Pension Schemes

Stephen Doughty Excerpts

Thursday 2nd May 2024 Commons Chamber

[Stephen Doughty (Cardiff South and Penarth) (Lab/Co-op)]

It is a pleasure to follow the Chair of the Work and Pensions Committee, my right hon. Friend the Member for East Ham (Sir Stephen Timms), and I thank the right hon. Member for Orkney and Shetland (Mr Carmichael) for securing the debate. It gives us a chance to raise a number of issues, and I have listened with particular interest to the remarks about defined-benefit schemes and the recent report of the Select Committee, which is what I want to talk about today.

I speak, as the MP for Cardiff South and Penarth, on behalf of the many individuals affected by the collapse of the Allied Steel and Wire pension fund. That of course affected not just constituents in Cardiff South and Penarth, but people across south Wales and in other locations in the UK. I have regularly met constituents and others affected by that terrible injustice. Over the time I have been in the House, I have heard the passionate way in which they have made their case, which is heart- breaking. They put into a pension scheme expecting a defined benefit after many years of service in a tough industry—steelmaking, which has a proud tradition in my constituency, as it does across south Wales—yet they have not received what they paid in for. That is essentially because the employees were members of the ASW pension plan and the ASW Sheerness Steel Group pension fund, both of which were wound up underfunded.

Those members ended up having to rely on the financial assistance scheme, which, as has been said, provides financial assistance to members of defined-benefit pension schemes who lost all or part of their pension following their scheme coming to an end between 1 January 1997 and 5 April 2005. The arrangements that were made resulted, in theory, in members receiving something broadly equivalent to 90% of the expected pension, which is obviously less than what they expected to receive, but this could be reduced if it was above the FAS cap. Of course, members who had paid in substantial amounts before 5 April 1997 did not receive any index linking, which means that the value of their pension pots has been substantially reduced. Even the funding that went in after that date will not have kept pace with actual inflation, because it was related to the increase of up to a maximum of 2.5%. The net result is that many of them received somewhere between 40% and 50% less than they felt they were entitled to.

Those members, many of whom paid into the schemes in good faith, have often explained to me very clearly how they were originally sold the schemes. They were told it was going to be absolutely solid—as solid as the steel they were making—yet they found themselves in real difficulties in later life. Sadly, many of those members have since passed away, or suffered illness, financial hardship, mental distress and many other issues during that time.

[Christine Jardine (Edinburgh West) (LD)]

The hon. Member raises a point that I have been particularly concerned about. Constituents have recently come to me because they are facing problems getting their pension entitlement from Police Scotland, so from a public sector pension. One of the lessons we need to learn from these continual scandals is that we need to act quickly, because the longer we take, the more people lose out, and people pass away and never get the justice they deserve.

--- Later in debate ---

[Stephen Doughty]

I agree with the hon. Lady. Indeed, that is reflected in what the Committee set out, which I will come to in a moment. Quite understandably, those pensioners have made it clear to me that they see themselves in the ilk of other huge, historic injustices, such as those we have heard about in recent months with the sub-postmasters Horizon scandal and the infected blood scandal. Obviously, the longer it goes on, the more pain and financial and mental distress they endure, and tragically many pass without receiving any of what they were entitled to, and certainly not the full amount.

I have met numerous Pensions Ministers and written to them many times. I have spoken in this House many times and told the stories of these pensioners. I thank shadow Front-Bench colleagues, in particular the acting shadow Secretary of State, my hon. Friend the Member for Wirral South (Alison McGovern), and my hon. Friend the Member for Lewisham, Deptford (Vicky Foxcroft), who is on the Front Bench today. I also thank previous shadow Pensions Ministers, including the late Jack Dromey, for all they did to engage with pensioners, but people are still not getting the answers that they rightly expect—I will come on to the response that I have had from the Minister in due course.

Let me turn briefly to the recommendations in the DWP report, which I know the Minister is familiar with. Its 22nd recommendation states:

“Financial Assistance Scheme members are likely to have more of their service before 1997, so are particularly likely to be affected by non-indexation of pre-1997 benefits. Any improvements for PPF members should also apply to FAS members.

Given the age of many FAS members, the Government should legislate as a matter of urgency to provide indexation…for pre-1997 rights…The Government should review the Financial Assistance Scheme, including looking at the case for removing other discrepancies in FAS compensation, compared to the PPF”.

