Pensions

Part of Bill Presented – in the House of Commons at 7:56 pm on 13 March 1997.

Alert me about debates like this

Photo of Geoffrey Clifton-Brown Geoffrey Clifton-Brown , Cirencester and Tewkesbury 7:56, 13 March 1997

I am delighted to catch your eye, Madam Deputy Speaker, because I believe that my right hon. Friend the Secretary of State's proposals for a pension plus scheme are extremely far reaching and visionary. As the hon. Member for Birkenhead (Mr. Field) pointed out, the first tranche of pensioners will, over a 40-year working lifetime, build up a substantial fund, but they may live for a further 40 years. The first tranche of pensioners under the scheme will therefore live until almost the 22nd century, so we are looking at a long time scale for this scheme.

I wholeheartedly agree with my hon. Friend the Member for Aylesbury (Mr. Lidington) that there must be a consensus in the House on how we proceed on pensions. Over such a long time scale it is essential, if the scheme is to last and prosper, that there should be all-party agreement on it.

My right hon. Friend the Secretary of State has produced a complete plan to transform the state pension scheme over a long time scale. According to a leader comment in The Economist: The Tories have produced a plan that is workable, attractive and takes account of the undoubted difficulties that confront the project. Last summer I wrote a paper entitled, "Privatising the State Pension Secure Funded Provision for All", published by the Bow Group in November 1996. I am delighted that many of the proposals in that paper are similar to the Government's proposals.

Last week, The Economist commented: Reforming the welfare state is one of those nettles that politicians on all sides privately agree have to be grasped—so long as somebody else does the grasping. For many of us, it was a complete surprise when the proposals were announced. The silence from the Opposition Benches at the end of last week spoke far louder than words. The best that the instant rebuttal unit could manage was that the plan represented "a chilling prospect"—so much for the desire of the right hon. Member for Sedgefield (Mr. Blair) to think the unthinkable on welfare policies. Many of my constituents might reflect that the unlikely advent of a Labour Government would offer a really chilling prospect.

Before moving to the detail of the scheme, I should point out that we are able to consider fundamental reform of the system in a manageable and careful way only as a result of the work undertaken by my right hon. Friend the Secretary of State and my hon. Friend the Under-Secretary. The decision to equalise the state pension at the age of 65 and the work that has been done to contain the state earnings-related pension scheme will be a key factor in constraining the future cost of the state pension over the next 40 years or so as we move towards the new system. Those two measures combined are likely to save about £45 billion at their peak. Therefore, the proposals are very far reaching.

It is important to put the matter in the context of our very well-performing economy. From a study of pension systems throughout Europe, the Organisation for Economic Co-operation and Development recently estimated that the United Kingdom should be able to pay off its national debt entirely by 2030—so much for the Labour party's continual carping about how we are increasing the national debt. In contrast, it is estimated that the national debts of France and Germany will double.

The key question in moving from an insecure funded system to a secure funded system has always been how to fund the transitional burden how to meet new funded pension contributions while simultaneously meeting the burden of the pay-as-you-go liabilities. The breakthrough that my right hon. Friend has made in drawing up the scheme of reversing the tax treatment of pensions—abolishing the tax on contributions while at the same time allowing the trading status of the pension fund to be tax free—is an ingenious and workable solution, which means that the cost to current taxpayers in meeting not only their future pension but the pensions of existing pensioners is manageable. I have not seen similar proposals anywhere else that meet that problem in such an admirable way. I wholly agree with my right hon. Friend's proposals.

The Labour party has been particularly disingenuous about the fact that the new scheme will include credited contributions for everybody, including non-working mothers, disabled people and the unemployed, so that from about 2040 everyone will be able to retire with a properly funded pension. Much more fundamental and far reaching is that, if privately managed funds perform anything like the way they have over the past 10 years, everybody from 2040 will be able to retire on a substantially better income than they do at the present time, with the consequent improvements in the standard of living.

In criticising the proposals, the Labour party is absolutely bankrupt of ideas. All that it comes up with are pension funds managed collectively by the trade unions. The Singapore system, on which I gather the right hon. Member for Sedgefield was so keen, was simply a cheap way for the Government to borrow money. All pensioners got in that system was roughly a 2 per cent. real return. By contrast, in the Chilean system, on which much of the proposals are based, the return was roughly 13 per cent. Indeed, the returns from privately provided pensions in this country over the past 10 years have been about 10 per cent. Everyone therefore has the prospect of retiring on a pension that will provide a substantially better standard of living.

The new scheme will also eliminate the question of whether a person should opt out of SERPS. That has been a difficult problem with which the Government have had to grapple. By creating a funded pension for all, the charges will be low enough to allow even modest earners to gain from the initial earnings-related contributions being paid into funded schemes. I have already made the point twice that charges on pensions can be driven down greatly—unlike the problem regarding personal pensions. The benefit of that has not been brought out in the debate. The compounding effect of high charges over a person's working life of 40 years makes a substantial difference to the amount of pension that one gets at the end of the day.

Among the greatest benefits of moving to a personal funded system will be that it will focus the minds of our young people on thinking about retirement the moment that they start to work. As other hon. Members have said, that is an extension of the share revolution that we in the Conservative party have brought about over the past 18 years. Not only will young people's minds be focused on the need to save for their old age, but the fact that private providers will have to produce a statement of how the pension has performed each year will begin to get young people to think about investments, how they perform, whether their company is performing any better than another and whether they should switch to another company to get a better performance. That is an important step forward in the savings culture, and one that we need to encourage.

Under the Chilean system, for example, there will be not only an annual statement but the possibility of using the latest technology, such as video display unit terminals in supermarkets. Once all the security measures are in place—one will have a personal identification number on a plastic card—one will be able on any day at any given time to find out what the pension is worth, how it has performed over the past year and how much one has contributed to it. More important, one will be able to ask questions such as, "What would happen if I retired two years early? How much extra contribution would I have to make for the same level of pension?"