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Occupational Pensions

Volume 406: debated on Wednesday 11 June 2003

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12.30 pm


Thank you, Mr. Speaker. With permission, I wish to make a statement on action that the Government propose to take on occupational pensions following the Green Paper.

Our proposals build on the historic strength of the UK's voluntary system—the partnership between Government, individuals and employers which has seen pensioner incomes rise faster than average earnings over the past 20 years, but which now faces real challenges as people are living longer at a time when birth rates are falling. Although the UK is well placed compared with other countries to deal with that, still more needs to be done. People need to be able to plan for their retirement and make informed choices about how and when to save, and how long they work so that they get the income in retirement that they expect. We will make further announcements in due course on the suite of Sandler products; a better deal for those who take their state pension later; and on the proposals outlined in the tax simplification review.

Today, however, I want to focus on occupational pensions because they are under pressure now and we need to take early action. I am therefore setting out a balanced package of reform that better focuses regulation on things that people are most worried about so that we can cut burdens on business and increase member confidence in pensions. We will strengthen the protection of pension rights that people have built up to make sure that rights promised are rights delivered. Getting that balance right means taking a tough look at areas where regulation has grown out of all proportion. It also means taking action to deal with the demands of an increasingly dynamic economy in which companies are taken over and people move between jobs more frequently.

In February, we tackled the challenge of two-tier work forces to extend protection of pension rights to new starts working in many previously public enterprises. However, it must be wrong that solely because of a takeover workers in any private company have their rights scrapped. That is why I can announce that we are extending the protection of pensions provided by TUPE—the Transfer of Undertakings (Protection of Employment) Regulations 1981—to private sector transfers. We will insist that where pension rights have been established, the new employer will need to match employee contributions up to 6 per cent to a stakeholder pension or offer an equivalent alternative. That is a fair adjustment. It builds confidence in pensions and reflects company best practice. To provide security for a more mobile work force, we will help people build up rights in short-stay jobs by enabling them for the first time to take with them the full pension that they have built up to another scheme.

I am clear that in a voluntary system, such protection of rights must be balanced with measures that make it easier for companies to set up and run good schemes for their employees. As I have stressed before,
"Pensions simplification has to be at the heart of any strategy to encourage greater pension provision."—[Official Report, 11 July 2002; Vol. 388, c. 1053.]
In a voluntary system we must be mindful of the costs for providers. Over the years regulation has built up, often for the best intentions, into a layer cake of complexity. That cannot be right. If we are to make the voluntary system work more effectively, we need to make sure that regulation is well targeted and effective.

That is why I can confirm today that we will be driving ahead with measures to cut regulations and costs on companies running schemes. We will replace the minimum funding requirement with scheme-specific funding arrangements. We will simplify and consolidate legislation in key areas to make it easier to administer pension schemes and, taking account of consultation responses, we will go further than we signalled in the Green Paper. We will radically reform section 67 of the Pensions Act 1995 to give schemes more freedom to adapt to changing circumstances without closing or even having to wind up. I am also taking forward a raft of specific simplification measures, such as streamlining the requirements on member-nominated trustees, improving dispute procedures, ending the requirement to offer additional voluntary contributions, and introducing less bureaucratic reporting arrangements.

I have received submissions from the Pickering review and others that we should abolish compulsory inflation indexation because the requirements are too onerous and expensive. Although some important points have been made about the knock-on effects of costs putting schemes at risk, I do not believe that we should do away with indexation. However, guaranteed indexation of 5 per cent. was proposed in 1995, when market long-term expectations of inflation were at 5 per cent. Today, because of the stable macroeconomic environment that this Government have put in place, inflation has been driven down to average just 2.4 per cent. over the years since 1997. That means that under present arrangements, we are effectively forcing purchase of more than full inflation cover, which may be disproportionately expensive.

I therefore propose that the cap on mandatory indexation will now be set at 2.5 per cent., giving schemes and their members more flexibility to agree together on the form of pension that suits them best, easing funding pressures and helping to keep schemes open. I stress that there will be no effect on the value of today's pensioners' rights. It is a measure for future accruals only, to give more freedom to design schemes in the most sensible way. I can tell the House also that we will keep survivors' benefits—the requirement for contracted-out schemes to provide for widows, for example—because making any change here would have a bad effect on women's pension prospects, in particular.

With increased flexibility, we need to make sure that employees' rights are protected without employers winding up their schemes as a result, so I can announce today that we will set up a new, proactive pensions regulator to focus on tackling fraud, bad governance and poor administration. It will adopt a more proportionate approach, making sure that members are protected, while reducing burdens on well-run schemes.

Pensions are a voluntary partnership and it is for workers and employers to decide on what type of scheme suits them best. We have seen welcome examples in recent months of employers and trade unions deciding together how best to ensure continuing high quality provision, and we set out in the Green Paper a proposal to require employers to consult scheme members before making changes. I can confirm that, working with my right hon. Friend the Secretary of State for Trade and Industry, I will be taking this into effect, requiring consultation to strengthen partnership in pensions.

Examples of good practice are too often overshadowed by cases where employers have gone back on promises, causing anxiety. People also worry about the get-out clause that lets solvent companies which could afford to keep their pension scheme running wind it up with inadequate compensation.

In the cases where firms have done that, it has inflicted untold damage on confidence in the whole system. People worry that other schemes will follow suit. We need to act to make sure that a pension promise made by employers is a pension promise honoured by employers. We will therefore strengthen member protection where solvent employers decide to wind up their pension scheme.

