I beg to move,
That this House
regrets the Government's failure to deliver stakeholder pensions to its target group of 'those with moderate incomes of between £10,000 and £20,000 a year';
condemns the failure to reform the obligation to purchase an annuity at age 75, which is a disincentive to taking out stakeholders and other forms of personal pension;
regrets the spread of means-testing which acts as a disincentive to saving;
condemns the burdens on company pension schemes which are causing employers to close them to new members;
and calls on the Government to review its pension policies so as to reverse the decline in funded pensions.
The purpose of this debate is to hold the Government to account for a policy launched in their election manifesto of 1997 on a new form of personal pensions—stakeholder pensions—known in the trade as genetically modified personal pensions. They were legislated for in 1999 and, of course, they were launched in April 2001. Stakeholder pensions have now been available and marketed for more than six months and it is time to hold the Government to account for the delivery of promises that they made when they were pushing their legislation through the House.
I shall briefly remind the House of what the Government promised. The target group for stakeholder pensions are the 5 million people on low and middle incomes who do not have a pension. Lord Rooker, the former Minister of State, said:
"Our estimate of the target group of five million people for stakeholder pension schemes is based on the number of people earning between around £10,000 and £20,000 who are not in an occupational pension scheme."—[Hansard, 10 April 2000; Vol. 348, c. 25W.]
So the target was the 5 million people with modest earnings who did not have pension provision. How successful are the Government in addressing that target group and ensuring that they take out stakeholder pensions? We know—not, I am afraid, from the Government's statistics, but from the Association of British Insurers—that 416,000 stakeholder pensions have already been sold; a modest but useful figure one might think, until one looks in a bit more detail at who those 416,000 people are.
We know that 160,000 people have transferred out of the construction industry pension scheme, which is already in operation. The biggest single move into stakeholder pensions has been by the construction industry, from another form of pension provision, which accounts for approximately 160,000 of the 416,000 pensions sold. We are therefore left with about 250,000 people who have taken out stakeholder pensions; perhaps they are in the Government's target group for the new pension provision. Again, the ABI estimates that approximately half the people taking out stakeholder pensions already have private pension provision above the minimum contracted-out level. They may be people who are transferring from some other form of funded pension scheme, or they may be taking the benefits of concurrency. However, it looks as if about 125,000 of the 250,000 people who are moving into a stakeholder pensions already have some form of pension provision. They are not the target group, which consists of people who do not already have a pension.
We are left with 125,000 people. How are the Government doing with them? The total may be a bit smaller, but at least 125,000 members of the target group have taken out stakeholder pensions. The Government said that stakeholders were aimed at people with modest earnings; perhaps they have overachieved on that. We know that approximately 25 per cent. of stakeholder pensions have been taken out by individuals with incomes of less than £7,500 or no income at all. Who are they? We have all been reading the financial pages of our newspapers, so we know that they are the non-working wives of people who have been well advised that the pension is a useful tax relief—
Yes, by and large, it is usually non-working wives. They appear to make up another 25 per cent. of the people who have taken out stakeholders, and account for another 62,000 pensions.
Perhaps the Government have at least managed to issue stakeholder pensions to 62,000 people in their target group. However, that is not the end of the story, because there is another group. We know that 15 per cent. of stakeholder pensions have been taken out on behalf of children, usually by their grandparents, accounting for another 37,000 pensions. In fact, a generous assessment of how the Government are doing is that they have managed to issue, perhaps, 37,000 stakeholder pensions to their target group of 5 million. Mr. John Jory of Building and Civil Engineering Insurance, the company which is selling stakeholder pensions to people in the construction industry, said:
"we are probably the only provider selling to the target market."
It may be that nobody else is selling to the target group. I suspect that the number of stakeholder pensions sold by the Government to the target group may be lower than the number of life peers created by the Prime Minister—248 at the last count and, of course, rising fast. We want to hear from the Minister tonight what he has been doing to meet his target of 5 million people who do not have funded pensions, which is the target group for stakeholder pensions.
What have the Government been doing? First, as we would expect from them, they have been spinning—redefining the target group. There has been an elaborate debate about whether the target group are people on low to moderate earnings, or on moderate to high earnings. I will not detain the House with the various prevarications of the Secretary of State and his colleagues about that. Suffice it to say that we can at least be clear, because it has been said time and again, and it is the basis on which the state second pension is constructed, that the target group are those with incomes of £10,000 to £20,000 a year who do not have an occupational pension.
It is no good the Government spinning themselves out of trouble by claiming that that is not the target group. They have regularly identified it as the target group. The Government will be spinning for the rest of their life. "Spinning their way out of trouble" will be their epitaph, but it will not do.
The other great recourse of a Labour Government in trouble is to an advertising campaign. It cost £6.5 million—three times as much as the entire Department of Social Security advertising budget in the previous year. The Government have tried to tempt people from the target group into stakeholder pensions by increasing awareness of them. I congratulate the Secretary of State. His advertising campaign has clearly worked. The Government have succeeded. During the period of the advertising campaign, between February and June 2001, people's awareness of stakeholder pensions rose by 15 per cent. That was, in part at least, because of the Government's advertising campaign.
Good news, so far, but there has been one problem: the more people have grown aware of stakeholder pensions as a result of the Government's advertising campaign, the more confused they have become about pensions in general. The IFA promotion chief executive, David Elms, said:
"The worrying trend is that as people are becoming increasingly aware of stakeholder pensions, they are becoming more and more bewildered."
The only thing the advertising campaign has succeeded in doing is making people more confused about stakeholders and pensions than they were before it started. There has been a 10 per cent. increase in the number of people who describe themselves as being in the dark about retirement planning since the Government's advertising campaign began, so the only effect of the campaign has been to spread more confusion about the best way of saving for a pension.
I want the Secretary of State to offer the House this evening an account of who is buying stakeholder pensions, whether that is compatible with the Government's objective for the target group, and what he will do to meet the objectives that he has laid before the House for the marketing of stakeholder pensions.
Why have stakeholder pensions proved such an extraordinary flop, after all the publicity, the expenditure on advertising, and the effort that the Government have put in over the past five years? I suggest that there are three reasons. The first is that as means testing spreads further and further up the income scale, fewer and fewer people can be confident that they will be better off if they have a stakeholder pension.
We hear from the Government Benches all the time about the problems of pensions mis-selling, but it would be mis-selling a stakeholder pension if people took one out, perhaps saving out of their modest earnings, and at the end of the day found that they were hardly better off, despite having put aside a few thousand pounds of their hard-earned savings. We have repeatedly asked Ministers to answer the $64,000 question: how much money do people need to have in a stakeholder pension fund in order to be confident that the money that they will receive when they retire will float them above means-tested benefits? The answer could well be $64,000. It could be more than that, but we have never had a figure from Ministers. That is why they run the risk of mis-selling their own stakeholder pension.
"the increase in the rate of the minimum income guarantee over the next few years will unambiguously discourage saving."
The Secretary of State has a problem of his own creation as he spreads means testing up the income scale.
Secondly, the Government have imposed new taxes on funded pensions. They have increased the burden of taxation on people who save for their retirement. The Prime Minister told the House last year that we should not worry about the burden of extra taxation. He said that
"because of rises in the stock market since the election, those sums"— the sums that we were quoting for the increase in taxation—
"are entirely illusory."—[Hansard, 1 November 2000; Vol. 355, c. 704.]
However, the sums that we were quoting for the cost of those tax increases were very real. It was the stock market gains that the Prime Minister claimed in defence of his policy that were illusory. It is no good the Government saying that they want to encourage people into funded pensions, if they then tax them more heavily.
The third way the Government have made the problem worse is by failing to respond to the widespread demand from all parts of the House, to be expressed in a private Member's Bill promoted by my right hon. Friend Mr. Curry, for reform of annuity law. The present position, whereby someone is obliged to buy an annuity at the age of 75, is a further disincentive to people taking out a stakeholder pension or other forms of personal pension provision. For many people, the obligation to purchase an annuity at the age of 75 is an extremely unattractive proposition. There are proposals on the table to tackle that. It is a source of genuine amazement to me that the Government have still not acted on a manifest problem.
Is not the problem the fact that the Budget Book states that the Government are engaged in discussion and in reviews and analysis of the situation, yet Ministers make it clear that they have no intention of making any progress? We have one half of Government disagreeing with the other half.
My hon. Friend is right. The Government have set out an objective for more funded pension provision, an objective which I wholeheartedly endorse. One of the Secretary of State's own documents states:
"Currently about 60 per cent. of total spending comes from the State and 40 per cent. from the private sector. Over time, we expect this balance to change so that 40 per cent. will come from the State and 60 per cent. from the private sector."
What does "over time" mean? How long will we have to wait to achieve that? Is the right hon. Gentleman taking any steps towards the achievement of that objective? The danger is that we are going in the opposite direction. The danger is that in Britain, after years of success in building up funded pensions, we may now be going backwards.
The gentleman who has just become the chairman of the National Association of Pension Funds says that stakeholders may force pension take-up down. He says that pension provision may fall with the introduction of stakeholders, if one of the effects of stakeholders is that people can move into inferior pension provision compared with what they currently have.
Marks and Spencer Financial Services has warned of this in its "Stakeholder Barometer", which states:
"Only a quarter, 27 per cent., of companies planning to set up stakeholder pension schemes will contribute to an employee's pension, with the remaining 73 per cent. just offering access. This is in stark contrast to the existing situation where more than half, 52 per cent., of the employers with a group personal pension set up already, have decided to actively contribute to some or all of the pensions set up by their employees."
That is hard evidence which I hope the Secretary of State will take into account.
The danger is not only that are we failing to make any progress towards the objective shared in all parts of the House of more funded pension provision relative to state provision; the danger is that we may be going backwards.
One policy project is to change a decision made by the Government that the hon. Gentleman supported on annuities at the age of 75. What will be his Government's policy, if they are elected at some future date? Will they abolish the stakeholder pension, or will they reform it? If they reform it, how will they do so?
We are in favour of encouraging more funded pension provision. The purpose of the debate tonight is to establish what the Government are doing to meet their objectives for funded pension provision. I observe around the world a fascinating debate on how to encourage more funded pension provision. Our last manifesto contained proposals on that to encourage people to build up a funded alternative to the basic state pension, and on annuities. I support the initiative to simplify the regime for the regulation of pensions. I do not want to embarrass Mr. Field, but his ideas for encouraging more funded pension provision are the sort of thing that we should be considering. Why are the Government doing nothing whatever to encourage more funded pension provision?
In an attempt to persuade the Minister for Pensions in particular of the power of our arguments, I refer the right hon. Gentleman to the notification that came across my desk of a conference which took place last week entitled "China's Pension System: Crisis and Challenge", on how China should move towards more funded pensions—[Interruption.] No, I am afraid I did not go.
For the Minister's benefit in particular I quote a resolution of the third plenary session of the 14th central committee of the Communist party of China calling for more funded pensions. It calls for the integration of
"social pooling with individual accounts" for funded pensions. We have now reached the stage where throughout the world there is a more radical debate about moving to more funded pensions than the Government are willing to tolerate in Britain.
No, I want to come rapidly to a conclusion because many other hon. Members wish to speak.
Throughout the world there is a debate about how to encourage more funded pension provision, an objective to which the Government have signed up. Why are they completely failing to meet their objectives?
If the hon. Gentleman wants to encourage more people in the target earning group of £10,000 to £20,000 a year to take out funded pension schemes, what policies would he introduce to ensure that they are not caught in the means-tested trap which would make them little better off?
One of the policies that we proposed at the last election was to enable people to build up bigger pension pots by making it possible to opt out from the basic state pension, which would increase their chance to build up a fund that would be worth so much that they would be floated off means-tested benefits.
I want to quote three organisations that have put clearly the points that we have tried to make this evening. First, Age Concern says that the crucial question is:
"Will stakeholder pensions ensure the delivery of an adequate retirement income for people on lower income levels? On current information, Age Concern believes they are not on course to deliver."
