[Relevant Document: Fifth Report from the Treasury Committee, Session 2005–06, HC 1074, on the design of a National Pension Savings Scheme and the role of financial services regulation.]
I beg to move,
That this House welcomes the White Paper ‘Security in retirement: towards a new pensions system’ [Cm 6841] as the basis for a consensus on the future of pensions policy.
Last month’s White Paper set out the changes that we intend to make to our pensions system in the UK over the next few years. The reforms are radical and far-reaching, which they need to be if they are to succeed in addressing the fundamental demographic, social and economic challenges that we face. They take forward the main recommendations of the Pensions Commission, offering the prospect of a wide national consensus in the years ahead. That will be an essential ingredient if the reforms are to produce the effect for which they have been designed—allowing future generations to work and save for a long and healthy retirement.
The measures set out in the White Paper will make it easier for more people to save more for their retirement, which must be our fundamental objective. In return, the state pension will become more generous, simpler and fairer to women and carers, and there will be less means-testing. Because of our decisions about the state pension age, the state second pension and the future of the defined contribution rebate, the reforms are affordable in both the short term and the long term, which is an essential component of any sustainable reform package.
The reforms necessarily involve new and different responsibilities for taxpayers, employers, the pensions industry and individuals. Thanks to the work of the Pensions Commission and the national pensions debate, there is a large measure of support for the general principles behind the reforms.
I am grateful to the Secretary of State for giving way so early in his speech. Why are the reforms not affordable in 2010? And why should we believe that they will suddenly become affordable in 2012? The current Chancellor does not think that they are affordable in his foreseeable lifetime in either of the two top jobs.
I shall address that point in a second, but that is not the view of my right hon. Friend the Chancellor.
Our task is to forge a real and lasting consensus, both in the Chamber—I hope that it will include the right hon. Member for Wokingham (Mr. Redwood)—and across the country. We all know the importance of pensions to our constituents, and it is our responsibility to try to reach agreement on the pensions system to enable the people whom we represent to make future savings decisions with the confidence that those reforms will last between the generations.
It is right that the debate about pensions should continue—indeed, the White Paper encourages that process—and I look forward to the contributions from hon. Members on both sides of the House to today’s debate.
The Secretary of State has indicated that he wants to establish a consensus on the matter and hold discussions with the Opposition parties, but he has been quoted as saying that this is not a pick-and-choose package. Will he clarify which issues in the White Paper are open to amendment and discussion?
I shall come on to that in a moment. The White Paper acknowledges that there are some issues, particularly to do with the introduction of personal accounts and the national pension savings scheme, on which some work remains to be done. If the hon. Gentleman is still attached to the citizens pension, perhaps he will explain where the billions of pounds of additional public expenditure will come from without the need for tax rises. Before he intervened, I was about to say that I want to make one thing absolutely clear: this is not a pick-and-choose menu, so we do not, by definition, have the luxury of cherry-picking.
The reforms are designed to lock together a framework that provides a sustainable, affordable solution and provides real benefits to all those who are saving for their retirement. Those such as the right hon. Member for Wokingham and the hon. Member for Yeovil (Mr. Laws), who propose different solutions, need to explain to the public how they are going to be financed, what different outcomes they will produce and on what basis they will provide a better prospect for the consensus that we all desire than the proposals by Lord Turner and the Pensions Commission, which we are now taking forward.
In terms of cost, does my right hon. Friend propose to redistribute the money that is spent on tax relief so that more of that funding goes to people on lower incomes? At present, 50 per cent. of that tax relief goes to those earning more than £50,000.
No, I do not propose to bring such a proposal before the House, because, as my hon. Friend knows, I am not the Chancellor of the Exchequer, and those are matters entirely for him.
I shall give way to the hon. Gentleman, who has a special expertise in this subject.
On tax relief, will the right hon. Gentleman clarify the answer to the question that I asked him when he last made a statement? He said that the Government provide 1 per cent., the scheme member provides 4 per cent., and the employer provides 3 per cent. He may be understating the Government’s contribution, because presumably, in addition to the tax relief given to the saver, tax relief will be given to the employer who is contributing the 3 per cent., which is tax deductible. However, that is not clear from what the Government have said previously.
I do not think that we are proposing any additional tax relief for employers. The hon. Gentleman gave me plenty of notice of that question, but I still may not have the answer that he is looking for. I will ensure that he gets it during the course of the debate.
I will give way once more, but then I want to make progress because there is a time limit on Back-Bench contributions.
The right hon. Gentleman says that tax relief is a matter for the Chancellor, but surely it is fundamental in considering all the options open to us in dealing with pensions. If he is ruling out any change in tax relief, he is tying our hands behind our backs before we even start to discuss the pension problem.
As the hon. Gentleman knows, the Chancellor keeps all taxation issues under regular review. When this matter was considered in the course of the Pensions Commission’s work, it decided not to make any recommendations, at least in part because of the complexity of the system. However, those are matters for my right hon. Friend the Chancellor. Taken as a whole, the measures that we propose in the White Paper are affordable and sustainable over the long term because we have not been prepared to avoid making those difficult decisions.
No, because I have given way to my hon. Friend already.
Has my right hon. Friend received recommendations from the National Pensioners Convention and others about the fact that while the change of direction is welcome, it is very much jam tomorrow, while nothing is done for today’s pensioners, many of whom still live on very low incomes?
I do not accept that, because the White Paper confirmed that we would continue to uprate the pension credit in line with earnings beyond 2008. That has been a welcome decision. As I shall point out again later, that decision alone will ensure that up to 500,000 pensioners will not end up falling into poverty. It is not true to say that there is nothing for today’s pensioners. These matters are addressed by my right hon. Friend the Chancellor during the course of his annual review of public spending in the Budget. In the remaining years of this Parliament, there will be plenty of opportunity for the Government to ensure that we do not forget the needs of today’s pensioners, but the White Paper was very much about the future and long-term reform.
It is not acceptable for us to duck the long-term challenge of reform, and we have tried to avoid doing so. When we came into office, we could have restored the link between the state pension and earnings, as many people were urging us to do, but if that had been our policy, 1.5 million more pensioners would be below the poverty line today. Instead, since 1997, we have spent three times as much on pensioners as it would have cost to restore the earnings link. We have targeted the bulk of that extra investment on the poorest pensioners, which was entirely right. Compared with 1997, we are now spending more than £10 billion extra each year on British pensioners. Almost half the spending is going to the poorest third. Two million pensioners have been lifted above the poverty line and, for the first time in a generation, pensioners are less likely to be poor than any other group. It is simply not true, as some have said, that progress is not being made in tackling poverty among the retired.
In our second phase of reform, we tried to address the loss of confidence in the private pensions market, to which the Conservative amendment correctly refers. That included dealing with the pensions mis-selling scandal and the impact of the falling stock market on occupational pension schemes. In 1997, fewer than 2 per cent. of pension mis-selling cases had been satisfactorily resolved. By the end of 2002, more than 99 per cent. of consumers with mis-selling claims had been compensated, with total compensation reaching £11 billion. The Pension Protection Fund and the pensions regulator are today helping to respond to the problems experienced by those in defined benefit occupational schemes and acting to boost security for scheme members. The significantly expanded financial assistance scheme, which we announced last month, offers a new prospect of help for those who have lost the most when the pension schemes of insolvent employers have been wound up.
Will my right hon. Friend remind the House by how much that financial assistance scheme has been expanded? Does he share my disappointment that the spokesmen for those who have been affected, with whom everyone has sympathy, sometimes fail to acknowledge some of the changes that we have made on their behalf?
I am grateful to my hon. Friend for that intervention. We originally set aside £400 million for the financial assistance scheme. We have now set aside a further £1.9 billion to address the problem more satisfactorily. That is a generous and proper response to the plight in which many people have found themselves, with which Members on both sides of the House have great sympathy.
It would be helpful if the Secretary of State were to clarify the liabilities in relation to those who might be eligible for the financial assistance scheme but who fail to be so at present because of the restrictions placed on the scheme by the Government. When he and the Prime Minister originally made an announcement about it to the House, we were told that £15 billion would have to be set aside to meet the liabilities of those people who had lost their pensions. As I understand it, the Government have re-examined the figures, and the true amount is nearer £3 billion. Can he clarify how much it would cost to pay out to those people their rightful due?
The cash valuation is £15 billion. That is what I said in my statement, and that is still my view of the cash required to meet the liability. The net present value is around £3 billion. However, such commitments are not funded through the Government making dowries, as it were, at the beginning of the period and using that as a basis on which income can be generated to meet expenditure commitments. It is therefore important to keep in mind the cash figure, as there are many Members present who are experienced in dealing with these issues. Cash is cash, and it is always important, when presenting public spending figures, that we do not forget that.
It is not true, as the hon. Lady has implied, that we have somehow changed our assessment of the valuation. She is not comparing like with like. [Interruption.] Obviously, she does not like my answer, as I can hear her chuntering. I have done my best to try to educate her, however, and to correct the mistake in her question.
With great respect to hon. Members on both sides of the House, I intend to make a little progress with my speech and then give way later. I know that there is a lot of interest in the issue of the financial assistance scheme, and I am sure that my hon. Friend the Minister for Pensions Reform will deal with some of the points that arise when he winds up.
I want to turn briefly to the recent report of the parliamentary commissioner on pensions. While I have repeatedly made it clear that we disagree with the ombudsman’s finding of maladministration by my Department, and have therefore not been able to accept her recommendations calling for compensation along the lines that she proposed, we obviously have the greatest sympathy with those who have lost some or all of their pensions. I have met people who have been affected and am acutely aware of the difficulties that they undoubtedly face. They believe that they have been robbed of their pensions, and I entirely understand that feeling of injustice.
At the time of the ombudsman’s report, we had already committed ourselves to a review of the financial assistance scheme. In March, the Prime Minister announced that we had expedited the review, and last month I announced that we had decided to extend the scheme to cover eligible people who were within 15 years of their scheme’s normal retirement age on 14 May 2004.
Will my right hon. Friend give way?
I will do so a bit later, if my hon. Friend will bear with me.
In extending the financial assistance available in that way, we took proper account of the issues raised in the ombudsman’s report. The scheme will now cover some 40,000 people and—as I said in response to my hon. Friend the Member for Sunderland, South (Mr. Mullin)—it represents a substantial additional investment, taking the total cash funding from £400 million to more than £2 billion.
In making its recommendations, the Pensions Commission acknowledged the progress that we had made since 1997. Its report was designed to build on that progress. The commission made it clear that there was no immediate pensions crisis, but said that there would certainly be one if we did not act soon. It identified four principal challenges. First, there was the problem of undersaving, affecting perhaps as many as 12 million people. Secondly, by 2050 there would be 50 per cent. more pensioners than there are today. Over the same period, the ratio of people in work to those in retirement would halve. In fact, the latest research has revealed that during the past 20 years, life expectancy at the age of 65 has grown at the rate of about 15 minutes per hour.
It might feel much longer.
I am only on page 6, so the hon. Gentleman had better make himself comfortable.
I will not give way. I want to give the House some good news. Our life expectancy will have increased by about an hour and a half during the debate. Debate is a very healthy thing, after all.
Thirdly, as a result of developments spanning many decades, the current state pension system has become very complex. It delivers unfair outcomes, especially for women and carers. Finally, if we maintained the current indexation arrangements, the basic state pension might be worth only £35 a week by 2050 in today’s earnings terms, and more than 70 per cent. of pensioner households could be eligible for pension credit. That, of course, was never the Government’s intention.
I believe that the proposals in the White Paper address the challenges identified by the Pensions Commission. Crucially, they do so in a way that promotes personal responsibility and achieves outcomes that are fairer, simpler, affordable and sustainable. The introduction of personal accounts combined with compulsory minimum employer contributions and automatic enrolment will help to embed a new pensions savings culture in which future generations can take increasing responsibility for building their retirement savings.
In the light of his comments about longevity, will the Secretary of State now extend his speech? I think we should look again at the statistic involving 15 minutes per hour.
As the Secretary of State will know, the Treasury Committee published a report on the national pensions saving scheme. We recommended two things: simplicity and minimum regulation. If we secure those, we can achieve what the Pensions Commission said would be 30 basis points for management charges. Can the Secretary of State assure us that the Government are considering that figure rather than, say, 0.6 per cent. or 1 per cent.? It is important, for the sake of the pot at the end of the day, that the minimum is charged.
I congratulate my right hon. Friend on the Treasury Committee’s excellent report, which has helped our thinking greatly. He is right to say that at the heart of making personal accounts a success will be our ability to keep the costs and charges associated with them as low as possible. I recently returned from a trip to Washington, where a similar scheme has been in operation for about 20 years for federal employees. It operates not at 30 basis points, not at 20, but at five. I am not saying that we can get down to five as a starting point for personal accounts, but I think that the scale of the potential investment in personal accounts, along with automatic enrolment, present a prospect of considerable advances in scheme administration costs.
The proposals in the White Paper will address the principal challenges identified by the Pensions Commission, and that is particularly true in relation to personal accounts. As a result of the changes we propose, up to 10 million people could be saving in a new low-cost personal account. By retirement, their pension funds could be worth up to around 25 per cent. more because of the lower charges, to which my right hon. Friend alluded. It is estimated that personal accounts will generate an additional £4 billion to £5 billion of saving every year, equivalent to around 0.5 per cent. of gross domestic product.
We are consulting on the best administration model for the accounts, and particularly on whether there is value in offering consumers a choice of branded provider. It is perfectly proper for the Opposition motion to refer to that ongoing work and we will host a stakeholder summit as part of the consultation later in July, to which the main Opposition parties have been invited. We will publish a further document later this year setting out the detail of the approach that we intend to take. I hope that that approach will have the support of the spokesmen for both main Opposition parties.
Personal accounts are the key to empowering personal responsibility. We estimate that by 2050 a regular saver, who saved from age 25 into a personal account with total contributions of 8 per cent. and on median earnings, could be up to £50 a week better off than if the system continues as it is today. That is, in part, the power of compound interest. So while there will always be specific individual circumstances, such as debt or stock market performance, that will affect people’s savings, fundamentally the package of reforms in the White Paper will mean that people should be better off in retirement from having saved themselves.
However, to achieve that result and enable people to save in personal accounts with confidence, it will also be necessary to make reforms to the state pension. Our reforms to modernise the contributory principle and enable more women and carers to qualify for the state pension will deliver much fairer outcomes. And by restoring the earnings link and simplifying the state second pension so that it gradually becomes a flat-rate weekly top-up to the basic state pension—an already existing trend and a change recommended by the Pensions Commission—we will make the state pension simpler and more generous, while reducing the spread of means-testing and providing a solid foundation on which to build a sustained expansion of private savings.
A person retiring in around 2050 who has been in employment or caring throughout their working life could receive a contributory state pension worth £135 a week in today’s earnings terms, which is £20 a week above the guaranteed income level. Without those reforms, people retiring in 2050 would receive a total contributory state pension—including the basic state pension and the state second pension—worth between £90 and £100 a week, well below the current means-tested threshold. That would not be an acceptable outcome.
The White Paper announced our commitment to continue to uprate pension credit in line with earnings, locking in our progress on pensioner poverty and preventing half a million pensioners from falling into poverty between now and 2012. But we will also be able to limit the spread of means-testing. We will make an immediate start on that by modifying the calculation of the savings credit from 2008. That gives a clear indication from the outset of our determination to make clear people’s incentives to save. As a result of that change and our restoration of the earnings link, by 2050 only about a third of pensioners, or fewer, will be eligible for pension credit, instead of some 70 per cent. if current uprating policies continued.
I wish to make one very important point. Of the third of pensioners who will continue to be eligible for pension credit, only about 6 per cent. will receive the guarantee credit alone, which means that in the vast majority of cases, those receiving pension credit will be rewarded because they have saved for their retirement, and that has got to be the right policy. So when people criticise the level of means-testing in our proposals, they need to reflect on that very important feature.
What does the Secretary of State intend to do for the many widows who, on the death of their husbands, receive only half the value of their pensions? Those women often have to scrimp and save to keep a roof over their head. What will the Government do to alleviate their difficulties?
To some extent, pension credit will cover women in those circumstances. I am sure that my hon. Friend the Minister for Pensions Reform will explain that in more detail later, but it is through pension credit that we will target additional financial help for people in those circumstances.
I hope that my right hon. Friend will ask the Minister for Pensions Reform to deal with this question too when he winds up the debate. My right hon. Friend said that he expects the full implementation of the White Paper to reduce means-testing to about one third, the level that the Turner commission suggested would be reached under its proposed reforms. I believe that he was right a moment ago to say that the Government were not going down the citizenship pension route because of the great cost, but that means that many people will not gain a full state pension who otherwise would if we had a citizenship pension. If national insurance rights are not to be extended to that group, how is he able to say that there will be the same number of people on means-tested assistance as would be the case under the Liberal Democrat policy proposed by the Turner commission?
Turner proposed not a citizens pension but a universal pension for those over 75. We have taken on board a number of proposals, such as the change to the savings credit fix, that will produce the result that I have suggested. I shall return in a moment to the reforms to the contributory principle, but they were not supported by Lord Turner who, as my right hon. Friend will know, favoured the introduction of a residency test that would take time to have the desired effect. Our proposals mean that women will have a fairer pensions deal by 2010 and that, in combination with our other proposals, is how we arrive at the figures that I have set out.
By saying that we will aim to restore the earnings link in 2012, subject to affordability and the fiscal position, we have made it clear that we will not risk jeopardising the public finances. We have also ensured both affordability and sustainability over the long term.
Over the period to 2020, our proposals will keep spending on pensioners as a proportion of national income broadly constant at today’s levels. They take advantage of the savings realised by the decade of state pension age equalisation and will help pensioners to share in rising national prosperity. In addition, of course, the rise in the state pension age over the long term will match increases in life expectancy. That, and the other changes that we are making, will also help to secure the financial stability and sustainability of the state pension system.
Therefore, the four main elements of the White Paper form an integrated package. They introduce auto-enrolment into a low-cost scheme of personal accounts, and provide a firm foundation for private saving by linking the state pension to earnings in the next Parliament. Moreover, we will modernise the contributory principle the better to provide for women and carers, and gradually raise the state pension age to ensure sustainability.
As I said earlier—and I intend to labour this point today—we cannot pick and choose from within the package to avoid the tough choices that we have to make. Those who want to change some elements of the proposals need to explain how they could do so without jeopardising the key outcomes of fairness, simplicity and affordability.
For example, there are those who favour a residency base for future accruals, as proposed by the Pensions Commission. However, that would offer no immediate help to the key group of women aged 45 and over who have poor contribution records and clearly no time to put that right. Changing the current rules from 2010 to reduce the number of years needed to qualify for the basic state pension to 30, and improving the system of credits the better to reflect the different ways that people contribute to society, will result in an immediate and very significant increase in the proportion of women reaching state pension age with a full basic state pension.
The residency approach, like the current system, means that only 50 per cent. of women would get a full basic state pension in 2010, whereas our changes will immediately increase that figure to 70 per cent. By 2020, up to 270,000 more women every year will receive a full basic state pension—approximately three times the number that would be achieved under a residency-based approach.
Of course, those who argue for a residency-based citizens pension—which I believe remains the policy favoured by the Liberal Democrats and the nationalist parties in this House—also have to contend with issues of simplicity and affordability. As the Pensions Commission highlighted, it depends on the model chosen: there would either be an immediate and unaffordable increase in costs, peaking at £60 billion around 2040, or—if a transitory approach were adopted—a smaller increase in costs would be coupled with a dramatic and unacceptable increase in complexity during what would have to be a lengthy transition period. Hardly surprising, therefore, that the Pensions Commission rejected the notion of a citizens pension.
Some argue that we should introduce the earnings link sooner or delay the implementation of increases to the state pension age until 2030. In doing so, they, too, need to set out clearly what the public expenditure implications would be and how that affects the current crucial question of affordability. For example, under the White Paper, increases to the state pension age will eventually reduce the cost of the package by £30 billion a year, but delaying the timetable for the implementation of each increase in the state pension age by five years would by 2050 increase the cost of the reform package by £5 billion every year. Those who argue for such changes must first argue for how they would find the additional money that would make them affordable and still maintain our progress in tackling poverty and delivering fairer, simpler outcomes.
Some Opposition Members have expressed concern about the plans to accelerate the flat-rating of the state second pension and, in particular, the impact on middle-income earners of the withdrawal of earnings relation. The Pensions Commission explicitly recommended that the earnings-related element should be withdrawn. We accept that recommendation, but the savings will be reinvested in the basic state pension, ensuring that no one loses out, so it is nonsense to talk of hidden tax increases. There are none. Indeed, the effect of flat-rating for even the highest earners is more than made up by the earnings uprating of the basic state pension. For example, a high earner who worked from age 25 would get £102 basic state pension and state second pension under the current scheme in 2053, in earnings terms. Under our reforms they will get £140. A median earner would get £100 under the current system and £139 with our reforms. Yes, they lose £1 of state second pension because of flat-rating, but they gain £40 of additional basic state pension. Most people would not describe that as a bad deal at all.
I am grateful to my right hon. Friend for his explanations of the various schemes and the balance between them. I am sure he agrees, however, that fairness must include what happens to carers, so can he describe how he intends to help them, to ensure that the contributions they lose while they are caring are added to their pension when they retire?
I will describe the changes briefly. As my hon. Friend knows, we shall consult on the detail, but in broad terms we intend to introduce a new credit in the state pension system for those who have caring responsibilities of more than 20 hours of week. At present, credits can be accrued only if a person is in receipt of carer’s allowance, which involves a minimum caring responsibility of 35 hours a week, so tens of thousands of carers will acquire new credits in relation to the state pension as a result of the changes that we propose to introduce through the White Paper and on which we hope to legislate in the next Session of Parliament. That is a significant reform, which many carers’ organisations have been pressing on the Government for some time.
I want to try to conclude my remarks as quickly as I can. I have probably detained the House long enough—[Hon. Members: “No, no.”] None the less, I think I shall stick to my speech.
Taken as a package, the reforms can provide a framework for pensions that can last for generations to come—a future in which we give people the tools to take personal responsibility for building their retirement savings with confidence; and in which we deliver a system that is affordable and sustainable for the long term. That is the opportunity before the House today. In supporting our motion, the House can signal its support for the direction of travel set out in the White Paper, as I very much hope that it will. In doing so, it will help us all take a significant step towards a lasting pensions settlement, with a sustainable, affordable and trusted system that will meet the needs of those in retirement both now and well into the future.
I beg to move, at the end of the Question, to add:
“, recognises the importance of consensus in ensuring long-term, affordable and sustainable pension reform; and therefore welcomes the commitment of all major parties in the House to engage in the process of consensus building, while acknowledging that a number of concerns remain to be addressed in the course of that process, including the impact of the projected future level of means-testing on savings behaviour, the design of an auto-enrolled savings scheme, the need to strengthen existing occupational pension provision to reduce the risk of ‘levelling down’ on the introduction of personal accounts and the need to restore public confidence in the fairness and security of the pensions system.”
I welcome the opportunity to hold this debate today. The amendment seeks to reinforce the message of support for the key principles and to underline our commitment to the consensus-building process, but also, as the Secretary of State has acknowledged, to place on the record that there are a number of key issues that need to be addressed if a sustainable, affordable and lasting pension reform is to be introduced. We are clear that such a reform requires cross-party political consensus. The underlying purpose of the reforms is to create a stable platform of state provision upon which people can plan their own private saving. It is clear to us that that places a heavy burden on the Opposition in rising to the challenge of forming a genuine cross-party consensus. However, it also places a heavy burden on the Government, because a lasting consensus is one built around a sustainable proposition. It has to be a hard-edged consensus, not a woolly one. The Secretary of State will know that the history of recent pensions policy warns us of the fragility of any consensus built around a flawed proposition.
In reaching for that consensus, it is essential that we analyse the details of the White Paper rigorously, and that we are prepared to challenge, without fear of ridicule by the Secretary of State, the areas where it is as yet unclear whether the proposals before us will deliver the objectives that we all share. There must also be a clear understanding that consensus is a two-way street. There is an obligation on the Government to listen to the concerns of the Opposition and others outside the House and to engage constructively in addressing them, working with us to explore alternative solutions where problems are identified.
I will be frank with the Secretary of State: we were disappointed by the level of engagement between the Opposition and the Government before the publication of the White Paper. It was effectively a fait accompli. However, we are pleased by the clear signals that the Secretary of State has sent that he is now ready to engage. We are certainly ready to do so. We hope that the willingness for dialogue will extend to dialogue about the drafting of the Bill. Our clear preference is to spend the summer talking about the drafting of the more contentious areas of the Bill, rather than to spend the autumn tabling amendments to what the Government have presented.
Our starting point for this exercise is a bout of realism—a recognition of the looming crisis in pensions provision. Increased longevity, lower investment returns and changing demographics have all created a situation that has to be addressed, but so too has the Chancellor’s annual tax raid on pension funds, which was most recently estimated to cost about £7 billion a year—equivalent to about £175 billion wiped off capital value. Nine million people are not saving enough for an adequate retirement income. Half of all pensioners are eligible for means-tested benefits, and that figure is projected to grow to at least 75 per cent. by 2050. Some 1.6 million of those pensioners—800,000 of them among the poorest pensioners—are failing to claim what are supposed to be very well-targeted benefits. To cap that, 60,000 pension schemes, with 1 million members, have started wind-up since 1997.
As a response to that catalogue, the key elements of the White Paper, all of which we can enthusiastically support, include, as the Secretary of State said, the restoration of the earnings link, the raising of the basic state pension age over time, changes to the contribution regime to address the particular problems of poverty among women pensioners, and further encouragement of workplace saving. That has to mean workplace saving in existing occupational pension schemes, as well as through the tailoring of new arrangements specifically targeted at median and below median earners.
If we are to build a robust consensus around those key principles, it must be based on knowledge and understanding, not on ignorance. The Secretary of State is right to say that the package has to be affordable. That means that the consensus that we build, both here and among the wider public, has to be based on parts of the package that deliver savings, as well as parts of the package that increase expenditure. A real consensus must be based around tough decisions as well as easy ones. The financing of the package must be transparent and openly debated.