I have placed in the Library draft regulations to apply to schemes that are winding up from today. As from now, trustees will have the power to make solvent employers who choose to wind up their schemes buy out members' accrued rights in full. That will greatly increase security for members of solvent schemes. But there is one further issue that we must tackle.

Sometimes, when firms go bust, the money is not there to meet pension commitments. Recent cases have shown the terrible injustice when that happens, and the public are right to demand action. We should not accept that just because a firm goes out of business workers can find that a pension that they have saved in for all their working lives becomes worth next to nothing.

Our Green Paper set out options for sharing out assets more fairly. Today I can announce that we will change the priority order to give greater weight to those who have been in schemes and making contributions the longest. We will lay draft regulations on that shortly. I hope that the hon. Members for Havant (Mr. Willetts) and for Northavon (Mr. Webb) will welcome the cross-party agreement that I believe that there is on that point.

But we need to go further. Ever since I started looking at this I have asked why, if people expect their holiday provider or motor insurer to be covered if the firm goes bust, there is no cover for something as important as an occupational pension. We will therefore legislate to set up a pension protection fund. That fund will take over the schemes of insolvent companies to ensure not only that pensions in payment are protected, but that those still working can be sure of getting 90 per cent. of what they were promised. It will be paid for by a fixed-rate levy and an additional risk-related premium, which, together with a salary cap, will minimise perverse incentives and moral hazard. The fund will be a non-Government body. It will meet its obligations through the power to set and vary the level of charge without recourse to public funds. Taken with the other measures, that is a big extension of pension security, for the first time guaranteeing protection if a company scheme goes bust.

I have always said that my aim is to build a wide and deep consensus in this country that embraces employers, employees and pensioners. This is a balanced package to reduce costs and complexity of regulation, making it easier for employers to run schemes while ensuring that pensions promised are pensions delivered. Many of the proposals will require legislation, which the Government will bring forward as soon as parliamentary time allows.

These measures will protect the pension rights of millions of pensioners and employees throughout Britain and I commend the statement to the House.

I draw the attention of the House to my entry in the Register of Members' Interests.

I regret that the House has had no opportunity to debate the Government's proposals in their Green Paper last December. We have regularly called for such a debate. My hon. Friend the Member for North-East Hertfordshire (Mr. Heald) pressed the then Minister for Pensions, the right hon. Member for Makerfield (Mr. McCartney), in the days when we had such a Minister, for such a debate, but he was told by the Minister, in his inimitable style:
"Don't be so silly. The Government are committed"—[Official Report, 20 January 2003; Vol. 398, c. 58.]
to a debate on the subject. We have not had a single debate in Government time on pensions for three years. We have had debates in Opposition time and in the House of Lords, but for three years the Government have not come to the House to debate pensions, and that is something that we very much regret. There has been no debate because there has been no policy, and now, of course, there is no Minister for Pensions either. Meanwhile, the crisis in pensions has been getting steadily worse. In fact, since the Secretary of State took on his responsibilities, 41 per cent.—nearly half—of all pension schemes have closed to new members. That will be the judgment on his tenure in office. One of the saddest features of that is manifested in the many invitations to conferences on pensions that pass across my desk. Unlike the Secretary of State, I actually go to them. They have titles like "Effectively Closing and Winding up Pension Schemes", which took place in January at the Park Lane hotel, and "Closing and Winding up Pension Schemes for Solvent and Insolvent Employers", at the Café Royal, London. That is a sad commentary on the state that occupational pensions have reached.

All that we have had from the Government is an endless flurry of activity, while nothing changes. There have been 39 consultations, including Myners, Sandler, Pickering and Turner, targets, reviews and taskforces. Meanwhile, the inexorable process of the collapse of one of our great post-war successes—funded occupational pensions—has carried on apace. That is because of the weight of regulation and taxation that the Government have imposed. Why did the Secretary of State say nothing about the problems that the Government have themselves created over the past six years, particularly—I see that the Chancellor has already headed off—the £5 billion a year tax that they imposed on our pension funds? It is no good talking about security now: it was the Government who created the insecurity that is the problem.

Can I ask the Secretary of State for a straight answer on the most basic question of the lot? Does he accept that there is a crisis in British pensions? I am not even asking him to say that it is all the Government's fault, but does he recognise that there is a problem? Will he acknowledge that we face nothing less than a crisis? The "Crisis? What crisis?" mentality that we have had from the Government for the past six years has made a bad situation worse.

Does the Secretary of State recognise the overwhelming consensus from all the leading organisations that responded to his Green Paper that the Government need to reform state benefits? Many of those organisations, including Age Concern, Help the Aged, the National Association of Pension Funds, the National Consumers Council, said that unless the spread of means-tested benefits is tackled, people will have no incentive to save for their retirement. Why, yet again, did the Secretary of State say nothing about that fundamental need to reform state benefits?

Why, also, did we hear nothing about the need to improve incentives to save? There is no point in imposing extra obligations unless people can see that they will be better off for saving. The statement contained nothing about incentives. Instead, we heard a range of specific proposals, some of which we can welcome. Some are old favourites that have been around for a long time. The Secretary of State got a cheer from his Benches for his proposals on TUPE, which were in the Green Paper—not the December 2002 Green Paper, but the December 1998 Green Paper, in which the Government said that they plan to place new regulations before Parliament in 1999. Four years later, he gets a cheer for something that he proposed five years ago.

