Pensions

Part of Bill Presented – in the House of Commons at 9:37 pm on 13 March 1997.

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Photo of Oliver Heald Oliver Heald Parliamentary Under-Secretary (Department of Social Security) 9:37, 13 March 1997

This debate has provided a welcome opportunity to consider future pension policy. Parts of the debate have been extremely thoughtful and adorned, if I might say so, by the expertise and wisdom of my right hon. Friends the Members for Sutton Coldfield (Sir N. Fowler) and for South Norfolk (Mr. MacGregor), both of whom speak with the benefit of having wrestled with these issues for many years. Likewise, my hon. Friend the Member for Carshalton and Wallington (Mr. Forman) made a thoughtful contribution about which I shall say a little more in a moment.

We heard contributions from my hon. Friend the Member for Aylesbury (Mr. Lidington) and from my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Clifton-Brown), who did so much in his pamphlet to influence the debate. There were also contributions from my hon. Friends the Members for Gainsborough and Horncastle (Mr. Leigh), for Harrow, West (Mr. Hughes) and for Colchester, North (Mr. Jenkin), all of whom are members of the Select Committee on Social Security, which spent many months considering the matter although its report is not now to be published.

The Opposition Members from whom we heard included the hon. Member for Birkenhead (Mr. Field), who seemed to welcome much of what the Government are proposing, and the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood), who gave our proposals a cautious welcome. The three musketeers of real Labour—the hon. Members for Islington, North (Mr. Corbyn), for Newport, West (Mr. Flynn) and for Hackney, North and Stoke Newington (Ms Abbott)—were predictable, but the hon. Member for Southampton, Itchen (Mr. Denham) was not as predictable as I thought he might be. In the past, he has tried to engage in a sensible and thoughtful debate on these matters, but he seems to have been taking lessons from the hon. Member for Peckham (Ms Harman).

I shall come to some of the hon. Gentleman's points in a moment. To suggest that nothing has been done to accommodate the costs of basic pension plus is nonsense. The Pensions Act 1995 makes savings rising to £13 billion a year. The cost of basic pension plus is a fraction of that. The hon. Gentleman need only think for a moment about the impact on the economy of a huge extra investment through basic pension plus to know that it must strengthen the economy and lead to growth.

My right hon. Friend the Member for Sutton Coldfield mentioned the Government's achievements over many years and the partnership between the private sector, the public sector and the individual that has been built on since 1979. We have enabled more people to contract out of SERPS to money purchase schemes through what are known as the Fowler reforms. Those reforms have led to this country having £650 billion invested in pensions assets. There has been a 60 per cent. rise in pensioners' average incomes.

It is easy to say that there has been nothing in the changes for the poorest pensioners, but that is not true. The bottom 20 per cent. of pensioners have had real-terms increases in their incomes of 28 per cent. In 1979, 31 per cent. of the bottom decile by income in Britain were pensioners. Now, just 7 per cent. of that group are pensioners. That is a tribute to the work of previous Secretaries of State, members of the Treasury team and my right hon. Friend the current Secretary of State, who outlined his plans earlier. Our step-by-step approach has put this country in a better position than almost any other country in the world—certainly far better than any other European country.

We must consider regulation and the advice available to people. An important part of the technical note that came out with basic pension plus highlights those issues in some detail and says that when the working group, made up of representatives of the industry and other concerned bodies, looks at the issues in detail, we must ensure that all aspects are carefully considered and properly regulated. All three members of the Select Committee who have spoken were right to point out that in other countries where a similar approach has been adopted, regulation has been a key feature. The Government are not shy in saying that there will have to be effective regulation and we shall have to consider the issue of proper advice.

Several hon. Members have spoken about misselling. Everybody has agreed that misselling should not have occurred, that it must and will be sorted out and that compensation must and will be paid. It is right that there should be a timetable for settling the issue. My hon. Friend the Economic Secretary is pressing for that. In her evidence to the Treasury Select Committee this week, Colette Bowe said that she is willing to give it quarterly progress reports. The issue is being pushed forward hard.

My right hon. Friend the Member for South Norfolk pointed out that the hon. Member for Itchen was not prepared to address the issue of tax relief for occupational pensions, which is one of the factors that has enabled them to grow. Is the hon. Gentleman prepared to give the House a commitment that there will be no change in tax relief for occupational pensions? The hon. Gentleman does not seem keen to address that issue, although I should be happy to give way to him.

My right hon. Friend the Member for South Norfolk also asked about compulsory annuity purchase schemes and whether those should continue into the future. The income withdrawal arrangements, which allow people to defer until the age of 75, were introduced in 1995. It is therefore right to see how those measures work because they are very much in their infancy. Once that is clear, the rules will have to be reviewed, at which stage we can better judge whether it is right to allow deferral to the age of 75 or whether something more imaginative might be possible. I shall certainly look at all the issues that my right hon. Friend raised with great interest. He has been very much part of the debate on pensions, the future of funding and related issues. The pamphlet that he issued last year was well received by the industry and by all parties in the House as a major contribution to the debate.

The hon. Member for Newport, West said that a major weakness of money purchase schemes was that people were vulnerable to fluctuations in annuity rates. That is one reason why the income withdrawal arrangements are such an important measure, and why they were introduced. We have now extended those arrangements to money purchase schemes. They deal with many of the concerns that the hon. Gentleman raised.

The hon. Member for Roxburgh and Berwickshire said that this all seems precipitous. We have been working on the proposals for a year, going through the issues in detail to ensure that we could produce proposals—[Interruption.] The hon. Member for Peckham is interrupting because she does not like to hear this. We worked solidly for a year, looking at all the issues and flagging up the main issues that needed to be addressed. If he has had an opportunity to read the detailed technical notes, the hon. Member for Roxburgh and Berwickshire will agree that most of the concerns, such as regulation, how the proposals can be funded, and so on, are addressed in detail. I agree with him that this is the starting point and that we need to work towards a Green Paper. We need a working party to work the proposals out so that they not only address the issues but address them correctly.

The hon. Member for Roxburgh and Berwickshire asked how we could be certain that the scheme would lead to an increase in savings. One cannot be certain but, if there is a massive increase in the sums being invested, it is likely to lead to such an increase in savings. Many commentators would say that that was almost inevitable, but the hon. Gentleman is right to say that it is not certain. He asked why charges would be lower. At present, the main elements of charges are acquisition costs, persuading people to save and fact finding to ensure that the product in question is better than another. Those exercises are not needed in basic pension plus because those comparisons are not to be made. The basic cost of the scheme will be that of managing the fund, so it is inevitable that the charges will be lower. If, for some reason, the industry was not prepared to volunteer the right levels of costing, the Government would not hesitate to cap the charges to ensure that the beneficiaries had a reasonable deal.

Much has been said today about the National Association of Pension Funds. Listening to Labour Members, one would never have thought that the first line of that body's parliamentary briefing says how much it welcomes those proposals.