HC Deb 23 October 2003 vol 411 cc876-82

Motion made, and Question proposed, That this House do now adjourn.—[Jim Fitzpatrick.]

6 pm

Kevin Brennan (Cardiff, West)

I make no apology for returning to a topic that I and other hon. Members have been raising in the House for the last year and a half and will go on raising for as long as it takes to find a just solution for our constituents. It is a story of hardworking, honest citizens making the fateful and unforgivable error of trusting their employers and trusting the state. They trusted employers and Governments by putting their money into final salary occupational pension schemes on the basis that those schemes were "guaranteed"—a word that was legally used by employers and Governments in their literature. People were told that the schemes were guaranteed to pay them a pension related to their final salary.

My hon. Friend the Minister will be aware of the case of Allied Steel and Wire in my constituency, and I will not detain the House by repeating the personal stories of my constituents who worked for decades and were on the cusp of retirement only to find their hopes of a comfortable and secure retirement snatched away from them by a piece of flawed legislation that was introduced by the last Conservative Government in 1995. It is wrong to blame those people for committing the fatal sin of trusting their employers and the state because, in many cases, they had no choice but to trust them, as Governments of both colours allowed employers by law to compel workers to join those schemes.

How can this situation have come about? How could probably 20,000 people—we cannot be sure because the Government do not count them—have been left with a pension with a so-called guarantee that is not worth the paper it is written on? I profess that, like many people, I was ignorant of the issue until my constituents came to speak to me, to explain how they had lost their pensions. Frankly, at first, I thought that they must be mistaken. I thought that it could not be possible in the 21st century to be left unprotected in that way, but I was wrong. So I went back to look at some of the debates in the House and in the Standing Committee that considered the then Pensions Bill in 1995. After all, the Pensions Act 1995 was passed to put right the scandal of the Maxwell pensioners.

I could not believe that, in dealing with that scandal, hon. Members of whichever party would have wanted to allow workers to be effectively robbed of their pensions. As far as I can ascertain, no one fully envisaged the perilous position that they were creating for today's occupational scheme members. They thought that they were protecting pensioners and putting measures in place that would prevent pension funds from being seriously under-financed.

It is true that, at the time, the TUC lobbied for a pension protection fund and that the then Labour Opposition tabled amendments to that effect, and I am glad that such provisions will be a feature of new legislation in the near future. However, I have read the reports of the 1995 proceedings and spoken to the TUC's adviser at the time, Bryn Davies, and as far as I can see, no one envisaged the possibility of losses on the scale being faced by workers today.

When the possibility of schemes winding up without being able to meet their liabilities was discussed, it was generally assumed that that would be rare, and because of the new minimum funding requirement, that losses would be limited. Indeed, in Committee on 13 June 1995 my right hon. Friend the Member for Southampton, Itchen (Mr. Denham) said: There is an important point of principle, with which I am sure all members of the Committee would agree; in the event of a shortfall in a pension fund, when it will be difficult to meet pension obligations, whatever the cause of the shortfall, the members are innocent parties, although it is they who will suffer."—[Official Report, Standing Committee D, 13 June 1995; c. 526.] That is absolutely the point—they are innocent victims of a flawed legislative framework.

Despite those comments, the legislation that was passed made the plight of those innocent victims worse. That clearly was not the then Government's intention, and it certainly was not the intention of the then Opposition, but by devising an inadequate minimum funding requirement and putting the rights of deferred pensioners to the bottom of the order of priority—whether they were 30 years away from retirement or 30 minutes away from retirement—the plight of those innocent victims was made worse. Now the Government are acting to put that right for the future. I welcome this week's announcement on that, but it still leaves thousands of innocent victims who should be compensated.

To illustrate that that outcome was not envisaged, my right hon. Friend the Member for Southampton, Itchen raised the case at the time of Swan Hunter, by saying that although its scheme would have met the minimum funding requirement, members of the scheme faced cuts of up to 40 per cent. in their expected pensions. In response to those observations, however, the right hon. Member for Richmond, Yorks (Mr. Hague), who was then Pensions Minister in the Conservative Government, said that the minimum funding requirement would ensure that We are not talking about loss on the scale mentioned by the hon. Member for Itchen."—[Official Report, Standing Committee D, 13 June 1995; c. 533.] If only that were so. The latest figure, I understand, from some Allied Steel and Wire workers in Cardiff, is that they are being given not an estimated loss in their pension of 40 per cent. of its expected value, but a total pension of 14 per cent. of the expected value. That is an 86 per cent. cut in their pension. That is the scale of the catastrophe that has been visited on constituents in my part of Wales and in other parts of the United Kingdom, including those of my hon. Friend the Member for Sittingbourne and Sheppey (Mr. Wyatt), whose Allied Steel and Wire workers at Sheerness have suffered a similar fate.

The state has not exercised a proper duty of care on behalf of those people. The state did not insist on a proper health warning on occupational pensions—on the contrary, it encouraged workers to enter those schemes. The result has been a real injustice for a few who understandably feel bitterness, bewilderment and betrayal, and uncertainty for the many who, on hearing of the plight of the few, lose confidence in the whole occupational pensions system, when even the most rock solid "guaranteed" form of pension fund turns out not to be worth the paper on which it is written, for thousands of people.