My hon. Friend makes the extremely important point that whatever people today think about consensus—we would all like to find a consensus—any variant of the scheme will work only if it proves to be affordable in the medium term. Is not the worrying thing about the scheme the fact that it is sketchy about how affordable it will be in the next decade, when compound arithmetic starts to work against both the Government and the taxpayer, as well as the people who are asked to contribute?
My right hon. Friend takes me almost exactly on to my next point: there is no transparency in the financial data that support the White Paper. The key table on page 24 of the executive summary counts as a cost of reform the continued indexing of guaranteed credit to earnings, even though the Pensions Commission and everyone else who has examined the matter has always assumed that in their baseline case, because to do otherwise would, by definition, increase the percentage of pensioners in poverty. The £4 billion that the Government will save from 2010 by abolishing contracted-out rebates is not included in the table, although the costs associated with ending contracting out are.
The headlines about the White Paper painted a rather simple proposition: work longer for an earnings-linked basic state pension. There has been virtually no public debate about changes to the state second pension and the savings credit, and the withdrawal of adult dependency increases. Together, those changes will save tens of billions of pounds for the Treasury. That does not mean that they are wrong, but if public support for the package is to be durable, people must understand how all its aspects will affect them. Our message to the Government is clear: if we are to build a consensus, it must be a sustainable national consensus, not one formed behind closed doors at Westminster. It falls to the Opposition, in our role of holding the Executive to account, to ensure that all consequences of the package are understood by those who will be affected by them. I will make no apology for drawing public attention to aspects of the White Paper that will deliver savings for the Exchequer, but about which there has so far been little public debate.
I genuinely did not intend to interrupt the hon. Gentleman’s speech, but let me point out two things to him. On the state second pension, the argument in favour of moving to flat rating is clearly set out in the Turner report—we have accepted those recommendations—so nothing is being done in a hidden or covert way. The argument is clear and profound.
Let me ensure that the hon. Gentleman understands the situation regarding ADIs. The proposal represents a way of funding what is effectively a redistribution in the state pension system and tackling the problem to which the hon. Member for Strangford (Mrs. Robinson) referred, thus ensuring that more women have a direct entitlement to a full basic state pension. The money is being not withdrawn from the pension system, but used in a more intelligent way that reflects modern family relationships and modern life. I hope that the hon. Gentleman will be able to support the proposal. We are not doing anything secretly or covertly, because everything is out in the open. If I had the reference for the pages of the White Paper that explain all that, he could find the detail there.
The Secretary of State is right to say that everything is set out, say on page 299 of the Turner report, or in annexe 6 of the regulatory impact assessment. However, if he asks people on any high street in Britain what they understand about the Government’s White Paper on pensions reform, they will tell him—if they understand it at all—that it is about reintroducing the earnings link in exchange for raising the basic state pension age. I am saying that a sustainable consensus must be based on the dissemination of information, so I make no apology for trying to get the debate going in the public sphere. That means not that the changes that the Secretary of State wants to make are wrong, but that they must be debated and understood.
The hon. Gentleman makes a welcome commitment to trying to reach consensus on the way forward. We all accept that it is perfectly valid for him to wish to question aspects of the Government’s proposals. However, if he decides to reject certain proposals at the end of the day, will he come up with viable alternatives that also promote affordability, with which he says he agrees?
Mr. Hammond: I am grateful to the hon. Lady for her intervention, and the Secretary of State is absolutely right, in that it is not open to anybody to reject all the elements of the package that save money for the Exchequer and then say that they would like to have all the elements that cost money. This has got to be affordable; we are fully signed up to that. The issue is about transparency and getting the debate going.
I reiterate to the Secretary of State the point that the hon. Member for Yeovil (Mr. Laws) made. If we are to have a consensus-building process, it must involve our being able to ask questions to probe the detailed arrangements being put forward as part of this package. The Secretary of State cannot say to us that no cherry-picking means no right to question the route that has been chosen to deliver the objectives. We must be able to look in a grown-up way at how the arrangements work.
My first point, then, is that transparency and openness in respect of the assumptions that lie behind the package and its financing are prerequisites for a durable consensus. But the other key concerns that need to be addressed, and on which I shall focus, are the impact of means-testing, the design of a workplace saving scheme and its interaction with existing occupational pension schemes, the certainty of the timetable for implementation, and pubic perceptions of the fairness and security of the pension system.
The key purpose of the package is the promotion of saving among not just the 5.2 million people who are not saving at all, but the rest of the population, many of whom are not saving sufficiently for a decent income in retirement. The pension credit has created an expectation of growing levels of means-testing, with consequent effects on savings behaviour that we now collectively need to assess and address. We welcome the Secretary of State’s confirmation that it was never intended that means-testing should reach the 75 or 80 per cent. level predicted by Turner for 2050, but there remain major concerns about its impact on the proposed package.
The Government themselves say that there will be about 30 per cent. means-testing in the system by 2050. Other experts—notably the Pensions Policy Institute—disagree with the baseline assessment and therefore arrive at a higher level; they suggest that as much as 45 per cent. of the pensioner population could be means-tested by 2050. Whether the proportion is 30 or 45 per cent., a serious question is being asked by expert observers: will means-testing at these levels, institutionalised as a permanent feature of the system, undermine the package’s key savings-promoting objective? We must look at what impact this level of means-testing will have on the savings behaviour of—typically, but not always—people on the lowest incomes. They are most likely to have interrupted work patterns throughout their lives, and are thus most likely to be entitled to means-tested benefits in retirement.
The fact is that we simply do not know what the answer is—we are in what I suggest is uncharted territory. This is probably the first time that we have had to consider behavioural responses to a long-term stable environment of moderately generous means-tested benefits. Historically, such benefits have been used as a safety net to catch a small number of people who have fallen through the system. Now, we are looking at a system that could be extensive enough to impact on people’s lifetime savings patterns. The irony is that we are having to grapple with the behavioural consequences of the very consensus that we are trying to build, which will give people the certainty that they can plan on the basis of those means-tested benefits being available to them in retirement.
This will be a key area of the debate, and the Government can help us in several ways: by giving a commitment to publishing the full range of outcomes of their modelling of the extent of future pension credit eligibility; by commissioning more work on the impact on savings behaviour of different levels of means-tested benefit eligibility; and by extrapolating beyond 2050 the projected outcomes for paid individuals.
The Secretary of State said that 2050 was about the limit of his predictive power, but I put the following point to him. In the case of the low-paid earner used in the regulatory impact assessment, the assumption is that someone will have contributed for 52 years of continuous work. A person who is 16 in 2012, when the scheme starts, and who contributes for 52 years will be looking for an outcome in 2064. It is therefore essential that we project further forward so that people in that position can understand the likely scenario facing them. We also need to see a range of real world outcomes. The truth is that most people will not work for 52 years in unbroken employment. Many people who will be on the margins of the savings decisions will have broken work records, and will need to know whether saving will pay for them.
It is legitimate to rely on auto-enrolment only if we are sure that we are auto-enrolling people into a scheme that leaves them better off by saving. The Conservatives would have serious misgivings about an auto-enrolment scheme that brought people into a savings system that would leave them less well off, or no better off, than they would have been had they not saved. We need to be confident that it is safe to recommend saving for the overwhelming majority of people, including those whose employment record is discontinuous. More will have to be done to demonstrate that that will be the case.
Much of the public comment on the White Paper has focused on the changes to the state pension arrangements and the introduction of the auto-enrolled workplace savings scheme, but until very recently Britain had a first-class workplace pensions savings system. Changes in the environment, which I have already described, have greatly reduced that provision, and most commentators now accept that defined benefit schemes in the private sector are on the way to extinction; however, high-quality defined contribution schemes remain, with employer contributions well in excess of the 3 per cent. compulsory level proposed for the national pensions savings scheme. As the Secretary of State knows, there is a real risk that the introduction of the NPSS, or a similar scheme, will act as a catalyst not only of the final demise of defined benefit schemes, but of a downgrading of employer contributions to existing defined contribution schemes.
The White Paper contains welcome provisions for a review of the regulatory environment surrounding occupational pension schemes. It is vital that that work be done soon and that the outputs from it are implemented well in advance of the introduction of an auto-enrolled scheme, because history will judge our putative consensus harshly if what we deliver is a pyrrhic victory, with a national pensions savings scheme that results in the downgrading of many people’s employer pension contributions from higher levels to 3 per cent.
The hon. Gentleman raises a serious point. Given his party’s general support in principle for the NPSS and for personal accounts, what policy solutions does he envisage that might deal with the problem of employer contributions to occupational pensions being downgraded to a very low level?
The policy solution is to create a more attractive regime for occupational pension schemes so that employers can see that such a scheme is to their benefit—that a more generous occupational pension arrangement works for them as a recruitment and retention tool. It would be helpful if, when he winds up, the Minister of State made clear the scope of the review of the regulatory environment. Some of his recent statements on the record have been slightly ambiguous, and it would be helpful to know how wide he expects the review to go.
The Government have, rightly, signalled that the workplace savings scheme that they are introducing will be targeted primarily on median and lower earnings. We look forward to engaging with the Government in a debate over the summer on the potential benefits of such a scheme and the risks of an auto-enrolment model. The extent to which the Government should become involved in the delivery of a workplace savings scheme is not clear. The key debate—on the personal account system—is likely to revolve around the degree of state involvement, and thus the degree of personal responsibility and choice.
The danger, which Lord Turner has spelled out recently, is that a high degree of Government involvement in the delivery system will be interpreted by users of the system as a Government guarantee of investment outcomes. I am sure that the Secretary of State would be as keen as we are to ensure that that does not happen.
It would be useful if the Government could say what level of saving in the workplace saving scheme they would regard as a success. The White Paper implies an expected opt-out rate of about 38 per cent. The New Zealand Government are warning, in relation to the proposed Kiwi savers scheme, that opt-out rates could be as high as 75 per cent. The success of the auto-enrolled scheme will be a key measure of the success of the entire package. We must have a clear measure of what will count as success and what level of opt-out will trigger a review of the arrangements.
No part of this reform package will work unless we restore trust in the pension system and public confidence in its fairness. Two broad issues must be addressed if public confidence is to be restored. The first is the Government’s response to the ombudsman’s report. Acceptance of the ombudsman’s finding of maladministration would cost the Government nothing. The ombudsman is an officer of Parliament. She was put in place to adjudicate on claims of maladministration. It is unacceptable for the Govt to reject the finding that she has made. To do so is to challenge the right of Parliament to scrutinise the Executive and deliver judgment upon its activities.
In response to the ombudsman’s recommendations the Government have announced, as the Secretary of State said, an increase in the funds available for the financial assistance scheme. However, he knows very well that the benefits available under the scheme still fall far short of the demands of the pensions action group and of the recommendations of the ombudsman.
Does the hon. Gentleman agree that there is a startling resemblance between the current occupational pensions saga with the ombudsman and the previous case about the state earnings-related pension scheme—SERPS—when the previous Administration were criticised by the ombudsman, also for maladministration and giving incomplete information? Does the hon. Gentleman agree that the only major difference is that with the previous case, the Labour Government accepted the previous Conservative Government’s maladministration, whereas in this instance they are refusing to accept anything at all?
The hon. Lady makes a good point.
The issue is not just about the supremacy of Parliament over the Executive. Similarly, it is not just about the justice of individual cases of people who have lost their pensions. It is about restoring confidence in the pension system. As I am sure the Secretary of State will understand, those people will not go away. They are determined to pursue their case. I suggest that as long as the newspapers are carrying stories about failed pension schemes, and about people living in poverty because of what has happened to the pensions that they worked for and saved for throughout their working lives, it will be difficult to re-establish confidence and get people saving again in a national pension savings scheme.
Those people will not go away, including those in the BUSM scheme in Leicester, some of whom live in and near North-West Leicestershire. Does the hon. Gentleman agree that it is important to reach an agreement about what the costs of responding to the ombudsman’s report would be? A figure of £15 billion cash has been suggested, with net present value down to between £2.9 billion and £3.7 billion—but even that does not take into account the fact that compensation would be taxable, which would take a good number of people out of means-tested benefits. Let us reach agreement about the costs before we start to dismiss some of the solutions that might be available. Does the hon. Gentleman agree with that?
I agree with the hon. Gentleman’s plea for transparency. First, we need information. I also agree with the hon. Gentleman that the initial figures—the £15 billion to which reference has been made—were bogus figures, and designed to be misleading.
We need to understand what the costs would be. We have asked the Government to consider seriously the possibility of using unclaimed assets as a way of supporting the group of people concerned. So far I have not seen any response to that suggestion. The Secretary of State, for reasons of high moral principle and a pragmatic need to achieve delivery and acceptance of his White Paper package, must look at the issue again. I believe that I speak on behalf of Members from all parts of the House in saying that if he decided to revise his position and take a more generous approach he would not be criticised in any quarter of the House.
May I once again put on the record my strong view that the figures are not bogus? The £15 billion was assembled in exactly the same way as we produced the costings for the financial assistance scheme in the first place. They are proper, actuarially based figures, and I dispute the hon. Gentleman’s allegation that they are bogus, because that is fundamentally not the case. May I press him on something at which he has hinted, but not said? Is he saying from the Dispatch Box that he would compensate all those pensioners in full? He has criticised the Government for not making compensation available, but is it his policy to compensate them in full if he had the opportunity to do so in government—yes or no?
If, when we are in government in three years’ time or later, the Secretary of State has not resolved the issue satisfactorily, we will make a decision on the issue, as he would expect. However, this is his watch, so he must address the issue that has been raised and deal with the questions that have been presented.
On the issue of fairness, I should like to say something about the ongoing debate about public sector occupational pensions. Like the state pension, unfunded public sector occupational pensions are paid for by the general taxpayer, who will not take seriously the Government’s strictures about the need to work to the age of 68 to address the challenges of increased longevity while they cave in to pressure from public sector trade union paymasters to continue to allow pensionable retirement at 60. The then Trade and Industry Secretary was right last year when he said of the plans to raise the public sector pension age to 65:
“That argument is irrefutable. For us to say to the private sector you have to work longer and save more money, and to the public sector you stick with your retirement age is impossible”.
Those words were spoken by a senior member of the Government, so the craven surrender to the vested interests of the Labour party’s paymasters in negotiations ranks as one of the Government’s low points.
Let me make it clear: our public servants perform a vital task and are entitled to be treated fairly, just like their private sector counterparts. However, public servants, too, will benefit from greater life expectancy, so they must participate in the necessary adjustment of pension expectations to reflect that increased longevity. Anything less fundamentally undermines the credibility of the Government’s overall package. In the interests not only of protecting the interests of the taxpayer but of restoring the confidence of the man in the street in the fairness of the overall pensions system, it is essential that the Government revisit their wrong and unfair decision to allow retirement at 60 in the public sector for the next 40 years.
I welcome the opportunity to place on the record our support for the “direction of travel”—to use the Secretary of State’s words—of the White Paper. I welcome, too, the opportunity to set out the big issues that must be addressed to build the durable consensus which, I believe, all parties in the House seek. The system itself, however, must be demonstrably robust before the consensus built on it can be so. We must test the package of proposals that the Government have presented, and engage with them constructively—if the Government are willing to engage with us—to address what we perceive as potential areas of weakness. We remain optimistic, despite some unhelpful noises off, that a lasting consensus can be forged, and that on the back of it, a lasting solution to the looming pensions crisis can be built.
In recent weeks, the Work and Pensions Committee has taken evidence on the Pensions Commission report and the White Paper. I have attended far too many breakfasts, lunches and evening events. I have stopped eating, but the phrases keep going round in my head. We seemed to hear the same arguments time and again. Nevertheless, we were very grateful for the enormous number of submissions that we received. Not surprisingly, there were some very, very vested interests. Generally speaking, the employers’ side was anti-compulsion and the TUC was anti any increase in the retirement age. One can understand the position that they are coming from, but the Secretary of State has made the case positively that this is a package of measures, and if we start to unpick one bit, everything else unravels, and we need to be resilient in our arguments for the total package.
I want to concentrate for a minute on the issue of the state retirement age, because at the moment, once one goes beyond 55, the economic activity rate plummets. It has been increasing in the last couple of years, which is partly down to the new deal for the over-50s, but at age 60, about 50 per cent. of the population are in economic activity. There must be a strengthening of training provision for the over-55s and of healthy workplace initiatives, and careers advice must be available. The general architecture must change—we need to start doing that now in preparation, because there is already a problem—to ensure that not only is the retirement age 68, but that people can work to that age and beyond if they wish. We need to ensure that they are physically capable and trained to take those employment opportunities. That participation rate must be a key indicator of the progress that we are making.
Among all the submissions, most gratifying was the general agreement on the principles in the Pensions Commission report. The argument is around the architecture and the implementation. There was fairly unanimous support for the proposals around the state scheme, and I do not propose to dwell on them. The difficulties are around whether we call it a national pension savings scheme or personal account. This is a classic case—I am not looking for work—for a draft Bill. There are many areas of debate and discussion to be had on that, and that would help the case.
The overwhelming message that comes through from all organisations is that there has to be simplicity and transparency in the scheme—primarily simplicity to reduce the cost. We had lots of argument over whether there should be 30 basis points or 50 basis points. We would settle for five. But if it is 50 basis points, as against 1.25 per cent. for stakeholders, that increases a person’s pension pot by 20 per cent. That is what we should be looking at—the individual’s pension pot at the end of the day. That should be the driving factor, not any submissions from vested interests. That is a key indicator that we should be looking at.
In this initial round we must also consider key groups such as the low paid, those in multiple jobs— each of which may be paying less than £5,000, which would exclude them from the NPSS, but which cumulatively takes them over—and those with continuing health problems. There is a laudable target to get 1 million people who are currently receiving incapacity benefit into work, but how will their broken work records affect contributions into the scheme?
There is also a huge issue, which I do not think the White Paper addresses, around the self-employed. I am not blaming anybody, but they seem to have been left out of the debate by both sides of the House and by outside organisations. Around 7 million people are self-employed. They are probably the most under-pensioned group of all and I dare to suggest that they are probably a group with greater means for pensions than others, but I take it no further than that.
My hon. Friend is right to focus on the two categories of fragmented employment and self-employment, but does he acknowledge that there is also a problem with fragmented, short-lived and disorganised employers and that when there are large numbers of them on the scene, it places difficulties in the way of many people who are trying to accumulate a pensions pot from them?
My hon. Friend is right, and as he speaks with the voice of the accountancy profession I would expect nothing less. I will come on to the issue of manipulation by employers in few moments, if he will bear with me.
The low paid, people with health problems and those with multiple employers all desperately need generic financial advice—not investment advice, but generic financial advice, particularly relating to their current debts and how best to manage them. It cannot be left to the bandit advertisements on television, which encourage people to roll up all their debts into one as a means of sorting out their problems and having money to spare. By and large, those are not good deals. Sadly, decisions have been taken recently about the funding of advice from citizens advice bureaux and similar organisations, which mean that it is no longer available. I suggest that that is not a good deal. We really need a network of generic financial advice made available to the low paid and underpaid to allow them to make wise choices. As I said, I do not mean investment advice, but generic financial advice.
For the same reason and in line with keeping costs low, there needs to be a strong default option on the national pension savings scheme. As far as possible, we need to take the choice out of the equation. The greater the choice, the greater the need for advice, the greater the opportunity for mis-selling, the greater the complexity and the more costs increase. We also need to keep the scheme simple for employers. I have spoken to hundreds of employers over the last three or four months and they want no role at all in making any choices about the scheme for their employees. They want a simple scheme that allows them to deduct a certain amount of money every month, to send it off somewhere and to forget about it. Simplicity is important both for employer and employee.
There are dangers with this sort of enrolment scheme and we need to be honest about them. Certain less-than-honest employers will seek to induce people not to take part in the scheme. I do not want to traduce anyone, but by and large, the smaller the employer, the greater the likelihood of that happening. There is no better policed system than the national minimum wage, but there are still issues about it. There are still far too many employers who do not pay the national minimum wage. If they are not willing to pay a wage of £5.05 an hour, it is likely to be a problem for them to contribute to the national pension savings scheme. We really need a strong regulatory role—[Interruption.] The hon. Member for Runnymede and Weybridge (Mr. Hammond) is turning up his nose, but I wonder whether he will turn up his nose in 30 or 40 years’ time when people who have spent a lifetime working for an employer find themselves in poverty because they were forced out of the scheme.
I am wary of creating new regulators and having more regulation, but I entirely recognise the hon. Gentleman’s point. Surely the answer lies in the design of the scheme and the design of the opting-out system. That should help to deal with the few rogue and unscrupulous employers who encourage people not to participate in the scheme.
Without naming names, when a multinational company is willing to break the law on trade union recognition, a small employer will be more than happy to break the law to deny people their rights under the scheme. We need to be mindful and wary of that. I would be delighted if there were no need for regulation and every employer played ball, but, frankly, that is cloud cuckoo land. We need to ensure, in the early days, that anyone who plays that game gets hammered hard, thus serving as a warning to everyone else. The regulatory programme could then hopefully be disbanded. However, experience tells us otherwise.
There is also a problem about the stage at which someone enters into a savings scheme. Some organisations say after six months, whereas others say after one month. Nowadays, the standard is that someone starts a job on three months’ trial. The end of that trial period is the logical time for someone to join the scheme. However, there is a difficulty.
There is a connected problem. If individuals choose to opt out of the national pension savings scheme, they should receive standard generic advice on the consequences. Perhaps there should even be a cooling-off period for people to revise their decisions. The advantage of auto-enrolment is that it makes a decision for people. If they then exercise a different choice, it is fair and proper for the Government or somebody to point out the consequences and costs of their decision.
We are considering a period of further consultation, especially on personal accounts. We are therefore in danger of individuals facing six years of inertia. It is possible to consult to death. It is interesting that, in Sweden, where a similar scheme was set up, the contributions were collected for four years before it was established. That made sure of identification and allocation. We need to be wary. Another six years of people avoiding decisions that they did not want to make in the first place is quite a slice of someone’s working life, and of investment activity that is not happening.
One of the commission’s proposals, which the Government rightly rejected, was for an ongoing commission. I do not see the need for a continuing, fairly expensive quango that would have little to do for the next few years. It would be good if the Minister for Pensions Reform set out the review mechanisms that the Government anticipate in 10 or 15 years. I do not accept the need for a standing commission, but establishing the architecture of the review process would be helpful.
The Liberal Democrats also welcome the opportunity to debate the detail of the White Paper. As the Secretary of State and his colleagues know, we made it clear when he made his statement to the House a month or so ago that we support the direction of travel of pensions policy.
There is a remarkable consensus about the broad thrust of pensions policy in that all the major parties have agreed that there should be a firmer foundation for the state pension and an end to the increase in means-testing. All parties, if not all hon. Members, have agreed that the state should get out of second pension provision in favour of some sort of personal accounts that are not controlled by the state. All have also accepted what seemed unlikely to gain consensus only a year ago—namely, the need for an increase in the state pension age. The Secretary of State and his colleagues deserve some credit for moving the debate in that way and gathering consensus, as do Lord Turner and his colleagues.
Our concerns are about the detail of the reforms. The greatest threat is not disagreement between the parties on the philosophy of pension reform, or even that the existing agreement will not be sustained in future. There is broad philosophical agreement, not just agreement about detailed aspects of pension reform, between the parties. Our biggest concern is whether the pensions reforms will deliver the outcomes to which the Secretary of State and others aspire. The biggest risk is that when we review the proposals in 10, 20 or 30 years—given the Secretary of State’s earlier predictions about longevity, we will all be alive then—we may find that the most important part of the Secretary of State’s reforms, the personal savings accounts and the national pension savings scheme, have not delivered the intended results.
In his valuable contribution, the hon. Member for Bradford, North (Mr. Rooney), who is Chairman of the Work and Pensions Select Committee, identified a number of areas in which the personal savings accounts and the NPSS may fall down. As was the case with stakeholder pensions and other accounts, the fear is that we will not get the additional degree of individual commitment to pensions, which we have not had in recent years, and that we will still be building on a basic state pension system that even Lord Turner has described as mean by international standards.
We hope that there will be a further consensus-building process over the next few months. We know that the Secretary of State has had to forge his own consensus with the Chancellor and other Ministers on pensions reform, and we hope that in doing so he is not borrowing from the Chancellor’s traditional view of consensus building and consultation. In my experience, consultation à la Brown consists of an announcement by the Chancellor of a new policy and the simultaneous announcement of a great national debate and consultation, which is followed by a decision to rule out all the alternatives on the basis that they are ludicrous or unaffordable. Although the Secretary of State and the Minister for Pensions Reform are more constructive and more approachable than the Chancellor, an element of that Brownite approach is apparent. In his press release earlier today, the Secretary of State made it clear that one cannot pick and choose from within the package and avoid the tough choices.
When I asked the Secretary of State which provisions he is prepared to amend, the answer was the personal pension, the only part of the package about which he has not made up his mind. In other words, the Government are unwilling to discuss with the Opposition parties those aspects of the package on which the Secretary of State has already made up his mind, but where they do not have a clue about the detail they will look elsewhere for good ideas. I welcome the fact that the Government have not set in stone their views about personal pensions and the NPSS, which involve some extremely complex issues that, as the Select Committee Chairman has said, would benefit from extensive debate.
The Liberal Democrats do not have fixed views about all the aspects of personal pensions, and I hope that we can debate and consult on those issues. I hope that the Secretary of State understands the angle from which we are coming. Although there is agreement about the direction of travel, we want to test whether his proposals are likely to deliver the outcomes to which he aspires.
Before I discuss the aspects of the pensions debate mentioned by the right hon. Gentleman in his contribution, he and the Minister for Pensions Reform have said that the Opposition parties have been avoiding tough choices. If the Government are looking for sources of additional finance to help to improve the pensions package over the next few decades, perhaps they will return to the one tough choice on pensions policy that they have failed to take, which, as the Conservative spokesman, the hon. Member for Runnymede and Weybridge (Mr. Hammond), has said, is the reform of public sector pensions.
Despite the proposals agreed by the previous Secretary of State for Trade and Industry at the end of last year, expenditure on the state pensions system will be broadly static for the next 15 years at a time when expenditure on public sector pensions will increase by 50 per cent. as a share of GDP. We still have the rather ludicrous deal that the previous Secretary of State for Trade and Industry struck with a number of unions, under which people who have not even joined the public sector yet will be able to retire at 60, while the Secretary of State for Work and Pensions is trying to raise the state pension age to 68. We still have the injustice for many women who begin employment in the public sector and work for a similar period to their male colleagues, but find that because they have to give up employment for child care responsibilities they lose the entitlement to the grandfathering of their pension age and may end up retiring five years later than people with a very similar work history.
