Pensions Policy Mr. Speaker



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Pensions Policy

Mr. Speaker: We now come to the main business, and I have selected the amendment in the name of the Prime Minister.

Mr. David Willetts (Havant) (Con): I beg to move,

That this House regrets the Government's failure to tackle the pensions crisis; expresses concern that present and former employees of Turner & Newall and those in a similar position do not know what assistance, if any, they will get from either the Financial Assistance Scheme or the Pension Protection Fund; regrets the inadequacies of Government efforts to encourage people to build up retirement savings in funded pensions; condemns the spread of means-tested benefits; draws attention to the Government's recent failure to deliver benefits to pensioners competently; further regrets the Government's wider failure to reform the welfare system for older people; notes that the National Pensioners Convention is lobbying Parliament on 8th September; and calls for Government action to tackle the crisis in funded pensions and to ensure dignity and security in retirement for older people.

I wish to draw the attention of the House to my interests, which appear in the Register of Members' Interests.

I begin by bidding farewell to the previous Secretary of State, who is sadly not in his place. We will miss him. He was a decent and honourable man—[Hon. Members: "He still is."] It is a pity that he will no longer serve on the Front Bench. Those Labour Members who shouted that he still is decent and honourable might like to reflect on why he was the victim of such a sustained campaign of spinning aimed at undermining his position as Secretary of State. He had to wake up every morning and read over his breakfast comments such as the following:

"Mr Blair is known to be looking for fresh thinking on the pensions crisis after warnings from Adair Turner, his pensions guru, on the seriousness of the situation."

That is what The Guardian said. The Sun said:

"Tony Blair is alarmed by the failure of successive ministers to grapple with the pension crisis."

Back in July, as the Secretary of State set off for his summer holidays, he had to read:

"Andrew Smith is set for the sack, according to ministerial sources, after failing to tackle the pensions crisis."

We have had a Secretary of State brought down by spin and dissatisfaction at No. 10 with the quality of his performance in tackling the pension crisis.

The right hon. Gentleman resigned two days ago, and we still do not have a Secretary of State to replace him. It is always good to see the Minister for Pensions, who is jovial and amiable—we always enjoy debating with him—but it would be convenient to have a Secretary of State here.

As pensions are in crisis, as we are debating the subject and as the National Pensioners Convention is here, it is a slight oversight that we do not have a Secretary of State for Work and Pensions in the Chamber. I do not know whether hon. Members here are candidates for the post, but I can see a very strong candidate on the Labour Benches.

In the absence of the right hon. Gentleman, perhaps the best person to speak on behalf of the Government would have been the Chancellor of the Exchequer. After all, that important constitutional text, the Granita pact, set aside economic and social policy as a responsibility of the Chancellor, and he has been fighting a successful rearguard action over the past two days to keep it that way. He is the guy who is responsible for the £5 billion a year tax on our pension schemes that has wrought such havoc. He is the guy who is obsessed with introducing more and more complicated means-testing. It is a pity we do not have him here to defend the Government's policies.

So we do not have the right hon. Gentleman and we do not have the Chancellor. Instead, what we have is a shambles, with a serious and growing crisis in our pensions.


Mr. Andrew Miller (Ellesmere Port and Neston) (Lab): I accept that the country faces some serious problems as a result of people retiring now and those who are about to retire. Does the hon. Gentleman accept that part of the problem is the failure of the Pensions Act 1995 to solve the problems facing some occupational pension funds, contrary to what the House was told at the time?

Mr. Willetts: The 1995 Act set in place a regime with the minimum funding requirement and regulation of pensions that was intended. It improved the security of our pensioners. I am afraid that the problem has arisen since 1997 when, among other things, the Government reduced the level of protection provided by the minimum funding requirement. Conservative Members, who have watched a £5 billion a year tax imposed on our pension funds and the reduction in the level of protection provided for the minimum funding requirement, are not going to hear the Labour party suddenly claim that it is all our fault.

Mr. Peter Lilley (Hitchin and Harpenden) (Con): My hon. Friend will doubtless recall that the 1995 Act was introduced to deal with the crisis created by Robert Maxwell removing hundreds of millions of pounds from pension funds. The current crisis results from this Chancellor introducing the Robert Maxwell memorial tax, which removes £5 billion a year from pension funds.

Mr. Willetts: My right hon. Friend puts the point with customary precision and honesty. That is exactly the case and it is good to have his authoritative intervention.

Kali Mountford (Colne Valley) (Lab): Will the hon. Gentleman give way?


Mr. Willetts: I want to make a bit more progress, but it might be possible to hear from the hon. Lady in a moment.

