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I beg to move,
That this House
welcomes the Government's stated aim of increasing from 40 per cent. to 60 per cent. the proportion of pensioners' incomes which comes from the private sector, but notes with concern that the trend is in the opposite direction;
deplores the regulatory burdens now placed on pension providers;
condemns the Government for its failure to reform annuities;
regrets the low level of saving and the decline of funded pensions;
recognises that this poses a significant threat to the incomes of pensioners in the future;
and further regrets that the Government's response is to increase the number of pensioners dependent on means-tested benefits.
The motion begins by endorsing an objective set by the Government. I had hoped that that would provide a starting point on which we could all agree. That point was the aim of moving from a system in which pensioners receive 40 per cent. of income from private savings and 60 per cent. from benefits to one in which the figures are the other way around. I regret that Ministers have, in the Government's slash-and-burn amendment to our motion, removed even our welcome for their stated aim. I hope that the Secretary of State can assure us that no matter what problems he may have with what we now call delivery, he remains committed to the aim of increasing from 40 per cent. to 60 per cent. the proportion of pensioners' incomes that comes from the private sector. I hope that that is shared ground and a goal in which we all believe.
The reason for the debate is our concern that we are moving in the opposite direction. We worry that the decline of funded pensions that has gathered pace is spinning out of control. The proportion of employees with an occupational personal pension is declining. We know from parliamentary answers that the number of occupational pension schemes closed to new members is rising. We know from the latest survey by the National Association of Pension Funds that the percentage of members in schemes closed to new members has risen from 8 per cent. to 20 per cent. in the past year. There has even been a slight decline in the number of pensioners receiving an income from an occupational pension scheme.
The picture before us is one of declining funded pension savings. That is borne out vividly by the statistics for the assets of our pension funds that have been released over the past few weeks. We thought that the picture was clear. The Office for National Statistics produced statistics on insurance companies' pension funds and trust investments. I am sure that those figures were closely read by many hon. Members; certainly, they should have been read by Ministers. They showed that in 1998 the total assets of our occupational pension schemes were £706 billion. That figure had risen by 1999 to £783 billion.
With no comment or explanation, a new set of statistics was released more recently. Those figures show a very different picture. For precisely the same period covered by the previous statistics, they show that in 1999 our pension funds contained not £783 billion but £679 billion. Call me old fashioned, but £100 billion is still quite a lot of money to lose. We are entitled to hear Ministers explain those statistics rather than smuggle them out. Why was the value of our pension schemes suddenly reduced by £104 billion?
Might the answer lie, at least in part, in the fact that the Government have raided pension funds through advance corporation tax changes to the tune of £5 billion a year for the past few years?
My hon. Friend is quite correct, but we have two problems. First, on the snapshot date in 1999, the ONS estimate of the value of our pension funds had fallen by more than £100 billion. Secondly, there are questions about the trend in the value of our pension funds, which my hon. Friend rightly raises and to which I shall turn shortly.
The ONS produced the revised figures for the value of pension fund assets with no apology or explanation of what had happened. If we are confronting what seems to be the biggest revision of economic statistics in the history of British economic management, we are surely entitled to some explanation of why £100 billion has gone from our pension funds. In the past hour, the ONS has stated:
"Preliminary investigations suggest there is an error in the revision to 1999 and to the figures for 2000, particularly in the estimates of holdings of quoted shares. Further investigation is needed to clarify the position. In the interim, the figures are being withdrawn."
So just before the debate, the Government withdrew their figures for the value of the assets of the pension funds of this country. In the press release that has just been rushed out, the Government are saying that they do not have the faintest idea how much there is in our pension funds.
I hope that, at the very least, the Secretary of State for Work and Pensions will give us an explanation of what has gone wrong. Perhaps someone's finger slipped on the calculator—it is easy to lose £100 billion in the roundings—but I hope that at least we shall have an explanation as to what has gone wrong and a promise that, next time £100 billion goes astray from our pension funds, the Government will offer us—on time—a proper explanation and account instead of trying to smuggle out a statement with no explanation.
My hon. Friend may have noticed that some Labour Members have been laughing. Does he agree that this is no laughing matter but one about which our pensioners should be deeply concerned?
My hon. Friend is right. We are talking not only about a massive statistical error—serious though that is—but about a new picture of what is happening to our pension funds. The old model, on the old statistics, was that there was £706 billion in 1998 and £783 billion in 1999, and that we would be moving onwards and upwards into the sunny uplands with more and more funded pension savings.
I realise that nowadays there is complete uncertainty as to what is reliable, but the new statistics instead gave a figure of £706 billion in 1998, with the 1999 figure revised down to £679 billion, while the new figure for 2000 was even lower—£658 billion: a clear downward trend. If the glory days of all that money in our pension fund assets have passed, those statistics and that new trend establish for the House the scale of the problem that we face in ensuring that our pensioners enjoy prosperity when they retire.
There are of course many reasons for that decline. My hon. Friend Mr. Butterfill has already referred to the increase in the tax burden and the regulatory burden that has fallen on many pensioners. However, no matter which of the many explanations one offers, the picture of decline in funded pensions is difficult to gainsay.
Ministers may try to gainsay that fact, however. Let me suggest some of the arguments that we may hear. We may be told, "Ah, but of course markets go down as well as up." There will be a Financial Services Authority health warning on shares in pension funds. That is not what the Government used to say. It is certainly not what the Prime Minister said when he was challenged on the effect of his massive tax hit on our funded pensions. Then, he said that
"as a result of pension funds rising 70 per cent. because of rises in the stock market since the election, those sums"— the sums for the tax—
"are entirely illusory."—[Hansard, 1 November 2000; Vol. 355, c. 704.]
In fact, the Prime Minister's statistics were illusory. The reality is that people have less money in their pension funds because of the tax hit that he has imposed.
I am sure that we shall also be told, "Don't worry, the funds are still pouring in." We have heard those statistics many times from Ministers and they are hinted at in the Government's amendment. However, I warn the Secretary of State that those figures for the flow of incomes into funded pensions come from the same source as the figures for the value of the assets in pension funds that he has withdrawn in the past hour. We shall not rely on those figures for the total income going into pension funds. If the right hon. Gentleman tries to develop that argument, I warn him that he is straying into dangerous quicksand. We know how those figures went wrong, and I shall be happy to enlighten him if he tries to deploy them.
The Government will also argue—as the motion suggests—that there is no need to worry because they have introduced the marvellous stakeholder pensions. The Opposition want stakeholder pensions to be a success, but we know the problems that they face. I shall not go over the ground that we debated in this place just before Christmas regarding the take-up of stakeholder pensions. The Government have a target group—
The latest figures—out today—confirm that, exactly as we warned in that debate, there are 5 million people in the target group with earnings of between £10,000 and £20,000 a year. Approximately 600,000 stakeholder pensions have been sold, and by the time one removes the people who have transferred to stakeholder pensions from other schemes, people who have been advised that their non-working wives should have a stakeholder pension, or people who have bought stakeholders for their grandchildren, the total number of people in the Government's target group will—as I suggested in that previous debate—be rather smaller than the number of life peers that the Prime Minister has created since 1997. It may do the Government an injustice, but the figure is still many millions short of their target.
I had intended not to repeat that point but to raise another one. What we are trying to focus on in this debate is the value of the funds in our pensions. I hope that the Secretary of State will also enlighten us on what are called in the trade "empty stakeholders". Those are stakeholder pensions that are perfectly formed, legally compliant and designated, as required by the legislation passed by the Government. Employees have been informed—just as they should have been. Such pensions are included regularly in the totals issued by Ministers of the number of stakeholder pensions that have been set up—but there is one minor technical problem: there is no money in them. They have no funds whatever.
I shall quote from an employer's account. She said that she had a group personal pension, but
"last month my independent financial adviser kindly advised me to set up a 'dummy' stakeholder scheme in order to be certain not to risk a £50,000 fine. This was duly done and announced, to gales of ironic laughter from staff. No one will ever contribute to it, but I've got my certificate."
That anecdote is borne out by assessments made by independent financial advisers, one of whom calculated that nearly 80 per cent. of group stakeholder schemes that have been sold are designation only. That means that currently no contributions are going into them.
The empty stakeholder is the apotheosis of Labour's pension policy. The legislation was passed; the brand name was launched; the employers comply with the new regulation; the employees are informed. Ministers boast about the number of schemes, but there ain't no money—no money whatever. They make no contribution at all to tackling the problem of pensioner poverty. Stakeholders will not do so either.
Ministers do have one answer to the decline in funded pensions, however. It was revealed in a document published at almost the same time as the statistics that showed the decline and was entitled "The Pension Credit: Long-term Projections". The document shows what will really happen if we all retire with a modest amount in our funded pensions—which is now a dangerous risk: we shall be dependent on means-tested benefits.
The projections in the document show that in 2040, assuming that the cost of the pension credit grows in line with earnings and that the revised level of funded pensions saving is a real prospect—scenario one—the pension credit will cost not £2 billion, as it is supposed to do in 2004, but £20 billion. In 2050, the cost will be £26 billion. It is forecast to take more than 1 per cent. of our entire national income.
If we put together the statistics on the decline of funded pensions and the projected cost of the pension credit, we can see that there is a strategy behind what the Government are doing. We can see exactly in which direction our country is headed: to a situation where our funded pensions shrink in value, where we retire with lower pension incomes than we had hoped and, as a result, where we are dependent on means-tested benefits. That is the direction in which the Government are taking us. We are already moving in it; the number of pensioners dependent on means-tested benefits has risen from 41 per cent. in 1997 to 57 per cent. in 2003, as the Library says in a letter to me, but that trend could go still further.
Our vision is one of a society where people build up more funded pensions for their retirement. That involves a pensions regime that is straightforward, comprehensible and encourages people to save, so that their incomes are not dependent on means-tested benefits. We have called this debate because it is clear that the Government are taking us in exactly the opposite direction.
The hon. Gentleman talks about means-tested benefits and reducing the number of people who have to claim them. Obviously, one way to do that would be to cut the value of the minimum income guarantee. Can he give us a guarantee that, if he were the Secretary of State, he would continue to uprate the minimum income guarantee in line with earnings?
We will have that debate as we approach the next election. The Government have not promised indefinite upratings of their means-tested benefits in line with earnings, and our warning is that that is where we will end up if we carry on in the direction in which we are going; but the long-term uprating of benefits in line with earnings is not consistent with the objective in which Ministers say they believe—funded pensions providing 60 per cent. of pensioners' incomes.
We want a society in which people have more funded-pension savings. That vision is as important as high-quality public services. When people are stuck on trolleys waiting for medical attention in hospital, they can see what is going wrong with our health service. When people are delayed by yet another rail strike, they can see that our transport system is not working. The decline in our funded pensions is much less visible, but it is more insidious and equally dangerous. The long-term consequences for our society of the decline in funded pensions could be very serious indeed. That is why we have called this debate, and it is why I ask the House to support the motion.
I beg to move, To leave out from "House" to the end of the Question, and to add instead thereof:
"welcomes the Government's framework for pensions which will reduce pensioner poverty and encourage saving;
further welcomes the fact that pension savings are now at record levels and the increased choice given by stakeholder pensions;
further welcomes the Government's decision to set up the Pickering review;
and congratulates the Government on the extra £6 billion paid to pensioners from April and its intention to bring in the Pension Credit which will increase the incomes of around half of all pensioners."
I commend Mr. Willetts for one thing at least—he spoke for substantially less time than he did when we last debated pensions. The only thing that seems to be the same is that he said absolutely nothing then about what the Conservative party would do to increase people's pensions savings, and tonight he did exactly the same—he said exactly nothing about what the Conservative party would do.
I will deal with all the issues that the hon. Gentleman raised during his short speech, but I am surprised that almost a year into this Parliament there is still no Tory policy. I am surprised because in the previous Parliament policies flowed from him like water. He told us that the winter fuel payments were gimmicks, as were free television licences. A year later, with a new policy, winter fuel payments were so good that he wanted to pay them to everyone, not only those who lived here, but those who lived in sunny Spain as well. Instead of being gimmicks, free television licences became so good that he wanted to given them to everyone—even to those without television licences.
