§ Madam Speaker
We now come to the first debate on the Opposition motions. I have selected the amendment standing in the name of the Prime Minister.
§ Mr. Iain Duncan Smith (Chingford and Woodford Green)
I beg to move,
That this House believes the Government has failed pensioners and thrown away a unique opportunity for reform; deplores their attack on pensioners through the abolition of the ACT dividend tax credit, which will cost pensioners and all future pensioners £5 billion per year; believes the Government has further hurt occupational schemes by increasing the regulatory and cost burden in the pensions Green Paper; rejects the Government's proposals, which will make pension provision more complex and offer no real security for pensioners in the future; and condemns the Government for their extensions of means-testing in the welfare and pensions system, which will undermine the incentive to save.Today's debate is an opportunity for us to consider the Government's record after two years of this Parliament to find out whether some of their more grandiose pledges, and perhaps even some of their more sensible pledges, have been met. In opposition, the Labour party said that it would improve the situation for pensioners. We should set out clearly the position that the Labour party inherited when it came into power and decide whether it has improved it.
The Government inherited funded pension provision totalling about £750 billion—more provision than in the rest of Europe put together. Furthermore, between 1979 and 1996, pensioner incomes rose by more than 60 per cent. In 1979, 46 per cent. of pensioners were in the poorest fifth of the population by income distribution, but, by 1996, that percentage had more than halved and less than 20 per cent. of pensioners were in the poorest fifth. While Conservative Members accepted that there was still more to be done, that was a major contribution— all in all, it is a position which many countries in Europe thoroughly envy, as they wish that they had such a strong and powerful position.
What have the Government done from the outset to improve the situation or to make a difference that matters to pensioners? Their first act, almost as soon as they came to power, was to strike a blow at pensioners. In their manifesto they said:we will support and strengthen the framework for occupational pensions.I will show that they have done entirely the opposite. The abolition of the advance corporation tax dividend tax credit, which they did almost within a month of their arrival in government, is simply a tax which will cost future pensioners more than £5.5 billion a year. It is the equivalent of 4p in the pound on basic rate income tax. In essence, that means that pension funds will have less money to invest, so pensions will be lower unless employers and employees pay more money into their schemes.
§ Mr. Gerry Sutcliffe (Bradford, South)
I do not want to stop the hon. Gentleman' s flow, but he mentioned what 937 Labour had inherited and the background to today's debate. Will he stick to the narrow subject of pensions, or will he widen the debate to cover the other ways in which the previous Government affected pensioners' incomes, such as putting value added tax on fuel?
§ Mr. Duncan Smith
The hon. Gentleman will have every opportunity to discuss the Government amendment, which intriguingly avoids the main purpose of the debate, which is to discuss what the Government have done to improve pensioner incomes through pension reform. That is the critical issue. The reality is that, as we have seen in the media and through hon. Members in the House, pensioners will on balance be worse off, not better off, as a result of all those changes. The key point is whether pensioners will be better off as a result of the changes made to pensions provision—that is what we are debating.
Let us return to the withdrawal of ACT dividend tax credit. In doing that, the Government struck a huge blow to pension funds and future pensioners; it is almost impossible to over-emphasise what a blow that was. After that, any pensioner would have been stunned by the blithe statement made by the then Financial Secretary to the Treasury, now the Paymaster General:People should understand that our reforms will benefit pension funds."—[Official Report, 3 July 1997; Vol. 297, c. 507.]The Government's own actuaries do not agree with that statement. The Government Actuary's report states:This reduces the amount of dividend income from UK equities by just under 20 per cent. relative to the previous tax position.That is a huge blow to anyone whose future retirement income depends on that investment. Even if the Paymaster General cannot add up, she should not assume that others have the same failing.
At a stroke, the new tax rise rendered final salary schemes far more expensive to maintain and thus less viable. I have spoken to one or two funds and it was interesting to discover the extent to which they have been hit. The Post Office pension fund finds itself down by £15 million a year, the Sainsbury pension scheme is less viable by £10 million a year and the railways pension fund is less viable by £30 million a year, all as a result of the Government's actions.
§ Ms Gisela Stuart (Birmingham, Edgbaston)
As the hon. Gentleman is clearly concerned about the well-being of those in work who provide for their old age, will he comment on what the previous Government did to the state earnings-related pension scheme and on how, over 18 years, they totally undermined its value?
§ Mr. Duncan Smith
I am intrigued that the hon. Lady is speaking from her brief from the Whips Office, which tells her to ask that question. What she says is utter rubbish: the reality is that the previous Government have a lot to be proud of in terms of pensions reform and this country's pensions provision is the envy of most of Europe and perhaps of the western world.
§ Mr. Michael Jack (Fylde)
May I add to my hon. Friend's list of pension funds that will lose money as a result of the changes the Church of England pension fund, which will lose some £12 million? Is he aware that other 938 Churches are taking actuarial advice on the impact on their pension funds? Already, the Church of England anticipates difficulties with meeting commitments from its latest clergy stipend fund.
§ Mr. Duncan Smith
My right hon. Friend is right—I shall with alacrity add the Church of England to my list. I omitted to mention many names on the list, because to read them all out would have taken at least 10 minutes. Even local government now faces huge difficulties because of what the Government did. It cannot be understated how hard the changes have hit many pension funds.
§ Mr. Duncan Smith
No, I shall not give way. Labour Members do not like what I am saying—as in "Dads' Army", "They don't like it up 'em," but the facts are that the Government's actions really hurt pensioners and that the Labour party did not tell pensioners the truth at the time of the election.
The Government Actuary had to be brought in to carry out an out-of-sequence review, such was the mess wrought by the new tax. The review resulted in a prescription designed to restore some balance to the position on contracting out from SERPS, but the Government then proceeded to make matters worse, which shows how mean-minded and spiteful they are. They chose to freeze the salary-related schemes rebate and to reduce the contracted-out money purchase schemes rebate, which meant that they destroyed one viable option for people and made salary-related schemes even less viable than before. Not content with hurting pensioners through the ACT tax dividend credit withdrawal, the Government went and squeezed them further when the Government Actuary gave them an opportunity to do so.
The Government's first decision on taking power has created chaos and hurt many people. It is important to note that their actions have struck a blow at occupational pension schemes—the very schemes that they said they thought were rather good, which makes their actions not only ironic, but rather stupid.
§ Mrs. Angela Browning (Tiverton and Honiton)
My hon. Friend mentioned the public sector, but is he aware that the chief constable of Devon and Cornwall police, who received an appalling local government settlement this year, has to make grave choices because of the need to find additional funds to prop up the shortfall caused by the Government's action on ACT?
§ Mr. Duncan Smith
I agree with my hon. Friend. Like my right hon. Friend the Member for Fylde (Mr. Jack), she has added to the list of examples of the problems and hurt being inflicted on pensioners as a direct result of the Government's actions.
§ Mr. Nick Hawkins (Surrey Heath)
I, too, should like to add to that list. Small borough councils have also been hit hard, and the hardest hit are those in the shire areas.
939 They are having to make extraordinary efforts to cope with the stealth tax—the unexploded bomb—that the Labour Government have introduced. Already, local authority pensioners say that they would never have voted Labour if they had known that the Government were going to raid their pension schemes.
§ Mr. Duncan Smith
I thank my hon. Friend. That is yet another example for the list. However, I urge my right hon. and hon. Friends to restrain themselves slightly on this matter, as otherwise we shall never move on. The point has been made absolutely clearly: pension funds and future pensioners across the country will suffer as a direct result of the mean-mindedness of a Government who never revealed what they intended to do.
§ Mr. Campbell-Savours
The hon. Gentleman has made his case powerfully, and it is clear that he feels very strongly about the matter. According to the Opposition motion, we are talking about £5 billion. Does he intend to reverse the change in the law at the next general election? Will he go into that election with such a proposal?
§ Mr. Duncan Smith
I shall answer that question because I am intrigued by Labour Members. The Government have been in power for two years, but already they are trying to decide whether to vote Conservative at the next election. It is absolutely amazing. The hon. Member for Workington (Mr. Campbell-Savours) still does not know how he will vote, yet he is clearly en route to a decision. The hon. Gentleman knows as well as I do that, when we get back into power, we shall take whatever decisions are needed to rectify the problems facing pensioners. He must wait patiently, for we will make our proposals in time for him to make his decision about how to vote at the next election.
Throughout their first 18 months in power, the Government have meandered through their pensions review. Month after month, they have promised a Green Paper. They have even put on road shows, which were supposed to be shows on the road to Damascus—although some of them seem to have got lost somewhere on a wet night in Dudley. However, those shows never got anywhere. Despite their great promises, it has become clear that members of the Labour party had done no thinking about pensions reform in opposition and that they are trying to find a solution now that they are in office.
There was one exception—the right hon. Member for Birkenhead (Mr. Field), who now sits, honourably, on the Back Benches. What is most interesting about the review process is that the very man asked by the Prime Minister, both before and after the election, to think the unthinkable and to produce a plan for Labour's first term in office was rapidly sidelined. Sadly, he was not put in charge even of the pensions review. Then—thanks to the Chancellor of the Exchequer and, perhaps, even to the present Secretary of State—he was squeezed out.
940 The result of that, and of the fact that no real thinking was going on at all, was a Green Paper cobbled together with one eye cocked towards the Treasury's agenda. It looked for a way to get through to the election without too much trouble.
§ Mr. Duncan Smith
In a minute, as I should like to finish this point.
The Government's pensions proposals are in a mess. Rather than creating reforms to simplify the provision of pensions, they have made the system progressively more complex and more difficult to understand. That, in turn, will lead to great uncertainty over future pensions. The Times stated:New Labour's new pension system was intended to make life simple for savers … Instead potential savers will be confronted with a mind-bogglingly complex array of options".The Daily Mail said:Mr. Darling has come out with a muddled and muddling, half-baked set of proposals".However, if the Secretary of State does not like hearing only from the media, he—and the Under-Secretary of State for Social Security, the hon. Member for Wallasey (Angela Eagle), who is sitting next to him—might like to hear from Mervyn Kohler of Help the Aged, who said:The Government has let a great opportunity slip through its hands. This pensions review could have made radical changes to a system in dire need of reform; sadly, it does not.
§ Mr. Duncan Smith
Labour, when in opposition, should have thought long enough to have produced a policy that they could implement on arrival. I think it is fair to say that. When we get ready to take over Government—it will be very soon—we shall have a plan worked out, and we shall present that plan and implement it. That is exactly what previous Conservative Governments have done, and we shall do it again.
§ Mr. Duncan Smith
No, I shall give way later.
There are four main problems with the Green Paper. [Interruption.] Labour Members do not like to hear of such things because they are so used to receiving briefs saying, "The Government are wonderful; intervene on this." They will have to hear the truth today.
There are four main failures in the Green Paper. The Secretary of State will not be surprised to hear that the first is that it massively increases means testing. One of the most significant areas of the Government's pensions proposals is the growth of means tests on pensioner 941 incomes. The introduction of the minimum pensions guarantee and the Green Paper's pledge on the guarantee—Over the long term, our aim is that it should rise in line with earningsmean that the Government are rapidly increasing the role of the means test in pensioner incomes.
The Association of Retired and Persons over 50 claims that:the Government's own estimates suggest that the number of UK pensioners relying on means tested benefits under the Minimum Income Guarantee could rise from 1 in 5 today to 1 in 4 by 2050.The Institute for Fiscal Studies, which the Government no longer likes although they used to work with it when they were in opposition, says that the means-tested guarantee "institutionalises means testing".
The Government's reliance on an increasing means-test element will become a massive disincentive to saving as it claws further and further up the line of those who would wish to save. Frankly, anyone on average earnings might as well not bother; they will find that those who did not bother will receive just as much final retirement income.
Meanwhile, the Government preside over a falling savings ratio. They inherited a ratio of more than 10 per cent., but by the time that they leave Government, it will be around 7 per cent. We are at a stage of the economic cycle when the ratio would normally be rising, not falling. They already have the problem that it is going in the wrong direction. Their changes will make that problem worse.
The right hon. Member for Birkenhead has said:It means that if you don't bother to save you will just pick thisthe minimum guarantee—up in the end anyway. So the Jack the Lads who don't intend saving will benefit.That is precisely the point: by increasing the level of the means test, the Government have discouraged saving. They leave everyone saying, "Why should I bother?" People who do not bother will get roughly the same income as those who take the difficult choice, year after year, to save money that they could otherwise have spent.
§ Mr. Peter Viggers (Gosport)
Does my hon. Friend agree that someone who has made no provision might even be better off, because he will receive housing benefit and council tax benefit?
§ Mr. Duncan Smith
There is no question but that my hon. Friend is right. The point is that anyone on the margins, with below-average income, who tries to save—perhaps putting away 10 per cent. of their income every year—will say, "I am losing that from my yearly spend and the bloke two doors down the road is having a wonderful time, travelling to Virginia and being dumped off the aircraft. One way or another, he is having a wonderful time, and he will receive the same income as I will."
§ Mr. Duncan Smith
No, in a minute.
942 The Government have collective amnesia. The Chancellor of the Exchequer has clearly forgotten his 1993 pledge, when he said:I want the next Labour Government to achieve what in 50 years of the welfare state has never been achieved. The end of the means test for elderly people.A few years ago, he made that bold pledge, but the reality is exactly the opposite.
The second fault in the Green Paper is its attitude towards, and its attack on, occupational pensions. I began my speech with a reference to how occupational pensions have been hurt by the Government. The Green Paper states:Occupational pension schemes are the great welfare success story of this country.Hear, hear. They were, but, under this Government, they are not.
The Government's proposals for stakeholder pensions are more than likely to discourage employers from setting up such schemes in the future. There is also a serious danger that some employers will close occupational schemes to new entrants and simply offer access to stakeholder funds instead.
The National Association of Pension Funds today said:Smaller companies will see it as easier and cheaper for them to encourage employees to move into stakeholder arrangements instead of creating occupational pensions.The proposals in the Green Paper will increase the regulatory and cost burden on employers of maintaining salary-related schemes.
The Green Paper says:Our proposals to create a framework for stakeholder pension schemes are not intended to change the commitment that employers already have to providing occupational pension schemes.Yet, the Government's proposals are, frankly, a stake through the heart of salary-related occupational schemes. On the one hand, the Government attacked them through the dividend tax credit, then they dealt them a blow through the rebate, and now they are dealing them a blow in the Green Paper. It is a blow which they will not survive, and for which the Government will stand condemned.
§ Kali Mountford
The hon. Gentleman makes much of occupational pension schemes, but why, in 1988, did the Conservative Government encourage people into private pension schemes that were not properly regulated and that failed thousands of pensioners in Britain?
§ Mr. Duncan Smith
What a wonderful intervention from the daily notes yet again—as though that were a real surprise. The previous Government set out to deal with the problem and this Government have continued that action. No hon. Member would think such mis-selling acceptable. The hon. Lady should be careful. I am about to come to what will be the biggest mis-selling scam of the lot, which is in the Green Paper. She should keep quiet for a little and listen because the reality is that she will be thoroughly ashamed of her Government who have set out to defraud the electorate.
§ Mr. Duncan Smith
No, not just yet. The hon. Gentleman has had his moment in the sun and that is good enough for him.
943 The Government have made much about reducing the need for individuals to seek financial advice, so let us move on to the concept of mis-selling in terms of the Government's proposals. The Green Paper's stakeholder proposal lies at the heart of a serious problem as to whether the public, the consumer, will take the right product.
The Government will recommend their product. In encouraging future pensioners to join those cost access terms schemes, which could turn out to be neither the best nor the cheapest investment or, critically, no better than the previous arrangement, the Government will rightly stand accused of mis-selling pensions on a grand scale. Unless the Government are prepared to step forward right now and underwrite their value, which I doubt, future Governments will have to suffer because this Government seem to have learnt nothing from what the hon. Lady has just referred to. The mis-selling to which she has just referred will become small beer in comparison with what the Government are likely to set in train—a huge problem, of which others will have to pick up the pieces. That confusion is the mother and father of mis-selling.
Peter Murray, the chairman of the NAPF, rightly said:This means confusion for the man in the street and when the consumer is confused, it means misselling on a large scale is inevitable.The Government will then stand accused, but, more than likely, they will have lost the election. They will be out and someone else will have to pick up the pieces.
The fourth problem strikes right at the heart of the real divide that exists in Government, and it concerns the Government's culture. The Government's ill-thought-through plans in the Green Paper are likely to lead to greater confusion and result in pensioners finding that they are worse off in due course than if no change had been made at all. Particularly badly hit will be anyone who saves on the margins.
Whether the new product is called a lifelong individual savings account, and whether "pension" is substituted for "lifelong", at its heart is the real problem. Almost every commentator now believes that LISAs demonstrate how the Government are pursuing two clear and different agendas in two different Departments. The Times of 27 January stated:Two departments are trying to run the show instead of one.The scheme was put forward by the Association of Unit Trusts and Investment Funds. I know that the association was working up this scheme for some time before the Government took office, and it approached the Treasury to discuss it. It is only recently that the Treasury has finally decided to go ahead, and I understand that it was the Treasury that set about leaking the details in the past couple of weeks to bounce the Department of Social Security and force its hand on the matter.
In the middle of all this, we announce our Opposition day debate on pensions, and the Department of Social Security goes into a spin. [Interruption.] I know what the Secretary of State for Social Security is looking for. He is looking for a reference in the document that I have here. It is in fact a rather obscure, vague reference, which says nothing about how the scheme is to operate. We know that it was dropped in by the Treasury; the Secretary of State had no option because the Treasury is running the show.
944 Knowing that we were to have this debate on pensions, the Department of Social Security went into a spin. The Secretary of State then went charging across to the Treasury and said, "Quick, I don't want to do this debate if they're going to accuse me of having a hidden policy that the Treasury may produce."
§ Mr. John Butterfill (Bournemouth, West)
Does my hon. Friend agree that the LISA scheme being proposed by the Government is very similar to the 401K scheme in the United States, which has been shown to damage pension fund provision?
§ Mr. Duncan Smith
My hon. Friend is quite right; there are many similarities between the proposed scheme and the 401K. I shall touch on them in a moment if he will bear with me.
The point is that the two Departments are at odds with each other. To try to avoid the split, the Secretary of State for Social Security has decided to get in on the act—
§ Mr. Duncan Smith
The hon. Lady has already had her opportunity but she missed it; she is not going to get a second chance.
