§ Mr. Denis MacShane (Rotherham)I declare two interests—as I do in any debate on steel. The first is my ownership of 25 shares in Corus, formerly British Steel. The second is a close collaboration with all the steelworkers unions, because steel is the dominant employer in my constituency.
The issue touches some of the poorest members of the community, whose life's work was devoted to making the steel that helped Britain grow during the previous century. It is a story about the age-old struggle between justice and greed. It is an unreported contest between, on the one hand, men and women who felt that a life's honest and honourable work should be sufficient to provide them with a decent retirement and, on the other, the controllers of our nation's financial resources, who have other priorities.
Many pensioners feel that they deserve a better deal—a view that I share for the whole pensioner community. However, in addition to Government, it is time for pension funds to accept their responsibilities. That is not currently happening in the case of retired steelworkers.
Pension funds are so swollen that their size now overshadows modern market economies. They need to be examined properly and made accountable to the men and women whose earnings have contributed to the creation of those new financial behemoths.
The debate is about the most important question in a society in which the rules of the market and the needs of capital are perceived by many to have a higher priority than the decency of human existence and obligations owed by one generation to another. Government must answer the question: who is responsible for the oversight of those huge sums?
According to 1998 figures, UK pension funds currently manage more than £700 billion. The House of Commons Library informs me that, taken with pensions managed by insurance companies, the total amount of pension funds comes to more than £1 trillion. That is more than the gross domestic product of the United Kingdom. Ministers and civil servants manage a total budget of about one third of the sum for which a large number of anonymous, mostly unaccountable, men and women are responsible.
I want to look more closely at the pensions paid to British steelworkers and the use of the pension fund that their past and present labour has created. Does my right hon. Friend the Minister think that the role of the pensions ombudsman should be reconsidered? Do we need to modernise and reform our pension law so that the concept of fairness is added to the fiduciary responsibilities of trustees and managers?
Like Britain's other great industries, our steel industry gave birth to a mixture of pension funds which were amalgamated when the industry was nationalised. When the fund was launched for manual workers in 1973, there were three times as many steelworkers in work—the number was 197,000 in 1975—as pensioners claiming from the fund. There were only 65,000 such pensioners 25 years ago.
The picture has changed. At present, 30,000 steelworkers pay into the fund; 109,000 receive benefits; and 57,000 are waiting for the years to tick to 65—the 92WH victims of the anti-manufacturing and anti-industry policies of the previous Conservative Government. They are not helped by the current discrepancy between the pound sterling and the euro; or by high electricity prices and other leftovers from the Conservative era.
Over the past 25 years, the British Steel pension fund has grown from being worth £338 million to its current value of nearly £10 billion. There is a different pension fund for British Steel Engineering Steels employees—many of whom are my constituents in South Yorkshire. My remarks will address the main British Steel pension fund, but my general observations also apply to the Engineering Steels pension fund.
The British Steel 1990 pension fund is extremely well managed; it invests wisely and, thanks to the miracle of compound interest and a judicious mixture of bond and equity investments, it has more than adequately maintained its value to meet all its current and future obligations—and then some. With about half its £10 billion in bonds, the income from those Government-guaranteed securities alone is sufficient to meet all current and future demands.
The question remains as to the rest of the money in the fund. As an American senator once said:
If you add a million here and a million there, sooner or later you start talking about reel money.In the case of the billions in the steelworkers pension funds and the billions in other pension funds, we have sums that are almost unimaginably large—greater than the GDP of most countries. How should those giant sums be used?At present, all the cards are stacked in favour of the companies. Of course, they discharge their legal and contractual obligations, but thereafter, those billions of pounds are for their benefit as companies, rather than for the benefit of the pensioners or of the communities that gave rise to that source of wealth.
Let us not forget the origin of that colossal wealth. It was created by steelworkers themselves; either directly, through deductions from their pay packet, or via the contribution put in by the companies. However, that contribution was not company money; it reflects value added, research, good management and the hard, dirty and often dangerous work inside the steel plants of Britain over the past decades.
