Defined-benefit Pension Schemes

Mhairi Black Excerpts

Tuesday 10th July 2018 Westminster Hall

[Mhairi Black (Paisley and Renfrewshire South) (SNP)]

It is a pleasure to serve under your chairmanship, Mr Hollobone. First, I congratulate the hon. Member for Crewe and Nantwich (Laura Smith) on bringing to Westminster Hall such an important debate and such a good-natured debate—it feels like a while since we have had one of those in this place.

There is agreement. Everyone recognises that DB schemes have been in decline for the past 15 years. I would like to give a bit of perspective on the numbers. The 1.3 million active, contributing members of private sector DB schemes account for only about 10% of the total 13.5 million private sector DB memberships. That gives people an idea of just what the burden is on those who have not yet retired under these schemes.

I also agree that there are many factors as to why DB schemes have declined as they have. There have been umpteen tax and regulatory changes and legislative changes. There have been changes in the financial market; there was the financial crisis in 2008. Ultimately people are living longer, which has a huge impact on pensions in general.

I was very happy when I read in the Green Paper the Government saying that DB pensions are certainly not unaffordable. It is a case of being realistic and seeing what we can do. Pensions have not always worked out as planned, as I have seen since I have been looking at and working on pensions. However, it is good that the Green Paper said that the evidence in relation to unaffordability was far from conclusive.

The hon. Member for Solihull (Julian Knight) explained something really well in saying how we can rebuild, restructure and consolidate these things to have a realistic and practical approach to how to answer some of the questions that are being flung up. I will explain where the scepticism comes from. He used a phrase that stuck out when he said that we need to know “exactly what we are getting”. I think that is all that anyone ever looks for when it comes to dealing with their pension, but unfortunately the goalposts continually move. That is the problem with pensions in general, not only DB schemes, just now. The goalposts are constantly moving, so it does not matter whether it is five years or 30 years down the line; people will probably have a very different deal from the one that they signed up to.

Let me give an example as to why it is right to be sceptical of some of these companies. In 2015, FTSE 100 companies paid about five times as much in dividends as they did in contributions to their DB pension schemes. The 56 FTSE 100 companies with a DB pension scheme deficit paid 25% more in dividends. Therefore, in theory, these companies would have the ability to repair immediately their pension scheme deficits were they to feed their dividends into deficit repair contributions.

I was very grateful to see the Government set out in the White Paper an approach that would involve enforcing a stricter body of regulation—tougher rules, tougher legislation, proactive powers—so that the Pensions Regulator could intervene quickly and effectively. All those things are tremendous steps in the right direction. However, if we recognise the reality of what the financial market is like just now, failures such as Carillion, BHS and even, more recently, Toys “R” Us show that this situation can become very toxic very quickly.

It is clear that the UK Government did not have a robust enough system to protect savers. What we are seeing now is only the start of steps in the right direction—towards having a robust enough system. As we know, the loss of pension savings can shatter an entire life in the days when people should be enjoying life most. We have to take this issue really seriously, which is why one of the disappointments of the White Paper was that at no point did it mention Brexit. We will probably all have differing views as to what Brexit will mean for the UK. Brexit could well be the answer to pensions; it could solve everything, but I still think it is right for us to see some detail of it or some Government predictions. What effect will this really big change have practically on our pensions day to day? For an entire White Paper not even to mention Brexit stood out.

Just now, 300,000 more pensioners are in poverty. That is the first sustained increase in pensioner poverty in 20 years. The UK has a wider than average gender pensions gap. We see that with things such as the WASPI Campaign and throughout all the different aspects of pensions policy. As I have said, the publication of the White Paper is welcome, but a sense of urgency seems to be lacking in this Tory UK Government. The Department for Work and Pensions itself has said that the legislation needed to enact the new regime will not be ready until, at the earliest, 2019-20. That means that until then unscrupulous businesses seeking to avoid their pension obligations might find it easier to do so.

I will conclude my remarks with something that I have said many times. The Minister is probably fed up of hearing us ask for this, but the SNP has long called for the establishment of an independent pensions commission, so that we can take a step back from pensions and look at the issue holistically and from a totally fresh point of view in order to see whether we can do anything radically different. That said, I think the Government are heading in the right direction, so I hope that they reflect on the comments made today.