"The Government's pension policy is in a mess . . . makes the present course look increasingly unsustainable . . . something in the current arrangements is going to have to give."
"There is concern from a number of quarters . . . that the government's strategy is unravelling."
It refers to
"doubts about Stakeholder pensions reaching their target group" suggesting the need for a reassessment.
Tonight we ask the Secretary of State to come clean with the House about the take-up of stakeholder pensions and the reasons why they are manifestly failing to reach the target group who he has repeatedly assured the House are the people he expects to take out stakeholder pensions. In addition, we ask him to reflect on the fact that one of our nation's achievements was to build up more funded pensions as a proportion of our national income than just about any other advanced western country. That great achievement is now being frittered away, and stakeholder pensions are the latest example of that failure.
I beg to move, To leave out from "House" to the end of the Question, and to add instead thereof:
'welcomes the Government's reformed framework for pensions, which ensures that today's pensioners share in the country's rising prosperity and that tomorrow's pensioners are encouraged to save for their retirement, building on the foundation of the basic state pension;
believes that pensioner poverty must be tackled through the minimum income guarantee;
supports the reform of SERPS to create the State Second Pension which will give more help to low paid earners and people with broken work records, such as carers and disabled people;
further supports stakeholder pensions which provide a low cost, flexible option for moderate or higher earners who do not have access to a good occupational scheme;
welcomes the Government's plans to ensure that pensioners with modest savings or a small occupational pension are rewarded for their thrift through the new pension credit;
and supports the need for an effective system of financial regulation through the FSA and other measures to build public confidence.'.
I listened to Mr. Willetts make his second speech in the House since the general election. It is the second speech in which he has spoken at some length without at any point saying what his alternative approach might be, in this case on pension reform. I take with a pinch of salt his criticism of our policies. He is in the unusual position of having, in the previous Parliament, been responsible for not just one but two failed pension policies.
In May 2000, the Conservative party announced that it would get rid of the winter fuel payment and the free television licence, referring to them as gimmicks. In September 2000, the Conservatives said that they would consolidate the Government's "gimmicks" and redirect their savings into the basic state pension.
That is interesting because, when it comes to consistency, which is important in pension planning, I see from the Conservative party's website that its policy is to keep the winter fuel allowance and other special payments. It says:
Having moved from scrapping those gimmicks, they will now pay winter fuel payments to pensioners who live abroad and give free television licences to pensioners without televisions. That appears to be the sum total of the Conservatives' present policy.
The hon. Gentleman also referred to his second policy—it too encountered some difficulty during the election campaign—to scrap the basic state pension and encourage young people to opt out of it into a funded pension—[Interruption.] Conservative Members should be aware of the policies on which they fought the last election.
The difficulty is that the pension policy on which the hon. Gentleman fought the last election would have resulted in a young man having to save £10 a week from the age of 16 just to buy back the basic state pension that the Conservatives had taken away. The other difficulty, which is where the Conservatives got into real trouble at the election, is that the policy of moving everybody into a funded pension would have given rise to a black hole of some £6 billion. During the election campaign, they could not say where they could find that money, which is why, I think in week two, they stopped talking about their pension policy altogether.
The only thing that seems to have survived—at the moment anyway—is their savings policy, referred to in the motion, where 85 per cent. of the gain goes to the richest 20 per cent. of Conservatives. That should not be a surprise; nothing much has changed there.
I intend to deal with all the points that the hon. Gentleman made, but when we talk about the pension reforms that we put in place we have to bear in mind the problems that we encountered when we took office.
The hon. Gentleman talks about shame, but he should reflect on what we had to clear up. There was the mis-selling of pensions, which cost the industry millions of pounds. Hundreds of thousands of people lost out as a result of what the Conservative Government did. They halved the value of the state earnings related pension scheme and presided over a growing gap between the poorest pensioners and those who were better off. They left 2 million pensioners in poverty and did nothing to help the low paid or those in part-time work. They did nothing for disabled people and nothing for women to enable them to save for their pension. They failed to plan for the future. Moreover, critical to the subject we are debating tonight, they left a system riddled with disincentives so that those who did save for their retirement saw no advantage from their thrift and effort. That is what we inherited and what we had to clear up.
Is it not the case that the right hon. Gentleman inherited a substantially larger savings ratio than the one that prevails now, that savings under this Government have utterly collapsed, and that the Government have no credible policy to return to anything like the savings ratio that they inherited?
The savings ratio was at its lowest level ever in 1991, when the hon. Gentleman's party was in government.
I should like now to set out for the House the changes that we have made to pension policy for those on low incomes and also for those on moderate and high incomes. Our reforms are based on the clear principle that those who can save have a clear responsibility to do so. Yes, we want to get more people into funded pensions. In return, we need to ensure that the Government support those who cannot afford to save. Here we part company with the Conservative party, because we do not think that low-paid people should be put into funded pensions, because they are not good value for them. We also want to ensure that when people save for their retirement, they are rewarded for their thrift, and that the pension system is properly regulated and supervised so that we avoid the mis-selling problems that arose under the previous Government.
For today's pensioners, our first priority is to tackle the pensioner poverty that we inherited. More than 2 million pensioners live in poverty. In that respect, I want to deal with the first point made by the hon. Member for Havant, which he has also made on other occasions. When he speaks about means-testing, he makes clear over and over again his distaste for it, but he does not say what he would introduce in its place. The fact is that the only way of tackling poverty and getting more money to the people who need it most is to identify pensioners on low incomes. It is impossible to do that without an assessment of income, unless one takes the view that a universal increase should be given to everyone to take care of those on the lowest incomes. I do not believe that that is Conservative party policy today or that it will be at any time in future.
The Secretary of State speaks about targeting help. When Lord Rooker, a former social security Minister, was a Member of this House, he clearly identified the target group for stakeholder pensions, to which my hon. Friend Mr. Willetts referred. How many of the 416,000 stakeholder pensions have gone to people in the target group? Will he answer the question?
I shall deal further with stakeholder pensions in a moment. I thought that the hon. Gentleman might have been able to tell us the answer as to what exactly the Conservatives' policy is towards those poorer pensioners. Of course, Opposition Members do not like talking about poor pensioners, because they did nothing to help them tackle poverty in all the time they were in office. Indeed, when they were in government, they expected a single pensioner to live on £68 a week. Today, the same pensioners, under our policy, get £92 a week, which is £18 more than the Conservatives gave them.
No, not just now.
When the Conservative party says that it is against means-testing, it really means that it is against a policy that resulted in Britain's poorest pensioners getting, in some cases, £18 a week more than they would have received under a Conservative Government. That is what the Tories oppose.
No, I shall not do so just now. If the hon. Gentleman is patient, I might just give way to him at some stage later. However, if he stands up again in the immediate future, I shall not do so.
If the Conservative party is going to maintain its line that it is against means-testing, which presumably means that it would get rid of it, the inevitable conclusion must be that it would end up taking away money from some of the poorest pensioners in this country—pensioners who, for one reason or another, did not or could not save enough for their retirement. The difference between us and the Tories is clear. When they were in power, a pensioner aged between 60 and 74 was expected to live on £68.80 a week. Today, that same pensioner gets £18 more. I am more than happy to defend that policy on any occasion, because I cannot see how pensioner poverty can be tackled other than by ensuring that money goes to those pensioners who need it most.
In the past few months—and, indeed, over the past couple of years—we have heard time and again criticisms from the Conservatives about our policy, but they have never once referred to their alternative. Given all the criticism that they make, we can only assume that they would remove the minimum income guarantee, which would mean that a large number of pensioners would be substantially worse off if the Conservatives were ever returned to office. This is not the first occasion when the Government have talked about pensioners on low incomes, but there has been absolute silence on the Conservative Benches, because they have nothing to say.
I now turn to the policies that we have put in place and to the long-term reforms that are designed to ensure that we encourage additional saving by people who can afford it—people on moderate and higher earnings, who, as I have said before, should be encouraged to save for their retirement. We have a twin-track approach. We believe that those on lower incomes are better off in state provision. [Interruption.] It is said that that is all right, then—a comment that was made rather smugly, if I may say so.
As I said, there is a big difference between the two parties. I believe that it is wrong for people on low incomes to go into funded pensions and I do not believe that any political party should encourage them to do so. Such pensions are not good value for people on low incomes. That is why we reformed the state earnings- related pension scheme and replaced it with the state second pension. After the changes that we have made, some 18 million people on low earnings, including those who are disabled or have taken career breaks, can get an increased pension. Again, the Conservatives did nothing about that during the 18 years they were in government.
Our policy for people on low earnings is first to deal with pensioner poverty today through the minimum income guarantee. For people of working age who are likely to be on low earnings or who are on career breaks, the state second pension will mean that far more help is given than they would ever before have received. We do not believe that people in that position should be encouraged to opt for funded pensions, because they would lose much of their contribution through administrative costs. I cannot believe that it is a sensible policy to force people on low earnings into funded pensions, although it is a policy that the Conservatives, at least, adopted at the election.
As I said, we believe that those on moderate and higher earnings should be in funded pensions, so we have sought to expand the choices that are available in the funded sector. That is why we launched the stakeholder pension: to give a choice to people who could not access occupational pensions or who were on personal private pensions, but for whom such pensions were inappropriate. That is why stakeholder pensions were introduced.
Reference has been made to the target, but it is clearly set out in the pensions Green Paper that was published in December 1998. It contains numerous references to the targets, and the target group is people on moderate and higher earnings. That is printed in the document in black and white for anybody who cares to see it. The target has not changed one jot since the pensions were launched.
I shall certainly give way to the Conservatives who are now desperate to intervene, but I want first to put something to them. I see that Mr. Lilley is in his place. I remain confused about the Conservative attitude to stakeholder pensions. The hon. Member for Havant, who now speaks for the Opposition on these matters, was vague, but in February this year, the right hon. Member for Hitchin and Harpenden gave an informative interview in the Financial Adviser, a splendid publication with which I am sure all hon. Members who are present are familiar. He said:
"I would be more than surprised if a future Tory government even contemplated abolishing stakeholder pensions".
He went on to say:
"Stakeholder pensions should give savers more bang for their buck. Savers should see less of their contributions absorbed by costs and more being invested in assets which, other things being equal, will mean higher pensions when they retire."
On this occasion, I could not disagree with him.
The right hon. Gentleman is correct that, before stakeholder pensions were introduced, I expressed my hope that they would be a success. I did so because I would like any measure that is designed to increase private funded provision for pensioners to succeed. He did not, however, mention that I expressed my fear that stakeholder pensions would, at best, make a small contribution to increasing funded provision and that, at worst, they would undermine that provision. Have his assiduous officials drawn his attention to my remarks to the same audience a few days ago, in which I expressed my disappointment that stakeholder pensions had been such a flop and my belief that, in the light of that lack of success, the only way in which the Government could make them work would be to move to compulsion? Will he confirm that that is now on his agenda?
I appreciate that Conservative Members sometimes have to perform heroic acrobatic feats to get from what they said at one point to what they now wish to say. The framework and design of stakeholder pensions were very clear when the right hon. Gentleman gave his interview earlier this year, and at no point did he say anything other than that he would be surprised if the Tories ever sought to get rid of them. He was extremely complimentary.
No, please let me finish. I have just read out what I believe to be an accurate quote of what the right hon. Gentleman said. He may not like it, but that is what I have done. I have not quoted what he said three days ago, because I have not seen what he said three days ago.
I will not give way to the right hon. Gentleman now, but I will in a moment because he obviously feels very strongly about this. I have quoted what he said in his interview with the Financial Adviser and, no matter what he is now trying to do, he was extremely complimentary about stakeholder pensions a few months ago. I am bound to wonder what has changed now. He is clearly embarrassing his own Front Benchers.
In the article in the Financial Adviser in February, I also said:
"I have emphasised the danger that the introduction of stakeholder pensions may undermine existing company defined benefits schemes, accelerate the pace of closures and lead to mis-buying by members leaving such schemes . . . even reducing overall pension provision."
