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Pensions

My Lords, I congratulate my noble friend Lord Fowler on not only his speech but also the good fortune of being able to introduce this debate. I agree with his trenchant comments. I declare an interest as chairman of a large industrial final salary pension scheme. I want to concentrate, in the few minutes available, on the problems of final salary schemes in the private sector. My noble friend drew the distinction between the plight of those blue-collar and white-collar workers in defined-benefit final salary pension schemes who are finding their schemes in deficit—some of them closing—and the public sector. Public sector schemes include judges, former Members of Parliament who have served long enough to get a full pension, senior civil servants and Bishops, all of whom will benefit from preserved decent final salary schemes. The private sector can in general no longer afford what used to be regarded as the hallmark of good pension provision. Why? There are two reasons for this sudden change. First, there was the withdrawal of the benefit of reclaiming advance corporation tax on dividends. We were told at the time by the Government that we were not to worry; this would be compensated for by higher net dividend payments and, implicitly, higher stock market valuations for share prices. That has not happened, and therefore pension funds for defined-benefit final salary schemes have seen a black hole created in pension provision. The second reason, which is arguably more important, is that the nation is living longer. The actuarial profession, together with trustees—and I accept my part—can be blamed for not identifying this trend early enough. I plead with the Government Actuary, through the Minister, to ensure that statistics are more up to date. If we are going to continue to live longer, actuarial provisions for pension schemes must take that into account. It is a welcome development, but it has caused a massive problem for private sector pension schemes. There are three simple measures of amelioration—the creation of an oxygen tent for private sector defined-benefit pension schemes—which are needed urgently. It may be that a future government will reverse the tax on pension schemes, and I hope they do, but that is unlikely to happen under the present Administration. As the noble Baroness, Lady Turner, indicated, many schemes are closed to new entrants. The schemes themselves are therefore maturing by definition, as no new members are entering. This means the trustees must shift their assets from the stock market to the gilt market—the debt market—in order to match liabilities. The Government have so far refused to recognise this, in my judgment, through the issue of substantial index-linked gilts available only to pension funds. I hope the Chancellor will take that into account in his pre-Budget statement, otherwise there will be continued pressure on the stock market, which will affect many people in this country and mean that trustees are unable to match liabilities with assets. That is the first measure. The second is that I hope the new pension fund regulator will take a pragmatic view of the substantial deficits that are now prevalent in pension schemes in the private sector, particularly in the manufacturing sector. We are talking about 20, 30, 40 or 50 per cent of the market capitalisation of many companies in the Financial Times index of the top 350 companies. When we debated pensions legislation a few years ago, we were told by the Government not to worry as the levy—I seem to remember a figure of £180 million per annum in that regard—upon pension funds to pay pensions to those whose schemes had collapsed or defaulted would be offset by the benefit of reducing the maximum level of indexation of pensions in payment. That has not happened. The cost of the pension fund levy is now several hundred million pounds—several multiples of what was originally estimated—and inflation is below the 2.5 per cent lower cap. It is a recurring problem for many pension funds that have to pay the cost of the levy to the regulator. Help is needed in providing more information to those who work in the private sector regarding their potential pension benefits. I give the Government credit for introducing recent changes on that, which are much to be welcomed. However, what people in the private sector really need is a pensions health check at the ages of 30, 40 and 50 to explain what their accrued pension benefits are going to be. If you change jobs and go from a defined benefit scheme into a defined contribution scheme and then into your own personal pension scheme, it is difficult to calculate what your future benefits will be. We need Stelios to introduce some kind of easyPension benefit calculation, available on the Internet so that you can feed in the information—which is available from your pension fund’s trustees—and obtain an aggregate figure. The private sector is in crisis and help is needed.