Until privatisation in 1988, the Government provided a generous pension fund contribution of up to 12 per cent. to match the employee's 5 per cent. That enabled the British Steel pension fund to grow more than tenfold during its first 15 years and ensured that the newly privatised British Steel had a pot of gold, courtesy of the British taxpayer and of a compliant Tory Government who stacked the financial cards in favour of their privatised offspring.
Under a dozen years of private ownership, the fund has increased, but only by a little more than twice as much, in contrast to its much faster growth under public control. Why is that? I do not have time to go into the arguments made by those who are expert in tracing the movements of money inside the British Steel pension fund. However, I stress that, at every stage, the company, the pension fund management and the trustees have acted with full legality. They have not tried to duck questions put by the trade unions or by the 93WH national British Steel pensioners association, whose chairman, Mr. John Batstone, has been most diligent in keeping an eye on the fund and in asking tough questions.
The core problem remains. Under the Conservatives, pension law was so organised that power remained in the hands of the companies, which were able to use that £1 trillion pension fund to bolster their own financial strength, rather than being more generous to pensioners—especially those such as the manual grades in Britain's steel industry, whose enforced early retirement during the great demannings of the 1980s and the steady attrition of the 1990s has often meant that they do not have enough contribution years to secure more than a meagre supplement to the state pension.
There are many examples of major FTSE 100 companies taking what are described as "pension holidays". That means that either the employer or the employees do not pay into the pension fund at all. According to a survey carried out two years ago by the National Association of Pension Funds, more than half of private sector pension funds were taking a contributions holiday. Of course, that is excellent news for a company's cash flow and also for employees. However, the price of such generosity to the firm or to its existing employees is that there is less money—over and above the contractual obligations—to pay the men and women whose previous contributions helped grow the pension funds that can currently be used to oil a firm's financial operations.
The practice may also distort the real financial worth of a company. In the United States, according to The Wall Street Journal on 30 May, the Securities and Exchange Commission is
concerned that the pension income is giving less sophisticated investors a distorted view of some companies' health.
§ Mr. Frank Roy (Motherwell and Wishaw)My hon. Friend has referred to the manual grades of steelworkers, and he is aware that pensions not only take the type of holiday that he mentioned, but that thousands of steelworkers lost their jobs in the late 1980s and 1990s. They transferred their British Steel pensions to private pensions, and I am a member of that group because I received a manual grade pension after I was made redundant when the Ravenscraig plant closed. My British Steel pension was worth £32,000, but three weeks ago, I was informed that my pension had been mis-sold—the sum concerned is £11,000.
I took the trouble to find out what would happen to my pension, but does my hon. Friend not agree that ex-steelworkers need to be made aware of what is happening and that such cases needed to be cleared up as quickly as possible? Like the people who currently work in the industry, those steelworkers built it up.
§ Mr. MacShaneI very much agree with my hon. Friend. As I shall say later, I believe that there is enough money in the British Steel pension fund to clear up such anomalies. Steelworkers and the pensioners of this country will never forget the crime committed by the private pensions swindle. They declared their verdict on that on 1 May 1997 and it will take a generation or two before the dishonesty is forgotten.
Thanks to taxpayers' generosity prior to privatisation, the British Steel pension fund has been consistently able to report surpluses in each year since 94WH 1990, when the new scheme was set up. Thus, when British Steel merged last year with the Royal Dutch Hoogovens firm to create Corus, it brought a handsome dowry to the marriage—a pension fund worth close to £10 billion running an actuarial surplus in 1999 of just over £1,009 million.
It is over the disposal of that surplus that great concern has arisen. At the time of the merger last autumn, the rules were suddenly changed for the pension fund and the company cut its contribution from 5 per cent. to just 2 per cent. The union trustees opposed that major reduction in the firm's contribution to the British Steel pension fund, but, as the law presently stands and given the way in which the 1990 British Steel pension scheme was set up, the company decides and the trustees have to bow down before its decision.