One day, I am sure that we shall have plenty of time to go through the right hon. Gentleman's entire interview, and all his speeches during his life and times here. He does not disagree with a word that I quoted from the Financial Adviser, so I am afraid that he cannot get away with that.
Stakeholder pensions are filling a crucial gap in the market. They are good value. The 1 per cent. cap on management fees is now being reflected across other pension products.
I have promised that I shall give way in a moment.
Stakeholder pensions are portable, and can be taken from job to job. That is important when one recalls that the average worker now moves employer six times. People are flexible; they do not need to be earning to benefit. If people take career breaks, they ought to be able to contribute. They also allow people to contribute to a stakeholder and to an occupational scheme.
Given that the Government's—and, I think, the Opposition's—objective is to encourage people to save for their retirement, it is encouraging that, over the past few months, the sales of pensions in general, as well as stakeholder pensions in particular, have been extremely buoyant. More people are taking out pensions. Some of that may be attributable to advertising; I do not know. The advertising was general, not geared to one particular product. The evidence is that more people have been taking out pension products in the last few months.
The impact of stakeholder pensions, in relation to the cap on administrative charges and the other features, such as their flexibility and portability, that make them more attractive, will now and in the longer term have a wholly beneficial effect on the pensions industry. I will now give way to Mr. Goodman, as he has been straining at the leash for so long.
Some 400,000 stakeholder pensions have been sold. Frankly, nobody is in a position, at this stage, to say who exactly has bought them. Nobody knows that yet. I make that point because I am now beginning to see why Conservative Members have called this debate now, rather than in a few months' time, when there might be further evidence. This product has been on the market for just over six months. Pensions are not something that people just go out and buy on a whim; they think about it, and take time to build up to it.
There is an analogy here with individual savings accounts. I remember Conservative Members saying that ISAs would not take off, and that they would not be sold. In fact, what happened was that, after a slow start, sales of ISAs increased year by year. To be fair, exactly the same thing happened with PEPs and TESSAs; it took some time before they became extremely popular. That is not uncommon in financial products.
I understand that the professor who speaks for the Liberal Democrats—Mr. Webb—has some research that he is going to tell the House about shortly. I am sure that he has been a professor for a long time; I notice that his name is now prefaced with that title. No doubt he will tell us exactly what that research shows.
At this early stage, we know that more than 400,000 stakeholder pensions have been bought. I am sure that that figure will increase over time, but at the moment there is no empirical research to show exactly who has bought them. It is more important to consider the amount of money that has been invested in pensions this year. Investment in all forms of pensions has increased by some 50 per cent., which is a significant part of our drive to increase the number of people holding funded pensions.
I did not realise that the Conservatives' policy was further to extend compulsion. The hon. Gentleman wants to rule it out, while the right hon. Member for Hitchin and Harpenden wants to rule it in. It is worth bearing it in mind that it is compulsory, at the moment, for anyone who is employed to contribute to a pension scheme—either to the state second pension or to a funded pension, if the individual contracts out.
Stakeholder pensions are new on the market; they have been on the market for just six months, and it is encouraging that some 400,000 have been sold. If there are people who were in personal private pensions who should not have been, and who transfer to stakeholder pensions because they find them better value, I shall not criticise that. Some people may be in pension schemes that close down or change, and they may go into stakeholder pensions. That is precisely why we developed stakeholder pensions: to ensure that those options were there. As for the idea that we should criticise people who start making pension or savings provision for their children or grandchildren, I thought that that was something that the Conservatives used to encourage. Now they seem to be condemning it.
I will give way in a moment.
One has to remember that, in the last few months, the sale of pensions has increased by some 55 per cent., the sale of single premium pensions is up by some 192 per cent., and group personal pension sales are up. One also has to bear it in mind that, last year, the overall amount contributed to non-state pensions was the highest ever—a real-terms increase of some £19 billion since we came to power in 1997. What we are seeing in the funded pension sector is encouraging, and it is wholly in line with our stated aim in the Green Paper to encourage more people to take out funded pensions.
Is not my right hon. Friend concerned at the evidence that many of the people taking out stakeholder pensions are among the most affluent? They are benefiting from generous tax reliefs of up to £792 a year at the basic rate and more at the higher rates, while people in the target group cannot afford to take out pensions or, if they do, are scarcely better off. I understand him not wanting to take lessons on pensions from the Conservatives, but will he listen more closely to groups such as the pensions provision group and the Institute for Public Policy Research, which has said that it is looking into the subject of pensions and that the Government's policy is in danger of unravelling? Will he study its report when it is produced early in the new year?
The report has not yet been produced. I have spoken to the IPPR, as my hon. Friend might imagine. My answer to her is exactly the same as the answer that I gave to Conservative Members. At this stage, we know that just over 400,000 stakeholder pensions have been sold, but nobody is yet in a position to give an accurate breakdown of who exactly has bought them. In any event, to judge stakeholder pensions or any other financial product after only six months would be fraught with difficulties. It is not possible to reach a judgment after a very short period.
It is not surprising that people who are transferring from personal private pensions, or people who have got the cash and want to make provision for people, will be first in the queue. However, a more accurate picture of stakeholder pensions will grow over a period of time. The Government's objective, as we set out in the Green Paper some three years ago, is to ensure that more people go into funded pensions. The figures that I referred to are encouraging, because more people are taking out funded pension provision. That is wholly desirable.
Before the hon. Gentleman intervenes, I must say that it would be nice if he were to tell us exactly what is his policy on stakeholder pensions. He referred to the Association of British Insurers report as if it somehow supports his argument, but it is in no way critical of stakeholder pensions. Neither is the research that it commissioned, which accompanied the letter circulated to hon. Members. The ABI report refers to the fact that stakeholder pensions are new. It is too early to reach a judgment, which is what he wants to do, but I am not surprised by that in the absence of a Conservative pensions policy. He has two failures under his belt already, so it is not surprising that he has to content himself with criticising our policies.
The Secretary of State and his fellow Ministers have regularly referred to the target group for stakeholder pensions. All we ask is that he tell the House whether he is hitting his target, what his target is, when we will know whether he is hitting it and how we will measure that. For 25 minutes, he has danced around the point. How can he be judged against the objectives he has set himself? That is all that the debate is about and he has failed to answer.
If the hon. Gentleman refers to the pensions Green Paper, which we published in December 1998, he will see the targets clearly set out first at paragraph 27 and then at paragraph 10 on page 49. The target group is people on moderate and higher earnings. It has been the target since 1998, it remains the target today and it will be the target tomorrow and in future years.
Not at the moment. Before moving on, I want to make a point to the Liberals. The hon. Member for Northavon—the professor—will no doubt speak, but I notice that he refers to what he perceives as the deficiency of the scheme in the press release published on his website, which states:
"An element of compulsory saving is essential".
A very Liberal word that—an "element". No one is sure how much or how little. Is the figure 1, 2 or 3 per cent?
We will be fascinated to hear from the hon. Gentleman on two points. First, I believe that he has a paper from a pensions company. If he quotes from it, he must provide it to all Members of the House if he wants any credibility. Let us have a look at it; let us see what this pension company has to say. Secondly, if indeed we need an element of compulsory saving, as he puts it, perhaps he will tell us what that element will be. If he has time, he should also tell us how he would fund his pension plans, which cost some £3 billion. There must be a limit to how much the Liberals' tax proposals can cover in respect of education, health, transport and pensions.
The Secretary of State has frequently referred to the fact that stakeholder pensions are for medium and higher earners. If that is the case, why have the Government spent £6 million advertising them to the great mass of the population? Why have the Government put in place a system whereby companies can be prosecuted for not introducing stakeholder pensions? The system that he describes is for mass pensions, not pensions for a small percentage of the population, and it has failed.
It is a long time since I have heard such a daft observation. The Government's objective, which I would have thought both sides of the House shared, is to encourage people who can save to do so. The objective of the Government's advertising campaign is to get people to think about their pension provision in retirement. That is not all we are doing. As the hon. Gentleman may be aware, over the next five years, people will receive an annual forecast of what their pension will be on retirement. I would have thought that most hon. Members would have considered that wholly beneficial.
The hon. Member for Huntingdon got one thing right. He has at last understood that the target audience is moderate and higher earners. If one mounts a television advertising campaign, it is not possible to blank out the screens of people on low earnings. It is necessary to show the same advertisements on screens up and down the country, so that people who can save have it drawn to their attention that they need to save for their retirement. That brings me to the third element.
I will not give way, because I am conscious of the fact that this is a half-day debate. Other Members on both sides of the House want to speak.
The third element of our reform, which is crucial, is to deal with a point raised by the hon. Member for Havant—the incentives to save. Under successive Labour and Tory Governments there has always been a tension between their desire to ensure that there is a floor beneath which pensioner incomes should not fall—even the Conservatives paid income support, although it was substantially lower than the minimum income guarantee—and encouraging people to save. That is why we are introducing the pension credit, which is designed to help people who lose out under the current system because they have done what successive Governments told them to do—put a bit of money aside for retirement.
Not at the moment.
The pension credit will ensure that someone who has saved money receives a reward for having done so. That is essential if we are to encourage people to save. Interestingly, many big pension providers welcomed the announcement of the pension credit in November last year as vital if we are to encourage people to save. It is necessary to continue to ensure that we have a system that boosts the income of the poorest pensioners while building in an incentive to save so that if people save through a stakeholder pension, an occupational pension or other means, they receive a reward for it.
I will not give way at the moment. I want to finish the point.
I opened my remarks by drawing attention to the fact that, at one stage in his career, the hon. Member for Havant was in favour of scrapping winter fuel payments. He then discovered that those sitting behind him were rather nervous about knocking on pensioners' doors to say, "Vote Conservative, it will cost you 200 quid." I would be intrigued to hear how he will persuade his party to say at the next election, "If we are returned to power, we will take away the pension credit."
The pension credit will benefit more than 5 million pensioners on low and modest earnings. If it is Conservative party policy to remove the pension credit and take money from more than 5 million pensioners, I very much look forward to Conservatives arguing the case. They will have some difficulty doing so.
I hope that the right hon. Gentleman has read the observations on the pension credit submitted by the pensions provision group, which Lynne Jones mentioned. Paragraph 5 of that excellent report says:
"As ever, attempts to use means-tested benefits to target help on today's pensioners can also discourage today's workers from saving for their retirement. The Pension Credit scheme would be no exception."
The hon. Gentleman is being somewhat selective in what he quotes. The pensions provision group supports the introduction of the pension credit. It would like the credit to be more generous and we could argue about that, but it is not against the credit. Indeed, most pension providers—most independent observers—welcome the pension credit. The fundamental wrong in respect of the social security system that has been in place for the best part of 50 years is that it acts as a disincentive to saving. I would have thought the reform long overdue. My recollection is that one of my Conservative predecessors who is no longer a Member of the House welcomed the reform, because it is necessary for us to reward thrift and effort, not penalise them.
I look forward to hearing what the Conservatives have to say when the Bill comes before the House. I would have thought that any measure that encourages thrift and rewards effort ought to be supported, not criticised.
No, I want to conclude.
Over the past four years, we have recovered some of the damage that we inherited. We have tackled pensioner poverty. We have put in place long-term pension reform to ensure two things. The first is that people on low earnings, people with broken work records, the disabled and women who take time off to look after children have access to a good second pension through the state second pension. In some cases, that will double the amount of benefit that they get. Secondly, we have made reforms to long-term pension provision, by introducing stakeholder pensions, in order to provide more options. Stakeholder pensions are complementary to the existing provision of occupational and personal pensions. Finally, we shall shortly bring before Parliament proposals to implement the pension credit, which will ensure that we not only alleviate poverty but reward thrift.
