Mr. Steve Webb (Northavon)

2.23 pm

We owe it to those who have lost their pensions and to those who are currently saving for pensions to be clear where each of us in the House stands on this issue. I wish to make it clear that I and my colleagues reject the Conservative reasoned amendment. I shall be asking my colleagues to support the Bill on Second Reading.

In my view, the Conservatives have behaved in a slippery and evasive manner. To read the press, one would think that they were tremendously sympathetic to the problems and had an entirely positive agenda. Yet, this evening, they will be trying to block a Bill that will provide protection for future workers' occupational rights. The hon. Member for Havant (Mr. Willetts) says that he supports the principle of a central insurance system, but he did not say anything about future workers, future pension rights and the sort of insurance-

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based scheme that he want to see, let alone mention provision for those who have already lost out. The reasoned amendment says that we should not give the Bill a Second Reading because of what it does not contain. I accept that it does not contain a great deal, and there is plenty in it that is flawed, but there is good enough in it. It provides for a proactive regulator—a long overdue provision. It provides for a scheme, albeit flawed, but it represents the basis for such a scheme, to protect future pension rights. That is why I shall be encouraging my colleagues to support the Bill on Second Reading.

As I said, the reasoned amendment gives a long list of concerns about things that are not in the Bill, but surely the Opposition cannot say that they do not support the proactive regulator. They cannot say that they do not support central insurance. So what is it in the Bill to which they object? I do not understand.

Reflecting further on the approach that the Conservatives have taken, I refer the hon. Member for Havant to his quotation from The Independent on Sunday. He is also reported in the press as saying that the Conservative plan is to table an amendment to enable the pension protection levy to provide retrospective compensation. Apart from having said that that is not an accurate reflection of his position, I do not understand how one can table an amendment to a Bill after it has been defeated on Second Reading. I am rather puzzled. Obviously the hon. Gentleman has no confidence that his reasoned amendment will be agreed to this evening. After all, if it were agreed to, he would not be able to amend the Bill. I know that I have not been in the House for as long as the hon. Gentleman, but I cannot work out his position.

The central proposal before us is the pension protection fund, and I shall concentrate my remarks on it. There is a paradox. The Secretary of State uses the analogy of holiday insurance and car insurance, and says that this is pension scheme insurance. He says that essentially we are talking about an insurance scheme, but the Bill contains a raft of measures and provisions that obviously do not make it an insurance scheme.

The first factor is the risk-related premium. To use the analogy of the boy- racer, in the first year of operation he will be paying exactly the same premium as the staid middle-aged driver who never has an accident. There will be no distinction between those who are extremely likely to make a claim on the fund and those who are unlikely ever to do so. We have been told that after a year there will start to be a risk-related element. I understand that that will be phased in over a period of years. We have the bizarre situation where a company that does well out of the risk-related premium—for example, BT, a big, solvent company that works hard fully to fund its liabilities—can opt for the RRP, and presumably not pay very much, while a dodgy company that has not funded its scheme properly, and is probably teetering on the brink of insolvency, can defer moving over to the RRP for several years. That is a wacky sort of insurance scheme, where the bad risk as well as the good risk can pay low premiums. I have not worked out how the sums add up. It is an odd transitional process.

This is not really an insurance scheme. Instead, it is a messy hybrid. Many of these issues need to be resolved as we examine the details in Committee.

There is a further reason why I am concerned that this quasi insurance scheme is not what it appears to be at first sight. There is the idea that it guarantees people's pension rights. We know, broadly speaking, that the plan for the PPF is that a person will get 100 per cent. of their rights if they are already drawing a pension and 90 per cent. if he or she is still a worker. However, that might not be the case. If the fund is in trouble, what is the first thing that happens? The fund may set a higher levy for the following year, but the Bill contains a provision for a cap. The levy can be increased only by a specified percentage. What happens if finances are seriously in trouble? For example, early on many companies that are limping along to 6 April 2005 might suddenly make their claims on the fund. All right, the assets of the schemes will go across to the PPF, but if scheme funding becomes seriously in difficulty and the levy has increased against the cap, what happens? The next thing is that the PPF will cut the benefit that it pays out. It will get rid of the indexation of pensions in payment. It will get rid also of the uprating of pensions that have been deferred.

What if the scheme is still in a mess at that point? Buried in one of the schedules is the Secretary of State's right to cut the protection that is offered by the PPF below 100 per cent. and below 90 per cent. We have the bizarre situation where a so-called insurance scheme might not pay out.

