Skip to main content

Pension Reform

Volume 447: debated on Thursday 15 June 2006

21. What discussions he has had with the Secretary of State for Work and Pensions on the tax implications of pension reform; and if he will make a statement. (77563)

I am pleased, if somewhat surprised, to be able to answer question 21. My right hon. Friend the Chancellor and Treasury Ministers have regular discussions with the Secretary of State for Work and Pensions on a range of matters, including those relating to pension reform.

I am grateful for that very informative response. In evidence to the Treasury Select Committee earlier this week, the Secretary of State for Work and Pensions was unable to give a clear-cut assurance that increases in the basic state pension would definitely be linked to earnings, not just in 2012 but throughout the life of the next Parliament. It is increasingly unlikely that the Chancellor will be in a position of influence over the next Government, but will the Economic Secretary say whether he has any doubts about the affordability of that key plank of the Government’s pension reforms?

I know that the hon. Gentleman keeps a close eye on pension issues, as a member of the Select Committee and through his website, where he has expressed his concerns about affordability. The Government’s position was set out clearly in the White Paper. We want to introduce the earnings link by 2012, and certainly by 2015. Our aim is to reform pensions in an affordable way that is fair to future generations as well as to this one. That is what we will deliver.

Tax relief on pension contributions currently costs £18 billion a year in foregone tax revenue, and there will be further tax relief under the new pension arrangements proposed by my right hon. Friend Secretary of State for Work and Pensions. However, the evidence from the Department for Work and Pensions is that tax relief has a negligible effect on how much is saved in pension schemes. Why is there tax relief under the new scheme, when the existing relief is not doing what it was designed to do?

As my hon. Friend knows, people pay tax on their pensions when they receive them, and they receive tax relief as they contribute to their pensions. That has been the system in this country for many years, and it is the right way to ensure that we encourage people to save for retirement. We want more rather than fewer people to use the tax reliefs by saving for their pensions, and that is why the current system will continue after the White Paper has been implemented.