HL Deb 20 February 2003 vol 644 cc1269-71

3.8 p.m.

Lord Higgins

asked Her Majesty's Government:

Whether they are satisfied with the level of savings and provision of pensions.

Lord McIntosh of Haringey

My Lords, the Government provide targeted support for the poorest pensioners on top of the foundation of state support for all. Above that foundation, individuals are responsible for deciding the level of income on which they wish to retire. Most people are saving for their retirement in pensions or other assets. But around 3 million people could be seriously under-saving for their retirement, and perhaps 5 million to 10 million people may wish to save more and/or work longer. The Green Paper set out proposals to help those of working age plan more effectively for a secure retirement.

Lord Higgins

My Lords, I thank the Minister for that reply and declare an interest as a former chairman of a company pension scheme. Are the Government not incredibly complacent on the issue of pensions and savings? There is a crisis, which is in danger of turning into a disaster. As a result of the Chancellor's ACT raid on pension funds, many companies have abandoned final salary schemes and are having to top up their funds instead of investing.

Lack of confidence and the Chancellor's obsession with multiple tax credits and means testing is deterring saving. Is it not true that the savings ratio has almost halved under the Government? The Green Paper, to which the Minister refers, is almost universally regarded as a damp squib; so the Government certainly have not provided time to debate it. Can the Minister say what else will be done to solve these problems?

Lord McIntosh of Haringey

My Lords, I suppose that I should have declared an interest as a former chairman of a company pension scheme, but one cannot do so all the time.

The noble Lord, Lord Higgins, is just wrong about the savings ratio. First, the normal definition of a savings ratio is household savings and not national domestic savings, which is a much more useful figure. But, secondly, the current annual savings rate is 6.1 per cent, which must be set against the long-term average of 8.1 per cent. The rate has gone down, but it is still close enough to the long-term average not to be what the noble Lord calls a crisis or a disaster. Of course there are savings problems, but they are not a crisis and they are not a disaster.

Lord Oakeshott of Seagrove Bay

My Lords, as we are all declaring interests this afternoon, I declare mine as a pension fund manager. Has the Minister seen the devastating analysis by Credit Suisse First Boston this week, which calculates that 91 out of the top FTSE 100 companies have an accumulated pension fund deficit of £77 billion? That is 93 per cent of their total operating profits last year.

Does the Minister agree with CSFB that the situation looks very bleak and that many companies will have to make additional payments into their pension funds? Will the Department for Work and Pensions and the Treasury now urgently estimate and tell us in the Budget how big a hole those extra payments into pension funds will blow in the corporation tax receipts for the Exchequer?

Lord McIntosh of Haringey

My Lords, like my noble friend Lord Rooker, I shall not forecast what the Chancellor will say in his Budget. I have read the report by Mercer Human Resource Consulting, which I think is part of CSFB. If I am wrong, I apologise. But it does not make any difference to the fundamental point: we are not in the business of predicting the future of the stock market and how it affects pension funds. The fundamental drivers of a successful economy, which are high employment, low inflation and low interest rates, are in place. They are delivering a secure environment that is conducive to investment and to long-term saving.

Lord Jenkin of Roding

My Lords, does the noble Lord recognise that one of the measures to which the Government have attached great importance is the stakeholder pension? Do the Government further recognise that almost universally those who have tried to sell stakeholder pensions have discovered that the cost limit allowed by the scheme simply does not enable them to remain solvent? Will the Government urgently look at the matter?

Lord McIntosh of Haringey

My Lords, I have reason to doubt the figures of the noble Lord, Lord Jenkin. There are 335,000 employers involved with stakeholder pensions; 1.5 million stakeholder pensions have been sold; and, rather than cutting down on the benefits of low-cost schemes such as the stakeholder scheme, it is our intention, following the Sandler report to bring the stakeholder pension scheme into what is called the "Sandler suite"; in other words, to extend the range of low-cost products which are to the benefit of savers and investors.

Lord Haskel

My Lords, is not one of the main reasons why so many final salary schemes and company schemes have gone wrong that the actuaries and the fund managers have got it wrong?

Lord McIntosh of Haringey

My Lords, there are many reasons why some employers are moving from final salary—defined benefit—and towards defined contribution. Some reasons are good and some are bad. I ran a final salary scheme that was fine for me and my fellow directors but not so good for young people who left the company after a few years. The critical point is that employers should be putting money into their employees' pensions schemes, whether DB or DC. It is in their interests as employers to provide a decent package of employment in a period of high employment.

Baroness O'Cathain

My Lords, I bear in mind the Minister's statement that he is not in the business of forecasting the mind of the Treasury. He really shrugged off the £77 billion hole in the FTSE 100 companies. To what extent will the pension situation affect the take on corporation tax? There is no question, as the noble Lord, Lord Oakeshott, said, that it will not affect it: it must.

Secondly, the Minister also said that the savings ratio was not really too far adrift. It has only dropped from 8.1 per cent to 6.1 per cent. That is a 25 per cent reduction. I am afraid—and I should like the noble Lord to deny this—that that reeks of complacency.

Lord McIntosh of Haringey

My Lords, I still shall not forecast what the Chancellor will say in his Budget. In view of' the renewed interest in the savings ratio, I say look at the economics. The savings ratio is normally counter-cyclical with consumption. It is not necessarily true that a high savings ratio is the best of all possible outcomes from all possible points of view.