In order to save face, the Secretary of State has persuaded the Treasury to allow his name to appear with that of the Chief Secretary in the written answer. The fact that the policy has been worked up away from the Department of Social Security is a clear sign that the Treasury has long since decided that it will take over pensions from the Department of Social Security.
We have here a little advance notice of that. I was concerned. I see the Secretary of State sitting there; he clearly assumes that he is going to lead for the Government in this debate and is going to put the Government's case. He is in charge because he is sitting there. However, the Government amendment to the motion is tabled in the name of "The Prime Minister, Mr. Secretary Prescott, Mr. Chancellor of the Exchequer"—we have heard of him—"Mr. Secretary Cook, Mr. Secretary Straw and Mr. Secretary Blunkett". Where is the Secretary of State for Social Security? Clearly, those further along the Front Bench are trying to send him a message that he has not got yet. I am surprised; it is a very unfortunate way of doing things. Perhaps they should have told him direct that it is a case of "Move over, Darling." I would be much kinder to him and tell him to his face.
The proposals will lead to chaos. The policy worked up by the Association of Unit Trusts and Pension Funds is an interesting one which has some things to recommend it, although there may be problems with it. The problem is not the policy but the framework set up by the Department into which the policy drops and with which it clashes.
For example, the stakeholder scheme is meant to be cheap and it makes no allowance for advice in order to keep costs down. However, the arrival of that alternative scheme means that anyone who has to make decisions about long-term savings will be confused as to what to do 945 and will need advice but will have to pay for it. In fact, the Secretary of State should talk to his Minister of State who, in The Daily Telegraph on Saturday, said quite clearly:I would expect the cost of advice to be met by the individual who uses it.There we have it—the hidden cost. Those seeking advice will have to pay; if they do not, they will be mis-sold something that may be of absolutely no use to them.
The scheme is a pensions vehicle that runs counter to the Green Paper on stakeholder pensions. There is no commonality. The stakeholder pension scheme has at its heart trustees; LISAs do not. What is an ordinary member of the public to make of it? I listened to the Secretary of State on the radio and I heard John Humphrys say that he could not understand a word that the right hon. Gentleman was saying. I admit that I agreed with John Humphrys.
The financial page of The Times, a newspaper not known for its failure to understand financial issues, wrote:instead potential savers will be confronted with a mindboggling complexity. Anyone on a modest income who has not passed exams as a financial adviser is likely to bury their head in despair.Remember, this is the Government who brought us the Green Paper on the stakeholder scheme, telling us that they would cut the cost of advice. That will not happen if the Minister of State gets his way.
David Dunne, the head of production development at NPL, summed up the matter when, conclusively, he said:I don't see how this can be anything other than a rival to stakeholder pensions but without the trustees. It is certainly confusing. Both will be in effect Government approved bench marked products with low charges and alongside them you will have ISAs … with the customer asking—which is right for me? And that is the point at which advice will be required when one of the features of these proposals had been to get rid of the need for advice and its expense.Instead, quietly, the Government will make people pay. That is what the Government do not tell people, although they squeeze them none the less.
The Government set out with very big words on their return to office. We were told that they would complete the reform of pensions, delivering a simpler and better system than that which now exists. Instead, we have seen from the Government a disastrous conflict. The Chancellor of the Exchequer's megalomania means that, bit by bit, he wants to take over the whole of government and, increasingly, chaos and a disincentive to save are the results of the Government's policies.
As I have said, the tremendous shift towards a more means-tested system will act as a disincentive to save and will drive more and more people into the means-test trap. It will work against savings for pensions in future. That will be compounded by the ridiculously complex structure that the Government have set up, which will lead to confusion. That confusion will dissuade people from entering the market, especially as they will have to engage advisers at their own expense.
What is worse is that, because the Government now have a series of savings vehicles that carry the stamp of Government approval, and in the absence of any serious advice, they will find that the public will say, "Were we not mis-sold this? Did the Government not suggest to us that this was the best route for us? Did our companies not 946 say to us that there was nothing that they could do because the Government had said, 'This is where they shall go'?" Given the investment platform that existed when the Government took office, the lack of constructive and, most of all, joined-up thinking places in jeopardy the investment pattern.
There is still nothing from the Government on the remarkably important problem of annuities. The falling value of annuities goes right to the heart of pension provision, but there is complete silence from the Government. Pensioners know that that is the problem for them when it comes to their investment income. We are talking of what will be seen in years to come as the greatest missed opportunity of any Government since the war. They have shirked the tough decisions and they have fiddled. As a result, they have created a pensions regime that will undermine the future retirement incomes of millions of people. It will be for us to make it clear that the alternative is a Government who are prepared to take tough decisions and an Opposition who will knock the present Government out of power, such as the present Opposition.
§ The Secretary of State for Social Security (Mr. Alistair Darling)
I beg to move, To leave out from "House" to the end of the Question, and to add instead thereof:commends the Government's approach to pensions reform, set out in its Green Paper, Partnership in Pensions; congratulates the Government on its determination to end the scandal of pensions mis-selling and its plans to strengthen the financial regulatory system; commends the Government on its commitment to economic stability and low inflation, which helps pensioners; believes that its reforms to the corporate tax system, which will result in the lowest-ever rate of Corporation Tax, will be in the long-term interests of companies, shareholders and pensioners; and approves of the Government's introduction of the Minimum Pension Guarantee, Winter Fuel Payments, the re-introduction of free eye tests and commitment to concessionary travel for the elderly as part of its strategy to provide security in retirement.The final flourish of the hon. Member for Chingford and Woodford Green (Mr. Duncan Smith) would have had a little more strength behind it if, in 18 years of power, the Conservative Government had done anything about reforming the pension system. It is remarkable that, in the 35 minutes or so that the hon. Gentleman spoke, he said not one word about the Conservatives' flagship policy for reforming pensions—basic pension plus. He said not one word about it.
We remember that that policy was launched shortly before the general election. We were told that it would be the blueprint for the future. Yet not one word was said about it by the hon. Gentleman this afternoon. Instead, he said that he would be working out Conservative pension policy at the appropriate time. All I can say is that it is just as well that he will have considerable time in which to work out that alternative. On the basis of what he has said this afternoon, I conclude that he has not a clue about what to do on pension reform.
The House will recall that basic pension plus would have cost £150 billion for effectively privatising the entire pension system. That money would have been spent on privatisation rather than on pensioners, and, as a result, many pensioners would have had to rely on the very means test that the hon. Gentleman criticised.
947 The Conservatives have no policies, so I shall outline the Government's policies and reply to some of the points that the Opposition have made. Our objective is to ensure that as many people as possible who can save do save, and to give them the options to do that.
§ Mr. David Rendel (Newbury)
The Secretary of State said that the Conservatives had introduced no pension reforms but perhaps he has forgotten that they reformed the state earnings-related pension scheme. As I understand it, the effect of that reform is that, if somebody's husband died on 5 April next year, she would get an average widow's pension of about £33, but, if he died on 6 April, she would receive an average of only £12.
§ Mr. Darling
The previous Government greatly altered the original intention of SERPS and at the time gave no indication that they were about to do so. We propose further reforms to SERPS, which I shall refer to in a moment, that will be of far greater benefit to people on lower incomes.
I want to emphasise two points that the hon. Member for Chingford and Woodford Green made light of. We inherited not only one but two pensions scandals. The first, obviously, was the mis-selling of pensions, which the hon. Gentleman glibly brushed aside, saying, "Oh, we know about that." Two and a half million people certainly know about that. Ten years ago, we all remember the scandal of Government-sponsored advertisements, which showed a man breaking out of a straitjacket, when the Conservatives tried to tell us that the very act of going private was both spiritually and, of course, materially enriching.
The truth is that 2.5 million people were mis-sold pensions. When we came into office in May 1997, absolutely nothing had been done to clear up that mess. It took our efforts—principally those of the former Economic Secretary, my right hon. Friend the Member for Airdrie and Shotts (Mrs. Liddell), who did sterling work—to convince the pensions industry that it had to clear up the mess and restore the public's trust in it. We got absolutely no help from the Conservatives, whose Government had created that problem.
The second problem that we inherited, which is the root cause of the problems that we face for the future, is that, unless we change our pensions policy as we propose to do, a third of people now working will retire on means-tested benefits. The hon. Member for Chingford and Woodford Green was complaining about the means test and making much of it. He ignores the fact that, during the 18 years in which the Conservatives were in power, means-tested benefits rose from about 16 per cent. of all benefits to 34 per cent. In other words, for all his rhetoric, the Conservatives more than doubled the application of means-tested benefits.
The real scandal is that, if we do not change direction, a third of people now working will retire on benefit. We do not consider that acceptable—
§ Mr. Darling
In a moment.
For that reason, we decided that pensions policy needed to change and put forward our proposals in the Green Paper last year.
§ Mr. Butterfill
I am most grateful to the Secretary of State. Of course we are all concerned about those who 948 will retire on means-tested benefits, but we are also very concerned—as I hope that he is—about those who have an expectation of a reasonable pension but whose annuity will buy them a low income, given the current low rates of annuities. The Secretary of State proposes LISAs, which will allow people to save and retain their capital. Will he reconsider removing the inhibitions placed on those with personal pensions who must buy an annuity at certain times and at the present appalling rates, which are depressed by his Government's action, and give those people the freedom to make a wider range of investments? They might do better and the Treasury might benefit from inheritance tax in the end.
§ Mr. Darling
The hon. Gentleman will know that a discretion is now exercised concerning when someone must buy an annuity. He will also be aware that the Government give tax relief to people to make pension provision because—there is cross—party consensus on this—it is right to encourage people to do so. We must watch, however, that the tax relief that we provide cannot be used to save for purposes other than pensions. The matter of low annuity rates has been raised on several occasions. Yes, they have fallen, but that is a consequence of lower interest rates and lower inflation. I firmly believe—I hope that the hon. Gentleman does not dissent from this—that one of the best things that any Government can do for pensioners is ensure a stable economic background and low inflation. For people on fixed incomes for 20 or 30 years, low inflation is central to helping them enjoy a decent standard of living. I make no apology for being part of a Government for whom that is a central objective.
§ Mr. Darling
I will in a moment. I am very conscious of the fact that this is a three—hour debate, and I want to deal with the Conservative Opposition's point about the abolition of advance corporation tax and tax credits.
The central objective behind these abolitions was to help companies' profitability. The House will be aware that, as a result of removing tax credits, we have been able to cut corporation tax to its lowest-ever level. That will help companies' profitability and therefore benefit investors. Some of the biggest investors in this country are pension funds. Increased company profitability benefits pension funds. [Interruption.] The hon. Member for Bromsgrove (Miss Kirkbride) can squawk as much as she wants, but the fact is that, if we leave companies with more money due to a reduced tax burden, they can decide whether to distribute or reinvest the profits.
It is interesting that no serious commentator is calling on us to reverse this tax change. Most people believe that it was the right one to make. When the hon. Member for Chingford and Woodford Green was tackled on that point by my hon. Friend the Member for Workington (Mr. Campbell-Savours), the hon. Gentleman could not say what the Conservatives would do. Will his reaction be the same as that to the working families tax credit, which the Conservatives have pledged to reverse, resulting in a tax increase for some of the poorest people of £17 a week? Are we to hear yet another pledge, along with the one to remove the independence of the Bank of England? Corporate Britain would be dismayed if that 949 were the stated objective of the Conservative party. The tax changes that we have made will benefit companies and shareholders and therefore pensioners. That is the right thing to do in the long-term economic interests of the country.
§ Mr. Duncan Smith
What does the right hon. Gentleman say to representatives of funds that have declared that they are now worse off directly as a result of the Government's policy? They should be given an answer instead of lectures from the right hon. Gentleman about what he thinks they ought to be doing.
§ Mr. Darling
I have of course spoken to many pension fund managers and companies. When they are asked whether they would like us to reverse that tax change, they all say no, because they understand that it was the right thing to do in the long term. This Government, unlike the previous one, have always taken the view that we should act in the long-term interests of the country.
I note in passing that pension funds performed well in 1998; returns averaged about 14 per cent.
§ Mr. Darling
Pension funds have done so well precisely thanks to the economic environment that we are creating.
§ Mr. Darling
No, not just now. Knowing the hon. Gentleman, he will want to speak at great length when he replies on behalf of the Opposition. We look forward to listening to him then.
I want to set out our approach to pensions reform. We firmly believe that everyone who can save ought to save. We want to give people the flexibility, the choice and the incentives to do so. A one-size-fits-all approach to pensions will not do; everyone has different requirements. There have been huge labour market changes. In the past, many people had access to occupational pension funds, which are extremely good options for those who are lucky enough to be able to take advantage of them. As the House well knows, however, many people do not have that option. Although personal pensions are certainly a good option for some, they are not so, as we know only too well, for low-paid people or even for some moderate earners.
We believed that, if we were to encourage more people to make provision for themselves, it was necessary to add to occupational and personal pensions, filling a gap. That is why we have introduced the new stakeholder pension scheme. That development was widely welcomed, as was the entire Green Paper, and it remains the case that most people recognise that there is sense in the Government's position.
We have taken a pragmatic approach, recognising that, for people on a low income, there must be an element of redistribution, and that that is best done by the state. That is why we have introduced the state second pension. We believe that moderate and higher earners are better off in 950 funded pensions, but obviously there needed to be further options available to them because, increasingly, people work for smaller firms that do not have access to occupational pensions, and some people move around a lot more than was usual in the past. We have developed the extra options now available in stakeholder pensions for those very people.
We are ensuring that a range of options—occupational, stakeholder and private pensions—is available to people in this country, so that they have no excuse not to make provision for themselves in retirement, if they can afford to do so. We believe that that is a step-change in attitude on pension provision.
§ Mr. Burnett
The Secretary of State has recently talked about incentives, but earlier he said that it was common ground that tax relief should remain for pension provision. Does that mean that he acknowledges that it is common ground that tax relief at the higher rate should remain for pension provision?
§ Mr. Darling
The hon. Gentleman will know that the Government have set out the tax relief available for the stakeholder pension and for other pensions. The Government obviously need to consider that from time to time, but I agree with the hon. Gentleman that it is absolutely necessary to give people proper incentives to save for their retirement. We are determined to give them such incentives.
The big problem that we faced in this country was that far too many people who could save were not saving, and one problem was that there were not enough options available to them. That is why we introduced stakeholder pensions. I believe that most people think that our approach, building on the developments of the past few decades, is right.
The basic state pension will remain in place. It will increase in line with prices, as we undertook in our manifesto, and it will still account for a significant proportion of pensioner incomes for a considerable time to come. Yes, we have introduced a new minimum income guarantee, and I do not apologise for a minute for having done so. I believe that there is a basic level of decency on which people should retire—and if that is a difference between the Labour Government and the Tory party, so be it. We want people to do better.
I do not accept for a minute the glib argument that people would prefer to live on benefit than on a pension for which they have saved during their working life. If people save and build up a pension, they will always be better off than they would be on benefit. If we were to follow the argument used by the hon. Member for Chingford and Woodford Green to its logical conclusion—if we did not provide a minimum pension guarantee and did not uprate that support in line with earnings—those people who were unfortunate enough not to have saved would be left with a lower and lower income. If the hon. Gentleman is really saying that only the threat of destitution will make people save—which was Tory philosophy in 1980—I am afraid that I do not agree with him. I believe that society has certain basic obligations. The scheme that we have introduced is designed to ensure that as many people as possible do not rely on that minimum pension guarantee, but do better than that.
951 Let me first consider the position of low earners—people earning about £9,000 a year or less. The problem is that, because SERPS is income related, a person earning about £6,000 a year would receive a pension of about £13 a week. By replacing SERPS with a new state second pension, we have doubled the rate at which a person accrues his pension at the lower end, so that the same person would receive about £46 a week—£33 a week extra. That approach has been welcomed not only by a majority of Members of Parliament, but by the industry, which recognises that people on lower incomes are far better off in a scheme under which they contribute to the state. It is recognised that that is better than trying to force those people into a funded scheme, as the Tories wanted to do, which would be manifestly unsuitable.
§ Mr. Darling
In a moment.
The House will also recall that, for the first time ever, we have brought into the state second pension 2.5 million carers who were excluded from it. Over time, that will give some of them, after a lifetime's caring, about £50 a week. I believe that that change alone is worthy of support, but we have gone further.
We are ensuring that people on lifetime low earnings will be better off as a result of our reforms. They will be able to accrue a decent pension during their working life, thereby putting an end to the scandal of people working all their life, saving hard all their life and still ending up on benefit. We want to ensure that people who work and save throughout their life retire on a decent income, which they have earned, which they can see building up year after year, and to which they can add.
§ Mr. Darling
The hon. Member for Grantham and Stamford (Mr. Davies) has been champing at the bit; I shall give way to him and to my hon. Friend in a moment.
That firm basis—the basic state pension and the state second pension—is the right foundation. I shall deal in a moment with the help that we are giving to moderate and higher earners to ensure that they, too, make adequate provision for themselves.
§ Mr. Davies
I am grateful to the right hon. Gentleman for giving way. Will he try to get into the good habit of giving the House the full picture, not just half the picture? He said that, under the Government's proposals, the rate of accrual for SERPS for those earning less than £9,000 a year will double. Will he add, as it is a fact that he has not yet mentioned, that the rate of accrual for those earning between £9,000 and £18,500 will be halved?
§ Mr. Darling
The hon. Gentleman is wrong about that. I noticed that he said the same thing a few days ago in an interview for a magazine. My hon. Friend the Minister of State has replied to that charge. The hon. Gentleman should read my hon. Friend's response; he will find that he is quite wrong about that.
§ Mr. Sutcliffe
My right hon. Friend has identified the key difference between the Government and the 952 Opposition on the carers pension and the poorest pensioners. We held a review and consulted all sorts of groups, involving them in plans for the carers pension. Does not the difference lie in the fact that we listen to people, and the Opposition do not?
§ Mr. Darling
My hon. Friend makes a good point. The Government considered their pension reform long and hard. When I was appointed as Secretary of State, of course I looked at everything that the Department was doing, including pensions. As I said to the House during Question Time, if there was any delay, part of it was caused by me because I wanted to satisfy myself that our approach was absolutely correct.