It is a pity that, on an Opposition day on pensions, which is an important matter, we do not know the Opposition's position. We know that they still have a savings policy in which 85 per cent. of the gain goes to the richest 20 per cent. of pensioners. We know that they do not agree that 2 million pensioners are at least £15 a week better off. We know that they oppose the pension credit, which will benefit more than 5 million pensioners. It is a courageous decision to be against that. We know that they have nothing to say to people on low incomes who want to save.
We have no idea where the Opposition stand on stakeholder pensions. All that we know is that sitting opposite me is a man who wants to be remembered for giving free television licences to pensioners without televisions. The hon. Member for Havant, who now speaks for the Conservatives on this matter, wrote the last Conservative manifesto. On tonight's performance, I very much hope that he will write the next one as well.
It has rightly been pointed out that if a Government set themselves a target, it is appropriate to measure their performance against that target. Our difficulty is that when the Government realise that they are not hitting the target, they attempt to move it.
The Secretary of State read from the 1998 Green Paper, but he seems to forget that, subsequent to that Green Paper, his pensions Minister, now Lord Rooker, told this House in July 2000 that the target group was not the same as the market for stakeholder pensions; they were separate entities. He said:
"The target group is those on moderate earnings"— not moderate or high earnings, which is what the Department has said in all its written answers since the election—[Interruption.] Is the Secretary of State saying that his pensions Minister was wrong to say that? He went on to say that the White Paper defined that as between £10,000 and £20,000 a year. He could not have been more explicit.
Either the Secretary of State is saying that the pensions Minister did not know what the target group was or, more likely, written answers now talk about moderate and higher earners because the Government know that they are missing the target of only moderate earners.
If the target were £10,000, which is a reasonable working assumption in view of what the hon. Gentleman has told us, it would be about half average earnings, so it would be a relatively low income by any standards.
Yes; there is no sense in which the £10,000 to £20,000 range, which was explicitly mentioned by the then pensions Minister, is anything other than a moderate income, or perhaps even low to moderate. It is certainly not a high income.
The Secretary of State seems to imply that his policy is frozen in aspic from the time of the Green Paper in 1998. In February 2000, the same pensions Minister told the House that the Government would measure the success of the stakeholder pension scheme by the number of people on moderate earnings without a second pension—those in the target group who take up a second pension. He could not have been more explicit. However, the Government know that they are not hitting the target, so they try to move it.
Surely, if a Government set themselves a target, they should make inquiries as to whether they are hitting it. I presume that the Secretary of State, being a responsible Minister, will have talked to those who know who buys stakeholder pensions. Who has that information? Those who sell them. I therefore presume that the Secretary of State has been in touch with the sellers and has asked them—[Interruption.] Ms Coffey prompts the Secretary of State to ignore my question. [Interruption.]
I shall deal with that in a moment. A major provider has given us commercially sensitive information and has asked not to be named. I am happy to respect that confidence.
Let me give the Secretary of State some information that he apparently does not have. The major provider said:
"We analysed the stakeholder business in the first few months . . . and used standard classifications to look at who was buying."
Four groups of people were buying stakeholder pensions: 11 per cent. are children. I do not have a problem with grandchildren being bought pensions by their grandparents. We need to crack pensioner poverty in 2060, so I am pleased that the Government are making headway on that—never let it be said that they are short-termist.
Some 58 per cent. of policyholders fall into what is described as four of the wealthiest classes. I wonder whether Conservative Members recognise any of the categories. They are: wealthy equity holders; affluent mortgage holders; comfortable investors; and prosperous savers.
Indeed. None of those categories is the target market. As ever, I shall be more generous than Conservative Members and name those who fall into the categories who might be regarded as the Government's target market. This information comes from a provider that sells the product, so it should know. It says that 26 per cent., or one in four, of the products goes to the five categories that form the target market: better-off borrowers; younger spenders; working families; thrifty singles; and middle-aged assured. Thus roughly a quarter of the product goes to the target market.
The final category, 13 per cent., is the older classes: settled pensioners—Lord Rooker—and older cash users. That 13 per cent. is important and I hope that the Minister will address this matter when he responds. There seems to be a good reason for thinking that some of the 13 per cent. are using the stakeholder pension as a tax dodge. Those people have some capital, they put it into a stakeholder pension one day and then, extremely quickly, they retire and take the money out of the stakeholder pension. They have benefited from tax relief when taking out the pension; they take a quarter of the pot as a lump sum and buy an investment product with the balance, and they have a fantastic return on a very short-term investment.
I hope that the Secretary of State will not tell us that that is what stakeholder pensions were for. Those people form a whole category. The final 3 per cent. form a category called "other", but I could not quite work out who those were.
The hon. Gentleman has given all sorts of percentages. What was the size of the sample from which the mysterious pension provider was working? How many pensions has it sold, so that we can gauge what the percentages mean in terms of numbers?
The hon. Gentleman will be aware that if I tell him how many products were sold, he will be able to work out which company sold them. As I have promised to respect that confidence, he must realise that I cannot give that information. If he doubts the percentages, why does not the Secretary of State ring the various companies tomorrow and see whether he gets a different answer? The BBC expressed an interest in the figures and it rang round the other providers, apart from the one that I have mentioned, and they all told the same story. If that survey is not accurate, let the Secretary of State tell us what is, which he has signally failed to do.
Can the hon. Gentleman answer a question, just in case I have to deal with the matter later? If the BBC rang every other one, he must have told the BBC who that pension provider was.
Indeed. The BBC rang a sample of providers. Obviously, it did not ring all of them. I made a slip of the tongue. I accept that. I do not know whether the BBC rang that provider or not, because I of course did not tell the BBC.
I am a little puzzled by the hon. Gentleman's example of a tax fiddle. He said that someone took out a stakeholder pension, promptly retired, took his 25 per cent. and put the money into some other investment. There is only one other investment into which that could be put at the moment: an annuity, which is a singularly bad investment. Does he really think that that is likely?
If the hon. Gentleman reads the personal finance columns of a weekend as assiduously as I do, he will find that people are being recommended to take capital, put it into a stakeholder pension, on which they can get tax relief at the higher rate immediately, which is a fantastic rate of return, and take a quarter of that out tax free, which is another fantastic rate of return. The combined effect of the tax relief on the way in and the tax-free lump sum more than compensates for the relatively modest return on annuities, even if they buy the best annuity that is going.
The hon. Gentleman made a statement to the House that he was maintaining a confidence and had not informed anyone else of the information. He went on boldly and clearly to tell the House that the BBC had phoned everyone else. He must answer the point clearly. If that is the case, he must have informed the BBC. If he has informed the BBC, he should inform the House.
The complete absence of a response on the substance of the issue is demonstrated by that line of questioning. I said, as the record will show, that it was a slip of the tongue to refer to the other providers. Let me make the position clear. The BBC knows the figures that I just gave. It does not know the name of the company. It rang pension providers and all of them said the same thing. The substantial question is: are they right or are they wrong? Do the Government know? If they do know, the Minister should have brought that information to the House this evening. If they do not know, they have been negligent. That is the situation.
I look at Mr. Willetts with some respect because it is rather difficult to draw up a motion in the absence of any policy whatever on pensions, with the exception of the annuity policy. The motion says:
"this House regrets the Government's failure to deliver stakeholder pensions to its target group".
We have provided evidence of that; the Government have provided no counter-evidence. The motion
"condemns the failure to reform the obligation to purchase an annuity at age 75".
Mr. Flight pursued that matter in the previous Parliament. It has been taken up by Mr. Curry in a private Member's Bill, which I will support. The House will find that there is a Liberal Democrat manifesto commitment to relax the annuity rule, so we support that element of the proposal.
The motion then
"regrets the spread of means-testing".
There are two reasons why means-testing has spread. One is because the money has gone into the minimum income guarantee. The other is because the pension rise has been so small.
While the Secretary of State was speaking, he was heckled by Conservative Members with that memorable phrase, "75p." When the House was invited to divide on the issue of whether 75p was inadequate, only one party said that it was: the Liberal Democrats. [Interruption.] When the Conservatives had the chance to put their money where their mouth was—[Interruption.]
I remind the hon. Gentleman that that was perhaps not his finest parliamentary moment because his voting would have stopped any increase whatever in the basic state pension. Voting for no uprating was less than smart.
The hon. Gentleman chooses to forget the two occasions on which the House voted on 75p. He may remember the Liberal Democrat early-day motion that said succinctly, as ever, that 75p on the basic state pension would be inadequate. During a Liberal Democrat Opposition day, we put that to a vote, and the Conservative party abstained. Voting for that motion would have had no effect on upratings, but it would have indicated Conservative opposition. Indeed, I recall intervening on the hon. Gentleman to ask whether he would have put it up by 75p. In his characteristically honest manner, because he is nothing if not honest, he said, "I probably would have done the same myself." So while it is true that the growth in means-testing is regrettable, it is clearly not true that Conservative Members would have done anything about the basic state pension other than to make matters worse.
The Opposition motion also mentions
"the burdens on company pension schemes . . . causing employers to close them to new members".
I suspect that all hon. Members should exercise some caution on that issue. Although it is true that the Government took £5 billion out of occupational pensions, no party—not one—promised in its general election manifesto to replace that money. Therefore, although it is fair enough for Conservative Members to say that they, like Liberal Democrat Members, voted against the proposal at the time, that money is gone and we have to look forward to what will replace it.
The pièce de résistance of the Conservative motion is in the final line, where the once great Conservative party—which I am told is Britain's lead Opposition party—issues a radical call to arms to Britain's pensioners. Conservative Members call
"on the Government to review its pension policies".
They do not demand that the Government do anything in particular, they simply call on Ministers to have a review.
I recall when, in 1997, we were newly elected, the Government hit the ground reviewing and it was one review after another. The number of reviews was mocked widely by the Opposition. Five years later, however, Conservative Members have reached the pinnacle of demanding just a review. I hope that we get far more than a review. I hope that we get a decent pensions policy.
In his speech, the Secretary of State pre-empted some of my comments and asked me questions on the Liberal Democrats' approach to pensions policy. I think that it would be in order if I were very briefly to reply to those questions and distinguish our policy from that of Conservative Members.
We believe that means-testing, which was mentioned in the official Opposition motion, will be diminished only when there is a decent basic state pension. That is the heart of our approach. Although the Government amendment to the motion describes the basic state pension as a "foundation", it is a sinking foundation. When the pension credit is introduced, half of all pensioners will receive it and the pension level will not affect their standard of living at all. The pension level will affect only their credit. Moreover, the other half of pensioners will be the richest half, to whom pension levels will increasingly not matter. Therefore, the Government's policy is effectively to phase out the pension entirely. That is the direction of their policy.
We believe that the pension needs to be rescued and that the priority group are those—the old elderly—who have seen the real value of their pension decline for the past 20 years. At the previous general election, the Liberal Democrats pledged a 50 per cent. income tax rate on those earning more than £100,000 annually. In written answers, the Chancellor told us how much money that rate would raise. It would be more than enough to pay £15 weekly in the pensions of the over-80s, who are the poorest pensioners in the land.
The Secretary of State said that pension increases must be either means-tested or paid across the board, but it is possible to have intelligent targeting. We can target increases on the old elderly, who are the poor elderly. They are the priority group.
In a moment.
We have to put the pension beyond the realm of means testing. The critical point is that no one will save if means testing is the reward for saving. If we can increase the pension particularly for older pensioners to the level of the means test, every pound that they save thereafter will be pure gain—not 40 per cent. or 60 per cent. gain, but 100 per cent. gain. When we reach that point, we shall have decent levels of funded pensions. Until we have a decent basic state pension, neither the Government's nor the official Opposition's proposals will succeed.
I should like first to emphasise the aspects of the Government's policy that I welcome, and then to draw some different conclusions from the figures that were presented by Mr. Willetts. Although I am relieved that so few of the target group have bought a stakeholder pension, the already significant number of those who have bought one should give the Government a very important lesson—that the stakeholder is a real success if one has an adequate first-tier pension. Although one would not expect the Government to be thinking on the Floor of the House about how their pensions policy will develop, I hope that, before the end of this Parliament, Ministers will introduce serious proposals on how to implement an adequate first-tier pension for everyone in the United Kingdom. In addressing that issue, I should also like to touch on the reform proposals that were recently made by the pensions reform group, of which I am a member.
