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Occupational Pensions

I am a company director and the trustee of a pension fund, and I have put that in the Register of Members’ Interests. Before I came into the House I was involved with the direction of investments for a wide range of pension funds and I have in other capacities kept in touch with the pension world. In all my adult life, I have never known the occupational pension movement to be as weak as it has been from 2002 until today. We need to understand why it is weak and the origins of the problem and we need to look carefully at the Chancellor’s defence of his actions. The Chancellor and the Economic Secretary to the Treasury were at their cleverest today as they sought to find a contortion of an argument to get themselves off the serious charge made by my hon. Friends on the Front Bench and others—that one of the main causes of the disarray in pension funds has been the removal of about £5,000 million a year of income by the cancellation of the tax credit and the advance corporation tax system that was in operation before this Government came to power. The Chancellor’s main defence seemed to be that it was good for companies to have that money taken away, that it meant that the companies would be able to invest more in themselves and that this would create extra value. One of the most important trustee rules in most pension funds is that they cannot invest in the company concerned, because that would increase the risk. The whole idea of a pension fund is that it should be separate from the company itself. However, if we take the Chancellor’s argument more generously, we could suppose that he was looking at the whole population of companies and he thought that, had there been this shift from distribution to investment, all companies would have done better. Of course, the truth is that that shift did not occur. We have heard good evidence already today that the payout ratio of profits going in dividends actually rose despite the change in the tax system. So the Chancellor is left arguing the rather ludicrous proposition that if you take a fifth of someone’s income away they will be better for it. I asked the Chancellor of the Exchequer the terribly simple question—he is an intelligent man—whether, if I took a fifth of his income away, he would be worse off or better off .