By the election, the hon. Gentleman was on to a new policy—he wanted people to opt out of the basic state pension, the result of which would be that a 16-year-old boy would have to save about £10 a week just to buy back his basic pension. So there is no shortage of inventiveness from the hon. Gentleman, but he said absolutely nothing today.
In case the hon. Gentleman did say nothing, I looked at the Conservative party's website, which is usually the repository of what a party has to say. It said, "Click for more", so I clicked for more and found out that there is no more. For the benefit of Conservative Members who do not have to hand a personal computer—it is probably against the rules of the House to have a PC in the Chamber—I have a copy of the web page on the Tory party policy, and it is absolutely blank, as hon. Members can see, except for a picture of the dome, for some reason. If that is the Tories' policy, good luck to them.
It is surprising that the hon. Gentleman had nothing to say, because I happened to glance through the February edition of Pensions Management, which includes an article by him under the odd heading, "Kiss—keep it simple stupid". Indeed, he is to be commended because he has kept it extremely simple. He says:
"There are far too many pensioners living on low incomes."
That is from the man who has opposed every measure that we have introduced precisely to help pensioners on low incomes. He might have got away with that if he had said at the same time what his policy was to help pensioners on low incomes share in the rising prosperity of this country, instead of which there is no policy whatever. We are well into this Parliament, and whereas some of his colleagues are coming up with policies here, there and everywhere, we hear not a single word from him on what his policy is.
I well remember what the last Conservative Government left us. I remember the mis-selling of pensions and the fact that the Conservative Government halved the value of the state earnings-related pension scheme and then forgot to tell anyone that they had done so. I remember that the gap between the better-off pensioners in this country and the poorest widened and that the Conservative Government left 2 million pensioners living in poverty. The hon. Member for Havant clearly also remembers those things because he at least said that something ought to be done about them. My complaint is that he has said absolutely nothing tonight or indeed at any other time when he has been principal Opposition spokesman on pensions about what the Conservative party would do to tackle pensioner poverty.
Yes. I then want to deal with the points made by the hon. Member for Havant, but I shall give way to the Liberal Democrat spokesman in the meantime.
The right hon. Gentleman quoted from February's Pensions Management. An article headed, "Government support slips" appears on page 9. Would he care to comment on the survey that found that Liberal Democrat policies on pensions were the most favoured among pensions experts?
I am afraid that the professor who speaks for the Liberal Democrats is a bit behind the times. The article in Pensions Management was probably printed some time before an interview given by the leader of the Liberal Democrat party. On "Breakfast with Frost" on
"What we go into the next general election with may not obviously make sense in terms of what we are saying at a previous general election."
It is obvious that Liberal Democrat policies are all up for grabs as well. Indeed, I look forward to hearing what Mr. Webb has to say because the leader of his party has said:
"We might go into the next election saying we favour lower taxes."
But the hon. Gentleman wants to spend £3 billion more on pensions alone. If his party leader is right, the hon. Gentleman may well have some difficulty with his policies. I suspect that those who read Pensions Management and similar publications will hold the same view on their pension policies. Everyone knows that the problem with the Liberal Democrats' policies on pensions and everything else is that they simply do not add up.
I want to deal with some of the points raised by the Conservative party, and then I shall certainly give way.
Let me first deal with stakeholder pensions. Interestingly, when we last debated the subject the hon. Member for Havant spoke at great length about the perceived shortcomings of stakeholder pensions, but he was extremely brief tonight, and I am not surprised. I notice that the Conservative party is somewhat divided on its attitude to stakeholder pensions. Mrs. Lait, who used to speak on pensions for the Conservative party, said:
"stakeholder is a useful product and the charging cap has a had a beneficial effect. I believe even the industry would acknowledge that."
So at least some Conservatives believe that stakeholder pensions are a very good addition to the options available to people.
The hon. Member for Havant, however, glided over the issue of stakeholder pensions. He did not mention the fact that, whereas in October just over 400,000 stakeholder pensions had been sold, the latest figure shows that just under 638,000 have been sold, with nearly 70,000 being sold in December. Therefore, stakeholder pensions are being sold month in and month out. We always said that it would take time for them to be sold. After all, people do not suddenly run out and buy a pension as they would another consumer good. People have to think about a pension and they have to receive the proper advice and so on. However, so far, there are encouraging signs that stakeholder pensions are being sold in the way that we anticipated.
As I said when we last debated the issue, it is worth bearing in mind that, in addition to stakeholder pensions, new pension sales rose by 9 per cent. in the quarter from July to September and regular premium business rose by 50 per cent. That is encouraging. It shows that the general awareness of pensions and the willingness of people to buy them are increasing. Clearly, there is still a long way to go, but the fact that more than 637,000 pensions have been sold is part of a trend that should be encouraged. It is not surprising that Conservative Members have glided over that point as if, somehow, it did not matter. The last time we debated stakeholder pensions, they spent a considerable time going on about the fact that only 400,000 of them had been sold. Now that the number has increased considerably, they have absolutely nothing to say about the issue.
My right hon. Friend mentions the impressive figures for stakeholder pensions, but will he take this opportunity to remind people of the equalisation of pension ages that will take place between 2010 and 2020? As I have found in my constituency, that is an important issue, but I am not sure that many people's pension planning has taken account of the equalisation.
My hon. Friend raises an important point, which perhaps highlights the problems that arose following the changes to the SERPS rules. It is obvious that all Governments of whatever political colour need to do far more to tell people about pension rules and about changes in pensions. I attach importance to that issue. I suspect that, whereas some people know that the state pension age will start to be equalised from 2010, the vast majority of the population, who tend not to talk about pensions every day of their lives, will not yet be aware of the change. We shall have to attend to that matter. No doubt, members of the Conservative party will complain about the advertising that will be necessary, but we will have to spend a considerable time telling people about that and other changes.
The answer is that we will not know until later this year. The Inland Revenue collects the statistics and examines the contracted-out figures and it will know the figures then. It is too early to say what they will be. When stakeholder pensions were introduced, Conservative Members told us that no one would sell them. In fact, many providers are selling the pensions. Conservative Members then said that no one would buy them, but more than 637,000 stakeholder pensions have now been sold. I expect to see the figure improve year on year, but we shall know later this year exactly who has bought them. I will be happy to debate the matter with the hon. Gentleman if he is still here then. [Interruption.] I shall say nothing more on that and proceed.
The hon. Member for Havant made much of his point about pension funds. It arose from the fact that an article appeared in today's Financial Times, although not in other newspapers despite his best efforts to hawk the story round yesterday, headlined:
"Tories warn of £100 billion hole in pension funds".
It is no wonder—especially as the Leader of the Opposition was present for a short time—that the hon. Gentleman was keen to explain how he had got himself into this pickle.
The hon. Gentleman is, of course, a clever man, but although he had given the story to the Financial Times, the newspaper reported:
"Mr. Willetts said he suspected a falling stock market and statistical error might be partially responsible for the drop."
The Office for National Statistics is—as he knows, and as I know to my chagrin sometimes—independent of Government and, this evening, it has withdrawn those figures, because it says that they are not right and that it needs to do more work on them.
I am sorry that the ONS has done that, but I have no control over it because it is entirely independent of Government. However, I understand the hon. Gentleman's problem. He has given the story to a newspaper and he has now had to backtrack because it does not stand up. In fact, the total invested in United Kingdom pensions exceeds £1,000 billion, so he has got it completely wrong yet again. He is now having to explain himself.
The cheek is quite breathtaking. The Secretary of State, who believed until a month ago that we had £783 billion in our pension funds, produced figures on the same day suggesting that we have £679 billion. This evening, the ONS has withdrawn its figures, because it does not have the faintest idea how much is in pension funds. None the less, the Secretary of State asks us to apologise. He should apologise to the pensioners of this country.
The ONS is independent of Government. It produced figures that it now says are wrong. My point is that, yesterday, the hon. Gentleman tried to hawk a story round the journalists of the Sunday newspapers. He managed to get it into the Financial Times, but the Conservative party's central allegation—
"Tories warn of £100 billion hole"— simply does not stand up.
Perhaps later, but not at the moment.
I want to deal with some of the other points that the hon. Member for Havant made. He referred to the fall in the proportion of pensioners with income from an occupational pension. I concede that the figure has fallen slightly. It was 60 per cent. according to the last figures, but it is now 59 per cent. We shall have to wait to see whether that is statistically significant but, when one takes the incomes coming from occupational pensions, private pensions and pensions as a whole, the figure is actually 73 per cent. Whatever point he was seeking to make, it does not seem to have much strength.
The hon. Gentleman's second main point related to something that is undoubtedly true—there has been a decline in the number of people in defined benefit schemes since the mid-1960s. The number has declined for a number of reasons, including the shrinking public sector and the fact that there are no longer so many very large corporations, which typically used to run such pension schemes. Other factors undoubtedly have an effect. The introduction of the international accounting standard—FRS17—no doubt shows up pension funds in company accounts differently from in the past and companies are reacting accordingly.
There is no doubt that the reforms that the Conservatives introduced in the 1980s, which removed the compulsory nature of employers' schemes and enabled people to contract out, had an adverse effect, as did the changes that they introduced under the Pensions Act 1995. The hon. Gentleman is right: there has been a long-term decline and it has been going on since the 1960s.
We have done some things that, I hope, will help. For example, the rebate has been increased by £11 billion over the next five years and we have also set up a review—I think that the hon. Gentleman welcomes it because he referred to it in the article in Pensions Management—that is designed to examine the regulatory burden on pensions. I have said before that the fact that some products are tightly regulated and the selling process is also regulated could result in some products becoming more inaccessible than they should be. That is why I asked Alan Pickering, formerly of the National Association of Pension Funds, to produce recommendations on reducing the regulatory burden. That is the right approach.
I welcome the appointment of Alan Pickering to conduct the review, which has been long delayed by the Government. Does the right hon. Gentleman accept that, according to the NAPF, the principal reason for the decline in such final salaries schemes is the impact of the increased regulatory burden, especially in the past five years?
To be fair to the NAPF, it also attributes the long-term decline, which has been going on since the 1960s, to a number of causes. I have made it clear several times that we should now look at the regulatory regime. For good reasons, successive Governments have introduced regulations to prevent mis-selling, especially after the scandalous events of the 1980s. If products are regulated—stakeholder pensions are an example of a product that is fairly tightly regulated—and the selling process is regulated, we could have too much regulation and the product might become inaccessible. Other matters, such as the contracted-out rebate regime, need to be considered. Alan Pickering is doing that and we will have his report later this year.
The hon. Member for Havant did not mention annuities, which is surprising given that he feels so strongly about them. The consultation document on annuities, which was mentioned in the pre-Budget report, will be published by the Department for Work and Pensions and the Inland Revenue tomorrow. I hope that it will provide an opportunity for people to examine the options and will encourage them to save more for their retirement. It should also give them the chance to understand annuitisation better and consider the options on offer so that they make the right choices.
Although we will maintain the principle that for most people annuities are the best way to ensure security in retirement, we are prepared to consider options for change. We are determined to ensure that any changes will increase the retirement income that people can expect to receive through an annuity. We also want to ensure that the funds that are saved with the benefit of tax relief are used to provide a secure income in retirement. It is not our aim that people who have money saved for their retirement and who become entitled to income-related benefits should not use their pension for the purpose for which it was intended. The consultation paper will be published jointly by the Economic Secretary and me tomorrow and no doubt we will return to it.
I want to clarify an issue that a constituent recently raised with me. His company pension scheme will give him a reasonable pension. He has also invested in a free-standing additional voluntary contribution and has been told that because of various rules he has to take out the annuity at 65. His argument is that the company pension scheme will give him a reasonable basic retirement income and he wants to keep reinvesting to save up an additional sum so that he has something to fall back on when he is in his seventies and may be in greater need of it. Will that be dealt with in the review?
We will give the hon. Gentleman and his constituent ample opportunity to make representations. For obvious reasons, I am wary of giving advice, especially across the Floor of the House, on the hon. Gentleman's constituent—not least because I am not authorised to do so under the Financial Services Act 1986. The document sets out the options that might improve the annuities market. The Government remain of the view, however, that the principle of annuitisation is important. We are determined to ensure that any changes that we implement benefit the majority of the pensioner population. As I said during Question Time last week, it would be a great pity to make changes that benefited only a handful of people, especially if that had an adverse effect on the pensioner population as a whole. The document sets out the principles against which we will judge any changes. The hon. Gentleman and his constituent will have ample opportunity to consult. The object of the consultation exercise is to ensure that we receive representations with a view to legislating in this year's Finance Bill.