§ Mr. Llew Smith (Blaenau Gwent)As my hon. Friend will know, until recent years, at least one steel plant in my community employed 14,000 workers—it now employs 1,000. However, in one way or another, the steel industry still dominates my community. The people who built up the industry repeatedly tell me that they did the work and that the pension fund was set up for them. However, they are not receiving the benefits from the fund that employers, such as Corus, now enjoy. Those employers did not do the work and they did not build up the industry in the way that the people in my constituency did. Surely, that cannot be justified; it is like Robin Hood in reverse. Private steel owners rob the poor to maintain their rich positions in life.
§ Mr. MacShaneThe point of the debate is very much to appeal to Corus to take a more responsible and socially just approach to the moneys in its pension fund. As my hon. Friend rightly pointed out, those moneys represent the deferred earnings of the workers—the savings appropriated from them. They have the right to be consulted, but the company's management has the power of decision. There was a take-it-or-leave-it order from the company on changing the rules of its pension fund, so will my right hon. Friend the Minister comment on whether the Government will consider making the rules rather more equitable rather than, as at present, so heavily loaded in favour of the company?
The union trustees considered appealing to the pensions ombudsman. However, on the basis of experience and legal precedent, it was not clear that this would be a fruitful approach even if it would have provided a bonanza for lawyers' fees. Does my right hon. Friend agree that the role of pensions ombudsman needs strengthening so that the trustees of pension funds can have confidence that he will support their case for full examination by an independent body in contested cases of the distribution of pension funds surpluses?
At the same time, British Steel made a one-off payment of about £800 million to shareholders as a sweetener for the merger. I know that, because my cheque for £1.25 arrived in the post. Two thirds of that £800 million went across the Atlantic because, along with many other firms in Britain and Europe, majority institutional share ownership is now in the hands of American pension and mutual funds. The coincidence of this huge payment of £800 million from a company which, thanks to the strong pound, is trading at a loss, taking place when the pension fund was rejigged to 95WH provide the new firm with a massive injection of year-on-year cash by more than halving its pension contribution has caused outrage among steel communities throughout the country.
I stress again that I am not accusing the company or the British Steel pension scheme of doing anything illegal or improper. Given the large sum in the scheme and the handsome surplus posted regularly, the scheme has been able to make improvements in payments that have benefited all pensioners. However, because something is legal and because some charity has been doled out does not remove the claim that I make on behalf of the 10,000 steelworker pensioners in my constituency and the many more who live in other constituencies that the call of justice and the appeal for generosity should now met in full.
I think of Mr. Horace Bolton in Rotherham, who worked for 44 years in the steel industry. After all that effort, his pension is just £50 a week. In fact, because of the different schemes and rules, that payment comes from two pension fund sources, but his appeals to have his years of service treated as a continuum have fallen on the deaf ears of a pension fund worth £10 billion.
I think of Mrs. Hingley in Brierly Hill, who was a supervisor in the British Steel Cookley stamping works. After 45 years labour, her pension is £22 a week—50p for each year that she worked. I think of Mr. Les Harper of Middlesbrough who after 40 years of continuous service receives £25 a week, and he is 92. Surely a company that can shape remuneration packages of up to £500,000 for its top executives can treat its retired workers with more generosity.
§ Mr. Deputy Speaker (Mr. Nicholas Winterton)Order. I express the hope to the hon. Gentleman that he will refer, if only briefly, to the ombudsman.
§ Mr. MacShaneI have.
§ Mr. Deputy SpeakerI am not sure that the hon. Gentleman has. Such a reference will make the debate relevant to the Minister.
§ Mr. MacShaneI asked whether my right hon. Friend the Minister agreed that the role of pensions ombudsman needed strengthening. That is what I said, Mr. Deputy Speaker. That question and this repetition of it will appear in Hansard tomorrow.
Instead of giving the new company Corus a major cash flow boost and a huge handout to existing shareholders, it would have been possible to reduce both employers' and employees' contributions to 2 per cent. for the next five years and then to review the situation. A £500 lump sum could have gone to all pensioners and to all widows. Those suggestions were put forward by British steel pensioners, but were turned down. They would have made a direct, immediate improvement to the quality of life of scores of thousands of retired steelworkers in Britain. They would have left the fund fully secured and thus approved of by the pensions ombudsman, but would have been a use of the surplus cash to help the many not the few. I appeal to the 96WH management of Corus, once the current actuarial review is over, to think hard about being more generous to existing pensioners.