I wonder whether the Government are dealing with different public sector employees in a fair and rational way. One of the most affordable and rational public sector pension schemes is the local government employees scheme—a funded scheme in which the level of employer contribution is relatively low compared with other public sector schemes, including our own. Yet the Government’s proposals on that scheme are considerably tougher than some of those that apply to other public sector schemes.
The hon. Gentleman paints a picture of local government pension schemes. I remind him that some of the lowest paid workers work in local government. He should not try to portray a situation whereby everyone is on magnificent salaries, which is clearly not the case.
I thank the hon. Gentleman, but perhaps he misunderstood my argument. I am arguing that the way in which the Government are approaching public sector reform is incoherent and that some public sector schemes, such as the local government scheme, are being treated completely differently from others. The hon. Gentleman says that many local government employees are on low incomes, and he may well be right. Nevertheless, the Government can find the money to increase the share of GDP in public sector pensions by 50 per cent. but cannot find the money to increase the share of GDP in the state pension, which is relied on not only by people in the public sector, but by people on low incomes throughout the entire economy.
The hon. Gentleman points to the apparent disparity between different people in similar-seeming jobs getting different pensions. As an ex-civil servant, I know that the issue of pensions is a key part of the national pay negotiations for civil servants. The unions would rightly demand on behalf of their pensioners, who have foregone wages for all those years to have a pension, the wages that they would have had.
The hon. Lady is right to say that all aspects of remuneration are considered together, but wrong to say that there is clear evidence that better pensions for public sector workers are a compensation for lower pay. In many parts of the country, that is not the case at all.
The Chairman of the Select Committee makes a technically accurate point, but one that ignores the fact that the Department for Communities and Local Government not only helps to fund that scheme, but may be pulling many of the strings.
Our exchanges highlight the fact that there are very different views about public sector pensions and about what needs to happen in future to make them sustainable. Surely the lesson is that the Secretary of State and the Government should borrow from the model that has served them so well in relation to the rest of pension reform, whereby they established an independent body chaired by somebody who is highly respected—[Interruption.] I am most grateful to the Pensions Reform Minister, but I am not offering myself, or any other Liberal Democrat Member, for the job, as I am sure that somebody of even greater independence would be needed.
The Government have a perfect model for flushing out the substance of the debate and securing a consensus. They should learn from the experience of Turner and consider establishing an independent commission to look into public sector pensions to give us a shared understanding of the economics of those schemes, which often rely on employer contributions—that basically means taxpayer contributions—and which are way in excess of anything in the private sector. Were the Government to establish such a commission, we could understand, on the basis of evidence—not prejudice from either the left or the right of the political spectrum—whether such pension schemes are sustainable. We could then bring forward proposals for rational reform. If we do not reform public sector pensions in that way, I fear that some future Government, of some party, will, in a very short period, have to make the reforms that should have been made with the sort of long lead times that the Secretary of State has provided today in respect of the change in the state pension age. If he is looking for a typically new Labour tough choice, establishing an independent commission to consider public sector pensions is precisely what he ought to do.
To return to some of the other detail dealt with by the Secretary of State today, another issue about which people were concerned when he made his previous statement, and one that is a big concern among constituents throughout the country, is the amount of time that we will have to wait for the earnings link to be restored to the basic state pension. The initial Turner proposal was for 2010, and the Secretary of State has not only moved back the earnings link and moved forward the increase in the state pension age, but he and the Chancellor have added another element of uncertainty about when the earnings link will be restored. It is unclear why that element of uncertainty has been added.
It is important to correct what the hon. Gentleman has said about us not accepting Turner’s recommendations on increasing the state pension age—[Interruption.] No, we have not brought it forward. If he reads the report carefully, he will see that Lord Turner mentions 2030 for modelling purposes. He did not recommend that the state pension age should rise in 2030. The hon. Gentleman is therefore wrong to say that we have brought that forward by five years. He needs to read the report more carefully.
I note the Secretary of State’s comments and the difference between modelling assumptions and recommendations. All that I say is that, compared with the modelling assumptions or recommendations in the Turner report, he happens to have moved back the good news and moved forward the bad news.
The hon. Gentleman is right that there is huge concern in our constituencies about when the earnings link will be restored. Is he aware that the National Pensioners Convention has worked out that even if the link were to be restored by 2012, that would merely mean an extra £1.40 compared with the current provision? Should we not unite in the House to do something to help current pensioners who cannot afford to wait until 2012 or 2015?
The hon. Lady is right. She will have found, as many Members will have done, that although there was broad consensus in the House about pensions reform on the day of the Secretary of State’s statement, pensioners throughout the country were much less enthusiastic when they heard about the proposals because many of them, longevity notwithstanding, may be gone by the time that some of the benefits of the proposals accrue.
The Government maintained in the White Paper, on page 110, that the increase in the state pension age and the earnings link should be “inextricably linked”, and yet it seems that we will legislate for higher state pension ages even without a firm date for the restoration of the earnings link. To many people, the reason for the uncertainty about the earnings link is unclear. The Chancellor and the Secretary of State have said that it is a fiscal and affordability issue. However, the point about the earnings link, which has been a matter of political debate for years in this country, is its cost in the future—in five, 10, 15 or 20 years.
The Minister for Pensions Reform, who is in the Chamber today, was kind enough to answer a parliamentary question on the cost of restoring the link a few days ago. He indicated that that cost was £0.4 billion in the first year and £0.7 billion in the second year, so the amount of money that we will save through a delay in the pension age of one or two years is, in the context of the national accounts, peanuts. That is the amount of money that the Chancellor uses, in one of his great wheezes, in every Budget and pre-Budget report. If this is supposed to be a great reform, why is £0.4 billion or £0.7 billion now so vital? Why does that make it affordable or unaffordable? It makes no sense to us.
What about the significance of the earnings link—and not just for the pensioners who are waiting for it be restored? When the Secretary of State responded to the hon. Member for Newcastle upon Tyne, Central (Jim Cousins) in the House on the day of the statement, he seemed to me to be saying that the earnings link and the new personal pension accounts, along with the national pensions saving scheme, would be contingent: that they would be introduced at the same time. That is confirmed in the House of Commons briefing paper, so if it is wrong, perhaps the Secretary of State will correct it. The clear implication was that if the earnings link were delayed, the NPSS could be delayed as well. As the Select Committee Chairman pointed out, we must wait six years in any event. I hope that if I am wrong the Secretary of State and the Minister for Pensions Reform will feel free to intervene. Otherwise, however, the delay has a double significance.
I am fascinated to hear that. If the Minister looks at the Hansard report, he will see that a clear commitment was given to the hon. Member for Newcastle upon Tyne, Central that the NPSS would not be introduced until the earnings link was restored. I hope that we have been given some reassurance today, although I fear that the hon. Member for Newcastle upon Tyne, Central will not be very pleased to hear what has been said. The Government have not made the case for a delay in the earnings link and I hope that we shall return to that when we consider the legislation. As the Minister can read in Hansard, the hon. Member for Newcastle upon Tyne, Central said on the day of the statement
“I hope there will be no attempt to cherry-pick Turner so that the personal savings scheme starts in 2012 and the earnings link does not. Will my right hon. Friend assure us that the two dates will be coupled… ?”—[Official Report, 25 May 2006; Vol. 446, c. 1659-60.]
The Secretary of State’s answer was simply “Yes.”
Will the Minister clarify another issue relating to the earnings link? Although it may seem to affect only a small number of pensioners, it is hugely important to a growing proportion of the pensioner population. As the Minister will know, about 1 million pensioners out of a total of about 11 million live abroad. At present, the pensions of half of those people are linked to prices, while half receive no uplift each year even in relation to prices. Does the Minister intend to uprate in relation to earnings the pensions of those who currently receive the prices uplift? If so, the current unjust difference between the pensions of those living in different countries will widen significantly in the future. If the Minister already has a clear view, we should be grateful to hear it.
In his helpful speech, the hon. Member for Bradford, North identified many concerns about the NPSS and the personal accounts. I have already said that I hope that there will be close co-operation between all the parties in the framing of the scheme. There are numerous risks. There is, indeed, a risk the people will perceive the risk itself as Government-backed, and against the thrust of the proposal for personal pensions that do not rely on the Government.
There is also the fundamental issue—mentioned by the hon. Member for Runnymede and Weybridge—of means-testing. On page 105 of the White Paper, the Government say:
“Problems with incentives could… develop if a pensions system evolved in which a significant majority of pensioners were entitled to Pension Credit in the long term.”
We know that that was very carefully written, and we know that the Government now aspire to cap the extent of means-testing at 50 per cent. at the highest, and think that they can push that down to below 30 per cent. However, there is also much doubt about the nature of those figures, notwithstanding the changes that have been made to savings credit.
I repeat the request by the Conservative spokesman that the Government should look closely at the modelling on the number of pensioners in means-testing and that if people come up with other, perhaps more realistic assumptions, the Government will run them through their model. Surely the point is that even if the Minister is successful in reducing the number being means-tested to below 50 or 40 per cent., many of those individuals are those least likely to save. In other words, the 30 or 40 per cent. of people we are talking about will be those who will have to make difficult decisions about whether to save. We do not care about the top 10, 20 or 30 per cent. because we know that they will save anyway and, indeed—as several hon. Members have pointed out—there are already generous incentives for them to do so.
The 30 or 40 per cent. we are talking about will have to make a difficult choice, but they are the very people who are already struggling financially, as Labour Members well know. Those people may be borrowing money at very high rates of interest from mortgage companies or on credit cards in the struggle to purchase a home. They have many other things to do with their scarce earnings. Some will not receive any employer contributions, as the Select Committee Chairman mentioned. Others will see all the employer contributions wiped out by means-testing. I seriously doubt whether many of those people will choose to save in a scheme of this type, especially as I do not think that they will easily understand the risks. Therefore, the auto-enrolment aspect—also mentioned by the Chairman of the Select Committee, in what was a very interesting contribution—is crucial to ensuring that huge numbers do not simply opt out.
The issue of means-testing is not just how high we can get the basic state pension, or its affordability or its simplicity—it is also fundamental to the whole thrust of what the Government are trying to achieve.
I am slightly confused by something that the hon. Gentleman has just said. He expressed the concern that high levels of means-testing would make it inappropriate for some people to save and then he said that auto-enrolment would be very important. Does he share my concern that if we are to have a system of auto-enrolment, we must be highly confident that saving will be in the best interest of the overwhelming majority of people?
I entirely agree. The point that I was seeking to make was that if we have a significant element of means-testing, those people who are means-tested may see any employer contribution wiped out as a result. If we are talking about people saving only their own money, when they could be using it to pay off debt or save through some other instrument, it is unlikely that they would choose this particular instrument unless the effect of the auto-enrolment inertia is so great as to keep them in the scheme. However, as the hon. Gentleman suggests, we would not want to keep them in the scheme if they were effectively being mis-sold these pensions, and that is a critical point.
One point has been implicit throughout our debate and was touched on by the Chairman of the Select Committee; however, it is worth spelling out in a little more detail. The proposals entail an enormous transfer of risk away from the state in relation to second-tier pension provision, and away from employers, who have not been able easily to manage the risks in recent years. Employers will welcome that and, as a politician, I welcome the move away from political involvement in second pensions, but we must consider whether individuals are ready for the risk to be transferred to them. I fear that the level of financial illiteracy is very high, so the Government will need to address the challenge of trying to ensure that we have some prospect of people understanding the risks that they will take before the NPSS starts.
Secondly, I agree with what the Conservative spokesman said earlier about the ombudsman’s report. The Government’s response has been extremely disappointing. Even if the potential liabilities fall due a long time in the future, they are just the sort of unexpected contingency that ought to be met out of the contingency reserve. What is that reserve for, if not for dealing with precisely such matters? It has been possible to find the money needed for Iraq in the contingency reserve, so it must be possible—over 30, 40 or 50 years, and with the co-operation of the Chancellor of the Exchequer—to find in that reserve the money necessary to offer some justice for those who have lost their pensions.
The Secretary of State also referred to the financial assistance scheme. I hope that the Minister for Pensions Reform will be more successful than his predecessor in getting the scheme’s administration to work effectively so that, over the next six months, people will not have to wait as long for the pay-outs as they have in the past year.
We welcome the debate for which the Government have given us scope today. I regret that it has been necessary to table some amendments to the Government’s motion, but it had the flavour that the Government expect us to sign up to their proposals in an unthinking way. We agree with the direction of travel and we concur most strongly with the philosophy behind the White Paper, but over the next couple of years the House of Commons must ensure that there is consensus about the proposals and that they will deliver in the future.
I want to thank my right hon. Friend the Secretary of State on two counts. First, our life expectancy has risen by 30 minutes or more since the debate started. If his calculation is correct, it enables us to understand why there is such a crisis facing pensions funding.
Secondly, I thank my right hon. Friend for reminding the House of the success of the pension credit scheme. This Government have redistributed more resources to the poorest pensioners than any Government since 1948, and the only sadness is that he has had to remind some Labour Members of the Government’s success in that regard. However, we know that the pension credit scheme, as currently constituted, cannot last in the longer term. That is why we need to debate the proposed reforms, and I want to raise three matters that will break up the consensus that has held sway since my life expectancy was extended by 30 minutes a short time ago.
My first point has to do with the Government’s approach to consensus. A sort of Judy Garland approach has taken over the contributions to the debate so far. The feeling appears to be that, if we just hold hands, we can tiptoe more quickly to the end of the rainbow and the great prize that is a political consensus.
I do not want to knock the importance of the House of Commons, but we do not play much of a part in the formation of consensus. That is formed by the people of this country—our voters. The last time that we thought we were so clever as to create a consensus was in respect of SERPS. It lasted all of five years, and I wonder whether the Government’s tax-financed pension proposals, as opposed to an investment-led approach, will last even that long.
The choice being given to the electorate is to support the Government issuing some more IOUs for pension reform. They will not be paid now, but are to be redeemed by taxpayers in the future. However, Governments have issued such IOUs in the past, and we all know that they have not been so redeemed. The only consensus in this country since 1948 has been in favour of a modest basic state pension. In the early days, it was not linked to anything, although the subsequent link to prices has remained in place. So there is a sombre note for us. It is fine for us to talk in wonderful glowing terms about what we shall create and the consensus that will enforce it, but if we rely on a tax-financed model that consensus will not last long.
My first disappointment in the Government is that given the success of pension credit, and that for the first time they have managed to buy time when they have not also had to deal with reforms to help today’s poor pensioners, we chose the old tax-financed approach instead of building up rafts of investments. If we had adopted the investment-led approach, no politician would advocate changing the consensus. If one of us did, our colleagues would quickly drag us to the political knacker’s yard where we could safely be put out of our misery and our constituents’ pension investments would be left intact. That is my first note of caution.
Secondly, although the phrase “auto-enrolment” flows easily off the tongue, the Government are really introducing a toxic element in our occupational pension provision. There are already major changes because employers want to cut the costs of their pension commitments, and in the auto-enrolment proposals the Government’s natural wish to establish a floor will quickly become the ceiling. Employers who are paying between 15 and 40 per cent. of wages costs to occupational pension schemes could quickly decide to embrace the Government’s approach to auto-enrolment to reduce significantly their contributions to such schemes.
As the hon. Gentleman knows, I favour a single scheme for everybody, whereby we continue the basic state pension, building up investment funds alongside it, and deliver a pension that takes people off means-testing. Beyond that, it is not the duty of the House to interfere with how people save; they have a very good idea about how to save and we should not try to bribe them one way or the other.
The third aspect on which I want to suggest caution is the establishment of the national pension savings scheme. The Government will call it by a different name—I do not blame them—but there are real dangers. The Government have had to listen to Front and Back Benchers remind them about the ombudsman’s report on Government liability for giving wrong advice about the safety of occupational pension schemes. I am amazed by the toughness of the ombudsman’s report about the issuing of a form that most of us never saw—I certainly did not see it and I take a particular interest in pensions. If the House establishes, and encourages people to join, a national pension savings scheme that has different funds with different rates of return, we can imagine the outcry when considerable numbers of our constituents express disquiet that they joined the wrong fund. Imagine the liability for future taxpayers if we go down that path.
If the private sector wants to establish such a scheme, I am all in favour of letting it do so, but it is not the role of the Government to decide to set up that sort of framework, by whatever name. It is not right to expose future taxpayers to the mis-selling and disappointment that will inevitably arise from such a scheme. However, I welcome those in the private sector who wish to prove me wrong and think that they would be able to do a job along the lines that the Chairman of the Treasury Committee spoke about earlier.
I am interested in what my right hon. Friend has to say and I will certainly reflect on it. I am sure that he recognises that many people currently do not have any occupational scheme whatsoever or any personal savings scheme. What is his solution to that?
It is the solution that I mentioned a moment ago. We should have a simple scheme, whereby we continue the basic state pension and have an investment-led scheme that builds alongside it, so that at the end of the day it delivers a pension that takes us all off means-testing. It would be compulsory and simple. There would be one scheme and no mis-selling. If other people wish to save on top of that, fine. It is not our job to try to persuade them to do so and we should not use huge sums of taxpayers’ money to try to bribe them to save beyond that. However, it is the House’s duty to deliver a scheme that, at end of the day, takes all our constituents off means-tested benefits. That will not be offered by those on the Labour Benches or on the Conservative Benches.
I am sorry that I am rather like Job this afternoon and am introducing a note of cynicism into the mood of self-congratulation that was embracing us all up until the point at which I spoke. Consensus is not made in this House; it is made outside by our voters, who will discipline us for destroying a scheme that they wish to keep. At the end of the day, they will not support the reforms that the Government are bringing forward. I end on a note of sadness. We have a Secretary of State of real quality who is selling proposals that will not last. Imagine what the enthusiasm in the country would be if we had managed to match the Secretary of State with a scheme that worked with the grain of human nature, rather than against it.
I do not often disagree fundamentally with the right hon. Member for Birkenhead (Mr. Field), but I do on this issue, because I think that the Government are fundamentally right in what they are putting forward in response to Turner. Although it has lots of things that need tidying up and clarifying, the proposed scheme will be for the benefit of the nation as a whole. However, he was right to point out the damage that has been done by the Government’s refusal to acknowledge the findings of the ombudsman’s report, which is sad. Perhaps that is one of the reasons why Scottish Widows announced today that voluntary pension saving for personal pensions has fallen in the past 12 months by no less than 10 per cent. That flags up the urgency of doing something about the issue. It also emphasises that the Government cannot have it both ways: they cannot appoint an ombudsman and then completely disregard the ombudsman’s recommendations.
There are ways in which the Government’s proposals can be improved. What the Government propose— particularly delaying the link with earnings until 2012—is pretty unsatisfactory. At the moment, we have a group of people in this country who are the main recipients of pension credit. I am talking about the very elderly—the people born before 1930, who are already in their late 70s and will be in their late 80s by the time the Government’s proposals come into effect. They represent—probably predominately—the very poorest in our society. Not all of them are very poor, but I am talking about the majority. We should do something now for those people. We should say that those born before 1930 should have a higher pension than the rest of us, although that should not roll on to people born before 1931 and people born before 1932. We should recognise that that generation grew up in a war period or an immediate post-war austerity period and were not able to make the same pension savings that most of us have been able to make. By recognising those people’s needs with a special pension, we could reduce considerably the bill for pension credit and help the whole process to go forward.
Equally, we could introduce measures that would enable us to reintroduce the earnings link sooner than the Government propose. The Government were right to go a little further than Turner and bring forward the age extension that he proposed, so I congratulate them. The scale of change to the pension age that was suggested by Lord Turner was rather conservative, although he was largely motivated by the need to integrate the retirement ages of men and women. However, there is scope to make the change more rapidly still. We will wait too long if everything is ultimately left until 2050, so we could compress the process further and thus bring in more money to allow the earlier establishment of the earnings link.
We must also persuade the rest of the public sector to follow the example of the House. On 3 November 2004, the House voted to end Members’ right to retire at 60 without any reduction in pension. That will apply from 2009, rather than 2013, which is the date proposed for the rest of the public sector. I know that such a change will be painful, but the House has already voted for it. We thought that by setting an example, we might strengthen the Government’s hand when trying to convince the remainder of the public sector that such a change was necessary. It would not mean that people would have to work much longer. However, if people choose to retire earlier, there is inevitably a cost. If people live longer, the cost to taxpayers is much higher.
Such measures would enable us to do more—and do so earlier—for those who are most needy. They would create a greater prospect of not needing to move endlessly towards putting more and more people on means-tested benefits. As the right hon. Member for Birkenhead said, that has to end eventually because we cannot continue on that road indefinitely.
I agreed with some of what the right hon. Gentleman said about the scheme that the Government are proposing. If we have a complex scheme with many investment choices, there might be a danger of mis-selling. The scheme is aimed predominantly at those who are not very high earners. Those high earners can afford to take the gamble of going for risky investments because if everything falls down, they will still have enough to live on. However, ordinary working people do not have that luxury, so they need a guarantee that they will be saving in a safe vehicle. I thus respectfully suggest to the Government that there should be a single investment pot from which everyone in the national pension savings scheme would draw their pension.
We could have a large number of investment advisers. The Government should use expertise in the private sector and encourage bids for the right to be an investment adviser. Such a process would be competitive. It would keep people on their toes, and those who did not perform well would get the sack, which might allow others to get a job. That would maximise the return to the NPSS and its beneficiaries.
I do not think that the Government have quite decided whether there will be a single scheme or multiple schemes. I hope that they do not envisage having multiple schemes because the examples from countries that have done so are not especially edifying. Anyone who worries about such matters should consider the experience in Australia, where there was massive mis-selling and an awful lot of suspect activity. No one wants that, so we should have a single provider with multiple advisers.
The resources of the private sector could be used in the administration of the scheme. There is massive expertise in the pensions and insurance sector, and that sector also has existing computer systems that work. No one wants the Government to set up yet another major public sector computer scheme because they have not yet found one system that works properly. One only has to look at the Child Support Agency to find real evidence of what can happen.
We would be mad to try to set up a new scheme when there is plenty of expertise outside the public sector, but given what can be done, there is a genuine prospect of us being able to create something very worth while. However, I reiterate that, as the right hon. Member for Birkenhead said, there is a danger that the floor will also become the ceiling. We therefore need to encourage the private sector to continue to offer pension saving for its employees. The only way we can do that is by giving it some incentive, and I hope that the Government will see that to do so would be an act of enlightened self-interest.
In view of the number of Members who wish to speak, I will be as brief as possible. I wish to comment on the proposals as they affect women, and to inform the House of a number of matters that were raised with me and with my hon. Friend the Member for Central Ayrshire (Mr. Donohoe) in a consultation that we held with the five seniors forums in South Ayrshire. A number of strong views were expressed, which I shall put forward on behalf of those who aired them. Finally, I shall refer to the situation of people who have lost their pensions; I have been involved in that issue for a considerable time.
There is a great deal of public interest in the whole issue of pensions, and strong views are held. Contrary to what my right hon. Friend the Member for Birkenhead (Mr. Field) said, we have a once in a lifetime opportunity to reach a consensus that can take us forward. But, unlike what happened in the past, that consensus should not be built on the back of women’s unpaid work, nor on their assumed dependence and reliance on men regardless of what their personal circumstances happen to be. That has not served women well in the past, and as we know from all the statistics, it is totally irrelevant in the modern age and for the future.
Women are individuals in their own right, and they should be regarded as such in the pension system. The fact that they still bear the brunt of the nation’s caring responsibilities means that they should be rewarded, not penalised as they are at present. I greatly welcome the fact that that will be addressed as part of the reform process. Younger women will now be able to qualify for a full basic state pension and will have more income in retirement, as well as benefiting from other measures in the reforms, which will help them to plan ahead for their future—which many of them will spend on their own.
There is a general welcome for the core principles of the White Paper; we have heard that from Opposition Members today. However, there is also a need for much more discussion on the detail. Although the proposals will provide a better platform for pension provision in the future, there is a concern, which many Members have expressed in the debate, that the recommendations contain no immediate benefits for today’s pensioners. However, I have been impressed by the uptake of pension credit benefits among my constituents; it has greatly improved many lives, and many pensioners have told me that they have never been better off.
However, my right hon. Friend the Member for Birkenhead is right to say that we need a consensus on the current proposals. Older women—certainly the pensioners that my hon. Friend the Member for Central Ayrshire and I consulted—are concerned about how long it will take to implement some of these measures. They are impatient about the long time scale; they believe that the link with earnings should be restored more quickly, and that that needs to be done sooner rather than later. They cite the fact, as they have often done in my many discussions and consultations with them, that there is a substantial surplus in the national insurance fund that could be used for that purpose. I have never been able to substantiate that in any detail, and I shall be grateful if the Minister for Pensions Reform can make some comments on that this evening, which I can take back to my constituents. There is a frustration about the time scales, and there is a feeling on their part that they are being forgotten in the whole scheme of things.
My constituents recognise that there is a long time scale for raising the retirement age, but they are concerned that as people get older work opportunities become difficult to come by, and health could be affected, depending on the nature of the work involved. They also strongly feel that the rich will be able to retire early because they will have sufficient income, while the poor will be forced to continue working because they will not have sufficient income to retire early. They are also concerned about the current level of pensioner incomes and benefits, particularly as the costs of fuel and council tax are rising. They feel that that is the case now, and that it needs to be addressed now.
The group of pensioners whom we consulted were very pleased with the measures on women and the national pension savings scheme; those were given a warm welcome. But it was thought important that the scheme should be administered at the national level, as employers’ and pension companies’ records in administering pensions are not good; in fact, they are thought to be “terrible”. That is a direct quote; I am putting forward that opinion on behalf of my constituents—although I am not saying that I particularly disagree with it. They feel that the industry and employers have a terrible record in administering pensions, and that that should be done at the national level, with Government involvement.
That brings me to my final and very important point: the position of those who have lost their pensions. In the case of the people whom I represent, that is substantially due to lack of efficiency on the part of the people administering their occupational pensions. As the Minister knows, I have campaigned with my constituents whose pension funds collapsed—and those former United Engineering Forgings workers have been at the forefront of the campaign on this issue, along with trade unions.