On pension credit, the Conservatives' ambivalence is again becoming apparent. We do not know from Conservatives Members—at least, those in this House—whether they are for or against it. I am convinced that it is high time that we ended the anomaly in the social security system. It is nonsense that had pensioners done everything that successive Governments asked them to do, they would have lost out. I was especially pleased that on Second Reading of the State Pension Credit Bill in the other place, one of my predecessors, the noble Lord Fowler, said:
"To be frank, I should have preferred it if my government had introduced the pension credit . . . It is long overdue, and my hope is that it will provide support for some of the most deserving people in this country."
I can think of worse references. Indeed, Lord Higgins, who speaks for the Conservatives in the upper House, said about the pension credit:
"we welcome the increase in money for pensioners . . . The change in capital limits is welcome, as is the abolition of the weekly means test . . . Extra money for pensioners is obviously a good thing".—[Hansard, House of Lords, 18 December 2001; Vol. 630, c. 147-165.]
One might have thought that if it is good enough for the Conservatives in the upper House, it is good enough for the Conservatives in this House. However, we shall wait to see what they have to say on that. The Conservatives chose not to go into the last general election promising to take £200 off every pensioner voter by getting rid of the winter fuel payment, so I find it hard to believe that they will go to nearly half the pensioner households in this country and say that they intend to scrap the pension credit, which could cost some pensioners more than £400 a year.
As I said in response to an intervention, our pension policy has to be seen in the context of what we inherited. Too many pensioners were living in poverty; about two in five people of working age were making no voluntary provision for retirement; and too many people were not saving enough. Not enough was being done for the low paid, people with broken work records, the widowed or the divorced. We have put in place reforms to help all those people. Above all, with the pension credit, we are removing the disincentives in the social security system that hit pensioners with modest savings or modest occupational pensions who should be rewarded for their effort and thrift, not penalised because of it.
We have tackled pensioner poverty through the minimum income guarantee, which the Conservatives have always opposed. As a result of that, some of the poorest pensioners will be at least £20 a week better off than they would have been under the Conservatives. We reformed the state earnings-related pension scheme through the state second pension, from which 18 million people will gain. We have introduced new savings options, such as individual savings accounts—again, condemned by the Tories when they were introduced—and stakeholder pensions. We are ensuring that it pays to save. All those changes are necessary.
My final point is that, almost gratuitously, the hon. Member for Havant commented on public services. It is difficult to understand where that fits into the Conservative party's pension policy. All I can say is that the Conservative party, its leader and its shadow Chancellor are committed to reducing public spending to 35 per cent. of gross domestic product, which equates to about £60 billion—almost as much as we spend on health or education. [Interruption.] The Conservatives do not like it when I point out their policies—some are agreeing, some are saying that I am wrong. No wonder they are a bit unhappy. They have to face up to the fact that no matter what they say about public services, if we cut investment the quality of service—whether it is health, education or pensions—will suffer.
We believe that public investment in pensions and other public services is justified and necessary. We will carry on with it and make the necessary reforms along the way. It is just a pity that the Conservatives do not face up to what their policies mean. After all, they have only to contrast what happened in their 18 years in government and the mess that they left behind with the difference that we are making to millions of people in this country.
I congratulate the Conservatives on raising such an important topic and broadly support their motion. Mr. Willetts rightly referred to the amount of money in funded pensions, which is the linchpin of the Government's pension strategy. They have described occupational pension provision as the great success story of the welfare state. If private provision is to form not 40 but 60 per cent. of final retirement provision in years to come, we clearly need a growing foundation in the private sector.
That is why at the beginning of last week I tabled a question to the Secretary of State querying the dubious figures on the amount of money going into funded pensions. The Minister for Pensions has cited the figures repeatedly—in good faith, I am sure—but they have never quite rung true. They have always seemed a bit fishy. So, at the start of last week I asked him to break down those figures and to say where they came from. It will not surprise the House to learn that I have received a holding answer. Whether it was my intervention or that of the hon. Member for Havant that prompted the Office for National Statistics to withdraw its statistics, it is clear that the revision is so radical and so queries the fundamental basis of the Government's claims that we need accurate figures. The hon. Gentleman raised an important issue.
The Government's attitude to pension provision is best characterised by the complacent washing of their hands wherever any criticism is levelled, particularly with regard to private provision.
The hon. Gentleman is right; the Government are complacent. They say that they want to rely increasingly on the private sector, which still means predominantly occupational pension provision, but when asked questions about occupational provision, they say, "That is for companies and the market to decide."
To give an example, the Secretary of State mentioned the FRS17 accounting standard, which is having a profound effect on company pension provision. Pensions Management, to which he referred, highlighted the fact that most pensions professionals cite that as the single biggest issue in pension provision. However, when I tabled a question to the Treasury about FRS17, the answer came back that that was a matter for the Accounting Standards Board, as if it were nothing to do with Government.
The Secretary of State may say, "Well it is," but if the Government are to rely increasingly on private provision, most of which will be occupational, and that provision is being undermined, resulting in lower not higher coverage, they cannot just sit and watch. If they have a target, they must have the means to achieve it.
The Government have watched such things go on. The Secretary of State referred to the long-term trend towards a decline in final salary schemes, but is it accelerating? Do the Government know? I am happy to give way if the Secretary of State knows the answer. One assumes that such schemes are declining. Given that major employers are closing their final salary schemes to new employees, one would imagine that that was so. If the industrial restructuring that the Secretary of State is talking about is carrying on, one would imagine that that was so. Do they know? Do they care? Are they doing anything? We have had no answer.
The theme of the debate is the disappointment caused by Government pension policies. I want to highlight just three quite large groups of people who will be let down and disappointed by the Government's pension policy.
The hon. Gentleman seems to share the aspiration to increase the proportion of private pension provision, and I am surprised by that. Nobody has yet said how that is to be achieved. Does he agree that the only way to achieve it would be to make pension provision compulsory? If so, does that not raise the question of which provides better value for money, a compulsory private pension or increased spending by the state?
The hon. Lady raises a series of important and relevant points. I shall come to the compulsion issue in a second. I would like good-quality occupational provision to be expanded rather than cut as part of the process. For example, the Government should look at why people who would previously have had a final salary scheme are now no longer allowed entry to such schemes, and they should try to reverse that trend so that more people for whom it is appropriate can get good-quality occupational provision.
The hon. Lady is right to suggest that there will be people who do not have access to such provision. In that case, in old age there needs to be a good foundation of both state and private provision for as many people as possible—because both have risks. State provision, as history has shown us, is liable to be ripped up by successive Governments and does not provide any real guarantee, while private provision is subject to the vagaries of the capital market and various other uncertainties. Both are uncertain; neither provides a guarantee, and that is why we want a foundation for both for as many people as possible.
The first of the three groups that have been let down by the Government on pension provision has to be women. Women have historically had a very bad deal from pension provision and are likely to lose out in future. One reason—it relates to the point that the hon. Lady mentioned—is the 60 per cent. private target. One danger is that private pension provision in old age very much reflects the working experience of people. If there is to be an emphasis on private provision, how will the Government stop the inequalities from which women suffered in the work place filtering through into old age?
One group of women have done quite well out of the Government's pension policy: the wives of rich men. I have nothing against the wives of rich men. I have no problem with husbands buying them pensions, given that they may not still be married when they retire. However, if that is the main group that has benefited from the Government's policies, something is missing.
Indeed. Clearly, there is a danger that with enhanced reliance on the private sector and without a clear strategy, women will lose out.
Let us consider the stakeholder pension. When people take out a stakeholder pension, they have to buy an annuity with it. Although some small part of the pension buys a unisex annuity, most of that pension will be smaller for women. So, although women are living longer and therefore receiving a comparable amount over their lives, the amount that they have to live on each week will be smaller.
We have heard nothing from the Government on how or whether they intend to address that. The stakeholder pension is intended particularly for people on modest incomes, so not a lot will be going into it in the first place. If it is then lower for women, they will lose out. Do the Government have any strategy for women's pensions in that respect?
Has the hon. Gentleman seen the recent report by the Association of Consulting Actuaries on the position of women in occupational pension schemes? It says that whereas 21 per cent. of full-time working women did not have occupational schemes in 1989, the figure is now 26 per cent. So, 5 per cent. more women do not have an occupational scheme now compared with 1989.
I am grateful for that intervention. The hon. Gentleman is very knowledgeable about these matters and highlights the problem. The Government say that reliance on the private sector is a key part of their strategy, but they do not seem to know or care about what is going on, even if things are going backwards for women and other groups.
Women are vulnerable not just in private sector provision. The Government have trumpeted their measures on state provision. Increases in the minimum income guarantee will go predominantly to poorer pensioners, many of whom are women, and that is to be welcomed, but what about those who do not take up their entitlement, who are also predominantly women? The Government's obsessive emphasis on the means-tested strand, at the great expense of the universal strand, is prejudiced against women, because they will take up their pension but will not necessarily take up their minimum income guarantee. That is why our party remains committed to the basic state pension, particularly for older pensioners, many of whom are women and all of whom take up their entitlement.
I am surprised that the Government have not mentioned much about the state second pension, which is another element of their strategy. Again, it is claimed as a great thing for women, with credits and all the rest of it. In 40 or 50 years' time, if the policy survives that long, it might be such a great thing. However, for anybody already at pension age, it is irrelevant, and for those who are 10 or 20 years below pension age, it will make precious little difference. Therefore, we are talking really only about 30 or 40 years down the track. Such changes are likely to be ripped up and restructured many times during that period. So, women cannot be sure of an enhanced pension through that scheme. It is too complicated and bound to be revised again and again. I should like to give one example in that regard.
When the state second pension was introduced, we said that it was not enough and that it would not bring pensioners, together with the basic pension, above the means test. The Government said, "Nonsense; it is adequate," yet they have now introduced a pension credit. Therefore, someone who has made no voluntary saving and has only the basic state pension and the state second pension will receive a top-up through the pension credit to bring their combined income to a better level because the scheme that the Government have introduced was not good enough. If the Government have to rewrite the rules just two years after they have introduced them, what hope is there that such a scheme will be in place in 40 years' time? Women are missing out because of the Government's pension strategy.
"The key to people having a decent pension in retirement is getting today's twenty-somethings to start putting their money away as early as possible. To this end, we have introduced stakeholder pensions and are reforming SERPS with the State Second Pension."
Clearly, 20-year-olds are all down the Dog and Duck or wherever they go, discussing the state second pension and its reform. I wonder whether the Secretary of State, who I assume wrote the article, can tell us how many 20-year-olds have bought stakeholder pensions? I am happy to give way to the Secretary of State if he is able to provide that figure—but, of course, he has no idea. [Interruption.] He says that he told us earlier, but what he said earlier is that the Government do not know and will not know for some time. The article says that 20-year-olds will be okay because there are stakeholder pensions, but he does not have a clue whether any 20-year-olds have bought a stakeholder pension—such is the Government's complacency about pensions.
Women are not the only ones who lose out from the Government's proposals. Those who want to retire in a phased way, instead of going over the current cliff edge of retirement, also miss out because of the Government's policy. In the same article, the Secretary of State expresses all the usual platitudes about early retirement or flexible retirement. He writes:
"The UK's employment and early retirement culture urgently needs to change. That's why we have introduced a number of policies to help these changes along and start tackling ageism".
Here is one of those crushing policies:
"We have . . . sent out 75,000 copies of the voluntary Code of Practice on Age Diversity in Employment, which points out the benefits of an age diverse workforce."
Let us imagine the scene in offices throughout the land as the Government leaflet drops on the mat and people say, "Oh, we hadn't thought of that. Employing older people will help us, so let's rush out and employ them." What nonsense. The Government are dragging their heels on legislating in respect of age discrimination. They are doing as little as possible and delaying until the last possible moment.
What can be done? Bizarrely, one can spend one's life working for one firm, Tesco, then retire from Tesco, draw a private occupational pension and go to work for Sainsbury—that is allowed; but one cannot retire from a life working for Tesco and then go to work part-time for Tesco, as that is not allowed. In the latter case, the Inland Revenue says that one has not really retired, so one cannot have one's pension with its tax privileges. That is absolutely barmy.
