Pensions Reform

Part of Point of Order – in the House of Commons at 4:19 pm on 27 June 2006.

Alert me about debates like this

Photo of Philip Hammond Philip Hammond Shadow Secretary of State for Work and Pensions 4:19, 27 June 2006

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.