As a result, the Government brought in the financial assistance scheme and the Pension Protection Fund in the Pensions Act 2004. Then, on 25 May, they announced in the White Paper that we are debating today that they will extend the FAS to those who were within 15 years of retirement on 14 May 2004. That will bring the actual pension paid to 80 per cent. for those who were up to seven years from retirement, 65 per cent. for those between seven and 11 years from retirement, and 50 per cent. for those between 11 and 15 years away. To achieve that, the Government are increasing the FAS funding from £400 million over 20 years to £2.3 billion. There is dispute about the actual percentages involved; I have quoted the Government figures. As my hon. Friend the Member for Sunderland, South (Mr. Mullin) said, one of the problems with this whole issue is that different figures are being bandied about by different parties. Some are disputing the Government figures, and we are not getting substantiation, which is leading to those involved becoming further disillusioned.
Does the hon. Lady agree that one of the problems is that the Government talk about percentages of what they call the core pension of those individuals—that is a new concept in the pensions world, so far as I am aware—and that in most cases the core pension in no way represents the pensions they could and would have expected if their schemes had not got into difficulties?
The hon. Lady will be aware that one of the problems with the financial assistance scheme is that it does not kick in until a pension scheme is fully wound up, which can be delayed for many years simply because the people administering the scheme cannot find one or two of its members. That is causing a great deal of worry for people who are due money from the FAS. Will the hon. Lady join me in encouraging the Minister to look at that and to find a remedy for that particular fault with the scheme?
I am aware that there are genuine difficulties in identifying all those who are eligible for the scheme, but that would be the case whatever scheme the Government—any Government—introduced. I believe that the Government are taking steps to try to improve the scheme’s efficiency. The number of people being paid has increased significantly, but I agree that there is a problem and I encourage the Minister to look at it.
I recognise that the Government have made significant progress in providing assistance, but as we all know and as we are discussing today, serious gaps remain. For example, it is perfectly possible for someone who started in a scheme at the age of 21 and who is now 45 to get nothing, even though they have paid in for 20 to 25 years. The Government have made it clear that the financial assistance scheme is not a compensation scheme and that they do not accept liability; the money has been targeted at those closest to retirement. It is certainly true that those closest to retirement will be in the most difficulty, because they have no time to make up the shortfall. But we all know that it will also be difficult for those aged 45 and over to make up the years that they have lost—years for which, in any case, they paid for through deferred wages. They have already paid that money and they feel very strongly that they are entitled to a return on it.
The Minister for Pensions Reform said in last week’s Westminster Hall debate that of the 125,000 people affected, about a third would qualify for the scheme, a third would not qualify because their loss was less than £520 a year, and a further third would not qualify because they are not within 15 years of retirement. Of course, there is also a sliding scale even for the third who will qualify. The Minister has been very candid about the reasons why the arrangement has been made in this way. The scheme is cash-limited, and although the Government have been able to extend it significantly, which we all welcome, the amount available is not sufficient for all 125,000 people. The money has therefore been targeted in the way that the Minister felt most appropriate to meet the greatest need, which is perhaps understandable. But the crux of the matter is that a difference of opinion exists as to whether these workers have been treated unfairly and are entitled to redress, or whether they are entitled simply to assistance, welcome though that may be.
Long before the ombudsman reported, there was a strong view—certainly among Labour Back Benchers—that an injustice had been done, and calls were made for the Government to correct it. Successive Secretaries of State, pensions Ministers and even the Prime Minister have recognised the plight of these workers, and the will has been there to do something. It was repeatedly stated that a pension promised should be a pension paid. How much would it cost to keep that promise?
It is clear from today’s debate that there are differences of opinion on how much it would cost to implement the ombudsman’s recommendations. The Minister said that it was valid to consider future costs according to a net present value calculation, which produces a figure of some £3 billion—not that much more than the Government are already putting in. However, the Government have calculated that the figure is between £13 and £17 billion in cash terms, which is the normal way that they express such figures. This is not a question of anybody being conned or of a lack of transparency, and it is very unhelpful to describe the situation in that way.
I am not an economist, as is probably fairly obvious—nor are most of the people who have lost their pensions. To a lay person, there is a very big difference between the figures that have been bandied about, and further explanation of them is required. For example, it has been said that £25 billion might need to be spent to replace Trident. That seems like a lot of money, but so does the £17 billion required for this proposal. Where does such a figure fit into the overall scheme of things? These differences in the figures are adding to people’s frustrations and we need more clarification. Will the Minister agree to meet my constituents and me to discuss them in detail?
Of course, the official Opposition have never at any stage in this debate, which has been going on for four or five years, committed themselves to spending public money to resolve this issue.
The hon. Lady is absolutely right: at no stage have the official Opposition ever committed taxpayers’ money to this issue above and beyond what the Government have already committed. What we have said consistently is that the Government should look at unclaimed assets, which total some £15 billion; they are now doing so—rather belatedly—but for different purposes. This has been our consistent position from start to finish; indeed, I said the same during the passage of the Pensions Act 2004.
Is my hon. Friend aware that those unclaimed assets are not the Government’s money? It is obviously up to the financial services industry to decide how to spend that money, and it has kindly come forward and said that some of it should be spent on community facilities. But even if all that money were spent on the cause that the Opposition mentioned, it would be nowhere near the amount implied by the £3 billion, or £15 billion, figure. It would amount to barely a few hundred million pounds—even if it were our money to spend, which it is not.
I will ask the Minister about precisely that issue in a moment. The Opposition’s reaction to the money that the Government have put in is slightly disingenuous, as they are not prepared to commit any public money themselves.
I recognise why it is difficult for the Government to come up with any more public money, but I cannot understand why the unclaimed assets cannot be used. There is strong support among Labour Back Benchers for the use of that mechanism. My early-day motion 1868, which deals with this issue, attracted substantial support. Some 113 Members—mainly Labour Members—have signed it. The Chancellor has managed to prise money out of the private sector for other purposes; why can he not do so for this purpose? I ask the Minister to pursue that issue.
So far, the Government have responded with what I call incremental benevolence. There is nothing wrong with benevolence—I am all for it—but it is no substitute for justice. Those of my constituents and others throughout the country who have lost their pensions are seeking justice. They feel that promises have been broken, and that trust has been broken.
Two things are clear. First, as many Members have said, this issue will not go away; indeed, two court cases are outstanding. As I have made clear, I am very proud of what the Government have done so far, but I feel that they can and should do more. Secondly, if this issue is not wholly resolved, confidence in saving will not be restored as quickly as it should be. One Opposition Member pointed out that according to Scottish Widows people are not saving, and in my view, this issue has had an influence in that regard. It appears that ongoing publicity about the problems has put many people off saving.
My hon. Friends will not be surprised to have discovered that, as usual, I have not minced my words on this issue. I have stood four-square behind my constituents since day one, and I will continue to do so. I congratulate the Government on what they have done, but I ask them to do more.
This is an important debate. I suspect that security in old age is one of the most important issues that the political parties will argue about over the next few decades. Some 40 per cent. of my constituents are pensioners, and it always surprises me when, as often happens, an elderly individual comes to my constituency surgery to talk about their mother or father, who must be even more elderly. We all appreciate that longevity is a growing issue, and people’s understanding of its impact on the pension system is becoming much clearer than it was perhaps five or 10 years ago.
In future, the rest of the country may well catch Poole up. By 2050, there will be 50 per cent. more pensioners, and the ratio of workers to pensioners will halve. So we have to get this right and not only provide security in old age for those who retire, but ensure that the burdens on the working population do not become so great that we as a nation are no longer competitive in the world economy.
There is a problem, in that, as has already been said today, well in excess of 9 million people are not saving enough for their pension. We have heard that there is a particular problem with one category of person—the self-employed. We also know that there has been tremendous loss of confidence in the pensions industry, which is informing the decisions that people are making today. It is evident that if people have surplus cash they buy a piece of property rather than investing the money in a pension fund, because the experience of friends, neighbours and sometimes family are such that they are put off. The fundamental test of the White Paper, the direction of travel and the recommendations that the Government are making is whether they increase confidence in the pensions system.
It seems to me that a number of problems have brought us to the present position—the first is longevity. Some of the accounting rules may have forced companies to take decisions to close schemes prematurely, and the regulatory regime has sometimes led to illogical investment decisions. As my hon. Friend the Member for Runnymede and Weybridge (Mr. Hammond) said, the changes that the Chancellor made to the advance corporation tax regulations in 1997 have had a major impact on pension fund operations. It has been said that the Treasury got £7 billion per annum from a capital value of £170 billion, and I think that all hon. Members would acknowledge that that has made a massive difference to the economics of pension funds. I am glad that the Government are now examining pensions, but I suspect that, as many of my hon. Friends, including my hon. Friend the Member for Bournemouth, West (Sir John Butterfill, predicted when that change was made, it has caused long-term problems.
I am sure that the increase in pension credit has helped many of the poorest pensioners, but as the Secretary of State said, if the predictions that nearly 70 per cent. of pensioners will be in receipt of the credit are accurate, not only will that not be sustainable, but it will be a major disincentive to people continuing to save. What we have to do, in addition to setting up a sensible pensions system, is to reinforce people’s good intentions to save money for all the eventualities of retirement. Unfortunately, predictions that pension credit will be paid to as many as 70 per cent. of pensioners are a major disincentive to saving.
I agree with my hon. Friends about the direction of travel. We have to have a consensus because during the period that we are debating there will, no doubt, be changes of Government. It is tremendously important to get Government and Opposition parties signed up to approximately what is decided.
I shall not go into the detail of the White Paper—it is extremely technical and many hon. Members have a greater understanding of its provisions than I—but I do wish to welcome some of the proposals. All hon. Members know that women, particularly those who stay at home, have not been well treated by our present pensions system. The White Paper’s acknowledgement of that, and the reduction in the number of years needed to qualify in terms of national insurance, are to be welcomed. I also welcome the strengthening of provision for carers, which has already been mentioned. A person who gives up work to look after a loved one, a relative or a neighbour probably saves the state thousands of pounds, and it is wrong to disadvantage such people in terms of their pension claim. I am glad that the Government have made proposals that will plug that gap.
It is inevitable that the pension age will increase. The proposals in that respect are sensible, but there are associated issues relating to joined-up government. Some of my constituents find it difficult to stay in work because they cannot get the operations that they need. We need a national health service that is responsive to people who develop problems as they age and who want to continue to work, but who now sometimes do not have that choice. In addition, the only way that some people will be able to continue in work until they are 67 or 68 is by changing jobs or careers, so training throughout life will be terribly important. The proposals cannot be seen in isolation; they must be seen as part of a package.
It is extraordinary that as we are talking about increasing the retirement age, the Government have agreed that the retirement age in much of the public sector will remain at 60. I agree that many people who work in the public sector, particularly in local government, are not well paid, but it is extraordinary to design a system in which the retirement age is 60 for one category of worker but 67 or 68 for another.
The hon. Gentleman is in danger of misleading himself—I will not say the House. The state retirement age will be the same whether someone works in the public sector or in the private sector. The age at which a person gets their private or occupational pension will vary, whether they work in the private sector or in the public sector. Some public sector workers can get their full pension, having made full contributions, at 60, but some members of the occupational pension schemes of the oil companies in my constituency can get their full pension, having made full contributions, at 55. This is not a matter of public or private sector; it depends on the rules of the individual occupational pension.
The hon. Lady makes her point, but it is clear that as the state pushes up the retirement age many occupational schemes will follow suit, and many people in occupational schemes will be paying through the tax system for the public sector pensions, and through council tax for local government pensions, for people who are perceived to have a better deal. We cannot park that issue to one side or see it in isolation. At some point it must be re-examined.
I have been listening to the hon. Gentleman’s argument and the intervention from the hon. Member for Aberdeen, South (Miss Begg). Surely people in the public sector who are paying into superannuation schemes are paying out of their salaries. The money is not coming directly from council tax, central Government or anywhere else. They happen to work in the public sector, but it is their money—their income—that they pay into superannuation schemes. Is it not a point of principle that if they have signed a contract to pay over the odds into a superannuation scheme from their own salary, they are entitled to have that contract honoured?
I agree that it is sensible to honour contracts entered into, but we are talking about the agreement negotiated by the Government extending over the next 20 to 40 years. A change suggested in the White Paper is being phased in and I see no reason why we should not consider phasing in a different retirement age in some of the public sector schemes.
To return to the point I made at the beginning of my speech, the Treasury pulling in more money because of the changes to ACT and corporation tax has had an impact, particularly on local government pension schemes. We all know that our local authorities are having to deal with shortfalls, the burden of which inevitably falls on council tax payers. There is an issue—I put it no higher than that, and I have no magic solution. There is a perception of unfairness, and on behalf of the Conservative party my hon. Friend the Member for Runnymede and Weybridge has set out certain tests that we wish to be applied to the White Paper. Those tests are pension dignity, fairness, affordability, personal responsibility, simplicity and transparency. We shall scrutinise the Government’s proposals and test them against those yardsticks.
It is important that we restore confidence in the industry and that will not be possible unless we deal with some of the perceptions of what has gone wrong in the past, which have been brought to our attention via our postbag and e-mail. We have all had vast amounts of correspondence with people who have suffered because of the Equitable Life affair, and we are all aware of how aggrieved people feel following the parliamentary ombudsman’s report on occupational pensions. We are now starting to get more hard facts, and I hope that the Government will take up our suggestion of using unclaimed assets. We have figures of £2.9 billion to £3.7 billion and annual costs of perhaps £100 million to £150 million to deal with the problem.
Many people who have been severely affected are in no position to repair the damage done to their occupational pension. If a person who is still working, with many years to go before retirement, gets a knock, they might be able to put it right, but someone who is in the last few years of work whose expectation of a particular deal has been lost is in a very different position. Some of these schemes included rights for widows or husbands. It is important to note that some people may go home having lost a pension and some of the security, for example that a husband would have left his wife. One of my constituents, David Cull, e-mailed me the other day. He has possibly lost £15,000 in pension. It was to be index linked and included decent provisions for his wife in the event of his death. He feels aggrieved about that. I hope that the Government will revisit this issue because Members on both sides of the House will feel that there is a degree of unfairness.
We have heard about the financial assistance scheme. Its scope has been widened. I suspect, as is the nature of things, with pressures from parliamentarians, that its scope will be widened still further. There is a legitimate issue of how quickly it will address some of those who accept redress from it. I hope that the Government will examine that carefully.
I am glad that the Government have produced the White Paper. There are some good things in it. I hope that there is a consensus. I hope that we can set up a scheme that this country can be proud of in the future. However, there is some unfinished business for those who feel that they have been misled, particularly those who had an expectation of different things. If we leave such issues to fester, we will end up with a lack of confidence in the pension system and people will still be putting their money into second homes or into investments because they do not trust the pension system.
I think that we all come into Parliament with the intention of making a difference. I genuinely believe that since 1997 the Labour Government have made a difference to today’s pensioners. We have already heard tributes paid by hon. Members on both sides of the House, remarkably, to the pension credit scheme and the difference that that has made to the poorest pensioners, especially women. We have the winter fuel allowance, free travel and free televisions licences for the over-75s. In Scotland, there is free help with heating for those who have older houses or houses without central heating. We have done a great deal for today’s pensioners.
Every so often, however, there is a chance in our lives as politicians to change the lives of future generations. The legislation that will come from the White Paper will do just that. The White Paper is not about today’s pensioners. I can understand that when something is called a pensions White Paper or a Pensions Commission the people to whom we turn immediately for an opinion are those who are presently pensioners. However, they will not be the ones to enrol in the national pension savings scheme. They are not the ones who might have to work longer to make the scheme pay. Current female pensioners will not benefit from the changes in accrual rights for national insurance credits. They have already retired. So, by its very nature, the White Paper is not aimed at today’s pensioners. It is aimed instead at ensuring that we have a structure and a basis for future pensioners so that they can also enjoy the benefits of the country’s prosperity.
There are bold aspirations in both the Turner proposals and in the White Paper. I hope that for the first time we are bringing together political parties from both sides of the House and, as my right hon. Friend the Member for Birkenhead (Mr. Field) said, the public as well into a consensus on how we move forward and how we will build for the future on what we have now.
We have come quite a long way. I was on the Select Committee on Work and Pensions for all of the previous Parliament and have been on the same Committee for slightly more than a year during this Parliament. I feel as if I have been living with the proposals from the various Turner commission reports for a long time, but not, I suspect, for quite as long as is felt by Lord Turner and his two fellow commission members. Perhaps it is worth reflecting on Opposition Members’ attitude at the time. That might illustrate how we have come quite a long way.
The setting up of the Turner commission was greeted with a great deal of scepticism. Opposition Members thought that the Government were trying to avoid the issue by putting it out into the long grass and that when the commission reported, the Government would bury the report. That was probably the general feeling among Opposition Members. In fact, the Government have not buried the report, and the level of consensus that we have already seen during today’s debate suggests that we have come quite a long way.
I was disappointed by the amendment tabled by the Scottish National party. Its tone is somewhat sour. That is not the tone of the Conservative amendment or that of the Liberal Democrats—I am not normally nice to the Liberals.
The point made by my party’s amendment is that the White Paper omits any discussion on the central point. We talk about consensus, but consensus outside the House rests not on these proposals, but around the idea of a citizens pension. We wish to bring that approach to the House and to discuss it. We seem to be the last people standing in the House who are still talking about a citizens pension, but we will continue to do so.
I think that the hon. Gentleman has made my point for me. A citizens pension did not necessarily have full support from the general public or in the House. There was some support—I was part of that—for a universal entitlement. There were those who thought that that might be a good way forward, based on residency. It is interesting that, since the Government came up with their proposals in the White Paper, which expand the coverage of national insurance contributions, many of the organisations that thought that universal entitlement was one of the easier ways to go forward are quite happy with what is proposed. The change in the proposals will produce the same result as that which would have been reached with universal entitlement.
I never signed up to a citizens pension because it had too many elements of the old dependency pension, which we want to get rid of, especially for women. It depended on women being dependent on men. There are also issues about living in the country and being a citizen of the country. That led to issues about taking the pension abroad. I find it slightly ironic that some Members have signed the early-day motion that asks the Government to consider restoring the link to inflation for those who live in Commonwealth countries, while others are advocating the citizens pension, which would not follow many such people to Commonwealth countries, especially if they had been out of this country for 20 years. The situation is not quite as clear cut as the hon. Member for Angus (Mr. Weir) makes out.
How do we build a consensus? My route through this process is perhaps an illustrative one. It might be that that is why I am slightly disappointed in the attitude of the SNP, given that it has been unable to move from its rigid position to grasp what some of the changes are. Scottish Widows has been mentioned several times today. I remember participating in an event for Scottish Widows a couple of days after the publication of the second Turner commission report. My initial reactions at that event were based very much on a first quick reading of the Turner commission report. I thought that it scored highly in terms of what it offered for women carers. For me, that was a big tick. It was something that I had been looking for in any future pensions policy. I took the view that women who had been so discriminated against in previous pension policy should receive equal recognition along with men in work.
I wanted to see whether the Turner commission proposed to continue the Government’s work on poverty reduction. Again, it did so, so that was another positive. Initially, I was not keen on the proposal to raise the state retirement age, which I thought was a bad idea, particularly for manual workers and people who live in communities such as Glasgow where the average life expectancy is 69. People die young, and many of them are not economically active beyond 50. I was therefore extremely dubious about the proposal to raise the state retirement age.
As for the national pension savings scheme, I did not know enough about it, so I was not in a position to judge whether or not it would be a good idea. I therefore held off expressing an opinion, whether positive or negative, until I found out a great deal more. However, my views have changed, not because I believe that the basic pension should be based on a different principle but because consensus building involves looking at all the different components. Crucially, the White Paper and the original Turner proposals are part of a whole—there is an interplay between different elements, so that, in practice, if one removes one major element, the other elements simply do not work. I therefore disagree with the SNP—if its members had looked more carefully at the White Paper they would realise that it includes many of the things that they want to achieve in pensions policy. They are not necessarily present in the form that they want, but they are there none the less.
There are some parts of the White Paper with which we agree, but may I stress again that we are in favour of a citizens pension, which is why we tabled the amendment? Yes, there are some things with which I agree and, if I have an opportunity to catch Madam Deputy Speaker’s eye, I hope to explain what they are.
If that is the case, the SNP should have tabled an amendment adding their proposals to the end of the motion, as did the Liberal Democrats, because that would enable them to retain the positive aspect of the motion. In fact, their amendment removes it.
In general, the White Paper is a follow-up to the Turner commission proposals. I like what the White Paper says about women and carers—it is not the universal entitlement that I wanted, but I am sure that my hon. Friend the Minister for Pensions Reform will explain in his winding-up speech that the proposals on women and carers put money in their hands much more quickly than a citizens pension or universal entitlement based on residence. However, the Government should explain more thoroughly why a residence qualification is not a simple option and why it is much more complicated than many of its supporters believe. That fact is sometimes missing from the debate, as people are still thirled to the idea that residence is easy to determine.
I have changed my view, as I said, about the state retirement age, not because things are any better for people who live in Glasgow, but because the White Paper proposes a phased introduction in future. The proposal will not affect anyone who is over 47 today, but the Government must make sure that the pensions system is flexible enough to allow people to change jobs. People rarely want to retire completely after 30 years in a job—often, they are tired of that particular job or the treadmill of work. Having spoken to many people who have accepted an early retirement package, they gained a second wind when they started a new job. The financial security of their pension settlement allowed them to go off and do something that they always wanted to do. Often, they started jobs in which they gave a great deal back to society and, as a result, they benefited a great deal themselves.
When I was a teacher, some of my colleagues complained that they could not work beyond 60. That may well be true of secondary school teaching, given the rough and tumble that the job entails, but it is not a case of people’s working lives being over. It is crucial that the pensions system allows individuals who have had enough of one job to move on to another one without jeopardising their pension entitlement. What convinced me of the worth of the national pension savings scheme was a visit to Sweden by the Work and Pensions Committee to see how such a scheme operates there. I appeal to the Government, however, not to establish as many funds as have been established in Sweden, because choice has led to inertia, and most people opt for the default scheme to avoid confusion. I accept that the issue still requires a great deal of discussion.
We must achieve consensus among hon. Members, but my right hon. Friend the Member for Birkenhead was right that it is the people outside who are important, so we must consider what they think is fair and justifiable in future pension provision. Some people have great ideas about the shape of the pensions system, and we have heard about one of those ideas from my right hon. Friend. Some say that if we set out from a different starting point—that is the SNP’s position—we could design a much simpler, more coherent system, and I am sure that we could. Some want to pick and choose different parts of the package to avoid difficult decisions. They want to pick the good bits that will improve pension provision while avoiding measures that have to be put in place to pay for it.
People have different ideas, but there is one problem common to all of them—not one of them has achieved the consensus built by the White Paper and the Turner proposals, and not one of them can do so. The Turner commission was successful, because it did not give everything to everyone. My hon. Friend the Member for Bradford, North (Mr. Rooney) talked about vested interests. Trade unions, employers and pensioner groups did not get exactly what they wanted from Turner, but they did get something. Similarly, everyone, both inside and outside the House, can buy into something in the White Paper, which makes it possible to build consensus. No matter how brilliant a proposal, it simply will not stand the test of time without consensus. To carry out the proposals in the White Paper will be a serious test of political will for everyone. We must not fail, because if we do, future generations of pensioners will not receive what they are entitled to. They are depending on us.
I should like to pick up some comments made by the hon. Member for Aberdeen, South (Miss Begg) who, like me, is a member of the Select Committee on Work and Pensions. She said that we are debating something that is important not only to us and to people outside the House today, but to future generations, as it will make a difference to their lives. She was right to highlight the comments of the right hon. Member for Birkenhead (Mr. Field), who said that it is not enough to try to forge a consensus, either in the House or across the nation, that is effective today—we must forge a durable, stable consensus that will last not for a few years or even the life of this Parliament, but for decades and generations.
That durability is vital not only because the working life of someone who is 16 and about to enter work today will be potentially 50-plus years—and therefore they have a right to expect that any pension scheme and pensions environment that they are saving into will be stable throughout their working life so that they can plan effectively for their retirement, however distant that may be—but because instability is the enemy of simplicity. In other words, every time we change our pensions system we add another layer of change, another layer of regulation and another layer of complexity to our existing pensions organisation.
Politicians and external stakeholder groups being what they are, there is no shortage of good ideas about how to change the pensions system. Every five, 10 or 15 years, one of those good ideas bubbles up and the temptation is to make an adjustment. That has happened consistently over the life of the existing pensions settlement, and has led to us having one of the most complicated pensions environments in the developed world. Therefore, stability and durability are vital if we are to avoid the same ratchet effect continuing for the next 20, 30 or 40 years, and even more complexity being added to the settlement that we are trying to debate today.
These are not just theoretical possibilities. As we stand here today, we can all see issues on the horizon that could lead to a need to reopen the debate that we are having today. We have already heard about the issue of pensioners overseas, some of whom have their state pensions frozen. I suspect that that will not go away and will probably come up in years to come in this House. The temptation to reopen the debate on that point, and potentially to debate an injustice, will be great.
In the White Paper is an acknowledgement that when the earnings link is restored at some point in the future, a caveat will be built into that date—namely, that it will be reinstated subject to it being affordable. If, when we get to that date, it is not affordable, that will undermine much of the so-called consensus that we are building up today. Again, the temptation, quite legitimately, on both sides of the House will be to reopen the debate at that time.
Finally, in the White Paper the Government also acknowledge that there is an issue over changing life expectancy, so they have quite properly built into their projections on how the pension age will rise in future a series of review dates, to check that those rises in pension age still make sense. If they do not, those review dates will inevitably be an opportunity for instability, for this pensions consensus to fracture and for the debate to be reopened.
Those are just three examples of potential issues on the horizon that could lead to instability over the lifetime of this consensus. I am sure that all here would agree that if we can see three or four of those today, the chances are that there are several dozen more that we cannot spot that will almost certainly crop up unexpectedly during the course of the next decade or two. Therefore, I urge the Government to consider mechanisms to reduce that uncertainty—mechanisms to build stability and durability into this consensus so that we have fewer opportunities to reopen the debate, and so that the pensions consensus has built-in stabilisers that will allow it to ride out any changes, or most of the changes, that we can reasonably foresee.