Paragraph 156 of the report states:

“Like the Deprived Pensioners’ Association and Prospect, the Pensions Action Group—”

which has worked on behalf of these pensioners over many years—

“said that indexation on pre-1997 benefits is its priority. Most FAS members have the majority of their service before 1997 and most were in schemes that provided for indexation of between 3% and 5% on all members’ pensionable service. Non-indexation of benefits…means that the average FAS award (£2,700) is progressively lower than the amount expected from the original pension schemes. Terry Monk said: ‘people should get what they paid for—end of story. If people paid for it, they should get it.’”

That is a sentiment I have heard over and over again from my constituents and others.

As I said, I have engaged with many Pensions Ministers —there have been many over the years while I have been in the House—and I had a letter from the Minister on 18 April regarding those on whose behalf I wrote to him. It said:

“I am aware of, and welcome, the report of the Work and Pensions Select Committee into defined benefit pensions. These are complex matters which require careful consideration. Any solution needs to be balance and take account of the interests of Financial Assistance Scheme members and taxpayers who fund the Scheme. Therefore, I am now actively considering next steps…with an aim to publish our response in early summer.”

Will the Minister meet me, my constituents, and other representatives who have been campaigning on this for so long? Will he give some timeline for when he expects to respond to the Select Committee and the specific points? Will he provide his Department’s estimates of the costs involved, and say how those weigh up in different scenarios? This issue obviously affects thousands of individuals. I have heard different figures quoted at different points for addressing the concerns, and it would be good to understand his independent assessment.

A passionate case has been made by my constituents and those affected. This was a highly publicised scheme. The former ASW site is now under new ownership but it is still at the heart of my constituency and a visible sight in Butetown and Tremorfa. Many of those affected live locally and did not get what they thought they were going to get. That has caused huge distress to them and their families. We need to provide them with some answers, and I urge the Minister to look carefully at the case they have made and at the findings of the Committee.

[Dr Thérèse Coffey (Suffolk Coastal) (Con)]

It is a pleasure to speak in this debate, and I congratulate the right hon. Member for Orkney and Shetland (Mr Carmichael) on securing it and the Backbench Business Committee on granting it.

This is an important matter, no matter what age people are. I appreciate that today we are not talking particularly about state pensions, but I call on those on the shadow Front Bench to please desist from this scaremongering about what may be happening with state pensions. All parties have committed to having the triple lock in their election manifestos, and it has worked well. There has been a big uplift in the state pension since 2010. We worked on that with the Liberal Democrats when we were first in coalition and have continued with it, with a couple of exceptional reasons in the pandemic—once when we used primary legislation to ensure that people could get the triple lock, and again when we recognised the unusual situation with covid earnings. We know that pensioners have welcomed the significant increase in their first state pension payment of this tax year, with most of them seeing that significant uplift in the week just gone.

[Stephen Doughty]

The former Secretary of State says we should not be scaremongering, but there are some serious concerns. Does she accept that the Pensions Regulator report said that the mini-Budget of the former Prime Minister, the right hon. Member for South West Norfolk (Elizabeth Truss), contributed to a £425 billion drop in pension fund assets, which has affected every pensioner and every potential pensioner in this country? Will the former Secretary of State not at least accept some responsibility for that?

[Dr Coffey]

I certainly will not accept responsibility for that. I am conscious of the arrangement with the Pension Regulator, but also the situation that happened with liability-driven investments. The Bank of England saw that as a risk in 2018 and did nothing about it. I come back to the fact that the state pension is well trusted and well regarded, and it is scaremongering to suggest anything otherwise.

I am conscious that today we are talking about private pension schemes. In my short time as Secretary of State for Health and Social Care, what came up time and again—this Government addressed it—was the reduction in the lifetime allowance to about £1 million, which the Conservatives had introduced. I appreciate that for many people, it would be a mountain to climb to get to that kind of pension pot, but for doctors, consultants and some nurses, the lifetime allowance was proving a barrier to them continuing to work within the NHS. A sensible approach was taken, and I am pleased we have done that.

One thing that has been constant is the generous tax elements for private pensions. It is why we have had such a successful industry and why there is a difference between us and many other countries around the world in what comes from the state directly and what comes through private pensions. I recognise that the previous Labour Administration put in place the building blocks for auto-enrolment and the creation of the National Employment Savings Trust, and that was a good thing to do. I am pleased that we started that journey just over a decade ago.

