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Occupational Pensions

They will reveal that the options were examined and did not take the form of a final recommendation because we had had discussions that led to a conclusion. In the case of a final salary pension scheme, the bill for the Chancellor’s policy is met by the employer. In the case of a defined contribution scheme, it is met by the individual’s pension pot and, ultimately, out of the pension paid to the individual employee. It is therefore completely absurd for Ministers to claim, as they do, that the changes have helped employers, who have ended up paying the additional costs into their pension funds, or individual pensioners who are members of defined contribution schemes, who will end up receiving reduced pensions as a result of the increased burden on their pension fund. That is why it is correct to say that the primary effect of the changes has been to contribute, in a significant way, to the reduction in the availability of final salary schemes outside the public sector by roughly two thirds since this Government came to office. It is significant that in the Chancellor’s responses to interventions all the statistics that he quoted in relation to the availability of final salary schemes ran out in 2000 or 2001. We are now in 2007 and anybody who has been engaged in private sector activity over the past decade must surely understand that private sector pension provision on a final salary basis has been in sharp retreat throughout that period and in particular in recent years. To an important extent, that is a result of the policies that the Government have pursued. It is also true that the primary effect of the changes has been to reduce pensions paid out by defined contribution schemes. My final comments focus on the secondary effects of the changes. Increased tax burdens have resulted in reduced availability of final salary schemes and in less generous payments by defined contribution schemes. However, there have been two important secondary effects, and it is important that the Government not only accept responsibility for them, but are seen to do so in public debate. The first secondary effect is that if additional costs to providing final salary schemes are imposed on employers, it has the effect of tipping some employers—marginal employers—into administration and receivership. It is those employers whose employees have been among the primary victims of the changes. Constituents of mine who were employed by the British United Shoe Machinery Company and who saw their savings evaporated, rightly hold the Chancellor not exclusively responsible—the hon. Member for Twickenham (Dr. Cable) was right to say that there were other important contributors—but responsible for public policy. The Chancellor took a position that was poor for those people at the margin and then made it worse. Their pension savings evaporated and they rightly hold him responsible for that effect. The other secondary effect is much more broadly based across the economy and in the long run, particularly if we can agree to lifeboat proposals for the people who have been badly damaged by companies that have gone into administration, much more concerning for the social structure of this country. If we take a pension world that is moving more and more towards defined contributions schemes, and where those schemes are, as a result of this tax policy, becoming less generous in terms of the pensions that they pay out, and combine that with the tax credit policies that the Chancellor has also been pursuing, and therefore the increased reliance of pensioners on means-tested benefits, we can see that we have hugely undermined the incentives on people to provide for their old age. The end result of his policy has been reduced individual responsibility because, as my right hon. Friend the Member for Hitchin and Harpenden rightly said, pensions advisers are, entirely rationally, telling people who are on relatively modest incomes that against the background of the high level of means-tested benefits and relatively low levels of pay-out from defined contribution schemes, they do not have much interest in saving for their old age through a pension fund. We have seen the result of the Government’s policy at the margin reducing, to an important extent, the incentive on the citizen to accept their individual responsibility for providing for their old age—what the Chancellor in an earlier age might have referred to as prudence. The effect of that has been the renationalisation of pension provision and a sharp move back towards seeing the state—the taxpayer—as the primary provider of income in old age, rather than encouraging individual responsibility during our working lives. The key objectives of policy going forward must be to reverse the drift back into state dependency, to encourage independence and to encourage people to provide for their pension in their old age, and to protect to a better degree than the Government have yet shown themselves willing to do—my hon. Friends on the Front Bench have demonstrated that we are willing to do this—those whose interests have been sold down the river by the Brown mugging of the occupational pension scheme.