I shall deal with the point raised by the hon. Member for Chingford and Woodford Green on the radio this morning. By sheer good fortune, when the Treasury was working up the scheme to which he referred, I happened to be Chief Secretary to the Treasury, and I also happened to be responsible for that part of the Treasury, so I knew about it and I encouraged the work because I was enthusiastic about it. Then, by another stroke of good fortune, I became Secretary of State for Social Security. To complete that good fortune, I still hold the same views as I held when I was Chief Secretary. I was thus able to bring all the strands together into a coherent, sensible pensions strategy, which I believe people will welcome.
The ways in which we can help moderate and high earners to improve their pension prospects are relevant to the comments of the hon. Member for Grantham and Stamford. We believe that people on moderate earnings, as well as those on higher earnings, are far better off in funded schemes. The advantage of the state second pension, as the Green Paper makes clear, is that, if people go into a funded scheme, they can take the rebates with them, which will give them a good boost for their funded pension.
Again, that has been widely welcomed by the industry. I find it difficult to understand how Conservative Members can oppose that. I thought that they believed in the partnership between state, private individuals and the insurance sector. We want them to work together. People recognise that our arrangements will enable those on moderate earnings to be far better off than they would otherwise be.
As I said earlier, we identified the obvious fact that, as labour market conditions change, the pensions options need to be extended. That is why we have introduced stakeholder pension schemes.
I repeat the point that I made on the radio this morning, because the hon. Member for Chingford and Woodford Green was wrong about it then. It has always been the Government's view that people should seek advice before they make pension arrangements. Buying a pension is far more important than buying a house. It is probably one of the most important decisions that people will take throughout their working life. They would be wise to take advice, as the history of the matter shows. No one should be in any doubt about that.
The stakeholder pension provides options that did not previously exist.
The Green Paper makes it clear that we will legislate to provide for trustee-based stakeholder pension schemes. Those schemes will be designed primarily for people who work for small employers who do not have their own 953 occupational scheme or for circumstances in which employers or another affinity group come together to provide an umbrella scheme for employees. In other words, it will offer benefits that are similar to those in occupational schemes, something that is not possible at present.
We have also provided a new option, and the hon. Member for Chingford and Woodford Green made great play of the fact that we had thought it up a mere moment ago. I know for a fact that we did not, because I was a Treasury Minister when it was being worked up. I refer the hon. Gentleman to paragraph 39 on page 55 of the pensions Green Paper—which I am pretty sure that he had never read until he heard me mention it on the radio this morning. [Interruption.] He admits it. That is why he was wrong on this point. Paragraph 39 is quite a long paragraph, which states in pretty stark terms that the Government intended to publish the proposals that have been published this afternoon. I knew that the announcement was coming when I published the Green Paper in December. Therefore, no one should be surprised that the Government are delivering on a promise that they made about six weeks ago.
The hon. Member for Bournemouth, West (Mr. Butterfill)—who is no longer in the Chamber—said that he thought that the measure is similar to section 401k of the American scheme. That is not quite right. As I understand it, under that section, saving schemes in America can be drawn down at any time. I make it absolutely clear that the new scheme that was announced today will not be in competition with the other stakeholder model partly because it is a pensions vehicle. It is not possible to get tax relief for pensions and then take out the money in advance of a pension. That would clearly be wrong.
The new scheme addresses a particular need. The Conservatives sometimes claim to be in touch with the City—indeed, it looks as though many Conservative Members have returned there to earn a bob or two before the offices close. Many people, who move from job to job and take a far keener interest in their investments than was the case 20 or 30 years ago, want to be able to invest in unit trusts and open-ended investment companies and so on and build up a fund for their pension, which they can adjust from time to time as fund performance changes. I think that there is everything to be said for encouraging people to do that. As I have said on numerous occasions, it must be right for the Government to ask what is changing in the financial services market, how labour conditions are changing and what we can do to ensure that people have as many options to save as possible.
Hon. Members will recall that, in my statement of 15 December, I made it clear that the Government are considering the position of the self-employed and whether they should be compelled to save for their pensions. Part of the present problem is that the choice is between occupational pensions, which the self-employed clearly cannot join; and private pensions, which are not suitable for many people. The more options we provide, the easier it will be for us to be blunt with people and say, "Look, if you want a decent income for your retirement, you must save; you can't expect the state to stand behind you." 954 That is why I want to ensure that people have options. Some people will save for their pensions through unconventional means—for example, through their businesses or their houses if they are fortunate enough to live in an area of the country where that is possible. Above all, the Government must ensure that people have a range of options. We must increase flexibility to ensure that as many people as possible save. That is our objective: we want people to save more, invest more and to ensure that they can provide for themselves adequately in their retirement.
That is the Government's strategy, which was set out clearly in the Green Paper, "Partnership in Pensions", which we published last December. Today's consultation document adds to that. It is very clear: we are telling people to do the best that they can for their retirement. We are certain that a one-size-fits-all approach to pensions will not do. We must give people more options than they have at present—between occupational pensions and personal private pensions—which is why we introduced the stakeholder pension. We have responded to changing labour market conditions and to a greater sense of awareness among some investors. We want to provide an additional option that will allow people to accumulate sums for their retirement. That is an essential part of any pensions strategy. I repeat that the Green Paper was widely welcomed upon its publication last year. I readily accept that, if people run around for long enough, and prod people enough, they can get someone to grunt and say that they have an odd complaint, but the Green Paper has been widely welcomed because its proposals are right, pragmatic and workable.
On top of that, people should remember that the Government are committed to rebuilding trust in pensions overall by strengthening the financial services industry and regulating it. We are also introducing a new annual pensions statement, which will mean that people will know how they stand for their retirement. Again, that initiative has been widely welcomed.
It is evident from the debate that the Conservatives's attack is completely ill-conceived—their spokesmen give the distinct impression that they have not yet read the Green Paper, even though it was published almost two months ago—and it is abundantly obvious that they have no new ideas of their own. In their defence, however, they plead that they have lots of time to think up some ideas. It looks as though they are committed to repealing the tax changes that we made, which have resulted in the lowest corporation tax for two years. In short, they have absolutely nothing to say on pensions, just as it appears that they have nothing to say about most other matters that concern people.
We are helping today's pensioners. We are clearing up the mess that we inherited from the previous Government. We are building long-term stability. We have established a stable economic regime, which will benefit pensioners and companies and their shareholders alike. We have a long-term pensions strategy, where a lifetime's work and saving is rewarded with a decent pension. I commend the amendment to the House.
§ Mr. Quentin Davies
On a point of order, Mr. Deputy Speaker. I know the Secretary of State sufficiently well to know that he would not set out deliberately to mislead 955 the House, but his answer to my intervention was quite inconsistent with page 45 of his own document. I think that—
§ Mr. Deputy Speaker (Sir Alan Haselhurst)
Order. I do not think that that can be a point of order, if it is a point of debate. There will, no doubt, be an opportunity to make that point in the debate, if the hon. Gentleman succeeds in catching my eye.
§ Mr. Davies
It is a point of order, Mr. Deputy Speaker, because I thought that it might be in the interest of the integrity of the debate if the right hon. Gentleman had an opportunity to catch your eye again to put the record straight.
§ Mr. Deputy Speaker
It is not a point of order; it is a point of debate and a point of information. I have no doubt that it can be put on the record in the normal way.
§ Mr. Steve Webb (Northavon)
I note with interest that the Conservatives chose to debate Labour's policy on pensions. I regret that they did not choose to debate Conservative policy on pensions, because we could all have been home by tea.
So far as I can see, there is only one Conservative policy on pensions, which is to be against what they used to be in favour of—means-testing. There is plenty of meat in Labour's pension policy, and I shall address it in three aspects: first, the Government's record to date on pensioners; secondly, what is promised for the rest of the Parliament; and, thirdly, the longer term, of which there has been some discussion already.
The Government have much to be modest about in their record so far. When the Secretary of State made a statement to the House before Christmas, he said:Under the new Labour Government, Britain's pensioners are £140 a year or more better off'.—[Official Report, 15 December 1998; Vol. 322, c. 761.]I, with a little help from my friends, describe that as Arthur Daley economics, which shows how long it is since we all watched television regularly.
That figure of £140 a year does not bear much close scrutiny, because it comprises two elements: £40 from lower fuel bills, and £50 for winter fuel payments for people on income support this year and £50 for them next year. If I am not mistaken, the Secretary of State said "£140 a year", but he has counted the £50 twice. If a constituent said, "I hear that you are getting a £4,000 pay rise," a Member of Parliament would reply, "No, it's going to be only £2,000." If the constituent then said, "Ah yes, but I am counting next year's as well," one might feel a bit aggrieved. It is rather dodgy to include the same figure twice.
What have the Government achieved so far for pensioners, through the measures that they have taken? The Government's proudest boast is that they have done two things for pensioners. First, they have cut the rate of value added tax on fuel. We supported that, but what is it worth, on average, to pensioners? My hon. Friend the Member for Gordon (Mr. Bruce) tabled a written question asking what the cut in VAT on fuel from 8 to 5 per cent. would save an average pensioner household. The answer came back, 35p a week.
956 It gets worse, because the Government cunningly introduced that in August so that it would be reflected in the September retail prices index, which meant that, when pensions went up, they would go up by less than they would otherwise have done. When that factor is taken into account, the written answer says, the average gain to pensioner households from that VAT cut is 20p a week. If pensioners were to save that money for a month, they could buy a lottery ticket, so it is worth having.
§ Mr. Sutcliffe
In opposition, we prevented the Conservative Government from putting VAT on fuel up to 17.5 per cent., so the saving is double the amount to which the hon. Gentleman refers.
§ Mr. Webb
The Liberal Democrats supported attempts to prevent the Conservatives from putting VAT on fuel up to 17.5 per cent. However, the Labour Government's record should start on the day of the general election, so I am measuring from that point.
The 20p saving from the reduction in VAT on fuel is welcome but not exactly a king's ransom. What about the winter fuel payments? The Government are spending roughly £200 million on winter fuel payments and there are about 10 million pensioners, so that is £20 a head, or 40p a week. In total, the savings are 20p on VAT on fuel and 40p on winter fuel, which makes 60p a week compared with the Secretary of State's grotesque exaggeration of £140 a year.
I offer the following comment, to be sympathetic and to help the Government. I genuinely believe that, if they go on exaggerating their achievements, when people come up against reality and realise that it does not measure up, they will be disappointed. Rather than give the Government credit for having provided £20 for winter fuel and for having reduced VAT on fuel, they will say, "You have been going around saying that the saving is £140 a year, yet I am not better off by anything like that amount."
The Government will raise expectations if they overstate their case by saying that they are spending £20 billion on health and £19 billion on education, when those sums represent three years added together and all the numbers have been counted twice. People will be disappointed, and that will damage the Government. In a spirit of conciliation and friendship, I urge them to give more accurate figures.
I asked how much it costs to administer the one-off winter fuel payments, and the answer was £12 million. Could that 40p a week not have gone on the pension? I asked how much that would cost to administer, and the answer was nil, so £12 million has been wasted for a few winter headlines.
This policy is patronising to pensioners. Do the Government think that pensioners cannot be trusted to put by 40p a week for their winter fuel bills, and that they must have it in a one-off payment otherwise they may spend it? This is not a sensible way to proceed.
§ Mr. Rendel
Does my hon. Friend agree that winter fuel payments are unlikely to be made at exactly the 957 moment when pensioners receive their winter fuel bills? The Government are not even being clever by helping pensioners at the right moment.
§ Mr. Webb
My hon. Friend is right. When the Government first introduced this policy, many of the payments arrived well into what one would unambiguously call spring.
The Secretary of State tried to defend the £140 a year figure last Thursday when we discussed the operating orders, but he realised that he was on a sticky wicket. The right hon. Gentleman said, "What does the hon. Gentleman know? Pensioners do not smoke like a chimney, so we cannot count the effect of tobacco taxes. Pensioners do not drive as much as other people, so we should not count the effect of petrol tax rises. Pensioners tend not to have private medical insurance, so we should not count that." That attitude is utterly patronising to pensioners. Most of the 10 million or so pensioners are fit and able, and contribute fully to society. Many of them, heaven forbid, have cars and drive. The effect on them of the petrol tax rise is very real, and the Secretary of State should not disregard it.
To arrive at that figure of £140 a year, the Government counted two beneficial items and exaggerated them. They should be set against the tax increases on petrol and tobacco and the abolition of the dividend tax credit, which we debated a few weeks ago. During that debate, my hon. Friend the Member for Kingston and Surbiton (Mr. Davey) challenged the Economic Secretary. He argued that poorish, non-taxpaying pensioners with dividend income will lose on average up to £75 a year. The response he was given was that the Government have introduced an income guarantee for those pensioners. My hon. Friend said, "Yes, but many of them will be disqualified because they have savings." "No, they won't," said the Economic Secretary, "because they won't have that much in capital."
To discover the truth, I tabled a question to the Department of Social Security—unlike the Treasury, the DSS still answers questions—which said that, out of the 300,000 non-taxpaying pensioners with dividend income, 250,000 would be disqualified from the guarantee because they have savings of more than £8,000. The Economic Secretary was wrong, and gave the House an inaccurate impression, inadvertently I am sure. Large numbers of people will lose out, because they will not be covered by the guarantee. The Government's record so far is modest in the extreme and has been grotesquely overstated.
What about the future? When my right hon. Friend the Member for Yeovil (Mr. Ashdown) challenged the Prime Minister during last week's Prime Minister's questions, the Prime Minister made a fatal mistake. He mistook a Government announcement for reality. He said:In addition to the things… that I mentioned a moment ago"—the fuel payments and the VAT cut—from April this year, there will be…concessionary travel."—[Official Report, 27 January 1999; Vol. 324, c. 338.]Everyone understood him to mean a national system of concessionary travel for pensioners, as proposed by the Deputy Prime Minister. However, although a scheme has been announced, it will not happen this year. It might happen next year. Pensioners hear such announcements or 958 read about them in the newspapers and, bizarrely, they believe them. To give another example, I met a group of pensioners recently and one of them said, "I see in the newspaper that we are going to get free television licences, so I am going to stop buying licence stamps." I had to say in reply, "No, you might get free television licences next year or the year after, but not yet. The Government wanted a few good headlines, but I am afraid that it will not happen for a while."
The Government love to announce and reannounce things. The 10p tax rate is a classic example—I have lost track of the number of times that has been announced. People believe such announcements.
§ Mr. Christopher Leslie (Shipley)
On the point about making announcements that people do not believe, is the hon. Gentleman still standing by his party's pledge to spend £28 billion on increasing the personal income tax allowance from £4,100 to £10,000?
§ Mr. Webb
Many pensioners would welcome a significant increase in the personal income tax allowance, because, at the moment, it is barely above the level of income support. That is extraordinarily low for pensioners and should be increased. The hon. Gentleman asked about our long-term goal, over the course of two Parliaments, of raising tax allowances to £10,000. I used to work for the humble Institute for Fiscal Studies, which has received much praise this afternoon. The first thing I did as an employee of that institute was to examine Conservative allegations that the Labour party would spend £28 billion—strangely enough, it was the same figure—which was calculated by adding together everything it had ever said it wanted to do and assuming that everything would be done in one go in one Parliament. That was absurd. The hon. Gentleman's party regarded it as absurd then and his question is an absurd way to approach matters, too.
The issue of means testing is central. At this point, I wish to introduce the House to my father-in-law. When I see him, he asks me one question.
§ Mr. Webb
Apart from that, he asks me what the point was of saving his money when the person next door gets everything for nothing. He suggested that I should find out how much someone would have to save to match the level of means-tested benefits.
I tabled a question to the Department of Social Security asking what someone would have to have in a pension pot to buy the extra benefits that people on income support receive over and above the basic state pension. They get an extra tenner a week in cash, some £2,000 a year on average in housing benefit, council tax benefit, free dentistry and so on. The answer was that it would cost £41,000 to buy an annuity to match those additional benefits. That means that there is almost no point in people saving £20,000, but if they can save £40,000 they can buy an annuity to provide all the same goodies that someone on income support gets.
The last thing that I am suggesting is that people on income support are well off, but we want to encourage people to save and the over-reliance on means-tested 959 benefits discourages them. I was shocked to learn that the value of the additional benefits was equivalent to a £41,000 pension pot.
What should the Government have done and what could they do in future? First, they could provide a firm foundation for the basic state pension, not a foundation of sinking sand. By that, I mean that it should rise with age. The poorest pensioners in the land are not the ones entitled to, and getting, income support: they are those who are entitled to income support but are not getting it. The hon. Member for Come Valley (Kali Mountford) nods, because she is aware that the Government are trying to pay income support to more people. I welcome that, but the Government assume in their costing supplied in written answers that 15 per cent. of those entitled to the so-called guarantee will not get it. That means that hundreds of thousands of pensioners will not get a penny from the so-called guarantee. Most of them are over 75 or 80 and would get every penny of the basic state pension for older pensioners. That is why we want a firm foundation for the basic pension. Even a modest rise of £5 for the over-80s and £3 for the over-75s would guarantee putting 40,000 or 50,000 pensioners above the poverty line.
What can we say of the Government's long-term policies? We need a firmly founded basic pension. The Secretary of State said that, under his policies, adding together the basic pension and the state second pension, we will bring people up to the target minimum of about 20 per cent. of average earnings. That is true in the year in which those people retire, but what happens the next year? We do not know how the state second pension will be indexed but, while the basic pension will be linked to prices, the guarantee will be linked to earnings. They will have achieved their goal in 2050 for one year but the year after retirement, those who have got into this wonderful new Government scheme will be back on means-tested benefits; back on the guarantee; back on the chain gang. That is not something to be proud of. It is crazy to get people just up to the poverty line for a year and then let them slip below it.
§ Mr. Duncan Smith
Does not moving to a means-tested system progressively trap people and bind those who would otherwise have been free of it to a process where they might as well not bother to save?
§ Mr. Webb
The hon. Gentleman is right in that, if the Government can say, after 50 years of their pensions policies, a quarter of pensioners will still be on means-tested benefits, as we are told by written answers, it is not something to be proud of. Even in 2050, the oldest pensioners will be the poorest, simply because they are women. Unless much changes, women are likely to be poorer than men. The way to get people off means-tested benefits is to tier the basic pension and get the basic pension for older pensioners to subsistence level so that it is worth having in its own right.
§ Kali Mountford
Many women, especially carers, have no entitlement and are totally reliant on means-testing. Will not the new system take them off that and give them the opportunity of a pension in their own right?
