Mr.
Waterson: That ought to be looked at in the context of
certain schemes. [Interruption.] The hon. Gentleman pulls a
face—
Mr.
Watson: I am smiling.
Mr.
Waterson: It might be the hon. Gentleman’s normal
expression, in which case I
apologise. In
some schemes, because the people involved were there for a long time
and held particularly senior positions—I am trying to remember
the name of the company that Ferodo was part
of— Paul
Rowen (Rochdale) (LD): Turner and
Newall.
Mr.
Waterson: Absolutely. In that case there was a particular
problem because a lot of people had a significant entitlement way
beyond the cap. I am sure that if the Minister has not already had a
delegation from that company she soon
will. Some
of those who responded to the consultation said that, in particular
schemes, members have already paid for certain levels of indexation
within that scheme. If that sort of indexation is not readily
available, the value of the assistance in place of their pensions will
rapidly diminish. Of course, it is said that not having full indexation
rapidly undermines the Government’s claim—the
Minister’s claim—that people are getting 90
per cent. of what they would otherwise have received. I am commenting
on the views in the consultation that the indexing of assistance should
reflect the scheme
rules.
Dr.
Stoate: I have great sympathy for the hon.
Gentleman’s assertion that the scheme needs to compensate people
properly. There is nothing worse for people than to lose a pension that
they have paid into for many years and then to find that they are in
great insecurity in old age. But the question about affordability
remains. I should like to press the hon. Gentleman on how he thinks
that can be afforded by a party that has already said it will need to
make significant cuts in public expenditure, should they form the next
Government.
Mr.
Waterson: I think that we have proved beyond argument that
both main parties have accepted that there will be significant cuts in
public spending. The only person who seems to have been in denial for
some time, until only the other day, is the Prime Minister. All I am
trying to do is to find out whether, within the existing wrapper of the
FAS, some apparent unfairnesses can be ironed out. I am sure the
Minister will find a lot of people beating a path to her door, wanting
to talk about these issues on behalf of some of the groups
involved. The
Government have set their face against changing the arrangements.
However, the consultation
says: “The
Government acknowledges that the current indexation proposal means
that, over time, the buying power of any assistance paid will be
reduced”. I
have mentioned surviving partners and dependants. I will gloss rapidly
over a fascinating passage on polygamous marriages. Otherwise, the
consultation produced some interesting ideas. I think that the Minister
accepted in her opening remarks—she is promising us yet more
regulations in a few months—that this is still work in progress,
so it would be good to have a bit of a steer on whether some of these
issues could be tackled in the further regulations that have been
promised.
Steve
Webb: It is right that the hon. Member for Eastbourne
reminds the Committee of the history of the financial assistance
scheme, because we have come an awfully long way from a situation in
which the Government seemed to accept no responsibility whatsoever for
the people who lost their pension rights before the Pension Protection
Fund was introduced to one in which there was a grudging acceptance of
a fairly limited financial assistance scheme that then was extended.
Then there was a welcome change that adopted the argument that Ros
Altmann had made all along: forcing those schemes to wind up and buy
annuities was terribly bad value for money and meant that smaller
pensions were being paid as a result, rather than allowing the money to
be managed by the PPF. That change is entirely welcome.
Unlike the
hon. Gentleman, I have nothing against York, but it seems sensible to
do both those things in one place and the PPF is obviously the right
place to do them. There was a sort of theological reason for doing them
in two different places, which was that we were meant to think that the
FAS somehow involved a different kind of activity, but it is actually
much the same sort of activity, so it made sense to use the expertise
of the PPF. I certainly welcome that aspect of the
regulations.
Mr.
Waterson: Before an urban myth is born, I wish to clarify
that, as someone born and brought up in Yorkshire, I have nothing at
all against York, but merely against the rather obvious stratagem of
moving the FAS almost as far away from the PPF as
possible.
Steve
Webb: I am sure that the phrase “the other end of
the country” rather depends on where one starts from. I agree
with the hon. Gentleman, and before he started speaking I had written
down “FAS—poor relations”. I think that that is a
fair description of the provision, even as contained in the
regulations. I want to give the Minister and her Parliamentary Private
Secretary, the hon. Member for
Dartford— [Interruption.] Well, a quasi-PPS.