Of course, we welcome the proposals for a new regulator. We also welcome the practical proposals on section 67 of the 1995 Act. However, let me ask the Secretary of State about his very significant proposal of a much tougher regime for wind-ups if a company is solvent. I understand the desire that lies behind it—to make life better for those many workers who are understandably angry about the loss of their pensions when the company remains viable—but does he accept that there are two significant dangers? First, there is a danger that companies will stop accruing pension benefits to existing members of their schemes in order to reduce the cost that he is imposing. Can he assure the House that he has considered that risk and is confident that companies will not now close their schemes for existing members as well? There is a danger that the proposal will worsen that risk.

Secondly, what about the risk of financial engineering? I heard about that when I was in America last week, studying schemes there. It means that companies shed their pension responsibilities to a different legal entity, like a snake shedding its skin, and emerge as a new company without pensions. They are happy for the former legal entity to claim pension insurance, which the Secretary of State announced today. We need to be confident that he has tackled those significant risks in his proposals.

In fact, the Secretary of State identified the risks in the Green Paper and I invite him to assure hon. Members that he remains confident that he has covered them. The Green Paper stated:
"We can see arguments for and against"—
the Secretary of State was in his "for and against" period, which has lasted a long time—
"increasing the amount that employers are required to put into the pension fund if they choose to wind up the scheme. The Government will be guided by the aim of not increasing the overall burden on employers providing pensions."
Can he assure hon. Members that he stands by that aim, which he included in the Green Paper only last December?

The Secretary of State also mentioned pension insurance. Again, I can understand its appeal in principle. However, in practice, there are serious objections. Have the Government considered them? What about the danger of good schemes paying for bad schemes? The Secretary of State gave no indication of the cost of the premiums. What about the danger of that cost being another burden on companies that provide occupational pensions? What about the danger of the insurer going bust? Is the Secretary of State confident that that will not happen and that the Government will not have to bail out the insurer?

Those objections are not made on the spur of the moment. I have the back catalogue of the Government's consideration of pension issues over the past six years. A document from September 2000, entitled "Security for Occupational Pensions—A consultation document" states that
"insurance brings with it the clear moral hazard of some employers neglecting their obligations in the knowledge that, in the event of their insolvency, their pension liabilities will still be met."
That was the Government's view in September 2000. How and why has the Secretary of State changed his mind?

What about the Myners review? Paul Myners, the Chancellor of the Exchequer's favourite adviser on pensions, who continues to have an advisory role on institutional investment, produced a report in March 2001. It stated on insurance that
"it would represent an additional cost for providers of defined benefit schemes—at times, possibly a considerable one—and as such would create additional incentives for employers to move away from such schemes. This is not an effective way of meeting the objective of protecting members of defined benefit pension schemes."
The report continued that
"it would be much more difficult for pension funds to take a long-term view, as any short-term investment underperformance would be likely to lead to a rise in their premium…The review therefore did not recommend insurance as a way forward."
The Government have regularly commissioned reports on the subject and every one has concluded that the risks of insurance outweigh the benefits. Does the Secretary of State acknowledge that danger?

The Secretary of State has announced not planning for success, reform of benefits or new incentives to save, but insurance for failure. Someone's house is burning down, yet the Secretary of State is not sending for the fire brigade, but saying that he will consult about the need for better fire insurance in future. That is not good enough given the scale of the crisis in our occupational pensions.

The opening remarks of the hon. Member for Havant (Mr. Willetts) somewhat misjudged the mood of the House, because as I was speaking, I could see several Conservative Members nodding assent to my arguments and proposals.

The hon. Gentleman mentioned debates in the House. On how many Opposition days have the Conservatives chosen to debate pensions? We debated them last Thursday, thanks to the Liberal Democrats. The key matter is the remedy for the insecurity that people are experiencing about their occupational pensions. The hon. Gentleman presented no alternative remedy for that. Again, he dragged out dividend tax credits, yet whenever he is challenged about whether he would reinstate them, he will not make a commitment. What credibility can the public give a party whose members spend all their time attacking a policy but cannot make a pledge to reverse it?

The hon. Gentleman referred to incentives, but the most important incentive that we can currently offer is to rebuild security and confidence in the system. I am sure that he would throw that at me if we had not presented such proposals. We are, of course, addressing the questions that he asked about the technicalities of wind-up and insurance. As I said in the statement, we want to deal with perverse incentives and moral hazard with regard to risk-related premium and the operation of a cap on the eligible pensionable salary. Of course, we shall consult on the implementation of our new proposals on wind-up and the changed priority order.

Conservative Members will make a mistake if they do not seize the opportunity to respond to my challenge to build a consensus between employers, trade unions, individuals, the financial services industry and, as far as possible, between parties in the House. Pension policy and protection is for the long term, and the hon. Gentleman makes a big mistake in not welcoming the insurance proposals, which have been strongly urged upon us, by not only trade union representatives and individuals but the financial services industry and many employers.

The hon. Gentleman asked whether I had considered the overall balance of costs on employers. That is an important question. As I said in the statement, it would be self-defeating if the costs of loading on more protection led people to wind up schemes. We have therefore been careful to produce a balanced package. When the hon. Gentleman has the opportunity to examine the summary regulatory impact assessment, which forms part of the relevant document, he will realise that our best estimate of the overall impact is between zero—a balance of no additional cost—and some £150 million-worth of savings. That comes about because of the extent to which the reduced requirement on the mandatory indexation cap offsets the cost of pension protection. Of course, we must consider distribution issues. However, if we examine the matter in the round, and consider not only the savings from our changes to limited price indexation but those from tax simplification—our replacement of the minimum funding requirement with scheme-specific proposals and other simplification measures—our approach to a pressing problem is balanced and sensible.