If, as the Secretary of State—or whoever wrote the article—claims, the Government want people to go on working longer, perhaps past state pension age, should not the Government be helping people to phase their retirement? Should not people be able to draw their pension while doing some part-time work? Should they not have flexibility and choice? No—the Inland Revenue rules the roost. On flexible retirement, the Government sound great, but there is no sign of action.
If anything, retirement is happening earlier, not later. Far too many people who would like to continue working and phase in their retirement are forced to stop work. Despite reports and reviews, the Government have nothing to say on the issue.
I am fascinated by the hon. Gentleman's highly enjoyable speech. Does he agree that it was regrettable that when the issue of age discrimination was raised in the House, in the form of a Labour Back Bencher's proposal for an age discrimination commission, the Government passed up the opportunity to do something positive, saying that Europe would provide the answer in a couple of years' time?
It was regrettable that that opportunity was not grasped. The Government are doing everything they can to slow down the introduction of legislation. People are suffering from age discrimination now, yet the Government are dragging their heels and making matters worse.
A third group of pensioners who have not been mentioned so far—a group who are losing out because of the Government's mean spiritedness—are those who are entitled not to widows' pensions, but to widowers' pensions. The Government have been found out: only this week, a court case resulted in a ruling that a woman who was bereaved would get a widow's pension, a widow's benefits and tax allowances, whereas a man in the same position would not. The Government have legislated for the future, but what about the people who have been discriminated against for years? The Government settled the case out of court to avoid setting a precedent, but I have constituents who are widowers and who ought to be entitled to benefits and pensions.
I will give the Minister for Pensions the benefit of the doubt and hope that he will respond to the debate, and specifically to that point. I live in hope—but he is smiling knowingly at me, so perhaps I should not. Will the Government evade their responsibilities or will they recognise that there is an injustice that must be remedied? Will they do something about widowers, especially those with children, who have missed out?
Previously, I alluded to that fine magazine, Pensions Management. It reports the result of a survey on political parties' records on pensions policy, and it is worth summing up for the House what those who know about pensions are saying. Those who responded to the survey are those who run pensions. They have—is it £600 billion or £700 billion? Who knows? It is certainly plenty of money, and the figures have lots of noughts. Such people are the linchpin of the Government's pensions strategy, because if 60 per cent. of people's income in old age is to come from the private sector, the vast bulk will be derived from the occupational pensions sector. The people who answered the survey know what they are talking about it—and if they do not, the Government are in trouble.
Those people were asked which party has the most appealing and effective pensions policies, not pensions spokesman—and at this point I have to disappoint and part company slightly with the Conservatives. In February 2002, the survey indicated that 7 per cent. of respondents thought that the Conservative party had the most appealing and effective pensions policies—which is not bad for a party that has none at all—and 9 per cent. chose the Labour party. With all due modesty, I should say that the figure for the Liberal Democrat party was not large; however, at 14 per cent., it was double that for the Conservatives. Let us remember that the people who were asked that question know what they are talking about—and if they do not, we are all in trouble. It is a salutary lesson for us all that "None of the above" was the runaway winner.
Perhaps we should reflect on the fact that if we all continue to change our policies—the Government seem to change theirs with the wind—if none of us settle, and if we do not achieve an all-party consensus, no one will have the security they need to plan for their old age. In the past, we tried to talk to the Government about pensions, but they have their rigid strategy of means-testing, and that is the approach that they will take. That is regrettable, but it is not too late for them to repent of that strategy. If we work together, perhaps in future those who run pensions and those who receive them will think better of all of us.
I, like many Labour Members, am grateful to the Opposition for the spirit in which they framed tonight's motion. On many aspects of that motion, a fair number of us agree with the official Opposition, but the lack of generosity in its drafting shows how far the Conservative party has to go before the electorate will once again start to listen to it.
The big divide between the Government and the Opposition is that, despite criticism of the Government's strategy, most of the electorate believe that the Government's heart is in the right place. The Government's effort to help the poorest pensioners the most is one with which most voters agree. The Opposition still stand charged at the bar of public opinion with being a party that, when in government, was successful in ensuring that richer workers gained more adequate pension provision on retirement, whereas those who had fewer assets were less fairly dealt with. Had the motion taken notice of the marked change in the temper of the debate that the Government have brought about, some Labour Members might have gone into the Lobby to support it this evening.
There is real concern among Labour Members—I am not the only one who feels it—about the direction of Government policy in significantly increasing the number of people on some form of means-tested assistance. I do not believe that that is a sustainable policy in the long run. That will be the single focus of my contribution to the debate. The difficulties that the Government are getting into because of their adoption of means-testing become all too apparent when we read their consultation document on the pension credit.
When the Government introduced the minimum income guarantee, many hon. Members on both sides of the House pointed out that a considerable number of our constituents who were doing everything that previous Governments and the current Government had asked them to do—that is, save for their retirement—would probably make themselves worse off. Initially, the Government denied that. Then, thank goodness, there was a Pauline conversion—[Interruption.] The Secretary of State is mumbling, but I can give him evidence; perhaps this can be followed up by letter.
After a Pauline conversion, the Government decided to introduce a further means test—on the pension credit—to overcome the disadvantages that some pensioners, perhaps a significant number, faced and would face in future because of the minimum income guarantee. The pension credit became urgent when the Government linked their strategy to the sale of stakeholder pensions. It is clear that at least half the members of the target group could make themselves worse off by buying a stakeholder pension instead of not doing so, spending all their money and relying on the minimum income guarantee on retirement.
To overcome that difficulty and reward people for saving, the Government intend to introduce a pension credit scheme. I merely wish to point to where that policy is going and to draw attention to how unsustainable it is. The sooner we admit that, the sooner we shall acquit ourselves of any charge in future that we were a party to pension mis-selling.
I do not believe that the State Pension Credit Bill is sustainable. We shall go into the next general election with the working families tax credit and the beginnings of the pension credit, forgoing a reduction of 5p in the standard rate of tax to foot the bill for the tax credits up to the next election. There has been no debate about whether that is the best strategy or the right strategy, and such a debate is overdue. There are many who might feel that the objectives of the minimum income guarantee could be better met by a mixture of pension increases and tax cuts than by the model that the Government have adopted.
I wish to take us forward to 2050. I direct attention, as the Government rightly argue in their consultation document, taking into account current prices, to what the bill will be for taxpayers if the link with earnings is maintained. If it is not to be maintained, we should tell people quickly that stakeholder pensions will become more attractive because the pension credit will become less attractive.
If we take the Government's figures and move to 2050, the end of the period covered by their consultation document, the cost of paying the pension credit, if it is linked to earnings in the meantime, will be the equivalent of 11p on the standard rate of tax, at today's prices. Does anyone think that we shall fight elections to maintain that sort of tax increase? I do not. For that reason, I do not believe that the link will be maintained. If it is not to be maintained, we should say that quickly. People will be deciding whether to save or not, and their decisions will be based on whether they think that the Government's proposals are viable in the longer run.
An alternative to the spending of the sum that will be committed to pension credits over the time span that we are contemplating would be to increase by more than half the amount that we spend on the national health service. Are we seriously thinking about going into elections with a commitment that will so restrict our ability to spend money? Do we wish to tie ourselves into pension credits when those sums could be spent in alternative ways?
We might wish to see that money spent on the standard retirement pension. At the end of the period outlined by the Government, we would have enough money to raise every pensioner above the minimum income guarantee in that year. Would not that be a better strategy than one that is reinforcing the means-testing strategy? In the longer run, that strategy will defeat the Government. People will adapt their behaviour to make the best of whatever framework the Government lay down. They are sensible and it is proper for them to take that approach. They should not be condemned for taking it.
Whether it is desirable in the longer run that people decide that they should save less because they cannot make themselves better off by saving, and that they should in future depend more on the minimum income guarantee and pension credit, is a question that will increase in urgency as the years pass by.
I thank the Opposition this evening for being so mean-spirited that they could not recognise both the efforts that the Government have made to look after the poorest pensioners and their commitment to do so, even if some of my right hon. and hon. Friends and I are increasingly wary about the strategy that they have adopted. This is not the place to exchange views about who is right and who is wrong. Events will show us who is right. Given the sums that will be involved in maintaining the minimum income guarantee in line with earnings—equally important is the pension credit being in line with earnings—these will be unsustainable objectives in the long run.
As we come to the end of this Parliament, it will not be the Opposition who are asked about their position. We shall be asked by our electorate whether in the next Parliament we shall increase these two means-tested benefits in line with earnings. If we give in because we are worried about losing votes, we shall undermine still further the chance that many decent working people have who are urged to look after themselves and save for the future. We shall make the pensions problem that has been illustrated in the debate even worse than it is now.
The timing will be of the Government's own choosing, but the sooner we say that while we have introduced these two important initiatives, the minimum income guarantee and the pension credit, and given them a boost by the link with earnings, they will not be sustainable in the longer run, the better. People will then know where they are. They will have a certainty that they do not have now. In the long term, we will have more rather than fewer people saving for their retirement.
I frequently follow Mr. Field in debates on this subject. He is being a little less than charitable to most of my right hon. and hon. Friends. When we last debated these issues, I and many of my right hon. and hon. Friends agreed that the Government had probably acted from the best of motives in introducing stakeholder schemes and pension credit. We said, however, that the probable outcome would not be what they intended. Perhaps the right hon. Gentleman's speech illustrates better than the contributions of my right hon. and hon. Friends in the previous debate the difficulties that attach to what the Government are proposing. Indeed, I have long been an advocate of compulsory—
Perhaps that is the way that politics is today.
An element of compulsion is inevitable if we are to achieve the objectives that we would all like to achieve, although, as I shall demonstrate, as long as we retain the existing annuity regime, compulsion is not a viable alternative because people will rebel against it.
Our great difficulty at the moment is that occupational schemes, which historically have been the mainstay of savings for retirement, are declining at an alarming and accelerating rate.
Does my hon. Friend agree that the more the Government send out the message that such schemes are the responsibility of Government, the less likely it is that employers will continue their historic role in occupational schemes, based on the belief that a decent occupational pension scheme is part of the pay that they give their workers and the conditions that they provide in an enlightened work place?
That is certainly a danger. The Government have been sending out adverse signals on occupational pensions schemes, and some of their actions have been more serious. I recommend to the House the excellent document produced by the Association of Consulting Actuaries, "Pensions in Smaller Firms Survey 2001". Such firms employ 250 people or fewer, and their work force constitutes 55 per cent. of the total in this country. The document is sub-headed "Occupational Pensions: the End of an Era?" The ACA is seriously worried that occupational pensions, as we have come to know them, are in terminal decline.
I would like to make more progress, as I have taken rather a lot of interventions and been unable to develop my argument coherently. I trust that the hon. Gentleman will allow me to continue a little longer.
We have received representations, including a briefing from the National Association of Pension Funds dated
"46 companies had closed their final salary scheme to new members" during the current year to October, compared with 18 that closed in the previous year. The briefing continues:
"13 schemes had switched from final salary to money purchase", compared with six in 2000. The trend is therefore accelerating. Unfortunately, that involves not only the smaller firms to which the ACA referred, but the very largest firms in the country, including Lloyds TSB, J. Sainsbury's, BT, Marks and Spencer, Whitbread and British Airways, all of which have gone down that route. Surely, that is an alarming prospect for the Government.
Some reasons for the trend have already been alluded to by previous speakers, but are worth repeating and emphasising. The NAPF and the ACA believe that the biggest single problem is bureaucracy and red tape, particularly additional burdens incurred as a result of Government action in the past five years. To be fair, the Pensions Act 1995—it was passed, with the best of intentions, by my own party to deal with perceived problems, particularly following Maxwell, and to impose safeguards for those who were the beneficiaries of such schemes—in many ways compounded the problem. At the time, I argued that the cost of regulation would be unnecessarily high. I also argued that the cost of policing the system and ensuring compliance should not fall on firms providing the pensions; I said that the Government should accept that responsibility, thereby reducing the cost for employers. Otherwise, we would drive employers away from making such provision which, I am afraid, has proved to be the case.