That is an injustice, not just a misfortune. Those people feel that they have been duped, and they have been.

Mr. Derek Wyatt (Sittingbourne and Sheppey)

It is immoral.

Kevin Brennan

My hon. Friend is right. What rational economic agent would bet his or her security in retirement on the ups and downs of the price of steel? All of them would have put their money elsewhere had they been told the truth about the risk. The fact is that successive Governments have inadvertently mis-sold the concept of final salary schemes and have a duty to compensate the innocent victims. The state tends understandably to be complacent, because its own workers' and its own politicians' pensions—I include myself—are ultimately underwritten by the taxpayer. That is not acceptable. The cost of compensation would be minuscule compared with, to take one example, the surplus in the national insurance fund identified by my hon. Friend the Member for Newport, West (Paul Flynn) earlier this week in his Adjournment debate. It would be cheaper than the legal costs that the state is likely to incur if trade unions such as the Iron and Steel Trades Confederation continue with a case under the relevant European directive.

Governments tend to say that they cannot be seen to stand behind private pension arrangements in any way, but that is frankly nonsense. Governments have subsidised private pension arrangements through tax relief. Governments have compelled people to join such arrangements. Governments have taken billions out of the national insurance fund to bribe people into private pensions, and Governments stand behind the entire private banking and financial system as the lender of the last resort. Why do Governments do that? They do it because without such backing, confidence in the entire financial system would collapse. That is not in the public interest, and the same is true for pensions. A promise should be a promise and a guarantee should be a guarantee, especially when the promise and guarantee are about security in retirement.

6.11 pm
Mr. Derek Wyatt (Sittingbourne and Sheppey)

I thank you, Mr. Deputy Speaker, and the Minister for allowing me to say a few words and, most of all, I commend my hon. Friend the Member for Cardiff, West (Kevin Brennan)—he is indeed an honourable friend. We have worked so hard together to raise the issue of Allied Steel and Wire because the problem affects not only ASW Cardiff and Sheerness—more than 40 companies' pensions have gone into administration since 4 July 2002.

The problem is most serious because many people have tried to commit suicide or have been suicidal. They suffered a double whammy because they lost their occupation pension on the same day that they were made redundant. It is difficult not to sympathise with them because they gave their deferred wages to their occupational pension scheme, but they have now lost everything.

There are moral aspects of the problem and a question of duty. This is a proud Government. Things that we have done since 1997 for which we can be proud include providing money to address our debt to the coal miners—no one can take that away. The people who developed lung disease and the Chatham workers who experienced the effects of asbestos suffered an appalling thing.

The Government have introduced such measures before, so we are not asking for something new. We are not asking for next year's Bill to be retrospective because we understand the moral hazard that that might create. However, we ask the Government to think about the cost of the Iraq war—it probably cost the Exchequer £2 billion. What was cost of foot and mouth—probably between £2 billion and £3 billion? What was cost of Creutzfeldt-Jakob disease—probably £1 billion or more? We are asking for between £100 million and £200 million, at most, to be given to a special fund to compensate workers. Is that possible? It is not a fortune, especially when one considers how much the Chancellor took out of pension funds toward the end of the 1990s.

I urge the Minister to use his best endeavours to ask his fellow Ministers in the Department for Work and Pensions to include a provision to address the matter in the Bill that will be presented after the Queen's Speech. Does he think that the legal advice from inside the Department is sufficiently solid with regard to EU legislation? Will he confirm that the Secretary of State has asked for an independent review from legal experts outside the Department, because it gives us heart if he is thinking again about the legal position? I do not think that Amicus and ISTC really want to go to the High Court to argue the matter under human rights legislation. They would prefer Pensions Ministers to come to the House and accept responsibility, although the problem is not of their making. The people of this country ask for only one thing: fairness in the law.

6.14 pm
The Parliamentary Under-Secretary of State for Work and Pensions (Mr. Chris Pond)

I congratulate my hon. Friend the Member for Cardiff, West (Kevin Brennan) on securing the debate. The whole House will want to pay tribute to the way in which he has consistently pursued his constituents' interests on this matter. He began his speech by saying that he did not plan to apologise for raising the issue again, and nor should he. I pay a similar tribute to my hon. Friend the Member for Sittingbourne and Sheppey (Mr. Wyatt), who secured a debate on the subject almost exactly a year ago. Both spoke powerfully and eloquently of the injustice felt by their constituents. The Government and I recognise the sense of injustice felt by ASW workers and others who paid into their employer's pension scheme for years only to lose some or even all of their pension shortly before retirement because the employer went bust and the scheme was underfunded. As we heard from my hon. Friend the Member for Sittingbourne and Sheppey, that tragedy is made all the worse by the fact that on the same day that many of those people learned that they had lost their jobs, they also learned that they had lost their pensions.