Let me give some examples. How do we ensure stability and consensus? The weakest way of doing that, I am afraid, is what I can see in the White Paper, and that is to try to establish a pensions consensus today. That, on its own, is no mean feat and I am not trying to downplay that achievement. It is a vital and necessary part of achieving a proper pensions settlement for a generation. However, it is not enough on its own because future generations of MPs will inevitably come up with new ideas and have the urge to reopen the debate, doubtless for genuine and valid reasons.
So what else do we need to build into today’s consensus to allow that settlement to ride out the years? There are a couple of examples elsewhere. Sweden has a balancing mechanism—it is effectively a mathematical formula that allows its state pension system to adjust automatically for changes in national growth rates and longevity rates, and for other external macro-economic shocks. It is probably not perfect, but it does mean that when something comes up that might otherwise fracture that consensus, the system adjusts automatically. The debate can be reopened, but it does not have to be. The system has a built-in stabiliser.
I offer that as just one example for the Government to consider, perhaps in relation to longevity and retirement age, where establishing some principles, and potentially even a formula today, might very well allow the system to ride out some shocks in future. In fact, the Minister for Pensions Reform was at a meeting that I attended this morning where a member of the Turner commission urged him to do something similar to that to establish some principles that would guide future generations. I would argue that in fact we could go a step further than that and build a formula into the Government’s published proposals today.
Another alternative is one that we can pluck from one of the ideas suggested by the right hon. Member for Birkenhead. I am not signing up to all his proposals, but one of his ideas is to have an independent board of trustees, which he models on the governors of the Bank of England, that is at arm’s length from the Government, that is independent and that is charged with commenting on and maintaining the consensus and the settlement that has been established today. We could build that into the role of the trustees for the NPSS. I am not trying to tell the Government how to do it—all I am saying is that if they can establish an external, arm’s length body of experts who have access to high quality analysis and have a duty and obligation to comment on any proposed changes to the pensions settlement, they will be a vital item of ballast and a way to ensure that the debate in 10 or 20 years’ time does not diverge from the central principles that we are setting out today, or if it does so diverge, only does so for the very best reasons and because it is founded on solid analysis.
Those are just two or three possible examples—
The hon. Gentleman makes an important point about the need to have a stable and enduring consensus, rather than simply creating one now that then has the opportunity to fall apart after subsequent elections. Does he agree that one of the merits of some sort of independent commission, which he is discussing at the moment, is that it would also help to build public trust in the consensus because lack of public trust in the pensions system is one of the biggest problems that we face?
I agree that lack of public trust in the pensions system is one of the biggest problems that we face, and a degree of external comment by acknowledged experts might very well help build up trust. It is crucial to remember that if we believe that the proposals in the White Paper are worthwhile—there is a fair degree of unanimity on many aspects—valuable, and should stand the test of time, let us not sell them short. Let us instead build in stability, durability and mechanisms to ensure that they last, rather than simply trusting to hope.
It is a pleasure to follow the hon. Member for Weston-super-Mare (John Penrose). I say that because those who can speak in this Chamber without notes are to be admired. I hope to be here until I am of pensionable age, and perhaps can match that on one occasion at least.
The pensions issue has an impact on almost every household and is of importance to today’s pensioners. The White Paper, “Security in retirement: towards a new pensions system” is very much about looking to the future and the pensioners of tomorrow. I hope that the whole House would agree on two aspects of pensions provision. The hon. Member for Weston-super-Mare mentioned one of them—the sustainability of anything that we introduce into the pensions system. It must be sustainable, as Members would not be prepared to accept the option of going back to the levels of pensioner poverty that this country has witnessed in the past.
Equally, on the second aspect, Members have referred to what the Government have done for today’s pensioners. There was much to be admired in the introduction of the minimum income guarantee, followed by the pension credit and the savings credit. Like many other Members, I have met pensioner groups in my constituency. In all fairness, we get some stick about what the Government have done, but many people in my constituency—people from a solid trade union background and people with roughly the same political leanings as myself—do not always recognise how redistributive the Government were in what they did for the poorest pensioners. Nevertheless, although we have done some positive things, I always admit that there remains much more to do.
I want to reflect on what has brought us to the current stage of unrest, uncertainty and disappointment. Occupational or works pensions are one important issue, and how some companies reached their current position is another. A significant number of final salary pension schemes have been closed. Speaking as one who worked for 23 years with a multinational company—or rather I was employed for 23 years, as working and being employed by a company are two different things—I witnessed what happened when it wanted to reduce its numbers. Of course, the big advantage was a good redundancy package, but an additional carrot was access to a pension scheme. The company I was employed by was not alone, as it happened right across the country during the 80s and early 90s. When people get early access to a pension scheme and people are living longer, it undoubtedly puts pressure on the schemes.
I have to say that the same thing happened in the public sector. As a councillor for 11 years during the days of Mrs. Thatcher, I experienced the squeeze on local government spending in the late 80s and early 90s, which was also pursued by her successor, John Major. Council departments across the country were asked to reduce numbers, but those who decided to leave were the people on high salaries with big pensions. Pension funds cannot sustain the sort of numbers that we saw moving out of the public sector, especially local government, over those years.
The Government are trying to put a message across about the importance of preparing and saving for old age. I regret to say that some of today’s pensioners send out the wrong message at our surgeries, although I understand why they feel angry. Irate pensioners sometimes complain about the couple down the road, neither of whom work and who are in receipt of pension credit, getting exactly the same money or perhaps even more than they do. The big argument then is whether it is worth saving for old age. The answer has to go out loud and clear from this Government from this Chamber that it is indeed right to prepare for old age.
The country is witnessing a significant demographic shift like never before. In my constituency of Dumfries and Galloway, it is projected that about 4,000 or 5,000 jobs will not be filled between 2012 and 2015, simply because people are growing older and more people are retiring in the area, while at the same time many young people are leaving the locality due to the lack of decent, well paid jobs.
That brings me to my first point about the White Paper. I represent a part of the country that is recognised as having a low wage economy. I believe that, had it not been for the introduction of the national minimum wage, we would still have wages of about £4 an hour in my area. The minimum wage has made a difference, but it is still very much a low wage economy. I applaud the concept of a national pension savings scheme—or personal accounts, as they are called in the White Paper—but we must not forget those on low incomes. We really need to deal with the issue of how to get over some of the problems of low earners. The most obvious barrier to saving for many people is poverty and low income, as they have to think about the necessities and essential spending. Saving for retirement is not an option for those people.
More than half of all the households identified by the National Association of Citizens Advice Bureaux as having serious debts have incomes of less than £7,500 a year. More than 12 million people—about 43 per cent. of the working population—are not saving enough in a private pension for their retirement. That figure is on the rise; it was only 36 per cent. in 2003. Currently, an estimated 7.5 million people are not saving at all and just under 5 million save only small amounts. Those on the lowest incomes—less than £15,000 a year—account for 3 million of those who are not saving at all. If personal accounts are to succeed for all employees, they will have to provide the guarantee of a state-backed pension scheme, so employers must contribute. Lord Turner’s report set out a model, but it would have been preferable if the Government had come out in its favour.
I have been a trade unionist for more than 30 years, so the Minister will not be surprised to hear that I greatly agree with the position of the TUC, which emphasises that a good scheme definitely needs to meet a number of criteria. Costs must be kept to a minimum, which can be done only through a simple system that minimises regulatory advice and marketing costs. There must be a simple default option available to all and it must make sense for the vast majority of NPSS savers. There must be other choices, but it is important to have a straightforward lifestyle option. Savers should have their own pot and should feel that it belongs to them. They should have representation in scheme administration and stewardship, as with trustee stakeholders. Employers should not choose NPSS suppliers for their staff as there are too many opportunities for mis-selling and it is a burden that employers do not want, although employers are free to do better with their own schemes.
Does my hon. Friend share my concern that if employers are given an opportunity to contribute just 3p in the pound to a pension scheme, that is exactly what they will do? In some cases, employers might end up contributing less in the future than they do now.
Yes, that will go on the record and I hope that any employers taking an interest in today’s debate will hear what my hon. Friend says. Any system must be able to cope with workers who frequently change their jobs and, of course, with disorganised, short-lived employers, as they are often called.
I have already briefly mentioned the issue of demographic shift, as it impacts on my own area. The figures show that when the state pension was introduced, there was one pensioner for every 14 employees. Today, there is one pensioner for only four employees. I therefore understand the reasoning behind raising the retirement age over time. However, we must acknowledge that longevity is not equal throughout the country. My hon. Friend the Member for Aberdeen, South (Miss Begg) referred to that.
Extended life expectancy, which is good news in some parts of the country, is not experienced in many others. I know from conversations with colleagues from Glasgow and other industrial heartlands that three score years and 10 is not an option for many of their constituents. Admittedly, lifestyle has something to do with not only early retirement on the ground of ill health, but early departure from this world.
My hon. Friend the Member for Bradford, North (Mr. Rooney), the Chairman of the Select Committee, was right to discuss what people would do in their mid to late 50s and beyond. There needs to be a general change in attitude and understanding of how those in the latter years of their working lives will be best employed. That will mean retraining and ensuring that opportunities exist for people.
The White Paper contained announcements for carers and women. The Department has carried out research that demonstrates that pensions are not high among women’s priorities, but that, thankfully, will change. Women tend to be more concerned about their families’ short to medium-term needs than saving for their future, and feel that their partner should or will provide for their retirement. They rarely think of pensions when making child-related employment choices, and few would have made different life choices if they had considered their future financial position. I worry even now when I watch programmes and witness young people, especially women—some are in their mid to late 30s and are professional people—who openly admit that they have made no attempt to provide for their retirement. It worries me when people of that age group who work in the City and who, one would think, know better, have made no provision.
The word “consensus” is bandied about the Chamber too often. When I came into the Chamber earlier, one of my colleagues said that I had a weakness in that I made rash judgments about the Opposition. If that is my only weakness, I am delighted. However, I worry that “consensus” trips off the tongue nicely, and has done so more often since the main Opposition party appointed a new leader towards the end of last year. For me, the jury is still out on whether we will reach consensus in the Chamber on the issue that we are considering, or any other.
When we discussed the recent ombudsman’s report, the hon. Member for Runnymede and Weybridge (Mr. Hammond), when pressed by the Secretary of State about what he would do about it, refused to give a commitment and merely said that he would look to the future. Yet the hon. Member for Eastbourne (Mr. Waterson) said in response to my hon. Friend the Member for Ayr, Carrick and Cumnock (Sandra Osborne) that the Conservative party would consider unclaimed assets to deal with the matter. I believed that two Front Benchers would have given the same answer to the same question.
Consensus is needed, but perhaps not political consensus in the Chamber and the other place. Consensus is needed in the country because what we determine will affect everyone’s future and we therefore need to carry people with us. We do not need some sort of consensus that is discussed here, but does nothing more than blur the edges and allow people to say that we are all the same in any case. We are not all the same, and the White Paper is a genuine starting point for the future of the pensioners of tomorrow.
As the hon. Member for Dumfries and Galloway (Mr. Brown) said, the word “consensus” has floated around the Chamber today. However, the Government’s view appears to be, “There will be consensus about our proposals or nothing.” That is the wrong place to start because there are differing views about the future of pensions.
We in the Scottish National party and Plaid Cymru believe that the Government have flunked a golden opportunity to tackle the perceived problems of the state pension system. Although we talk about consensus, the right hon. Member for Birkenhead (Mr. Field) was correct to say that there had to be consensus outwith the House. The consensus there, certainly among the people to whom I speak, emerged around the idea of a citizens pension, although views vary about the form that it should take.
As has been said, the White Paper does nothing for current pensioners. Earlier, the Minister for Pensions Reform argued that the proposals are about the future, not the present. The hon. Member for Aberdeen, South (Miss Begg) also referred to that. I take that on board to some extent but, unless we tackle the genuine concerns of today’s pensioners, we are unlikely to achieve consensus. As the hon. Member for Runnymede and Weybridge (Mr. Hammond) said when he spoke about the problems with occupational pensions, the genuine grievances of some people and the fact that we continue to hear stories about the matter means that we will never get past that issue. The same applies to the state pension. If today’s pensioners feel strongly that their problems are not being taken on board, the same process will happen. Indeed, the National Pensioners Convention has already made the point that the White Paper does nothing for today’s pensioners and I understand that it will publish an alternative White Paper next week.
As I said, we greatly support a citizens pension, which we were the first to advocate, although others subsequently took up the idea. I suspect that we may be the last ones standing who continue to talk about it, given that the hon. Member for Yeovil (Mr. Laws) did not mention it. When the Turner report was published, initial reaction was that it advocated moves towards a citizens pension. However, on closer reading, it became clear that it did not take us very far down that road. Turner’s gradual approach meant that many years would pass before most people received a citizens pension.
Inadequate though those proposals are, the Government’s proposals do not even go that far. As I said in an intervention on the hon. Member for Aberdeen, South, the White Paper contains proposals that we greatly support and I shall enumerate some later if I have time. However, I want to consider the point that has been made repeatedly about the restoration of the link between pensions and earnings in 2012. That has been the spin on the White Paper since its publication, but I ask hon. Members to read its contents carefully.
The executive summary on page 17 states:
“During the next Parliament, we will re-link the uprating of the basic State Pension to average earnings. Our objective, subject to affordability and the fiscal position, is to do this in 2012, but in any event by the end of the Parliament at the latest. We will make a statement on the precise date at the beginning of the next Parliament.”
That could have been framed on Sir Humphrey Appleby’s office wall. It is not even jam tomorrow, but a statement that, if we have a good raspberry harvest and sugar remains at a low price, we might perhaps just find it possible to have some jam, but we will not say when. Hon. Members should note that the date on which the Government will make an announcement is nicely past the next general election. That does not give much succour to pensioners. Even if the Government implement that statement—I shall not dignify it by calling it a promise—it could be as late as 2015, not 2012. That is presuming that they win the next general election—they will not in Scotland, but I cannot speak for England.
Even if the Government were to re-establish the link, it would do nothing to address the fact that pensions have fallen behind earnings since the Tories broke the link or to make up for the past 25 years, which is why a true citizens pensions is the correct way to deal with the matter.
If by some strange miracle pigs were suddenly to fly and the Scottish National party were to obtain control of the Scottish Parliament next year and were to begin the process of disengaging Scotland from England, how long would it take to set up an independent Scotland, and how long would it take for the SNP to introduce its citizens pension? I suspect that those events would be much further in the future than 2015, even with a fair wind.
The hon. Lady will find out soon enough.
Two years ago, we published our own paper, “A secure retirement for all”, in which we set out our proposals for a citizens pension and the reasons why we believed that it was the correct way forward. Those reasons have not changed, and our solution remains the best way forward.
Despite what has been said about all that has been done for pensioners, far too many of our pensioners continue to live in poverty. The hon. Member for Aberdeen, South has mentioned many things that the Government have done for pensioners, and she specifically referred to the winter fuel allowance, but to put it into perspective, last week Scottish Power put up its charges by between 10 to 17 per cent., depending on the package, which is the third increase in a year. That one increase put up the average bill for a Scottish Power consumer to £131, which puts the £200 winter fuel allowance into perspective. The Scottish Executive have made good strides forward with their central heating scheme, but a central heating scheme is not much good if people are frightened to turn on the gas to use their central heating. Furthermore, many rural areas of Scotland are not connected to the gas main, so the central heating scheme does not do a great deal for people who live in those areas.
The current pensions system is based on labour market participation, the effect of which is to translate poverty during working lives into poverty in old age. We all know that many women and carers do not receive the full basic state pension because of their broken employment histories. The Government proposals will begin to tackle that problem, but they will still leave far too many people in poverty. We should have the courage to take the bold step of true reform and provide a state pension that delivers for all our pensioners. The state must provide all pensioners with a decent minimum income in retirement and take real steps to ameliorate the regressive effects of private pensions for those on lower incomes.
Whenever the matter is debated, the Government talk about the pension credit, as they have done again today, but why should our pensioners rely on means-tested benefits, which is the effect of the pension credit, for a decent retirement pension? The Government accept that the basic state pension is insufficient, which is why they have introduced the pension credit to increase pensioners’ incomes to a decent level. Under our proposal for a citizens pension, every pensioner would have a decent pension, which would be set at the current level of basic state pension together with the maximum level of pension credit. We would link the citizens pension to rises in average earnings from the start, rather than basing it on future uncertainties.
By introducing a citizens pension, we would ensure that all our pensioners are lifted out of poverty, that they have a decent basic pension on which to build and that they do not have to rely on means-tested benefits, which many of them will not claim. According to the National Pensioners Convention, 2 million UK pensioners, of whom about 200,000 live in Scotland, do not claim pension credit although they are entitled to do so. The citizens pension also has the distinct advantage that the current system is a disincentive to save because, in effect, those with savings lose out on pension credit, and unless one can afford to save a substantial amount towards a private pension, there is a disincentive to do so. The White Paper mentions research that shows that there should be an incentive to save under the current system, but if there is, it does not seem to be working. Many have seen much of their savings wiped out in the recent past, which has created a great deal of wariness and resentment among pensioners and those approaching retirement.
It is legitimate to ask—I am sure that someone will—how the citizens pension can be paid for. It can be paid for by utilising the amounts currently paid in basic state pension and pension credit and, crucially, reforming the current system of tax relief on private pensions. I cannot understand why the Government will not examine that proposal.
I have heard the hon. Gentleman make that argument on a number of occasions. What would he say to the constituent to whom I spoke on Saturday, who complained about having to pay tax on her pension? I explained that the money was tax free when it was paid into her pension, but under the SNP proposal, that money would be taxed when it goes in and, presumably, taxed when it goes out.
The point is to consider taxation on private pensions. The system will change, whether we use our proposal or the proposal in the White Paper. I am sure that the hon. Lady attended the meeting this morning, where the hon. Member for Edmonton (Mr. Love) specifically asked the representative from the Pensions Commission about that matter. The representative from the commission talked about the complexity of the matter and the fact that many people have already received fairly substantial benefit from tax relief on private pensions. Labour Members often say that we must tackle the hard issues, and the hard issue in this case is the amount of relief on private pensions.
This morning, Professor Hills from the Pensions Commission explained why both Turner and the Government have rejected changes to relief on private pensions, which was the first thing that the Secretary of State did when the Turner report was published. We believe that that is short-sighted and that the correct way forward is to deal with the blatant inequalities in the present system. There is absolutely no evidence that the present system of pension tax relief encourages private savings, which is the object of the system.
We agree with the Government that we must do more to encourage private saving over and above what the state provides. That is why we are interested in the NPSS, which has a lot of merit and which I shall discuss in a moment, if I have time. The current system of tax relief on private savings costs a fortune and is massively geared towards the better-off. When we compiled our proposals in 2003-04, the economic cost to the Treasury in terms of tax forgone with this subsidy was an estimated £11.4 billion. In his report, Lord Turner points out that the cost of that tax relief is about £12 billion and that there is a further £8 billion in national insurance, which takes the total cost to £20 billion a year. In effect, that is a massive subsidy to private pensions, rather than using taxpayers’ money to provide a proper state pension.
Worse still, more than half of the total cost of tax relief on private pension contributions is received by the richest 10 per cent. of the population. Unlike spending on state pensions, which is being restricted, there are no restrictions on the total amount of private pension savings. It is high time that tax relief was reformed to become much more progressive and transparent. In particular, it should be aimed at encouraging and rewarding low and moderate income earners to save for retirement. By reforming that relief, those billions could be released now to fund a citizens pension.
Instead, the Government propose to raise the retirement age for the state pension, and Sir Humphrey Appleby would be proud of how this is described in the document:
“We will support and encourage extended working lives”.
That is a cuddly and innocuous way of telling everyone that they will have to work for longer, which is unnecessary.
The hon. Member for Dumfries and Galloway (Mr. Brown) has hinted at a specific problem caused by the disparity between various socio-economic groups and various areas of the country in terms of life expectancy, which can have a dramatic effect.
Let me take just one example. A man in Glasgow has a life expectancy of 69.3 years, while a man in Kensington has one of 80.8 years. At present, Kensington man can expect pension payments of £65,728, which is nearly four times that of Glasgow man, who can expect £17,888. That becomes even worse once the age is raised to 68, when Glasgow man would receive £5,408 while Kensington man would receive nearly 10 times more, at £53,248. That is manifestly unfair. At least Lord Turner recognised that there was a problem in this regard and recommended that eligibility to pension credit should remain at age 65, but even that has been rejected in the White Paper. It seems that Sir Humphrey has been busy again, as paragraph 39 states:
“We think that this is an issue that must be considered nearer the relevant time in the light of the available evidence about inequalities and life expectancy and trends in working among older people.”
The evidence on lower life expectancy among various groups in various areas is already available. When is the relevant time to decide on this issue? Although it may be many years before the retirement age rises, the decision to raise it will be taken shortly. If the Minister is serious about persuading people of the necessity and desirability of doing so, he must deal with the problem of the differentials in life expectancy; otherwise, he will get none of the consensus he so desperately seeks. One cannot work in averages across the spectrum.
In our proposals, we put forward ideas relating to private savings and enrolment in schemes, including a Government-backed scheme called the state pension fund, or Scotsaver account, which would provide individuals with a more secure alternative to occupational and private pensions. That is not too far away from the idea of the national pension savings scheme, which we welcome, because such a scheme is necessary. However, we urge the Government to accept that any scheme must be state-backed. We are concerned about what the White Paper says about allowing private providers. There is plenty of evidence that people do not necessarily want choice, but safety, in their pension provision, which means that however the money is invested, it must be a safe investment. That should not be confused by having too many providers and too much choice. Many of the problems in the pensions industry were caused by the breakdown in confidence following the mis-selling and company pension scandals, whereby some people’s pensions were frankly stolen by unscrupulous employers.
We can support some aspects of the proposals, and the citizens pension should still be on the agenda.
I have noticed a distinct difference in the tone of this debate compared with previous pensions debates, in which we constantly fell into the trap of blaming each other for past mistakes. I do not want to rehearse those arguments, partly to save the blushes of the Opposition. That difference in tone leads me to believe that it is possible that consensus could come about. To my mind, that must first be established in this House, so that the arguments can be transparent and agreed in the minds of the public, because it is hardly likely that they can come to a fixed and settled view if the House cannot do so. That must be our starting point.
I am not sure whether the hon. Lady’s argument is the right way round, as I think that the consensus has to come from the outside first. Does she find that when she speaks to pensioner groups and senior citizens in her constituency there is already a clear consensus on ending means-testing and reintroducing the link to earnings as soon as possible?
That is true to some extent. I also find some pensioners who, having taken advantage of the many offers available to them, say that they have never been so well off. There are two views. At many pensioners meetings, I am first harangued by those who take that position, and then quietly spoken to at the end of the meeting by those who say, “I didn’t really like some of what was said to you, Kali, and I’d like to put a different view to you.” The two arguments never seem to meet. I make no apology for the fact that when we came into government our first objective was to tackle pensioner poverty; that had to be the right way to go. However, it would not be right to continue with a scheme that would fix means-testing in perpetuity. We need not feel ashamed about helping those who were the very poorest and ensuring that the resources that we had were targeted at them, but we must find a way to move on from that.
I feel as though I am in “Back to the Future”, as I have debated this issue for many years. The first time I spoke about what we should do about what was then called the demographic challenge was in 1986. Now, 20 years on, it is a demographic time bomb. We have been talking about this for such a long time, with so many different views, that a consensus had to be reached at some point. It has taken us a long time to get to where we are today, but it was vital to do so.
The hon. Member for Runnymede and Weybridge (Mr. Hammond) asked us to look forward still further, to 2064. That briefly reminded me of the advert that I saw for a clairvoyants’ event that had been cancelled due to unforeseen circumstances. The problem is that as time goes on, the period that we have to consider when we think about pensions must be a long way into the future but cannot be fixed in stages. The hon. Member for Weston-super-Mare (John Penrose) made an impressive speech in which he said that he was worried about setting staging posts for events because that would undermine sustainability and the settled position that we might arrive at in this Chamber. Some people say that we have to predict the future and stage everything precisely, while others say that we might have to adapt in the light of unforeseen changes. Both arguments are equally valid.
There have been huge demographic changes since 1986. As my right hon. Friend the Member for Birkenhead (Mr. Field) said at the beginning of his speech, our life expectancy has already risen since the beginning of the debate. That will continue to be true. However, we must also take into account the other social changes that are going on. Young people are not looking after themselves as well—they are not taking exercise or eating properly. If a child aged seven, eight or nine is eating burgers all the time, although we are trying hard to get them to eat something else, we do not yet know what will be the impact on their life expectancy. What will their work pattern be like? What will their life be like as a consequence of social changes and changes to work-life balance and what happens in the workplace? Will the economic changes that have made this debate possible be sustained into the future?
My hon. Friend the Member for Bradford, North (Mr. Rooney), who is not here at the moment, spoke about the impact on people who might need retraining having left one job at the age of 50 or 55 in the expectation of finding another. When I studied this in 1986, it was clear even then that the higher the level of unemployment and the less people earn, the more likely it is that a person will be considered old. At that time of very high unemployment, particularly in Liverpool, a person was identified as being too old to work even at 35, because it was cheaper and easier to employ young people and get rid of them quickly. Employers wanted that flexible labour market. That is not today’s environment. Sustainability in the work force and the economy cannot be accurately predicted for the next 50 or 60 years, although I would like to think that it could be. Let us be honest with ourselves and accept that labour markets, work patterns and new technologies change. That will and must have an impact on future pension expectations, not least in relation to the amount that people can afford to pay in.
That is especially true for young people, among whom we are seeing a distinct change in social behaviour. For our generation—if I can be so bold as to say that, looking around the Chamber and seeing far too many people who are younger than me—buying something today and paying tomorrow was not the norm. I grew up in a household where we paid for what we could afford and did not buy what we had not saved for. Things have changed. Young people today expect to use a credit card, and there are worries about the amount of debt that they take on. Is it right for those same people to be asked to pay into a pension? I think that it is. If they had to choose between the kind of holiday that they can pay for only with a credit card, and the type of holiday that they can afford at the same time as paying into their pension, that would be a desirable social change. It would be right to ask people to contribute to their pension at an early age. I lecture the young people in my family about that ad nauseam. I see their eyes glaze over every time I do it, but it is necessary.
