Skip to main content

Defined Pension Benefit Schemes

Volume 507: debated on Monday 15 March 2010

We continue to look at ways of supporting defined benefit pension provision while protecting members’ interests through our ongoing deregulatory review. We have today laid new employer debt regulations to help the restructuring of companies. These are due to come into force in April this year and will save employers up to an estimated £49 million a year.

Starting with the tax on pension funds, the Government have introduced a number of policies over the years that have discouraged final salary schemes. I have always wondered whether that was intentional or due to incompetence. It looks like incompetence; am I right?

No, there are very many reasons why defined benefit pension schemes have been in decline. The decline began in the 1960s when I was still at school. Among the main reasons for it are increases in longevity and changes in FRS 17 and various other accounting rules. There is no single magic bullet to try to ensure that defined benefit pension schemes continue, but we are looking through the deregulatory review to give such help as we can. We also need to balance that by protecting those who are already members of schemes.

The reality is that defined benefit schemes have been in decline for decades and it is unrealistic to expect to reverse that tide. May I suggest, however, that the reality for the future must be a compulsory state earnings-related scheme for everyone, as that is the only way to avoid forcing millions of people into poverty in old age?

We are creating for those currently in work the national employment savings trust, which will ensure that those on medium and low earnings can for the first time in their working lives have a workplace pension scheme with a guaranteed employer and Government contribution. We are working very hard to introduce that new scheme.

Can the Minister tell us why her Government have presided over the closing of 100,000 pension schemes and the halving of active membership of those schemes? Why have her Government been so timid about supporting risk-sharing models so that employers and employees alike do not have to face the stark choice between DB and DC—defined benefit and defined contribution—schemes?

Current law allows a range of risk-sharing models, but they have not been much taken up by employers, and we have to remember that DB pension schemes are a voluntary arrangement between employers and employees. We have introduced changes to the employer debt regulations and we have reduced the revaluation cap from 5 per cent. to 2.5 per cent., all of which has saved £300 million. We have also introduced statutory override and we continue to look at other deregulatory measures that might encourage employers to maintain provision. I add that 2.6 million people are still accruing rights in the private sector and DB schemes, which remain a very important part of the pensions landscape.

Tax relief on pension contributions costs £18 billion a year in forgone revenue. Does the Minister have any evidence whatever that tax relief encourages people to save for pensions, because her Department certainly did not used to have any such evidence?

My hon. Friend makes a very interesting point, but I suspect he needs to direct it to the Chancellor in the run-up to the Budget rather than to me.