I welcome two huge successes in the Government's pension policy. The first is that the stakeholder has reduced significantly, and will continue to reduce significantly, the charges faced by pension savers. We need only consult Pensions Weekly to see how much further there is to go. This week's issue gives the example of someone beginning late in the day to save substantial sums towards retirement, and ending up paying contributions of nearly a quarter of a million pounds to the provider, although the pension is marketed as a stakeholder pension. Real progress has been made in reducing charges, and the Government should be congratulated on that. They also deserve our thanks for the efforts significantly to increase workers' access to low-cost pensions. That, too, was part of the stakeholder pension reform. I doubt that any Member will deny that we should applaud the Government's moves on both fronts.
The difficulty arises when we look at the target group, and at the figures presented by both Mr. Webb. If we think about stakeholder pensions in terms of the target group, some disappointment must be expressed in the target group's take-up—although I would say that its refusal to touch the product shows a lot of common sense. Let me explain why many in the target group should not touch the product, and why I am pleased that there are so few take-ups. If we continue our efforts to achieve a high take-up among the lower half of the target group, we—as a Government—may open ourselves to the mis-selling of pensions. That would be more serious than our having to say that our reforms had helped groups other than the one that we had targeted, that we were pleased about that, and that we would proceed to further pensions reform to help the original target group.
The problem arises from the fact that, in their entirely proper desire to help poorer pensioners now, the Government have holed below the water line their long-term reform of stakeholder pensions if they are targeting those with between £10,000 and £20,000 a year. We know already that about half of them cannot save to make themselves better off than they would be if they spent all their money and took advantage of the minimum income guarantee. Some of our constituents complain that, having saved, they are not as well off as they thought they would be, given what people are picking up on the MIG. The error may be compounded when the pension credit is introduced.
My worry is that one or two of the big companies that are making a big song and dance about stakeholder pensions are selling them on the basis that the two reforms will be with us for the long term. I wonder whether that is true. Let us consider the cost of linking the MIG to earnings and continuing to link the state pension to prices. Not only do more and more pensioners become eligible for the MIG over the years; because they do, and because one benefit increases so much more quickly than the other, the cost will escalate. Indeed, it is already escalating.
In fact, I wonder whether the two reforms will be in place at the end of the day. I congratulate my constituents who have not bought stakeholder pensions on the basis that they will be in place; the chances are that they will not. As if that were not difficult enough for the Government, the Chancellor has introduced two other savings products making it even more difficult for anyone who might want to take up a stakeholder pension to decide to do so. Would someone with modest to low earnings, seeing what the Chancellor is offering on individual savings accounts, lock up his or her savings in a long-term pensions product, or go for an ISA? Clearly, most people would go for the ISA.
We are now told that there will be a savings gateway. All who go through the gateway will have a pound added to every pound that they save. Which of our constituents in the target group will sign up to a stakeholder pension when, by going through the savings gateway, they can double their savings immediately for three years? Moreover, as with all schemes that encourage saving—good to start, more difficult to stop—there will presumably be an extension of the scheme.
Given that we do not yet know the details of the pension credit, and that half of the target group can make themselves better off by not saving and relying on the minimum income guarantee than they can by saving, should we be surprised at the figures produced by the hon. Members for Havant and for Northavon? I am not surprised at them—in fact, I am relieved, and I hope that this debate helps to spread the message about the stakeholder pension.
The stakeholder pension is a useful new product. The lesson for politicians is that all those who receive or will receive an adequate first-tier pension are plumping for the stakeholder pension. They are pleased with what the Government have done, and about the significant reduction in costs. They can see those costs falling still further, and they are putting their money where the Government's mouth has been. They are wise to do so.
Although we should naturally celebrate the successes achieved by the Government's pensions reform programme, my third theme is that at some stage we will have to examine how we propose to ensure that everyone—rather than merely some people—in the country has an adequate first-tier pension. If that pension were to be aimed above means-tested levels, many of the problems identified in the debate would fall by the wayside. There would not be a problem with the mis-selling of stakeholder pensions, as everyone would know that they would keep every penny that they saved if they had an adequate first-tier pension.
Moreover, an adequate first-tier pension would mean that there would be no problem with annuities. Annuities exist only because we taxpayers pay substantial sums to encourage people to save towards their retirement. It is reasonable, therefore, to expect that people do not spend those savings foolishly, as that would allow them to draw on taxpayer's money for a second time by claiming means-tested assistance. However, people with adequate first-tier pensions will be free, if they wish, to buy annuities with their other pension products. Some will do so, and others—especially in the current climate—might consider that rather a poor deal.
Finally, I commend for discussion a proposal from the all-party pensions reform group. It has proposed that an adequate first-tier pension could be ensured by combining the existing national insurance pension with funded provision. That combination would be compulsory, but the guarantee would be given—as far as any such guarantee is possible—that people who pay their way and pay their whack will end up with a pension above means-tested assistance levels.
Hardly any of us can buy such a guarantee in the private market. People as rich as Mr. Branson might be able to, but they do not need to. For almost all of us, therefore, such a guarantee would be very valuable.
The proposed scheme is quite open about the element of redistribution that it contains, which would ensure that people who cannot pay but who are decent citizens would have their contributions paid up front. In that respect, I disagree with my right hon. Friend the Secretary of State. I consider that, in schemes that contain an element of redistribution, it is better for people on lower pay to be funded than it is for them to rely on credits and promises that future taxpayers may not meet.
The pensions reform group does not try to duck the fact that such a scheme would come at a price. It accepts that we will have to pay more if we want adequate pensions. Clearly, the way in which those new contributions are introduced is a matter of importance.
A number of hon. Members have expressed interest in the idea. The pensions reform group is an all-party group, and its members include the hon. Members for Northavon and for Arundel and South Downs (Mr. Flight). Many financial institutions outside the House have played their part in working up the proposals. We have six months in which to examine the aspects that need further work, to ascertain whether the scheme is a starter.
I hope that at the end of our debate we shall record in the Lobby our pleasure at the real movement that the Government have made in beginning to change how pensions are sold and in ensuring that those pensions offer a good deal for people who save. However, I stress that the Government's keenness to help the poorest pensioners through means testing stores up real problems for modest income groups. Such people feel that the system has now turned against them and that what they thought of doing as decent citizens is not rewarded but penalised.
We shall always have the dilemma of how to help the poorest, unless we get down to debating, at some stage during this Parliament, how we ensure an adequate first provision for everybody in the country. The hon. Member for Havant helped that debate along this evening by giving us figures showing that all those who currently have basic pension cover have been the biggest takers of stakeholder pensions. They have sent a clear message to Members on the Treasury Bench.
I certainly approach stakeholder pensions not as their enemy but as someone who, as the Secretary of State for Work and Pensions pointed out, wishes them to succeed. I have always supported measures to improve the amount and extent of privately funded pension provision. I supported the concept of stakeholder pensions and I am extremely disappointed that they have been such a failure.
I am disappointed but not surprised. It was mistaken of the Secretary of State to try to suggest that I had ever given a blank cheque to the concept of stakeholder pensions. When they were introduced, I pointed out that they were at best likely to make only a modest contribution to increasing funded provision, and that they were rather more likely to undermine the existing provision.
The Government set themselves four objectives for stakeholder pensions. The first was to reduce the costs that absorbed the amount of money people put in, so that more would go into investments for their retirement. The second was to require employers to offer access to stakeholder pensions and to encourage them to make contributions to those funds for their employees. The third was to encourage those people in the target group—earning between £10,000 and £20,000 a year—to opt out of the state unfunded, pay-as-you-go scheme and into funded private provision, and to save more in those schemes than they do at present. Finally, the overall intention was to shift the balance of provision for pensions from 40 per cent. privately funded and 60 per cent. pay-as-you-go to the reverse: 60 per cent. funded and 40 per cent. pay-as-you-go by 2050.
There is half a century to go. All we asked of the Secretary of State was that he give some indication of how each of those four objectives was being achieved. What indication was there from the early results—the first six months—of how they were being achieved? It was sad and significant that the right hon. Gentleman did not try to address his objectives or to assess the results of the early months.
On the low-cost target, the decision to require providers of stakeholders to charge within a structure that set a maximum percentage cost related to the funds invested certainly means that, compared with the previous systems—which often included a high up-front premium absorbed in commission, and a commission charge that was not reduced relative to the amount put in—those who save limited amounts and who save only intermittently will gain. At first sight, that is an improvement. The 1 per cent. level of charge at first seems quite tight. Actually, over a lifetime's savings, that represents a large gain to the providers. The Australian system starts off with a slightly higher proportion of premiums absorbed in costs—1.29 per cent at present. However, that is set to fall as the system matures. It is calculated that by the time the average amount of savings for each individual in the Australian system has reached just US$30,000, the costs absorbed by the system will be just 0.5 per cent. That might not seem much of a difference, but because of the effect of compound interest, the result over a lifetime of saving can be a net pension that is up to 15 per cent. higher than if the high level of costs had been absorbed. I hope that the Secretary of State will look at that.
Another target was to require employers to give access. We have not had much mention of that today, but we know from the Association of British Insurers that, at the end of September—just a few days before the scheme became compulsory—about one third of employers were not actually meeting that requirement. A very high proportion were not giving access to their employees by the target date. It was extraordinary that the Secretary of State chose to say nothing about that. He gave no warning, or encouragement, to those who have not met their legal obligations, nor did he warn them of the hefty fines that they could face under the present rules.
Does my right hon. Friend agree that the situation is even more worrying, because a significant minority of employers are not even aware of their obligations?
Indeed. A study by Axa Sun Life has shown that of those who had not put such schemes in place—we are talking here of employers with turnover of £1 million or more—about 90 per cent. did not realise that they had to do so. That is worrying. It is sad that the Secretary of State did not use this opportunity to publicise the scheme. In due course, the law will have its way and employers will do so.
The more interesting question is how many employers will voluntarily make contributions to their employees through those funds. One hopes that some will, but studies suggest that only about 10 per cent. of employers who do not do so at present are planning to do so. That may be offset by the effect on pensions provision of the availability of stakeholder pensions, encouraging employers to wind up existing schemes and move to a less generous scheme than they had previously. Again, we heard nothing about that from the Secretary of State.
The key aim of the Secretary of State has been to encourage the target group, about which there is no doubt. The Library brief makes it clear that the target group comprises those earning between about £10,000 and £20,000 a year. It is hoped that they will opt out of the state scheme and save their rebates from that and, if possible, more than that. We know that, in its first six months, the scheme is sadly failing with that target group. The vast majority of the rather small number of policies sold simply represent transfers from approved personal pensions and additional voluntary contributions into stakeholders on stakeholder terms. There is no net increase in the number of people saving or of the amount of saving as a result.
We know also that the pensions providers have been focusing on people outside the target group—essentially the tax-advantaged saving of high-income earners via their wives and children, or those exploiting the concurrency rules who already have occupational pensions themselves. If their income in any one year falls below £30,000, they can, for the next five years, put up to £3,600 in a tax-advantaged stakeholder in addition to their occupational pension. HSBC, Norwich Union, Halifax, Legal and General, Scottish Widows and the Virgin group have all sold more pensions to those tax-advantaged groups than to the target group. The Secretary of State has not acknowledged that. If he refutes it, and if he has evidence to rebut it, let him tell us. Or is he going to try to convince his supporters on the Back Benches that the whole purpose of the operation was to provide a new tax-advantageous savings scheme for higher income groups?
The Secretary of State claimed that there was some counter-evidence that there was a boost in personal pension provision, if not strictly in stakeholder provision, over the past few months and that the figures showed that. Actually, that boost is very largely the result of people moving out of Equitable Life and similar with-profits schemes into personal pensions and similar schemes. It is misleading to suggest to the House that it is the result of the success of his scheme; it is the result of the failure of his regulation.
