Does my hon. Friend agree that the decline in private sector occupational 460 pension schemes—whether defined benefit or defined contribution schemes—risks a rather invidious comparison with what is available under publicly financed schemes, including those available to Members of Parliament and civil servants? Is there not a danger that there could be two nations in respect of pensions, as hon. Members have suggested is possible in other areas?

§ Mr. Heald
I understand entirely the concern felt by many that we are developing two nations in pensions. At the top of the pile among public sector pensioners is the Lord Chancellor, who gets an absolutely enormous public pension. At the other end of the scale, there has been a collapse in private sector pensions.
However, I must not go down that road too much, as we are talking about the guaranteed minimum pensions. Many recently retired pensioners receive guaranteed minimum pensions, which are being uprated by this order. In 1997–98, the percentage of recently retired pensioners with an occupational pension was 67 per cent.; now it is 59 per cent.

§ David Winnick
If we look in the round at the way in which pensioners on limited incomes have to try to make ends meet, we can see how difficult that is. I cannot understand why the hon. Gentleman's Government refused any additional help during the winter months, whereas this Government introduced from the very beginning the winter fuel allowance, which is now £200 per pensioner household. Why did his Government not do anything of the kind? I know that he is not responsible—he is a more reasonable or moderate Tory.

§ Mr. Heald
In fact, the hon. Gentleman is entitled to an answer because I was the junior Minister for two years. I suggest that he puts the matter in its overall context. In the Conservative years, those who had an occupational pension or a personal pension saw marvellous results. The yields on investments in those pensions were about 10 per cent.; now they are running at less than 5 per cent. The stock market has collapsed and occupational schemes are closing hand over fist. In the past year alone, the rate of closure of schemes to new members has doubled. The National Association of Pension Funds says that a large number of schemes are moving towards wind-up. One has to ask why that has happened, and the reason is the Chancellor of the Exchequer.

§ Madam Deputy Speaker (Sylvia Heal)
Order. Some latitude has been allowed, but I hope that the hon. Gentleman will now return to the matter under discussion.

§ Mr. Heald
The Chancellor of the Exchequer put at risk the livelihoods and the financial position of those who receive guaranteed minimum pensions and this uprating because he whacked a £5 billion-a-year tax on pensions, the effect of which has been disastrous. We warned about it time and again, but what have we got out of it? Not very much.
Finally, I want to ask the Minister about a technical aspect of guaranteed minimum pensions. Actuaries say that one of the greatest problems involved in winding up 461 pension schemes and one of the reasons for the delays is having to sort out the equalisation of guaranteed minimum pensions as between men and women following the judgments of the 1990s. That is relevant in the context of uprating guaranteed minimum pensions. I would be grateful to know whether the Minister has any plans to sort that out and to provide the help for which those in the actuarial profession are asking.

§ Mr. McCartney
I congratulate the hon. Member for North-East Hertfordshire (Mr. Heald) on making the speech that he was unable to make in the previous debate.
I shall not be enticed down the route on which the hon. Gentleman set out, other than to say, in relation to what he described as the golden years, that we have just cleared up the consequences of those golden years, which cost £13 billion in mis-sold pensions, which were sold mainly to individuals who already had a good pension but were persuaded by the Conservatives, by various means, to put it at risk.
On the hon. Gentleman's final point, that is not a technical matter, but a very important issue that has exercised my right hon. Friend the Secretary of State and me in relation to representations that I have received since becoming Minister for Pensions. To be frank, until I became Minister I had not realised some of the problems that were associated with this. I have met Conservative Members who have constituency problems in that regard—if the hon. Gentleman has any such, I shall be prepared to meet him. That is why we are hoping that proposals in the Green Paper will meet both the hon. Gentleman's objectives and our own, which, to be honest, are about the same.
The hon. Member for Havant (Mr. Willetts) raised several issues. First, I shall take the opportunity to advise him about his local Pension Service. We are in the process of setting up three surgeries only for him in partnership with Age Concern, two of which are in Market parade and Malmesbury lawns. I can give him further details if he wishes. Doubtless even he will get some support from the Pension Service.

§ Mr. Boswell
I want to make a constructive suggestion. While the Pension Service gets its act together, it might not be a bad idea if local management wrote to all Members of Parliament to inform them of surgeries' location.

§ Mr. McCartney
That is a fair point. We are encouraging local managers, and I write to hon. Members as each centre is established. Informing hon. Members is not a problem but a priority. We are doing that as we develop the local Pension Service and put partnership arrangements in place. Further information will be sent to Members of Parliament as we roll out the service. Our job is to keep Members of Parliament and, I stress, their staff involved in our activities. Staff are in the front line and we want to ensure that every member of staff is fully apprised of the service that we are providing and that we forge continuing links.

§ Mr. Willetts
From the addresses that the Minister mentioned, I suspect that one may be that of an Age 462 Concern office and the other that of a social services nursing home. Will he clarify whether Pension Service staff his officials—will give the authoritative advice?

