I have just been to the meeting of the Equitable Life All Party Group to hear Minister Liam Byrne and Sir John Chadwick explaining the current situation on compensation. It was clear that the Government has been dragging its feet in making decisions to allow Sir John to consider the sort of flexible and wide-ranging scheme he envisaged. Now we are told there is to be a further consultation on a third interim report from Sir John and a final report to Government in May. Meanwhile, policy holders are dying of old age. The irony is that it may be left to a new Government to make final decisions – Labour having kicked the issue well into the long grass over such a long period. It does seem that Government and Sir John envisage that the estates of the deceased will have a claim on the compensation scheme, but that does not make it right that the policy holder has had to wait so long.
Today David Cameron has attacked the Government’s appalling record on its treatment of Equitable Life policy holders and promised “If we win the election, we’re going to sort out Equitable Life very early on.” Not mincing his words, David accused the Government of having a “sick” attitude to the policy holders for essentially “waiting for them to die”.
Equitable policy holders have been treated in a terrible way by the Government which has promised compensation but never delivered.
Worst of all is the callous way they have been kept hanging on; the Government took eight years to agree to award compensation and that was only after scathing judgments from the Ombudsman, yet still not a single payment has been made.
I admire the way our Ombudsman Ann Abrahams has squared up to Government over this scandal. Meanwhile the view of the victims’ representatives, the Equitable Members Action Group (EMAG) is that the Government is waiting for policy holders to die before payment. EMAG believes that 40,000 policyholders have died since 2000.
I have taken the issue up with ministers many times and have spoken on the issue in the Chamber of the House of Commons, the last time was in October 2009.
I recently met Hertfordshire victims at the House of Commons and their suffering is real. So this needs sorting out and we should not forget that whilst the victims have been waiting, the Government has found billions to bail out banks and do quantitative easing.
George Osborne made his keynote speech on the Economy yesterday and it seems to be going down quite well with the media. His speech was frank and candid in its tone; for those who missed George’s “astonishingly forthright speech” (to quote the Daily Mail), it started to spell out what measures a Conservative Government would take to get a grip on the national finances. Not everyone will be happy with the commitments (today the unions have come out against the promised pay freeze for public sector workers) but I believe that most of my constituents appreciate that when faced with a national deficit of almost £200 billion, we are all going to have to tighten our belts*.
I was especially pleased by his renewed commitment to re-link the state pension to earnings growth in the next Parliament in order to ensure a decent standard of living for all in retirement, halt the spread of means-testing and restore incentives to save.
George also announced an updated review of the state pension age, as recommended by Adair Turner’s Pension Commission. Given the state of the public finances and rapidly changing demographic projections, the review would consider whether the increase in the pension age from 65 to 66 should be brought forward from 2026, starting no earlier than 2016 for men and 2020 for women.
*Although Osborne did promise to protect the wages of those earning £18,000 or less. For those who did miss his speech you can read a transcript here
Do you share my concern at the way in which Final Salary Pension Schemes are being closed to new members and now in some cases to existing members? These are schemes which have helped so many of today’s pensioners to enjoy a comfortable retirement. Companies in a recession may see closure as a quick way of showing they are keen to cut costs and we can understand that. But it is time it was realised that future living standards for the retired will fall, unless action is taken. Since there is little sign of working age people increasing their saving for retirement and employers are ducking for cover, the future is likely to be employees and companies paying for decent living standards for the retired through higher taxes.
The Government has no stature in discussions with employers about how to fashion a way forward for Occupational Pensions, because Gordon Brown’s 1998 Pensions Raid ending the dividend tax credit took £5 billion per annum out of Pension Schemes. Having plundered the Pension Funds himself, he can hardly take the high ground now and his poor stewardship of the nation’s finances has led to Britain’s weak position in the current recession.
His Party was also involved in rubbishing the idea of a funded national state pension scheme with money set aside and invested to help pay future pensions at a higher rate, rather than solely relying on today’s workers’ national insurance payments to pay today’s state pensions (Pay As You Go). This idea was supported by Conservatives and enlightened Labour thinkers such as Frank Field. In Canada the Canada Pension Plan has money set aside to pay for future pensions.
We are all pinning our hopes on better up-rating of the state pension in line with earnings, reform of the State Second Pension and the new Personal Accounts, but I believe we will come back to two issues. We need to look at ways of making Occupational Pension Schemes fairer for employers, but without employees losing the security of a pension which gives a defined benefit and we need to look again at the idea of setting aside an investment fund to pay for better future state pensions.
There are two striking pieces of news on employment today. The latest figures for monthly job vacancies show the lowest figures for years and the Work and Pensions Select Committee of which I am a member has produced its Report on Commissioning and the Flexible New Deal, pointing out that increases in long term unemployment will swamp the scheme if extra funding is not provided.
Ministers like to point to the number of job vacancies as evidence that there are jobs available for the unemployed. Indeed, Conservative Ministers used to make similar claims in past recessions. Whilst true, the vacancy levels now are very low historically. Even as recently as 2007, monthly vacancies were running at 689,000, higher by 200,000.
Yet many of these vacancies are not readily available to job seekers. The National Employers’ Skill Survey shows that thirty per cent of vacancies are in the category “hard to fill” and twenty one per cent are in “skill shortage” areas. Many job seekers would simply not be qualified. There is no doubt that the Job Market is tightening sharply and unemployment will rise.