Contrary to the predictions, it was good to see how many young people did not opt out. That is a huge success story, and it is why I share with the Chairman of the Select Committee, the right hon. Member for East Ham (Sir Stephen Timms), a keenness to make sure we get on with the consultation to which he referred. I am sure the Minister will answer that point. I appreciate that there will always be concerns about the possible impact on jobs. I get it, and it may be that we need a two-stage consultation: one stage about age and one considering a lower earnings level. It would be good to get on, because everybody realises that the sooner people start, the more they benefit. That is an important part of why auto-enrolment has been such a success.

Another recent change in legislation is the creation of collective defined contribution schemes. Clearly, there is still some interest in those, and Royal Mail is potentially closest to starting one. We should see what we can do to advocate for that model for many institutions. This is a brave comment to make in this speech, but I wonder whether Parliament should lead by example and see whether the Members of Parliament pension scheme should move to this approach. I am conscious that the taxpayer pays for our contributions through the Government and so on, and we have an uncertain career path by becoming Members of Parliament, but where something is good enough for others and we are creating legislation for it, we should consider leading by example and giving some impetus to that new legislative vehicle. I may not be popular for saying that, and I am conscious of how some of the issues with the McCloud judgment and similar matters led to a two-tier system, which has now been rectified. However, that scheme undoubtedly need not be as complex.

I am pleased about the changes that happened in the Treasury, responding to calls from Departments such as the DWP, which led to an opening up through the Mansion House reforms of the consolidation of funds and aspects of super-funds. What we need from pension investment is good returns so that our pensioners will be prosperous—that is ultimately what this is about—and we need to galvanise what we are doing to ensure that.

I am not one of those people who believes that we will be retiring at 75 or whatever—far from it. There is a rational end to that approach. It will not necessarily take courage but it will require some imagination, co-ordination and collaboration to ensure that we have sustainable pension outcomes for the future. That is where we can start to learn from other countries. When I was in the Department for Work and Pensions, I was interested in what is done in Japan. Dare I say, if I end up doing another PhD in the future, it will probably be on how pensions are part-funded in Japan, recognising its ageing demographics? We should recognise that that is the situation in our country, too. We should not be all doom and gloom about this issue. We need to innovate, but we can also look at what others have done to address it.

There is another really important thing. I started work in 1997 for a company called Mars Inc. where—it was little known to me; I did not realise how beneficial this was—I was on a final salary defined-benefit pension scheme with zero contribution. I did not have to contribute a penny. Over time, that did not stay affordable for Mars. I had not appreciated that benefit—I think to some extent that is why auto-enrolment is so successful—but in that job I learned the importance of making sure that employers are careful with how they manage pensions on behalf of employees and the role of the trustees.

We can think back to Robert Maxwell raiding pensions. I know that Mars sold a business to his company, and that went wrong in terms of the pensions. People may not be aware that pensions are not included as part of the TUPE process—they are specifically excluded, recognising how they could limit sensible company mergers and acquisitions—but I am conscious of how people may not really think about that until much later in life.

To return to the reforms and why they are necessary, the trustee is so important. I had hoped that we would have a “year of the trustee” campaign. Although being a trustee is an interesting role to have—I admit that I have never been one, although I have expressed interest in the past—it means being heavily involved in regulation. That could be overwhelming at times for people who may want to be a trustee because they believe in the people they work with and those who worked there before them, as well as being mindful of the future, but who are not necessarily well versed in all the ins and outs.

I know that the fiduciary duty is really drummed into trustees. For defined-contribution schemes in particular—where, candidly, there is no expectation of what the outcome will be—the hammering home of that fiduciary duty has led to a low-risk approach, which has been very low-cost but with very low returns. That is not what we should want. No wonder people are buying other homes and becoming landlords: they see a fixed asset, which they know they can sell in the future and on which they can make a reasonable expectation, whereas people putting money into their pension pots have no huge sense of what that could buy them in the future. We have changed the laws so that people do not have to put everything into an annuity, but it still is a matter of concern. I am conscious that there have been issues with the pensions dashboard, and I hope that the Money and Pensions Service will solve that. Perhaps the Minister can update us on progress in that regard. It is vital that people start to look at that now, not just as they are about to retire.

What are the benefits of the reforms, and why should there be sufficient professional advice? Those intermediary advisers often get significant fees, but still recommend that people go for gilts and pretty low returns. There is a different way. I hope that the reforms will start to be taken up by the industry, which asked for them, in order to take full advantage and recognise the issues ahead. We need to see the impact of the changes in legislation and the variety of consultations. We made the changes to improve prosperity for pensioners now and in future. I would be keen to hear from the Minister if there is any news on market trends in that regard. The local government pension scheme should lead by example. The Government have put greater demand on local government through levelling up, but is vital that we see that change.

