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Although our record on pensions across most of the earnings spectrum was by far the best of any Government, the message was that we had a problem at the bottom with a rapid growthabout a sixthin the proportion of people who became dependent on income support within three years when they saw the penalties for having a bit of capital and the extra rewards for not. What is extraordinary is that the Government seized on the only big mistake that the last Conservative Government made: they introduced the minimum income guarantee, a greatly expanded version of income support, that relies heavily on means-testing and on which the new structure of the pension credit is built. At the same time, they introduced a range of measures, listed by one of my hon. Friends after another, that undermined occupational and private pensions.
Of course the markets have slipped, for a variety of international reasons, but £5 billion a year in tax removal capitalises at about £100 billion, an enormous sum to take from the capital value of our pension funds. Other of hon. Friends, including my hon. Friend the Member for Havant (Mr. Willetts) in his excellent speech, referred to the progressive squeeze on the contracted-out rates for those choosing to contract out of state pensions. That is an extraordinary measure for a Government who say that they want to reverse state dependence from 40:60 to 60:40.
We have to step back when we consider policy and look at the bigger picture. My hon. Friend the Member for Havant was right to the allude to the bold policy proposal, encased in an amendment taken on the Floor of the House which had the support of the Liberal Democrats and the right hon. Member for Birkenhead (Mr. Field), to scrub the plan for the means-tested pension credit. Under the Government's measure, pensioners face not only a combined tax and withdrawal rate of 40 per cent., but extremely intrusive forms and a complicated set of conditions. For example, people who go abroad for more than four weeks lose the credit and have to start again.
The measure also penalises people who want to work, which brings me to the second policy point outlined so clearly by my hon. Friend. We have to find ways to encourage people to work longer. Labour Members poured a great deal of scorn on the annuity measure introduced by my right hon. Friend the Member for Skipton and Ripon (Mr. Curry). The Government's great mistake is that they have focused on the relatively small percentage of people on whom their measure would have an impact now. As people live longer and those of working age become more prosperous, it is inevitable that the percentage who could benefit from liberalisationwho could do more to provide for themselveswill rise. My father has just celebrated his 75th birthday. He continues to run his own small business and provides full-time employment for three young men, all with young families. He is livid that some bureaucrat has forced him to take out an annuity when he had continued to make pension contributions year after year.
I mentioned that great legacy of the last Conservative Governmentthe 67 per cent. rate of those retiring with pensions of their own provided by occupational or private schemeswhich has fallen seven or eight points, an average of one and a half points for each year of this Labour Government. I also mentioned the collapse in the savings ratio. The markets may well recover. I do not know; I am not a pundit. What I am certain of is that the crisis in the collapse in the savings ratio, and the crisis in the fall in the proportion of people who are members of pension schemes and of people who retire each year as members of pension schemes, will not reverse on its own unless three broad areas of policy change. Let me remind the House of those. They have all figured in my speech.
First, we have to get away from means-testing. The most elegant and simple method is the one that was encapsulated in our amendment to the State Pension Credit Bill: instead of a creating another means-tested benefit, we should put the money into a better basic pension and focus it on the over-75s.
Secondly, we have to stop penalising those who wish to work. For goodness' sake, we need people to work longer, and the present annuity arrangements penalise those who do, as indeed does the pension credit, by the back door.
Finally, above all, the Government have got to get the figures right. We have had enough debate, and I am not going to attack the Government again for getting their figures wrong. But until we have proper, accurate statistics that reveal what is going on, it will be almost impossible to formulate decent policies, and the Government owe it to the House to straighten that out. Pensions matter, not only to the generation coming up to retirement but to the whole generation behind them.
Mr. Bill Tynan (Hamilton, South): I apologise for being absent for some of the debate because I was at a meeting in the House. This has been an interesting debate, and there has been much consensus between Members on both sides of the House, which is important.
The title of the Opposition motion is "Funded Pensions", but we will miss a wonderful opportunity if we talk only about funded pensions. The TUC calculated that 5.8 million people were in funded pension schemes in 1991, but it is vital that we recognise that a vast number
All previous Governments have failed the pensioners of this country because they have not created the conditions in which people do not need the likes of the pension tax credit or the minimum income guarantee. There are poor pensioners who, without the minimum income guarantee, would find themselves in abject poverty. I sincerely believe that this Government should be applauded, not denigrated, for having targeted those people. I believe also that the pension tax credit will make a difference to people in small occupational pension schemes, many of whom are excluded from housing benefit and council tax benefit.