It would be preferable to avoid a panic when the pension protection fund suddenly runs out of cash and things are desperate by planning rationally. How would any Government lending of last resort work, how long would it last, and on what terms would it be repaid? We must plan now, instead of panicking when companies go to the wall. The public are in danger of being misled, as

they may think that the pension protection fund protects their pensions at 100 per cent. or 90 per cent. In fact, if the scheme gets into trouble, the Secretary of State may come to the House and cut those rates. If someone insured their car and it crashed, they would not want Direct Line to say, "We haven't got much money this month, so we will only pay for half the repair." However, that is what the Secretary of State is proposing in the Bill, which surely is not right.

The Government say that they are saving occupational pension schemes money by reducing their obligation to index pensions in payment post-retirement. However, they may have greatly overestimated the amount that pension funds will save as a result. Although pension funds may have a 5 per cent. requirement post-retirement, the evidence is that many of them are not providing for 5 per cent. because they do not expect inflation to be anything like that. The amount that they may save by not being required to meet that 5 per cent. rate may therefore be less than the Government think. Some schemes, in any case, have an obligation that is greater than 2.5 per cent., which they will continue to meet, even if the statutory requirement goes down to 2.5 per cent. because the terms of the trust may require them to index by more than 2.5 per cent. They, too, will not save any money as a result of the change.

The money that the Government claim that they are saving company pensions may be less than they expect, and the premiums that they will require of schemes may be substantially higher than the £300 million that they estimate. It is important that we are given such information. We would not reject the entire Bill because we do not know such things yet, but we should receive reliable information. I hope that the Secretary of State will place in the Library a copy of the projections on which his figure of £300 million is based, as well as the alternative scenarios with different outcomes. He suggested that even £300 million was a pretty gloomy scenario, so perhaps he can assure us that he will place in the Library both the basis of the figure and the alternative scenarios that the Government have looked at.

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The issue that, quite properly, has attracted the most attention is the position of people who have already lost out or will lose out before 2005 and will not be in the system established by the Bill. A number of them are visiting Westminster today, and I want to put on record the appreciation that I share with a number of hon. Members on both sides of the House for the work of Ros Altmann and others for the pensions action group. Members who represent constituents with ASW pensions, along with other hon. Members, appreciate the fact that that group has maintained a high profile for the issue and, in addition to campaigning, has submitted evidence, arguments and positive ideas to the debate, which it needs. The Bill, I hope, will provide a chance for us to put something on the statute book to deal with the problem.

I have reservations about muddying the issue by linking it to the pension protection fund—in my view, tackling it is a separate exercise. If we try to bring those individuals within the scope of the pension protection fund, the straw man of retrospection will be brandished, and people will say that insurance cannot be available retrospectively, so the whole argument for the Bill is weakened. We will not help our case by saying that money should be made available from the pension protection fund. A separate system of compensation is required. I do not mind if we talk about providing assistance, as long as the people who have worked and saved hard, listened to Government and official advice, and did what was expected of them get justice. That should be our priority.

The Secretary of State was a little light-hearted about the suggestion that £100 million was affordable and not a substantial sum of money. It clearly is a substantial sum, and demonstrates that many people have lost a lot of money. We would not be talking about payment of £100 million a year if many of our constituents had not lost out badly. To say that £100 million is such a large sum that that one could not undertake action is not acceptable. If many people have lost a lot of money, doing something about it will result in a big bill. We may be able to find the money in the assets of people who died 200 years ago, and we are all attracted by the notion of a free lunch. If free lunches were available, even if they were 200 years old, I would join the queue. I maintain an open mind about the early-day motion tabled by the right hon. Member for Birkenhead. If there is credible evidence that that proposal would cover the substantial costs of action, my colleagues and I would be willing to look at it.

I fear that that proposal would not operate on the scale required, although I am open to persuasion. If it does not, we must look at the Department's existing spending plans. When it draws up those plans, it identifies what it spends on pensions, benefits and so on. However, there is also a line headed "unallocated", which is money that it has not decided how to spend, and which is £150 million, £200 million or £250 million over the planning horizon. That is usual practice for Government Departments, especially Departments that spend £100,000 million. They tend to allow 0.1 or 0.2 per cent. for unplanned expenditure. The Secretary of State might argue that if there were a fight over unclaimed assets, every Government Department and good cause would queue up for a share. However, people who have lost company pensions must be close to the front of the

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queue for money that his Department has not allocated. There is a profound case for providing justice for them, and when the Department allocates unallocated expenditure, it should put them at the top of the list.

That cannot be an acceptable outcome. I hope the Secretary of State would agree with that basic principle while he tries to work out exactly what he intends to do, and I am not sure that he does. He says that he does not want to raise false hopes, but does he accept the principle that the one outcome that is not possible and should not be possible is that nothing is done? I am happy to give way if he wants to give us the assurance that that is his starting point—that it is unacceptable that nothing be done in response to the injustice. I am slightly disturbed that he does not want to take that opportunity.