The country will take from the hon. Gentleman's contribution the single point that the Conservatives have no alternative proposal. He goes around conferences pledging to end contracting-out, thereby denying some £11 billion in income to pension funds. I do not believe that that is the best way in which to secure pension protection. Hon. Members and all the interested parties should come together to forge consensus in order to offer pensioners the protection that they deserve.

I thank the Secretary of State for his statement because today's workers are experiencing a crisis of confidence in their pension funds and some of the measures that he has announced will help to alleviate it. We welcome the proposal to crack down on solvent firms that try to wind up underfunded schemes. That is a welcome change.

We also welcome the proposal to give workers who have worked for their company for a long time better pension protection if the firm becomes insolvent. It is immoral that someone can put a lifetime's savings in a pension scheme and find that they have been taken away. As the Secretary of State said, there is all-party support for that. It is therefore all the more regrettable that, six months on from the publication of the Green Paper, no concrete proposals have been published. Can the Secretary of State confirm that he has not yet put on the table exact details of how the proposal is going to work? The longer this process is delayed, when insolvent employers wind up a scheme, the more workers will be vulnerable.

I have a number of concerns about the measures that the Secretary of State has proposed. Can he confirm that he is watering down the protection that future pensioners will get against inflation? Inflation is running at 3.1 per cent. today, which is higher than the 2.5 per cent. protection that company pensions will get in the future. If those circumstances repeat themselves in the future, will every company pensioner in the land see a year-on-year fall in their real living standards? Does this not also mean that the oldest pensioners, after years of falls in their living standards, could yet again be the poor relation?

By far the most substantial announcement today is the proposed pension protection fund. I absolutely sympathise with the Secretary of State's desire to give people security, but there is a real problem here. Insuring pensions is not like insuring holidays or cars. If a holiday firm goes bankrupt, a few hundred pounds of compensation might be required; if a car crashes, a few thousand might be needed; but if a major company pension fund winds up, we might need a few billion. Is the Secretary of State really saying that the insurance scheme will be allowed to borrow billions of pounds—and, if not, will the Government guarantee to stand behind it? If they will not, this could be a cruel deception. Workers could find that they have lost not only their jobs but their pensions as well, despite having paid for their insurance. We will look positively at proposals for insurance, provided that they are backed by the Government. Without that backing, this could be another cruel con-trick on the work force.

I thank the hon. Gentleman for his positive welcome—for the most part—for our proposals. He put it to us last week that he might be applying for the job of Pensions Minister, and if that was his first interview, perhaps he is making some progress—but it is still a case of "Don't call us, we'll call you." He asked about the timing of the measures. As I said in my statement, as far as the proposals on the wind-up of solvent companies are concerned, we are publishing the regulations today and they will, after consultation and due process, take effect from today. He will understand that that is an essential corollary to bringing in the pension protection fund. Firms will have to meet their obligations in full if they wind up their schemes. We shall be laying the regulations relating to the priority orders shortly.

Yes, of course there will need to be a period between now and when the legislation takes effect in which to set up the pension protection fund. As I said, we will introduce those provisions just as soon as parliamentary time allows. No one is more seized than I am of the importance of getting on with this. To return to a point raised by the hon. Member for Havant (Mr. Willetts) about a pensions crisis, I have to tell the House that I would not be introducing these wide-ranging radical measures if I did not accept the scale of the challenge, and the scale of anxiety that is afflicting pensioners in this country—[Interruption.] We are taking action, whereas the Conservatives have no alternative remedy to offer.

The hon. Member for Northavon (Mr. Webb) asked about inflation protection. As I explained in my statement, the 5 per cent. mandatory cap was brought in at a time when long-term market expectations of inflation were running at 5 per cent. They are now running at 2.5 per cent. This is therefore a reasonable adjustment. To put it in even more commonsense terms, I believe that the person in the street would readily trade some of their inflation protection for the knowledge that they have security for their pension scheme, which they do not have at the moment. People are worried that other firms will go the way that some already have, and that they will lose their pensions altogether. That is why it is so important that the Government act to introduce these proposals.

The hon. Gentleman referred to the analogy of holiday protection and motor insurance, but I think that he actually reinforced my argument. If people can count on the fact that firms providing that kind of insurance will be covered if they go bust, surely it is much more important that we have protection for pensions. Yes, the pension protection fund will have to deal with very large sums of money indeed. I am confident, however, having learned from the American experience—rather than replicating it—that we an make the fund work very successfully here on the basis that I have set out.

Will the Secretary of State allow me to congratulate him again on having such a clear idea of what he wants to do, and on coming before the House and setting out his proposals in less than 10 minutes? If only some of his colleagues could learn from him, our proceedings could advance much more quickly. Does he also accept that, of all the statements that he has made, this is probably the one that our constituents will be following most closely? While they will be interested in his ideas on adding to the superstructure of pension provision, many of them will be concerned about the foundations of pensions—particularly those of their own pensions—that they see collapsing.