§ Mr. Webb
The hon. Lady is right to say that, under the proposed scheme, people who, for example, care for 960 a disabled person for a year will get 90p a week on the pension. They would get about 80p on the basic state pension through credits. By 2050, if they spend their whole lives caring for a disabled person, they will reach old age with a basic state pension based on credits and a state second pension that brings them just to the poverty line for one year only. In the second year, the basic pension will go with prices and we do not know what will happen to the second state pension but the guarantee will go up in line with earnings. They will be back to means-testing. They will not be on a bit of housing benefit but income support. Even if the whole scheme comes in and all the unfunded promises are honoured, such people will end up on income support for every year bar one of their retirement. That is not satisfactory. There may be 10 years to consider their position, but, by the time that they become older pensioners—most women will live to such an age—we want them to have a decent income that does not rely on the means test.
§ Mr. Viggers
I have attended pensions seminars with the hon. Gentleman and respect his view. Will he expand on his last point? Would not a carer who worked until 2050 and managed to save more than £8,000 be worse off?
§ Mr. Webb
The hon. Gentleman is right. The Government plan to review the capital limits, and I welcome that. I am sure that the review is in response to the question that I tabled long before the Green Paper. I asked what would be the cost of raising the upper threshold of £8,000 to, say, £20,000. It is negligible, about £20 million or £25 million. The Department of Social Security can spend that in the blinking of an eye. The Government should have done that for this April. At the very least, they should undertake it as part of the review. I welcome the noises from the Government on that front, but much more needs to be done.
§ Kali Mountford
The Liberal amendment talks of raising expectations, which is what the hon. Gentleman seems to be doing. Can he tell the House how he would fund them?
§ Mr. Webb
I would be delighted to. The £5 and £3 figures could be funded in a variety of ways. First, one could cap the overall amount of tax relief. The Secretary of State shied away when my hon. Friend the Member for Torridge and West Devon (Mr. Burnett) asked about higher rate relief. We are not necessarily suggesting restricting it to the standard rate, but if one were to cap at a certain amount for the year in which one was putting in tax reliefs, it would greatly simplify the whole system and would not put a huge amount into the pensions of the highest earners. In other words, one could cap at a generous figure, but money would still be freed up for the oldest pensioners, who are also the poorest.
Secondly, we support price indexation of the basic pension for the under-75s. Every year, pensions increase in line with prices for a large number of pensioners, but the income—national insurance contributions—more or less increases in line with earnings, which creates extra revenue each year. That would be another way to fund the proposals. There are many ways to fund schemes on that scale. If older, poorer pensioners are a priority, those are the sorts of places that we need to look.
961 The Government have grotesquely overstated what they have done so far on pensions. There is more to come and we welcome extra help for the poorest pensioners, but the reliance on the means-tested approach is excessive. We hope that the Government will respond positively and will seriously consider our constructive proposals to tier the basic rate pension not merely for next year, but as a long-term strategy that would target the poorest without the indignity of means-testing and would provide security and dignity in old age.
§ 5.2 pm
§ Mr. Frank Field (Birkenhead)
Perhaps I should begin with a confession, Mr. Deputy Speaker, because before I came to the Chamber I received a message that my bleeper was awaiting me in the Whips Office. I am a non-possessor of a bleeper, but am soon to be a possessor. This will be the last social security debate in which I participate without one.
§ Mr. Deputy Speaker
Order. I hope that the right hon. Gentleman will remember the rules when he has the bleeper and will not bring it into the Chamber.
§ Mr. Field
I was about to say, Mr. Deputy Speaker, that, if you heard a bleeper earlier, it was not mine. Should I become off message during this debate, it will be unintentional, but I will not be able to plead that in future.
Clearly, there are two parts to our debate today. The hon. Member for Northavon (Mr. Webb) made that distinction. The first is our concern about what is happening to existing pensioners and the major future reforms that the Government are attempting. My only difference with the motion and the Government amendment is that they have both been less than generous about what the Government have achieved and what the Secretary of State intends to achieve by the end of this Parliament. The changes that the hon. Gentleman so quickly dismissed, such as value added tax on fuel, the winter fuel payments and the reintroduction of free eye tests as well as the commitment—if not yet the reality—to concessionary travel for pensioners, are very welcome to pensioners I meet in Birkenhead. I confess that those pensioners differ greatly from the hon. Gentleman's description of pensioners in Northavon. Birkenhead pensioners are pretty tough and cynical about what politicians say. They study carefully the difference between rhetoric and reality. I do not know whether that means that they should spend their holidays in the west country and pick up the trait that he described, but I would not concern myself with the worries that he had on that score.
Labour Members can be proud of the Government's record so far. Clearly, it would not be a record on which we would want to go into an election—my right hon. Friend the Secretary of State clearly would not want to do so either. In trying to improve on that record, he will have the support of Labour Back Benchers and a considerable amount of support from other parts of the House.
I shall touch on the longer-term reforms, which naturally centre on the Government's proposals outlined in the Green Paper. I shall set out my worries about the reforms as they are beginning to take shape.
962 The Government say, rightly, that the document is a Green Paper, which shows that they are listening and willing to learn. In addition, it gives hon. Members the chance publicly—there are, thank goodness, many chances privately—to influence the debate.
My first concern is my major one: having read the Green Paper and listened to Ministers, I do not yet believe that they understand the people to whom they—or, they hope, somebody—will try to sell pensions. We are talking about those who comprise the third poorest group in our society. Life has not given them the opportunities and chances that would have enabled them to have portfolios or financial advisers or to become accustomed to practices with which some, if not all, Members of Parliament are acquainted. They will be asking, what is the Green Paper all about? Given the difficulty that we have with saying in a couple of sentences what it is about, question marks must hang over whether we have got the reform right. If we cannot explain it in terms simple enough to grip those who fall outside current pensions provision and enable them to understand what we are trying to do, it may be that the key objective of simplicity is still beyond our grasp.
My first worry about the proposals arises from all the talk about different sorts of pensions provision, for I do not believe that that should be our first step on what we hope will be the great journey of pensions reform. Linked to that is the statement made today by my right hon. Friend the Secretary of State, that everyone has different requirements; and the statement he made on the radio this morning, that all of us needed financial advice. I dispute that. We do not need advice about sending children to school; we think that such things should just happen. If we had a simple single pension provision for the first tier, there would be no need for financial advice, for the requirement would be that everyone should be a member of that scheme. The costs would certainly be different, for there would be no costs relating to financial advice; and there would be no reason for people saying that they could not understand why they should be members, so it would be a much easier scheme to enforce.
Linked to that are the two hands of the Government—the left hand and the right. My right hon. Friend the Secretary of State is right to say that he is proud to be introducing a minimum pension guarantee to help existing pensioners, but I worry about how that minimum pension guarantee will operate in the long term. I lack my right hon. Friend's confidence that, somehow, people will box that guarantee off in their mind, decide that it does not relate to them, and resolve to go ahead with saving in response to the Government's call to save more. I do not believe that they will ignore the fact that, if they are among the poorest third of members of our society, they might be only slightly, and certainly not much, better off if they save than if they do not. If they listen to today's debate or a recording of it, especially the speech made by the hon. Member for Northavon, they will begin to doubt whether, by saving, they can make themselves much better off.
We are at a watershed. Increasing numbers of pensioners must be telling their grandchildren their deep regret that they are decent people: that they saved, that they did not fiddle and that they became and remained members of their occupational pension scheme even though it would not make them much better off, only to find that they are substantially worse off than other people who did not save, whether or not they could have done so.
963 Without extending compulsion in the way that hon. Members on both sides of the House have argued we should, defending the minimum pension guarantee will become more difficult as the years go by. We are sending a powerful message to people whom we shall not compel, but whom we hope to persuade, or merely entice, to make provision for their pensions—we used to call it bribery when we were in opposition and the House discussed national insurance rebates to encourage people to take out private or stakeholder provision—when we know perfectly well that any financial adviser currently advising a third of the electorate should tell them that the worst thing for their financial health that they could possibly do is save. There is a deep sickness in our society when such a statement is true.
§ Mr. Patrick McLoughlin (West Derbyshire)
The right hon. Gentleman is talking a lot of sense, and many people outside the House will support what he says. Does he accept that people who have saved become increasingly resentful of those who get looked after, even though they have made no provision whatsoever? That resentment will cause some serious problems unless what the right hon. Gentleman says is taken on board.
§ Mr. Field
I have heard that the Government will look at the disregards, and we know how cheaply that may be done—the sum mentioned is regularly lost in the accounts. If the accounts were out by only £25 million, the Comptroller and Auditor General would throw his hat in the air for the first time and say that he could sign them without qualifying them.
§ Mr. Malcolm Wicks (Croydon, North)
The other day, a constituent asked me two questions. Her first was, "How can anyone think that I can live on £80 a week?" Her second was, "Why did I bother to save for my pension, when all it has done is prevent me from getting income support?" I think that that is what my right hon. Friend is telling the House. Does he agree that no decent social policy has ever been built on the means test?
§ Mr. Field
Indeed, and my hon. Friend used to make the same point in opposition. I do not want to disturb or upset his constituent, but all hon. Members will know that people—good neighbours—come to our surgeries to make sure that the frailer and more elderly person who lives next door gets all the help available. However, those good people are not themselves eligible for income support and the passports and discover—they are good enough thank goodness for it—that their neighbour is on a higher income than they are. That is a problem that the Government inherited, and I am sure that no Labour Member would want to defend the situation for much longer.
The other matters about which I wish to speak stem from the Green Paper. As they stand, the proposals present a real danger to occupational pensions. I was pleased with one of the sentences in the Green Paper, which said that occupational pensions were one of the greatest social security successes this century, if not the greatest. However, the proposal is to encourage employers 964 to set up stakeholder schemes. My worry is that employers will decide to do so and close entry into existing occupational schemes for new workers.
That is beginning to happen anyway. I hope that the Government, in their proper listening mode, will consider the proposals that have been made suggesting that the first tier of all pension provision, including occupational pensions, will be stakeholder provision. The effect would be that occupational schemes would continue to provide, not merely the minimum provision, but so much more as well.
My next worry about the proposals is that, having heard so much about stakeholder pensions and what they will achieve, we now find that there will be a considerable variety in such provision. I am not concerned that the next scandal will have to do with mis-selling, but that there will be a problem of churning. By that I mean that, once stakeholder pensions are introduced, people who have heard so many good things about what such pensions will achieve will believe that they should be in those schemes rather than in their current schemes. That may be true but, given the age of the people who might make that decision, the likelihood is that it will turn out not to be. Therefore, the problem facing us in the next Parliament will not be one of mis-selling but of churning.
§ Mr. Duncan Smith
I do not want to make a point that is parti pris, but does the right hon. Gentleman agree that part of the problem is that, in the Green Paper, the Government set out to introduce a stakeholder pension that is simple to administer and cheap and easy to understand? That is the basic element all the proposals must have if they are to succeed. Now, the Government have come up with the additional idea about paying for advice, and there may be other ideas to come. Does that not run counter to the initial premise, and will it not cause people to wonder whether they are doing the right thing? Is it not possible that, in years to come, people will say, "Why did I take out that investment?"
§ Mr. Field
The hon. Gentleman is being slightly unfair to the Government. The Secretary of State made it clear that today's proposals are aimed at people on middle and high incomes. However, there has never been any difficulty in getting such people to save. The real problem is to set up a redistributive scheme that the poor can join. The aim is to ensure that poor people will be free of means-tested assistance—not merely for a year, but for all their lives.
My final point has to do with annuities. Most hon. Members will understand that the European central bank is committed to a policy that will keep inflation below 2 per cent. That policy means that, for the indefinite future, annuity rates will continue to fall. It is hoped that they will hit bottom at some stage. The result will be that many people who have saved, in the belief that their savings would provide them with an adequate pension in retirement, will be deeply disappointed. I hope that the Government will devote some new thinking to the question of what sort of bond provision should be introduced to offer pensioners an alternative to buying annuities.
I do not accept that pensioners do not understand their finances. They seem to be a lot better at it than I am at understanding mine. The Secretary of State said that 965 annuities are sometimes tax-free vehicles, but he went on to say that a pension probably will turn out to be a more important investment than a home. Yet a home is also bought with some tax-free concessions, and we do not get too exercised about what people should do with those. We do not decide that people must, at a certain date, trade in their homes because they may misbehave with those assets. It is time to make a big jump and to reconsider the way in which people are forced to trade their pension capital for annuities, something that substantially disfavours them for the rest of their lives.
In my speech, I wanted to make two points. First, I wanted to congratulate the Government on the moves that they have made for existing pensioners. The Government are backed by a huge majority of hon. Members wanting that record to be improved by the next election. My guess is that the Government are pushing at an open door to such an extent that, at the next election, Conservative Members—for opportune reasons if not for good ones—will support further reforms introduced by the Government to improve pensioners' living standards.
The second element of my contribution has to do with long-term reforms. I am very grateful that the Government have published the Green Paper, and that they want to listen and to learn.
§ Mr. Peter Viggers (Gosport)
So far, no hon. Member has declared an interest. I am a member of the—rather bad—parliamentary pension scheme. I am fortunate to have some modest provision of my own, and am also the chairman of a pension fund.
The 1997 Labour election manifesto stated that a Labour Government wouldlay the foundations for a modern welfare state in pensions and community care.That was clearly regarded as very important ground on which to fight the campaign, as the party chose to execute what I consider to be the dirtiest trick in recent electoral history. As The Daily Telegraph reported on 26 April 1997, the previous day, the present Chancellor of the Exchequer had said:it was a known and admitted fact that the Conservative plan is to abolish the state pension".The same report stated:Although looking distinctly uncomfortable and visibly irritated, Mr. Blair, flanked by Gordon Brown, the shadow Chancellor, refused to condemn such tactics. Instead he defended the party's decision to attack the Government's plans.That was a scurrilous and disgraceful incident in recent politics.
In fact, the Conservative plan was quite different. The scheme called basic pension plus proposed by my right hon. Friend the Member for Hitchin and Harpenden (Mr. Lilley), who at that time represented St. Albans and was Secretary of State for Social Security, was a carefully considered framework for ensuring long-term pension efficiency. However, the Labour tactic certainly worked: canvassing revealed that many elderly pensioners were deeply worried that their pensions were to be scrapped. That was really awful.
966 Under current pension provision, those in private sector schemes are well funded and well cared for. UK pension funds contain £800 billion in pension assets, which is equivalent to 77 per cent. of gross domestic product, and is the same as the amount reserved in pension assets for the whole of the rest of Europe. It compares with 7 per cent. of GDP in France and 14 per cent. in Germany.
However, the benefits are thinly shared. According to a NatWest study, only one in five of the people currently working is heading for comfortable retirement. Half are heading for financial difficulties, and one in three will be essentially dependent on the state. That is based on the definition of an income of £180 a week as comfortable, rather than the £70-plus that is the current pension. The amounts required to fund that level of provision are considerable. If the normal pension multiplier of 16 is applied to the extra £100 a week, or £5,000 a year, some £80,000 is needed to provide £180 a week.
What principles should we use to approach the problem? I have quoted the noble and formidable Lady Castle before, and I find myself in strong agreement with her once again. In a booklet entitled "We can afford the Welfare State", co-written with Professor Peter Townsend, she set out three basic principles which I should like to endorse. Those principles should have underlined the Government's commitment to pensions. The booklet says:If we want to encourage people to move from welfare to work, we must reduce the area of means-testing, not increase it.I agree with that. Secondly, the booklet says:We must resurrect the state basic pension as the foundation of security in old age for everyone.There were sound reasons why the Conservatives broke the link between pensions and earnings, but the process has gone too far. We must resurrect the state pension.
The third principle is unattractive, but unavoidable. The booklet states:It should be compulsory for everyone to contribute to an adequate second pension.
§ Mr. Sutcliffe
I should not miss the opportunity to find out whether the policies that the hon. Gentleman is advancing are shared by his colleagues on the Conservative Front Bench. I think not.
§ Mr. Viggers
The hon. Gentleman will have to ask my hon. Friends. He might read last Thursday's speech by my hon. Friend the Member for Grantham and Stamford (Mr. Davies), who will wind up for the official Opposition. I heard that speech, and thought it so fine that I handwrote a note to my hon. Friend to congratulate him on it. I look forward very much to hearing him again if he happens to catch your eye tonight, Mr. Deputy Speaker.
Compulsion is unavoidable, for reasons that have been discussed by several hon. Members, including the hon. Member for Northavon (Mr. Webb). The anomaly is that people who save will be worse off. If there is no compulsion, people will not save. Compulsion is essential.
The Secretary of State said that he had been involved in pension planning both in his present post and in his previous one at the Treasury. However, many informed journalists believe that a turf war between the Treasury and the Department of Social Security lies at the heart 967 of the mess over pensions in which the Government find themselves. In the words of the Prime Minister, the DSS is tasked todeliver significant savings over the longer termfrom the social security budget. Clearly, the Department is not finding that possible.
Introducing a minimum pension guarantee—a rebranding of income support—which is indexed to wages will inevitably increase the gap between that guarantee and the state retirement pension. Means testing is being institutionalised. The single person's guarantee of £75 a week, and the couple's guarantee of £116.60, will be available only to those who have savings of less than £8,000. Anyone who has more will not be eligible for the minimum pension guarantee, or for housing benefit of £40 a week and council tax benefit of perhaps £10 a week.
The hon. Member for Northavon made the same calculation that I made on how much would be required to provide a pension of £50 a week, or £2,500 a year. Applying the pension fund multiplier of 16, some £40,000 would be required. Anyone who cannot save £40,000 need not bother; they would be wasting their time, and their money.
It is extraordinary that the present Chancellor of the Exchequer declared in 1993:I want the next Labour Government to achieve what in 50 years of the welfare state has never been achieved. The end of the means test for our elderly people.What he has achieved is exactly the opposite, and there will be widespread resentment throughout the country as people who saved and provided for their futures realise that others who live in the same road and who made no provision are better off than they are.
The effect on the taxpayer is also significant. According to answers to my parliamentary questions, means-tested benefits cost an average of 7 per cent. to administer, while universal benefits cost 2.5 per cent. The basic state pension costs only 45p a week to administer, while income support costs £5.45. Means tests bring disadvantages of costs as well as of resentment.