I very much welcome the announcement by the Secretary of State of the appointment last autumn of Alan Pickering. An urgent review of the burden of regulation, and the possibility that the Government may still take over some costs, especially regulation costs, may yet prevent firms leaving the scheme altogether. FRS17 has already been referred to; the problem is not the Government's fault, as accounting standards are nothing to do with them, although they have an input in the measure, which brings us into line with US accounting standards. However, its short-term impact is extremely negative.
The real difficulties have arisen by various routes. The changes in advance corporation tax were profoundly damaging. I am not sure that Labour Members appreciate the scale of the damage that was done by them. Tesco's scheme, for example, had to increase total contributions by 15 per cent. to compensate for the cost of the ACT changes. That is one firm alone, which has now come out of a final salary scheme and gone into a defined contributions scheme. The lower investment returns have not helped, nor has increased life expectancy, earlier retirement or gaps in working careers. All those factors make the situation of occupational pensions much more difficult. The Government must act to make pension provision easier and more attractive for employers. Everything that the Government have done over the years that they have been in power has had the reverse effect on employers.
The other possible route to help with pension provision is private provision. If we do not make it compulsory, we must encourage individuals to save for their retirement, but again we run into all sorts of circumstances arising from the existing legislation which make that profoundly unattractive. The least attractive of all is the annuities regime. The requirement to put all one's savings into an annuity at the end of the day, regardless of what one's life expectancy may be at the time, and regardless of the fact that one may wish to leave money to dependent relatives, is a profound disincentive.
In correspondence with me, Ministers have suggested that the problem of annuities affects only the very rich. That is not true, although it is true that only those with above-average earnings tend to take out private provision. That could be altered in all sorts of ways, which we could discuss later. These people are not the very rich; they are the modestly off, for the most part. Only a tiny minority are the very rich about whom the Treasury is concerned.
I know that the Association of British Insurers recently produced a report supporting the Government in their position on annuities. However, the members of the ABI are the principal providers of annuities—in fact, the only providers—and it might be thought that they could conceivably have a vested interest in maintaining a product from which they make considerable profit.
The Government statistics hide the fact that millions are deterred by the annuity requirements from taking out pension policies at all. It is significant that many, many young people, who write to me because I am known to take an interest in these matters, tell me that they will not take out a policy because of those restrictions, and that they will instead turn to buy-to-let, for example.
One reason why so many young people with surplus earnings are buying properties on the buy-to-let scheme—there has been an enormous and unhealthy growth in that; it has gone much too far—is that they see it as a more realistic way of saving than going through pensions. They are doing so without tax relief. They say, "Blow the tax relief. It is not worth having the tax relief, if those are the restrictions." That is a sad reflection on the present situation, which we must change.
The chairman of the ACA states in the conclusion of his report:
"We are also growing very concerned that the drift away from 'good' occupational arrangements is accelerating towards a trot, if not quite a gallop."
The situation is urgent, but the Government seem to think that there is nothing terribly wrong.
Unfortunately, as we have all seen, the take-up of stakeholder pensions to date has been extremely disappointing. We all hope that it may get better. In my view, it has had only one good effect—driving down charges.
Indeed, it is a very big improvement and it has been extremely valuable, but it was a side effect rather than the main reason for introducing the stakeholder pension.
I am concerned that the thrust of Government policy is to take us further and further down the dependency route. It is now estimated that by 2050, the combination of minimum income guarantee and pension credit will mean that 65 per cent. of all pensioners will be on some sort of means-tested benefit. I do not believe that that is the Government's intention, but that is where they will be headed unless they do something about it—and soon.
People of my age are not really all that interested in pensions. In fact, I only recently found out quite how uninterested they are. Having spent the weekend with the hon. Members for Havant (Mr. Willetts) and for Northavon (Mr. Webb) at Ditchley park for a conference on pensions policy—on reflection, perhaps that does not make me all that typical of thirty-somethings.—the following Sunday evening, at a dinner with friends and flushed with the excitement of discussing actuarial projections of the forthcoming population bulge, I decided to try to interest my fellow diners in the implications for pensions policy. There was a short embarrassed silence, after which the conversation immediately returned to football.
The issue of pensions should be at the centre of modern politics, however. When Labour came to power, about 2 million people were earning less than £70 a week. From next April, the minimum income guarantee will ensure that they earn £100 a week. It is often said that politics does not make any difference to people, but that £30 will make a genuine difference. Although it may not seem an enormous amount to broadsheet column writers, who often spend more than that on lunch each day, for the people of my constituency, it will often eliminate the difference between being able to shop properly and buy presents for their grandchildren or being able to heat their homes.
Given the lack of interest on the part of journalists in tonight's debate, it is unlikely that every single word of it will be repeated in the papers, but people did not always find pensions policy uninteresting or difficult to understand. When the Beveridge report was printed, about 200,000 copies were sold. I read that people queued around the block in Kingsway to get copies from HMSO. Beveridge himself became a broadcasting celebrity and could be heard on radio even more often than Mr. Johnson today. Of course, Beveridge would probably be gyrating in his grave if he could see what successive Governments have done to his plans. He expected almost everyone to benefit from the basic state pension, with national assistance reserved for the very few. Successive Governments of both parties have engineered a situation in which, for the past 25 years, about 1.7 million people have been claiming means-tested benefits—a significant number, at just under one sixth of all pensioners. Beveridge expected the basic state pension to provide subsistence, but I defy anyone in the House to try to live on £72.50 a week these days.
Why has this happened? It would be easy to play the game of party politics and try to assign blame to one side or the other, but the problems were inherent in the system that Beveridge bequeathed to us. He never defined the level of subsistence even in theory, and in practice, successive Governments have been unable to afford to provide a basic state pension at a level that would offer subsistence. Governments have therefore faced a choice of either leaving the poorest pensioners in poverty or targeting money at them. The more generous the means-tested benefits, however, the more pensioners will be affected and the more we risk the problem identified by my right hon. Friend Mr. Field in terms of disincentives to save.
The hon. Gentleman is making a thoughtful contribution, but he elided the gap between targeting those most in need to means-testing. Does he accept that an alternative method of targeting those in need is targeting the oldest pensioners, the vast majority of whom are among the poorest? That would avoid the problems of means-testing.
That is an interesting point, and I am interested in other ways of targeting those most in need. However, a Government could not rely purely on the policy that the hon. Gentleman suggests, because it would omit people outside a specific age group and perpetuate the problem of benefiting richer pensioners, although they are few.
What did Beveridge plan for our society? He expected most women to stay at home and their husbands to be employed and thus to provide for them. He failed to provide for the growing number of carers, and for people who are unemployed, take career breaks, change jobs and have been unable, through state or private provision, to build up sufficient income for retirement.
Those basic problems have plagued Ministers with responsibility for pensions since 1945, and many of the resultant reforms have failed. I do not know how many people today remember Boyd-Carpenter's reforms to the second state pension, which involved different levels and an earnings-related element. How many people remember the Labour Government's attempt in the 1960s to introduce a minimum income pension, which was much like our minimum income guarantee?
Many Ministers have come up against the stark reality of pensions policy—
I was interested in the hon. Gentleman's comments about Beveridge. I am sure that he knows that Beveridge proposed building up a fund at the outset and making no distributions until an adequate amount had been accumulated. The post-war Labour Government rejected that recommendation, and that created many problems for subsequent Ministers.
That is exactly the case. I believe that Jim Griffiths made the decision because, at the end of 1945, after Britain had won the war, he did not believe that a Government could tell people who had suffered for the past 50 years from a system that was partial and left many dependent on charity from the National Assistance Board that they would have to wait another 10 or 15 years for contributions to be built up. I therefore understand the reason for the decision and I doubt whether any hon. Member proposes adopting the system that Beveridge was planning.
The hon. Gentleman appeared to be slightly critical of Lord Boyd-Carpenter, who devised opting out, on which all private sector provision since 1958 has been built. Does he not agree that, whether the figure is £600 billion or £700 billion, it is due to the work of Lord Boyd-Carpenter?
I thank the hon. Gentleman for that intervention. I was not criticising Lord Boyd-Carpenter, who established a principle. However, I believe that it was a slightly panicked and inadequate response by the then Government to Dick Crossman's work for the Labour party in opposition, and in practice, it failed to deliver. We had to wait for a Labour Government to introduce SERPS, which tackled the matter two decades later.
Pensions reform is rarely considered a success. The costs are felt immediately, but the benefits are not experienced until a Government have long passed into history. The objectives of pensions policy are mutually contradictory, and there are always losers. Even when a Government get something right, it is often too complicated for people to understand at the time.
Against that background, far from being a failure, the Government's policy will be adjudged by history a significant success. It has been expensive—about £6 billion by next year—but poor pensioners can now be sure that, for at least the rest of this Parliament, the minimum income guarantee will increase in line with earnings. That is a major change from what we inherited. Some who claim to argue on behalf of the poorest pensioners argue for a return to the linking of the basic state pension with earnings, but that would benefit those people less by reducing the amount of money available.
I know that the hon. Gentleman has advised Ministers over the years, as indeed did I at one stage. Will he advise the Secretary of State to extend that guarantee beyond the current Parliament?
No Government can make proposals for a Parliament for which they have not been elected. It is certainly right that we have made the promise for the rest of this five-year term, and we will no doubt consider it again when we write our manifesto.
I do not mind pleading guilty to the charge that the Government have increased means-testing. Faced with a choice between spreading the £6 billion among all pensioners and targeting some of it on the poorest pensioners, through the minimum income guarantee, I would be proud to choose the latter. The important issue is not the number of pensioners whose income is assessed but whether the assessment undermines dignity.
The means test gained a bad reputation in the early part of the 20th century, when it meant frequent visits by the means-test men and detailed interrogations about household income, including even a youngster's paper round or anything that an elderly relative who came to live with the family might possess. I believe that George Orwell called the means test an encouragement to tittle-tattle and to the informer. A neighbour's jealousy about a new coat or pair of shoes could lead to a visit from the means-test men. It is not surprising that so many people grew up absolutely dedicated to ensuring that they would never have to rely on the means test, which at that time was genuinely a matter of shame.
The reticence of many pensioners today about claiming their entitlement stems from their memories of those days. Unfortunately, that reticence will not be eased by this debate and Opposition claims that the increase in means-testing is in itself a bad thing. In that sense, this debate will not in any way encourage people to claim the benefits to which they are entitled.
It is important to start to change the language that we use about means-testing. Pensioners are entitled to these benefits, which are no longer a quasi-charitable donation to them in their old age. They have paid for them through their taxes, just as they have paid for the basic state pension. We should tell them that they should claim this income as of right. Moreover, rather than scaring them about means-testing, we should make it clear to them that the procedure for claiming the minimum income guarantee, and the pension credit when it comes into force, has been significantly simplified: the form has been cut from 40 pages to 10, and people claiming the credit will be assessed on their income not every week but only once every five years. They will be asked to provide the information at the time of claiming the basic state pension, so a far larger number will receive the credit automatically.
The hon. Gentleman said that pensioners would be assessed every five years. Will he comment on how they will fare when their circumstances change within the five-year period? Are there not real difficulties in coping with those circumstances?
It is an important point, but Baroness Hollis answered it in the other House when she made it clear that there are only four or five circumstances that will require reassessment: the death of a partner; moving overseas; moving house; and another one or two that escape me. We must have some flexibility in the system to allow such major changes to be taken into account—we can do that in a simple way—but the important thing is that the vast majority of pensioners will be assessed only once every five years, which makes the means test much simpler than it was.
My noble Friend also made it clear that a huge range of items of information that can currently be required no longer will be. With pensioner credit, pensioners will no longer have to report savings of over £6,000 or child maintenance payments. They will not have to report student grants or loans, if they have gone into higher education or the university of the third age, and they will not have to report rent on land or on a second property.
All in all, this will be a system in which pensioners are entitled to the income because they have paid for it through their taxes over their working lives. It will be a simple, non-intrusive system, with changes only once every five years. That is a universe away from the means tests of the early part of the last century; that is why we need to rehabilitate the means test.