I want to remind the House of what has happened in the past 10 days. Last Monday—only nine days ago—hundreds of thousands of pensioners could not get the pensions to which they were entitled when they went to their post office because an official of JP Morgan in New York pushed the button on the computer programme to stop all payments. That was why for several hours on Monday we all had constituents who were unable to get the pensions to which they were entitled. The House ought to receive a proper explanation from the Minister, which I hope we will hear in a moment, about what went wrong and why the new system, which is being imposed on many reluctant pensioners who would much rather carry on being paid through the order books with which they are familiar, has already crashed and caused such distress.



Michael Fabricant (Lichfield) (Con): Does my hon. Friend think it despicable that just as the Secretary of State has been scapegoated by the Government, the Post Office was scapegoated by the Under-Secretary of State for Work and Pensions, the hon. Member for Gravesham (Mr. Pond), on Radio 4. When he was asked what responsibility he would take, he said none. He said that the Post Office was at fault and the Government were not to blame, but was it not the Government who instituted that system in the first place?

Mr. Willetts: As always, it is everyone else's fault, but never the Government's. The test of their performance on pensions is which is closing more rapidly—the post offices or the pension schemes. I never quite know which it is because they are both closing under this Government.

Earlier this week, the main steel union, the Iron and Steel Trades Confederation Community union, confirmed that it will take Ministers to court for failing to protect its members' pension funds.

I hope that we shall hear from the Minister about what was referred to in the press as the "unsatisfactory negotiations" with the Department that led the union to decide to take legal action.

The latest figures show the scale of pension deficits in our leading companies. The top 100 companies alone have a deficit of £42 billion in their pension schemes with possibly another £20 billion on top of that to cover factors for which they have not allowed.


Kali Mountford: Which of the Conservative party's policies should give us some sense of security about its ability to handle pensions? Would it be the pensions holiday, the cutting of the state earnings-related pension scheme without telling anyone or the mis-selling of pensions? Which of those policies should give us confidence?

Mr. Willetts: I shall turn to our policies for tackling the pensions crisis. I am proud of those policies, and what is happening at the moment—the collapse of funded pensions and the spread of mass means-testing—shows that our policies are needed to get funded pensions going again in our country.

We have had post offices failing to pay benefits, new figures on the state of the pension deficit, and we have seen the Pensions Bill staggering through the House of Lords. There have been new amendments, and clauses tabled and withdrawn. At the latest count, 360



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Government amendments have been tabled in the Lords. We read that the Government are so desperate to get their Hunting Bill through that they are willing to contemplate abandoning the Pensions Bill in order to do so. I see the Minister shaking his head. If he can give a categorical assurance that the Government will not abandon the Pensions Bill in favour of their obsession with banning hunting, I would be very interested to hear it. [Interruption.] Does he wish to come to the Dispatch Box and give that assurance?


The Minister for Pensions (Malcolm Wicks): The Government and our supporters in the House are absolutely determined to ensure that the Pensions Bill receives Royal Assent. I hope that hon. Members on both sides of the House will ensure that that is done so that, among other things, the protection fund will be up and running in April next year.


Mr. Willetts: I guess that that was the Minister saying that he would not allow the Government's obsession with the Hunting Bill to get in his way. He is the Minister responsible for the Pensions Bill, and I should warn him that some of the briefing has affected him as well. On the BBC "News at Ten O'Clock" the night before last, the political editor said:

"A senior source told me tonight that the Pensions Bill is still in a shambolic and chaotic state."

That is what No. 10 is saying about the Minister's Bill. He had better watch out because at that rate, I do not think he will be the new Secretary of State.

Mr. Peter Pike (Burnley) (Lab): I know that the hon. Gentleman is an expert on the subject of pensions but does he accept that many of the problems of shortfalls in funding would not have been created if companies had not had pensions holidays when the stock exchange and the market were in a different position a few years ago?

Mr. Willetts: When the hon. Gentleman says "different position", he means everything was a lot better. That is what "different position" means. In that different position, under my party, when pensions had surpluses—those were the good old days—it is right that there were contributions holidays. Of course, there were also increases in benefits for members of pension schemes that went beyond what was necessary according to the terms of the pension or the law of this House. Everyone participated in the benefits of those pension surpluses.

Mr. David Tredinnick (Bosworth) (Con): Will my hon. Friend explain why, if everything is so marvellous and the Government have done such a wonderful job, hundreds of pensioners have come to Westminster today—including some from Hinckley and Bosworth—to complain about the atrocious situation the Government have created?