Does my right hon. Friend agree that if there was to have been such an improvement, and very plausibly for the reason that he has just given us, it would be in complete distinction to the inexorable decline in the number of participants in occupational pension schemes in the past three years?
That is absolutely correct. I have read that there are about 800,000 fewer people in occupational schemes than there were when the Conservatives left office.
The fourth objective—the overall objective of increasing the proportion of pensions provision in this country that is privately funded—is extremely desirable. This country, unlike the bulk of continental countries, has encouraged people to build up funded private provision, so we do not have to rely on a rising burden falling on the taxpayer as the population ages, in the way that most continental countries do.
We have more funded private provision for pension liabilities in this country not just than any other country in Europe, but than all the other countries in the European Community put together, because people have bothered to save and invest for the future. As Mr. Field pointed out when he was Chairman of the Select Committee on Social Security, that is a reason why we should be very cautious about merging our financial future with that of those who have not made such provision for the future.
We want to make further progress towards that objective and I am glad that the Labour party has reversed its position and now wants to build on our success, but to encourage more people to opt out of the state scheme or to save more requires either persuasion or compulsion.
Persuasion is costly. It is simply not possible, under the 1 per cent. cap, for people to devote the time and effort needed to persuade people on modest incomes to opt out of the state scheme, and still less to save more than their rebates if they do opt out. The former will therefore devote their attention only to those on high earnings, who make it profitable for them. So either the Secretary of State will have to amend that 1 per cent. cap, and perhaps allow some extra amount to be spent for advice or persuasion if people save more than the rebate when they opt out of the state scheme, or he will have to consider compulsion. There simply are no other options available to him to meet his objective.
However, it is important that we be clear in our mind as to what compulsion means with second pensions. There is already a compulsory state second pension. Everyone in the country who is in employment must put money into the state earnings-related pension scheme, soon to be the state second pension, or, if they opt out of that, put the equivalent amount of money, via a rebate, into an approved private scheme or stakeholder scheme, or company pension.
Additional compulsion, therefore, must take the form either of extending that obligation to the self-employed, which is desirable in principle but impractical in practice—even the Australians have not extended their scheme to the self-employed—or of compelling people to opt out of the state second pension and into private schemes. That was obviously the Government's intention when they were preparing their Green Paper. Famously—on page 123, I believe—it contains a reference to when it is compulsory to opt out of the state second pension, which they had failed to proof-read.
As I understand it, it is in due course the intention to make the state second pension a flat-rate pension, while keeping graduated rebates for those who opt out. I would be grateful if the Minister confirmed that that remains the Government's intention. I hope that he will explain how it can be other than mis-selling to provide people with a state second pension when they could get larger than the equivalent sum if they opted out and bought a better than equivalent pension by so doing. In such circumstances, it is both sensible and in line with the Government's original intentions that they compel people to opt out of the state second pension and into private funded pensions; if they do not do so, they will be guilty of mis-selling. Will the Minister tell us whether that is the Government's long-term intention?
The third way of introducing additional compulsion into the system would be to require employers to make a contribution—say, the 3 per cent. of income that is required to make personal pensions equivalent to stakeholder pensions in the eyes of the regulator—and to make it compulsory for all employers to pay such moneys into their employees' scheme. Is the Minister considering doing that? If he is, how will he differentiate such a requirement from a simple increase in tax in the eyes of employers or employees?
I make no bones about the fact that I would like there to be some way in which to require the self-employed to save more, but I cannot see how that could be practicable. It is not right at this stage to require employers to make additional contributions over and above those necessary to fund the state second pension. However, it is reasonable to consider the possibility of requiring people to opt out in due course from the state second pension and into funded pension provision—as we already allow them to do from SERPS—and thereby over time improving their position, enhancing their exposure to this country's growth and prosperity, and generating an increased flow of funds into industry, which will strengthen the economy and benefit us all when we retire.
It is sad that the Secretary of State has not risen to the occasion today and that he has not talked about his targets and the evidence so far. It is sad, too, that he is manifestly failing to achieve the aims and targets of which we all approve. I hope that in winding up the Minister for Pensions will do better than his colleague did in his opening speech.
I am grateful to my right hon. Friend for giving way just before the end of his speech. Does he agree that the people who will benefit most from opting out of the state system and perhaps from being compelled to opt out of the state second pension are the youngest members of our work force? If in getting people to opt out of the state second pension we started with the youngest people—who by a compounding effect have the most to gain from having a private pension—it would be the beginnings of establishing the second, private pension as a norm.
My hon. Friend is correct. His suggestion bears a startling similarity to the proposal I made before the 1997 general election—the basic pension plus—which I acknowledge bore a similarity to proposals in a paper that was published by my hon. Friend, which I subsequently saw. I hope that Ministers will learn as much from him and me as we have learned from each other.
I shall be brief, Madam Deputy Speaker.
Stakeholder pensions began in April. On
On a more constructive note, my message is that, other than the defence of the nation, it is difficult to think of a public policy area where long-term consensus among political parties would be more useful than pensions provision. I think of the young workers of today, considering whether to make an investment in a pension for their retirement decades hence. They will be thinking of the number of general elections between now and when they retire and the changes in the law on pensions that could take place within that time. They will be thinking of historical events that might put people off having a pension.
Being as neutral as I can and not seeking to attribute blame to any political party, I could list many events such as pensions mis-selling, the attack on SERPS and more recently the problems of Equitable Life, not to mention the changes in our economy, with times of high interest rates and inflation and today's low interest rate environment and the effect that that has had on rates for annuities. People will bear all those things in mind when they decide whether to make that investment in a pension.
To put the stakeholder pension in its place in present public policy, the Government want the basic state pension as the foundation—with all the criticisms that the Liberal Democrats would heap on the sturdiness of that foundation—and they want to build on that with the second tier of pensions and provide sufficient diversity of choice for people to have no excuse that they cannot find a pension that suits them. As many hon. Members have said, the stakeholder pension is one choice that might suit some people. That is a sensible policy.
Stakeholder pensions are designed in particular for people on modest incomes, although no one is excluded from the entitlement to take out such a pension. Many hon. Members have commented on the desirability of the standard features of stakeholder pensions and the limits on management charges. Those pensions make an important contribution to the second tier.
Surely it is in the interests of all hon. Members and of the entire population that people be encouraged to save for their retirement and that they save enough to build up sufficient funds and receive an adequate income in retirement. Surely those are the goals that we all want to achieve. The best way to achieve those goals is through stability—stability of public policy, which is where the requirement for consensus among politicians comes in. I also believe that it means the stability of public-private partnership. Labour has accepted, although it has been painful, that there is a role for private provision. I appeal to Conservative Members to accept the painful truth that there is also a role for public provision and that the two must go together to make a successful whole pension policy.
Stability of regulation is also required. The critics of regulation should bear in mind the fact that the Financial Services Authority will not have all its statutory powers until the end of this month. We also need stability in the economy. Most rational politicians think that an independent Bank of England and inflation target are useful contributors to a stable economy.
We need stability of pension rules. It is vital when we try to persuade people to take out pensions that they are confident that as much as possible of their investment will accrue to their pension fund throughout their working life, and that they will not be robbed of great chunks of their investment every time they change from one scheme or one job to another.
The public policy tools that politicians have are the basic state pension, the pension credit, regulation and partnership with the private sector. Importantly, the new second state pension allows credits for carers. That is a vital feature that must be retained whatever changes are made. A strong and diverse second pension provision market is also a tool.
There ought to be a concordat between political parties individually—never mind just the one party in government—and the providers; there is also an important role for employers. Research by the Association of British Insurers shows that the proportion of the target work force for stakeholder pensions who would be willing to take out a pension would rise from one third to one half if employers contributed. We need willing employers to be partners in that enterprise.
There must be a willingness to confront the obstacles to public policy that will crop up from time to time. The present problem with annuities is one such obstacle and we should all find a solution to it. We need less of the party political bickering and more of a unified message from politicians and providers, so that from now on we put the welfare of pensioners at the centre of pensions policy.
I shall be as brief as possible in dealing with this important subject. I am afraid that the Government missed a tremendous opportunity when they first reviewed pensions by not building on the work of the pensions reform group, the all-party group that I chair and the retirement income working party, and completely restructuring pensions in a way suggested by hon. Members on both sides of the House. An element of compulsion is necessary. My right hon. Friend Mr. Lilley suggested that there could not be compulsion on employers. Of course there could, just as one could hypothecate part of the employer's national insurance contribution. One could do something similar with the self-employed, who would be compelled via an increased contribution or, to avoid that, by showing that they were making private provision.
The stakeholder pension has only one merit—to drive down costs—which I accept is vital, as costs were far too high. However, looking at the target group, I believe there is a grave danger of mis-selling. In previous debates in the House, I have said that it is difficult to envisage how any independent financial adviser could recommend a stakeholder pension to someone in the target group without being at risk of mis-selling. The Secretary of State said that that problem would be overcome by the pensions credit. He should read the full response of the pension provision group, which states in a summary:
"We are concerned at the limited amount of information in the Consultation Document about the intended design of the Pension Credit scheme, how it would be implemented and the implications for other benefits such as Housing and Council Tax Benefits.
We are surprised that the Government has declined to publish fairly basic information, such as the number of people who stand to gain and the additional amounts they would receive from the Pension Credit scheme and the expected total cost of the proposals.
We greatly regret the lack of clarity. This seems a serious step backward from the extent of detail and information the Government gave in the 1998 . . . Green Paper.
We are also concerned about the possible negative impact this uncertainty could have on people's willingness to join the new Stakeholder Pension Schemes which are about to be launched and on the ability of financial advisers to offer informed advice on the decisions people will need to take."
That problem is compounded by annuities. The fact that annuities are low makes it difficult for people in lower income groups to benefit. If annuities were abolished, as recommended by the retirement income working party, and a limited platform equal to the minimum income guarantee were introduced, people would be free to do what they liked with the rest of their money, subject to certain constraints, and much of the problem would be overcome.
We are faced, however, with a dichotomy within Government. The Inland Revenue is resisting annuity reform. A press release issued after a meeting with a Treasury only yesterday said that reform could
"lead to unsustainable tax leakage owing to increases in income tax rebates on contributions once the 'disincentive of buying an annuity' had been removed".
In other words, part of the Government is saying that a disincentive is needed for people to buy pensions. It believes that the annuity is a disincentive, hence it must be kept so that excessive tax relief does not have to be given. What nonsense; I thought that it was Government policy to increase the incentives for people to buy personal pensions.
The press release also says that pensions schemes could lead to the very rich having
"a mechanism to avoid inheritance tax."
At the moment, if the very rich put everything in a trust, they have to arrange to die before 75. Inconveniently, that does not always happen so, once the 75-year rule is removed, they could use that as an inheritance mechanism. There is a simple way of dealing with that; all the Government have to do is legislate to cap contributions from the rich, and the whole problem disappears. Yet the Government retain that antique device, and one must ask why. Perhaps one of the reasons is that by forcing people to buy annuities, they force them to buy Government bonds at ever reducing rates. The Government are therefore forcing retiring pensioners to fund Government debt.
In the interests of brevity, I have cut out a significant proportion of my speech. I keep coming to Opposition day debates, unlike many Opposition Members. At least there are sufficient Conservative Members to oblige them, if they were a small company—unlike the Liberal Democrats—to have a stakeholder pension.
I have been waiting for the cut and thrust of debate—that explosion of ideas that is supposed to characterise Parliament, with the Government being robustly and precisely examined by a defiant Opposition. Each day in debates I wait with excited anticipation for an onslaught from the official Opposition, but all we get is the occasional Back-Bench cameo.
