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Lord Hunt of Kings Heath: My Lords, first of all I thank the noble Lords for their comments, although I searched in vain for something I could agree with, save that we all start from the point of view of sympathising with any person affected by the collapse of pension schemes. Anyone who has met some of the people involved will know just how hard it is for them. One must have every sympathy with them. I say to the noble Lords, Lord Oakeshott and Lord Skelmersdale, that it follows from that that our decision was not taken lightly. Indeed, my understanding is that it is the first time that such a decision has been made by my department and its predecessors.
At the end of the day we do not accept the findings of the ombudsman. We see no causal connection between the actions criticised in the ombudsman report and the losses people accumulated. Even the ombudsman's comments in her report—when referring to the 2002 change, mentioned by the noble Lord, Lord Skelmersdale—say that this did not affect the degree of knowledge of scheme members, and the knowledge of scheme members is the basis for our decision. Indeed, in relation to the schemes that began winding up in 2004–05, the report says that the individuals concerned could be said to have had the opportunity to take out whatever provision to mitigate the situation. This decision has not been taken lightly, but we simply do not accept the recommendations or logic of the report.
The noble Lord, Lord Skelmersdale, has raised a number of issues around pension policy in general, including our great friend the dividend tax credit. He and I have debated the question of how much that has come to. I think this is the first time that I have seen acknowledgement from the opposition Front Bench—I did not see it in the other place—that the £5 billion alleged is inaccurate. The point is that that action was also accompanied by some tax cuts. The impact of such factors as the fall in the stock market, the effect of longevity on actuarial assessment, and the pension holidays that the noble Lord's government allowed for in legislation all dwarf the impact of the decision taken around the dividend tax credit.
The noble Lord, Lord Skelmersdale, has welcomed the fact that we will publish a full response to the report in due course and has asked whether that will include information about the leaflets referred to. I have a list of some of the leaflets with me; I will certainly see whether I can make as many as possible available to the noble Lord, possibly in advance of publication of our full response.
As far as the March 2002 decision is taken, I ought to say—as was said in the Statement—that the ombudsman has not allowed us to see the full actuarial advice on which some of her comments were based. The decision we took was on the basis of actuarial advice endorsed by the Government Actuary's Department. Indeed, the change in 2002 did not weaken the basis of the MFR as the ombudsman described. Adjustments to the MFR were made on the principle of maintaining its 1997 level. The noble Lord,
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Lord Skelmersdale, then referred to the whole question of the Pensions Commission debate and the public's confidence in the outcome. The process of establishing the Pensions Commission, the debate that has taken place, and the reaction to the report show a great deal of interest in these important areas from many people. We are holding a number of pension day events all over the country on Saturday. I am convinced that we are in a position to move forward—with, I hope, consensus—and provide far greater stability in the future in relation to pension policy in general.
I thought the tone of the remarks made by the noble Lord, Lord Oakeshott, was rather unfortunate. We start with enormous sympathy for the people who have been involved in the scheme failures. There is no question about that. We have had to make this decision based on our view of the facts and the fact that no causal relationship was accepted. As far as the FAS scheme is concerned, the position is that 27 members in five schemes have so far received payment. I shall be quite frank: we find that disappointing. Part of the Government's response to the ombudsman's report is to look at the question of the speed of wind-up, which is one of the factors clearly related to this. We are sympathetic to any suggestions that may come forward in that regard. My right honourable friend the Prime Minister made it clear that we will be reviewing the FAS and that we will do so expeditiously. I hope that at least will bring some comfort to the noble Lord.
2.29pm
Lord Higgins: My Lords, is this report not a damning indictment of the Chancellor of the Exchequer and the series of subservient Secretaries of State who, over the past 10 years, have wrecked an occupational pension scheme in this country, which was, perhaps, the best in the world? The report must be put in a broader context, because a number of Government actions have resulted in this tragic situation, not least the change in ACT, to which the Minister has referred. Can he tell us what the Government's estimate is of the amount that has been taken by pension funds as a result of the ACT change and how that relates to the estimate they are now making for compensation? If the figures are related to each other, it is a matter of relating a payment of something that has come from pension funds to something that effectively goes to pension funds.
At all events, it is desperately disappointing that the Government are not even prepared to apologise, as the ombudsman's recommendation states, when in fact, given their responsibility for the present situation, they really ought to resign.
Lord Hunt of Kings Heath: My Lords, I have already expressed the sympathy that the Government and I feel for the members who have been affected. But the fact is that we do not accept the conclusions of the ombudsman's report. In that sense, I do not think it follows that an apology is required. However, I do express a great sympathy.
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The noble Lord asked about advance corporation tax. The noble Lord, Lord Skelmersdale, suggested that the Pensions Policy Institute projected figures of, I think, between £2.5 billion and £3 billion. I do not have firmer figures than those. I would say, however, that you cannot isolate that particular action and say that it somehow caused the failure of so many pension schemes. Very many factors caused it, including some of the decisions that the noble Lord's government took and the prevailing situation in the markets and in the revised actuarial assumptions on longevity. It is very unfair to single out one action and say that it was the cause of the whole pension situation. I think that we would have a fairer and more balanced debate if there were more recognition that a whole number of factors led to the position.
Baroness Hollis of Heigham: My Lords, it gives me no pleasure to say, particularly as I, too, much respect the work of Ros Altman, that I think that the Government's response is the right one. I do not know whether anyone else here was in the House when we were handling the Pensions Act 1995. I led for the Labour opposition. All of us taking part in that debate, led by the Minister, the late Lord Mackay of Ardbrecknish, were entirely clear what the MFR represented—the 50:50 risk. It was precisely because the MFR was not a guarantee of full funding in all circumstances that I with my noble friends moved an amendment for a central discontinuance fund which the government, in their folly, rejected. It would have introduced the equivalent of the PPF and avoided the subsequent misery. We moved the amendment precisely because we and all participants in the debate and all of the professional advisers including the actuarial and accounting professions knew what the MFR represented and as a result the consequences for trustees. That is why I think the Government were right. All the subsequent adjustments to MFR were to bring it into line with the original intent of that legislation.
I want to go one step further and ask: what would it mean if the Government accepted responsibility for what has happened? It would mean two things. First, low-paid people, often women, who are in no pension scheme whatever would be expected to cross-subsidise through their taxes those who have pension schemes. Secondly, it would mean, as regards moral hazard, that noble Lords opposite are suggesting that employers and employees at the time thought that the Government would rescue any pension scheme come what may. What sort of moral hazard does that represent? What does that say—that the Government are going to underwrite, and were expected to underwrite at the time, any scheme regardless of the level of employer funding? Surely that would be absurd.
So although I, like all others, very much regret what has happened to pension schemes, I think my noble friend is entirely right to say that it is due to trends beyond our control and that we are right to revisit
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FAS. However, the Government should not take responsibility for that over which they did not have control.
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