Mr. Willetts: Exactly. One of the reasons we have called the debate is to show that we care about the plight of millions of our pensioners. The Government cannot even field a Secretary of State to handle the subject. Our pension funds are in crisis, pensions are not being paid through post offices, and we had the latest figures on

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pension credit this week as well. They showed that out of the 4.8 million pensioners eligible for the pension credit—as we know from a parliamentary answer from the Minister to me—3.1 million pensioners are claiming it. That means that 1.75 million pensioners eligible for the new means-tested benefit are still not receiving it. After next month, it will be impossible for them to claim the full backdated benefit from the introduction of the new pension credit. As we have always warned, the Minister has a massive problem of low take-up of his complicated means-tested benefits. No wonder the National Pensioners Convention, and just about every outside group, is pressing for the reversal of the pernicious spread of means-tested benefits.



Sir Nicholas Winterton (Macclesfield) (Con): My hon. Friend mentioned in passing the role of the right hon. Member for Birkenhead (Mr. Field). Am I right in saying that the right hon. Gentleman was struggling hard to produce the right results and was about to recommend the unthinkable? If his proposals had been taken into account by the Government and implemented, many of the problems we are facing today would not be with us.

Mr. Willetts: My hon. Friend makes a very good point. Perhaps I could briefly remind the House of the cycle that we have been through. We have been told again this week in the briefing from No. 10 that the Government are about to get serious about reforming welfare and tackling the pensions crisis. We have been through this before. In fact, we have been through it several times. Before the 1997 election, it was stated:

"Social security requires very bold thinking."

The right hon. Member for Birkenhead (Mr. Field) was appointed as the Minister for Welfare Reform because

"Mr. Blair saw welfare reform as crucial to his administration."

Sadly, the right hon. Gentleman left the Government because they were not willing to embark on serious welfare reform.


Mr. Frank Field (Birkenhead) (Lab): The hon. Gentleman has been speaking for almost 15 minutes. Is it not fair comment that both the major parties, looking back on their records, may well regret some of the things that they have done, but they never set out with the intent to arrive at the current position? The crucial matter in the debate is what both the major parties plan from now on. If I catch your eye, Mr. Speaker, I want to talk about the ideas that I advanced, which are ideas for the future. Before the hon. Gentleman sits down, will he give us a clear idea of where the Opposition stand on the matter? Although lots of pensioners are rightly here today, it is pensioners in the country who want to know where all three parties stand before they cast their votes at the next election. During the next election, for the first time ever, the majority of those turning up at the ballot boxes will be pensioners.

Mr. Willetts: The right hon. Gentleman is absolutely right. As he knows, my party has been putting forward constructive proposals concerning the pensions crisis, how to reform the mess of state benefits for pensioners, and how to encourage more funded pensions saving over many years. We shall continue to do so, and I hope to touch on that in my remarks.

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However, we are talking about a Government who do not even have a Secretary of State for Work and Pensions to explain their policies on a major crisis affecting our country. The Opposition are entitled to hold the Government to account for that. We have been told again this week not to worry, as the matter is about to be tackled, No. 10 is about to make it a priority and the Prime Minister will focus on it during the third term. To remind everyone, we were told that he was going to tackle it as part of his first term. When the right hon. Gentleman was a Minister, he was appointed to do precisely that.

We were then told that the matter was to be the Government's priority in their second term. They have endlessly produced documents announcing that they are about to start tackling the pensions crisis because they are committed to doing so. We endlessly go through the same cycle, where Secretaries of State come and go, but the situation gets worse and worse. The right hon. Member for Edinburgh, Central (Mr. Darling) was Secretary of State for four years. During that time, an average of 50,000 members were affected by pension schemes being wound up every year. He produced Green Papers, and announced that

"the time for talking and discussing is coming to an end. We now actually need to implement our programmes."

He said that in July 1998.

The Secretary of State who has just left office was there for two and half years. During his time, 60,000 people a year were affected by the winding up of pension schemes. He began the job announcing that he was insisting that reform of welfare was vital to Labour's second term. What has happened? The problem has got even worse. This week's briefing sets out the matter as a priority for the third term. That is not good enough. The Government have been in office for long enough to seriously tackle the crisis instead of making it worse. Millions of pensioners are trapped on means-tested benefits and many pensioners are not claiming the benefits to which they are entitled.

Household saving was 10 per cent. of household income when we lost office, but it is now down to 6 per cent. Funded pensions are in crisis and many of our constituents are worried about the severe financial problems they face as a result of their pension schemes winding up. Tackling the pensions crisis would therefore be one of our priorities in government.


Mr. Jonathan Djanogly (Huntingdon) (Con): Is it not the case that many young people are dissuaded from taking up pensions because of the lack of incentives? Are we not putting ourselves in a position that will lead to our having a disaster on our hands in 20 years time?