The policy choice that we face is stark—between targeting money on the poorest pensioners and spreading it equally among rich and poor; between putting the investment into pensions, as the Government have done, and have pledged to continue to do, and cutting spending on pensions, as the Conservatives would have to do to meet their public spending goal of 35 per cent. of GDP. They tried to wriggle out of that, and complained when the Secretary of State mentioned it earlier, but that is no use. That aim has been broadly stated both by the party leader and by the shadow Chancellor, and if that is their goal they will have to tell us at some point where those cuts would come from.
We heard no policy proposals from the hon. Member for Havant, but the agenda behind his speech was fairly clear, and it is worrying. The Conservatives would reduce the number of people being means-tested by cutting the minimum income guarantee and the pension credit, and claiming that the slack should be taken up by stakeholder pensions. They would then say that if that were not possible, it would be because of design faults in the Government's policy.
If that is the way the Conservatives plan to save the billions of pounds that would have to come out of pensions to meet their goal of 35 per cent. of GDP, they should be ashamed of themselves. They know as well as anyone else that for a significant number of people in lower-income households there will never be any sense in saving huge amounts in an occupational or private pension, because it would be much better for them to spend that money as income now, on feeding their families, rather than saving a tiny amount for their retirement, which would probably be dwarfed by the benefits that they received from the state.
The earnings limit for the minimum income guarantee is a major departure for pensions policy. The Conservatives make the charge that that reduces incentives to save. Of course that is true, but it was also true of income support, which the MIG replaced. The reason why it now affects more people is simply that the MIG is more generous than income support. In introducing the pension credit, we are therefore addressing a problem that has been inherent in our pension system for decades. As Lord Fowler said in the other place:
"I should have preferred it if my government had introduced the pension credit . . . It is long overdue, and my hope is that it will provide support for some of the most deserving people in this country."—[Hansard, House of Lords, 18 December 2001; Vol. 630, c. 165.]
Of course I am aware that many people say that the pension credit is too complicated. I look forward to examining the details of the scheme during the Select Committee's next inquiry, which will be into that very issue. The outcome of the pension credit is simple, even if its workings may be complicated. Pensioners will keep 60 per cent. of any private pension, which will make a significant difference to 5.5 million people. We have already started to see progress: more than half a million fewer pensioners now live in households with a low income than did in 1997, and people of working age now contribute £19 billion more in real terms to non-state pensions.
The Opposition say that the Government's policy is failing. Is that why stakeholder pensions have been welcomed by Mr. Lilley, by Lord Fowler in the other place, and even by the Opposition Front-Bench spokesman? The Government's policy will stand the most important test of any pensions policy—the test of time.
I was disappointed that the Secretary of State responded to the raising of serious issues in what I felt was a party political, knockabout way. There are two clear interrelated problems. One is that the combination of measures intended to address the need for those who are less well-off to have a decent income in retirement—the minimum income guarantee, quickly followed by the pension credit to help stakeholders—has put in place a system whose original thinking was pretty short-term but which, as Mr. Field pointed out, is highly unlikely to be sustainable in the long term.
A provision that will cost the equivalent of 11p on income tax—about £26 billion in today's money—and put 65 per cent. of the population on means-tested benefit is highly unlikely to survive in the long term. A further serious effect is that it has demotivated employers' in their efforts to provide proper pension schemes for their staff. Everyone in the pensions industry now thinks that the Government's professed objective of reversing the 60 per cent. state funding versus 40 per cent. private funding of pensions is completely unrealistic, and that we are going in the other direction.
Other hon. Members have said quite a bit about the decline in occupational schemes, but I should stress that they have been one of the British economy's great successes. They are one reason why Britain has enjoyed lower tax rates than the countries of euroland—even under a Labour Government—and why the British economy is doing better than the economies of continental Europe, yet we face the prospect of a serious reversal. Membership of occupational schemes has declined by 500,000 in the past decade, and by 2 million in the past 30 years. As has been cited, 28 per cent. of men and 26 per cent. of women have no occupational employment scheme, whereas 10 years ago the figures were only 19 per cent. and 21 per cent. respectively. The movement away from occupational final salary schemes to money purchase schemes is accelerating. In the past five years, 24 per cent. of firms have made such a shift, and 46 major companies have closed their final salary schemes in the past year alone.
The key point—it is perhaps not realised—is that, typically, contributions to money purchase schemes are about 7 per cent. less per annum than contributions to final salary schemes. Just when it appears that real returns on investments are declining, as measured by the long-term yield on gilts, savings in pensions are actually being reduced. As a result, in the next 30 years the great majority of people—a generation that will aspire to higher living standards—will not enjoy the pension provision that the present generation enjoy, whether from final salary or money purchase schemes.
The moral is that there will be a greater burden on taxpayers and the state, at a time when the population will be ageing, the number of people in work declining and the number of retired people increasing. As it stands, the policy does not stack up and is not capable of surviving the next 20 or 30 years. Above all, pensions policies should be long term. It is no good trying to address a genuine short-term problem by cobbling together a policy that is impossible to deliver and that damages long-term provision.
I am horrified by what I see happening today. Typically, employers will say, "Your remuneration package is worth so much, so between 7 and 10 per cent. can be put into a money purchase pension, or you can have the money." Quite understandably, many people under 35 are saying, "We'll have the money." As a result, they have no form of occupational provision. They say, "We've got the pension guarantee and the minimum income guarantee—we don't really need such provision. The state will be there to look after us." As the right hon. Member for Birkenhead pointed out, that is unrealistic.
There is a positive angle. In America, independent retirement accounts—IRAs—and 401Ks have been extremely successful in reviving pension saving in the private sector. In Canada, more than 40 per cent. of the population have a regulated retirement savings plan. Under that system, there is no obligation to buy an annuity on retirement.
The case has been argued in different places. It is unwise of the Government not to recognise that when ordinary people up and down the country save for their retirement, they do not want to be locked into buying what they perceive as a bad-value annuity. That is why, increasingly, people save and buy properties. In the past, thank the Lord, they used personal equity plans and today they use individual savings accounts, but they are not attracted by pension arrangements with an annuity obligation.
When he was at the Treasury, the Secretary of State for Work and Pensions was a keen promoter of the independent pension account. It was envisaged to be much like an ISA—a tax wrapper, but subject to the pension rules. It would be extremely simple: there would be no requirement to belong to a pension scheme on top of it, people could save for their old age with a mixture of ISAs and IPAs—one governed by pension rules and one by ISA rules—and then provide for their old age themselves. It was thought that it would suit many people who were self-employed, especially women, who might not work for their full careers. However, the IPA was stillborn—it has been a complete failure, with no providers and no takers because it adds costs. There is the double cost of belonging to a pension scheme, as well as the IPA charges. Moreover, there is the terminal problem of IPA moneys having to go into an annuity upon retirement.
I caution the Government: they have had five years to address pension policies. We were told that the stakeholder pension was to be the main solution. The Minister for Pensions was a little disingenuous on one occasion in arguing that the people who have bought stakeholder pensions are those whom the Government intended should buy them. The Government clearly intended stakeholder pensions as a savings vehicle for ordinary people, not just as a tax benefit vehicle. The take-up rate has been disappointing. The large numbers of corporate schemes are merely intended to meet the legal requirements, and the members thereof are few and far between.
It is unwise for the Government to continue to argue that they place their hopes of private sector pension accumulation on the stakeholder. It is not happening, nor does it look as though it will. I wish that it would, but I do not think that it will until the annuity issue is addressed. Furthermore, it will not happen easily while there is the promise of the Government's minimum income guarantee and pension credit. People who find it hard to save for their pension wonder why on earth they should bother if they know that they will be looked after out of overall taxation.
It is a growing, invisible problem. It is ridiculous that, in an age of greater affluence, the majority of people will be less well provided for in their retirement than the generation coming up to retirement. There is the risk that the policy will lead to the same problems found in continental Europe. Retirement income will become a massive burden on taxation, leading to excessive taxes on employment, which will, in turn, damage overall economic performance. I cannot believe that that is what the Government want. Indeed, their commitment to reverse the swing from 40:60 to 60:40 suggests that they want to go in the other direction.
Pension policy is not working, and I would like to see greater cross-party collaboration to get it right. However, the onus is on the Government to recognise the problems. Let us hope that the Pickering report will propose some solutions. This is not a party political issue. The Government are the Government; it is not for the Opposition to make the Government's policy on pensions, but there are major policies to address, and address quickly.
I rise humbly after hearing some of the earlier speeches. I am among those new Members who have great problems in working out whether the transfer value of my previous occupational pension is such that I should move it into the parliamentary scheme. I suspect, even so, that my knowledge and instincts are somewhat greater than those of the vast majority of my constituents, particularly those who are 45 or younger.
Mr. Butterfill made a thoughtful speech, but his final point perplexed me. He spoke about young people and buy-to-let schemes. I do not mean to question his remark, which I am sure was quite accurate, but it would be fairly safe to bet that no young people in my constituency will buy to let rather than take out a pension. I have received no correspondence on the notion of pension planning, and I suspect that my predecessor also received little. Pension planning is not much discussed at dinner or in pubs and clubs in my constituency.
The "live for today" mentality is not new to our society, but it has increased. That is not the fault of any political party, but it is a key problem that we need to address. Those who are expert in pensions and who give me their views in my surgeries are retired people. They can quote me the value of the BT shares that they expectantly bought some time ago. They can tell me about the windfall that they have not had and can tell me year by year—some of them, day by day—the value of their holdings. They are waiting for a change in fortune so that they can cash in on their windfalls, and they are precisely the people who will hold the Government to account.
Indeed, the mistaken policy of the 75p increase in pensions was repeatedly rammed down our throats on the doorstep during the election by a section of the population who spoke from an informed, not an ignorant, standpoint. We need a civic debate about pensions, and education that reaches younger people. Perhaps it could start in schools—I am not sure whether that occurs at present. Certainly, young workers or students in higher education need to know what it all means to help with their forward planning. If we expect them to take responsibility, we must realise that it will not happen unless they have knowledge.
Home ownership is preponderant, but less usual in the coalfields. A great phenomenon—pronounced as we move to the south coast, but existing in microcosm in the coalfields—is the way in which homeowners downsize their houses as they reach their chosen age of retirement. Usually, it happens once, though sometimes it is more frequent. Perhaps the most important thing that the Government could do for my constituents would be to safeguard retirement income by encouraging housing regeneration among former mine housing stock. Some homes are owned, but are in an appalling state of repair. Others are owned by private landlords, who bought them from the National Coal Board. Those homes ought to be occupied by private owners, giving them a legacy that they could cash in at some stage for their pensions. My point may strike the debate at something of a tangent, but it would help with forward planning.
My next point relates to the role of the trade unions. The case for occupational pensions has been made strongly several times during the debate. However, the whole ethos of such pensions goes hand in hand with strong and effective workplace representation where there is negotiation with employers. Pension contributions are deferred earnings that should be negotiated and safeguarded by workplace representatives. In coming years, we must as a priority increase the roles, responsibilities and powers of pension fund trustees to safeguard those funds.
In this country, we tend to take a little Englander—or rather a little United Kingdomer—view on pensions. We might look to Germany for examples of the assistance given to pension fund trustees or, more usefully, at the fundamental role played by trade unions in Denmark and Belgium in the provision of pensions. We need not adopt their programmes wholesale, but they can inform our debate on how unions can promote occupational pensions.
Indeed, I would go further in respect of the role of trade unions in stakeholder pensions. I am surprised that there was no criticism on that point from either of the Opposition Front Benchers. We have heard much from trade union leaders in the past 48 hours. Would that those leaders put the same passion and thought into the important issue of stakeholder pensions. By seizing that issue—by using stakeholder pensions in negotiations—unions could begin to recreate part of their traditional role in the workplace and in society. That role goes back more than a century and was itself part of the genesis of the occupational pension programme.
That is only a partial solution within a partial solution; nevertheless it is waiting to be grabbed. If the unions will not come to the Government, the Government should go to them and ask that they play their rightful historical role by promoting stakeholder pensions along with occupational pensions.
The problems of short-termism as regards the Government's record are somewhat mitigated by the fact that the Government are doing quite well, although the Opposition obviously do not want to admit it. The basic pension is up. The minimum income guarantee is up. The winter fuel allowance is popular.
I am all in favour of our continuing to please today's pensioners. Far be it from me to do anything other than applaud our Government and to expose the changes that would result from a tax cut should the Opposition come to power. However, I urge Ministers to take a longer view—beyond today's pensioners to those of 20, 30 or 40 years hence. That will require courage from the Government—as it would from any Government—but my plea is that we should have that courage.