There is a second part of pension schemes that is worth raising. I wonder whether Members know just how many trillions of assets there are in UK pensions alone. The answer is about £3 trillion. Organisations such as Make My Money Matter are trying to encourage people to use their future pension pot to ensure we have a thriving planet. I do not agree with the divestment approach, but it is important that companies invested in the energy of today are invested in the energy of the future. Without the support of pension funds, we will not get that necessary investment.

Pensions are a superpower for the prosperity of people and the planet. I was pleased when we introduced the regulations on disclosure of alignment to the Paris agreement. I would like to go further and encourage the Secretary of State to bring forward similar regulations to apply to nature. Work has already started—the Task Force on Climate-related Financial Disclosures made it happen for carbon. I think we were the first in the world to do that, by the way. We can do the same for nature. The Taskforce for Nature-related Financial Disclosures is a good comparison. The International Sustainability Standards Board is looking at that, and we are close to getting that outcome. I appreciate that the Minister may not have considered that recently and he may not be able to respond, but I encourage him to do that. We only have a certain amount of time, although I hope that as science allows us to live longer, we will claim our pensions for longer, so we want to ensure a prosperous future.

On the superpower element, I praise Nest, which has done a great job. It was set up just over a decade ago, and now manages a huge amount of money. There is even room for it to expand through consolidation, which the Pension Protection Fund could also look at. Nest is leading by example. As a pension firm that is starting to invest in the energy of the future with a substantial proportion of its funds, rather than rely on gilts and similar, Nest should be truly celebrated.

Although fiduciary duty must be the No. 1 priority, let us try to get more trustees to recognise that they are responsible for ensuring that the returns from DC schemes are as good as the benefits for members of defined benefit schemes. We need to release the market and protect people as we have done. Pensions being a superpower is not necessarily the sexiest thing to say in this Chamber, but it is one of the most important decisions that we have made in legislation in recent years. We need to continue that momentum.

--- Later in debate ---

[Mr Carmichael]

When I contacted the Speaker’s Office this morning, I was told there was only myself and the right hon. Member for East Ham (Sir Stephen Timms) down to speak, so I am delighted that we have had a good debate. We have had contributions from no fewer than 10 Members, which, given what is happening elsewhere today, is quite significant.

A number of Members made reference to the WASPI issue; I did not do so in the course of my remarks because it was not really germane, but it is a point well made and I very much associate myself with it. The ombudsman took long enough to get a report on that, and now we need to get on and honour it. Otherwise, what is the point of having an ombudsman in the first place?

The function and purpose of debates such as this is to ensure that the concerns of our constituents are heard in Government; the presence of the Minister on the Front Bench is an important symbol of that. The companies to which reference has been made, BP, Shell, ExxonMobil, Hewlett-Packard and Allied Steel and Wire, are some of the best known high street names in the country, and I hope that what we have heard in this debate will be heard also in the boardrooms of those and other companies. The people who run those companies should understand that we are watching what they are doing, that they have an obligation to treat their former workers and their pensioners fairly and that, if they do not have it within themselves to do that, we in Parliament and in Government will make sure that they have to.

Question put and agreed to.

Resolved,

That this House has considered pension schemes.

[Stephen Doughty (Cardiff South and Penarth) (Lab/Co-op)]

On a point of order, Mr Deputy Speaker, I understand there are reports online of a veteran allegedly being prevented from using their veterans ID card, which is a Government-issued ID card, for voting today in the elections that are taking place across the country today. I am sure that will be of concern to Members across the House. A Government Minister has apparently made a public apology and said that they will try to get the issue resolved. I wondered whether you had had any notice of an urgent statement next week on the matter. It does seem bizarre, not least because current military identity cards can be used, and the card is a Government-issued document. I declare an interest as a holder of one of those veterans cards, but it does seem very strange and I hope we can get some clarity on this from the Government. Have you had any notice of such a statement?

[Mr Deputy Speaker (Mr Nigel Evans)]

I have had no notification from any Government Minister that there will be a statement today. As you know, at the end of proceedings today, we go into the May recess and we will be reassembling on Tuesday. I know that those on the Treasury Bench will make certain that your comments are made available to Ministers, in order that there can be a response.