Mr. Willetts: Indeed, which is why I should like to turn to our policies for tackling the crisis. We have two central propositions. First, we must reverse the spread of means-tested benefits. We are heading for a situation in which more than half of pensioners will be dependent on means-tested benefits. There is widespread consensus among people who have thought seriously about the subject that we need to reverse the spread of means-testing. I could cite to the Minister for Pensions

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comments by the charities, the National Association of Pension Funds and the savings industry, but I shall not do so. I shall simply refer him to what he once said:

"No one of sound mind could advocate wholesale means-testing".

Is not the pension credit, which is supposed to go to almost half of pensioners, an example of mass means-testing? Or is the Minister saying that the Chancellor is not of sound mind? Does he still stand by that view? If so, he can join the mainstream consensus, which favours reforming the mess of means-tested benefits for pensioners.

We are committed to increasing the value of the basic state pension by linking it to earnings, not prices, thus reversing the spread of means-testing. We will not, contrary to what the Prime Minister said again in Prime Minister's questions today, abolish the pension credit. However, as the value of the basic state pension rises, fewer pensioners will need to claim the pension credit. That is the right way to implement reform, and that is what we will do.


Mr. Steve Webb (Northavon) (LD): As the hon. Gentleman knows, to some extent I support his analysis of the problem, but could he clarify something? His policy would link the pension credit to prices, not earnings. When challenged, he argued that the Government have not promised anything beyond this Parliament. However, if they promised to earnings-link the pension credit, would he do so as well, or would he price-link it?

Mr. Willetts: If the Government said that they would increase the pension credit in the next Parliament by linking it to earnings, not prices—we are still waiting for a statement of their policy—once we had seen the figures and their modelling we would consider what we would do to the pension credit. We are certainly not obliged, however, to commit ourselves on the pension credit when we have not heard from Ministers. However, it would be interesting to hear the intentions of the Minister for Pensions on the pension credit in the next Parliament.

The first thing that we must do is reverse the spread of means-tested benefits and reform benefits for pensioners. My hon. Friend the Member for Huntingdon (Mr. Djanogly), however, is right that that is only half the story. We must also restore incentives to save and offer people new incentives, so that if they put money into a reliable savings product there will be a clear reward. We therefore propose the introduction of a new lifetime savings account—there will be a contribution from the Government alongside the money that the individuals put in—with the aim of achieving a clear and vivid reward for saving.

I do not know whether the Minister—who knows, he may become the Secretary of State—can signal in his speech that the Government will join the consensus, but I hope that he can. If he agrees that there is too much

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means-testing and that the Government are going to do something about it, that would be welcomed by hon. Members from many parties.


Ms Sally Keeble (Northampton, North) (Lab) rose—

Mr. Willetts: I hope that the Minister can say something about encouraging people to save more for their retirement, as that would also be welcome, but even if he cannot take those big strategic steps—after all, he does not even have a Secretary of State to consult—I hope that he can answer two specific questions about problems facing pension funds. First, however, I shall give way to the hon. Member for Northampton, North (Ms Keeble)

Ms Keeble: What are the hon. Gentleman' proposals for the 86 per cent. of women who work but who do not make sufficient national insurance contributions to receive the state pension? As their earnings are low they are unlikely to be able save enough to receive a funded pension of the type that he described.

Mr. Willetts: Those women would benefit from the greater uprating in the basic state pension. At present, they do not benefit from the pension credit, as it is assumed that they have a full contribution record and receive the full state pension, even though many of them, as the hon. Lady rightly said, do not do so.

Ms Keeble rose—

Mr. Willetts: I will give way to the hon. Lady again—let us continue the pensions policy seminar.

Ms Keeble: I want to press the hon. Gentleman on a point that I would make to the Minister for Pensions, but unfortunately I have to attend Committee. Eighty-six per cent. of women who work do not make sufficient contributions to qualify for a pension, so they do not benefit from the earnings link. Women's earnings are lower, so they do not make enough money to save. What will happen to those women pensioners?

Mr. Willetts: I accept the hon. Lady's concern about women whose earnings are so low that do not receive any contributory state pension at all, but the proportion of such women is less than 80 per cent. Most women who work are earning enough to make contributions, so even though we would increase the basic state pension by linking it to earnings, we would not raise the lower earnings limit as we do not want to take away from women the opportunity to contribute to the basic state pension. I continue to study with great interest research by the TUC and the Fawcett Society on the problem, as I accept that there is a genuine grievance among women pensioners, many of whom were let down when they were not properly informed by the Inland Revenue in the past few years about the opportunity to contribute to the state pension through higher national insurance contributions.

I wish to press the Minister for Pensions on two specific points. First, I am sure that many Members have constituents affected by the winding-up of pension schemes. Sadly, over the summer, we have followed the





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