May I suggest that, in building a consensus across the House, the Government give some of their own time to discussing the Pensions (Winding-up) Bill, which will come before the House on 20 June? Will the Secretary of State also tell us his ideas for people who will not be covered by anything that he has said today—those of our constituents who have already lost all or part of their pensions? Will he consider putting a levy on the £13 billion in unclaimed assets held by banks and building societies, so that we can deliver justice to that group of workers, as well as planning carefully—as he has outlined today—for any of our other constituents who might find themselves in the same awful pit as those people who have been made to save for more than 40 years and have lost every penny of their savings?

I thank my right hon. Friend for his kind opening remarks, and for what I take to be a general welcome for the Government's proposals. As he says, the content of today's statement really means something to our constituents. All hon. Members know that when people see that the pension that they have been paying into—which they assumed would afford them some protection—is not there, they are shocked, horrified and very angry. This touches the lives of our constituents in a very real way, and I am proud that it is this Government who are introducing protection for occupational pension schemes, and protection under the TUPE regulations for transfers within the private sector.

As for the creation of the pension protection fund, it has been a long-standing aspiration of the trade union movement that something such as that could be put in place. In terms of my right hon. Friend's metaphor about foundations, I hope that he and our constituents will see this as a substantial building block for rebuilding confidence. He raised the agonisingly awful issue of people who have already lost their pension entitlements. Nothing would be more cruel than for me to come to the Dispatch Box and raise false hopes about what might happen. If we are legislating for the future, in terms of establishing a pension protection fund, that would apply in the future and not retrospectively.

I have taken note of the proposals of my right hon. Friend the Member for Birkenhead (Mr. Field) about orphan assets. The Under-Secretary of State for Work and Pensions, my hon. Friend the Member for Liverpool, Garston (Maria Eagle), pointed out in the debate last week that just because those assets are unclaimed does not mean that they do not belong to anyone. She also said, however, that she and I stand ready to meet people and to engage constructively with any sensible proposals on the subject. The experience of workers at Allied Steel and Wire and others who have suffered so cruelly shows why it is so necessary that we introduce these protection measures and get on with it.

Like many hon. Members, I have constituents who have seen their pensions disappear when a company has gone bust. I therefore welcome, on the face of it, what the Secretary of State has said about changing the priority for creditors in such situations. I want to ask him a specific question, however. After the recent scrapping of priority for the Inland Revenue and Customs and Excise, exactly which interests will be leapfrogged by the interests of pensioners, and will pensioners really have the full protection that they deserve in such circumstances?

There are essentially two aspects to the priority order proposals that we are introducing. This is a sort of interim measure that we can bring into effect quite quickly—because it can be done through regulations—pending the establishment of the pension protection fund. There are two kinds of changes to be made. The first is to give more priority to those who have been contributing to a scheme longer, and are therefore more likely to be those closer to retirement. My right hon. Friend the Member for Birkenhead has advocated this proposal in the past. By definition, therefore, there would be a relatively lower priority for those who have not been contributing for so long.

We are also bringing forward the introduction of measures that were expected to take effect in 2007, to alter the balance and place the protection of active members who are contributing to a scheme over the indexation requirements for pensions in payment.

As my right hon. Friend knows, ASW workers in Sheerness were made redundant last July and their pension funds were put into administration. Although they will be pleased to learn of the protection measures, there will be heavy hearts in Sheerness and Cardiff, for 1,350 have lost their pensions. If my right hon. Friend cannot accept the recommendations of my right hon. Friend the Member for Birkenhead (Mr. Field) in relation to the capping of banks and building societies, will he find another solution? I know of 41 companies in the UK in which the same thing has happened during the last 18 months. Two billion pounds would be needed. That is not much money, and this is a very serious matter. It was a condition of employment for ASW workers that they would have both the jobs and the pensions. They thought that they would receive pensions, but they will not.

I understand how my hon. Friend feels, and, more important, I understand how his constituents feel. A number of my own constituents were affected by the Maxwell pensions saga. As I have said, it is because of the seriousness of those people's position that we are introducing the measures that I have described. As I told my right hon. Friend the Member for Birkenhead, I stand ready to engage in meetings and to consider any constructive proposals, but I do not want to raise false hopes.

Presumably the Secretary of State agrees that occupational pensions cannot flourish unless the state system is stable. What will the measures that he has announced do to clear up the confusion between what the state second pension seeks to do and what the minimum income guarantee does? A person receiving both the full second state pension and the basic pension will still not be lifted clear of the minimum income guarantee. Does the Secretary of State accept that unless he can solve these serious problems, occupational pensions will not be able to flourish as he wants them to?

No, I do not. My statement concerned the specific issue of insecurity affecting occupational pension schemes; but I think that the extension of cover through the state second pension, and what we have done not just in relation to the minimum income guarantee but in introducing the pension credit, will protect those on low incomes and help the important cause of tackling pensioner poverty. I will not take lectures from the Conservatives, who oversaw not only pension mis-selling but the entry of many more pensioners into poverty, and imposed VAT on fuel. They are not in a strong position to lecture us now.

I welcome much of what my right hon. Friend has announced. It will strike a chord with the employees and deferred pensioners of Kalamazoo in my constituency, whose company has been taken over, split up and finally put into voluntary liquidation. The pension scheme was wound up and today, like many others, the employees stand to lose at least 50 per cent. of their entitlement. I understand what my right hon. Friend said about not raising false hopes, and I applaud his honesty, but I agree with others who have said that we need to consider the issue of retrospection in one way or another. I commend the Bill promoted by my right hon. Friend the Member for Birkenhead (Mr. Field), but if the Secretary of State does not feel able to back it, I nevertheless welcome what he said about talking to people. Let us hope that we achieve some results, because those employees deserve it.