The pension protection fund is central to the proposals, but there are various difficult issues about how the fund relates to the rest of the pensions architecture that the Secretary of State is setting up. Schemes will have to follow a scheme-specific funding requirement. That makes a lot of sense. For a scheme with a large number of people who have already retired, the investment strategy and the funding rules will be very different from a scheme with most of its workers still active in the labour market. But there is another funding requirement knocking around—the pension protection fund funding requirement. The PPF will not just sit there: it will be active, keeping an eye on what companies are doing and how much money they are putting in. Presumably the PPF will be interested not only in whether they meet the scheme-specific funding requirement, but in whether they meet the level at which, if the company became insolvent, it would not make a claim on the PPF.

Is there a danger that two funding requirements are being operated in tandem? There is a scheme-specific one, but then the PPF comes along and says, "Well, you may satisfy the scheme-specific one, but you don't

satisfy ours, because if you went bankrupt, you would make a claim on us, so we want you to put money in to satisfy that funding requirement as well." Is there a danger that there will be annual actuarial valuations for the risk-based premium and two different funding requirements, making the whole thing extremely complicated? Has the Secretary of State thought through the open question whether we need a scheme-specific funding requirement if there is a PPF funding requirement? How do the two interrelate? Is there a danger of duplication?

There is a raft of other measures in the Bill which I will not go through in detail, but I shall pick up on two other issues. The first concerns the trustees of the schemes. Like other hon. Members, I meet regularly with retired members of occupational pension schemes. They feel that they are excluded from the running of the occupational pensions on which they depend. One of the things that they value enormously is trustee rights—retired members drawing pensions being entitled to serve as trustees.

The Government considered two options for choosing trustees of occupational pension schemes. They rejected the option known as "fair and open". It is strange that the Government rejected the fair and open selection of trustees for occupational pension schemes. That makes me rather nervous. Retired members say that they want to have a say about the scheme that is as much theirs as anybody else's. They have no mechanism for contacting the electorate—the members of the scheme—and there ought at least to be a fair and open method of selecting trustees. The Government have rejected that for fear it would be bureaucratic and for fear of "vexatious scheme members complaining". Scheme members get vexed if they think they are not being listened to. I hope the Secretary of State will review that decision. It is important that workers, deferred members and retired members are properly represented in a fair and open way. I am not convinced that that is the case.

Finally, I shall touch on the part of the Bill that deals with the state pension. In general, we must be in favour of measures that give people new choices about retirement and new flexibility. Anything that allows them to take their pension later and get an enhanced accrual rate or a lump sum would seem to be attractive, but as was pointed out when we discussed the matter last week, the choice is complicated. When pressed, the Secretary of State seemed a little hazy about how lump sums would be treated. I looked on the Department's website, where there is a fact sheet—a sort of idiot's guide, which I found helpful and I hope the right hon. Gentleman will as well.

Under the heading "Pension Credit", the fact sheet states:

"We also want to make sure that the lump sum is ignored when most people claim Pension Credit".

One's heart sinks at that sentence. It creates yet more complexity. People defer their pension, get a lump sum, which is taxed at their marginal rate at the time, and for most people it will not count on their pension credit, but presumably for some it will. Who are they? How are we supposed to assess that? Nobody seems to know how it will work. How will someone aged 65 judge whether at 70 they will be one of the people who have the lump sum taken into account or not?

Part of the Bill is about information on the internet, combined pension forecasts and so on—telling people more—and another part creates a new, complicated choice that makes it extremely difficult for people to know what is the right thing to do. Once people have drawn their lump sum, does the Department say, "We'll always ignore £30,000 of your capital", or does the Department say, a year on, "Well, it is legitimate for you to have used £1,000, so we'll only ignore £29,000"? If people have other capital, does the Department distinguish between that and the lump sum capital? One begins to see how complicated matters become.

Yes, the Bill is a missed opportunity to simplify matters. It has been calculated that somebody who retires from a money purchase scheme after April next year and who has been a scheme member since before April 1997

"may need to buy six different types of annuity with what is effectively one pot of money",

because of all the different rules about when it was saved and how much it has to be indexed by. The Bill was a chance to simplify matters, but it has made them far more complicated. However, I return to my opening point. We need a regulator who is proactive in looking out for problems. We need protection for future workers. That is why we will support the Bill tonight, but I echo the comments of the right hon. Member for Birkenhead that we will not be satisfied until the Bill also provides for the people who have suffered the greatest injustice of all in that respect.