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Pension Funds

7. Dr. Julian Lewis (New Forest, East): If he will make a statement on trends in the value and expected yield of pension funds since 1997. [45017]

The Secretary of State for Work and Pensions (Mr. Alistair Darling): The investment return achieved by pension funds between 1997 and 2001 has seen real returns of 6.8 per cent. The real rate of interest available from savings accounts over this period was 2.8 per cent.

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So, put simply, by investing in pension funds, people have had more than double the amount of return that they would have received from a conventional savings account.

Dr. Lewis: I thank the Secretary of State for that Alice-in-Wonderland answer. On the eve of the Chancellor's sixth Budget statement, should we not remember what he did in his first Budget, which was to mount a £5 billion a year raid on pension funds? Is it not as a result of that that firm after firm is abandoning final salary pension schemes, with the effect that a stealth tax whose effect was meant to dawn in people's realisation many years hence is becoming obvious now? It is obvious that people's pensions will be worth a fraction of what they would have been worth without the Labour Government raiding their pension funds.

Mr. Darling: First, the hon. Gentleman may not like my reply, but it was a reply to the question that he put. I can see why he might have shifted his ground in the light of my answer.

As for his other remarks, the hon. Gentleman will recall that when, more than four years ago, we made changes to the corporate tax regime, we cut corporation tax as well. This country has the lowest ever rate of corporation tax, which has been of great help to companies' profitability and therefore to their shareholders, the vast majority of whom are pension funds.

The hon. Gentleman knows well that the reasons for the trend to close down defined benefit pension funds are twofold. First, in the past couple of years, the value of the stock market has fallen dramatically, for reasons that we know. Secondly, as the Conservative spokesman, the hon. Member for Havant (Mr. Willetts), said only today, people are living longer. In response to those changes, we will later this year publish proposals that we believe will help companies and individuals to save more for retirement. However, the overall changes that the Chancellor made four years ago have greatly enhanced the profitability of companies in this country and are therefore right for pension funds, which benefit from that increased profitability.

David Winnick (Walsall, North): Despite my right hon. Friend placing responsibility as he has, is it not a matter of much concern that many employees are to be cheated of a decent pension as a result of employers closing down their final salary pension schemes? Why should employees—unlike Members of Parliament and others—be faced with inferior pension arrangements such as money purchase schemes, which will deprive them of a decent standard of living in retirement? I hope that the Government will take action.

Mr. Darling: As I have said on several occasions, later this year we will publish proposals that will, I believe, help both individuals and companies to contribute to pensions. It is worth bearing it in mind that in the past few years sales of pensions have increased by some 50 per cent.

Lest the hon. Member for Havant forgets to mention it, let me point out that the latest figures on stakeholder pensions, which were designed to bridge some of the savings gap, show that 750,000 pensions have been sold. According to the Association of British Insurers,

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97 per cent. were bought by or on behalf of individuals of working age. The idea that they were all being sold to grandchildren turns out, like so many other things the hon. Gentleman says, to be nonsense.

Mr. Steve Webb (Northavon): The Secretary of State will be aware that, on average, employers contribute far more to final salary pension schemes for their employees than to money purchase schemes. He referred to proposals that he will bring forth later in the year. Is the goal of those proposals merely to slow the rate of decline of employer contributions to schemes, or does he think that they will cause those contributions to increase from their current level?

Mr. Darling: The objective must be to make sure that people save more for their retirement. The big problem facing us and Governments throughout the world is that, because people are living longer, we need to persuade them to save more for their retirement.

The hon. Gentleman is right to a certain extent. The problem with the closure of final salary schemes is not necessarily that money purchase schemes are worse than final salary schemes; in fact, money purchase schemes can sometimes be better for people who move from job to job. The real problem is when the contribution made is reduced. As I said a few moments ago, the proposals that we will publish later this year are designed to make sure that more money goes into building up people's retirement pensions. That must be the central objective of Government policy.

James Purnell (Stalybridge and Hyde): Has the Secretary of State read the unanimous report of the Select Committee on Work and Pensions, of which the hon. Member for Sutton Coldfield (Mr. Mitchell) is a member, which welcomed the spending and principles underlying the State Pension Credit Bill and thought that the Bill would achieve its goals? What will my right hon. Friend do to ensure that the pension credit is taken up by as many pensioners as possible, which is central to making it work?

Mr. Darling: I read the Select Committee's report and am delighted that the hon. Member for Sutton Coldfield (Mr. Mitchell) has joined his predecessor in welcoming the pension credit as a much needed and overdue reform. We shall wait to see just how public he makes that support over the next few weeks.

My hon. Friend the Member for Stalybridge and Hyde (James Purnell) is right to draw attention to the fact that the pension credit will benefit more than half of pensioner households. It is important that we make sure that people get their entitlement. As people learn that the average gain will be about £400 per household, and as our proposed improvements to the system make sure that people get their entitlement, more and more money will go to the people who most need it. I strongly believe that the pension credit which, for the first time, rewards people's thrift and their efforts, is long overdue. We are determined to ensure that it works efficiently and effectively.

Mr. Peter Viggers (Gosport): The Secretary of State cannot be allowed to duck the Government's responsibility. Is he aware that there is a direct link between the Chancellor's changes to advance corporation

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tax and the closure of final salary schemes? Is it not a fact that millions of people in their 30s and 40s will no longer be able to look forward to an independent retirement as the Government force more people on to means-tested benefits? Will the Secretary of State apologise to them, or is it the Government's strategy to force more people on to means-tested benefits?