I want to give them an observation on the inconsistency of Government
policy in that area. When it came to people who would have lost their
pensions who worked, for example, for a building society that was about
to become defunct, the Government did not come along and say,
“We will fill 90 per cent. of the gap”, as they do in
these regulations. Instead they said, “We will fill the whole
pension fund shortfall.” For some of the rescue packages for
financial and other institutions in recent months and years, the
Government have for some reason decided that a 100 per cent. bail-out
is appropriate. However, for FAS pensioners, 90 per cent. is seen as
appropriate. Some
of the arguments made today have focused on the affordability of going
further than the regulations, and the Government’s argument is
that they cannot afford it because there is no money. But money was
found to go further than the regulations for other pensioners who were
in pretty much the same situation and whose employers were essentially
financially unsound and had gone to the wall without Government
intervention, and even if they had ended up in the PPF, they would have
got 90 per cent., but for some reason they got 100 per cent.
I hope that the Minister will reflect on the inconsistencies that
people who have lost their pensions in different circumstances are now
finding: if one works
for a bank one gets one thing, if one is in the PPF one gets another,
and if one is in the FAS one gets something else. There seems to be no
justice in those different circumstances. There are
several inadequacies about the level of cover set out in the
regulations, and the hon. Member for Eastbourne has covered a number of
them. Why is it that, even if someone retired before 2004, they cannot
get an FAS pension under the regulations until 2004? The reason is that
the Government kicked, screamed and dragged their heels until 2004
before introducing a scheme, but those people have potentially lost for
ever several years of their pension. When the Minister, as she so often
does, and as she did today, says “90 per cent. 90 per cent. 90
per cent.”, she omits all the caveats. One caveat is that a
person who retired before 2004 will potentially have several years in
which they get, not 90 per cent., but zero, and that does
not seem just.
If the
Government accept that those people have lost their pensions through no
fault of their own, and if the ombudsman says that it is due to
maladministration, as she does—a view that has been upheld in
the High Court—how can the Government justify not replacing
those pensions, having accepted the case for doing so from the point
where people drew them, rather than from an arbitrary date in May 2004?
There is an irony in the Government choosing 2004, because the
ombudsman, who says that one of the reasons why that went wrong and
maladministration occurred was that Government literature was
misleading, also says that 2004 was the first point at which the
literature was accurate. According to the ombudsman, the literature up
to 2004 was still inaccurate, and yet people who lost their pension
prior to that date cannot receive a penny under the
regulations.
Mr.
Watson: Would the hon. Gentleman like retrospective
payments for all members who have lost
out?
Steve
Webb: Yes, I would, quite clearly.
It would be
interesting to know the basis of the Government’s costing. Will
the Minister give us a figure for what, to the FSA, is a relatively
marginal change, but which will have a huge impact on someone who has
lost out on three years of pension. It could make a huge difference to
this small number of people, but at a relatively modest cost in the
overall scheme of things. The pre-2004 issue is very important, but I
would like to return to her 90 per cent. mantra. A scheme member
e-mailed me stating
that “the
only people who will get 90% appear to be those whose schemes had no
indexation in the first
place”, which
is relatively unusual, I think.
It is worth
running through the ways in which the proposals in the regulations will
give people less than 90 per cent. I would be grateful for
some clarification from the Minister on this. The first relates to
revaluations. What do we do from the point at which someone leaves a
scheme to the point at which they draw a pension? How do we convert
what they had earned into today’s prices? Very often, schemes
will have had their own rules for how that should be done. I hope that
she can confirm my understanding, which is that, under these
regulations, the scheme is irrelevant, because the FAS
has its own way of doing things. In some cases, therefore, the
revaluation will be less generous than what the scheme would have
provided. Some recipients will not receive 90 per cent. of what they
would have got, because the revaluation will not be done on a
scheme-specific basis. The second
and most fundamental problem is that all pre-1997 service is un-indexed
once the pensions start to be in payment. We are talking about people
for whom their membership of these schemes might have been entirely
pre-1997. They could have retired shortly after, or moved to another
scheme, and so could find that the pension that they draw, on
retirement, under the FAS, is then frozen forever. Even if we stick to
the Government’s 2 per cent. inflation target—I think
that the Minister mentioned 2.9 per cent. in previous
regulations—it will not take many years of 2, 2.5 or 3
per cent. inflation seriously to erode the value of these pensions. For
those who have worked for such companies all their lives, it is the
only pension that they have. She talks about 90 per cent., but it is
not even 90 per cent. on day one, let alone in year two, three or
four.