The Work and Pensions Committee has been looking at the implications for long term unemployment in our Report published today. In 2004 I proposed that the New Deal should be reformed to concentrate on those with real barriers to work and a flexible approach using private contractors – “The New Deal: What figures for the Future” with Mark Waldron (Politeia). The Government is now to implement such a scheme later this year – the Flexible New Deal – but all the evidence is that the scheme will be overwhelmed without more funding. There will simply not be enough money for each long term job seeker to be found a proper job.
Labour criticisms of Government schemes for the long-term unemployed in the 1980s concentrated on lack of substance to the training, advice and placements on offer. It would be sad for Britain if the current Labour Government failed to learn the lessons of past recessions, which they were then so willing to embrace.
As Sir Fred rides off into the sunset with his financial future secure, are pension funds next in line for a massive bail-out by hard pressed taxpayers?
It may be too early to be sure, but the question being asked increasingly is what effect the downturn and the recent sharp falls on the Stock Market will have on pension funds, the biggest investors.
Most final salary schemes were already in deficit. In January the total deficit was thought to be £190 billion. These latest falls reduce the value of the assets they hold still further. This is concerning for all those with a pension. It also highlights the damaging effects of Gordon Brown’s management of the economy and his Pension Raid in 1998, when he ended Dividend Tax Relief, taking £5 billion per annum out of pension schemes.
Just as asset values are falling, companies sponsoring schemes are facing the most challenging trading conditions for years and in some cases this raises the question of whether they are able to live up to their obligations under the scheme.
With an ageing population and people living longer, occupational pensions are vital to ensure that there is money saved up to pay for retirement, rather than simply relying on state benefits and so that individuals can have the sort of retirement they want.
Over the coming months three yearly valuations will take place of some of the biggest pension schemes and we will see the extent of the losses. We will also be able to gauge the extent to which pension funds have been exposed to “toxic assets”. The Pensions Regulator has suggested that direct exposure is “relatively limited”, but despite this, reports suggest that there is still an unanswered question about how far individual schemes are exposed to derivatives and other complex investments. The example of our biggest banks is not encouraging with each new disclosure adding billions of pounds to the losses.
The Pensions Regulator is helping schemes to make recovery plans over a period of years, but this raises difficult issues for trustees, who must assess the chances of their employer surviving. If a company is given easy terms to rebuild the scheme and then goes bust, there will be less money for members, but if a company is put on tough payment terms, it may be pushed over the edge, resulting in no future pension contributions.
Ministers point to the Pensions’ Protection Fund (PPF) as a guarantee of payment if the employer sponsoring the scheme goes bust. But it is the best pension schemes which pay the levy so the PPF can help out those which fail. If a significant number of companies go down in the recession, there must be a risk that the levy will be increased, adding further burdens to good schemes.
So as the pressures build, there is an assumption that the Government will not let our big pension schemes fail and stands behind the PPF. But the amounts of money involved in the pension funds are huge. We must hope that another massive taxpayer bail-out is not in prospect.
Over the coming months I believe another aspect of the recession will become apparent. Company pension schemes are bound to be stretched with the value and yields of investments down. There will be worrying valuation reports, showing large funding requirements, some of our largest pension schemes are for companies which are smaller than the pension schemes they sponsor. I hope that the Pensions’ Regulator will help these schemes as they work out recovery plans to make up for cash lost to the recession.
In November I asked the Work and Pensions’ Secretary of State James Purnell Parliamentary Question about pension scheme losses and how they are to be covered if companies go bust. I asked if an increase in the levy on pension schemes for the Pension Protection Fund was going to be put forward. He said No, but there must be some concern at how losses are to be made up if companies go out of business.
It’s a gloomy picture made worse by the Pension Raid by Gordon Brown in 1998, when he ended Dividend Tax Relief, taking £5 billion per annum out of pension schemes. For a time the effects of this were hidden by rises on the Stock Market up on a tidal wave of credit, but now as that tide recedes, we see washed up on the shore the debris caused by that Raid. How those schemes could use the billions of pounds taken from them now.
It has been a long time coming, but I am pleased that the victims of Equitable Life, including a number of my constituents, are to receive some compensation as recommended by the Parliamentary Ombudsman. However the proof of the pudding will be in the eating and I am concerned that the Government scheme seems to be hedged about with all sorts of conditions, and is to be means-tested. Given that the Government has been found guilty of maladministration and refused to pay out for so long, I would have thought the least they could do was to have a fair scheme that will pay out quickly.
The full details are not yet known and we will have to see if the outcome is better than I fear it may be.
I made a comment during the Opposition day debate on fiscal rules in the House yesterday on an issue which is very close to my heart – pensions.
“Does my hon. Friend (Philip Hammond the Shadow Chief Secretary to the Treasury) share my concern about the situation of pension scheme members? Obviously, pension schemes have been badly hit by the falls in the stock market, and someone purchasing an annuity is in a very difficult situation. Has not the Government’s £5 billion-a-year raid on the pension funds been masked to an extent by the rises in the stock market over recent years? Are we not now paying the price?”
It just seems wrong that a pension scheme member could be forced by Government rules to buy his pension annuity today, leaving him with a low pension for life, because his fund has collapsed in value over recent days. There is every chance that in a few years’ time he would get a far better pension for life, after the Stock market has recovered from the current credit crunch shock.
I am glad that David Cameron has now taken up this point and hope the Government will suspend the rule speedily.