I could compare the situation to a game of Bagatelle that I once received. Hon. Members may recall those traditional Bagatelle games. When one fires the spring, the ball bearing spins around with a "ping". The one I got was one of those badly made Bagatelle games; as one drew the spring back, the sound was less of a "ping" and more of a "boing", as the ball bearing trickled slowly up the game and lamentably cascaded downwards. When I listen to those on the Opposition Front Bench, I hear no "ping" today.
For 18 years, during which I first started paying in, I had to deal with the raiding of pension funds by employers when I advised pension fund trustees. During those 18 years, I had to watch as members of my family without occupational pension funds retired into poverty pensions. With all the brains available to the Government, after 18 years there was still no sustainable, effective pensions policy. Instead, there was the legacy of the pensions time bomb facing us now.
I want to ask my right hon. Friend the Minister about the role of the trade unions in stakeholder pension funds. The occupational pensions that we have are the legacy of effective collective bargaining by working people through their trade unions—bargaining to get the employer to make a serious contribution to an occupational pension. In persuading employers to take up and develop stakeholder pension funds, and in bargaining beyond stakeholder pensions into occupational pension funds, an opportunity is being missed by the trade unions which should be a rightful part of their historic role and, more importantly, a critical part of their future development as organisations representing working people. They should seize the opportunities provided by the stakeholder pension funds and run with them, both for their members and in terms of their interaction with employers.
I would liken the stakeholder pension to a game of cricket. The stakeholder pension is, so to speak, the first pair at the wicket still batting, but what is required is a solid team performance to take the team through to a long-term win. It is far too soon to draw conclusions from the early returns that we have, especially as so little information has been provided. A natural caution on the part of the public when faced with the question of where to invest money for their future is understandable, particularly when one considers the target group at which stakeholder pensions are aimed. I would go further and say of my constituents, who are most prudent and financially cautious people, that it is laudable that they have waited to see how the legislation pans out before committing themselves to anything.
In the stakeholder pension, the Government have succeeded in beginning to create access to a low-charge pension scheme for those who previously had no means of securing their future. In the long term, it is the beginning of the process of providing security for those people's future. I congratulate the Government on the measure. It is a "ping" in the right direction.
The Government came to office promising great things of the stakeholder pension: high standards of value for money, flexibility and security. Things started to go wrong when they used the expression "low-cost pension" to describe it. As has rightly been said, the intent is to drive down the cost of a pension, but there is no such thing as a low-cost pension. Pensions are extremely expensive and large amounts have to be found to build up a fund if there are to be good pensions. I see that as a result of my declared interest as a trustee of a pension fund.
Do stakeholder pensions work and are they worth while? One problem that has not been mentioned is that they were introduced through employers and made compulsory for those with more than five qualifying employees. That was an acrimonious point. It means that about 15 per cent. of the target population who work for smaller employers are excluded to start with.
A second point is that the scheme is voluntary, not compulsory. I do not believe that it will be possible to have a viable scheme unless it is made compulsory, which will drive down costs. Only 416,000 people have taken out stakeholder pensions.
I was baffled by the Secretary of State's insistence that stakeholder pensions are for moderate and higher earners. If they are, why did he tell the House on
"those with moderate incomes of between £10,000 and £20,000"?—[Hansard, 3 April 2000; Vol. 347, c. 719.]
During the debate, I came to the conclusion that the Secretary of State had missed the goal the first time around and was therefore moving the goalposts nearer to the current situation. Only 36 per cent. of those who have taken out stakeholder pensions are in the main target area of income of £11,500 to £20,000 and a quarter have incomes of more than £20,000. We all know a lot of advertising seeks to attract richer people to take advantage of the stakeholder tax breaks on behalf of other members of their family.
Could there be a better use of the money by people taking out stakeholder pensions? In many cases there could. The state second pension scheme, which takes over from SERPS in April 2002, may be a better investment for many because of the low level of contracting-out rebates. It has not been noted during the debate that many of those in the stakeholder pension target area have personal debt of some kind on which they are often paying a large amount of interest. The best investment that they could possibly make would be to pay off their private borrowings, on some of which they are paying well over 20 per cent.
The real reason why I oppose the system put forward by the Government is the level of means-testing, which does not just concern me but makes me angry. The Chancellor of the Exchequer, addressing the Labour party conference in 1993, said that the next Labour Government would
"achieve what in 50 years of the welfare state has never been achieved—the end of means tests for our elderly people."
Between 1979 and 1997, the number of pensioners means-tested fell from 57 to 38 per cent., but it is now due to rise to between 56 and 59 per cent. by 2003. The minimum income guarantee linked to wages means that there is a growing gap between the basic state pension and the guaranteed minimum income. The greater that gap becomes, the greater the means-testing, the effort that has to be made to bridge the gap and the extent to which a saver on modest earnings is wasting his or her money by throwing it away and spending it where state benefits are otherwise available.
I am sorry; I cannot.
Someone on the minimum income guarantee will have housing benefit and council tax relief. That means that a person who has made prudent, but modest, provision for retirement can be worse off than someone who has never done anything in that regard. This is a widening gap and there is increasing and justified resentment about it.
When I make that point to the Secretary of State— I have done so several times—he simply asks whether I would not allow some extra relief for those on the lowest incomes. I understand the point, but does he understand that there is a deepening sense of resentment among those who have made prudent provision for their retirement about the fact that some people who have made no provision are better off than them? Of course, the pension credit that is to be introduced would increase the amount of means-testing to about 65 per cent. Does the Minister think it is acceptable for 65 per cent. of pensioners to be on means-tested benefits? I submit that it is not.
I cannot let this debate go without making two more points. First, I thank the Secretary of State for being present throughout the debate, which is unusual among Cabinet Ministers these days. His presence is a great compliment to the House, for which I thank him.
On the second point, I shall make my last comments in very rapid succession. This Government have introduced the greatest of all stealth taxes in damaging pensions by abolishing advance corporation tax relief for pension funds. That is a devastating blow of some £5 billion a year that is only now being felt. It is estimated that a 30-year-old will now need to pay an extra £200 a year to maintain his pension at the previous level. Tesco has increased contributions to its pension fund by 15 per cent. to pay for the change. Some 17 per cent. of those on final pension schemes are now in schemes that are being closed to new members. That is a devastating indication of the damage done to the pensions industry by the abolition of the tax relief. The result is that 9,000 new pension schemes were formed in 1997, 5,000 were formed in 1998 and only 3,000 were formed in 1999. What would I do? I would not mislead people by talking about low-cost pensions, but increase the basic retirement pension, introduce compulsory contributions to an adequate scheme and so reduce means-testing and increase self-respect for our pensioners.
I am aware, Madam Deputy Speaker, that you want this contribution to be no more than three minutes long, so I shall do my best to confine my remarks to that time.
With regard to the previous speech, I must say that pensioners in my constituency are glad that there is a large gap between the basic pension and the minimum income guarantee. That £20 gap for single pensioners corresponds to £20 more that they have to spend, or £20 for a better standard of living. If the previous speaker Mr. Viggers was trying to suggest that that is demeaning because it is based on means-testing, all I can say is that it is real money that has a role to play in improving the quality of those people's lives. I am also glad that we have this Government and that they are pursuing that policy, and that the Conservatives are not in government, as they seem to want to remove it.
My main point is to emphasise to my right hon. Friend the Minister that it is important to take on board the remarks made today, such as those of Mr. Butterfill, about the interface between the arrangements for the stakeholder pension and the pension credit. Like my hon. Friend John Mann, I do not feel that I would want a stakeholder pension if I were earning, say, £13,000 a year. That seems a pretty bad deal. Even if one were to build up painfully over many years a fund that was four times one's income, at £50,000 or so, it would provide an income of about £80 a week, on current annuity rates. When that amount is added to the basic pension of £70-odd, one is left with about 150 quid. One would probably then be just at the edge of the taper for the figures that we have seen in respect of the pension credit and would not, perhaps, get many of the benefits that would be available if one was on the minimum income guarantee as well. One would also be taxed, and various other matters could be relevant. If one was eligible for housing benefit, one would be removed from it and so on. One's quality of life might still end up poorer than it would have been under the minimum income guarantee, even with a pension credit, if the credit was not generous. That calculation is based on the indicative figures that we have seen for the pension credit.
We must think much more carefully about the relationship between the stakeholder pension, the pension credit and the associated systems of benefits, so that in the end there can be a clear incentive for people earning £13,000 a year or thereabouts to make the real sacrifices that they would have to make to build up a fund of quadruple their current income level. I hope that my right hon. Friend the Minister will say that he is going to rethink some of the arrangements relating to the pension credit to ensure that there is a real incentive for people to buy into this scheme.
This interesting debate has taken place against a background of two wider economic considerations, both of which are disturbing, and both of which have been created by this Government alone. The first is the alarming overall decline in the savings ratio, which has halved over the almost five years of this Government, from more than 10 per cent. in 1997 to 5 per cent. in the early quarters of this year. It is entirely characteristic of the Labour Government that they concentrate on one vital part of the scene—pensions, which we all accept are vital—while neglecting others.
The general message that the Government are putting out is one of a disincentive to save. It is hardly surprising that that disincentive generates the conclusion that the annual savings gap caused by these policies is now measured in tens of billions of pounds, and is currently estimated by the Association of British Insurers at £27 billion a year.
Secondly—this is quintessential new Labour—the Government offer inducements in one direction, for stakeholders, while at the same time damaging the market prospects in others. At an early stage of the last Parliament, I was more directly involved in the many debates about the Government's abolition of advance corporation tax and payable tax credits. Those measures took more than £5 billion from pensions every year and, as my hon. Friend Mr. Viggers has just said, effectively take £200 a year from the average 30-year-old.
Those figures should inform our general concerns in this debate. It has been an interesting one, and it belied the bland comment that I have just received in a written answer from the Minister for Pensions who said, heroically, that stakeholder pensions were designed to be simple. They may be simple enough, but the conclusions for policy are far from simple.
My hon. Friend Mr. Willetts provided a masterly dissection of the subject, emulated, if only in part, by my right hon. Friend Mr. Lilley and by Mr. Field. My hon. Friend the Member for Havant received admirable assistance and many thoughtful comments from my hon. Friends the Members for Bournemouth, West (Mr. Butterfill) and for Gosport. Mr. Webb helped to twist the knife in the Secretary of State, and there were further contributions from the hon. Members for Stafford (Mr. Kidney), for Bassetlaw (John Mann) and for Hemel Hempstead (Mr. McWalter).
Everyone has made a genuine contribution, although perhaps the least convincing or cogent was that of the Secretary of State. He went to great lengths not to answer the questions that were put to him. He said that he did not know the answers, but I am not sure whether ignorance is an excuse. When Ministers of the Crown set up a new policy, they ought to be able to answer our questions. Even if they are not yet able to do so, they ought at least to have established the machinery by which their policies can be tested, and on which they can report. I know that he is uneasy about that, as is every Member who has spoken.
The argument is not about motives, as we all want to increase the proportion of income being put aside for the retirement years. We have little option on that. We must also offer a fair deal to those making the saving, and we need to see whether the current arrangements, much hyped by the Government, are working.
The first conclusion that I have to draw is that there is and remains a radical confusion at the heart of the Government as to the target group for stakeholder pensions. One of my hon. Friends referred to the Secretary of State's original statement in February 1999 that people in the middle and lower ranges were the target group.
The former Minister of State, Lord Rooker, has been mentioned several times and, in particular, he referred to the target group as those on moderate incomes of between £10,000 and £20,000 a year. That is 5 million people. By definition, almost all those persons will be on below average earnings.
The Government's new definition, set out in their amendment to our motion, defines the target group as "moderate or higher earners". On the formula that they have given, that means anybody earning £10,000 a year or more, and the sky is the limit. In new Labourspeak, lower means higher or, if it means that someone can meet a target, the target changes to meet the concept of the day. I knew someone who consumed an inordinate amount of mothballs. When the shopkeeper asked why he had been back to the shop four times in a week, he said, "You can't hit them every time."