The Government's other big pensions activity was their raid on pension funds when they abolished the advance corporation tax dividend tax credit. That amounted to £3.9 billion this year, and will amount to £5.4 billion in a full year. It will reduce future benefit by up to 10 per cent. It will also impose further costs—local authorities must fund the extra pension required by their employees, and that has been calculated to mean council tax rising by 12p in some areas.
Labour's 1997 manifesto pledge tosupport and strengthen the framework for occupational pensionsis not being met. Instead, there is a substantial increase in means testing, and in envy and bitterness. There are greater costs to the taxpayer. The Labour party is failing to fulfil its promise.
§ Mr. Gerry Sutcliffe (Bradford, South)
We should start by remembering why we are here. This is an Opposition debate on pensions, so where are the massed ranks of Conservatives who want to tell us how badly they feel? It is good to see sinners repent, as my right hon. Friend the Member for Birkenhead (Mr. Field) has reminded me.
968 I am happy to follow the hon. Member for Northavon (Mr. Webb) because I respect his concrete contribution to discussions on pensions.
§ Mr. Viggers
I am grateful to the hon. Gentleman for allowing me to intervene so early in his speech. I shall tell him why the Conservative Benches are rather depleted: a huge Conservative rally has, most unfortunately, happened to coincide with the debate.
§ Mr. Sutcliffe
The mind boggles. What passes for a huge Conservative rally these days? We shall wait with bated breath for that rally to tell us something about Conservative policy, particularly on pensions.
The debate is about the Opposition trying to embarrass the Government on pensions. However, the only people who should be embarrassed about their pensions policy are members of the Conservative party. It is as though, on 1 May 1997, they drew a line under what had happened before then. They take no responsibility for what the previous Government did.
I am happy to be able to speak today as I have been unable to do so recently because of the protocol surrounding Parliamentary Private Secretaries. Pensions are vital to the people of the United Kingdom. The debate's focus has been narrowed to the detail of pensions, rather than the big picture. The Secretary of State has rightly pointed out that that big picture is important to Labour.
As the hon. Member for Northavon reminded us, pensioners need not be patronised. They know what happened under the previous Government. They know who tried to introduce value added tax at 17 per cent. on energy—the Conservative party. They know who broke the link between earnings and pensions—the Conservative party. They know who deserted the health service and created health inequality among pensioners—the Conservative party. Therefore, we will take no lessons today from the Opposition about missed opportunities on pension policy.
Occupational pensions play an important part in the way forward. The Green Paper sets out opportunities; but the previous Government missed opportunities when the Labour party tabled amendments to the Pensions Act 1995 to improve protection for workers, for member trustees and for pensioner board members to enable them to join occupational pension schemes—all dismissed by the Conservative Government.
If the Opposition are to learn any lessons, they must tell us why they did not improve the situation for British pensioners, and why British pension provision fell to the lowest level in the EC.
§ Miss Julie Kirkbride (Bromsgrove)
The Labour party is now in government. If the hon. Gentleman believes what he is saying so strongly, why do not the Labour Government restore the link with earnings for the basic pension? It is very simple.
§ Mr. Sutcliffe
We will cover such issues as we proceed with the debate.
Because of the nature of today's debate, it is important that we set the scene and judge the Government's pension record. We cannot do that without examining what went before. A group of pensioners visited the House yesterday 969 on a trip organised by Age Concern and they said to me, "You're not doing badly for 20 months, given that the other lot had 18 years." I accept that we must be modest and not raise expectations, as the Liberal Democrats say, but pensioners will not be patronised. They know what has happened to their incomes and to the society in which they live, and it is right that the Government should look to the big picture.
The Government inherited a complete mess on welfare reform and social security. The budget was running out of control and there was no direction. [Interruption.] If one studies social security matters in detail, one knows how the budget is divided up and that pensions account for a big part of that.
A measure of society is how it treats its older people, how they fit into society and how they feel about themselves. Therefore, all aspects of Government policy should relate to the pension framework. As well as pension provision, we need an improved health service. We have to create an economic environment where pension value remains constant. We must create a situation in which people who have worked hard all their lives have the opportunity for a decent retirement. The Opposition should learn to choose debates on subjects on which people outside share some of their concerns. They do not share their concerns when it comes to developing pension policy.
I was interested to hear my right hon. Friend the Member for Birkenhead. He knows the work that went into the pension review and how the former Minister of State, Department of Social Security, our hon. Friend the Member for Southampton, Itchen (Mr. Denham), listened to people throughout the country on pensions. He listened to voluntary groups, pensioners, and people such as Jack Jones and Barbara Castle—people with a view on pensions—and we have set down a particular route. I know that there are concerns about the long term, but, in the short term, we have been successful in trying to alleviate some of the problems faced by pensioners.
I made available an extra £21 billion for the winter fuel payment. It is hard for Labour Members to listen to Opposition Members carping about such measures, because we know that they have a real effect on people's lives. [Interruption.] The hon. Member for Bromsgrove (Miss Kirkbride) may mock, but such measures are important to people out there. We must remember that we represent real people. The Chamber is not simply for political point-scoring; it is for governing the country and governing with consent. If we had a poll now to discover in whose hands pensions would be safest, I am sure that people would agree that they would be safest in the Labour party's hands, not the Opposition's.
§ Mr. Deputy Speaker
Order. We cannot have exchanges from a sedentary position. The hon. Member for Bromsgrove (Miss Kirkbride) knows that, if she wants to intervene, she must do so formally.
§ Mr. Sutcliffe
Yes, we accept that we are in government, and we fully accept that it is our 970 responsibility now to develop policies on pension and welfare reform. To administer benefits, including pensions, we need an active modern service, and we certainly did not have that under the previous Government.
I can talk from first-hand experience of the demoralisation among staff in social security departments, many of whom were on temporary contracts and did not know their long-term future, and many of whom had to claim benefits themselves. When people went to social security offices to ask about benefits, including pensions, they were not given advice and support on the appropriate benefit. If they applied for the wrong benefit, the staff were not allowed to tell them what benefit they should go for, and they were asked to leave. That was the result of a straitjacket of Treasury-driven cuts under the Conservative Government. It had nothing to do with principle or developing pension policy. That was the support that the previous Government gave pensioners.
Pensions are complicated and we need to ensure that pensioners receive their proper entitlement. That is why I am proud that the Labour Government instituted a scheme to ensure that, in nine project areas, pensioners had the opportunity to know their entitlement. We tried to ensure that there was discussion between local authorities and the Government so that claim forms were easy to complete and individuals were advised on their benefit entitlements. That was a positive step to try to ensure that the millions of people who were not claiming the income support to which they were entitled did so.
The Government, through the minimum income guarantee, are trying to change our approach to pensions. It is right and proper, as has been pointed out, that we should change the culture of pension provision in Britain. Ours is an argument based on principle. Those who can work should have the opportunity to do so, and those who cannot should be looked after. We are telling those who can save and who can provide for the future that they must do so, but most ordinary people with such an opportunity will take it. They will be encouraged by the annual statement from their pension provider, no matter what sector is involved. That annual statement will tell them where they are in terms of their pension provision. That is a massive step towards people acknowledging what they have to do for the future.
We have heard no mention today from Opposition Members about the poorest pensioners. They never mentioned poverty or the position of carers and people with disability. They should apologise for their lack of compassion to such people, to many of whom society owes a great debt for the hours of support and care that they give.
We can have a reasoned debate on pensions, and it is right that we should, but that cannot take place in the atmosphere that we have this afternoon of an Opposition day debate. No Opposition Front-Bench spokesman is present, and not even a handful of Conservative Members—
§ Dr. George Turner
On a point of order, Mr. Deputy Speaker. As a new Member, I am surprised that it is in order that those who have tabled an Opposition motion are not even present on the Front Bench. Is it in order for that to continue?
§ Mr. Deputy Speaker
The hon. Gentleman has been here long enough to realise in his heart of hearts that that 971 is not a point of order. It is entirely up to individual Members whether they present themselves in the Chamber or in any Committee of the House.
§ Mr. Sutcliffe
We do not want the debate to descend too low, but the Opposition's intention is clear.
It is important that pensioners in my constituency and across the country know where the pensions debate is going. The hon. Member for Gosport (Mr. Viggers) spoke about the need to restore the link between pensions and earnings and to re-examine pension provision, but we heard nothing from the other Conservatives Members whose party had 18 years in which to put right a problem that we tackled as soon as we came to power.
We could see the pensions disaster ahead, and we knew that we needed to be honest with people. That is our strength. The Government are committed to honest debate about pension provision and the difficult decisions that people have to face. We acknowledge that there are sections of society that need support and protection. I understand that pensioners just above the income support level are concerned that they have saved whereas others might not have, but I want us to create a society in which, as my right hon. Friend the Member for Birkenhead says, the community is considered as a whole. The Government have polices to deal with people who might deliberately not save or who might avoid work, but I should prefer there to be a decent standard of living for all and a minimum income level below which people should not fall.
With the introduction of the national minimum wage, and of better employment conditions through the fairness-at-work proposals, we are creating a society that looks after the individual, a society in which people who can do well are enabled to do so but in which those who fall through the gap, through no fault of their own, are looked after.
The Green Paper and the speech of my right hon. Friend the Secretary of State show the difference between the two main parties. We are committed to listening, seeing what can be done and being straight about what the long-term worries will be instead of just trying to score cheap political points in a half-day Opposition debate.
§ Mr. Howard Flight (Arundel and South Downs)
I must first declare an interest as I am the chairman of a company that manages pension funds.
Getting pension policy right for everyone is crucial for an advanced society like ours. Getting it right means that people can have a decent standard of living in their latter years, but it is also of great economic importance. It is unfair not to recognise as a major achievement of the past 20 years the fact that we built up £800 billion of private sector funding and that some 85 per cent. of people who retired did so with an occupational or personal pension at the age of 65.
In most of continental Europe, the economies are out of balance because of a lack of private funding; and, because of high add-on employment taxes, 20 million 972 people are priced out of work. At the other end of the scale, Japan has the problem of excessive personal saving because of inadequate pension provisioning, in both the private and state sector. That has resulted in individuals saving too much for fear of retiring in poverty. Economically speaking, getting the system and the balance right is extremely important.
It is rather glib for Labour Members to brush off the importance of the advance corporation tax attack on pension funds. In my personal election address in 1997, I warned my constituents, many of whom were approaching pension age, of the risk of that ACT recovery attack on pension funds, and I believe that it is no accident that my constituency produced one of the largest Conservative majorities in the country. To dress up the proposal to reduce pension fund accumulation by some £5 billion a year and to say that it is justified by tax reform is, frankly, to mislead people. The accumulation of reserves out of which to pay pensions in future is crucial.
The increased costs of funding have not yet worked their way through the system, but, in the company sector, they will lead to a substantial move away from defined benefit final salary schemes to defined contribution money purchase schemes. No new defined benefit schemes are coming through now, and, from within the industry, I see many companies looking to move to money purchase schemes in order to control their costs. At the end of the day, such schemes will provide smaller pensions for the great majority in the middle.
I suspect that it will not be popular among those on the Labour Benches if I say that the Government's handling of pension mis-selling has been unwise. I do not deny that there was a huge difficulty, but, as others have said, the main problem has been the success in bringing down inflation over recent years, the fall in gilt yields and the resulting virtual doubling of the cost of annuities. It is fine to say that the annuity one buys will hold its value better, but when one retires at 65, much of the money purchase provisioning ends up buying a great deal less than people reasonably expected 15 years ago, whereas company occupational schemes have improved and their members have benefited at the expense of members of money purchase schemes.
There has been a major improvement in the standards of financial advice in the United Kingdom in this decade, largely as a result of the Financial Services Act 1986. In a sense, that improvement is being undone and negated by the message being sent by the Government.
There has historically been pension mis-selling in the state sector. I have had substantial correspondence with women who worked for the state in the 1960s, 1970s and even the 1980s who feel that they were talked into cashing in their pension rights for a capital sum and that the Government's response was simply that advice in a magazine at that time was sufficient. However, that was 20 years ago and standards were different.
More recently, two or three constituents have written to me about Department of Social Security projected pension arrangements which omitted to include the fact that the state earnings-related pension for widows is to halved with effect from April 2000. They complained that even the DSS did not advise them of the correct situation and they had not made adequate provision.
Ten years ago, people running occupational pensions schemes frequently behaved badly. They did not give fair transfer values or advise those leaving a company of the 973 potential value of their deferred pension, and the transfer payments made were often ludicrously low. I well remember that, particularly people under 30, could not wait to get out of their occupational scheme. They wanted their own portable pension scheme and, even though circumstances and the lack of sound advice at the time have caused problems for many, the personal pension movement of the past 15 years has been a major benefit for many. Hundreds of thousands of people have pensions beyond the state provisioning, which they would have otherwise not have had.
It might be utopian, but I believe that it would be wonderful if there were cross-party agreement on this subject. It does not help if the system keeps changing all the time. People need a straightforward framework that they know and can trust. Although the Government say that they took many soundings before publishing the Green Paper, I, and most of the people whom I know in the industry, believe that there is a certain quick-fix approach to it. It focuses on a particular aspect that I admit needed focusing on, but the Government have not thought about the knock-on effects or other relevant aspects.
I do not know whether LISA was dreamed up by the Treasury with the knowledge of the Department of Social Security. However, it appears that it is not in tandem with the main thrust of the proposals contained in the Green Paper.
It has correctly been made clear that the Government have focused on the major issue of what should be the decent minimum income in old age, and on the fact that, over the next 50 years, much more than at present, people are heading to be dependent upon income support. If anything, the number of people earning less than £20,000 a year without funded pensions is growing, not reducing.
My criticism of the Government's proposals is that the thinking behind them amounts substantially to determining the cheapest and slightly quick-fix way of addressing the problem. As has been said, there is the major problem of disincentive to work and save. In particular, it is felt by some that they will do better by not participating in the scheme.
The second big issue involves the self-employed, who represent a huge area of lack of personal provisioning. Indeed, there is no incentive for the self-employed. They cannot become members of the revised scheme and they have little incentive to participate in a LISA.
The final objection, which has not yet been brought out, is that there are major threats to the bottom half of the middle of society. There is a great risk that many companies will embrace the new stakeholder schemes and that collective personal pension schemes will have to be given up. For many who belong to occupational schemes where the company contributes, there is a dangerous incentive to use a stakeholder scheme and not to contribute to other than top-hat schemes.
Given that everything is moving towards more and more money purchase, we must address the issue of whether to buy annuities, and the requirement to buy them at 75. There are many schemes for the self-employed which involve buying an annuity upon retirement. As we have heard, many people are now being forced to buy an annuity at potentially the wrong time. We need to have new rules and a reconsideration of the draw-down 974 arrangements. As others have argued, we need more imaginative ways to deploy pension assets once the pension is to be drawn.
In short, I suggest that the Green Paper has not addressed the large and important territory of related issues. Instead, it has focused on the narrow issue of how to deal with the employed part of lower-income earners. LISA is not really an answer to the self-employed pension problem, which is lack of provision. I fear that the Government have presented rather drawing-room-like proposals that will not be understood by the man in the street. They are too complicated and there is urgent need for major simplification of the pension world which, as a result of the Revenue's obsession with avoidance, has become a labyrinth and triffid of complicated tax rules that no one understands.
There is a need for much greater reform and a much closer look at pensions. It would be wonderful if there could be cross-party agreement. Many good things have come up, but I trust that the Government will note that there have been quite a few criticisms from the pension fund industry. I hope that the Government mean what they say in terms of the document being a Green Paper and that they will take account of the many comments that are being made and have regard to the areas that will need to be addressed.
§ Miss Geraldine Smith (Morecambe and Lunesdale)
My constituency has a higher-than-average proportion of pensioners included in the population. This is so because many retired people, having lived and worked all their lives in industrial towns and cities, like the prospect of living out their retirement in a seaside location that is in close proximity to the lake district.
The available of all types of housing at relatively low prices provides them with an incentive to take the plunge and move into the area. The net result is, as I have previously stated, that the area has a disproportionate number of elderly people. That being the case, I am sure that the debate will be followed with a great deal of interest by many of my constituents.
As the large concentration of pensioners within my constituency contains sizeable elements of all social groups, it has provided me with the opportunity to see at first hand over many years the stark contrast between the quality of life enjoyed by those pensioners who have retired with a decent occupational or personal pension, and the misery and despair suffered by those condemned to exist on the basic state pension. While many of the better-off have rightly been able to enjoy the freedom that retirement has given them, for the poorest pensioners the golden years of retirement have turned into an eternal nightmare.
There is little doubt that the previous Tory Government's decision to break the link between earnings and pensions considerably swelled the ranks of pensioners living in poverty. The progressive devaluation of the basic state pension has dragged many hard-up pensioners into the welfare benefit system. That progressive slide into poverty, which has afflicted so many elderly people, has completely devastated their lives.
Many pensioners are confused about, or entirely unaware of, the benefits to which they are entitled. That is in no small way thanks to the insidious suggestions 975 constantly propagated by Opposition Members that anyone who receives a state benefit is a scrounger. Many impoverished pensioners who are aware of their entitlement to income support are too proud to apply for it. I therefore welcome the Government's decision to introduce guaranteed minimum levels for pensioners. I welcome also the Government's long-term commitment to increase guaranteed minimum levels in line with earnings, thereby ensuring that even the poorest pensioners share in the growing prosperity of our nation.
Clearly defined minimum income levels will provide a focal point for many pensioners who are unsure of their entitlements and will prove to be of great assistance to the Government in their efforts to ensure that all pensioners receive the income to which they are entitled. I welcome also other measures that the Government have taken, such as assistance with fuel bills, concessionary travel and free eye tests. Above all, I believe that the extra £21 billion investment in the national health service and the improvement in service standards that it will bring will be welcomed by people throughout the country, with the exception, perhaps, of some of those who sit on the Opposition Benches.
Radical proposals for the future of pensions are contained within the Green Paper. The first question that we must ask ourselves is whether the system really needs such reforms or whether we can tweak it to make it more responsive to the needs of our people. Within the current system, we have the basic state pension, which covers nearly all employees and the self-employed. We also have secondary pensions in the form of state earnings-related pension schemes, occupational schemes and personal schemes, which are compulsory for most employees. However, only the personal pension option is open to the self-employed, albeit on a voluntary basis. There are also numerous private schemes available to those who wish, or are able, to make additional pension provision above and beyond the compulsory pension level.
