HL Deb 24 November 1997 vol 583 cc745-8

2.49 p.m.

The Earl of Clanwilliam asked Her Majesty's Government: What plans they have to introduce the subject of fully funded pension schemes as a factor of convergence during the forthcoming United Kingdom presidency of the European Union.

Lord McIntosh of Haringey

My Lords, we shall use our presidency as constructively and supportively as possible in ensuring that the launch of EMU is successful. We have no plans to raise the subject of fully funded pension schemes as a factor of convergence during our presidency. Article 104c of the Maastricht Treaty and the stability pact make clear that member states must avoid excessive deficits in EMU.

The Earl of Clanwilliam

My Lords, I thank the Minister for that interesting reply, which seems to be somewhat contradictory. If the Government are looking for the success of EMU, it is hard to imagine how unfunded pensions cannot be included in the subject. Does the Minister accept that fully funded occupational schemes represent an annual surcharge of 6 per cent. of corporate costs? Does that not mean that there is a hidden charge to be counted in reckoning the true rate of public debt in terms of our EU partners?

Lord McIntosh of Haringey

My Lords, there are certainly differences between us and our EU partners in the extent to which pension schemes are fully funded. Those differences are not directly reflected in the convergence criteria but are reflected indirectly, in the sense that, when unfunded schemes come to be paid for, they affect the deficit which countries have to declare under the stability pact, which in turn affects the convergence criteria.

Baroness Castle of Blackburn

Is it not a fact that most of our European partners have been operating pay-as-you-go schemes for years? If it is convergence we are after, we ought not to be pressing our own Government to go for funded schemes, particularly at a moment when the tragic chaos in world markets proves that investments in such funded schemes cannot guarantee full retirement security.

Lord McIntosh of Haringey

I confirm that, as I said earlier, other European countries have a higher proportion of their pension provision in unfunded, pay-as-you-go schemes than we do; but I repeat that this is not directly a convergence criterion for European monetary union. There is no question of any pressure being put upon us to change our funded scheme to an unfunded scheme.

Lord Taverne

My Lords, does not the Minister agree that, quite apart from the specific rules against "bail-out" in the treaty and in the stability pact, there are other reasons why this specific argument against monetary union—whatever the other arguments may be—is a non-starter? These obligations are extremely uncertain and no more predictable than, say, the cost of decommissioning nuclear power stations. Does he further agree that in the decade or more which is still available for dealing with these questions, there is no reason why our EMU partners should not be able to take the kind of measures to avoid hidden future liabilities which we ourselves in Britain took in the 1980s? Will he therefore dispose of this disreputable canard once and for all?

Lord McIntosh of Haringey

My Lords, I am grateful to the noble Lord for allowing me to emphasise that under Article 140b—the so-called "bail-out" clause—there is no question whatever of our being required within EMU to contribute to any lack in other countries' pension funds. Therefore I can agree with the remainder of the noble Lord's remarks.

Lord Marsh

My Lords, does not the noble Lord agree that Article 104c lacks credibility in this situation? He is not being pressed on this because everyone is trying to dodge the issue. Britain's problems, compared with those of the other European nations, are minute in comparison. The many billions of pounds of liabilities, which are not problematical but are factual, will have to be met one way or the other. Does the Minister seriously suggest that those liabilities can be met without any impact on the economic and financial situation of the member states?

Lord McIntosh of Haringey

My Lords, when those countries which have unfunded schemes have to start paying out of current income, their deficits will be affected and they will need to make other arrangements in order to deal with them. I do not in any way accept what the noble Lord, Lord Marsh, said in relation to Articles 104c and 104b. Article 104b is quite explicit that we cannot be called upon to contribute. Article 104c is explicit, in that excessive deficits, either now or in the future, are not acceptable.

Lord Clark of Kempston

My Lords, bearing in mind the importance that the Government place on pensions, can the Minister explain the logic behind the decision taken recently to deprive pension funds—which are contributed to by long-term savers—of £5 billion per year? Surely the Government should be helping the pensioner.

Lord McIntosh of Haringey

My Lords, the removal of double taxation relief, which is what I take the noble Lord to be referring to, is a matter for this country alone and is not affected by our membership or otherwise of EMU.

Lord Barnett

My Lords, can my noble friend confirm that, regardless of pension funds, if we in this country manage to meet sustainable convergence well in advance of the year 2002, he will have in mind joining the single currency?

Lord McIntosh of Haringey

My Lords, the Chancellor made it clear in his Statement on 27th October that sustainable convergence means sustainable over a period of years. We are setting ourselves tough economic targets rather than fiscal targets which will determine the stage at which we put to the people of this country the issue of when we go into EMU.

Lord Higgins

My Lords, I should declare an interest as a trustee of an occupational pension scheme. Is it not the case that, compared with the United Kingdom, other European countries have an immense potential liability in relation to pension funds? If the Government are genuinely interested in the long-term viability of EMU, should not that be taken into account in assessing the debt ratio of individual countries?

Lord McIntosh of Haringey

My Lords, I have answered the noble Lord's first question twice already, if not three times. The Government have always recognised that a number of our European partners have a higher proportion of their pension provision in unfunded schemes. Eventually somebody will have to pay for that.

Lord Peston

My Lords, does not my noble friend agree that the whole business of unfunded pensions is a complete myth? An unfunded pension is simply a system whereby present-day workers pay for present-day pensions in the hope that future workers will pay for their pensions. There is no technical problem as a matter of arithmetic, let alone economics, with an unfunded pension scheme. It certainly has nothing to do with EMU.

Lord McIntosh of Haringey

My Lords, there is no technical problem with any version of funding of pensions; the issue is one of intergenerational equity. We must ensure that no generation is forced to pay both for its own pensions and for those of its parents or children.

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