It is unfortunate that people think about retirement only towards the end of their working life. We do not encourage young people to think about the funds that they will want when they retire. We have to find a way to convince them that there is a need to save for retirement because it is only when they find that they have no pension that they will realise that their standard of living will dramatically reduce and that they must depend on state benefits.
Occupational final salary schemes are the best, whether the pension is based on a 60th, an 80th or a 100th of the salary. Benefits are defined, so people understand that for every year that they work for the company, they will receive a 60th, an 80th or a 100th. We should tell companies that are considering abolishing their occupational pension scheme that if they need to make a move, it should be to a scheme based on 80ths or 100ths, but they should continue to provide a final salary scheme.
I worked in a company a long time ago. People say that I was only employed in that company, but I worked at times. I was a full-time union convenor. We were aware that there were two different forms of provision for staff and manual workers in that company: one group paid 2.5 per cent. and the other 5 per cent. We set up a pensions advisory committee, sat down and discussed how we could best rectify the problems and arrive at a common scheme. We were successful.
Horrifically, the women in that company were not allowed to join the pension scheme unless they had 10 years' service. The equal pay legislation allowed us to tackle and eliminate the belief that women should not be part of a pension scheme because they were not providers. It is important that we understand that women have been neglected. The hon. Member for Northavon (Mr. Webb) made that point tonight. We have to do something to improve the lot of women who, because of their circumstances or bad advice paid the small stamp and found themselves living in poverty.
Recent events are not unique. British Airways decided to close its final salary scheme in 1984, and an 18-year battle to establish who owned the surplus ensued. The question of who owns a surplus is always an issue with any pension scheme. The company claims that it owns it, but employees say that it represents deferred earnings and that they should have a say. Last month the Court of Appeal ruled:
The Finance Act 1986 made a difference to final salary schemes. It was decided that 5 per cent. overfunding would lead to any surplus in excess of that being taxed at, I think, 35 per cent. or more. The overfunding had to be got rid of within five years. The company I worked for told us that there was a £270 million surplus in the scheme and that it intended to take out £150 million. We argued strongly that benefits should be improved insteadand they were, to such an extent that we moved to a 60th scheme and introduced early retirement for people who were seriously ill. Such people's pensions were calculated as though they had reached 65 and were beneficiaries of the scheme. We also made the scheme non-contributory, so everyone who was a member of the scheme prior to 1987 became a free member of the scheme.
It was a very good scheme. Now, however, the company realises that the position is serious. It has decided that all employeeseven those who were members of the scheme before 1987will have to contribute 6 per cent. of their salary. There will be no new pensioners with a minimum 3 per cent. annual increase in their pension, and there are to be changes to all forms of early retirement. Active employees and deferred pensioners will now be subject to actuarial valuation reductionsthey were not when we negotiated the scheme.
In the current circumstances, some schemes are in trouble, but I believe that by deciding not to take the easy option of closing the final salary scheme, but instead looking for ways to solve the problems, the company I worked for has shown the way forward. We have to protect this country's final salary schemes. If we do not, people who are currently middle aged may well lose out and face great difficulties when they reach pension age, and the Government at that time will have to support them. It would be better to remedy the problems now than to allow them to continue. That is why I have been critical of all previous Governments. We have taken our eye off the ball, and we seem to be doing the same thing tonight by concentrating solely on funded schemes.
Many issues have been raised in respect of how we might do business in future. It is true that an overwhelming number of companies decided that they would take contribution holidays. When the sun shone on the stock market, that was the right way to go as far as they were concerned. When taking those contribution holidays, companies often did not apply them to their employees. Employees have suffered a double whammythey have not had the pension scheme that they should have had, and they did not enjoy a contribution holiday. They have been badly affected. One of the saddest and most distasteful aspects of the episode of closures of final salary schemes has been the retention of the schemes by top-level management. We must address that. What is good for the employee is good for the employer.
That behaviour is another example of the corporate greed that seems to be infesting our economic system at the moment. According to the TUC, between 198788 and 2000, employers took contribution holidaysreductions in the value of pensionsworth £19 billion.
There is no doubt that we have tried to address some of the problems through the stakeholder pension scheme, but I do not think that those pensions will be sufficient for employees when they become pensioners. We must consider the question of compulsion and how we can maintain and continue to develop final salary schemes. If we do that, we will have success.