§ Mr. McCartney
Indeed. Highly trained, highly committed local Pension Service staff, whose raison d'être is to be advocates for the older person and work with groups, will give advice. We are rolling out centres throughout the country; I believe that 700 are already in place. We are developing and building on that.
We are also willing to consider ideas. For example, my hon. Friend the Member for Blackpool, North and Fleetwood (Mrs. Humble) asked whether we could arrange for Pension Service staff to hold advice centres with her. We will partner any individual, organisation or community group. That includes Members' staff who want assistance and advice on pension matters. It is part of the ethos of the Pension Service, especially the local service, and my right hon. Friend the Secretary of State and I are committed to it. We shall do anything that we can to assist hon. Members.
The hon. Member for North-East Hertfordshire tried to entice me again. Conservative Members always try to entice me. I do not know why, but they try to tickle my fancy—politically speaking, of course. He tried to persuade me to give a different view from that of the Government Actuary on the contract rebates. I am not an actuary and we employ Government Actuaries to give us appropriate advice. They do not do that in isolation. The proposed rebates were sent out for consultation and the Government Actuary's Department produced a document. The Actuary presented recommendations after that consultation.
Recent changes in economic conditions have not altered the Actuary's long-term assumption on which the rebates are based. It is reasonable and fair for actuaries to make long-term assumptions. Changes in cycles will occur from time to time, but the system is well proven and the advice that we receive non-partisan. I assure hon. Members that Ministers have not interfered politically in the past, are not doing so now and will not do so. The decisions are non-partisan; they must be taken independently and based on best practice.
The changes in the order involve £11 billion over five years—2002–03 to 2006–07.

§ Mr. Heald
There is widespread anxiety in the actuarial profession about the matter. What was the balance of opinion in the consultation? Does somebody support the Government Actuary's opinion?

§ Mr. McCartney
The whole purpose of consulting is to consult other actuaries. One could take a range of issues and receive different actuarial views. It was obviously the balance that the Actuary came to. He will not give advice to the Government that is so much out of touch with the long-term view that he and others in the profession have expressed. From time to time there will be different views. Actuaries' opinions are sought. The thing about the Government Actuary is that, unlike other actuaries who give advice to clients, who can take it or leave it, he consults over the proposed advice that he may wish to give. That is a democratic, accountable process. There is nothing to add to what I have told the hon. Gentleman. He is looking for a fox. It is not there.
463 The hon. Member for Northavon (Mr. Webb) asked a range of questions about the lack of numbers on contracting out. I hope that I can give him the right information. If not, I apologise in advance. I am told that the data for the financial years up to 2000–01 will be available by the early summer this year, with an update in the autumn relating to 2000–02.[Interruption.] Remarks are being made from a sedentary position. I am being open, frank and honest. The hon. Gentleman asked me a technical question and I gave him the answer. If there is any change, I shall notify him and other hon. Members as soon as I can. I want to make sure that the information available in this context is put in the public domain.

§ Mr. Webb
I am grateful to the Minister. That is the information that I was asking for, but now that I have heard the answer I am even more worried. Is the right hon. Gentleman not concerned that he will be trying to shape pension policy in this critical consultative stage without knowing how many people are contracting out, whether the number is going up or down and how people are responding behaviourly? The last information the hon. Gentleman gave me in a written answer was for 1995–96. How can he make policy in that void?

§ Mr. McCartney
It is fine to try to make a crisis that does not exist. We have had to reconstruct the NIRS programmes. Therefore, the whole structure and basis of how information is collated has changed. To suggest that this is the only information that we require to determine our pension policy—in relation to the public sector, the state pension provision or private pension—provision, second-tier provision—is nonsense. The hon. Gentleman, who is an academic, knows that what he is saying is nonsense.
We are attempting to give the information and put it in the public domain. I apologise if the hon. Gentleman thought that it should have been made available sooner. There are genuine technical reasons why that was not done. It has fallen to my watch to sort it. I am trying to sort it, so that we all have more up-to-date, more accurate information. I am sure that the hon. Member for Havant will take that comment about more accurate information to his heart and challenge me about it some time in the future.
I will take the comments of my hon. Friend the Member for Newport, West (Paul Flynn) as a pre-Budget submission to my right hon. Friend the Chancellor and make sure that they are passed to my right hon. Friend.

§ Mr. Willetts
I am grateful to the Minister, who is trying to respond to the various points that have been raised about pensioners and the effect of the order on them. I return to the assurance given by the right hon. Gentleman's PPS, the hon. Member for Wigan (Mr. Turner), to me in the radio interview to which I referred earlier. Can he repeat the guarantee that there will be a face-to-face meeting with officials from the Pension Service, if that is what pensioners want?

§ Mr. McCartney
I have given a written assurance to the Select Committee. If the hon. Gentleman has not 464 read it, I shall send him a copy. Any pensioner who requires a home visit will receive one. We are doubling the staff in the local service. The whole point of the local service is to have an interface to make sure that pensioners have direct access to the services that we want to provide.
I know that the hon. Member for Sutton Coldfield (Mr. Mitchell) is working with the hon. Gentleman to privatise the state pension. While he is getting on with that dastardly deed we are getting on with a face-to-face relationship with Britain's pensioners.
Question put and agreed to.

§ David Winnick (Walsall, North)
On a point of order, Madam Deputy Speaker. I am aware that you and Mr. Speaker are not responsible for the management of business, but I want to bring to your attention the fact that yesterday a large number of Members wanted to speak in the debate. I was one of those who were unfortunate. I have tried on other occasions to speak in debates on Iraq and other Members, too, were not called yesterday who might have wanted to speak previously. Today, business has collapsed at 4 o'clock in the afternoon. I realise that we cannot always anticipate what is going to happen, but it seems odd that arrangements cannot be made. Yesterday many Members, including me, could not speak in the debate despite all our efforts, while today we are finishing at 4 pm instead of 6 pm. I am sure that I am not alone in my concern. Is it possible to communicate the concern of some Members about this matter?

§ Madam Deputy Speaker (Sylvia Heal)
To some extent, the hon. Gentleman has answered his point of order: it is indeed not a matter for the Chair but for the usual channels. I have no doubt that they will have taken note of his comments.