Let us not forget that, under the present rules which are supervised by the pensions ombudsman, if the British Steel pension fund were to get into trouble, the active members—today's employees—would have to bail it out. British Steel as a company has put in only 34 per cent. of the contributions of the scheme since it was set up in 1990—the rest coming from employees. Yet all power lies with the management of British Steel, now Corus. This structure is a tribute to ripe old high Thatcherism in which partnership, equal responsibilities and equal rights were all dirty concepts.
I urge Corus, in conjunction with the unions and existing pensioners, to restructure the scheme so that the company and the trustees have an equal say in important decisions. I also urge the scheme to consider using its surplus to support existing steel communities in the UK, which remain the hardest hit in terms of loss of jobs and especially well-paid jobs for men associated with the steel industry. The winding up this summer of the European Coal and Steel Community and its linked funds take away an important source of financial support for constituencies such as mine struggling to come to terms with the end of the coal and steel jobs that once provided the backbone of the economy of South Yorkshire, south Wales, Teesside, Humberside, Lanarkshire and other industrial heartlands.
The steel and other giant pension funds now constitute a central part of the so-called new economy. If properly harnessed, those funds can help to rebuild the communities from which they draw their wealth without jeopardising their prime obligation to meet their pension requirements. Sending remittances to an area where men need new work confuses relief with the need for investment, which can create permanent hopes for a new economy. I do not expect the Minister to provide answers to all those problems, but we need to take a fresh look at the operation of pension funds. They should not only dole out small sums, but help to create new sources of wealth in the communities in which they originate.
§ The Minister of State, Department of Social Security (Mr. Jeff Rooker)I glad that my hon. Friend the Member for Rotherham (Mr. MacShane) does not expect answers to each of his points because, in nine minutes, I cannot do justice to them all. However, I congratulate him on raising the issue and the important role of the pensions ombudsman in the treatment of surpluses in pension fund schemes.
I shall begin by briefly explaining the role of the pensions ombudsman, who can investigate scheme members' complaints about maladministration in the running of their scheme. Those complaints can be against the trustees of the scheme, managers, administrators and the employer. In investigating a complaint, the pensions ombudsman considers whether the actions of the subjects of it, such as the trustees, the employer and scheme administrator, have been in accordance with the scheme rules. Failure to comply with the scheme rules can be considered as maladministration.
97WH If the ombudsman determines that maladministration has occurred, he can direct that certain action is taken to rectify the situation. The ombudsman can consider complaints about the use of a scheme's surplus. Indeed, we have made an amendment to the rules under which the pensions ombudsman the Child Support, Pensions and Social Security Bill, which is currently in the other place and which we shall consider again when we debate the Lords amendments to it. That amendment will ensure that the ombudsman's procedures allow him to continue to consider such complaints.
Cases involving surplus may affect the interests of several parties, as my hon. Friend said. Our amendment will allow the pensions ombudsman to link to a case all those whose interests may be affected by the complaint and will give them an opportunity to have their say. Without that strengthening amendment, it would be difficult for the ombudsman to accept such cases. The previous Government were not wholly to blame for the position because the Pensions Act 1995 cleaned up much of the Maxwell scandal. Indeed, it is a tribute to everyone concerned that that Act was passed. It includes requirements on the treatment of scheme surpluses, which I wish had been in force when I was supporting constituents involved in the Lucas pension scheme who were robbed blind on surpluses. I make no apology for that remark.
My hon. Friend talked about pensions holidays and spoke about a firm operating at a loss transferring funds to shareholders, implying that that money came out of the pension fund. I do not know about that. However, before a payment is made from a surplus to the employer, the rules require that several things must be done. First, all current and future pensions in payment must be increased annually in line with the retail prices index up to a maximum of 5 per cent., including pensions accrued in the past. Secondly, the trustees of the scheme must satisfy themselves that the use of the surplus is in the interest of the members. Thirdly, the scheme members must be notified of the trustees' proposals in the manner required by law, which ensures that members' benefit from the surplus and their interests are taken into account.
