It is a pleasure for me to follow the hon. Member for South-West Hertfordshire (Mr. Gauke), whom I genuinely rate and like. We went through the Standing Committee on the Finance Bill together last year, and he regaled us with tales of Mrs. Gauke. I hope that she is well.
Last year, I participated in the pensions debate. I followed the hon. Member for Hemel Hempstead (Mike Penning), who is in the Chamber tonight and whose commitment to this issue is not in any doubt, as I think the whole House will agree. I was struck at the time by the Opposition's amendment, which stated that the House should
"recognise the importance of consensus in ensuring long-term, affordable and sustainable pensions reform; and therefore welcomes the commitment of all major parties in the House to engage in the process of consensus building".
The shallowness of that commitment is clear from today's debate and the antics of Conservative Members, especially Front Benchers.
The idea that occupational pensions, especially those in defined benefit schemes, were perfect before 1997 and decimated by one single act in the Chancellor's Budget—the implication of some Conservative Members' contributions—is wrong, misleading and invidious.
We are experiencing a massive change in the provision of retirement benefits. Much of that is to do with globalisation and the links between Governments, companies and financial markets around the world, much is to do with demographic changes and much is to do with policies that previous Conservative Administrations pursued.
Companies in the post-1945 period provided an element of security for workers in retirement provision. Defined benefit pension schemes helped inject motivation and loyalty into the work force. That was entirely feasible in the relatively stable environment of the post-war period. The employer bore almost solely the risks associated with planning for retirement through a defined benefit scheme. If a defined benefit scheme fell short, the employer topped it up. Everyone accepts that that has been under severe strain for the past quarter of a century. During that period, some companies have tried to transfer the risk of retirement provision away from them and towards the employee or the Government.
Moreover, high stock market returns in the 1980s also prompted many companies, as we heard on numerous occasions today, to take pension contribution holidays. According to Inland Revenue figures, employers collectively saved almost £18 billion during the 1990s pension holidays, although employees were, more often than not, forced to carry on making payments.
The TUC said that contribution holidays have typically favoured employers over employees. It estimates that94 per cent. of surpluses were used to reduce employers' contributions or to give them a contribution holiday, with less than 6 per cent. providing employee contribution reductions—a ratio of 16:1.
In the 1990s, Unilever took seven years of pension holiday. It also took £270 million out of the then pension fund surplus and put it into its profit and loss account. In the decade after 1992, almost £1.5 billion was taken from its pension fund and almost two thirds given back to shareholders in the form of higher profits and larger dividends. I can envisage people saying, "Nothing wrong with that." However, last month, the company announced that it would close its final salary scheme to new entrants. It has failed to provide for liabilities in the long term.
The general reluctance by firms to hold the balance of risk is predominantly due to demographic changes. That has been mentioned in the debate, though not as often as I expected. The developed world is getting older and that poses daunting challenges. Declining birth rates means that the work force is not being replenished in western Europe, Japan and north America. The ratio of workers to pensioners is getting smaller and that will have a momentous impact on productivity rates and tax levels. That is happening throughout the developed work and I therefore find it odd that the Opposition have not mentioned it in the debate.
The Opposition's comments imply that only this country is affected by pressures on occupational pensions. That is far from being the case. A recent report by PricewaterhouseCoopers suggests that the state retirement age should be increased to around 70 in Germany and around 72 in Italy to allow state and occupational pensions to continue to be linked to earnings with unchanged contribution rates. PricewaterhouseCoopers also states that further delays will only make the required reforms more painful in the long term.
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