The system as it stands fails to provide adequate security in old age for many. It fails entirely those who earn less than the lower earnings limit of £3,300 a year. They are not even entitled to the basic state pension, let alone any form of secondary pension. They are therefore totally dependent on welfare benefits in old age. Other low earners who earn between £3,300 and £9,000 are also poorly served by the current system. The high administration costs and charges of private funded schemes make them an unattractive proposition for such people. Unless they are fortunate enough to belong to an occupational pension scheme, they will have to rely on state provision and will be left behind as the nation grows richer.
Even those in the middle income bracket are not adequately catered for by the current system. The ever-increasing flexibility required by the modern labour market and the growth of small and medium companies is leading to a downturn in occupational pension provision, and many people are left only with the options of SERPS, which is declining in value, or high-cost private schemes. The self-employed are probably worst served. A large proportion of them are on low to middle incomes. Their only option is a high-cost personal scheme to top up their basic state pension.
976 All in all, it is apparent that the current system is failing a huge number of people for a variety of reasons. It is equally apparent that radical reform is essential. The Government's plans for a low-cost, high-return stakeholder pension will provide a bridge between the state and private provision.
The granting of pension credits to carers, something that has already been mentioned, is an imaginative idea that at long last gives recognition and comfort to that often-forgotten legion who play such an important role. The assistance provided for low and middle earners to attain a decent second pension will also be welcomed by millions.
I am not at all surprised that the Conservative motion totally opposes the measures that the Government have already introduced and those proposed in the Green Paper. The concept of the fairer, socially just and inclusive society that the Government are determined to build, and of which these measures are an integral part, is just as abhorrent to Tory Members as was the concept of a welfare state to their predecessors before its introduction just after the war.
§ 6.2 pm
§ Miss Julie Kirkbride (Bromsgrove)
I am delighted to follow the hon. Member for Morecambe and Lunesdale (Miss Smith), who made a somewhat emotional appeal on behalf of pensioners and their incomes. I am sure that her pensioner constituents will take great interest in what representations she makes to her Government to restore the link between the basic state pension and earnings, because she clearly implied they should do so. I look forward to her doing that.
The hon. Member for Bradford, South (Mr. Sutcliffe) made a similarly emotional appeal on behalf of pensioners and sought completely to rewrite history by suggesting that the previous Conservative Government did nothing about pensions. Labour Members often like to rewrite what happened under the previous Government, so I take this opportunity to remind the hon. Gentleman of that Government's enormous success. Some £800 billion is now invested in the private pensions industry and occupational pensions. Many of our citizens can look forward to their pension and their retirement with a great sense of certainty and security.
I remind Labour Members that that is a massive achievement because, when we introduced proposals for more private pension provision, they ran scare stories similar to the one that they ran about our reform of the basic state pension just before the last election. They said that we were trying to privatise pensions and abolish state pensions and that that was a terrible idea. Yet that was one of the greatest success stories of the previous Conservative Government.
Let us look to the future. In the United Kingdom, we can look forward to the national economy's balance sheet being such to enable us to afford pension provision. I readily agree that we might need to do more for poorer pensioners, but that balance sheet has been greatly helped by what happened during 18 years of Conservative Government. When we compare ourselves with our European Union counterparts, we realise that they will have great difficulty in being able to afford to meet the 977 demands of their growing aging population and the many people who will look to the state to pay their earnings-related pension contributions.
§ Mr. Field
The hon. Lady is telling us about the achievements of the previous Conservative Government, which clearly do not relate to occupational pensions, which have been developing for the whole of the century. The previous Government's initiative was personal pensions. Will she tell the House how many people are drawing personal pensions and by what amount?
§ Miss Kirkbride
I do not have that information to hand. I am sure that the right hon. Gentleman, having been a Minister, knows the figures much better than I do. I am trying to draw attention to the fact—with which I am sure he will agree—that the great impetus given to providing for oneself, whether by occupational or personal pension, has been an enormous success from which we shall all benefit, because it will be possible to afford the pensions of the growing elderly population of which we shall be a part in future. It is important that Labour Members recognise how important that impetus has been—they would clearly like to forget about it.
We take exception to what happened when Labour got into power. The Chancellor introduced changes to advance corporation tax which have greatly diminished the value of pensions not only for future but existing pensioners, who will find that their pensions will increase at a lower rate because their pension funds will not be as valuable as they would otherwise have been. Labour Members say that they made those changes because they enabled them to reduce the level of corporation tax. We welcome that reduction, but its success in affecting the amount that industry invests has yet to be shown, and there has been a massive reduction in the amount of corporate investment. That change has yet to bear any fruit. We still insist that it was an unwise move that will affect us all.
The changes to ACT have a bearing on the problem of poorer pensioners. They, by definition, do not pay income tax, and they are now placed in the wicked position of being unable to reclaim the tax on their dividend contributions. It is an absolute disgrace that a party whose Members have, in their most recent speeches, made an emotional appeal on behalf of pensioners does not to allow the poorest pensioners to claim back their tax, while others, including myself and, perhaps, my colleagues, are able to do so.
§ Dr. George Turner
Will the hon. Lady advise the House which tax people are or are not getting back and when it was paid?
§ Miss Kirkbride
I refer to the tax that has already been paid by a company through corporation tax, which is a tax on profits, and is then returned to the individual. I am sorry that the hon. Gentleman is so ignorant that he does not understand that, but I am happy to explain exactly to what poorer pensioners are entitled.
As the hon. Member for Northavon (Mr. Webb) pointed out in what was an excellent contribution, as always, 300,000 pensioners are in that position and 250,000 of 978 them will not be eligible for the minimum pension guarantee because they have too many savings. The minimum pension guarantee, which is typical of the Government's hype about their policies, affects very few people because the vast majority of those to whom it will apply already receive that money in one form or another, such as through income support. They are not that bothered whether the money is called a minimum pension guarantee or income support, but they need to know that it is on its way. The Government create policies and pretend that they have a huge impact when they clearly do not.
I reaffirm the points that have been made by several hon. Members about the difficulties of the Government's proposals to create an incentive to save. The operation of the state second pension alongside the basic state pension will mean that very poor people will be eligible for the minimum pension guarantee. As I understand it—the proposals are complicated—those who are earning between £3,000 and £9,000 a year will be eligible for the state second pension and will end up receiving pretty much the same amount as the minimum pension guarantee, which the Government propose will be 20 per cent. of real earnings. All those people will get the same, irrespective of their contribution.
Due to the Government's commitments, what will happen to those who will be earning £10,000 a year—just above the point at which they would be eligible for a state second pension? They will be encouraged to take out a stakeholder pension, yet they will be earning very little—less than £200 a week. They are very poorly paid once tax is deducted, yet they will have to save through a stakeholder pension—or any other vehicle that the Government suggest in their various weird and wonderful schemes, which we do not particularly understand.
Such people would have to earn, say, £41,000 a year to make up for state benefits. Indeed, they would need extra income because, if they are not eligible for income support, they are not eligible for passported benefits either. Therefore, such people will have to save a great deal of money if they are to be comfortable in their retirement. It is difficult to see how people on an income of about £10,000 can do what the Government, and we all, hope that they will do. The major and fundamental problem with the Government's proposal is that they are turning their face away from compulsion.
My hon. Friend the Member for Arundel and South Downs (Mr. Flight) knows much more about occupational pensions than I do, but I know that there are great fears that the system that the Government are introducing will undermine the occupational pension sector. That trend has already started, and it will get worse. There is a massive incentive for employers to introduce stakeholder pensions, to which the Government have not said that companies should contribute.
§ Mr. Leigh
My hon. Friend is making a good point about employers. A point has occurred to me about employees, which I am not sure that the Government have answered. There will be a rebate of national insurance contributions for those entering a stakeholder pension of 9.2 per cent., starting at £9,000 a year, falling to 4.6 per cent. Surely that will be a further incentive to take 979 out a stakeholder pension rather than stay in an occupational pension scheme. Perhaps my hon. Friend has the answer.
§ Miss Kirkbride
I would not be so bold as to offer an answer on the Government's proposals. I am sure that the Minister will be happy to answer my hon. Friend's relevant point.
The stakeholder pension will affect the very people whom the Government want to help. When looking at their balance sheets and considering how expensive it would be to maintain occupational pensions, employers will be encouraged to offer stakeholder pensions because there is no requirement on them to contribute to those pensions. As a result, very many people will find themselves in a worse position.
Due to the discrepancy in earnings power in a company, there might be another effect, which would be worse for Labour Members to contemplate. Lower-paid employees, including part-time employees, will be offered stakeholder pensions, but the cream at the top of the company will have pensions to which the company will contribute. Many high earners will expect a significant pensions contribution from their employer as part of their benefits package. Labour Members ought to consider whether they are setting up an apartheid regime in the pension system. [Interruption.] Labour Members scoff, but I am afraid that they are doing their constituents no service by not recognising the difficulties that could occur as a result of the Government's proposal. As time is a little short, I shall conclude on that point.
§ Kali Mountford (Colne Valley)
I had been in the House for a mere few weeks when we had a pensions debate, in which many Opposition Members concentrated on pension funds. Since many of them are pension fund managers, that was not surprising. I am, however, a little surprised that they have continued to confine the debate so narrowly and have not moved on in their thinking. I am also surprised to find that their attachment to private pension schemes has not altered, in spite of our experience of them. Someone asked earlier who is benefiting from private pension schemes. That is a conundrum; none of us knows. Nobody is yet receiving a pension or benefiting from such schemes, which have been operating for only 10 years, although a number of my constituents are having a great many problems as a result of mis-selling.
A very large company of financial advisers in my constituency told me of its problems due to pension mis-selling: it has to put the matter right—and quite right too. Why should pensioners bear the brunt of the problem? I admire the way in which the company is going about that task in training financial advisers. That should have happened in the first place. Conservative Members can offer no lessons in that regard.
The other thing that really upsets me about these debates is the concentration on a group of people who at least have the capacity to contribute to pension schemes—whether occupational, private or otherwise. The genuinely poorest people are those who are entitled to income support but do not claim it. I have made that point before, and make no apology for repeating it. The hon. Member for Bromsgrove (Miss Kirkbride) thinks that we become emotional about those matters, but that is not surprising. 980 She may argue that pensioners are made poor when, in receipt of private pensions, they encounter problems with anomalies in the system, but they are not the genuinely poorest people.
The Government have rightly introduced the minimum pension guarantee because we need to find a way in which to address the problem of the poorest pensioners. The genuinely poorest pensioners cannot wait until tomorrow for a new scheme. They have no opportunity to make any new contributions to a scheme. It is therefore right that we find a way in which to address that poverty. Connected to that task—I have said this to my right hon. Friend the Secretary of State and make no apology for repeating it—is the conundrum of the poverty trap. Being a listening Government, I think that they would want to avoid that. I will not accept from Conservative Members that the poverty trap became apparent just today. We inherited that problem, and must find a solution to it.
The problem of passported benefits, which is not confined to pensions, affects people who live just above the poverty line. It is right that the Government should consider the disregard. The Conservative party took away the benefit tapering system, so it is a little absurd for Opposition Members to tell us that they are concerned about the poverty trap. They did little about it in government. Indeed, they took away at least one of the supports that dealt with the problem.
Of course some pensioners who have saved for their old age feel resentful when they find that their neighbours, who through no fault of their own were unable to save, receive income support and the benefits that accrue from it. But, that is no reason not to introduce a minimum pension guarantee. Let us remind ourselves what that means. It means an increase three times higher than could have been expected and a guaranteed income.
§ Kali Mountford
I am sorry, but time is preciously short. I am upset that I am having to speak so fast in the first place.
We must listen to people if we are to improve benefit take-up. Let us take cognizance of the fact that 28 pilot schemes are finding out what older people themselves think should be the answer. Why do people not rush to fill in their benefit claim forms? What are the possible solutions? How can a community pull together to support older people?
In this debate, we have heard details of the other measures in the support package, such as those relating to eye tests and health care. They are worth mentioning. However, we need to find a way to ensure that pensioners access the whole range of benefits and services available to them, and we must do something about the stigma attached to benefits such as income support, so that pensioners are willing to accept those benefits. Members of the Opposition are trying to denigrate the Government for having made a vital move in that direction; but the Government should be congratulated.
The second state pension is a masterstroke. I cannot understand why Opposition Members object to it. As those Members seem to have difficulty understanding the concept, I commend to them page 41 of the Green Paper, "Partnership in Pensions", which contains a graph which specifically shows how much easier it will be for 981 pensioners in future to have their guaranteed pension as of right. That takes away all the stigma and the problem of take-up that we have had for many years. When, at Prime Minister's Question Time this afternoon, I heard the word "redistribution", I thought about that graph, because it specifically shows how money will be redistributed to the poorest pensioners, who need it most.
The hon. Member for Northavon (Mr. Webb) made much of what he believes will be the problem of the future. We have a listening Government, and the hon. Gentleman has made his point well. I am sure that the Government do not want the poverty trap to continue. I believe that there are solutions to that problem, and I am sure that the Government will study them, but that is no reason not to have the second state pension. That option would open up a range of pensions to people who have previously been completely excluded—such people are so rarely mentioned by some hon. Members. They include women who are divorced, carers and people who are on low pay—perhaps in part-time jobs—or who have been in and out of work over a period.
The hon. Member for Arundel and South Downs (Mr. Flight) mentioned self-employed people, as though those people's needs were not addressed in the Green Paper. That simply is not true. Their needs are addressed by the second state pension or by the stakeholder pension. It is not true that a self-employed person cannot get a stakeholder pension. I refer hon. Members to page 50 of the Green Paper, where an example of such a pension is given. It seems to me that Conservative Members have come to the House, rather belatedly, to rally around pensions instead of rallying around their hon. Friends at their Tory rally. They have not even read the document, such is their commitment to pensions.
§ Kali Mountford
It seems that the hon. Member for Grundy wants to make an intervention from a sedentary position, but I shall resist comment, as time is short.
On pensioners, the Government inherited a downward spiral, and that spiral had to be arrested. The way to do that was by considering today's poorest pensioners. It is right to remove taxation anomalies from the system. It is right to provide a wide range of services for pensioners today. It is right to study the changes in demography and accept that, in future, there will be fewer people in employment as a proportion of the population, and that we must find a way to fund pensions for tomorrow.
When they were in government, Conservative Members accepted that we would run into that problem. It surprises me that, when an ideal solution is presented to them, they cannot see what is under their nose.
§ Mr. Edward Leigh (Gainsborough)
Despite the Government's good intentions, we now have a very confusing mixture of public and private provision in pensions—a mixture of personal pensions, occupational pensions, the basic state pension, the second pension and the stakeholder pension. I believe that there will be real confusion among people about how best to plan for retirement.
982 We should continue, on a cross-party basis, to seek solutions that have been tried abroad—although not necessarily by South American economies, which might be less developed than our own, or by city-state economies such as Singapore, which may have altogether fewer problems of an aging population.
In the five minutes that I am allowed, I shall cite the example of Australia. Australia is a highly developed economy, very similar to ours. Interestingly, it went through much the same stages as did our economy between 1900 and 1983. In 1900, it had the highest per capita gross domestic product in the world. By 1980, it had fallen to 14th place, and it had adopted many of the Keynesian solutions of nationalisation and of subsidies to manufacturers that our Governments had adopted.
Such was the state of the Australian economy, especially regarding pensions, that the then Treasurer, Paul Keating, announced that something had to be done radically to reform pensions. He said:
We must let Australians know, truthfully, honestly, earnestly, just what sort of international hole Australia is in. If this Government cannot get a sensible economic policy, then Australia is basically done for. We will end up just being a third-rate economy. Then you are gone; you are a banana republic.The left-of-centre Labour Government of Australia—I am making this speech because I hope that the Government are considering what is happening in Australia—decided something very radical indeed, far more radical than the measures that the Government are introducing. They went down the route that was suggested to them by the right hon. Member for Birkenhead (Mr. Field), but they went further. In 1986, under Mr. Paul Keating, they devised an innovative retirement system, based primarily on mandatory private savings in plans called superannuation funds.
All workers in Australia—this was done in consultation with trade unions—were required to put 3 per cent. of their earnings into those mandatory private funds. That figure will increase to 9 per cent. by 2002, when the system will be fully implemented. In 2002, all workers in Australia will be required to set aside 9 per cent. of their income in a superannuation fund of their choice; that is the underlying principle. A series of options will be open to them. The market will be highly regulated, to ensure that there is no mis-selling, but the worker is required to put the money into a fund of his choice.
I believe that compulsion is essential. I do not believe that one can have a voluntary system at the same time as a high safety net. We all want a high safety net; that is the reason for the minimum income guarantee. We do not want to allow pensioners to fall into poverty. It may not be their fault that they have not built up an adequate pension—take the example of a woman who has been divorced, who has worked hard all her life bringing up her family.
We want a high safety net, but if one has a high safety net—I know that that is why the Government are taking this route—and a voluntary system of contributions, inevitably, as my hon. Friend said, one ends up with a tremendous disincentive to save. Therefore, one must have a compulsory scheme, such as the one that the Australians have developed.
§ Mr. Leigh
The right hon. Gentleman knows full well why I did that. I was trying to tease out his hon. Friends to support his Bill, and hardly anyone came along. He well knows that. The right hon. Gentleman was going around—he had a complete headache—saying, "Please do not force a Division, because no one in the Government will support me." So let us not have any of that. The right hon. Gentleman knows perfectly well what we were doing then. However, I salute him. He was right to try to remind the Government of what they should try to achieve.
The Australian system has achieved more income for retirees. In future, average-waged workers should be able to retire with two or three times the income that they would have had under the original Government-run scheme. The new system has also resulted in increased national savings. The overall savings rate could climb by more than 3 per cent. of gross domestic product.
If that scheme in Australia is so good, and if it was introduced by a left-of-centre Government, why have not we heard more from our Government as to why they are not introducing it here? Why have they rejected the plans suggested by the right hon. Member for Birkenhead?
There is one difficulty with such a scheme—the Australian Government are moving down the road of means-testing to pay for it. Is it possible to introduce such a radical reform without an element of means-testing? The Government must think seriously about that.
I ask both sides of the House to co-operate in radical reform to try to prise our nation out of a culture of dependency and to increase responsibility, and to do so by means of a compulsory savings system, gradually brought in with a measure of bipartisan support. That is increasingly being tried around the world. It works, it is successful and it is the road that we should go down.