In schemes in which payment from the pension fund to the company is permitted by the scheme rules, members have a right to challenge the trustees' decision by appealing to the Occupational Pensions Regulatory Authority if they believe that statutory criteria have not been followed. Opra will investigate the case and decide whether to allow the payment. In schemes that do not permit a payment, Opra has the power to modify the scheme rules. The statutory criteria are the same as those for schemes that permit payment, and Opra can decide whether to modify the scheme rules to allow a payment to be made.
The pensions ombudsman is barred from investigating complaints about those requirements for the simple reason that non-compliance is a matter for the Occupational Pensions Regulatory Authority. Opra can investigate non-compliance and sanction the trustees if they do not follow those requirements. The sanction can take the form of a fine of up to £5,000 per trustee or the trustee's removal from the scheme.
98WH To the best of my knowledge, the pension fund discussed by my hon. Friend has not applied to make a payment. Before such payment can be made, permission must be given. The merger took place last year and, now that it is June 2000, the Department and the regulatory authorities have no knowledge of the scheme or company ever applying for permission to make such payments. As I say, I am not certain about the exact nature of my hon. Friend's allegation.
§ Mr. MacShaneIt is not a question of direct transfer. By cutting the contributions from 5 to 2 per cent., the company's cash flow is so altered that it can use other funds to make a payment to shareholders. That worry has caused outrage among steelworkers.
§ Mr. RookerThat may be so. Surpluses are an emotive issue, and, as I made clear, I have experience of that. However, in considering trustees' treatment of a surplus, one must make a distinction between actuarial surplus and statutory surplus.
Actuarial surpluses are identified by the scheme actuary in the course of regular valuations. Statutory surplus, however, is calculated according to a formula prescribed by the Inland Revenue. A scheme is classed as being in statutory surplus when it holds assets in excess of 105 per cent. of its liabilities, calculated on the basis of the Inland Revenue formula. There are many tax reliefs associated with such funds, to which the public make a massive contribution. Indeed, they would not have achieved success without the contribution made by the public by means of tax relief.
It is important that the Inland Revenue should protect the public purse, so it makes certain requirements of the schemes, which are intended to make sure that pension funds do not receive undue tax relief. When the scheme holds funds in excess of 105 per cent. of its liabilities, it must reduce the excess if it is to retain full tax exemption. That can be done in may ways, including employer and employee contribution holidays, increasing the benefits to current and future pensioners, and making a taxable refund to the employer. Such a refund has been made in many cases, but permission must be obtained. Of course, the employer would have to pay 40 per cent. tax on such a transfer.
Regardless of the methods chosen, the plans for the elimination of the surplus must be approved by the Revenue. Occupational pensions are voluntary and companies are not under any legal requirement to run such schemes. I appreciate that surpluses are a contentious issue, as we must consider who owns them. However, under the rules on the minimum funding requirement brought in after 1995, which are currently being reviewed and on which we shall pronounce, no one will lose a pension.
The pension may be insufficient, but that is a matter for the trustees and those who run the scheme. Pensions already obtained in payment or accruals will be protected as a result of the security in managing the surplus. No one will lose out. However, the pension fund not being generous enough to its pensioners or its deferred payers is a matter for the trustees. The Child Support, Pensions and Social Security Bill will make fund members' involvement in trustee boards mandatory. However, that provision is not yet in place.
99WH I know nothing about the composition of the board of trustees of the fund described by my hon. Friend or about the fund members involved. However, I would be astonished if the trade unions were not heavily involved, given the nature of the industry and the unions' support.
§ Mr. MacShaneI welcome the Minister's comments, which tilt the balance in favour of trustees representing employees past and present. Will he join me in suggesting that Corus examines its surplus distribution and adopts a more generous approach to the poorly paid pensioners whom I mentioned?
§ Mr. RookerCorus is a blue chip company which, as my hon. Friend made clear, is operating within the law. It is, therefore, incumbent on it and all good employers who want to make a good impression on the communities that they serve, their former pensioners, their deferred pensioners and their existing work force, to make the most advantageous and generous provision for pensions that is possible within the rules. If surpluses are available, that avenue should be explored.