We might be
committing FAS pensioners to decades of falling real living standards.
These people are entirely innocent. There is no suggestion that they
did anything other than what they should have done. They worked hard
and contributed to their pensions, and now we are condemning them,
through these regulations, to year after year of declining real living
standards. Post-1997 service, which will constitute a small part of
most of these people’s pensions, is only inflation capped. As
the hon. Member for Eastbourne said, they might have paid for more than
that—their scheme might have provided more generous benefits.
This is not about adding bells and whistles, but about reinstating
something that they have already paid for and were expecting. The
Minister says 90 per cent., but 90 per cent. of what? It is certainly
not 90 per cent. of what they would have received under their
scheme.
I know that
the Minister does not seek to mislead—the regulations contain a
90 per cent. number—but to imply that people will receive,
leaving aside the cap, 90 per cent. of what they would have
got is very misleading. Does she know what proportion of the 114,000
people whom she mentioned will receive—on day one and a year
later—90 per cent of the pension that they would have received?
Perhaps I should table a written question about that. I strongly
suspect that it will be a tiny fraction. If it so transpires, perhaps
she will stop using that 90 per cent. phrase, because it is
misleading. As
we heard, the regulations were consulted upon. Some aspects, such as
the move to the PPF were welcomed, but the inadequate indexation was
very widely not welcomed. I believe that only seven of 116 consultation
responses supported the Government on indexation. One would think that
the Government would have listened to those responses, but instead they
said, “We’ve already said how much we’re going to
spend on this, in 2007, so we cannot listen to the consultation,
because we’ve already decided the budget.” What is the
point of a consultation if, when people respond to something that has a
price tag attached to it, and they do not like it, the Government say,
“Well, we were never going to listen to you anyway, because the
budget was fixed at the start”? That makes a mockery of
consultation. The pensions industry and pensioners will say that they
are
constantly consulted, and we ought to think of consultation as a good
thing, but if people respond to a consultation en masse, almost with a
single voice, and the Government simply say, “Well, that is the
number we first thought of,” that rather undermines faith in the
process. Mr.
Adrian Bailey (West Bromwich, West) (Lab/Co-op): The hon.
Gentleman has obviously read through the consultation in some depth.
What level of indexation would he commit his party to, given the
responses to the consultation?
Steve
Webb: The problem with the FAS is that it is not scheme
specific. The Minister is saying that 90 per cent., on average, is
replaced—although, for the reasons I have given, that is not
entirely accurate—but that will differ from scheme to scheme. My
answer is that where people have put in their own money to pay for
indexation protection, that is what they should get, so there would be
a differential answer for different schemes according to scheme rules
and how much people had already put in. It should reflect what they
were going to get, and should be scheme specific, rather than being an
average. I
have mentioned the failings of the consultation; now let me make a few
specific points. One flicks through these regulations and is always
delighted to find an equation, although E minus B over N, in regulation
26, is not as scary as some that appear later in the document. The
Minister knew that I could not resist discussing this measure, which
says that when there are a surviving spouse and surviving dependent
children, the pension that they get is smaller if there are more than
two dependent children. That is true whether there is a surviving
spouse or not. Will the Minister confirm whether that is normal
practice in occupational pension schemes. I have two dependent
children, and I had assumed that if I were not with us for much longer,
as some may wish, they would each get a certain amount of pension, and
that if I had a third child, they would all get the same pension. The
regulation says that if there is a third child, each gets two thirds of
what two children would have got. Is that
normal?
Angela
Eagle: I knew that the hon. Gentleman would get on to the
algebra. The key point is that the amount cannot go over 100 per
cent.
Steve
Webb: I appreciate that, but is that practice normal in
the sorts of schemes that are being
replaced?
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