Finance Bill

As a non-practising solicitor, I can tell my hon. Friend that it does work with lawyers, because I get contacted by the Law Society. Last Tuesday I again made the remarks, which I shall repeat, about my views about the responsibility of the actuarial profession—not every actuary—for the difficulties in which some private sector pension schemes have found themselves. I made those remarks on two occasions many months ago, and I have never been contacted by even one actuary suggesting that I was wrong. As many right hon. and hon. Members will know, I was on the panel of the Law Society of England and Wales as a personal injury specialist from its inception in, I think, 1991. That is roughly equivalent of being a hospital consultant. It is a recognition of one’s professional expertise in a particular area of legal endeavour and practice. As a personal injury lawyer, I would calculate lifetime losses. If someone has a fairly catastrophic injury and suffers a loss that will continue for the rest of their natural life, one cannot calculate in most cases—although sadly, in some cases one can—what their individual life expectancy will be. For the purposes of the calculation, one notes their age and gender and takes it from there. I used to get new life tables every year or two and would adjust my calculations. Rising life expectancy meant that in calculating a lifetime loss for any client, it would have been negligent of me, as a solicitor, not to take into account the fact that statistically, that individual was now expected to live longer than had been the statistical expectation perhaps two years previously for someone of the same gender and age. I would adjust the calculations that I would otherwise have made under old life tables and make them under the new life tables to reflect the longer life expectancy. I was not the only solicitor doing that, I hasten to add. It was standard throughout the profession. We were taking into account rising life expectancies in our professional practice. It appears that far too many actuaries were ignoring rising life expectancy when doing their calculations and advising pension schemes on how much funding a scheme should have—for example, how much the employer should contribute or whether that employer should continue their pension contribution holiday. Although that was not the only driver, it was one of the major drivers, and probably the biggest single driver, of the pensions difficulties that have been disclosed in the past 10 years. They have been disclosed because of FSR 17 and pension organisations having to come clean about how much, or how little, they have in the kitty. The reasoned amendment refers to a pensions crisis. There is a crisis for many people, and that is appalling, but another driver, which will feed through to those who have not yet started to receive their pension, is the change from final salary schemes to money purchase schemes—from what are sometimes called defined benefit schemes to defined contribution schemes. I am not a defender of final salary schemes in the private sector. They are a historic dead end. They cannot be underwritten by, say, a trading company, because we all know that companies that trade, such as H. H. Robertson or Chart Heat Exchangers, go bust and cannot top up the scheme. Our constituents are understandably saying, ““I’m going to get a worse pension than I thought I would because the company’s changed the scheme,? and in almost every case of which I am aware—I am aware of quite a lot, because I was on the Select Committee on Work and Pensions throughout the last Parliament—employers who are changing from a final salary scheme to a money purchase scheme are cutting their contributions as a percentage of payroll. It is not simply a technical move, with them deciding to restructure the scheme in a different way to give greater security—although that is how they may try to sell the change to their employees. They are markedly cutting contributions. Quite a big private sector employer in my constituency commendably puts in to a final salary scheme that is now closed about 26 per cent. of payroll every year—I think my figures are right; I am doing them from memory, but they are something of that order. The employee contributions are 7 or 8 per cent. for those who are in the scheme, which closed to new entrants about five years ago. Under the new scheme, the employer’s contributions are markedly lower. I cannot remember them precisely, but I think that they are in the order of 7 or 8 per cent. I understand why the company has made that change. It is trying to remain competitive with other companies, and some bright spark came up with that idea in some part of the country, and it snowballed from there. However, the demise of final salary schemes, which continue to exist in as much as they are not insolvent, has been driven not by changes made by the Government, but by employers trying to lower the pension contributions that they make on behalf of staff—effectively, to cut their wage bills. There are many things for which one can try to blame a Government, but one cannot blame any Government, of whatever political party, for employers effectively cutting the wages of their employees. I do not think that they should do that, but that is what has been happening. As for the third category of prospective pensioners—in particular, those who were in a scheme that is now insolvent—the official Opposition appear to think that the Government should be the insurer of last resort for every private pension scheme. I disagree. I have made it clear to the Government many times that they have a responsibility—as did the previous Conservative Government—for allowing misleading leaflets to be put out to prospective members of schemes and members of private company occupational pension schemes on how secure those might be. Others also bear responsibility in that regard. Those who were advising individuals on pension schemes—independent financial advisers and so on—should have known better, as should, dare I say it, trade unions on some occasions. I say that as a proud member of the Transport and General Workers Union. There was a somewhat cavalier attitude across the board, with individuals who were involved in giving advice to employees not stopping and thinking enough about how secure—or, as it sadly turns out in all too many cases—insecure private occupational pension schemes were. The Government, reacting to pressure from Ministers as constituency MPs and Members on both sides of the House, have done a pretty good job with an 80 per cent. guarantee and a commitment last week from the Secretary of State for Work and Pensions to see whether that could be higher, although we do not have the costs of that. Through the budgetary mechanisms of the Treasury, the Government are putting forward £8 billion in future value, not in net current value, for the financial assistance scheme. They are also acting to try to stop the shenanigans of companies playing fast and loose with their pension schemes. We all know that that was going on in the 1990s: we know that the amount of money in a pension scheme fund predicated whether there would be a takeover. The Pension Protection Fund, which I believe came into force in April 2005, was introduced by this Government to prevent a repetition of the scandalous behaviour that had been so devastating for pension scheme members.