Mr. Peter Lilley (Hitchin and Harpenden) (Con): It is a great pleasure to follow my right hon. and repositioned Friend, as I suppose that I should refer to him in the light of his remarks about my party‘s change in position. I was not sure whether he disagreed with that in principle or was bemoaning the fact that it made his move unnecessary. Anyway, his speech was extremely interesting and will well merit rereading.
I want to concentrate on one problem that is addressed by the Bill and one problem that is ignored by it. The problem addressed by it is that on which most Members have commented: the problem of providing compensation when pension funds fail and the company is bankrupt.
I understand the conflicting pressures on Ministers, since I experienced similar pressures when I became Secretary of State for Social Security and immediately faced the problems bequeathed to us by Robert Maxwell, when he was found dead in the Atlantic and his funds were found to be short of several hundred million pounds. I refer to these issues solely because I believe that we may be able to draw lessons from that experience in coping with the similar?though, I accept, different?problems that we now face from a number of failed funds. The House will recall that several hundred million pounds were missing from all the Maxwell pension funds, that some 30,000 pensioners were as a result left at risk of losing all or part of their pensions, and that some faced immediate destitution, as their funds would be unable to continue paying their pension at all.
I therefore faced two conflicting pressures very similar to those that Ministers now face. The first was a desire to help those facing destitution and the loss of the expectation of a pension that they had confidently looked forward to receiving. The second was a reluctance to accept an open-ended responsibility for events that were not the fault directly of Government.
I decided that humanity had to override rigidity of the financial rules, and that we had to cope with the problem of people losing their pensions. We had to be imaginative about it, so we invented something called a non-reimbursable loan, which was immediately made available to continue the payout of pensions of those who would otherwise have lost them. A small sum, just ?5 million, was created by that rather unusual financial instrument, but it bought us time, during which we were able to do a number of other things, including deferring the state earnings-related pension scheme contributions and thereby effectively making more money available from public funds to meet the problem. We also appointed my noble Friend Lord Cuckney, who, with the backing of the Select Committee and in particular the right hon. Member for Birkenhead (Mr. Field), and
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indeed of all parties, helped regain the money and plug the gap so that pensions were secured for all those 30,000 pensioners.
Subsequently we set in place a number of protections against a repeat of such a fraud, and, as a last resort and long stop, powers to impose a levy to compensate pensioners in the event of a fraud being perpetrated on a pension fund. What we did not do, rightly or wrongly, was to set up an insurance fund against failure resulting not from fraud, but from insufficient funds being put into the pension scheme and from the eventual failure of a company.
We did not do so for three reasons. The first was that such a coincidence of events, both a shortfall in the fund and the insolvency of the employer, was exceedingly rare; it scarcely ever happened on a major scale. Secondly, we had reduced the likelihood of its happening in future by introducing the minimum funding requirement. Thirdly, we wanted to avoid any possibility of moral hazard that such an insurance scheme, like all insurance schemes, can create.
What we certainly did not foresee at the time was that the Government would twice relax that minimum funding requirement and would impose a ?5 billion a year tax on pension funds, siphoning that money off from them. On the day it was introduced I described it as the Robert Maxwell memorial tax, because it had such echoes of the very problem that brought about the crisis in the Maxwell funds. The tax has contributed to, though it is by no means the sole reason for, the crisis in pension funds generally now.
Kevin Brennan: The right hon. Gentleman is informing many of us in the House about the details of the Maxwell incident. Before he leaves that, will he acknowledge that the major reason for the shortfall in funds that we are discussing today is the performance of the stock market, rather than the other issues he has raised?
Mr. Lilley: The hon. Gentleman must remember that the performance of the stock market is not unaffected by the siphoning off of ?5 billion a year from pension funds, which are major holders of equities.
I should like to draw the positive lessons from the Maxwell experience. First, a Government cannot ignore the current victims of a crisis that has provoked them into taking action to help future victims of similar crises. They cannot do so on grounds of avoiding being retroactive, especially as the fund that the Government propose to create will itself be partly retroactive in its effect; it will compensate people for problems that have built up in recent years, when the fund did not exist, if those problems are crystallised in the years immediately ahead.
