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Final Salary Pension Schemes

Volume 403: debated on Monday 14 April 2003

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14.

What measures he plans to take to address the problems surrounding the closure of final salary pension schemes. [108718]

Our Green Paper "Working and Saving for Retirement" sets out proposals to encourage employers to promote and persevere with pension schemes of all kinds, including defined benefit schemes. We value our voluntary system of pension saving because it has delivered good results. We must all play a part to ensure that it continues to deliver, including the financial services industry, the Government, employers, employees and their trade unions. For our part, we intend to simplify significantly the regulatory regime, which could save employers £150 million to £200 million a year in administrative costs.

I thank the Minister for her answer. However, since the Chancellor's decision to abolish dividend tax credit, £5 billion a year has been removed from people's pension funds, which has exacerbated the situation and led to the winding-up of 63,955 pension schemes. Will the Minister acknowledge the impact of that pernicious policy and the role that that tax has played in the current pensions crisis?

No. Mr. Speaker. I wish that when Opposition Members referred to the so-called £5 billion tax rate they would mention the concomitant £3.5 billion cut in corporation tax that accompanied it. Of course, they never mention the fact that pensions continue to enjoy generous tax privileges worth £13 billion a year. As for the hon. Gentleman's claim about the number of closures of final salary schemes, the Pension Schemes Registry figures for 2002 showed that in that year 3 per cent. of schemes closed to new members. He must remember that final salary schemes are still the most widespread form of provision. There are 5.7 million members of private pension schemes, 4.6 million of whom are in defined benefit schemes. We have £750 billion invested in occupational pensions, and while it is right that hon. Members should consider issues relating to private pension provision—

Order. I think that that will do the hon. Member for Boston and Skegness (Mr. Simmonds).

I warmly welcome the comments of my hon. Friend the Minister on encouraging all employers to contribute to personal and other pension schemes, but is it not time that we started to consider placing a statutory obligation on all responsible employers to do just that?

The Government are not yet convinced that we should abandon the voluntary nature of our private pension provision. Neither, I notice, is the Select Committee on Work and Pensions, which published a report recently. Our voluntary scheme has given good results and we should be wary of throwing the baby out with the bath water. We need to make the voluntary provisions work better, but if that were not to succeed more compulsion would be the alternative. We all need to consider which is the best way to ensure more pension saving—the voluntary scheme or moving to more compulsion. My right hon. Friend the Secretary of State has announced a pensions commission, which, among other things, will consider some of those issues.

Is the Minister aware that some employers are not merely closing their schemes, but defaulting on their obligations to existing members? Will she investigate in particular the recent scandal of Lufthansa, which has told 200 long-standing UK employees that they must expect a cut of a third in their pension entitlement, despite the fact that the company is highly profitable and well able to service it?

I will have a look at that. The hon. Gentleman refers to one example, and there are others. The Green Paper sets out ideas on better member protection and ensuring that when schemes wind up, whether solvent or insolvent, there is a proper distribution of the assets in relation to the scheme. The downside of such behaviour from certain employers is that it undermines the faith and belief of all potential savers in private pension schemes. We have to get the balance right; otherwise, we cannot expect our fellow citizens to put their hard-earned money into long-term products such as pensions.