The Government may be in power for a long period—naturally, I hope so. The last Government were in power for a long time—18 years—and they squandered the opportunity of giving us a long-term pensions policy that would benefit future generations. Let us ensure that our Government do not make the same mistake.
I very much welcome the Government's stated intention to increase from 40 to 60 per cent. the share of pensioners' incomes that will come from the private sector, not only because of the increase in independence and security that will be afforded to those pensioners, but because it will release more funds from the public purse to be spent on other public services, such as our schools and national health service. I also pay tribute to the attention that the Government have paid to less well-off pensioners; we have an important obligation to current pensioners.
The decline in funded pensions, however, is extremely worrying. The most recent family resources survey shows a reduction in the proportion of employees with occupational or personal pensions across all age groups. A new Government report tells us that by 2050, when 40 per cent. of pensioner incomes are supposed to come from the state, 65 per cent. of pensioners will, in fact, rely on the pension credit. Those are the current forecasts.
The Joseph Rowntree Foundation's latest report on poverty says that a substantial fall in the number of poor pensioners is unlikely
"until and unless the Government's policies aimed at encouraging greater use of private pensions start having an effect in the longer term."
It is regrettable that we are heading in the other direction. What is most regrettable in the decline in funded pensions is the decline in final salary or defined-benefit schemes. Many companies have recently stopped providing such schemes to their employees. Lloyds TSB, Sainbury's, British Telecom, ICI, Marks and Spencer and, not least, Bedfordshire's very own Whitbread, have all recently ended their final salary schemes, and pension fund trustees tell me that the complexity of regulation, the contracting out rules and the market circulars are largely to blame.
I am told that, whereas only two or three years ago a pension fund trustee would have to take a slim file of papers to meetings, he now probably needs to take a ring binder 4 in thick to carry the different documents needed to cope with the complexity of regulation. So is it any wonder that those schemes are in decline? The regrettable outcome of the demise of those schemes is that benefits are no longer provided to dependants. Death-in-service pensions, rather than lump sums, used to be payable to surviving spouses and dependent children; they are not generally payable with money purchase schemes.
The principles that underlie our pensions system should be those of simplicity, clarity and a strong incentive to get our young people to save. Those principles are lacking in the current rules that govern annuities. Pensioners tell us that the requirement to buy an annuity at 75 provides poor value. Contrary to what Ministers have told us, that is an issue for vast numbers of people—some 10.5 million workers in this country have contracted out, so half our work force are affected and have an interest in annuity matters.
The crux of the issue is inheritability, which has been touched on by several hon. Members. Under the current rules, an annuity is paid and if people die a few years into their pensions, that is it. People take a longer-term view with their savings and pensions. One of the reasons why interest has increased in the buy-to-let schemes is that the assets belong to people, just as their houses, cars or any other assets do. We should do well to remember that people aspire to that.
I should also like to raise the issue of what rights employees have to the surpluses on their pension funds. They have contributed to those funds, so it does not seem right that the company can simply take them back. That ownership issue needs to be explored further.
My hon. Friend will be aware that, in a final salary scheme, the employer has an obligation to pay the percentage of that final salary, come what may. Therefore, the issue of who owns the surplus is very much more complex than he seems to suggest.
I bow to my hon. Friend's greater knowledge of this subject. In terms of getting people to take an interest in their pensions and providing them with an incentive to do so, the issue of inheritability merits further study. However, I appreciate his point that it is a complex issue.
According to a report by Oliver, Wyman & Company in September last year, the savings gap in this country at the moment is £27 billion. That is the difference between what we should have invested to treat future generations of elderly people in a respectful way and what we have invested at present. The bad news is that that savings gap is projected to increase by a further £6 billion over the next five years. There are several reasons why that gap is projected to worsen. We have heard about the complexity of current schemes, and about the lack of inheritability. We are also told that there will be a net decrease of 9,000 in the number of financial advisers across the country. It is estimated that about 3.6 million people on lower incomes have no proper access to financial advice.
An independent financial adviser in my constituency contacted me on Friday in despair about the Government's current proposals for independent financial advisers, and about the new proposals that will move on from polarisation. He is in fear of losing his job, and his firm is in a state of paralysis. That means that another group of people will not have access to independent financial advice, which is indeed regrettable.
I deal now with the subject of means-testing, which is reflected in the motion. Many distinguished Members from all parties understand the problems of means-testing, not least the Prime Minister and the Chancellor of the Exchequer who have clearly acknowledged the difficulties involved, particularly for pensioners. Indeed, the Chancellor of Exchequer has boasted that he would like means-testing for pensioners to be outlawed. We know that 580,000 pensioners do not claim their income support and that 1,215,000 do not claim their council tax benefit. In total, there is £3 billion of unclaimed benefits. We know that older people in particular have a difficulty with claiming benefit. Although they are entitled to it, they worry about going along to the Benefits Agency. We know that that should not be the case but it is the fact, and we must recognise the way in which people regard such issues.
In 1995, only 38 per cent. of pensioners were on means-tested support of any sort. That figure is projected to increase to 57 per cent. by 2003. We have heard the future projections up to 2050, so we know that the trend will carry on in that direction. The Institute for Fiscal Studies has said that recent pension announcements
"look set to create a substantial increase in means testing."
The Select Committee on Work and Pensions, of which I am a member, published a report on pensioner poverty in August 2000, which states:
"The increase in non-means tested pension is inevitable and should be done sooner rather than later."
That was the view of the Select Committee only a year and a half ago. Clearly, the Government have not heeded its advice. As a member of that Select Committee, I hope that the Government will heed our advice when we consider the pension credit, which is the subject of our next report.
"People expect a lot, aren't doing enough and don't understand their pensions at all."
I tend to agree. I am reminded of the man who expressed himself confusedly on a complicated topic, was advised to attend a conference, came back from it and opined that he was still confused but at a somewhat higher level. I suspect that the debate will produce the same effect.
There are real and simple points to grasp, and it behoves us all to remember them. The savings ratio is at an historically low level. That is unsustainable. There is an estimated historic gap in savings provision of £27 billion. That is unsustainable. The hit is being taken not by the rich, the poor or any particular class but involves nearly everyone who is still in work and who in due course hopes to retire. One of the most encouraging features of the debate is the sense of mutuality. We all have a common problem to face. It will not be solved within the span of a single Parliament and it requires collective action preceded by collective debate.
The debate has been marked by some interesting and worthwhile contributions by Back-Bench Members. I certainly wish to mention those by Conservative Members. My hon. Friend Mr. Butterfill made a speech of characteristic balance and erudition. He is a loyal supporter of occupational pensions. My hon. Friend Mr. Flight complemented that by chipping in with his knowledge of investment and the City. My hon. Friend Andrew Selous brings to such debates a passionate commitment to all groups in our society.
I do not want to suggest that my hon. Friends were the sole contributors. As we would expect, Mr. Field made a magisterial contribution. If we are ever in the business of Government swatting, we may need him to add his voice to ours. James Purnell was more supportive of the Government. Nevertheless, he presented with honesty some of the dilemmas that have to be faced. John Mann also made a characteristic contribution. If the trade unions are not as active in stakeholder pensions as one might have expected, it is possibly because they do not see them as a good deal for their members. We may need to return to that.
Mr. Webb usually helps us along. He shared some interesting insights with us, as he often does.
The hon. Lady must not tempt me. Perhaps she is trying to build a consensus.
The Secretary of State's contribution still displayed his misplaced self-assurance, however. There was a whiff of complacency and inertia in the face of a fast deteriorating situation. How unlike our dear Marshal Foch in 1918. That distinguished generalissimo of the armies, faced with the German spring offensive of that year, acknowledged the problem honestly by saying, "We are in a terrible mess. The situation is excellent. We shall attack." This Secretary of State does not have the spirit for that. He cowers in his bunker and confines his offensive action to occasional sniping exercises at the Opposition.
Let me deal with our main concerns about the pension scheme, which are touched on in our substantive motion. There is an extraordinary black hole in pension provision, as revealed in the brilliant forensic introduction to the debate by my hon. Friend Mr. Willetts. However much the Government try to puff up the level of current contributions to pension schemes, they have had to reveal a staggering deficiency of £100 billion in the value of funds that were in pension schemes in 1999. Frankly, that could enter the "Guinness Book of Records" as the biggest accountancy write-off of all time. Were Oscar Wilde here, I am sure that he would say that to lose £100 million by statistical adjustment might be seen as a misfortune, but to lose £100 billion looks like carelessness.
If the answer is to shoot the messenger, take the statistics away, and attack the Opposition for daring to say that there is something odd, that shows a gross misconception of our role. I hope that the matter will be sorted out, and for a reason that I will touch on in a moment, there is a systematic problem that merits closer and more reflective discussion.
Let us remember at any rate that any such reduction in pension funds, whatever the size, is a hit on the value of funds, and, in the real world, reflects funds' collective ability to service pensions. We have only to think of the consequences of the write-down for Equitable Life pensions to see that the value of the funds really matters.
Pension funds also cast some doubt on the veracity of the figures for contribution inflows, to which the Secretary of State referred. I am highly suspicious and sceptical that if, on our calculations, self-administered arrangements, which account for 6 million occupational pensioners, bring in £14 billion annually to the party of contributions, that must logically mean that that group and personal pension schemes, which account for fewer pensioners, must bring in £58 billion; that seems implausible. There must be an element of double-counting and asset transfers.
The second area of grief is the inexorable decline in defined-contribution schemes. That was well set out in the National Association of Pension Funds annual survey, which broadly coincided with our last pensions debate. Every week, the pensions press brings further bad news. For example, this week, Professional Pensions leads with the story, "Ernst and Young closes DB plan amid FRS17 fears". I apologise to non-regular readers for the rather terse and technical presentation, but perhaps I can draw out two salient points from the article.
First, Ernst and Young is rightly described in the text as an "accountancy giant". Presumably, therefore, even if I do not know, it at least knows what it is talking about. Secondly, the problem identified is Ernst and Young's worry over the new accounting standard FRS17, which is only now beginning to work its way through the system and will doubtless involve many other firms in unpleasant decisions, as they look at their profit and loss accounts, the provisions that they will need to make, the profits that they can declare and the dividends that they can pay, with the consequential effect on pension schemes and the incomes thereof.
Let us note, too, that the Ernst and Young decision does not merely close the defined-benefit scheme to new entrants. It starts the process of winding up the scheme altogether and the transfer to defined contributions. However good, that replacement defined-contribution scheme must at least increase the element of risk to the individual pension investor.
Then, perhaps, we should look at what is happening to defined-contribution or money purchase schemes themselves. The same front page, which I offer to the Minister to save time if he has not been able to read the whole analysis, adjacently reports the study by actuarial consultants William M. Mercer, which predicts that up to 3 million occupational scheme members and individuals will contract back into the state second pension scheme over the next five years because, according to its Mr. Dick Strattan, the Government's contracting-out rebates
"fail to take proper account of current market conditions, such as lower interest rates and investment returns."
He goes on:
"On our calculations, they account for considerably less than the full value of the state pension foregone—in some instances, arguably as little as half."
That of course rings a bell with those already familiar with the stakeholder pension situation. We discussed that in detail last time, hence its relatively lower profile in this debate.
My hon. Friend the Member for Havant showed that most of the uptake lay outside the target groups. [Interruption.] It is no good the Secretary of State attempting to laugh it off—he does not know where there has been uptake. In any event, uptake is rather disappointing. A trickle of money continues to go in, but Ministers are dragging their feet. They are most reluctant to give a now overdue answer to my question about measures to improve uptake—they do not know whether they want to improve it, or, if they do, how to do so.
Ministers have been less than frank about pointing out that proper advice on whether to take out a stakeholder pension might be charged as independent advice, and so be extra to the 1 per cent. administration charge of which they are so proud. None the less, the Government continue their lavish advertising campaign on general pensions awareness, which is costing almost £10 million. The authentic voice of new Labour is heard in a written answer given to me last week by the Minister for Pensions. It states:
"Changing attitudes towards planning for retirement is not a straightforward task and will take time. We are planning to continue pensions education activity."—[Hansard, 31 January 2002; Vol. 379, c. 537W.]