Secondly, the stakeholder scheme, by any standard, is hardly selling like hot cakes. Let us take first the employer gatekeepers. Remember, they are under a legal obligation to designate schemes for any business with more than five employees, yet on the statutory date of
The Occupational Pensions Regulatory Authority is responsible for policing those defaulters and Ministers must hope in their hearts that it does not feel too many collars, because it could be overwhelmed. That would send a disturbing signal to those Ministers who want to pose as the friends of business.
The Minister of State and I have debated employment law, and I am interested in whether an individual employee with a grievance about non-designation could pursue a case through the already overloaded employment tribunal system because he had not received his rights. I am not sure whether that has ever been clarified.
It is hardly surprising that take-up is relatively disappointing, with only 416,000 stakeholder policies sold to date. Many were no doubt transferred from other schemes. I am interested in a written answer received last week by the hon. Member for Northavon, although he did not refer to it. Despite all the effort and expense involved in advertising in the first place, Ministers now say that they are not specifically advertising stakeholder policies. That is not a ringing endorsement.
Figures on stakeholder pension charges published last week by the Financial Services Authority show a wide disparity between providers. In many cases, a personal pension still offers better value, although that of course depends on the circumstances. I do not know whether it suits the Government to say that they have targeted the workers by hand and by brain, but they have a achieved a position—I have to say that I have no interest to declare—whereby the rational purchaser of a stakeholder pension is me. I have a brand new granddaughter, and I can make provision for her 60 years down the track. Therefore, Government policies could succeed only if they operate as outdoor tax relief for the financially sophisticated. All that is of a piece with the Government's other failures in pensions policy. Like other private pension holders, stakeholders will have to go through the annuity hoop referred to by my hon. Friend the Member for Bournemouth, West and others. There is a strong Treasury interest in trying to secure public funds at minimal cost.
Then there is the whole issue of the minimum income guarantee. That has been just as much a flop in practice as the stakeholder pension, with a take-up of only one fifth of the target group to date. Of course, Ministers pray in aid their forthcoming pension credit. They should ask themselves whether they are absolutely sure that those changes can be financed with no losers, and with significant beneficiaries but at no Treasury cost. Even if they can achieve that, are they happy about subjecting more than half of pensioners to the inevitable means-testing?
Last but not least, the overall number of pensioners in occupational schemes has fallen year on year under this Government. Many also face a retreat from quality, having to move to less generous schemes. It is no accident that the IPPR—not normally a friend of those on the Conservative Benches—concluded in August:
"The Government's pension policy is basically in a muddle. It is unravelling and something needs to be done about it and needs to be done quickly."
Age Concern echoes some of those concerns. If Ministers are still not in the mood to listen, hon. Members must make a modest start in the House tonight by voting for our motion.
I shall try to deal with hon. Members' questions as I go along but if, by the end of the debate, I have not done so I shall write to them and place my letters in the Library so that those who have taken part in the debate can see the answers.
I thank my right hon. Friend Mr. Field and my hon. Friends the Members for Stafford (Mr. Kidney), for Bassetlaw (John Mann) and for Hemel Hempstead (Mr. McWalter) for taking part in the debate. It has given us an opportunity to set out the four key stages of the Government's policy: saving the basic state pension from the Conservatives, who would have liked to have privatised it; reforming SERPS by creating a second state pension to help the low paid and the carers of disabled people for the first time ever; the creation of the pension credit so that it pays to save; and giving people a choice through the stakeholder pension, with a second tier for those on moderate and higher earnings.
When I listened to Conservative Members in this debate I felt astonished, because for 18 years they failed virtually every pensioner organisation in Britain. They left us with a complete mess and were contemptuous of older people. Hon. Members will remember what those in charge of Conservative policy thought about pensioner poverty and treating people with dignity. Edwina Currie, the former Health Minister, told pensioners:
"Buy long johns, check your hot water bottles, knit gloves and scarves and get your grandchildren to give you a woolly night-cap."
That was the Tory strategy for pensioners in Britain; and it got worse.
I simply want to ask the Minister a question—it does not refer to the former colleague to whom he has just referred. Will he tell the House whether pensioner incomes rose or fell under the Conservative Government?
As my right hon. Friend the Secretary of State highlighted, in our first four years we cleared up the sorry trail of misery created by the Tories over 18 years. We simply rolled up our sleeves and put right the injustices of our inheritance. We tackled the legacy of pensioner poverty; dealt with the inherited SERPS debacle; and put right the mis-selling scandal, ensuring that compensation was paid to the thousands of people who were conned by Tory Members into leaving their occupational scheme.
Put simply, the Tories failed those who needed help most. At least 2 million pensioners were living on or below woefully inadequate levels of income support. Many more were living in fuel poverty. That was the reality of the 18 years of Tory rule. The Tories did nothing for women who stayed at home to look after their children or elderly relatives. Those women could not build up decent pensions and were left to be in poverty when they retired. They deserved better and the Tories did nothing for them.
The Tories left us with a system where there were huge disincentives to save. Why should people have saved for retirement when all they would have found was that they were no better off, or in some cases worse off? People saved for nothing under the Tories. Nor was a framework in place to offer good-value alternatives if individuals could not access an occupational pension scheme.
In the teeth of Tory opposition, we were not prepared to ignore those issues and to condemn many pensioners to a life of poverty. That is why during our first term in office we reviewed the pension system to replace it with one that is modern, inclusive and fair to everyone. Our strategy is simple: we want to ensure that all pensioners have a decent income in retirement. Therefore, we have taken action to help all pensioners, while giving priority to the least well-off.
The basic state pension will remain the foundation of income in retirement. Nothing the Conservatives said today showed that they would commit themselves to that, too. It is an essential building block of pensioner income, but we should not look at it wistfully through rose- coloured glasses. It provides a basic income in retirement—nothing more, nothing less. That has always been the case.
The system has flaws. That is why we are modernising it. In the process of modernisation, we want to take steps to ensure that we do not penalise married women who paid the reduced stamp, and that low-paid workers who did not earn enough to pay national insurance get access to the second state pension. We want to ensure that we have a system where people retire with dignity and a guarantee of income.
That is why we introduced above-inflation increases in retirement pension this year and next—£5 a week for single people, £8 a week for a couple—and from April 2002, there will be further increases of £3 a week for single people and £4.80 for couples. We introduced the minimum income guarantee for the poorest pensioners in our society, free television licences for the over-75s worth £104, and winter fuel payments worth £200. All those were opposed by Conservatives.
That is absolute nonsense. Furthermore, the right hon. Gentleman is one of the most culpable because he was the Secretary of State for a long period during the last Conservative Government, who extended means-testing while putting more people below the poverty line. He stood back and watched as community after community faced high unemployment and 50-year-olds were put out of work. As well as losing their job, they lost the opportunity in that part of their earning life to have a decent pension in retirement. He should hang his head in shame for what he did as a Minister.
Can the hon. Gentleman sit down for a moment? He phased me—I thought Mr. Bean was standing up in front of me. I apologise. I will get back to him.
We are spending nearly £3 billion a year more on pensioners than it would have cost to restore the earnings link in April 1998. This year, 2001–02, we are spending around £4.5 billion extra a year in real terms on pensioners as a result of policies since 1997. In 2002–03, that will rise to £5.5 billion extra a year, to answer Mr. Lilley.
I give some examples of how that additional money has been spent. At April, nearly 2 million of the poorest pensioner households will be at least £15 a week, or £800 a year, better off in real terms as a result of the measures that we have taken since 1997. Our policies are helping those who are most in need of that extra spending. A total of £2 billion is going to the poorest third of pensioners, five times more than the earnings link would have given them. That approach is narrowing the gap between rich and poor.
It was a rough-and-ready solution to a real problem, but it has worked. In the three years since the introduction of the minimum income guarantee, we have paid £12 billion to the poorest pensioners in our society. I refuse to apologise for such a policy.
I have never in my life been frightened of a Conservative, however big.
In this debate, Conservative Members have placed great emphasis on the means test. Either they want to cut the minimum income guarantee and reduce income by £15 per week for the poorest pensioners, or they want to make a huge increase in the basic state pension. However, the latter option is not Tory party policy. What is their policy? Are they going to cut pensions by £15 per week for the poorest pensioners? It is just another example of Tory Members thrashing around on policy.
We shall soon be publishing our proposals on the pension credit, which will remove stigma and needless complexity, combat poverty and promote security—which is critical. Half of all pensioner households will be entitled to the credit, which will signal the end of the weekly means test. We shall modernise the way in which we deliver help to pensioners, simplify the rules and significantly reduce the information that they have to provide initially. We shall enable pensioners to receive their entitlement with much less intrusion and hassle.
The pension credit is the next stage of our strategy to deal with disincentives for people to save. Introduction of the credit will reward people for saving for their retirement. The credit will provide a guaranteed income level below which no pensioner should fall. It should be worth, in 2003, about £100 for single pensioners and £154 for couples. This is the first time that people with modest savings will not be penalised for thrift. Those who qualify for the pension credit will receive a cash top-up for the pounds that they save. When they were in government, Conservative Members' priority was to tax moderate and small second pensions at a rate of 100 per cent. and give tax rebates to the most wealthy in society. That is not our priority.
There was a gap in the market for low-cost, secure, flexible and good quality pensions. Consequently, we introduced the stakeholder pension, which has been widely welcomed, even by the Tory house magazine. The personal finance editor of "The Sunday Torygraph" said:
"There is absolutely nothing wrong with stakeholders. For those who can afford to put money away to fund their retirement they are a jolly good idea."
Last year, there was no facility for people in the target group to have such a pension. Two thirds of employers are now on board, and hundreds of thousands of individuals who did not have appropriate pension cover now have it. The policy is a success, and it will continue to be a success.
We have a continuing monitoring and evaluation plan to assess the impact of stakeholder pensions as well as information from the pensions industry. We shall continue that assessment. Conservative Members have said nothing today to change my mind that stakeholder pensions were the right policy to introduce, or to make me doubt that the policy will ensure that, in the next few years, hundreds of thousands of people who had no access to pensions under the Tories have such access.
Despite the Opposition's attempt to rubbish our pensions strategy, it is clear that it is their policies, not ours, that are in disarray. Their policies are unworkable, unattainable, unsustainable and very unpopular, even among Conservative Members. Their policies are a continuing catalogue of disaster.
There is no confusion about where the Government stand on pensions. Pensioner poverty increased under the Tories, but the Government are reducing it. The Tories mis-sold pensions, but we ensured that their victims were compensated. The Tories had the state earnings-related pension scheme, but we are modernising it. The Tories tried to cheat widows by not allowing them to inherit SERPS, but we have put that right. The Tories wanted to abolish winter fuel payments, but we have increased them to £200. The Tories wanted to deny over-75s a free television licence, but we have introduced a scheme to provide them with one. The Tories introduced charges for pensioner eye tests, but we abolished the charges. The Tories increased VAT on fuel, but we reduced it to the lowest possible level. The Tories also opposed the pension credit.
Worst of all, the Tories coldly condemned millions of older workers to the dole. They abandoned them. They rejected them. They threw them on the scrap heap. The Government are against age discrimination, and we shall legislate against it.
Question accordingly agreed to.
Mr. Speaker forthwith declared the main Question, as amended, to be agreed to.
That this House welcomes the Government's reformed framework for pensions, which ensures that today's pensioners share in the country's rising prosperity and that tomorrow's pensioners are encouraged to save for their retirement, building on the foundation of the basic state pension; believes that pensioner poverty must be tackled through the minimum income guarantee; supports the reform of SERPS to create the State Second Pension which will give more help to low paid earners and people with broken work records, such as carers and disabled people; further supports stakeholder pensions which provide a low cost, flexible option for moderate or higher earners who do not have access to a good occupational scheme; welcomes the Government's plans to ensure that pensioners with modest savings or a small occupational pension are rewarded for their thrift through the new pension credit; and supports the need for an effective system of financial regulation through the FSA and other measures to build public confidence.