§ Mr. Quentin Davies (Grantham and Stamford)
I must deal with one important matter before I say anything else. The Government's proposals involve doubling the rate of accrual for entitlement to state second pension over the rate of accrual that applies under the SERPS system, from 20 to 40 per cent. of eligible earnings. In response to an intervention from me this afternoon, the Secretary of State denied that, on the subsequent band of earnings, from £9,000 to £18,500, the rate of accrual would be halved.
I refer the House to page 45 of the Green Paper, which I have read several times. Paragraph 3 states:The rate on the band of earnings £9,000 to £18,500 a year would be 10 per cent."—as opposed to 20 per cent. at the present time, so that has been halved.
As I said earlier, I am sure that the Secretary of State did not intend wilfully to deceive the House, but he was close to doing so, if I may say so.
§ Mr. Darling
The hon. Gentleman is one of the most good-natured Members of the House. It would be unfortunate if he suggested that I did anything other than answer what I understood him to say, which was that people earning between £9,000 and £18,500 would have half the rate of accruals. The point that I was making, which is common ground between us, is that, on the portion of those people's income before £9,000, they, too, get the double rate. Of course it is tapered out to £18,500. 984 It would be nonsense to have a double accrual rate all the way up the scale. The table on page 41 of the Green Paper makes that clear.
I want to make it clear that I responded to what I understood the hon. Gentleman to say, both today and in the article in the recent pensions magazine. There is common ground between us. There is double the rate of accrual up to £9,000, then it is tapered out to £18,500 in an entirely sensible way.
§ Mr. Davies
Of course I accept the good faith of the right hon. Gentleman in his last remarks. Hansard will bear out the point that I made in the intervention, that, when the Government make announcements to the House, it is right that they should present both sides of any equation—they should give the good news but not conceal the bad news. I said that it was not enough to say that the rate of accrual below £9,000 would be doubled, and to leave out the material fact that the rate of accrual from £9,000 to £18,500 would be halved.
§ Mr. Davies
No, I cannot give way, as our time is limited. I apologise to the hon. Gentleman. As the House knows, I rather like giving way in such debates, and I wish that there were more time. Last Thursday, we were not running up against a time limit, but we are today.
I want to say something about some of the contributions to this interesting debate. I apologise in advance for the fact that I do not have time to deal with all of them—interesting contributions were made by members of all three parties. I single out my hon. Friend the Member for Bromsgrove (Miss Kirkbride) and thank her for a spirited and effective defence of the previous Government, which has the advantage that I do not have to say anything on that subject myself, as she said it so well for me.
My hon. Friend the Member for Gosport (Mr. Viggers), who knows a great deal about the subject, as does my hon. Friend the Member for Arundel and South Downs (Mr. Flight), presented a calculation that should make us all think carefully. If somebody saves £40,000 for a pension, he loses the whole amount. He does nothing other than generate a level of income equivalent to the means-tested benefits that he would have received if he had had no money or pension over and above the basic state pension. That is the dead-weight cost of saving.
Unfortunately, I think that my hon. Friend miscalculated that—he was too generous to the Government. It is important to realise that the means-tested benefits are indexed to the index of prices, and prospectively the minimum income guarantee even indexed to earnings. If one takes an annuity rate that is indexed to prices, one comes up at present with an annuity rate of just over 5 per cent., or under 5 per cent. if widows' benefits are offered.
On that basis, to generate an income of £4,000 in retirement, the sum of £80,000 would be required. It would be pathetic to imagine someone on a modest income setting aside £1,000 a year for 40 years, after expenses. With a total reasonable investment gain of about 3 per cent. compound, he might end up with £80,000, and it would all be a waste of effort—he would be cheated by the new Labour Government.
985 My hon. Friend the Member for Arundel and South Downs pointed out a crucial aspect of the present scene—the decline of the traditional salary-related, defined benefits scheme. My hon. Friend the Member for Gainsborough (Mr. Leigh) spoke tellingly of the Australian experience.
The right hon. Member for Birkenhead (Mr. Field) spoke extremely well, as he always does in these debates. He, too, expressed his fears about the future of occupational pensions in the light of the Government's proposals, and made some telling points on means-testing.
The hon. Member for Northavon (Mr. Webb) effectively devastated the Government's propaganda about the £140 a year additional earnings to pensioners as a result of their measures. He brought it down to a few pence a week. The House should be grateful to him for that cogent analysis.
It was obvious from the beginning of the debate that the Secretary of State was embarrassed about the subject. He did not come to the House full of pride, trying to sell the Government's proposals. He began with a complete red herring—the basic pension plus. He tried to put the argument back historically to the position several years ago. If he had any pride in the Government's own record or proposals, he presumably would have found an opportunity over the past six weeks to debate those proposals, but we had to wait for the Conservative Opposition to table the motion in order to get a debate on the Government's record.
That record is disgraceful. There is no other word for it. The Government were elected on a manifesto that contained three pension pledges—first, to preserve SERPS; secondly, to set up a citizenship pension for carers and the disabled; and thirdly, to set up a stakeholder pension.
The first promise has been explicitly broken in the Green Paper. SERPS is to go. The second promise has been covertly buried. We have heard no more about citizenship pensions. Nothing in the document offers carers or the disabled anything better than the means-tested—[Interruption.] Oh yes, I have read it. If the Minister of State wishes, we can have a debate on that, and I will demonstrate that those people are no better off under the Government's proposals than they would have been under the current means-tested arrangements.
As to stakeholder pensions, what a monumental shambles. For 15 months, the right hon. Member for Birkenhead and the right hon. Member for Camberwell and Peckham (Ms Harman) worked away on some scheme that was then rejected, and they were both sacked for their pains. So we did not get the original Green Paper when we were promised it last summer. Then, for six months, the Secretary of State and his team worked away on something else. We had the usual press spin and press leaks. We were told that they were working on compulsion and on something for the self-employed. Nothing emerged for the self-employed, and nothing emerged on compulsion.
It is clear that the Government had been vacillating and dithering about compulsion right up to the 11th hour, 59th minute and 59th second. Page 105 of the 986 document—this will show that I have read it, although of course the Government will wish that I had not—refers tocompulsory funded pensions for those earning over £9,000 a year".They changed the policy even after the document had been sent to the printers. It does not get much more shambolic than that—especially in view of the fact that the Government had 18 months to think about it.
The fact is that the Government's proposals are a complete and utter mess. What is more, the Treasury believes that they are a mess because it produced its own document this afternoon. Is the timing significant? I think it is, because the Opposition's debate was scheduled for this afternoon. The Treasury document is another shambles. In 11 years in the House of Commons, I have never seen a Government produce a document like this. They did not even send it to the printer—I suppose because they were afraid that they might have to change it at the last minute. This piece of rubbish was produced on a do-it-yourself brochure-making machine in some office somewhere. The document falls apart in your hands if you read it two or three times—which is more times than anyone would want to read this particular rubbish.
The document is rubbish because it does absolutely nothing to increase the total pension provision in this country. In fact, it has the potential to damage profoundly some very good pension schemes. Employers will have to wind up their group personal pension schemes and replace them with stakeholder schemes because the document says that the group pension will not qualify as a stakeholder pension. The vast majority of group personal pensions involve employer contributions, but there is no obligation for employers to contribute to stakeholder pensions. Therefore, employers may wind up schemes involving employer contributions and replace them with Government stakeholder pensions, which require no contributions on their part. People will be much worse off.
The Government have not considered the administrative burden for employers. How are those who employ one, two or three people supposed to cope with the administrative burden associated with establishing the schemes? The Government have not dealt with the issue of people who move jobs. Who will look after their interests? Who will send the annual report to those who have moved? Perhaps that will be done by the employer several times removed from the current one. None of those things has been thought through.
As my hon. Friend the Member for Chingford and Woodford Green (Mr. Duncan Smith) said this afternoon, we now have a plethora of proposals, including not only stakeholder pensions, group personal pensions and existing personal pensions but the Treasury's LISA proposals. It is obvious that everyone will have to seek advice about whether and at what point they should opt out of the new state second pension and what to opt into or whether—this is the vital point upon which the House should focus—they should save at all. Each time they introduce a new means-testing proposal, the Government make the situation worse. There has been one such proposal a month since the autumn, when I found myself on the Front Bench.
Every time that means-testing is extended, the Government raise the income threshold below which it is not sensible for people to save because they will simply deprive themselves of thousands of pounds of means-tested benefits. Even when the return begins to be 987 positive, it will be pathetically low. People would be better off spending the money and enjoying it rather than saving, at great sacrifice, for absolutely nothing or at slightly higher levels for a derisory and miserable sum in retirement. The fact is that the Government must focus on reality. The reality is that, if you go on means-testing in the way you are, you will do irreparable damage to saving in this country and you will put yourself in a position—
§ Mr. Deputy Speaker (Mr. Michael Lord)
Order. The hon. Gentleman must use the correct parliamentary language.
§ Mr. Davies
I am using the word "you" in the impersonal sense. If you prefer, Mr. Deputy Speaker, I could use the third person impersonal and say "one". However, I find it more natural to use "you" in the impersonal sense.
Means-testing will irreparably damage savings. The majority of people on or below average incomes—I think that average earnings are £15,000 to £18,000—will have to consider carefully whether they should save in those circumstances. If the Government desire people to save, they will have only two choices: the first technique is compulsion, which they have rightly rejected—and we reject also—and the second is to bamboozle those on modest earnings to save modest amounts. That is the exercise in which the Government have engaged so disgracefully this afternoon—and that is an exercise that we reject.
§ The Minister of State, Department of Social Security (Mr. Stephen Timms)
The whole House will have enjoyed this speech by the hon. Member for Grantham and Stamford (Mr. Davies). It was a bravura performance delivered with the verve and gusto that we associate with the hon. Gentleman and that we all enjoy—but that might also be described kindly as displaying a light grasp of the details of the Government's proposals.
I first became aware of the hon. Gentleman's light grasp of the details when he and I were interviewed separately on Radio Newcastle about the problems with the NIRS2 computer system, which have affected many pensioners around the country. Many hon. Members will not have had the opportunity to hear the interview that the hon. Gentleman gave, but it certainly merits a wider audience. The contract for the computer system was signed by the previous Government in 1995, with a view to the system being up and running by February 1997. Therefore, I was intrigued to hear the hon. Gentleman tell the presenter on Radio Newcastle on 10 December last year:Oh, no, no, no … this contract was signed in the autumn of this year, more than a year after the last election.The presenter gently pointed out to the hon. Gentleman that it was the Conservatives who had brought in the contractor, to which he responded:This is quite absurd. If the Government are saying this then they really, absolutely plumbed the depths … This is the most sensational view—this is the most extraordinary dereliction of responsibility on their part".The presenter made one more half-hearted attempt to point out the facts, to which the hon. Gentleman replied:No, no, no, no, no.988 The correct answer was "Yes"—but that in no way detracted from our enjoyment of the hon. Gentleman's spirited contribution on that occasion, or on this.
It is also true that the hon. Gentleman's cavalier disregard for the Government's actual proposals in no way detracted from our enjoyment of the hon. Gentleman's swashbuckling denunciation of them this afternoon. However, it is important to refer to what is really in the Green Paper. I refer the hon. Gentleman to the clear statement on page 42 of that document regarding carers. The position of carers is greatly enhanced by our proposal regarding the state second pension. Our proposals pose no threat to group personal pensions and nothing undermines them. A proper collectively run scheme may be more attractive to many people, but nothing in our proposals undermines what is currently possible under personal pension arrangements.
§ Mr. Duncan Smith
The Minister started his speech by having a little fun about the NIRS2 computer system. Perhaps he would like to explain to pensioners why, back in September, the Secretary of State said that the problems would be sorted out in two weeks, why nothing else was heard from him until January, and why, last week, the Minister said that it will be many months before the difficulties are resolved. Regardless of how the problems occurred, should he not have done people a favour and eased their worries by telling them what was going on?
§ Mr. Leigh
This Government keep blaming the previous Government. Has the Minister read the National Audit Office report, published in May 1997, which says that the procurement was "well managed"—they are its words. It also says that the shortlisting process was well managed to produce three credible bidders. The problems have originated since this Government were elected.
§ Mr. Timms
No, no. [Interruption.] I have read the report. The fact is that the system of commission had to be operational by February 1997, but parts of it are becoming operational only now. We have had to sort out the mess.
I want to comment on an issue that a number of hon. Members have mentioned, and of which the hon. Member for Grantham and Stamford makes much—means-testing. The state second pension will be a 100 per cent. contributory scheme. The whole point of what we are proposing is to ensure that—unlike the position that we inherited from the previous Government, where people could work and pay contributions throughout their working lives and still retire directly on to means-tested income support—the state second pension means that everybody in such a position retires with a pension above the minimum income guarantee level, which will itself be uprated over time, in line with earnings.
This is an imaginative, effective and affordable programme, which is why it has been so widely welcomed in the pensions industry and elsewhere. There is, of course, a pension policy that would generate 989 means-testing on a massive scale—basic pension plus. I was intrigued that the hon. Member for Gosport (Mr. Viggers) tentatively expressed some support for that policy, but we do not know whether it is still the official policy of the Conservative party. We have not been informed of that this afternoon, and it would be helpful if we could be told.
If the Opposition are arguing that the least well-off should not share in rising prosperity, and that the minimum income guarantee should not be uprated over time in line with earnings, let them say so. That is not the view of Labour Members, nor is it the view among pensioners.
We have had an interesting debate and a number of thoughtful contributions were made. The hon. Member for Northavon (Mr. Webb) made some interesting points on the future of the basic state pension, and I am grateful to him for drawing attention to the review of saving limits for the minimum income guarantee. I agree that that is the right thing to do. Winter fuel payments have been popular among pensioners and I certainly support them, as do the great majority of people.
My right hon. Friend the Member for Birkenhead (Mr. Field) made a thoughtful and constructive speech. He told us that it would be his last off-message speech; I am not sure what he meant by that. I want to comment on a couple of points that he made. He will agree that the effect of our proposals will be to reduce the number of people who would end up on means-tested benefit when they retire and so reduce the problem, which he highlighted, of people feeling that it is not worth saving.
I agree with my right hon. Friend that we need to strengthen the arrangements for occupational pensions and the Green Paper, and the subsequent consultative paper, contain important proposals to achieve that. On the question of churn, which he raised, the Financial Services Authority is aware of the problem and will be introducing proposals to address it.
My hon. Friend the Member for Bradford, South (Mr. Sutcliffe) did the House a great service by reminding hon. Members of the record of the previous Government. He also elicited a helpful explanation of why so few Conservative Members were present during the debate. Apparently they were at a Conservative party rally. For quite a long time, there were more Liberal Democrat Members than Conservative Back Benchers in the Chamber, even though the Conservatives initiated the debate. Indeed, at one time, no Conservative Front Bencher was present.
My hon. Friend the Member for Morecambe and Lunesdale (Miss Smith) made some telling points about the position of many pensioners. She was absolutely right to welcome the proposed link with earnings for the minimum income guarantee and right to spotlight the problem facing self-employed people, which stakeholder pensions address.
I am grateful to my hon. Friend the Member for Colne Valley (Kali Mountford) for highlighting the work that is being done in the pilot schemes to encourage people to take up the minimum income guarantee and to draw attention to the benefits of stakeholder pensions for the self-employed.
990 Let me conclude by summarising our proposals. The position we have inherited is that we are heading for a situation where, in 50 years, one in three people retiring will go straight on to income support. Today's pensioners are too often without security. As a result of the pensions mis-selling scandal presided over by the previous Government, people do not trust the system and too few people who could afford a funded pension do not have one.
§ Mr. Quentin Davies
A few moments ago, the Minister said that it was not true, as I had contended, that group personal pensions would not qualify as stakeholder pensions. I refer him to page 53 of his document and paragraph 29, which states:Existing personal pensions will not therefore be able to describe themselves as stakeholder pension schemes.That appears clearly in the document. If there is confusion, it is the fault of the Minister's document.
§ Mr. Timms
No. What the document says is absolutely right. Of course group personal pensions will not qualify as stakeholder pensions; they are personal pensions—they are different. I repeat the point that I have made to the hon. Gentleman: nothing in the document will make it any more difficult to provide a group personal pension than it is today.
Our proposals in the Green Paper are based on the principle that those who can afford to save should do so, but that those who cannot afford to save should also be able to look forward to security in retirement. It rests on three key proposals: the minimum income guarantee, the state second pension and a new system of funded stakeholder pension schemes.
The first element is the minimum income guarantee: £75 per week for a single pensioner from April, which will be available to all those who meet the conditions for entitlement to income support. It will be increased every year, and our long-term aim is that it should rise in line with earnings so that even the least-well-off pensioners will be able to share the benefits of rising national prosperity. It is fundamental to those proposals that the benefits should be enjoyed by the many and not just the few.
We announced in the Green Paper that we will consider how we can relax the savings limit and consider the possibility of introducing an income disregard. We want to encourage saving and ensure that there is not a penalty against pensioners for saving. We will introduce measures to achieve that.
Looking forward, under the policies that we inherited, we would have been heading for a position where many people would retire on to a pension that would leave them—
§ Mr. Timms
I cannot. Time is running short and I apologise to the hon. Lady.
People who have worked and paid contributions throughout their working lives would go straight on to income support. That would be the case for people earning less than £15,000 a year even if they had been in the state earnings-related pension scheme throughout their working lives. How can we instead ensure that people who have 991 paid and contributed throughout their working lives can be assured of a retirement income above the minimum income guarantee level, outside means testing?
We want to reduce dependence on means-tested benefit in retirement. That is the objective we have set ourselves, and I believe that the whole House will share it. Some people have suggested that the way to achieve that is to restore the link between the basic state pension and earnings rather than prices. That would be an immensely expensive measure, but a large group of people—those earning, throughout their lives, between the lower earnings level and about £6,000 per year—would retire directly on to income support, unless they had made their own provision. Despite the huge expense, it would not achieve what we want.
What about increasing compulsion? The hon. Member for Gainsborough (Mr. Leigh) talked about that. At the moment, there is a significant degree of compulsion, and people are required to contribute 4.6 per cent. of their pay into SERPS or a contracted-out scheme. If we doubled that figure to 9 per cent., people earning less than £9,000 a year would still retire on to the minimum income guarantee level.
Restoring the earnings link would not work. Increasing compulsion would not work. We need what might be called a third way—the state second pension to replace SERPS. That is what we have proposed, and it will achieve the objective that we have set. The first two pillars of our proposal are the minimum income guarantee and the state second pension. The third pillar—the key pillar—is stakeholder pension schemes, which will be secure, low cost and flexible.