Does my hon. Friend agree that any consultation following the White Paper must focus on young people? Not only do they contribute to the current generation’s greater pensioner intake, but they are being asked to contribute more to their own pensions in future.
I am grateful to my hon. Friend, who makes my point even more concisely than I had hoped to do. He is right. Some of young people’s spending is about living for today. Some of it, however, is about accepting that they must buy a home and provide for their families. At the same time, under our pay-as-you-go pension scheme, they must pay for the pensioners of today while hearing some pensioner groups say that they do not want to pay any taxes, that they have done their bit and worked all their lives and that, despite having had tax-free savings, they do not want to pay tax now. When young people hear that, they think, “Hang on a minute. I’m still paying, and earning less than they receive in their pension, yet I’m being asked to pay taxes, save, pay my mortgage and look after my children.” We must ensure a generational balance. Both generations—the oldest and the youngest—must feel that they are being treated fairly. We cannot build consensus without agreement between the generations. Not all pensioner groups feel exactly the same, because they have children and grandchildren and do not want an excessive burden placed on them.
I agree entirely with my hon. Friend on the generational issues. One of the problems in that regard is that in the 1980s and 1990s an awful lot of people retired early. They might have done so because they had no choice and their jobs were taken away. In doing so, however, many of them got good packages. It is difficult for the generation who have come after them to accept that rather than retiring at 60 or 65, as might have been expected, the previous generation might have retired at 50 or 55 on good packages. That is a scandal that has never really been exposed. In relation to the evolution of the debate, does she agree that that has been a problem?
It is a problem in some sectors, but as my hon. Friend the Member for Bradford, North (Mr. Rooney) pointed out—I do not know whether my hon. Friend the Member for Stroud (Mr. Drew) heard him—people who have contributed to an adequate scheme have always been able to take early retirement, and can do so in future, accepting that they will get a smaller pension as a result of actuarial differences. They can change career and do a different type of job with a different level of pay but in a less stressed environment. That is not true of all careers or jobs, however, and that also exposes the differences between economic groups. Some people on low incomes could never be in that situation. They know from the outset that they will have to be in employment for their entire working lives to get any kind of decent pension. They are probably the group to whom we ought to pay most attention.
I agree entirely with my hon. Friend, but the problem is that those who took early retirement often had their pensions massively enhanced as a way of buying them out of the labour market. The logic was that those people would not cost that much because their life expectancy was much lower, but that has not been the case. That is a huge burden on some professional schemes.
That is precisely why we have problems in the pensions sector now. There were warnings in the 1980s about the challenge of longevity, pension holidays and soft economic management. Trade unions and employers alike referred to taking people out of the labour market in that way as the kindest cut, but that was a short-sighted view, as Members on both sides of the House have accepted in conversation with me, in private if not in public. That process was not as kind as it appeared, and we are feeling its impact now.
We must find solutions, and those solutions must have sustainability built in, or they might fall at the first hurdle. That is where I agree with Opposition Members. We must therefore let go of some old ideas about people having a certain level of income, or the same job, throughout their lives. The world no longer operates in that way. When I accepted that I would have to work until 65, I tried to view that as an opportunity. When I thought about an ageing, white-haired old lady doddering around the place, I realised that I might not be doddering around this place but another place—[Hon. Members: “No.”] I always accept compliments. These days, however, a woman of 65 is generally perceived as much healthier, more agile and having a great deal more to offer. In previous generations, women were not perceived as having much to offer at all. We were perceived as largely dependent. I welcome the huge shift in that regard in these proposals.
It has been a scandal that women have benefited least from any of the systems. Women have to claim most means-tested benefits, and live the longest on the least money. That is a scandal that must be redressed. The most important outcome to me was not whether a citizens pension or universal pension was introduced, but that we recognised women’s contribution, which might be years of caring for children, older people or disabled people. We now have a real task ahead of us to reach a clear definition of a carer. We have not made that clear enough, and we need to work on it. How will we make sure that our proposals really cater for those years of caring? When women take on work, accepting that the contribution period for their state pension will be shorter, we must give them confidence that the valuable contribution that they made to society through years of caring for parents, relatives and children will be properly recognised. Society could not have managed without those women in the past, and we must recognise their contribution properly in the future.
We must also continue the link between an individual’s contribution and the benefit that they receive. If entitlement is simply linked to residence, there will be a disconnection between that and people’s contribution to society, either through work or caring. That matters to me, as it is a valuable element of building consensus and making sure that the system can be sustained into the future.
I welcome the opportunity to speak in this important debate. I also welcome many aspects of the Government’s response to the Turner report. However, I want to deal with concerns that have been expressed by a number of Members about the Government’s woefully inadequate, indeed scandalous, response to the parliamentary ombudsman’s report on workers who have effectively been robbed of their pensions through no fault of their own.
There are more positive aspects. I join the hon. Member for Colne Valley (Kali Mountford) in welcoming the White Paper’s proposals for women and carers. A number of Members have drawn attention to the disgraceful circumstances in which many retired women find themselves. Those women, who have given years to caring for disabled relatives and others, have fragmented work records, and on retirement are utterly dependent on the work records of husbands or partners. Many who have no husbands or partners find themselves in dire poverty.
I am glad that the Government intend to alter the contributory principle to take account of paid contributions, and that far less will be necessary from now on. I am also glad that it will be altered to reward social contributions. Pensioners, many of them women, come to my surgeries and ask “What is in it for me?” The sad fact is that there is not a great deal in the report for many of today’s female pensioners. I shall say more about what the Government might do to assist the pensioners of today.
I am also glad that, at long last, the basic state pension will again be linked to earnings. Many people have campaigned for that for a long time, and the Labour party was vociferous when the link was abolished. However, I share the reservations expressed by others about the fact that the link will not be restored until 2012, rather than 2010, the date suggested by Turner. If the current situation continues, by 2012 the value of pensions will still be falling, especially for the poorest pensioners. That is unacceptable.
We need to end dependence on means-testing. As has been said by the hon. Member for Angus (Mr. Weir) and others, there is far too much means-testing. Many older people are deterred from applying for means-tested benefits because of the stigma attached to it, and it is also a disincentive to saving. I recognise the contribution made by pension credit to the alleviation of pensioner poverty. As a Minister in the Department for Social Development, which was responsible for the Social Security Agency in the former Northern Ireland Assembly, I can testify at first hand to the impact of pension credit in Northern Ireland. Nevertheless, we must end that dependence on means-testing. The best way of doing it would be to set the basic state pension at a decent level, lifting pensioners out of poverty and establishing a link with rises in earnings.
As for the qualifying age for the state pension, I entirely understood the arguments of the hon. Member for Aberdeen, South (Miss Begg). She said that despite reservations, she had come round to the view that the proposals were acceptable. Having talked to many of my constituents, I find that many accept that some of the changes must be paid for, and this may be one of the least offensive ways of doing that. However, the Government will have to deal with the issue of inequalities in life expectancy between people in different parts of the country, and between different types of worker. Problems will be stored up if manual workers are expected to work until they are in their late sixties, although they have a shorter life expectancy than others.
The Government must think about today’s pensioners as well. They must tackle the question of why so many pensioners do not claim pension credit and other benefits to which they are entitled. A recent report in Northern Ireland turned a spotlight on the tens of millions of pounds being paid to people wrongly through error, fraud and the like. I am sure that the same applies in other parts of the country. It was right to identify that problem, and everything possible should be done to tackle it. Nevertheless, more attention should be paid to the hundreds of millions of pounds that are not claimed by the poorest members of society, including pensioners, who are entitled to that money. The Government must do more to ensure that entitlement to benefits is taken up, especially by pensioners.
Members have mentioned the winter fuel allowance, which was raised from £75 to £200 in 2000 but has remained static ever since. Given the enormous increases in fuel prices—which have also been mentioned—it is incredible that the winter fuel allowance is the one payment that has not risen in line with inflation. The Government could do something for today’s pensioners very easily by raising that allowance.
A number of Members in all parts of the House rightly mentioned the parliamentary ombudsman’s report and the Government’s response. Along with others, I have constituents who have suffered greatly as a result of shortfalls in their pension funds. Having contributed for many years, they face a future devoid of the standard of living that they expected. Indeed, many have no hope of a decent standard of living. Those people are devastated: they feel that they have been robbed.
Some workers travelled from Northern Ireland today to attend the debate. I am sure that they were heartened by some of the speeches made by Members throughout the House. I pay tribute to the hon. Member for Ayr, Carrick and Cumnock (Sandra Osborne), who spoke eloquently on behalf of her constituents. She voiced many of my concerns, and those of other Members, about what the Government have failed to do. Although the Government have introduced a pension protection fund and a financial assistance scheme, I do not think that they have done enough to compensate workers properly. They have not done enough to return their expectations to them, and enable them to look forward to a retirement involving a degree of dignity and decency and the standard of living to which they are entitled.
The workers in my constituency who were employed in the Richardson’s IFI plant paid into a fund, as they had been advised to do. They did that on the basis of the best advice, believing that their retirement income was secure. They had every reason to believe that as 49 per cent. of the company was owned by ICI and 51 per cent. by, believe it or not, the Irish Government. Two plants were located south of the border and one was in Belfast, in my constituency. The workers in the Irish Republic have rightly had their pension rights sorted out and have been compensated, but the workers in Belfast have been left bereft of their pension entitlement and have to rely on the financial assistance scheme.
We all want to see better relations between Northern Ireland and the Irish Republic, so I ask that the Irish Government treat those workers in the same way as they have treated their workers, as a tangible example of better north-south co-operation. We hope to put those points directly to Bertie Ahern, the Irish Prime Minister, when we meet him on Thursday. Such fair treatment would go a long way to proving that he means what he says about treating people on either side of the border the same. It seems that fair treatment is all right as long as it does not cost anything, but when it is time to divvy up millions of euros, it is a different matter.
I agree entirely with the hon. Gentleman, and I have a company in my constituency called Lister Petter that has gone the same way. Does he agree that one of the problems is that all the schemes are lumped together? That is my criticism of the ombudsman. I would ask for all the schemes to be independently investigated, so we know exactly where the money went and who is responsible. The problem is that the schemes are aggregated and the same arguments advanced every time. That is wrong.
There is much merit in that point and I am sure that it has been noted by the Minister. I hope that he will address it when he winds up this evening.
In the statement a couple of weeks ago, and again today, the Secretary of State made a great deal of the financial assistance scheme and the extra money that is being put into it. I do not decry that extra money, but those of us who represent workers affected by the scandal of pension schemes—they will not go away, because they have a just case that has to be answered—know that the financial assistance scheme does not adequately address the injustice that has been inflicted on them. For instance, the payments under the scheme are not inflation-linked, even though the pensions would have been. The scheme starts only at age 65, but the expected pension would have started from the scheme pension age, which is often below 65. The FAS payments are made in full only when the wind-up of the company has been completed, but expected pensions would have been paid as soon as pension age is reached. The scheme payments are capped at £12,000, so they decline in value over the years. FAS payments have no tax-free element. The scheme also pays only 50 per cent. of the benefit to a surviving spouse, but they would normally receive at least 50 per cent. of the full expected pension. FAS payments halve immediately if a member dies soon after retirement, whereas ongoing schemes usually continue paying full pension to surviving spouses for a few years. If members die young, the FAS pays nothing, and survivors are left without any insurance, whereas expected pension benefits include life assurance cover. The FAS pays no ill-health benefits, but most schemes offer ill-health cover. Those are just some of the criticisms that workers in those dire straits have put to me.
What representation have the Government made to the Government of the Irish Republic to ensure that the injustice that the workers in Belfast have endured is put right? Natural justice demands that they should be treated fairly.
I know that some of those workers live in my hon. Friend’s constituency and that of my hon. Friend the Member for East Antrim (Sammy Wilson), who is also in his place. In the particular circumstances, the Irish Government have an enormous responsibility to do right by those workers. They worked for a company that was 51 per cent. owned by a sovereign Government of the European Union, but they have been treated despicably and deplorably. I would take the same line if the company had been part owned by the British Government, and I am not attempting to bash the Irish Government, but it is worth making the point that people are entitled to fair play, especially when a sovereign Government are involved in the management of the company.
I recognise the contribution made by the financial assistance scheme, but it is vital that those workers, who are in a difficult situation through no fault of their own—they took the best advice, but their pension fund has an enormous shortfall—are properly compensated by the Government as speedily as possible. None of the workers is getting any younger and some have suffered ill-health as a result of their terrible situation, and I urge the Government to act as quickly as possible.
I welcome the White Paper. Of all the White Papers that I have ever read, it is probably the most lucid exposition of a complex subject. The exploration of the social, demographic and behavioural context of pension policy is illuminating and has informed our debate today. I congratulate Ministers on tabling this motion so that we may have a full debate before legislation, so that we can tease out the different issues and address the points made by all the parties. I hope that we will achieve consensus on the subsequent legislation as a result.
This is a hugely important debate. I congratulate the Government on what they have done to lift pensioners out of poverty—several Members have recognised the positive effect on pensioner poverty of pension credit and other Government provision—but the model that has been successful in the past few years in raising the poorest pensioners out of poverty is not necessarily adequate to meet the demographic changes of the future and the behavioural issues that we need to address to ensure that we have decent pension provision in the next few decades.
In the past, as the hon. Member for Weston-super-Mare (John Penrose) said, legislation in this area has been piecemeal and complex. If we are to establish a consensus, it has to start here and then be recognised by the public. The White Paper provides a basis for achieving that. Any new provision has to be so obviously fair and command such wide public support that future Governments are not tempted to tinker with or remove its basic elements. Above all, the scheme must also be affordable, so that future state pension provision is insulated from the vicissitudes of economic ups and downs that might otherwise tempt a Government to change it. There will be less reason to change a scheme that is affordable.
I recognise that the measures that this Government have taken to lift pensioners out of poverty mean that there is no immediate crisis, but profound problems remain that must be tackled if these proposals are to be successful. A combination of social attitudes to saving, what the White Paper terms “behavioural economics”, the complexity of pension provision and a lack of faith in the savings industry is making it very difficult to establish in people the commitment to pension saving that is going to be needed if we are to resolve the difficulties in the future.
The first matter that I want to deal with is the live now, pay later culture that several hon. Members have mentioned already. Yesterday, I saw a news item celebrating the 40th anniversary of the introduction of the credit card. I confess that I was alive and around in that era and can remember that buying things on hire purchase was not really respectable. People did it, but it was frowned on, especially in tight working-class communities.
What a revolution there has been. People in our consumerist society are bombarded with expectations of a certain quality of life, irrespective of their incomes. That, combined with the accessibility of easy credit, has changed everything, and our well-documented spending culture does not sit well with the level of pension provision that we want for the future.
The Government can change the culture by changing the way that state provision is made, and the child trust fund is a good example of that. I spoke today to the chief executive of one the fund providers, who told me that there is considerable evidence already that people are adding to the funds—even those allocated by the Treasury—and using them for saving purposes. The jury is still out on the child trust fund. It is still in its early days, and people might say that I was bound to support it, but the initial signs are encouraging. The fund is an example of how the state, through the way that it implements support, can change cultural habits and encourage people to save rather than spend.
The same is true for pensions. The national pensions saving scheme has automatic enrolment, which means that it can harness people’s inertia about pensions. I do not want to sound contradictory, as that inertia has been a bugbear in the past and a reason why people did not get around to sorting out their pensions. However, the automatic enrolment in the pension savings scheme means that that inertia can be used to assist saving, rather than the opposite.
That is crucial to the scheme’s success, but I echo what my hon. Friend the Member for Bradford, North (Mr. Rooney) said earlier. He is not in his place just now, but he was right to say that it is possible for unscrupulous small employers operating on tight margins to undermine the scheme by urging their employees to opt out. I am the last person to advocate a heavy regulatory regime to enforce the scheme, but I hope that Ministers will raise this very important matter in the discussions that I know they are having with the small business community.
The history of the savings industry has damaged how people perceive that industry, as well as their incentive to save. Pensions mis-selling, problems with endowment mortgages and the collapse of so many defined-benefit company schemes have led many people to believe that saving is just not worthwhile, as they will not get value for money. In common with many other hon. Members, I have a company in my constituency where decent, honest, working blokes who saved in a scheme for many years have lost all the benefits that should have accrued to them. They qualify under the financial assistance scheme, but no pay-outs have yet been made. I know that the Department is looking at ways to speed up the administration of the scheme and the payments made under it, but changing people’s perception of the value of saving requires us to bear in mind that every failed scheme is a personal tragedy for those involved. It is also a huge public relations disaster and a massive disincentive to future pensions saving. All that must be sorted out if we are to re-establish confidence in saving for pensions.
Finally, I come to the question of the retirement age. I believe that a large proportion of the public wants to work later in life. People may not want to do the same job that they have done for most of their lives, or even to work full-time, but a huge number feel that they can still contribute to the economy and the community when they reach retirement age. They want to enjoy the sense of self-respect and well-being that goes with working. If the retirement age is to be increased, part and parcel of that must be the provision of support for people in their 50s and 60s—and older than that—so that they can find the sort of jobs that they need.
In my area of West Bromwich, West the history is one of heavy industry, with demanding jobs, poor health and a life expectancy much below average. The Government must look at the provision for people like those in my constituency, who will not enjoy the same post-retirement lifespan as others. I welcome the White Paper’s commitment to examine whether the guarantee credit and the pensions credit could remain available at age 65, and I welcome, too, the Government’s determination to undertake proper monitoring of what is going on so that people such as I have described do not lose out.
In conclusion, I believe that the Turner report carried real weight. It was robust and received wide support from all groups. The White Paper builds on and refines its recommendations. It is robust and constructed in such a way that we cannot remove certain proposals and go ahead with the rest, as they are all interconnected.
The complex combination of funding and payments and the construction of different schemes is such that if one element is removed the whole is weakened. I urge Members to recognise, whatever their feelings, that the package is good. It is fair and robust and can command consensus not just in this place, but in the country as a whole. It will be a huge improvement on what has happened previously, so we should all work to give future generations something that past generations never enjoyed.
I have been listening to the debate for the past four and a half hours and have thoroughly enjoyed the cross-party discussions on this important issue.
We have heard a lot about consensus. No matter what consensus we may reach in this place, among the major political parties or out there in the country, I fear that, unless there is trust in our pension schemes, all that hard work may go to waste. The White Paper will not be worth the paper it is written on if the public do not believe in the pension schemes that result. Indeed, they have every reason not to believe or trust in pension schemes, given what has gone on over recent years.
About four years ago, when I was a parliamentary candidate, the former Dexion workers in my constituency asked for my support in their campaign for natural justice in respect of the pensions that had been stolen from them. I sat with them for three days and went through the detailed documentation they had provided through their trustees about actions in which they felt the Government had been involved. Long before the ombudsman’s report, I came to the conclusion that they had been treated very badly.
The number of people who have lost their pension has gone up dramatically since then. The early figure was between 70,000 and 80,000; now the number is 125,000 plus—I am sure that the Minister will take me to task if I am wrong. Seven hundred of those people are my constituents, but the loss of their pension does not affect only them; it hits their extended families and their loved ones, especially their widows who, in some cases, have suffered so much. In addition, the situation has massively affected people’s confidence about investing in a pension scheme.
We are asking the public to trust Governments and pension companies with their future—with their retirement income. So much of what has been said today shows that they will not have that faith in the future. I freely admit that there was a problem with pension mis-selling, which had to be addressed. Things went wrong and that had a major effect on people’s confidence, but there has been an even bigger effect over the last few months when an independent parliamentary ombudsman, appointed by the House, came up with a damning report on the Government’s involvement in the collapse of pension schemes. That has had a massive knock-on effect.
Ordinary decent people who changed their standard of living so that they could put something away for their pension have lost so much. It is difficult to see how we can involve the public in this great consensus debate about trusting the Government—no matter who is in power—if we do not address the problems faced by those thousands of decent, honest people who put something away for a rainy day and for their retirement.
I stood on a manifesto that said that those people should receive the minimum funding requirement— 80 per cent. of their pension—from unclaimed assets. Halfway through the run-up to the election, the Government came up not with a clear compensation scheme but with the financial assistance scheme. It comes from taxpayers—from public funds—which is good and it can be added to the estimated £15 billion that is sitting around in unclaimed assets. The Chancellor wants to use some of that money for worthy causes and I cannot think of a worthier cause than repairing the damage to people’s pensions and restoring their faith.
The knock-on effects will also be felt if something similar happens in the future. In the 13 months that I have had the honour to be a Member, I have been asked several times whether I would take up with the parliamentary ombudsman something that my constituents felt was fundamentally wrong. In some cases my answer would be yes and in others no, but even if I did pursue a case, the Government might simply ignore the ombudsman’s ruling. My constituents’ faith in Parliament has been massively affected by the pensions problem. The future role of the ombudsman is at risk, if when that person comes up with a report, whether it is for or against the Government or impartial, it is completely ignored.
The ombudsman’s report was damning. My constituents, like those of other Members who have spoken today, felt rightly that their pensions had been stolen from them. Some Members have said that we should look more closely at individual cases, and the Minister should consider that proposal seriously. Instead of wrapping everything up in one bundle and saying that all the blame lies with the Government or with the companies, we should look at individual cases. If the Government’s approach to an individual scheme was fundamentally flawed, they would have to say so. The ombudsman found in general terms that there was maladministration in the way that Government had dealt with pension schemes.
Does the hon. Gentleman agree that by splitting things up and looking at individual schemes, we might get to the bottom of the question whether the full cost of compensation will be £15 billion, £3 billion or whatever it really is, rather than the figure that has been put out to try to stop people from pursuing the findings of the ombudsman’s report?
The hon. Gentleman makes a valid point. The Prime Minister seemed to make up the figure of £15 billion on the hoof at Question Time. Many estimates are that the amount could be as low as £3 billion or £4 billion over a 50-year period—not £15 billion to be taken immediately from the taxpayers’, or the Chancellor’s, budget.
Considering schemes individually could alleviate some of the public’s concerns about whether the figure of £15 billion is correct. Another aspect of natural justice that the Minister could look at relates to the Pension Protection Fund that has been set up for future pensioners who suffer. The cap is £26,000.49, yet under the financial assistance scheme—should people be lucky enough to qualify—it is £12,000. Why are those people being treated as second-class citizens? Why are they being told that they will qualify only when they have less than half the funds required under the PPF criterion? It does not seem fair that those whose pensions have already been stolen are subject to a much lower cap, especially given that, as we heard earlier, because its value is not index-linked, it is falling day by day.
Another aspect is desperately important—I cannot emphasise how important it is. Many people paid large amounts of their income into a pension not only to secure their future, but that of their loved ones. There are some extremely sad cases. Many people have been unable to accept that they would not be able to provide for their loved ones in the future, as they had promised to do. There have been cases—although not in my constituency—of people who took their life due to depression because they were so worried about their family’s future and about letting them down.
A delegation from my constituency visited me today. It included a wonderful lady, Marlene Cheshire, whose husband, Dave, had paid into a scheme for nearly 30 years. Soon after the scheme collapsed, he was diagnosed with terminal cancer. Just before he died Marlene told him that everything was sorted and that money from the financial assistance scheme was coming through. I am sure that she will not mind me telling the House that she misled Dave; the money had not come through. Only five of the 700 people in my constituency qualified. Marlene has got some money now: she has £20 a week. Her husband paid in thousands of pounds.
If we want to move forward—I desperately want us to, because I accept all the arguments about the fact that we have an ageing population, that the funding is not there and that we have only four people working for every one person getting a pension—we need the confidence and the trust of the public. To gain that trust, we have to address the problems of the pensioners who have had their pensions stolen from them. I have met the Secretary of State. Will the Minister look at the way in which the scheme is being used and compensate those pensioners for the pensions that have been stolen from them?
It is a genuine pleasure to follow the hon. Member for Hemel Hempstead (Mike Penning). We speak fairly regularly and I know that he is an extremely hard-working constituency Member. Regardless of party affiliation, I support him in that. His constituents are lucky to have him. I want to follow on from the points that he raised. I want to make two points. The first is about the big macro-economic and financial pressures on pensions and pensions policy—and particularly on occupational pension schemes in the UK and also throughout the developed world. The second point, which was raised by the hon. Gentleman and other hon. Members, is the very real effect that those pressures are having on a number of my constituents and, as the debate has shown, a number of other hon. Members’ constituents, in terms of compromising and sometimes ending completely the planning that they have undertaken for their retirement.
In the post-1945 period, companies provided an element of security for workers with regard to provision in retirement. Defined benefit pension schemes helped to inject both motivation and loyalty into the work force. In the relatively stable environment of the post-war period, that was entirely feasible. Risks associated with planning for retirement through a defined benefit scheme were borne almost solely by the employer. If a defined benefit scheme fell short, the employer topped it up. That warm and cosy scenario for occupational pensions has been put under severe strain over the past two decades or so for a number of reasons. First, the growing stock market and rising pension fund surpluses in the 1980s enabled the Conservative Governments of the time to impose greater costs on pension schemes—for example, by taxing pension fund surpluses under the misapprehension that pension fund surpluses were a cash cow that could be milked for ever. Secondly, the 1980s saw a break with the link between pensions and earnings, because the Conservative Government of the time made a political judgment—incorrectly as it turned out—that those in work had generously funded company pensions and would not have to rely on state provision. Thirdly, the unemployment policies of the Tory years resulted in high levels of redundancies and factory closures, which, paradoxically, had a positive effect on pension fund surpluses. That was partly because there was a receipt from the sale of capital assets and partly because the number of early leavers from schemes meant a sharp reduction in scheme liabilities. Fourthly, during a period of a historically strong stock market performance, many companies took pension fund contribution holidays. That trend had extremely adverse effects when the markets corrected themselves after 2000.
On the back of lower stock market performance, companies redirected investment decisions for pension funds towards Government bonds. That trend has been accelerated by the fact that the Pension Protection Fund has charged risk-rated premiums, which in turn has encouraged a move into low-risk assets such as bonds. Over the past few years, that has depressed yields and reduced the ability of pension funds to recover from their deficit position. I acknowledge the tension that exists between ensuring that high-return, high-risk investments do not jeopardise the long-term financial situation of schemes, and allowing recovery to take place quickly. However, I would be grateful if the Minister could say in his winding-up speech whether his Department will look again at whether the PPF could change that rule in relation to risk-related premiums.