I thank my hon. Friend for his welcome for the proposals. As I have said, I stand ready to discuss the issues, although I do not want to raise hopes on any false basis, and I am happy to extend that invitation to my hon. Friend.

I echo the welcome given by other Members, and I think that the statement will repay careful study. I am also grateful for the Department's positive response to the recent report of the Select Committee on Work and Pensions on this important subject. But the devil is in the detail, and I want to press the Secretary of State on the issue raised by my hon. Friend the Member for Northavon (Mr. Webb) about the insurer of last resort. The Pension Benefit Guaranty Corporation in America has turned a $7 billion surplus to a loss of $3 billion or $4 billion in the space of 12 months. If this scheme is to have any credibility, that issue must be dealt with explicitly at the outset.

I also want to make a bid for some pre-legislative scrutiny, which the Government appear to have set their face against. Action is important, of course, but does the Secretary of State accept that if the devil is in the detail, the House and its Select Committees must have a chance to look at the small print before announcements are made that are vital to all our constituents?

I thank the hon. Gentleman for what he said about our proposals, and commend the work of the Select Committee. Today we are publishing our responses to its recommendations, which are very helpful.

The hon. Gentleman mentioned the insurer of last resort. There could be an additional element of moral hazard if people felt that the Government stood behind such an institution. As for the financial position of the Pension Benefit Guaranty Corporation in the United States, of course its balance sheet will have shifted given the swings in the stock market, but it is still 90 per cent. fully funded to meet its obligations. At this stage of the economic cycle, that is not a weak position for such an institution to be in.

The hon. Gentleman asked about pre-legislative scrutiny. We engaged in a lot of consultation, and I detect among the public, as well as in the House, a feeling that we need to get on with introducing legislation—having considered it fully and having scrutinised it in the usual way.

In view of the severe injustice suffered today by workers at Wardles, Bangor in my constituency, I welcome my right hon. Friend's proposals to extend the TUPE regulations. Does that mean that in future all workers who have made pension contributions will be given a guarantee that their pensions cannot be stopped if their firms are taken over?

I thank my hon. Friend for welcoming my statement, and extend my sympathy to her constituents. Following a takeover and a transfer, no pension to which a worker is entitled can be scrapped. At the very least, the employer would have to match up to 6 per cent. of the employee's contributions. In some cases, that could improve the pensions available.

Like many other Members, I have constituents whose financial security has collapsed in their retirement years—employees of Kalamazoo and UEF, for instance. I agree with the right hon. Member for Birkenhead (Mr. Field) and the hon. Members for Birmingham, Northfield (Richard Burden) and for Sittingbourne and Sheppey (Mr. Wyatt) about the need to find a solution for deferred pensioners who have lost security for their old age.

What plans has the Secretary of State for the insuring of company pensions, which I think is a good idea? Will the premiums be paid by the employer, or will the Secretary of State allow the employer to pass the contribution on to the employee, who will also be making pension contributions? Given the fact that his Government increased taxes on pensions by £5 billion in their first year of office back in 1997, why should they not share some of the liability that he rather optimistically estimates to amount to about £150 million a year?

I am stacking up a lot of meetings today, but I am happy to extend to the hon. Lady the invitation I have already extended to Labour Members to discuss the position of workers in their constituencies. As for the payment of flat-rate risk-related premiums, economists may say that employers always pass on contributions in some way, but we intend the employers to meet the cost. It will, as I have said, be offset by savings made through the reduction of the mandatory cap on price indexation.

Like my hon. Friend the Member for Sittingbourne and Sheppey (Mr. Wyatt), I have many constituents who were employees of Allied Steel and Wire. While they may gain some comfort from having inspired the statement today, it is cold comfort to know that their experience means that others may not suffer as badly as they have. I plead with the Secretary of State to consider what my right hon. Friend the Member for Birkenhead (Mr. Field) has said and to find some mechanism to help those poor people out.

I hear my hon. Friend's pleas, as I have those of other hon. Members. As I have said, I feel for the workers who are affected. Equally, I am sure that my hon. Friend will accept that it would be wrong for me to raise false hopes—but I will engage constructively with sensible suggestions.

As the Government looked into the idea of a pensions insurance system four times and, by the Secretary of State's own admission, in rejecting it on those occasions they got the decision wrong, do they not have a moral responsibility to those at ASW, Blyth and Blyth and other companies? I urge the Secretary of State to look at the experience of the US Pension Benefit Guaranty Corporation, which we are led to believe is the template for his proposal. When it was established in 1974, it brought more than 200 companies retrospectively under its provisions. Surely natural justice dictates that rights promised be rights that are also delivered for the workers who have inspired the Government to change their policy.

As I said, the legislation has yet to come forward. The insurance fund is yet to be established. Therefore I cannot give the undertaking that the hon. Gentleman is seeking, but I listen carefully to the points that he makes, and will reflect on them.

My right hon. Friend will have cheered millions of people with his announcement, but can he look into the role of the managing trustees and how quickly they bring about the winding-up of insolvency schemes? The money that they take out of schemes is a scandal. Can he consider the way in which European directive 80/987 was put into legislation, because many of today's problems would not exist if the previous Government had met their responsibilities under that directive?