We also want to encourage the development of occupational schemes which, as has been said a number of times in the debate, are one of the great welfare success stories of this century. We want to encourage people to join an occupational scheme, if they are able to do so, and to boost confidence in good schemes through a quality in pensions accreditation programme.
We want to achieve regulatory simplification and, in a parallel exercise to the Green Paper, we have issued a consultation document on our proposals. In a very simple, powerful innovation, we have proposed that every pension scheme member should receive a combined pension forecast every year which tells them exactly where they stand.
Our proposals represent a redrawing of the contract for pensions between the state, the private sector and the individual. Those who can save for their retirement have the responsibility to do so, and the state must provide effective security for those who cannot. That is the principle on which our reforms are built and I take pride in commending them to the House.
§ Question put, That the original words stand part of the Question:—
§ The House divided: Ayes 185, Noes 327.995
|Division No. 54]||[7 pm|
|Ainsworth, Peter (E Surrey)||Baker, Norman|
|Allan, Richard||Baldry, Tony|
|Amess, David||Ballard, Jackie|
|Ancram, Rt Hon Michael||Beggs, Roy|
|Arbuthnot, Rt Hon James||Beith, Rt Hon A J|
|Atkinson, Peter (Hexham)||Bercow, John|
|Beresford, Sir Paul||Jack, Rt Hon Michael|
|Blunt, Crispin||Jackson, Robert (Wantage)|
|Boswell, Tim||Jenkin, Bemard|
|Bottomley, Peter (Worthing W)||Jones, Ieuan Wyn (Ynys Môn)|
|Bottomley, Rt Hon Mrs Virginia||Jones, Nigel (Cheltenham)|
|Brady, Graham||Keetch, Paul|
|Brake, Tom||Kennedy, Charles (Ross Skye)|
|Brooke, Rt Hon Peter||Key, Robert|
|Browning, Mrs Angela||King, Rt Hon Tom (Bridgwater)|
|Bruce, Ian (S Dorset)||Kirkbride, Miss Julie|
|Bumett, John||Kirkwood, Archy|
|Burns, Simon||Lait, Mrs Jacqui|
|Burstow, Paul||Lansley, Andrew|
|Butterfill, John||Leigh, Edward|
|Cable, Dr Vincent||Letwin, Oliver|
|Cash, William||Lewis, Dr Julian (New Forest E)|
|Chapman, Sir Sydney (Chipping Barnet)||Lidington, David|
|Lilley, Rt Hon Peter|
|Chidgey, David||Livsey, Richard|
|Chope, Christopher||Lloyd, Rt Hon Sir Peter (Fareham)|
|Clappison, James||Loughton, Tim|
|Clark, Rt Hon Alan (Kensington)||MacGregor, Rt Hon John|
|Clark, Dr Michael (Rayleigh)||McIntosh, Miss Anne|
|Clarke, Rt Hon Kenneth (Rushcliffe)||MacKay, Rt Hon Andrew|
|Maclean, Rt Hon David|
|Clifton-Brown, Geoffrey||Maclennan, Rt Hon Robert|
|Collins, Tim||McLoughlin, Patrick|
|Colvin, Michael||Major, Rt Hon John|
|Cotter, Brian||Malins, Humfrey|
|Cran, James||Maples, John|
|Curry, Rt Hon David||Mates, Michael|
|Davey, Edward (Kingston)||Maude, Rt Hon Francis|
|Davies, Quentin (Grantham)||Mawhinney, Rt Hon Sir Brian|
|Davis, Rt Hon David (Haltemprice)||May, Mrs Theresa|
|Donaldson, Jeffrey||Moss, Malcolm|
|Dorrell, Rt Hon Stephen||Nicholls, Patrick|
|Duncan, Alan||Norman, Archie|
|Duncan Smith, Iain||Oaten, Mark|
|Emery, Rt Hon Sir Peter||Öpik, Lembit|
|Evans, Nigel||Ottaway, Richard|
|Faber, David||Page, Richard|
|Fabricant, Michael||Paice, James|
|Fallon, Michael||Paterson, Owen|
|Feam, Ronnie||Pickles, Eric|
|Flight, Howard||Prior, David|
|Forsythe, Clifford||Randall, John|
|Foster, Don (Bath)||Redwood, Rt Hon John|
|Fowler, Rt Hon Sir Norman||Rendel, David|
|Fox, Dr Liam||Robathan, Andrew|
|Fraser, Christopher||Robertson, Laurence (Tewk'b'ry)|
|Gale, Roger||Roe, Mrs Marion (Broxbourne)|
|Garnier, Edward||Ross, William (E Lond'y)|
|Gibb, Nick||Ruffley, David|
|Gillan, Mrs Cheryl||Russell, Bob (Colchester)|
|Goodlad, Rt Hon Sir Alastair||St Aubyn, Nick|
|Gorman, Mrs Teresa||Sanders, Adrian|
|Gorrie, Donald||Sayeed, Jonathan|
|Gray, James||Shephard, Rt Hon Mrs Gillian|
|Greenway, John||Shepherd, Richard|
|Grieve, Dominic||Simpson, Keith (Mid-Norfolk)|
|Gummer, Rt Hon John||Smyth, Rev Martin (Belfast S)|
|Hague, Rt Hon William||Soames, Nicholas|
|Hamilton, Rt Hon Sir Archie||Spelman, Mrs Caroline|
|Hammond, Philip||Spicer, Sir Michael|
|Hancock, Mike||Spring, Richard|
|Harris, Dr Evan||Stanley, Rt Hon Sir John|
|Harvey, Nick||Steen, Anthony|
|Hawkins, Nick||Streeter, Gary|
|Heald, Oliver||Stunell, Andrew|
|Heath, David (Somerton & Frome)||Swayne, Desmond|
|Heath, Rt Hon Sir Edward||Syms, Robert|
|Heathcoat-Amory, Rt Hon David||Tapsell, Sir Peter|
|Horam, John||Taylor, John M (Solihull)|
|Howard, Rt Hon Michael||Taylor, Matthew (Truro)|
|Hughes, Simon (Southwark N)||Taylor, Sir Teddy|
|Hunter, Andrew||Thompson, William|
|Tonge, Dr Jenny||Whitney, Sir Raymond|
|Townend, John||Whittingdale, John|
|Tredinnick, David||Widdecombe, Rt Hon Miss Ann|
|Trend, Michael||Wigley, Rt Hon Dafydd|
|Trimble, Rt Hon David||Wilkinson, John|
|Tyler, Paul||Willetts, David|
|Tyrie, Andrew||Willis, Phil|
|Viggers, Peter||Wilshire, David|
|Walter, Robert||Yeo, Tim|
|Young, Rt Hon Sir George|
|Waterson, Nigel||Tellers for the Ayes:|
|Webb, Steve||Sir David Madel and|
|Wells, Bowen||Mr. Stephen Day.|
|Adams, Mrs Irene (Paisley N)||Clelland, David|
|Ainger, Nick||Clwyd, Ann|
|Ainsworth, Robert (Cov'try NE)||Coaker, Vernon|
|Allen, Graham||Coffey, Ms Ann|
|Anderson, Donald (Swansea E)||Cohen, Harry|
|Armstrong, Ms Hilary||Coleman, Iain|
|Ashton, Joe||Colman, Tony|
|Atherton, Ms Candy||Connarty, Michael|
|Atkins, Charlotte||Cooper, Yvette|
|Austin, John||Corbett, Robin|
|Barnes, Harry||Corbyn, Jeremy|
|Barron, Kevin||Corston, Ms Jean|
|Bayley, Hugh||Cousins, Jim|
|Beard, Nigel||Cranston, Ross|
|Beckett, Rt Hon Mrs Margaret||Cryer, Mrs Ann (Keighley)|
|Begg, Miss Anne||Cryer, John (Hornchurch)|
|Benn, Rt Hon Tony||Cummings, John|
|Bennett, Andrew F||Cunliffe, Lawrence|
|Benton, Joe||Cunningham, Jim (Cov'try S)|
|Bermingham, Gerald||Curtis-Thomas, Mrs Claire|
|Berry, Roger||Dalyell, Tam|
|Best, Harold||Darling, Rt Hon Alistair|
|Blair, Rt Hon Tony||Darvill, Keith|
|Blears, Ms Hazel||Davey, Valerie (Bristol W)|
|Blizzard, Bob||Davies, Rt Hon Denzil (Llanelli)|
|Blunkett, Rt Hon David||Davies, Geraint (Croydon C)|
|Boateng, Paul||Dawson, Hilton|
|Borrow, David||Dean, Mrs Janet|
|Bradley, Keith (Withington)||Denham, John|
|Bradley, Peter (The Wrekin)||Dismore, Andrew|
|Bradshaw, Ben||Dobbin, Jim|
|Brinton, Mrs Helen||Dobson, Rt Hon Frank|
|Brown, Rt Hon Gordon (Dunfermline E)||Donohoe, Brian H|
|Brown, Russell (Dumfries)||Drew, David|
|Browne, Desmond||Drown, Ms Julia|
|Buck, Ms Karen||Dunwoody, Mrs Gwyneth|
|Burden, Richard||Eagle, Angela (Wallasey)|
|Burgon, Colin||Eagle, Maria (L'pool Garston)|
|Butler, Mrs Christine||Efford, Clive|
|Byers, Rt Hon Stephen||Ellman, Mrs Louise|
|Caborn, Richard||Etherington, Bill|
|Campbell, Alan (Tynemouth)||Ewing, Mrs Margaret|
|Campbell, Mrs Anne (C'bridge)||Fatchett, Derek|
|Campbell, Ronnie (Blyth V)||Field, Rt Hon Frank|
|Campbell-Savours, Dale||Fitzpatrick, Jim|
|Canavan, Dennis||Fitzsimons, Loma|
|Caplin, Ivor||Flint, Caroline|
|Casale, Roger||Flynn, Paul|
|Cawsey, Ian||Follett, Barbara|
|Chapman, Ben (Wirral S)||Foster, Michael Jabez (Hastings)|
|Chisholm, Malcolm||Foster, Michael J (Worcester)|
|Church, Ms Judith||Foulkes, George|
|Clapham, Michael||Fyfe, Maria|
|Clark, Rt Hon Dr David (S Shields)||Galloway, George|
|Clark, Dr Lynda (Edinburgh Pentlands)||Gardiner, Barry|
|George, Bruce (Walsall S)|
|Clark, Paul (Gillingham)||Gerrard, Neil|
|Clarke, Charles (Norwich S)||Gibson, Dr Ian|
|Clarke, Tony (Northampton S)||Gilroy, Mrs Linda|
|Godman, Dr Norman A||Macdonald, Calum|
|Godsiff, Roger||McDonnell, John|
|Goggins, Paul||McGuire, Mrs Anne|
|Gordon, Mrs Eileen||McIsaac, Shona|
|Griffiths, Jane (Reading E)||McKenna, Mrs Rosemary|
|Griffiths, Nigel (Edinburgh S)||Mackinlay, Andrew|
|Griffiths, Win (Bridgend)||McNulty, Tony|
|Grocott, Bruce||MacShane, Denis|
|Grogan, John||Mactaggart, Fiona|
|Gunnell, John||McWalter, Tony|
|Hain, Peter||McWilliam, John|
|Hanson, David||Mahon, Mrs Alice|
|Harman, Rt Hon Ms Harriet||Mallaber, Judy|
|Heal, Mrs Sylvia||Mandelson, Rt Hon Peter|
|Healey, John||Marsden, Paul (Shrewsbury)|
|Henderson, Ivan (Harwich)||Marshall, David (Shettleston)|
|Hepburn, Stephen||Marshall, Jim (Leicester S)|
|Heppell, John||Marshall-Andrews, Robert|
|Hesford, Stephen||Martlew, Eric|
|Hill, Keith||Maxton, John|
|Hinchliffe, David||Meale, Alan|
|Hoey, Kate||Merron, Gillian|
|Home Robertson, John||Michael, Alun|
|Hoon, Geoffrey||Michie, Bill (Shef'ld Heeley)|
|Hope, Phil||Milburn, Alan|
|Hopkins, Kelvin||Miller, Andrew|
|Howarth, George (Knowsley N)||Moffatt, Laura|
|Howells, Dr Kim||Moonie, Dr Lewis|
|Hoyle, Lindsay||Moran, Ms Margaret|
|Hughes, Ms Beverley (Stretford)||Morley, Elliot|
|Hughes, Kevin (Doncaster N)||Morris, Ms Estelle (B'ham Yardley)|
|Humble, Mrs Joan||Mountford, Kali|
|Hurst, Alan||Mudie, George|
|Hutton, John||Mullin, Chris|
|Iddon, Dr Brian||Murphy, Denis (Wansbeck)|
|Illsley, Eric||Murphy, Jim (Eastwood)|
|Jackson, Ms Glenda (Hampstead)||Naysmith, Dr Doug|
|Jamieson, David||Norris, Dan|
|Jenkins, Brian||O'Brien, Mike (N Warks)|
|Johnson, Alan (Hull W & Hessle)||O'Hara, Eddie|
|Johnson, Miss Melanie (Welwyn Hatfield)||Osborne, Ms Sandra|
|Palmer, Dr Nick|
|Jones, Barry (Alyn & Deeside)||Pearson, Ian|
|Jones, Helen (Warrington N)||Pendry, Tom|
|Jones, Ms Jenny (Wolverh'ton SW)||Pickthall, Colin|
|Pike, Peter L|
|Jones, Jon Owen (Cardiff C)||Plaskitt, James|
|Jones, Dr Lynne (Selly Oak)||Pollard, Kerry|
|Kaufman, Rt Hon Gerald||Pound, Stephen|
|Keen, Alan (Feltham & Heston)||Powell, Sir Raymond|
|Keen, Ann (Brentford & Isleworth)||Prentice, Ms Bridget (Lewisham E)|
|Kemp, Fraser||Prentice, Gordon (Pendle)|
|Kennedy, Jane (Wavertree)||Primarolo, Dawn|
|Khabra, Piara S||Prosser, Gwyn|
|Kidney, David||Purchase, Ken|
|Kilfoyle, Peter||Quinn, Lawrie|
|King, Andy (Rugby & Kenilworth)||Radice, Giles|
|King, Ms Oona (Bethnal Green)||Rammell, Bill|
|Kingham, Ms Tess||Rapson, Syd|
|Kumar, Dr Ashok||Raynsford, Nick|
|Ladyman, Dr Stephen||Reed, Andrew (Loughborough)|
|Lawrence, Ms Jackie||Reid, Rt Hon Dr John (Hamilton N)|
|Laxton, Bob||Robinson, Geoffrey (Cov'try NW)|
|Lepper, David||Roche, Mrs Barbara|
|Leslie, Christopher||Rooker, Jeff|
|Levitt, Tom||Rooney, Terry|
|Lewis, Ivan (Bury S)||Ross, Ernie (Dundee W)|
|Linton, Martin||Rowlands, Ted|
|Livingstone, Ken||Ruddock, Ms Joan|
|Lloyd, Tony (Manchester C)||Russell, Ms Christine (Chester)|
|Lock, David||Ryan, Ms Joan|
|Love, Andrew||Salter, Martin|
|McAllion, John||Savidge, Malcolm|
|McAvoy, Thomas||Sawford, Phil|
|McCabe, Steve||Shaw, Jonathan|
|McDonagh, Siobhain||Sheerman, Barry|
|Sheldon, Rt Hon Robert||Thomas, Gareth R (Harrow W)|
|Shipley, Ms Debra||Timms, Stephen|
|Simpson, Alan (Nottingham S)||Tipping, Paddy|
|Singh, Marsha||Touhig, Don|
|Skinner, Dennis||Trickett, Jon|
|Smith, Rt Hon Andrew (Oxford E)||Turner, Dennis (Wolverh'ton SE)|
|Smith, Angela (Basildon)||Turner, Dr Desmond (Kemptown)|
|Smith, Rt Hon Chris (Islington S)||Turner, Dr George (NW Norfolk)|
|Smith, Miss Geraldine (Morecambe & Lunesdale)||Twigg, Derek (Halton)|
|Smith, Jacqui (Redditch)||Vis, Dr Rudi|
|Smith, Llew (Blaenau Gwent)||Walley, Ms Joan|
|Snape, Peter||Ward, Ms Claire|
|Soley, Clive||Wareing, Robert N|
|Southworth, Ms Helen||Watts, David|
|Spellar, John||Welsh, Andrew|
|Starkey, Dr Phyllis||White, Brian|
|Steinberg, Gerry||Whitehead, Dr Alan|
|Stevenson, George||Wicks, Malcolm|
|Stewart, Ian (Eccles)||Williams, Rt Hon Alan (Swansea W)|
|Stoate, Dr Howard||Williams, Alan W (E Carmarthen)|
|Stott, Roger||Wills, Michael|
|Strang, Rt Hon Dr Gavin||Winnick, David|
|Straw, Rt Hon Jack||Winterton, Ms Rosie (Doncaster C)|
|Stringer, Graham||Wise, Audrey|
|Stuart, Ms Gisela||Worthington, Tony|
|Sutcliffe, Gerry||Wray, James|
|Taylor, Rt Hon Mrs Ann (Dewsbury)||Wyatt, Derek|
|Taylor, Ms Dari (Stockton S)||Tellers for the Noes:|
|Taylor, David (NW Leics)||Mr. Greg Pope and|
|Temple-Morris, Peter||Mr. Clive Betts.|
§ Question accordingly negatived.
§ Question, That the proposed words be there added, put forthwith, pursuant to Standing Order No. 31 (Questions on amendments) and agreed to.
§ MR. DEPUTY SPEAKER forthwith declared the main Question, as amended, to be agreed to.
That this House commends the Government's approach to pensions reform, set out in its Green Paper, Partnership in Pensions; congratulates the Government on its determination to end the scandal of pensions mis-selling and its plans to strengthen the financial regulatory system; commends the Government on its commitment to economic stability and low inflation, which helps pensioners; believes that its reforms to the corporate tax system, which will result in the lowest-ever rate of Corporation Tax, will be in the long-term interests of companies, shareholders and pensioners; and approves of the Government's introduction of the Minimum Pension Guarantee, Winter Fuel Payments, the re-introduction of free eye tests and commitment to concessionary travel for the elderly as part of its strategy to provide security in retirement.