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Pensions

Volume 458: debated on Monday 12 March 2007

2. What recent assessment he has made of the adequacy of the basic state pension; and if he will make a statement. (126360)

The Pensions Commission examined the adequacy of the state pension system and made recommendations for reform. On the basis of those recommendations, we have come forward with our proposals. The International Monetary Fund’s 2006 annual assessment, which was published this month, set out its broad agreement with our proposed pensions reform, saying:

“it will help ensure both adequate saving for retirement and fiscal sustainability”.

I thank my hon. Friend for that answer. The work that the Government have done to get pensioners out of poverty is very much appreciated. As part of the coming Budget, will he consider whether to restore the earnings link, which is very important to pensioners?

As my hon. Friend knows, that is slightly above my pay grade. We have made our intention to restore the earnings link very clear. We have said that our objective is to do that in 2012, subject to affordability. It is worth saying that no pensioner has to rely on the basic state pension alone. Pension credit, which we brought in, has reduced the number of pensioners in relative poverty by 1 million. Pensioners are now less likely to be poor than the rest of the population, which is a remarkable achievement at a time of economic growth. According to the Institute for Fiscal Studies, the last time that it was achieved was

“as a one-off blip … in the depths of the recession of the early 1980s”.

We have no intention of going back to that.

What message does the Minister have for those who are just entering the workplace about the likelihood of their having an adequate state pension when the time comes to retire?

That is a good point; we are moving from a situation in which women get £90 a week on average from their state pensions to one in which they will get about £130 a week. That is a significant change, and it means that we can tell people who are starting work that if they work or care for most of their lives they will be lifted well above the level of the means-tested safety net, and so will have good incentives to save. That is exactly the message that we should be giving people.

The Minister will know that when pensioners attain the age of 80, they receive a derisory increase of some 25p a week to their state pension. Does he agree that the time is right either to scrap the 25p a week or to raise it significantly?

I am aware of the situation, not least because pensioners have written to me saying that they spent their first increase on a stamp to send me a letter about it, but it is worth putting that increase in the context of our introducing free TV licences for over-75s and winter fuel payments of £300 for people over 80. We recognise that as people get older they need more benefits, and that is exactly what we have provided. As my hon. Friend knows, the policy to which he referred has existed since the 1970s, and neither of the past two Governments have changed it, but we recognise the needs of older pensioners, and that is why we introduced the measures that I mentioned.

The Minister has just spoken in favour of the supplementary benefits available to pensioners, but does he realise that those benefits are means-tested, which means that many people have no incentive whatever to save for their retirement? Is he worried about that, and what will he do about it?

I wonder where the hon. Gentleman has been, because the Pensions Commission, which Lord Turner led, has just addressed exactly that point, and the IMF said in its findings that it will address the issue of the incentives to save. The IMF thinks that there is a good policy, and consensus has been built up on what the Pensions Commission supports. If he wants to stand outside that consensus, he is welcome to do so, but I think that we have a good set of policies for the future that will give people good incentives to save.

Despite the efforts of the Government and many hon. Members on both sides of the House to publicise pension credit entitlements, nearly 90,000 pensioners across Scotland are missing out on the pension credit to which they are entitled. Does the Minister think that that highlights the injustice of the complex and bureaucratic means-tested system of pensions? Surely it is high time that we moved to a system in which the Government paid a decent state pension, as of right, to everyone.

First, those figures are rubbish, and we told the Daily Record that before it published them. Secondly, the hon. Lady and her party are committed to scrapping the state second pension and the pension credit; that is what her party leader said recently. About half of pensioners get more from the state pension system than they would from the citizen’s pension that her party proposes. I am looking forward to the hon. Lady telling millions of pensioners, at the next election, that the Liberal Democrats propose to reduce their pension by making those changes.

Following two decades of the Tories breaking the link between earnings and pensions, our pensions in Britain fell to the lowest level in Europe as a proportion of earnings. The comparisons now may not be as comfortable as we would like to think. Will my hon. Friend undertake to investigate pensions on the continent of Europe and in the European Union, to make a comparison, and to bring that comparison to the Commons with his statement?

There is a process under way within the European Union to do exactly that, but I am afraid that the figures do not show the whole picture. For example, they do not include all private pensions saving, which is important in our system in a way that it is not in other European systems. As a consequence of our proposals to link the state pension to earnings, the state pension will in future be worth twice as much as it would otherwise have been, so that is a big commitment. People in the Labour movement have campaigned for a commitment to a link to earnings for a long time, and I urge my hon. Friend to welcome that commitment as part of his support for our policies.

I am sure that the Secretary of State enjoys his regular cosy chats with the Chancellor, but will the Minister share with us, and with the estimated 3 million older people who will die before the link with earnings is implemented, how the Chancellor can say that the implementation may not be affordable in 2012, yet will definitely be affordable by 2015?

We have set out very clearly how we will finance that, but the interesting thing is the hon. Gentleman’s policy. Last time we debated the issue, his colleague the shadow Secretary of State said that he thought that restoring the link was affordable now; the hon. Member for Eastbourne (Mr. Waterson) then contradicted that in Committee; and last week his hon. Friend the shadow Chancellor said that there will not be any more money for pensions. What we are finding out about the Tories is that on presentation they want to face both ways, but on policy they are all over the place.