I thank my hon. Friend for his remarks. We intend, through our simplification procedures, to speed up the processes, which, as he rightly says, can take too long and consume too many resources. We have detailed proposals to improve dispute resolution procedures. I shall look at the European directive to which he draws my attention.

We have all been shocked by the losses that have been incurred by some individuals and it is right that the Government should deal with the issue, but does the Secretary of State agree that all he has done today is attempt to set out a portfolio for sharing the grief more widely and perhaps more fairly, and to introduce some more regulation? He has done nothing to diminish the size of the crisis over which the Government have presided.

I do not accept that, because I believe that our proposals on the protection fund, on wind-up, on TUPE and the other simplification measures will increase security. I believe that that will rebuild confidence in the system and offer the protection that people desperately want. As I have told hon. Members, the thorough analysis is aimed at reducing costs where those can be reduced, so that the overall impact on business will be to reduce costs. At worst, there will be a neutral impact.

I congratulate my right hon. Friend on his statement, but can he tell the House more about his plans for the pension regulator? If funds are to be properly managed and not to be misappropriated, thereby avoiding insolvencies, do we not need to know more about the range and depth of the regulator's powers? If my right hon. Friend has not yet considered including pension liberation schemes under the purview of the regulator, can he consider doing so, so that people are not ripped off by those scandalous schemes?

I thank my hon. Friend for her welcome. We envisage a much more proactive pensions regulator. The existing regulatory body was given a job under the legislation and has done it well, but with the benefit of experience, it is clear that it has had to be rather too much of a process-driven, check-box regulator. It has not been able to get proactively involved in cases of maladministration, fraud and incompetence. We want the regulator to be much more active, as my hon. Friend advocates. I will consider the points that she makes about pension liberation.

I warmly welcome the proposals on solvent wind-ups. How would that work where the solvent profitable company is a foreign corporation and the British workers are in a separate legal entity? That has been the case with rogue American companies such Parsons Engineering, EMC Corporation in south-west London, and the former Lufthansa subsidiary GlobeGround, which have effectively stolen a substantial part of their employees' pensions, and also charged them the cost of the wind-up. Employees would have no comeback. In those cases and others, what happens when the trustees cannot act in the interests of the employees because they are effectively stooges of their management?

The best laid plans need to be proofed against abuse by those who ingeniously engineer things fraudulently to avoid their responsibilities. We will look—we will have teams of high-powered lawyers to look—at how we can best safeguard against precisely the situation that the hon. Gentleman describes. I make it clear that foreign-owned companies will not be allowed to escape their obligations in that way, and we will put measures in place to ensure that those responsibilities are met.

Is the position not well illustrated by the case, which I raised at Question Time on Monday, of my constituent who at 57 has lost all his pension rights, as have other employees at the company that has closed in Wolverhampton? Is that not a disgraceful position? Do not people such as my constituent face a totally uncertain future? Will my right hon. Friend therefore think again about whether the position of those who have already lost out, too, should be seriously considered, as many Labour Members have pressed him to do? I trust that he will do precisely that.

I share the concerns of my hon. Friend and other hon. Members who have raised pressing and distressing constituency cases, and I have to give him the same answer. I will listen to and meet hon. Members and look at sensible and constructive suggestions, but I am not raising false hopes.

Will the review of the wind-up of insolvent companies look at the cases—this comes out of a constituency case—in which companies manage to declare the business insolvent but still profit from the sale of the land by separating the ownership of the two? Does the Secretary of State agree that in such cases the members of the pension fund understandably feel very let down?

Yes indeed. We will have to introduce protection against engineering designed to circumvent the intent of our proposals.

I warmly welcome my right hon. Friend's statement, particularly the extension of TUPE protection to pension rights. He will be aware that many people feel anxious that they may lose their pension entitlements not only when their firm goes under but when it is taken over. May I ask for an assurance that one element of his proposals—the reduction in compulsory indexation—will not be retrospective, and that that will not affect existing pensioners or the rights already built up in pension funds?

I thank my hon. Friend for his welcome for the TUPE proposals. I share his enthusiasm for ensuring that protection is extended to people who are presently very worried about their position. The 6 per cent. match is a fair and reasonable way of settling an issue that our constituents have long been worried about. As I said in my statement, the changes on indexation will not be retrospective. They are only for the future, so they will not affect existing pensioners or existing approved rights.

Order. I am conscious that we are going into Opposition time, but there are only a few hon. Members standing. There should be only one question and if questions are brief, I will call all Members who are standing.

I am grateful to the Secretary of State for giving very short answers. He will be aware that many small firms will welcome at least part of this package, because they obviously want more portable, more flexible pensions for their employees. But how can he guarantee that the new pension protection fund will not turn out to be yet one more burden on businesses, and how will he protect very small businesses?

The premiums charged for the protection fund will be risk-related and therefore proportionate to the size and potential liabilities of the business. Our employers taskforce, the membership of which is listed in the document published today, is made up of a very experienced and good team of people, including representatives from small business. I have already asked them specifically to look at how we can better facilitate pension provision by small businesses.

Today's Government response to the Select Committee report refers to the £13 billion that tax incentives are costing the Government in encouraging people to save for pensions. The amount of money saved for a pension and the vehicle through which it is saved are key to security in retirement, yet there is precious little evidence—including from my right hon. Friend's Department—that tax incentives encourage saving, rather than merely redistributing savings. What research is his Department undertaking into tax incentives for retirement saving and how they might be changed?