Underpinning those developments have been the strong forces of globalisation and demographic change. The opening up of international markets and the rise of the electronic economy mean that companies have become ever-more powerful and are able to transfer operations anywhere on earth in order to secure a more effective rate of return. The culmination of those forces has meant that companies providing occupational pension schemes have sought to transfer the risk of providing pensions away from themselves and towards their employees and Government. Given the growing power of companies, they have been able to achieve that with some success and in recent years there has been a reduction in the number of defined benefit schemes on offer.
That trend has been accelerated by a wholly inappropriate accounting scheme. FRS 17 could almost be seen as the last nail in the coffin for decent occupational pension schemes. I should point out that I am a member of the Institute of Chartered Accountants in England and Wales. FRS 17 has good intentions in that it tries to push forward the correct principle that a pension fund and its assets and liabilities should be an integral part of a company’s financial position. However, the fact that surpluses or deficits in the pension scheme are recognised in full on a firm’s balance sheet has meant significantly greater volatility, with adverse effects on pension schemes.
All those factors have meant that companies have had an appropriate environment in which to try to transfer the risk of planning for the retirement of their work force away from themselves and towards employees and Government. Perhaps more than any thing else, that is a vivid example of companies in the modern era becoming possibly more powerful than Governments.
I hope that the hon. Gentleman does not overlook the role of the Inland Revenue. One of the reasons why a lot of companies took contributions holidays was that the Revenue rules said that the schemes were overfunded—115 per cent. was the maximum. That was fine when the stock market was strong and technically there was overfunding, but it did not allow companies to build up adequate reserves to allow for the fact that the stock market was going to crash one day. I am afraid that the Revenue is as much a culprit as anyone else.
I understand what the hon. Gentleman is saying. Hindsight is a wonderful thing. I remember a report at the time that said that the stock market would go on rising and that there was no need to worry. That proved to be plainly wrong. We should be a lot wiser in this day and age.
It is important to recognise that, in the context of big, global forces, the lives of ordinary men and women are being affected. My hon. Friend the Member for Cardiff, North (Julie Morgan), who is not in her place, secured an Adjournment debate in Westminster Hall earlier this month about the financial assistance scheme, and made vivid points about workers in her constituency. My hon. Friend the Member for Ayr, Carrick and Cumnock (Sandra Osborne) has also made such points, as has the hon. Member for Hemel Hempstead. I am not as eloquent as those hon. Members, but I echo their points on this issue. Far too many of my constituents have been caught up in these large forces as the risk of providing for retirement is being moved away from employers towards employees. Those men—in my constituency, they are predominantly men—did everything that was expected of them. They are decent, ordinary, hard-working, working-class men. They wanted to provide a secure and enjoyable retirement for themselves and their wives and families. They did not want to be a burden on the state. They paid into a pension scheme, often for decades, because they had an implicit understanding with their company that a definite level of payment would be provided for them when they retired. Now, because companies are trying to shift the risk, as I keep mentioning, those people are being left with nothing—often months before retiring. That is surely not fair.
I have a number of constituents who are part of the Roxby pension scheme. The scheme is in the process of being wound up, but because that is taking some time and it is still classed as operational—it started to be wound up in 2003—the Roxby pensioners are not eligible for Pension Protection Fund money. I understand that they may be entitled to financial assistance scheme money, but have not heard anything yet. This issue is taking some time to resolve, causing stress, anxiety and uncertainty to my constituents and their families. Like my hon. Friend the Member for West Bromwich, West (Mr. Bailey), I urge the Government to consider streamlining the processes to provide a swift judgment for those pensioners and others.
The plight of those people is exemplified by Mr. Robson, a constituent of mine. After paying into the Roxby scheme for decades, he would have been entitled to about £14,000 a year at the normal retirement age. We are not talking about footballers’ salaries. Now, he is forecast to get nothing and, given his age, he is not really in a position to do anything about it. Although the financial assistance scheme is a good idea, it fails to take account of length of service and concentrates instead on the length of time before retirement. If the likes of Mr. Robson have paid into a pension scheme for some 30 years, surely there is a moral, if not legal, obligation for commitments to be honoured by firms.
Mr. Hughes came to see me in my constituency surgery only last Friday. He has worked at Carpets International for many years, but the firm is now being wound up. He was told in 2002 that his fund was worth £67,000 and that he would be entitled to a pension of about £8,000 a year. Now, some four years later, that fund is worth £18,000, which has to last him a full retirement. He has an estimated 10 years of his working life in which to sort that out. I know that the financial assistance scheme will, I hope, help people such as Mr. Hughes, but there is a strong case for providing even more help for people such as Mr. Robson and Mr. Hughes, who have done everything right, yet find on the eve of their retirement that all their plans have been destroyed.
I just want to mention one final pension scheme. Expanded Metals, or Expamet, is a staple firm—I hope that hon. Members will forgive the pun—of my constituency. However, the pension scheme is in the process of being wound up because the firm cannot meet its liabilities. Expamet is still trading, so the workers and former workers who are affected fall between two stools. I understand that the financial assistance scheme applies only when a firm has gone bust, while the Pension Protection Fund covers future victims. Will the Minister explain what can be done for people such as Paul Whitton, who has worked for Expamet for some 30 years, yet will now receive only 40 per cent. of his planned pension, and Mr. and Mrs. Edwards, who, together, were members of the scheme for 53 years, but are now contemplating a pension of £12,000 a year, rather than close to £30,000 a year, as was originally planned?
I stress again that these people—my constituents—did everything right, but are being penalised for a combination of global factors that were outside their control. I understand that those forces are pushing firms to move risk away from themselves and towards individuals. I do not want to tip firms such as Expamet into liquidation, which would lead to the loss of valued jobs in my constituency. However, I urge Ministers and, indeed, the whole House to reach a consensus that people who have planned for their retirement in the correct manner, using occupational pension schemes, should have such commitments honoured as much as possible.
As the White Paper rightly identifies, pension provision will become more problematic as the general population gets older and there is a greater squeeze on the working population. I have tried to acknowledge in my contribution that these forces are great and cannot be reversed with any great ease. However, I still think that both firms and the Government, to some extent, have a moral, if not legal, duty to people who did what they should and planned for retirement properly.
I remind the House of my entry in the Register of Members’ Interests. I have a personal pension, and I am also the director of an investment management fund that manages several small pension funds.
I shall talk about specific aspects of the proposals in the White Paper for most of my contribution, but I would first like to touch on an issue that has resonated around the Chamber from many hon. Members’ speeches: trust and consensus, and the need to rebuild confidence through the Bill that emerges from the White Paper. The issue was put forward most succinctly by my hon. Friend the Member for Weston-super-Mare (John Penrose), and I pay tribute to him for his persuasive and forceful contribution. It is important that there is a broad political consensus on whatever emerges from the proposals.
When I first arrived in the House a year ago, I took the view that the question of pensions was one of the two or three biggest issues that parliamentarians needed to address in this Parliament, not least because pensions had been left woefully adrift for the previous 10 years or so. We cannot allow that situation to continue, for all the reasons that have been cited in the debate. The demographic changes are so important that we cannot continue to ignore the pension system that we set up for future generations. I congratulate the hon. Member for Hartlepool (Mr. Wright) on his positive contribution. He made useful remarks about the need for consensus.
We need to remind ourselves that the Government are not immune from responsibility for several factors behind the difficult situation in which many pensioners find themselves. Hon. Members on both sides of the House have talked about problems that are beyond the Government’s control, but at least some responsibility for the significant erosion of confidence in our pension system and the savings culture lies at the Government’s door. Although I want to maintain the spirit of consensus, I cannot resist reminding hon. Members of some of the problems. They are relevant because it is important that we overcome the drawbacks as we look forward.
My hon. Friend the Member for Poole (Mr. Syms) referred to the Chancellor’s tax grab on savings. The abolition of dividend tax credits played a significant part in undermining defined benefit pension schemes in particular, and occupational schemes in general.
The 2001 initiative of introducing stakeholders was announced with a fanfare as the great white hope for introducing people on lower and middle incomes to the savings culture, but it would be fair to say that it has not been a great success. Take-up has been poor. The latest available figures show that there are about 1.5 million stakeholder pensions in operation, and the number has been broadly flat for the past three years. The schemes have suffered from high lapse rates, for reasons that are well documented.
The Government must take responsibility for the consequences of introducing so much means-testing. I, like hon. Members on both sides of the House, acknowledge that means-testing has led to a benefit in the form of reducing pensioner poverty, but it is also perhaps the matter for which the Government are accountable that is most responsible for the collapse of savings over the past nine years. Until a couple of years ago, when the Government introduced some changes to the rules and the system became less regressive, many people had no incentive whatever to save, because each pound that they saved would lead to their losing pension benefits. We need to reverse a situation in which it is in individuals’ financial interests not to save, as the hon. Member for Dumfries and Galloway (Mr. Brown) said.
Several hon. Members have referred to the survey that was published today by Scottish Widows. It shows graphically that the percentage of people saving adequately for retirement has fallen from 55 per cent. last year to 46 per cent. this year. There has thus been a significant reduction in just one year. The problem is especially acute among those who rely on defined benefit schemes for their pension savings. This morning, I spoke to Ian Naismith, the head of pensions market development at Scottish Widows. He said today:
“4 in every 5 people who aren’t relying on a final-salary pension are failing to save adequately for their retirement, and …2 in 5 are saving nothing at all.”
That, in part, comes down to means-testing.
The final issue that needs to be borne in mind is the consequences of the delay until 2012—and potentially longer, as we heard earlier—of the introduction of the earnings link. As the hon. Member for Bradford, North (Mr. Rooney)—the Chairman of the Work and Pensions Committee, which I am proud to serve on—said earlier, a six-year delay is very significant for existing pensioners, or people who are about to become pensioners. Such a long period before implementing the proposals does not help to build confidence. Of course the proposals have got to be got right; I would not deny that for a moment. But steps could be taken earlier that would have a much more immediate impact—for example, introducing the earnings link. I know that that has been the subject of great debate between the Prime Minister and the Chancellor, but Ministers need to look at that issue when they turn the White Paper into a Bill.
Having got that off my chest, I endorse the view that we need to achieve a consensus through this proposal in order to rebuild trust among the population at large in the idea that saving is worth while. I am not absolutely convinced that the Secretary of State’s claim that for every hour that we sit in this Chamber we add an extra quarter of an hour to our own longevity helps to build confidence in the system—although I am sure that he will be able to produce the evidence that supports that claim. I again endorse what the Select Committee Chairman said: this is a fine example of how pre-legislative scrutiny could be undertaken to ensure as broad a consensus as possible in all parts of the Chamber on the resulting Act. I urge the Minister to address that issue in his wind-up. Is he prepared to consider a draft Bill for when we return in the autumn?
I turn to a few specific points. When the Select Committee took evidence, one issue that arose—it has not been raised so far this evening—was that employers might regard auto-enrolment as a tax on jobs. Much has been made, particularly by Labour Members, of rogue employers seeking to force people to opt out of auto-enrolment. But the valid point that was made to us, and which needs to be borne in mind, is that once we are through the phasing in period, the contributions by employers of 3 per cent.—and by employees of 5 per cent., when tax relief is included—will add a total of 8 per cent. to the employee wage bill of employers who do not provide an existing occupational scheme. That is a significant addition to the cost base of some employers, and we cannot just dismiss them as rogues because they encourage people to opt out.
We need to look very carefully at the transitional arrangements referred to in the White Paper to ensure that they assist such employers. They may not be rogues; they could be going through difficult trading periods or a rapid growth phase, during which they need to invest as much as possible in their own business, rather than paying inflationary wage demands. We all recognise that the employee contribution is likely to be reflected in wage bargaining negotiations, and that some inflationary pressures will therefore emerge as a result of these proposals.
For those with existing occupational schemes, there is also the risk of the levelling down of contributions from employers who may currently provide more for their employees. As defined benefit schemes decline, there has been a shift towards occupational defined contribution schemes—the real comparator to the proposed national pension savings scheme, which will be the ultimate defined contribution scheme—so that benefits get reduced for existing occupational schemes as they move on to a defined contribution basis.
Because the NPSS is unprecedented, it is not easy for us to foresee its impact on existing schemes. We can make some glib remarks in this Chamber, but none of us really knows how it is going to work. Some comparisons can be drawn with schemes in other countries, but none of them are of the magnitude of this one. There is a real risk that existing defined contribution schemes will trend toward the state scheme, particularly with small and medium-sized employers who, for example, are experiencing trading difficulties. If that happens, savings might decline as a result of the scheme’s introduction, and the Government’s objectives will fail. This is another area in which I urge the Government to consider transitional measures to limit the impetus for companies to level down.
The Government seem a bit complacent about that risk. A survey by Capita Hartshead last month indicated that 58 per cent. of providers of large schemes who are not using auto-enrolment thought that employers would level down when required to implement auto-enrolment within their existing scheme.
The next issue on which I shall touch is fairness, which has been mentioned by several of my hon. Friends in relation to the perception that the Government are taking different approaches towards private sector schemes and public sector occupational schemes. My hon. Friend the Member for Runnymede and Weybridge (Mr. Hammond), who is just leaving the Chamber, spoke clearly and well about the lack of balance and fairness in the Government’s approach to the retirement age of members of occupational schemes in the public sector and in the private sector.
It is extremely important for rebuilding trust in the whole pensions arena that the Government face up to the clear public perception, right or wrong—Labour Members have said that they believe that it is a false impression—that the Government think that it is okay to push up retirement ages for those in the private sector, but when the Government themselves are the employer, they are not willing to raise retirement ages for their own occupational schemes, which are, in effect, defined benefit final salary schemes, which are rapidly disappearing from the private sector.
That brings me to what the Government’s role should be in the new savings scheme. As others have said, there is little confidence in their ability to manage complex IT administrative schemes. There is little confidence in the Government as an investor: without wanting to get too political, we need look no further than the Chancellor’s so-called prudent stewardship of the value of the country’s gold reserves. There is little confidence in the Government’s statements on the security of occupational schemes, as many have said in relation to the ombudsman’s criticisms of maladministration. For all those reasons, it is vital that the Government acknowledge that they are not the best placed people to run the national pension savings scheme.
I endorse the view expressed many times by the right hon. Member for Birkenhead (Mr. Field) that the Government should take a leaf out of the Monetary Policy Committee’s book. They should appoint a board of trustees independent of Government, and that board should be responsible for appointing an administrator for the scheme, as well as investment managers to undertake its management. Competition between the investment managers will improve performance and drive down costs. In addition, an independent body should regularly review longevity and the retirement age. When he appeared before the Select Committee, the Secretary of State agreed that that review should take place according to a predetermined timetable, which is important to building confidence in the scheme.
Like the majority of hon. Members who have spoken in the debate, I welcome the work of the Pensions Commission, which provides the basis of the consensus that we all know is required if we are to achieve a long-term settlement in pensions. At one point this evening, qualifications to a consensus were expressed that suggested to me that it might not be as easy to obtain as we had hoped, but I hope that after we have had the political debate, which clearly we must have, we do achieve it. We all know that the price of not reaching consensus will be not achieving the long-term settlement that we know is needed, and future generations will not thank us if we do not produce such a settlement.
I shall concentrate on some of the areas in which we have not reached consensus or in which the Government have not given detailed indications of their direction of travel. Before doing that, I wish to echo the comments made by my hon. Friend the Member for Colne Valley (Kali Mountford) during her eloquent defence of the Government’s strategy of making its initial priority tackling poverty among those pensioners with the lowest incomes through the income guarantee and the pension credit. I have frequently had the same experience as she has had of pensioners coming up to me after sometimes rather stormy meetings and saying quietly that they welcome the pension credit and recognise its benefits. I hope that, whatever proposals the Government eventually make on the future of the pensions system, they build on the success of the pension credit and ensure that we continue to use it to tackle pensioner poverty as one of our priorities.
I agree strongly with the general drift of the White Paper. Having initially prioritised steps to give more money to pensioners on the lowest incomes, it is right now to take measures to ensure that we do not end up with more and more pensioners relying to a greater and greater extent on means-tested elements of their pension. I say that for all the reasons that have been advanced this evening and that will be reinforced during the continuing debate on this issue. That is why I strongly welcome the proposal to reintroduce the link between pensions and earnings.
I would like to see that happening as soon as possible, and ideally even before 2012. I understand that there are many resources reasons why that may be unlikely to happen. However, I believe that it would be wrong to delay the reintroduction of that link to any later date. Earlier, we had a somewhat convoluted excursion into jam- making, appropriately enough by the hon. Member for Angus (Mr. Weir). I will not pursue him down that avenue. In my view, the position set out in the White Paper on the date for the reintroduction of the link with earnings is one of its weakest points. Apart from anything else, it is politically unsustainable.
I ask my hon. Friend the Minister for Pensions Reform to consider the position that the Labour party would be in come the next general election if we were to say, “We will reintroduce the earnings link but, then again, we might not.” That does not sound to me to be a particularly attractive position in which to enter the next general election. I do not think that it would stand up to the scrutiny of an election campaign. I think that the Government ultimately would be forced to come forward with a date. It would be better to take the initiative rather than to leave the matter to the vagaries of a political debate prior to a general election.
I shall concentrate my remarks on auto-enrolment, which is at the heart of the reform proposals. There is clearly a tension in auto-enrolment. The more that we make opt-out harder, the less we have crafted a system where workers are genuinely making their own choices about future pensions and the more that we are turning the process into a quasi-compulsory system. If, perhaps by the awkwardness of opting out, we move towards something that is becoming almost quasi-compulsory, we will lose the advantages of having a system that is not increasing tax or national insurance contributions. We will be reducing the incentive of workers to take decisions about their financial futures into their own hands. If we make opt-out too difficult, people will not be in a position to make decisions about their own future with full financial responsibility. If we go along that road, we will almost be introducing SERPS by another name. Clearly, that would cause problems.
Assuming that we want to allow some meaning to the concept of opt-out—I think that that is implicit in the proposals from the commission and from the White Paper—it seems to me that a positive encouragement for opting in and discouraging opting out is to be achieved, above all, by a change in the culture of personal finance and a change in the culture of saving, so we bring about a situation where making a contribution to personal pensions of 8 per cent. across the relevant band is not the ceiling of the contributions made, but is more often than not the floor of such a contribution. People and employers will be encouraged and will want to top up contributions through the NPSS or whatever scheme is eventually introduced to operate personal allowances.
If we do not achieve that cultural shift, we will run a real risk of some occupational schemes, in which contributions are currently above the levels proposed in the White Paper, being levelled down so that pension provision is worse than at present. If the Minister has time when he replies, I shall be interested to know how he might respond to the difficulty that is presented by a possible levelling down in some existing occupational pension schemes.
There is also the risk, to which some hon. Members have referred, of a large-scale opt-out by individual workers. If we do not get the package right, there may be cases where it might be economically rational for an individual to opt out of the scheme. We must ensure that we get the package right and that we do not see such opting out. I accept the point made by many Labour Members that there is a danger that some employers, having made an unscrupulous analysis of their short-term interests, will encourage employees to opt out. We cannot ignore that risk, and the Minister must address it carefully. We could restrict the period for which employees opt out, so that opting-out is not a process that lasts for ever but can be reviewed after a few years.
In any event, we need a cultural shift in attitudes both to saving and to saving for retirement. It is essential that we conduct a major UK-wide exercise before a scheme is brought into effect, whether or not it is the national pension savings scheme, so that we can make the case for the new auto-enrolment scheme to employees in the workplace and, indeed, encourage workers and employers to contribute more to the personal pension. If we are to achieve that objective, employees must have access to financial advice services that they can trust, and in which they are right to place their trust. They must be able to obtain advice that, bluntly, they do not have to pay for up front, otherwise many people who most need it will be unable obtain it.
I will not go into detail about the way in which that advice and wider financial education can be provided, but we must build on existing networks and agencies, including Citizens Advice, local money advice services, and independent advice centres. Trade unions, too, can play an important role. We must be very wary of setting up a plethora of new organisations that seek to offer advice, as that would increase the risk that individual workers would be put off by the complexity of choice. Moreover, some organisations that purport to offer independent and impartial financial advice but, in fact do nothing of the sort, may take advantage of people who are not as informed as they might be.
If employees make bad investment choices when they decide how to direct the savings accumulated in their personal allowances, it is likely that confidence in auto-enrolment will take a tumble, and a future Government will face a choice between a fall in pensioner incomes and the need to make auto-enrolment compulsory with no opt-out. The Government must look at the way in which they provide pensions information and advice. There has been a strong emphasis on encouraging the take-up of pension credit, which is all to the good, as the scheme has been a great success, but take-up could be further improved. It is sometimes difficult for people who most need financial advice and information about financial services to obtain it. The Pension Service relies heavily on the telephone and its website to provide information. In the early years after the adoption of a new pensions settlement, we must provide face-to-face advice so that people do not have to rely on call centres and websites for information and advice.
Finally, as the Pensions Commission and many commentators have pointed out, the implications of pensions reform extend far beyond pensions policy. If we are to develop a policy based on the reasonable expectation that people will live and work longer, there is a huge agenda to address. We must encourage and facilitate the employment of older workers, and introduce more flexible working, to cite just a couple of issues. As has already been mentioned in the debate, it is workers on low incomes, because of illness or disability, or sometimes because of their employees’ policies, who will be in danger of suffering badly, so there have to be measures to protect the least well-off, and of course to tackle the underlying health inequalities.
I know that the Minister realises that, as do many other hon. Members here today on both sides of the House, but it is worth emphasising how those wider issues have to be kept in mind as we decide how to draw up a new settlement for pensions. If we do not do that, we will end up with a settlement that makes the real winners in retirement those who have already been the financial winners in their working life.
I should like to address three concerns that arise from the Government’s proposal for pension reform. Reform is, as we are all acutely aware, urgently needed in order to jolt us out of what, as Lord Turner told the Treasury Committee, has become “a collective fool’s paradise”.
None the less, my first concern is that the Government are pursuing what appears to be an attempt to reinvent the wheel by suggesting that they are merely reintroducing the contributory principle. That particular principle would not need to be reinvented if the Government had first not undermined it.
My second concern is the Government’s caveat on the uprating of the basic state pension being
“subject to affordability and the fiscal position.”
That statement is itself characteristically nebulous. But more importantly, Lord Turner’s remit and the subsequent White Paper also failed to include a review of public sector pensions, where affordability and long-term fiscal position are most uncertain.
Lastly, I want to address the danger posed by any reform that does not tackle head-on the purpose and scope of means-testing within the pensions system. There is a danger that a lack of fundamental reform of the scope of means-testing will undermine public confidence in the benefit of the proposed savings scheme, and consequently undermine the purpose of the reform.
First, I come to the contributory principle. The pensions White Paper declares:
“We are creating a system which establishes a new contributory principle for state pensions.”
The fact that part of the statement appears in bold type does not unfortunately mean that it is boldly going where no one has gone before. The rhetoric is over 60 years old and any new substance is somewhat lacking. National insurance contributions were originally intended to be hypothecated—or reserved—for certain purposes. Sixty years later, what was envisioned as a national insurance fund is more hypothetical than hypothecated. The Government’s return to the something for something rhetoric of the contributory principle is disingenuous, because uprating the basic state pension apparently remains dependent on future affordability. Those who are contributing today, and may have done so for their whole lives, will still depend for their retirement income on the Chancellor’s assessment of the fiscal position over the next few years.
I come now to my second concern—that the Pensions Commission remit did nothing to address the mounting public sector pension deficit. If we are to be confident that the basic state pension will in fact be relinked with earnings, we must be reassured about the Chancellor’s assumption regarding affordability. But the Treasury has consistently understated the extent of public sector pension liabilities. According to the consultancy firm Watson Wyatt, Britain’s underfunded public sector pension liabilities reached a total of nearly £1 trillion in March 2006. That is a one with 12 noughts after it. That is more than 80 per cent. higher than the most recent Government estimate and amounts to a whopping £40,000 per household in the UK.
Stephen Yeo, a senior consultant at Watson Wyatt, has described the Government as
“taking a rosy view of the cost of public sector pensions”.
The White Paper does nothing to address the cost of public sector pensions, which is a significant omission. Without action to address the long-term affordability of public sector pensions, it is difficult to have confidence in the Chancellor’s assessment of affordability and the fiscal position with regard to the basic state pension, which is to be re-linked to earnings.
Perhaps most significantly of all, I must turn to the seemingly ubiquitous burden of means-testing, which is certainly not a new concern. In 1942, Beveridge noted
“the strength of popular objection to any kind of means test”
before warning that “discouraging thrift” would be the inevitable result of a
“permanent system of pensions subject to means test.”
Yet Beveridge went even further in 1942 than the Government are prepared to go in 2006. He warned:
“The State in organising security should not stifle incentive, opportunity or responsibility; in establishing a national minimum, it should leave room and encouragement for voluntary action by each individual to provide more than that minimum for himself and his family.”
To propose a personal pension savings account without a radical reappraisal of the use of means-testing will continue to stifle any incentive to save.
The Treasury Committee heard time and again in the evidence provided in the course of its inquiry into the national pension savings scheme that the existence of means-testing would be one of the most important factors influencing the success of the proposed scheme. Lord Turner was adamant:
“A way forward has to be found which achieves affordable and sustainable reform of state pensions which makes sure that means testing does not grow in the way that it would otherwise grow and ideally reduces in extent.”
Yet it is still not clear at all that the Government are pulling in the same direction on the issue of means-testing. Worryingly, Lord Turner also said:
“We have not had detailed discussions with the Treasury over the course of the last few weeks which would clarify exactly where they stand on the issue of the spread of means testing.”
The Work and Pensions Committee received evidence from the Pensions Policy Institute stating that, even after the reforms proposed by the Pensions Commission, 45 per cent. of pensioners—not the 33 per cent. claimed by the Government—would still be eligible for means-tested benefit in 2050. The Chancellor was quite clear during his evidence to the Treasury Select Committee earlier this year that
“the long-term solution for pensions is that people are in a position to make their private savings over the course of their lives.”
His commitment to ending the means-testing of pensioners is much less clear, yet it is on that commitment that the success of the proposed reforms hangs.