The second lesson is that the Government must be imaginative. We invented the non-reimbursable loan and the postponement of SERPS contributions. The right hon. Member for Birkenhead suggested using a portion of unclaimed assets. We have had no imaginative thought from the Government as to how assistance can be provided for those who are affected by the collapse of their employer and their pension fund simultaneously.
The third lesson is that it is surely better, probably cheaper and certainly fairer to keep pensions in payment rather than to make an upfront purchase of annuities for
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future pensions, which may cost a great deal. By keeping the pensions in payment out of an ongoing fund, one buys time, spreads the cost over time and may reduce the ultimate cost if, as the right hon. Member for Newport, East said, the market recovers in the meantime.
I accept the Government‘s point that taxpayers cannot be relied on to provide support for everybody in an ongoing scheme; when many taxpayers are not themselves beneficiaries of defined benefit pension funds, that would be unfair on them. The fourth lesson, therefore, is that ideally the cost of insurance premiums for any protection should fall on the beneficiaries, the members of those pension funds, rather than the shareholders of the companies concerned, and this provision should be extended to the members of pension schemes underwritten by the state: members in public sector defined benefit schemes whose benefits are guaranteed by the taxpayer. They include Members of this House. It is very odd that we should be narrowing the burden of the cost of support to private sector members and employees belonging to defined benefit pension funds, saying that those in the state sector, including Members of this House, should make no contribution towards that insurance scheme.
Fifthly, I accept that there is moral hazard and that therefore we may need to have an only partial?less than 100 per cent.?insurance provision for the collapse of a company and its pension scheme, and conceivably even less than the 90 per cent. for ongoing schemes that the Government propose. It is, however, important to provide at least some protection. There is a precedent in the form of the financial services compensation scheme, which covers deposits, investments and a number of other things. In most cases, although the arrangement for investments is slightly different, it will provide 90 per cent. payments up to a certain level of deposit or investment. So the issue has been dealt with elsewhere, and the Government are right to consider trying to tackle it in the Bill.
Sir John Butterfill: If all the costs of the premium payable to the fund were borne by employees, would there not be a much greater danger of moral hazard? Surely employers would be tempted to behave badly, because they would not be bearing any of the costs.
Mr. Lilley: I do not think that the impact on employers would be hugely different if the premium were compulsory, because they cannot avoid it in any event. There is of course a distinct possibility that employers will refuse to contribute a penny more than the minimum funding requirement or whatever replaces it, because they will know that if they do they will be protecting themselves unnecessarily?that if the company goes bankrupt and the fund is temporarily insolvent, the state will deal with the situation. I do not think that the risk?which does exist, and must be coped with?would be increased by making the beneficiaries, namely the members of the pension fund, pay the costs of the scheme.
The Bill does not deal with one problem. It does nothing to rebuild the pensions system from the rubble into which it has been cast. Those are not my words; it was the right hon. Member for Birkenhead who said that the Government had inherited the strongest pensions system in Europe, and had reduced it to rubble.
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We accept that other factors besides Government actions have contributed to that, and I am not here to blame the Government particularly for creating the problem; rather, I am here to blame them for doing nothing to solve it. The culture of saving has been undermined by the problems affecting pension funds, but above all by the pernicious effect of means testing. We must restore that propensity to save.
As I said the other day when presenting a ten-minute Bill, I believe that three actions are needed. First, we must require people to save enough during their working lives to provide a pension that will avoid their being dependent on means-tested benefits when they retire. Secondly, we must enable them to do that by providing rebates from their national insurance contributions, incorporating large flat-rate rebates which, along with their basic pensions, will be sufficient to lift them above any dependence on means-tested benefits. Thirdly, the Government should guarantee the fund up to that basic level for each individual, while not including any extra savings that he or she might be encouraged to make, and should establish appropriate rules to prevent the exploitation of that guarantee by those investing on their behalf.
I think that if we introduced those three rules?compulsory saving by everyone, the provision of rebates to enable the basic level to be met, and a guarantee of that basic level?we would secure a system that would encourage people to save, enable them to save more than the basic minimum, and allow them to choose when to retire, once they had enough in their funds, so that they would no longer depend on means-tested benefits. At the same time, ownership should again be spread throughout the people of this country. That has not happened since the extension of home ownership.
Sadly, the Government have failed to take the opportunity presented by the Bill. I therefore support my Front Bench, whose amendment has fired a warning shot across their bows.