Pensions

Part of the debate – in the House of Commons at 6:16 pm on 4th June 2003.

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Photo of Paul Goodman Paul Goodman Conservative, Wycombe 6:16 pm, 4th June 2003

Indeed, but they cannot take all the blame for what the Select Committee on Work and Pensions described in its latest report as the crisis of confidence in the pension system, and what my hon. Friend and I would describe as the crisis in the pension system. Surely, the Government cannot take all the blame for the fall in the stock markets, the switch from good, defined benefit schemes to less good defined contribution schemes or the challenges posed by an ageing population.

However, I believe that the Government have made two major blunders—one tactical and one strategic—and I hope to have time to refer to both. I shall pass over the tactical blunder briefly—the removal of tax relief on dividends in the Chancellor's first Budget in 1997, which has taken £5 billion a year after pension funds. Like many measures, it seemed a good idea at the time. The Government wished to tax by stealth, rather than doing so openly, but in the recent inquiry of the Work and Pensions Committee, we heard evidence suggesting that that move has been very damaging indeed. I believe that the Minister should apologise for that in his winding-up speech.

The strategic error is perhaps even more serious, and the hon. Member for Northavon referred to it—the rise in means testing with the consequences for take-up, which has led to a fall in incentives to save. I wish to begin exploring that theme with a quote from the Chancellor:

"I want the next Labour Government to achieve what in 50 years of the welfare state has never been achieved. The end of the means test for our elderly people."

He said that in 1993, and I think that we can all agree that whatever has happened since, we have certainly not seen the end of the means test. In 1995, when the Conservative party was in government, 38 per cent. of pensioners were on means-tested benefit. Next year, that figure may well be up to 59 per cent.

The right hon. Member for Birkenhead would doubtless remind us that means-testing has pernicious effects on incentives to save, but I want for the moment to concentrate on take-up. According to the Government's own figures, between 1999 and 2000, between 22 per cent. and 36 per cent. of pensioners did not take up the minimum income guarantee.

When the Select Committee on Work and Pensions, on which I have the good fortune to sit, carried out its inquiry into pension credit, the Government made it clear that their expectation of the take up of pension credit—not a target, but an expectation, which they themselves described as ambitious—was some 67 per cent. In other words, the Government expect the non-take-up rate of pension credit in 2004 to be 33 per cent.—a third of pensioners. Despite the Minister's good intentions and the phone service that she mentioned, the Government do not expect the take-up rate to rise. In future, because pensioners will have to apply for the pension credit less frequently, which understandably is a noble aspiration of the Government, it will be even more difficult to assess whether take-up rates are rising or falling. By 2050, some 65 per cent. of pensioners could be on pension credit. In short, an even larger number of pensioners will be on means-tested benefits, with take-up rates possibly as low as 65 per cent. or 67 per cent.

Another problem is that of incentives to save. In any pensions system, there will always be a trade-off between security and the incentive to save, but the problem, which the Work and Pensions Committee touched on in its pension credit inquiry and in its most recent inquiry, is that different elements of Government policy appear to be trying to do completely different things. The Government have added to the basic state pension, as the hon. Member for Northavon said, the state second pension—to replace SERPS, or the state earnings-related pension scheme—the MIG, or minimum income guarantee, and now pension credit and stakeholder pensions, which, when I last looked, were hitting about 2 per cent. of their target group. The state second pension aims to prevent people who have worked all their lives from relying on means-tested benefits in retirement, but the MIG, if the Government continue on this course, will draw more and more pensioners into means-tested benefits when they retire. Government policy is trying to do two completely different things at once.

In the course of the recent Select Committee inquiry, one problem become very clear—namely, that the Government cannot hope to address the difficulties with private pensions unless there is a stable, simple system of public sector pensions that can be relied upon, but because the two completely different major elements of the pension system try to do two completely different things, that certainty is not in place. I refer to the final paragraph of our report on pension credit, which was signed by all members of the Labour-dominated Committee. It said that

"the Pension Credit unquestionably adds further complexity to an already byzantine system of retirement provision, which is causing confusion for pensioners, pension providers and those saving for their old age."

It is sad that after such a long period we still have no pensions Minister to address those problems. There is a widespread feeling in this House and outside it that the Green Paper, whatever else may be said of it, did absolutely nothing to address the fundamental confusions that lie at the heart of the Government's pensions policy. That is why my hon. Friends and I will, with good heart, vote for the motion.