It is not just important to encourage people to save; pensioners must also be freed from the indignity of means-tested benefits. Earlier today, I met two of my constituents, Phyllis Webb and Barbara Shillabeer, who are members of the Braintree pensioner action group. I want to be able to go back to Braintree to tell them unequivocally that the basic state pension will, in future, provide them with an income. Just as importantly, I do not want to have to tell my constituents that there is no point in saving because it will not leave them any better off when they come to retire.
Sixty years ago, Beveridge’s recommendation for the introduction of national insurance contributions noted:
“A revolutionary moment in the world’s history is a time for revolutions, not for patching.”
Perhaps we live in less revolutionary times but the lesson remains valid. If we wish to achieve a lasting pensions settlement, we must not deal in half-measures. Uprating the basic state pension and introducing personal pensions savings accounts must go hand in hand with a decline in means-testing to give people the confidence to save for their retirement.
Perhaps most important, the Government must take steps to account for their unfunded public sector pension liabilities to encourage greater public confidence in the future affordability of all state pension provision. After all, if the Government cannot properly account for their pension liabilities, they cannot hide behind the caveat that an increase in the basic state pension can come about only
“subject to affordability and the fiscal position.”
I want to consider financial literacy, especially the financial education that our young people receive and how they make decisions about planning for their financial futures. I also want to discuss women and carers, and make some small points about the proposed retirement age in the White Paper and whether we need a body to oversee pensions in future.
Pensions is not a sexy subject. If we talk to young people about pensions, we see their eyes glaze over, as my hon. Friend the Member for Colne Valley (Kali Mountford) said. I remember finding my pension statements difficult to fathom. They are complicated and dressed up in language that is not easily accessible. When we are young and should start to pay towards a pension, there are other pressures on money and we think that we will never get old. That struck me forcefully because it is my 40th birthday next month. At such a time, one suddenly starts to get interested in pensions. Often, people start to take the matter seriously at an age when they are told that the contributions that they must make are fairly hefty.
I am grateful to my hon. Friend for giving way so early in her already brilliant speech. What does she think of the various proposals made today about how we give advice, bearing in mind that young people are least likely to go to an independent financial adviser? Whose responsibility does she believe that it is to ensure that people are properly advised about the sorts of pension plan they might make, especially given the comments of my hon. Friend the Member for Bradford, North (Mr. Rooney)?
I am grateful to my hon. Friend for that intervention because it leads nicely to the comments that I wanted to make about the need to think carefully about the way in which young people receive financial education. Most young people get lessons from their mum or dad or perhaps listen to their peer group, but the advice and guidance available to young people is limited. We must consider the way in which we engage with young people in schools, colleges and universities, and the use of role models who can send a positive message to young people about the necessity to take financial responsibility early in life and plan one’s financial future. We have used role models in other ways, for example, to encourage young people, especially boys, to read books and eat healthier food.
There is much cynicism about financial advice. Those whom we approach to provide good financial advice must be organisations and groups that we can trust. I was interested in the comments of my hon. Friend the Member for Edinburgh, North and Leith (Mark Lazarowicz), about the use of citizens advice bureaux and the important role of trade unions and other voluntary groups.
I am pleased that the White Paper emphasises the role of personal accounts through the NPSS, which could be important for young people. It is a simple proposition for people to get their heads around—the 8 per cent. is divided between the employee, the employer and the state. The personal account will start at 22 and go through to 65. It is interesting that 22 has been chosen as the starting age, and I wonder whether people who are younger than 22 and who want to opt into the account should be allowed to do so.
The account will be introduced by 2012 and it will help young people to understand how saving for their future can help them. We know that most young people will have many jobs in their employment lifetimes, and they can take the account with them from job to job. I also understand that the self-employed or those who do not work at different points in their lives can also be included in the scheme. Hon. Members on both sides of the House have discussed the need to keep the management costs of the scheme at a minimum, which is correct.
In the spirit of consensus in the Chamber this evening, will my hon. Friend the Minister for Pensions Reform look at the proposals that the right hon. and learned Member for Kensington and Chelsea (Sir Malcolm Rifkind) introduced in his private Member’s Bill, the Rights of Savers Bill, earlier this Session? That Bill would have introduced a savings scheme for people to use flexibly throughout their lives, so they could use that money, for example, to pay for a deposit on a house or to take a career break to access education. Such transactions would be limited and managed, and people would have to pay back the money in order to ensure that they do not reach the age of 65 and find that they have no money in their savings accounts. A flexible savings account is a good idea to allow for the choices that people make throughout their lives. That Bill was considered in Committee, and it contains some ideas that the Government could take forward.
My right hon. Friend the Member for Southampton, Itchen (Mr. Denham) recently introduced a ten-minute Bill, which was about making sure that jobs are advertised with the full pension benefits clearly set out. That would allow people to make a positive decision based on the pension advantages of a particular job, and it would help young people to make sensible decisions about their financial futures.
On the role of women, I am pleased that the outdated model that has been used since Beveridge, which involves women being dependent on their husbands for pension provision, has been addressed in the White Paper. That situation is a scandal, and many hon. Members have discussed it this evening. The number of women MPs that we now have in the House of Commons means that the issue has not been allowed to stay at the bottom of the agenda—it has moved right to the top—and it is right that we should sort it out. We know that with a reduction to just 30 years of contributions by 2025, 80 per cent. of women will be entitled to the basic state pension, which is right and proper. We also know that the home responsibilities protection will become a positive weekly credit, which will ensure that more women are included in the basic state pension within the proposals in the White Paper.
I want to comment on women who have multiple low-paid jobs. We should examine how to include such jobs in the pension provision. My hon. Friend the Member for Bradford, North (Mr. Rooney) said that people with such jobs, who are mainly women, will still not be included, and I wonder whether my hon. Friend the Minister for Pensions Reform will comment on that point.
I am pleased that the White Paper includes a proposal for a new credit for those who care for more than 20 hours a week for someone who is in receipt of severe disability benefits. In my view, any carer who is caring for someone for more than 20 hours a week should receive that new credit—it should not be dependent on the benefit received by the person for whom they are caring. I could not let this opportunity pass without mentioning the Hull carers centre, which I visited a few days ago. I was lobbied very hard to ensure that carers are kept in the public eye and that those people, who do such sterling work, get the credit that they deserve and the pension that they deserve. I was also asked to raise the issue of people who reach the age of 65 and receive their pension, but suddenly find themselves losing out on their carers allowance. Can that be considered in future?
I should like to say a few words about raising the retirement age to 68 by 2050. I am very aware that in my constituency, Kingston upon Hull, a baby boy born today will have a life expectancy that is six years less than that of a baby boy born in Kingston upon Thames. There is a marked difference straight away. I hope that the Government will think carefully about how to beef up the work that is already going on with health inequalities and public health to address the problem of different life expectancies across the United Kingdom. We want the White Paper to be fair, but as it is it will not be fair on some of my constituents.
My hon. Friend is making a valid point about health inequalities. When pensions were first introduced, life expectancy for working people was only 48, yet they could not receive a pension until they were in their 70s. Does she therefore accept that we have at least seen some improvement?
My hon. Friend is right. However, my concern is that to achieve consensus in the country we must ensure that people accept that the White Paper is fair. At the moment, people in certain constituencies may miss out on the options on pensions that we are putting forward.
It has been suggested that a new body should oversee the pensions decisions that we make to ensure that they fit in with what happens in the next 10 or 20 years. Certain organisations are pushing hard for a permanent pensions commission to ensure that our proposals on treating people fairly in future are realised.
A few issues remain to be addressed, but on the whole I welcome the White Paper. I am particularly delighted that women and carers are at the heart of it.
This has been an excellent debate. I particularly enjoyed all the talk about longevity and the amount by which it will have increased during the course of the debate—although there have been one or two speeches during which my whole life has flashed before me. I will not say which ones they were.
According to my arithmetic, there have been some 18 Back-Bench speeches, so I apologise to hon. Members if I do not go through them all but pick out one or two that deserve particular mention. My hon. Friend the Member for Hemel Hempstead (Mike Penning) made a powerful speech on behalf of his constituents who are scheme members of the Dexion company and have suffered a great deal. His comments on the ombudsman’s report were extremely just and valid. The hon. Member for Belfast, North (Mr. Dodds) also spoke about the ombudsman’s report and about the failings of the financial assistance scheme.
The Chairman of the Select Committee on Work and Pensions, the hon. Member for Bradford, North (Mr. Rooney), had some valuable thoughts on the White Paper to share with us. As always, the right hon. Member for Birkenhead (Mr. Field) had something distinctive to say. Apparently, he is not signed up to the concept of consensus; in fact, he delivered a substantial broadside against the whole idea. He talked about his concerns over what he called the Chancellor’s IOU and whether it would ever be redeemed for pensioners.
My hon. Friend the Member for Weston-super-Mare (John Penrose) made a fluent speech about the need for durability in the system and the reforms, the problems of complexity and the need for stability. Although the hon. Member for Yeovil (Mr. Laws), the Liberal Democrat spokesman, made some sensible points, I was not quite sure at the end of his speech where his party stands on the consensus-building adventure on which we are all now embarked.
I had the dubious pleasure, as shadow Pensions Minister, of being involved in every Commons stage of what became the Pensions Act 2004. If ever a measure cried out for pre-legislative scrutiny, that was it. But no, the Government drafted the Bill with the minimum of consultation, drove it through with a timetable motion and ignored our regular predictions about the law of unintended consequences. We therefore welcome the fact that the White Paper talks about revisiting the provisions of that Act. I warned at the time that any good that the Government sought to do through the Bill would be overshadowed by the plight of those who had lost pension rights through no fault of their own. My prediction turned out to be true. Nothing has done more to undermine public confidence in the pensions system than the losses felt by those honest, decent people.
In May 2004, facing defeat in the House, the Government cobbled together their financial assistance scheme. We said from the outset that it would be inadequate. None the less, the Government forged ahead, setting up a wholly separate structure in York to administer it. I even recall proposing amendments in Committee that would have set up a parallel mini-pension protection fund, funded by unclaimed assets but administered by the same people as the main PPF. The Government would not have it, however, and one can now see why.
The FAS was to be kept quite separate, as it was always going to pay out much smaller benefits than the PPF. The differences are stark. That is true even with the latest review of eligibility. In a recent Westminster Hall debate, the Minister for Pensions Reform made it clear that only about a third of the 125,000 people affected will benefit from the scheme, even with the extended coverage. At that stage—although the figures may have improved in the intervening few days—a grand total of 93 payments had been made, which, according to my arithmetic, leaves only 39,907 to go. He made the position clear:
“Given the limited amount of money that we had available, it was correct to target it at those closest to retirement”.—[Official Report, Westminster Hall, 20 June 2006; Vol. 447, c. 415WH.]
Several hon. Members on both sides of the House have explained the unfairnesses that result from those decisions.
It was obvious at the time, and has become ever more obvious since, that the FAS was designed primarily to get the Government over a temporary problem and to assist some Labour Members in marginal seats, with greater or lesser success, of which my hon. Friend the Member for Hemel Hempstead is living proof. Throughout its short life, the emphasis of the FAS seems to have been on limiting eligibility and excluding claims. The novel concept has been introduced of a core pension, with which the hon. Member for Belfast, North dealt in detail. We have heard that FAS payments are not inflation-linked, that they only start at 65 and when wind-up has been concluded, that they are capped at £12,000, and that the entire payment is subject to tax, despite the expected pensions including a tax-free lump sum.
That leads us on to the ombudsman’s report. She made three findings of maladministration against the Government. It is clear that the Government took steps on two separate occasions to weaken the minimum funding requirement. The report quotes the then Secretary of State saying in March 2000:
“As a matter of principle, we believe that when someone loses out because they were given the wrong information by a Department, they are entitled to redress.”—[Official Report, 15 March 2000; Vol. 346, c. 308.]
Ministers have peddled a figure for the cost of compliance with the ombudsman’s recommendations that is grotesquely misleading. No wonder Lord Turner appeared to back compensation when he gave evidence recently to the Public Administration Committee. We believe that the Government’s position on the report is wholly indefensible.
We have heard much about consensus today. We in the official Opposition have said for a long time that we need political and social consensus if we are to have sustainable long-term pensions reform. Recently, Ministers have been saying the same; even more recently, they have been putting their money where their mouth is, and we welcome that. Why is consensus so important? Because Governments come and go. I do not mean to be gratuitously offensive to the Government Front Bench when I say that Ministers are here today and gone tomorrow. It is good to see the Minister’s distinguished predecessor, the Chief Secretary to the Treasury, the hon. Member for East Ham (Mr. Timms), sitting beside him.
Nothing would be worse for confidence in the system and for long-term saving than an Opposition with the stated intention of unpicking any reforms when they took office. No doubt the Government have taken a hard-headed view and concluded that consensus is a vital underpinning for their reforms—or, as the Secretary of State put it to the Select Committee, something to make pensions reform “stick”. All credit to him for that.
What, then, does consensus mean? It means that we can seek to reach agreement with the Government on the basis of full information about the various aspects of their proposals. It means supporting the Government when we think they are doing the right thing. How could we do other than that when they are implementing policies from our last manifesto? It means opposing them when they are doing the wrong thing, or doing the right thing in the wrong way.
However, it is also important to understand what consensus does not mean. It does not mean writing any blank cheques, or abdicating our duties as the Opposition to scrutinise the detail and hold the Government to account. That is not least because we expect and hope to be the Government one day, and that day may not be far off. We want to inherit a pensions system that works, or is on the way to being mended. That means that any reforms must pass our six tests.
It is test inflation.
These are the six tests. Do the reforms deliver pensioner dignity, rolling back means-testing? Are they fair as between different groups in society, between generations, between the sexes and between public and private sectors? A number of Members, including my hon. Friend the Member for Runnymede and Weybridge (Mr. Hammond), dwelt on the issue of public sector pensions. Are the reforms affordable? Are they transparent? Do they encourage personal responsibility? Are they simple and easy to understand? If they pass those tests, they will have our support.
Let it be clear, however, that we do have concerns. The Government accept that a third of all pensioners will still be subject to means-testing, with all that that implies for the discouraging of saving. The Pensions Policy Institute puts the figure at 45 per cent. The Government are also working on the basis that between 20 and 50 per cent. of workers will opt out of the NPSS. A recent workplace attitude survey by AXA showed that nearly a fifth of employers would encourage staff to opt out, a point made by several Members today. According to the PPI, the pensions system will hardly be any less complex after the reforms than it is now. As we have heard, the proposals create a cliff edge that will generate unfairness for some women.
Raising the state pension age is all very well, but where will the jobs come from for the notional increase in the work force? What retraining opportunities will be available? What about the millions of people who are below even the current state pension age and who want to work but cannot get a job? That point was made by the hon. Member for Bradford, North.
Organisations such as the Association of British Insurers and the National Association of Pension Funds have expressed concern about employers’ levelling down their pension provision in line with the contribution levels of the NPSS. As the NAPF put it:
“The danger is that, while reducing the number of people not saving at all, the White Paper could turn some adequate savers into under-savers.”
Given the Government’s inauspicious record when it comes to large IT projects, we have concerns about the architecture of the NPSS. What advice should be available to employees and what regulatory framework should apply?
We do not want to run the risk that, when the dust has settled and the smoke has cleared, we are no better off and still have a high level of opting-out, low persistency, a levelling down by employers and existing savings simply moved from one part of the system to another. However, we intend at all times to be constructive, pragmatic and sensible. If we disagree with Ministers, we will try not to be disagreeable. Those are the ground rules under which we intend to operate as the official Opposition. On that basis, we look forward to working closely with Ministers, officials, other political parties and all other interested organisations. We owe no less to future generations of pensioners.
This has indeed been a good and important debate. Here we are, six hours after the start, with another hour of life expectancy, as my right hon. Friend the Secretary of State informed us. I read the other day that the best way to improve one’s life expectancy is to semi-starve oneself and be exposed to small but regular doses of radiation. I am not sure whether that does increase life expectancy, but it would probably make life seem a lot longer.
We are serious about creating a consensus on the future of pension policy and this debate has genuinely helped to set that in train. We do not want to create consensus for its own sake or to agree with the Opposition just for the sake of it. Indeed, where there are differences, we will continue to explore them. However, pension policy is different. Workers put away their money for 20, 30, 40 or 50 years and it is therefore right that they should expect politicians to try to create a stable framework within which they can make their decisions.
Over the past 30 or 40 years, the political class has not achieved that stability. The system has changed frequently and has left savers with what the Pensions Commission found to be the most complex pension system in the world. Our task now is to address that issue and to seek to take the political instability out of the system. Just as Bank of England independence has made it easier for companies to invest, so a consensus on the future of pension policy will make it easier for workers to save. That is why the Government called today’s debate and tabled a substantive motion. It gives the House a chance to signal to the public that we will work together where appropriate to seek to create that consensus.
I welcome the spirit in which Opposition Front Benchers have responded to the motion. Both main Opposition parties have tabled constructive amendments that start from the basis that the White Paper can be the building block for a consensus on the future of pensions. Indeed, the Conservatives’ amendment identifies some key concerns and we want to work with them to explore those. We have no objection to their amendment to our motion.
As the hon. Member for Weston-super-Mare (John Penrose) said in an impressive speech—I do not say that just because I will appear before his Select Committee tomorrow morning—it is important not only to think that we have a consensus, but genuinely to explore whether we do have a consensus. Occasions such as this mean that we can have proper scrutiny of the policies in advance, which is surely far better than finding out later that we did not have the consensus that we thought we did.
To start with today’s pensioners, as several hon. Members did—in particular, my hon. Friend the Member for Ayr, Carrick and Cumnock (Sandra Osborne)—we believe that we have done a significant amount for them. I shall not repeat everything that my right hon. Friend the Secretary of State said, but we are spending 1 per cent. more of GDP than if we had just continued with the policies of 1997. The White Paper promises to increase pension credit in line with earnings—a major change.
The second point concerns raising the state pension age. The hon. Member for Angus (Mr. Weir) made it clear that his party would oppose that, and the issue was also addressed by my hon. Friends the Members for Aberdeen, South (Miss Begg), for Dumfries and Galloway (Mr. Brown) and for West Bromwich, West (Mr. Bailey). However, they made the point in a slightly different way. They knew that there were concerns about the state pension age, and wanted them to be addressed. That is the right way to think about the matter.
The Government accept that questions remain about how the state pension age should rise, and that we must keep open the option of paying pension credit at 65. We also accept that we must continue to look at the extending working ages agenda, and at health inequalities. We recognise that we have to deal with all of that, but those who oppose raising the state pension age must be clear about whether they believe that any such change should play no part in the proposals.
The Pensions Commission has created a consensus around the fact that people are living longer and that raising the state pension age has to be part of the solution if we really want to tackle the challenges that that raises. Those hon. Members who oppose a rise in the state pension age must explain how they will cope with the fact that in the future people could work less and less yet still expect to have the money to pay for an ever longer retirement. The difficulty is either that far more will have to be levied in taxes, or that people will have to save at a level far higher than has ever before been expected of them.
My point, which I raised with the Minister both in this debate and earlier in the day, has to do specifically with inequalities in different parts of the country and in different socio-economic groups. Does he agree that that problem must be addressed if the retirement age is to be raised?
That is what our health inequalities agenda is about. My constituency suffers from exactly those problems that the hon. Gentleman described, with people dying 10 years earlier than elsewhere, but it is impossible to deal with such problems without raising the state pension age. I assume that he is not proposing differential state pensions for people in different socio-economic classes, and I am sure that he will accept that life expectancy has risen in all socio-economic groups. Although it is right that we must look at how a rise in the state pension age might be implemented, it is clear that it will have to be introduced.
The second major issue in the debate had to do with personal accounts. My hon. Friend the Member for Bradford, North (Mr. Rooney) made some very good points about that, as did the hon. Member for Bournemouth, West (Sir John Butterfill). Questions were raised about employer contributions, governance, charges, generic advice and compliance, and we want to discuss those matters with all parties in the House. We have said already that we want to invite Opposition Front-Bench Members to our pensions summit, when the details of our policy will be explored.
My hon. Friend the Member for Edinburgh, North and Leith (Mark Lazarowicz) spoke eloquently about a matter that worried a number of hon. Members—the interaction between means-testing and automatic enrolment. How can we automatically enrol people if we are not certain that they will be better off in retirement? Our response is that that is not the test that should be applied. No saving is certain, and people never know for sure what their careers will hold. They do not have 20-20 foresight about when they will work, how much they will earn or when they will be unemployed.
Instead, the real test of automatic enrolment is whether it will give people a reasonable expectation that they will be better off on retirement for having stayed in the scheme. We believe that we can provide some very good answers to that. In response to the specific request from the Conservative spokesman, the hon. Member for Runnymede and Weybridge (Mr. Hammond), we assure the House that we will be happy to publish the research that we used to make our decision, so that people will be able to look at it and make up their own minds.
There are two reasons why we believe that people will have a reasonable expectation of being better off under our proposals. First, those who leave their money in a personal account will immediately have it doubled by the employer contribution and the state contribution. Secondly, the charges on personal accounts will be much better, so people will be able to keep much more of their pension pot in retirement—we think about 25 per cent. more—than is the case with other forms of saving. The return on personal accounts should compare favourably with other forms of saving, and we believe that that, interacting with our reforms to state pensions, will help us to convince the vast majority of people that they will be better off.
The key point is that although, under our proposals, as a base case, a third of people would be means-tested, only 6 per cent. of them would be on the guarantee credit alone and thus facing 100 per cent. withdrawal rates. Those people may not have known that they would end up in that situation, so they will be better off due to the existence of the guarantee credit. The alternative would be to tell them, “We know that you do not have a good state pension but we will not provide a safety net for you”.
We shall be able to publish evidence to show that we can give people a reasonable expectation that they will be better off, but the scheme will not involve compulsion. People will be able to make their own decisions, so it is right on the one hand to enrol them automatically—to use inertia for the saver culture—but on the other to leave them with a choice about whether they continue to save.
We want to work with the hon. Gentleman on developing those issues, but to respond to his point, if I understand it correctly, people at the guarantee credit level will often have made no contributions because they are low earners and, in any case, may not have known in advance that they would end up in that situation. As I said, people do not have 20-20 foresight.
I shall address the remaining issues as quickly as I can—[Interruption.] I accept the injunction of the hon. Member for Runnymede and Weybridge and shall take a few more minutes to answer the points that he made. We want to look at the issue raised about levelling down in relation to personal accounts and to work with the Opposition on that. We recognise that there are concerns, but we talked to a large number of employers before we produced the White Paper and they made it clear that where they contribute more than the minimum 3 per cent. to which we have been referring, they do so as a way of retaining and attracting employees. Typically, they contribute far more than 3 per cent. The hon. Gentleman was right to say that the other side of the coin of compulsory contributions will be the cost of regulating the schemes. We want to look seriously at where we can deregulate the costs.
The hon. Gentleman asked whether anything had been ruled out of the regulatory review. I am happy to make it clear that nothing has been ruled out. We have made it clear that we want to balance employer costs against protection for employees, and I am sure that he will agree with that. There will be a stakeholder scheme, but we will look at all the issues and come back to him in due course.
A number of points were raised about the ombudsman. We have great sympathy for people who lost their pensions, which is why we extended the financial assistance scheme. Members asked whether people could receive an interim payment before the age of 65. They can indeed apply for that.
We have been clear about the core pension definition; it is in the leaflet and there is nothing underhand about it. People who do not qualify under the 15-year rule may qualify for deemed buy-back into their state second pension rights. I will be happy to write to Members whose constituents are in that situation.
To reiterate our argument: we do not accept that we caused the downfall of those pension schemes and we do not accept that we are liable for them. We think that the ombudsman made a leap of logic that is not justified by the evidence. There were never guarantees from the Government for those schemes, and although we have huge sympathy for people, which is why we set up the financial assistance scheme, it would be an unjustified step to make the further argument that we were liable for those losses.
My final point is about public sector pensions, which were raised by several Members. At the last election, the Conservatives said that they would not implement changes to public sector pensions. They said:
“We have no current plans to alter the terms of public sector schemes…We know there is some concern over extending the public sector retirement age and we will listen to any practical concerns people have.”
That is a significant difference from the position they appeared to adopt today. However, in the spirit of consensus, I do not want to push that point too hard; nor the point made earlier that they have made spending commitments of £15 billion by 2050. Nor shall I add up all the spending commitments that the Liberal Democrat spokesman has made today. According to my calculations, on top of his £10 billion for the citizens pension, there was another £3.4 billion on the basic state pension, £400 million on uprating pensions for people overseas and another £3 billion to implement the ombudsman’s report. He has made a fairly significant number of spending commitments.
The Minister must not go on repeating those things. He knows very well, and he has heard me say clearly today, that our purpose in putting these issues into the public domain was to get them aired and to have a debate about them. I said clearly earlier that just because we were drawing attention to certain aspects of the package did not imply that we thought that they were wrong. It merely implied that we thought that they had not been given sufficient attention, they had not been discussed properly and they had not been understood by the public.
We welcome that clarification. We will certainly bear it in mind next time there is a Daily Mail piece on the latest stealth tax that has been uncovered in the detail of the White Paper. We recognise the spirit in which Opposition Front-Bench Members have approached the debate.
I must wind up.
We are serious about consensus. We welcome the spirit in which people have approached the debate. It is quite right to say that Opposition Front-Bench Members do not have to sign up to all the proposals. If they want to, they can decide to come forward with alternative proposals, and we recognise their right to scrutinise what we have put forward. However, Lord Turner’s injunction on cherry-picking was about saying that people could not just sign up to the benefits without also saying how they would pay for them. We will apply that test. When people come forward with proposals, we will ask whether they will be costed, because that is the only way in which we will generate a genuine consensus around these policies that will last for the future.
Amendment agreed to.
Main Question, as amended, agreed to.
That this House welcomes the White Paper ‘Security in retirement: towards a new pensions system’ [Cm 6841] as the basis for a consensus on the future of pensions policy; recognises the importance of consensus in ensuring long-term, affordable and sustainable pension reform; and therefore welcomes the commitment of all major parties in the House to engage in the process of consensus building, while acknowledging that a number of concerns remain to be addressed in the course of that process, including the impact of the projected future level of means-testing on savings behaviour, the design of an auto-enrolled savings scheme, the need to strengthen existing occupational pension provision to reduce the risk of “levelling down” on the introduction of personal accounts and the need to restore public confidence in the fairness and security of the pensions system.