My hon. Friend makes a good point, and an important conclusion of Ron Sandler's report was that the main effect of incentives is to redistribute saving, rather than to add to the total level. We need to make people more aware of the benefits of long-term saving, and of the existing considerable incentive in the system—my hon. Friend mentioned the £.13 billion—for saving through a pension. That is why informed choice, our information campaign and our work with the employers taskforce to identify and promote good practice in company pension provision are so important.

Scattered across the country, including my constituency, are Maxwell pensioners who suffered first the theft of their pensions and now further reductions in entitlements under the restructured scheme. Do today's proposals contain anything that will help in what is a clearly defined special case in which the Government have directly intervened? If not, can the right hon. Gentleman look into the matter and introduce some proposals?

As I said earlier, I have Maxwell pensioners in my area and I have met them in my constituency capacity. As I pointed out, today's proposals look to, and provide protection for, the future; I am not holding out the prospect of retrospective effect. Of course, the Maxwell pensioners' situation arises from an agreement made between the trustees and those who were providing funds, superintended by Lord Cuckney. The matter was dealt with explicitly on a scheme-by-scheme basis.

I congratulate my right hon. Friend on his statement, the contents of which I welcome, particularly the pension protection fund. He mentioned the problems that we inherited through mis-selling in respect of the state earnings-related pension scheme and private pensions, which hugely undermined public confidence in the pensions industry. Does he agree that the insurance scheme that he referred to will ensure that ordinary people can have full confidence that, when they put money into pension schemes, they will get it back in the form of a pension for the rest of their lives?

I thank my hon. Friend for his comments. He is right: when implemented, the proposals will ensure better protection, which is an important reassurance to working people and an important incentive to pension saving.

I welcome my right hon. Friend's statement, but I ask his Department regularly to remind women that it is in their interests, regardless of the reliability and generosity of their husband's pension, to build up their own occupational pensions. If widowed, they may have to choose between a lonely old age with a widow's pension, or remarriage and the loss of the widow's pension to which they indirectly contributed through child care.

My hon. Friend makes a very important point. Of course, in addition to what we have already done through the extension of the state second pension and the introduction of the pension credit—measures that themselves greatly advantage women—today's proposals offer further help. In summary, proposals for those who have been in jobs for a short time will disproportionately benefit women, and the simplification of the arrangements for pension splitting on divorce will enable more women to benefit, in pension terms, from their divorce settlement. Moreover, having listened to consultation, we have decided to retain survivors benefits—a decision that is of enormous consequence for women.

I add my voice to those who have welcomed today's statement. The pension protection fund obviously applies to funds that got into trouble because the employer became insolvent, but will it also apply to funds that got into trouble because they were badly run and therefore could not meet their obligations?

Where questions of fraud are involved, our proposals will strengthen protection from 90 per cent. to 100 per cent. On cases that do not involve fraud, I shall write to my hon. Friend.

I welcome my right hon. Friend's proposals, but I express my deep disappointment that they do not appear to cover the steel workers from Allied Steel and Wire in Cardiff and Sheerness, many of whom are my constituents. Will he look at a possible way of helping those people, who invested their life savings in pensions and are now likely to get nothing? Is there any possibility that they might benefit from this legislation if, by the time that it is introduced, their pension fund has not been wound up?

I understand how my hon. Friend and her constituents feel about this issue but as I have said, nothing could be crueller than for me to say that this legislation will offer them help when I do not envisage at this stage that it will apply in the way that she advocates. Every hon. Member knows of the difficulties in introducing such proposals and then applying them retrospectively—not the least of which is the very difficult question of where we draw the line. I am afraid that we will always find tragic cases that fall the wrong side of any line that we draw.

The Pensions Act 1995 failed to protect my constituents, who suffered through the scam undertaken by H. H. Robertson. Ministers promised that they would learn lessons from that, and everyone will undoubtedly welcome the fact that it is clear from today's statement that Ministers have indeed done so. However, I want to pursue a point made by my right hon. Friend the Member for Birkenhead (Mr. Field), who must have had H. H. Robertson in mind. If my right hon. Friend the Secretary of State is unable to levy orphan funds, he might be able to borrow from them. Doing so would be cheaper than the cost of the benefits that the state has to pay people as a result of fund failure.

I hear what my hon. Friend says, and I said that I would engage with sensible suggestions. The prospect of finding money at no cost without depriving people of their rights can be seductive, but such a prospect does not always stand scrutiny and further investigation. We have to be careful in this area.

The statement contains some welcome proposals, but they arise from a wave of recent and current problems. For people whose funds have been hit, are not the only avenues open to them an appeal to the Office of the Pensions Advisory Service or the pensions ombudsman, which have very limited powers to assist them? Members such as my right hon. Friend the Member for Birkenhead (Mr. Field) have suggested an additional avenue for tackling the problem of firms that have gone into administration, such as Coalite in Bolsover. Should not the pension fund itself be a first-line creditor, so that its funds are protected? My hon. Friend the Member for Bolsover (Mr. Skinner) would undoubtedly have been present for this statement if he had been around and about, and I assure the Secretary of State that he has been pursuing this issue with vigour through other means.

I thank my hon. Friend for welcoming the statement. His comments underline the importance of taking this opportunity to rebuild the pensions partnership, so that all parties—employees, the financial services industry and, yes, employers as well—meet their obligations. The proposals announced today include measures to strengthen as well as clarify the role of the pensions ombudsman, and plans to introduce a newly proactive regulator who could investigate the sort of problems that my hon. Friend describes.