Defined-benefit Pension Schemes Debate
Full Debate: Read Full DebateJack Dromey
Main Page: Jack Dromey (Labour - Birmingham, Erdington)Department Debates - View all Jack Dromey's debates with the Department for Work and Pensions
(6 years, 1 month ago)
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It is a pleasure to serve under your chairmanship, Mr Hollobone. First, I congratulate my hon. Friend the Member for Crewe and Nantwich (Laura Smith). She is a great champion of her constituency, and Bentley workers will be proud of her for bringing their cause to Parliament today.
I dealt 40 years ago with Rolls-Royce—the Mulliner Park Ward factory in Hythe Road on the Park Royal estate. The craftsmen were outstanding. They were the salt of the earth. They were highly skilled, producing cars that were quite remarkable. Since the move to Crewe, it has been generally a successful company, but right now, 1,200 members of the DB fund face an absolutely unacceptable threat to their future pension entitlements. These people have a minimum service of 16 years and a maximum of 47 years. I share their sense of anger at what is happening.
Former employees of Rolls-Royce Motors, which was then sold to Volkswagen, now face serious financial hardship in retirement. They will potentially lose tens of thousands of pounds. Although the Crewe site has received billions in investment, the DB fund has moved from surplus to deficit in the time of its ownership by Volkswagen. Volkswagen remains the parent company, with ultimate responsibility. Would it treat its employees in Wolfsburg in that way? I very much doubt it.
Negotiations continue at Bentley. I urge the company to move, and to move substantially, at the next stages, because the levels achieved thus far through the negotiations go nowhere near the losses that many will suffer. In particular, young workers in the scheme will suffer very badly indeed.
Sadly, what is happening at Bentley is a symbol of the wider problem of decline in DB schemes. The percentage of DB pension schemes open to new members fell from 43% in 2006 to 13% in 2015. The number of DB schemes in the UK will shrink to less than a fifth of current levels over the next quarter of a century, according to predictions by Hymans Robertson.
In a very positive speech by the Pensions Minister to the Trades Union Congress conference on pensions, he argued—I think he was right—that DB provision was working well and employers should seek to continue their responsibilities to their employees by maintaining good DB schemes. Would that more employers heeded that advice.
It is absolutely wrong for wealthy companies, with well-funded DB schemes, which many of them have, to look to close those and move to DC pensions purely to transfer the risk from the employer to the employee. That is all the more wrong when we look at the data released in June, which showed that among FTSE 100 companies, DB pension schemes have reached 100% funding and, among all private sector DB pensions, they are 98% funded. Clearly, the majority of DB schemes remain healthy and sustainable. Companies should look to do the best by their workers, and the best pension for their workers is a DB pension. They should, therefore, continue to accept their responsibilities and, I stress again, not simply transfer them on to the backs of their employees.
There are wider consequences to the decline of DB. The erosion of good, well-funded DB schemes has left few workers with a solid final salary pension scheme guaranteed to provide them with an income until they die. The UK has the fourth highest share of pensioner household income received from private pensions and other forms of capital, such as home ownership. As the prevalence of DB schemes and the rate of home ownership fall rapidly, however, the next generation will face considerable financial challenges, including in retirement.
Auto-enrolment has been introduced in parallel to what has happened to DB. It was a triumph by a Labour Government, and I warmly welcome the continuity of policy under this Government. Auto-enrolment has seen 9.7 million more people in pension schemes, saving for retirement. While that move has been immensely positive, it has meant more workers saving into DC schemes. We do not want to see that posed against good DB schemes—on the contrary.
A Pensions Policy Institute report in 2016 found that the median saving of DC scheme members could yield only £3,000 a year as an annuity, which is not a lot of money to live on in retirement. The contrast between historical, good DB schemes and many of the current DC schemes is stark indeed. More work needs to be done, therefore, to improve the adequacy of returns on DC savings, including by looking in more depth at costs and charges.
Collective defined-contribution schemes are an important alternative to the current DC world. While not as secure as traditional DB, CDC provides workers with the opportunity to share the risk associated with their pension investments, as well as the ambition of an income in retirement, which DC can never do. Royal Mail and the Communication Workers Union—to their great credit—have been working to form an agreement, which would be the first CDC scheme in the UK. That would forge a new and exciting pathway to a better pension for Royal Mail’s 142,000 workers.
We look forward to continuing to work with the Pensions Minister and the Government on the passage of the necessary secondary legislation, to enable CDC schemes to be formed, and to work with Royal Mail and the CWU to ensure the best possible scheme for their workers is put in place as quickly as possible. That is a landmark development. It opens up immense opportunities at the next stages. We will encourage many employers—including on a sectoral basis—to take that path. I stress again, if DC is not as good as DB, CDC is a damn sight better than ordinary DC schemes, but—the evidence overwhelmingly shows—still not as good as good DB schemes. We therefore do not want one to be posed against the other. This is a new option and alternative, developed in particular circumstances, which we think others will follow at the next stages.
If responsibility falls on employers, there is also a responsibility on Government. I agree with the tone of this debate and some of the comments made. The DB White Paper is a step in the right direction—no doubt—in seeking to live up to the challenge of protecting good DB schemes, and ensuring they continue to thrive and maintain their members’ benefits.
I welcome a number of the proposals in the White Paper, such as criminal sanctions for directors neglecting pensions schemes. However, my hon. Friend the Member for Crewe and Nantwich was right to question precisely how that would work for potential incomes, given unforeseen circumstances. I welcome the proposals for stronger powers for the Pensions Regulator, with which we had a constructive meeting here last week. I welcome the proposals for clearer standards on scheme funding and for scheme consolidation. I think the hon. Member for Solihull (Julian Knight) is right that consolidation and, therefore, economies of scale, offer significant prospects at the next stages. I welcome the moves towards cost transparency.
However, there are concerns about the White Paper, for example, the reluctance, at this stage, to build on voluntary clearance and corporate takeovers. We recently had the scandal of the hostile takeover of GKN by Melrose. The issue of 50-50 member nominated trustees should have been in the White Paper, but it was not. It remains a strong ambition of the Labour party. We hoped to see stronger commitments to mandatory cost transparency for trustees in DB schemes. Another concern was the review of the Pension Regulator’s valuation procedure and some of the problems that emerged, for example, over the rather conservative interpretation in the universities, which made it more difficult to reach a settlement in that dispute.
There is much in the White Paper that is good and that we welcome. We have ambitions, however, at the next stages. Employers and Government have responsibilities. The most reliable route to a secure and sustainable retirement remains a DB pension. I say to Bentley, workers are the beating heart of any company. Bentley and other wealthy and prestigious companies need to look again at how they treat workers, who are essential to the success of their companies, and investigate every possible route to keeping their DB pension scheme open. That is why I strongly urge Bentley to think again. Bentley—of all companies—should be ashamed of itself for behaving this way in relation to its workers’ pensions.