We have been warned.
The Government have, however, made it clear that they intend no major activity in respect of annuities. They are bent on disregarding the view of the House so clearly expressed on
The Government cannot even manage to get their own consultation paper out on time. It is to come out tomorrow, but that is at least six weeks late, which is typical of the Government's dilatoriness. I understood that the outcome of the annuities consultation exercise was to be published before Christmas; I might be misinformed, but I understand that Christmas was approximately six weeks ago.
If the Secretary of State does not get his administrative act together, the new pension service, of which Ministers are all so proud and which will have to service 11 million pensioners and 5 million pension credit beneficiaries, might, as Age Concern warns, prove unequal to the task.
It would be unwise, and possibly invidious, to say. The answer to the hon. Gentleman's question is no, in the nicest possible way. The Government will sit there, fiddling like Nero over the general pensions front, until the US Cavalry in the shape of Alan Pickering reports with what I hope will be a major deregulatory package. The sooner that report is received and acted on, the better.
Meanwhile, the apostles of complexity on the Treasury Bench add new touches and torments in the State Pension Credit Bill. They are indeed spending a couple of billion pounds a year, but they do so at a remarkably heavy price in complexity and disincentives to saving. In the long term, the costs might escalate to a staggering £26 billion—but if one has just wiped £100 billion off the funds, £26 billion does not seem too much between friends.
Our motion is ready to give the Government credit for their objectives where and if credit is due. We welcome their stated aim of increasing from 40 to 60 per cent. the proportion of pensioner income coming from the private sector. Delivery, not intention, is the problem. We remember that it was the Labour Government who set their face against an increase in means-testing, and we judge their intentions against their achievements in that respect. By 2003, pension credits are likely to involve 57 per cent. of pensioners, and that proportion might rise to two thirds as the scheme rolls out. Two thirds of our pensioners might be on means-tested benefits in future; however softened, it will still be means-testing.
Opposite sits the sorcerer in the shape of the Secretary of State, and the sorcerer's apprentice in the shape of the Minister for Pensions, who will shortly reply to the debate. They like to brandish the goodies they put into the pot, and they enjoy giving it the occasional stir to keep things apparently busy. Now they are simply sitting back, waiting for Pickering. The pensions pot beneath them is holed and draining fast. There will soon be little left except thin gruel for the taxpayer.
To return to my beginning in these remarks, and to adapt my initial quotation from Mr. Duke of Towers Perrin, in pensions it is the Government who are not doing enough, and they do not understand pensions at all.
I came to London this morning full of hope that, the Conservative Opposition having initiated the second debate in 10 weeks on pension policy, we would learn something. Of course, it has been a policy-free debate on the part of Conservative Members. We started with a spokesman from the Opposition Dispatch Box and we finished on the Siegfried line. We had crocodile tears, scaremongering and hand wringing from one or two of the old-fashioned one-nation Tories who have been banished to the Back Benches for ever. We never received one view from the Conservatives about what they would do for older people, whether in terms of a pension policy or any other policy related to older people.
The Leader of the Opposition would hit pensioners hard. He is a bitter opponent of both the winter fuel scheme and the minimum income guarantee. He has said:
"MIG is a huge rise in spending . . . I can think of nothing to recommend it".
Yet about 2,000 of his constituents benefit from it. By attacking the MIG, do Conservative Members want to continue to withdraw resources from the poorest pensioners?
The right hon. Gentleman has accused us of not producing any policies. I think he will have noticed that we are unlikely to be in a position to enact any of our policies until after the next general election. We shall certainly do so when the time comes. I ask him what he would like to do at the next election. Will he commit the Government to maintaining the earnings link for pension credit after the next election? When he has answered that question, he may start lecturing us about our policy.
It is a weak excuse to say, "I will not be in power for a generation", and not give the public the Opposition's view of their pension policy. As for the minimum income guarantee, my right hon. Friend the Chancellor of the Exchequer has made it clear time and time again that the arrangements are for this Parliament. When we come to the next general election and present our manifesto, we will once again be the only party with policies to tackle pensioner poverty and, more important, to ensure in future that there will be no pensioners living in poverty, which is what we inherited from the Conservative Government.
We have heard winter fuel payments described as "cock-eyed", yet 20,000 of the Leader of the Opposition's constituents receive winter fuel payments. The right hon. Gentleman supported value added tax on fuel and voted for it to increase to 17.5 per cent. If that were not enough, let me refer to his view on the basic state pension. He said that it
"should become a function of the Private Sector".
That is the Tories' hidden agenda. That is why they have taken it off the website. That is why they are not giving an opinion in public. It is the same agenda as was rubbished at the last election. It will be rubbished at the next election and the election after that. It will be rubbished until the Tories learn something about working with older people in a more effective way.
No, I will not give way to the hon. Lady, and I will explain why. First, she has not been in her place for more than half the debate. Secondly, we were debating poverty in Scotland last week, and the Scottish National party did not turn up for that debate either. I tell the hon. Lady to stop being a part-time Member and to attend debates in this place more regularly.
"BSE is not a risk in the normal sense of the word."
Would you trust this man with your pension fund, Madam Deputy Speaker?
The Tories failed not just once, but time and time again, in the 18 years they were in power, when they consigned millions year on year to a life of poverty, treating them with utter contempt. They failed to tackle the legacy of pensioner poverty, but we introduced the MIG so that the poorest pensioners will be at least £15 better off. If the Tories were in power, they would withdraw that and cut £15 from the pensions of 2 million of the poorest pensioners.
We inherited the SERPS mess, which affected millions of people. We are putting in £50 billion over the next 50 years to put that error right. We made sure that compensation was paid to those who were conned through the mis-selling scandal; again, thousands and thousands of people were swindled. The total cost of putting that right is estimated at some £13.5 billion. Conservatives may have come to debate holes in pension policy, but the only holes in pension policy in the past two decades were created by their party; it has taken the Labour party in government to plug those holes.
Ten weeks ago, Mr. Willetts said that stakeholder pensions were a flop. Tonight, we have the latest figures; from a standing start in eight months, 637,000 people working in the private sector who, a year ago, did not have a pension or the possibility of having one, now have one because of the Labour Government. Some 310,000 employers, over 80 per cent. of those who should register, have already registered; a year ago, those employers were not prepared to provide a vehicle for their staff to share in a pension when they retire.
I should like to give the Minister an opportunity to correct the assertion that he has just made. He said that 600,000 people who did not previously have a pension have taken out stakeholder pensions. Will he confirm that we know that 170,000 of those people already had a pension from the construction industry scheme, and that many others had concurrent pensions? Perhaps the only people who did not have a pension, and about whom the Minister is right, are grandchildren and non-working wives.
The construction industry's old pension scheme was closed down. If it were not for stakeholder pensions, 170,000 construction workers in Britain would not have a pension entitlement. Construction industry employers are choked to find that the Conservatives continue to attack their efforts to introduce an industry notorious for lack of commitment to the stakeholder pension. The industry and its work force are fully supportive of stakeholder pensions.
I did not quite catch the hon. Gentleman's last remark, but if it was anything like the contribution of his hon. Friend Mr. Webb, the answer is no.
My right hon. Friend Mr. Field is in his place; I thank him for supporting the Government's efforts to help poor pensioners. The issues are indeed difficult, and we may well be dealing with them in a rough and ready way. However, the truth is that the Government, in the long term as well as the short term, will provide sustainability and investment in state sector pensions. My hon. Friend James Purnell made an excellent contribution on the benefits of the Government's strategy of targeting poor pensioners. Neither the Conservatives nor the Liberal Democrats have come up with an adequate answer tonight; if they really want to tackle pensioner poverty, why do they oppose every measure that we take to tackle pensioner poverty, either by voting against it in the House or rubbishing it outside?
I thank my right hon. Friend for his kind words. Is it not typical of Opposition Members that they refuse to say whether they would support any single policy? They refused to say whether they supported the MIG or the earnings limit. The one thing that they made clear they would support is annuities reform, which would disproportionately benefit the rich and the better-off.
The only declared policy of the Conservative party is to support the richest 5 per cent. of pensioners against the other 95 per cent., whom the Government are helping on a regular basis.
In a wide ranging speech, my hon. Friend John Mann spoke not only about pensioners' income, but about coalfields regeneration. The Government are putting tens of billions of pounds not only into pensions, but into coalfields regeneration, working with local authorities, the European Community and the public and private sectors to improve housing stock, jobs and the environment, and will continue to do so. It was the Conservatives who abandoned coalfield communities. They tried to destroy those communities and close them down, but they never could and they never will, because of the support that the Government give to coalfield communities.
As for pension provision, my hon. Friend the Member for Bassetlaw spoke about trade union issues. Through the Trades Union Congress, the trade union movement has a stakeholder pension policy. I ask my hon. Friend to encourage trade union members to support that and to sign up to it. He asked what we were doing in respect of pension fund trustees. The next step is to encourage stakeholder activism. A scheme should have independent custodians, and trustees should be familiar with issues involved in reaching investment decisions.
The hon. Member for Northavon made a curious speech. He called on us to spend, spend, spend on pensioners, yet he will go into the Lobby tonight with the Conservative party, which is committed to cutting public expenditure by £60 billion a year. The hon. Gentleman might have a point about all the issues that he raised, were it not for the fact that he voted against the minimum income guarantee, he will probably vote against the pension credit, he voted against the second state pension, and he voted against new deal and new deal 50-plus.
We are the first Government in history to do something about the long-term unemployed, especially those over 50 years of age. Members of the Liberal Democrats talk a good story, but they never do anything practical to help the poor, whether the unemployed or the pensioners.
In a thoughtful contribution, Mr. Butterfill dealt with defined benefits and defined contributions. We will shortly issue a consultation document, and I have no doubt that the hon. Gentleman and I will have further discussions about some of the matters that he raised. The issues that he raised tonight were legitimate concerns which I am happy to discuss with him.
To hon. Members who spoke about the Government and the black hole in pension investment, may I say that as well as the take-up of stakeholder pensions, the value of new pension sales rose by 9 per cent. in the last recorded quarter? Regular premiums increased by 50 per cent. in the last reported quarter, and new single premium pension policies rose by 2 per cent. The Government are ensuring investment in the public and private sectors.
I am not one to bear a grudge against the Opposition for their past failings, but I am thinking of writing to my right hon. Friend the Secretary of State for Health after the debate, seeking additional funds for the local hospital of the hon. Member for Havant. I am keen to ensure that the hon. Gentleman has his brass neck dealt with before it becomes fatal. After the debate, perhaps the hon. Member for Daventry should take a taxi to St. Thomas' to have his chronic humbug cured.
The Opposition can go on all they like about our pensions policies, but let us consider that they would certainly have done for pensioners had they remained in power. The poorest pensioners would have been abandoned, because the Tories would not have taken up our challenge and introduced the MIG. They would have done nothing about fuel poverty, and would have withdrawn winter fuel payments. They would not have introduced pension credit, and they would have done nothing for future pensioners, as they try to rubbish stakeholder pensions at every turn. They would have put no extra cash into resolving the problems of SERPS and pensions mis-selling. Indeed, the Conservatives tried to hide the mis-selling of pensions, and nothing would have been done about it if the present Government had not been elected.
Like the leopard, the Tories cannot change their spots. Perhaps that is another ailment for which they should be seeking medical help. I fear that, if left untreated, the problem might become terminal.
I call on my colleagues, first, to reject the Tory motion tonight and to vote for today's and tomorrow's pensioners; and secondly, when we go out on the campaign in the country, to let the pensioners know that the Liberal Democrats voted with the Tories for cuts in public expenditure, cuts in employment, cuts in transport, cuts in health care and cuts in social services. That is the true face of the Liberal Democrats. They are just another bunch of right-wing fanatics.
Question accordingly agreed to.
Madam Deputy Speaker forthwith declared the main Question, as amended, to be agreed to.
That this House welcomes the Government's framework for pensions which will reduce pensioner poverty and encourage saving; further welcomes the fact that pension savings are now at record levels and the increased choice given by stakeholder pensions; further welcomes the Government's decision to set up the Pickering review; and congratulates the Government on the extra £6 billion paid to pensioners from April and its intention to bring in the Pension Credit which will increase the incomes of around half of all pensioners.