It is a tragic blow for people who thought that they were making adequate provision for their retirement to have their hopes and expectations dashed. My hon. Friend the Member for Cardiff, West said that they are victims of a flawed legislative framework. It is precisely to address that problem that my right hon. Friend the Secretary of State for Work and Pensions announced on 11 June that the Government would introduce a pension protection fund as soon as parliamentary time allows. The PPF will, for the first time in the UK, ensure that scheme members whose companies go bust can still count on receiving a meaningful pension and therefore have the secure retirement they were expecting. Once the PPF is in place, we will never again experience the situation faced by ASW workers today.

People involved with the PPF will work closely with the new pensions regulator to reinforce security and confidence even further by monitoring scheme management and protecting against fraud. My right hon. Friend made it clear that, as is normal with legislation, the PPF will apply to the future, not the past. It will not be retrospective. My hon. Friend the Member for Sittingbourne and Sheppey recognised that although that will disappoint many, it is not feasible for us to introduce backward-looking legislation. We are, however, ready and willing to listen to sensible and constructive suggestions about whether, and if so how, assistance could be made available for those who have lost pension rights before the PPF is introduced.

Ministers and officials have met some of the scheme members affected and various representatives, including my hon. Friends, several times to discuss the options. We will continue to approach the subject with an open mind. However, we have also made it clear that we cannot and will not raise false hopes or make promises on which we cannot deliver. To do so would add insult to injury for the people affected. Understandably, many have asked why those who will not benefit from the PPF should not receive compensation for their loss. My hon. Friend the Member for Cardiff, West suggested that such compensation was appropriate because those affected were misled not only by their employers but by the state as well. We do not accept that people were misled in that way. If people were required to be members of a scheme, it was the employer who made the requirement, not the state.

Mr. Wyatt

Does my hon. Friend accept that the literature produced by his Department uses words such as "guarantee" in relation to occupation pensions? That is what ASW staff at Sheerness and Cardiff keep telling us. It was in the literature and it was guaranteed.

Mr. Pond

We have looked carefully at the literature produced by my Department and can find no evidence of wording that would give the impression that we were making a guarantee. I know that the allegation has been made, but we can find no substance to support it.

Kevin Brennan

Does my hon. Friend not accept, however, that the state has at times permitted and made it legal for employers to compel workers to join occupational pension schemes?

Mr. Pond

My hon. Friend is right that the state has permitted employers to require people to join schemes, but it is the employer who makes the requirement, not the state. The fact that the state allows certain activities does not mean that the state becomes responsible for those who carry out that activity, or for the consequences that might follow from it.

I ask my hon. Friends to consider the cost of compensation, which could be substantial, because it would reflect the substantial losses incurred by those who had lost their pensions. The cost could stretch many decades into the future. If the cost were to fall to the taxpayer, many would ask whether it was right and fair that those who would never have access to an occupational pension should pay for those who did.

I know that some have said that the money to pay for compensation could come from other sources, such as unclaimed money in bank accounts. Although that money is unclaimed at a particular moment in time, it does belong to somebody, and it can be claimed and withdrawn at any time in the future. It is not a stable base for compensation.

As I am sure the House will appreciate, there is no easy solution to the problem, but I stress once again that we are listening to all sensible proposals. My right hon. Friend the Secretary of State has made it clear that he wants to find a way through and to help in any feasible way he can, without raising false hopes. Between now and the introduction of the pension protection fund, other measures will come into force to improve member protection. The Government have published and consulted on draft regulations that increase the debt due from solvent employers when their salary-related pension scheme is wound up. This proposal will ensure that members are more likely to receive the pensions they expected, should their employer opt to wind up their scheme.

Draft regulations were published just yesterday on amendments to the statutory priority order, which will ensure that if a scheme is wound up in future, its assets will be shared out more fairly between non-pensioner and pensioner members. The degree of protection offered will reflect the length of time a member has contributed to the scheme. The changes will also give priority to the rights of non-pensioners over the future indexation of pensions in payment.

In a world where people move between jobs more and more often, it is crucial that their pension rights are protected along the way. My hon. Friends have joined me in the past in campaigning for the extension of the Transfer of Undertakings (Protection of Employment) Regulations 1981 to pension rights. That is why we are extending the TUPE protection of pensions to private sector transfers. We will insist that where pension rights have been established, the new employer will need to match employee contributions, up to 6 per cent., to a stakeholder pension, or offer an equivalent alternative.

Overall, the Government are going ahead with vital steps to enhance member protection. We recognise that, as my hon. Friend the Member for Cardiff, West told the House, there is a need to restore confidence in the pensions industry in general, and the series of measures that I outlined aims to do just that. Once again, I congratulate my hon. Friends on ensuring that the issue remains at the top of the agenda. They will recognise that we are doing everything we can to ensure that the heartache felt by ASW workers and others is never felt again.

In relation to the ASW workers, my hon. Friends know that we will do what we can, and that we will be honest about what we cannot do. My hon. Friend the Member for Cardiff, West suggested that Governments are complacent on the issue. I can tell him and the House that we are not complacent. We are doing everything we can to ensure that people are better protected in future. That is a responsibility which we take very seriously.

Question put and agreed to.

Adjourned accordingly at twenty-four minutes past Six o'clock.