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Occupational Pensions

Volume 483: debated on Monday 24 November 2008

The Government have introduced a more powerful and proactive pensions regulator to protect the benefits of occupational pension scheme members. The Pension Protection Fund and the financial assistance scheme provide protection to members of eligible defined-benefit occupational pension schemes.

In recent years, there has been a dramatic fall in the number of defined-benefit pension schemes, and that issue is likely to be exacerbated by the slump in the stock market. A gap has therefore opened up between provision in the private and public sectors, and there are those who suggest that the way to solve the problem is to reduce benefits in the public sector. Surely, however, we should be looking at the issue exactly the other way round. What more can my right hon. Friend do to try to protect and enhance defined-benefit schemes in the private sector, so that we can ensure dignity in retirement?

My hon. Friend is absolutely right. We need to achieve a balance between protecting employees’ benefits and the promises made to employees, and encouraging employers to continue to contribute to the schemes that they have set up. That is exactly what we intend to do. We are considering where we can reduce regulation—for example, by reducing the section 75 obligations when they get in the way of people restructuring appropriately. Furthermore, we have changed the inflation indexation and made it absolutely clear through the pensions regulator that contributions have to be affordable and should not put a business at risk. That is the right approach: balancing protecting people’s benefits with encouraging employers to continue to contribute.

Are we not looking towards a future in which only compulsory state earnings-related pension schemes for everyone, with good defined benefits, will make sure that there is no poverty in old age?

My hon. Friend is right to say that the additional part of the state pension is vital. That is why I am sure that he welcomes the changes that we have made to the state second pension; they will bring equality for women, recognise caring contributions and make the system an awful lot simpler. I am sure that he will also welcome the huge changes that will come through the implementation of the Turner commission’s recommendations. That will mean that instead of only a minority of people benefiting from company pensions, as in the past, all employees will have the right to an occupational pension matched by the Government and their employer. That fundamental change will increase people’s benefits and bring them equality, as was never achieved in the past.

As more employers become insolvent during the recession, will the Secretary of State have to come back to the House and ask for an increase in the levy for the Pension Protection Fund? If not, how will he balance the need to have enough money in the scheme to meet calls on it and yet not overload pension schemes, which are already closing under the sort of pressure that he has mentioned?

The Pension Protection Fund announced very recently that it did not foresee any increase in the levy and that it would keep it at its current level. I am sure that the hon. Gentleman is glad that we fixed the roof while the sun was shining and brought in the pensions regulator and the PPF. That is in huge contrast to the Government whom he supported, who were warned about this by Labour Members in the ’90s and did absolutely nothing about it, so that we then had to pick up the pieces through the financial assistance scheme.

Given the importance of occupational pension security, which many workers feel is as important to them as the asset of their own home, and given the Labour Government’s proud record in introducing the regulator and the Pension Protection Fund, can my right hon. Friend assure the House that the new consultation will do nothing at all to diminish the responsibilities of employers to workers’ pensions?

Yes, absolutely. We have made that very clear in the consultation. Our aim is to make it possible for companies to have legitimate business restructuring, but only where the employer covenant remains just as strong. That is why the pensions regulator is there, and I pay tribute to my right hon. Friend for the important role that he played in my Department in ensuring that these changes were brought in.

When I asked the Department in July how many final salary schemes were in deficit, the answer was 5,000, but the then Minister showed no particular concern about or interest in this matter. Will the Secretary of State give an updated figure for the number of such schemes and tell us what he will do about the large number of companies that are, as my hon. Friend the Member for North-East Hertfordshire (Mr. Heald) said, obliged to top up final salary schemes in deficit and to pay escalating fees to the Pension Protection Fund, all in the middle of a recession? Will he now grip this problem rather than simply abandoning it?

We are gripping the problem. That is exactly why the pensions regulator gave the advice to which I referred earlier, which is that people have to continue to address their deficits but what they do must be affordable in the current economic circumstances. The last thing that anyone would want us to do is to push out of business a company that has a perfectly viable future, because of contributions being made at this very moment— but the pensions regulator has to be assured that those contributions will be made so that the deficit is addressed. On the hon. Gentleman’s specific point about the figure, I will write to him with the latest information.

Will the Secretary of State confirm to the House that it is only under his Government that over 70,000 occupational pension schemes have been wound up since 1997, and that savings in those that survive have halved in just the past 18 months? Does his consultation on the obligations of employers towards pension deficits show a dawning realisation on his part that heaping extra costs and red tape on to these schemes has served only to hasten their demise?

As the hon. Gentleman knows very well, the trend in defined-benefit schemes has been the same all around the world. Employers have been trying to get those risks off their balance sheets. Indeed, the Turner commission said that the previous system was a fool’s paradise where people were making promises that they could not afford to pay for, and where Governments of both colours, including the hon. Gentleman’s, loaded regulation on to schemes through legislation. We are now addressing that. As he knows—I think that his party supports this—we have changed the rules on indexation, we are examining the section 75 provisions, and we are looking into overriding scheme rules where that is appropriate. However, we need to do that in a way that protects employees, because it would be wrong to unwind the promises made to people who decided to work for those companies on the basis of such promises.