Mr. Darling: The hon. Gentleman, not for the first time, is talking a load of nonsense. There never was a time, unfortunately, when everybody looked forward to retirement on a high pension through a funded pension system. We have introduced reforms to the pension system to make sure that the state system does more to help people on low incomes. By introducing stakeholder pensions, we are providing pension options that were never available in the past for some 5 million people. With regard to final salary schemes, as I have told the House on a number of occasions, not least a few moments ago, the Government will introduce proposals to help both individuals and companies save for retirement.

I must make another point about the corporation tax changes to which the hon. Gentleman referred. If he was right about the ACT changes, one would expect all the closures to have taken place when the changes were made four years ago. What is driving the present spate of closures is, first, the stock market's dramatic fall in value and, secondly, the fact that the people running the schemes are beginning to realise that individuals are living longer, for which they have to budget. Thirdly, a lot of companies have been taking contribution holidays from their pension funds; those holidays are coming to an end, so they are closing some final salary schemes down. Some companies are not doing so; they are to be commended on taking a stand on their employees' interests. However, as I said, the Government will introduce proposals that will help individuals and companies to maintain and build their pensions for retirement.

Mr. Terry Rooney (Bradford, North): Can the Secretary of State confirm that between 1988 and 1992 5 million people left occupational pension schemes following the disastrous reforms of the Social Security Act 1986? As a result, £11 billion of compensation had to be paid, which has had a serious effect on the balance sheet of life assurance companies?

Mr. Darling: Opposition Members tend to forget that what happened during the 1980s, one of the worst examples of the mis-selling of pensions, would have resulted in hundreds of thousands of people losing, in some cases, just about everything if they had not got the compensation for which we fought hard. When we look at pensions and put in place a pension system, it is important to ensure that people who ought to be in the state system are looked after and remain there. People who have privately funded pension provision should also be adequately protected. The Conservative party should remember that its policies in the 1980s had near-disastrous effects, not just for individuals, but for the pensions industry, for which it sometimes claims to speak.

Mr. David Willetts (Havant): May I thank the Secretary of State for the Department's letter to me about pensions headed, "Important information from the

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Department for Work and Pensions"? However, it is difficult to have confidence in its advice on pensions, when it was addressed to

Perhaps it is not surprising that a Department that cannot correctly address a letter does not know how many assets we have in our pension funds or how much money we put into the funds as our contributions.

During the previous Work and Pensions questions, the Secretary of State defended his hapless Department and its useless figures. Will he confirm that in a letter to me he has admitted that he does not know how much we are saving or how much our pensions are worth? When will he have an answer to those questions?

Mr. Darling: First, it is a tribute to the Post Office that it managed to find the hon. Gentleman despite the way in which his letter was addressed. The Post Office—or Royal Mail, Consignia or whatever it is called now—will be pleased to know about that.

Secondly, the hon. Gentleman well knows that the statistics are prepared by the Office for National Statistics. The chief statistician has issued what I suppose for the ONS amounts to almost an apology for the fact that it has withdrawn a series of statistics. Apparently it will produce the statistics again. The Government do not produce the statistics, so I cannot accept responsibility for what Mr. Len Cook is up to.

Mr. Willetts: It was the Secretary of State who quoted those statistics all the time when he was trying to argue that there was not a problem when it was obvious to everybody else that there was one.

Let us try another simple, straightforward and factual question. What does the right hon. Gentleman estimate the impact on the value of pensions funds to be of the increase in the taxation of income from dividends in the 1997 Budget? The Department is responsible for pensions and it must have an estimate. What is it?

Mr. Darling: The value of pension funds depends to a large extent on the value of the stock exchange. As I explained to Conservative Members a few moments ago, the reason that some pension funds face a problem is that the value of the stock market has fallen for reasons that we are aware of over the past two to three years.

When we consider pensions, as the hon. Member for New Forest, East (Dr. Lewis), who first raised this line of questioning ought to know, we need to take a long-term view of stock market values. We cannot do what the hon. Member for Havant did in the Financial Times today, and take a snapshot of one year. That is certainly the way to mislead people.

Mr. Willetts: So the Secretary of State does not know how much our pension funds are worth or how much we are contributing to our pension funds. He will not even give an estimate of the impact of a tax change that his Government introduced. No wonder the Government deny that there is a crisis in our funded pensions when they are taxing them more, regulating them more and spreading

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means-testing to penalise saving. Millions of people will have a poorer retirement as a result of the Government's policies.

Mr. Darling: The hon. Gentleman is wrong in a number of respects. First, in relation to taxation, I shall take individual savings accounts, for example, which were roundly denounced by the Conservative party. It is worth bearing it in mind that that tax advantage savings vehicle has meant that 12 million people now have £60 billion of savings. That sum is far more than that invested in PEPs and TESSAs, which the Conservative Government introduced. More important, many of those saving in ISAs, for example, are on low incomes. They are precisely the people whom we should encourage.

As for general taxation, the hon. Gentleman well knows that we reduced corporation tax, which the Conservatives could not do during all the years that they were in power. That has helped shareholders, and especially pension funds. The greatest single factor that will help pensions and pensioners is that, unlike the Conservative Government, we are running a strong and stable economy that will do more than many of the measures to which the hon. Gentleman refers to ensure that people can build up good pensions and retire with a good standard of living through a combination of both what the state does and what individuals do through their own effort. Above all, that effort will be rewarded through the pension credit, which the hon. Gentleman opposes.

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