I beg to move,
That this House
expresses its deep concern at Government policies that have led to a decline in funded pension provision and a massive extension of dependence on means-tested benefits;
deplores the £5 billion per annum pensions tax and the erosion of incentives to save, which have caused the halving of the Savings Ratio, and have resulted in only 19 per cent. of final salary pension schemes remaining open to new members;
condemns the Government for extending dependence on means-testing to over half of pensioners, despite earlier promises to the contrary, and for ignoring the interests of 1.4 million of the poorest pensioners who, on the Government's own target, will still not be receiving Pension Credit in 2006;
notes that Government policies have created a big disincentive to save and led to an increase in the number of pensioners in persistent poverty;
and calls on the Government to support state pension reform to reduce dependence on means-tested benefits, to remove the disincentive to save, to improve the financial position of pensioners, including the 1.4 million poorest pensioners, and to provide better incentives to save.
I begin by drawing the House's attention to the relevant entries in the Register of Members' Interests.
We have called this debate because the Government never debate pensions in this House. We have had two Government statements on pensions in the past year but no debate on the pensions crisis, despite the semi-promise that was given when my hon. Friend Mr. Heald raised the matter during a debate held earlier this year. He called for a debate on the Government's Green Paper proposals on pensions, and the then Minister for Pensions—we miss him so much—said in his inimitable style:
"Do not be so silly. I have made it absolutely clear that I welcome debates in the House."—[Hansard, 20 January 2003; Vol. 398, c. 58.]
The then Minister also said that the Government would "provide opportunities for debate", but there have been no such opportunities. On each occasion that this House has debated the pensions crisis, it has done so because the official Opposition or another party has called Ministers here to do so. The Government have failed to provide at any point a debate in which Members can give their views on their consultation document.
Meanwhile, as the Government produce their Green Papers and make their statements, what has been happening? The pensions crisis has steadily worsened. The CBI pointed out that, in the past year alone, more than half the companies that it surveyed closed their final salary pension schemes. Final salary funded pension schemes are closing, and at the same time—the next step in this process took place last week—more and more pensioners are on means-tested benefits. The arrival of the pension credit means that, for the first time in a long while in British history, more than half of all pensioners are eligible for means-tested benefits.
We called this debate because we think that those two trends in our society—fewer funded pensions and greater dependence on means-tested welfare—constitute the wrong direction for our country to take. We wish to reverse those trends: we want more funded pension saving and fewer pensioners being dependent on means-tested benefits, but the Government's policies have caught us in a vicious spiral. As savings go down, more and more pensioners become dependent on means-tested benefits; and as entitlement to the latter is expanded, fewer people believe that it is worth while saving. That is the pernicious and vicious cycle in which we are now caught, and out of which we need to break.
Does my hon. Friend agree that although we all—particularly those who are borrowing—welcome low interest rates, the crisis is being exacerbated by the fact that the income of those who have money on deposit is also being diminished?
My hon. Friend makes an important point that I shall come to later. He is absolutely right: as interest rates have fallen, pensioners with modest savings in a building society have lost particularly heavily, and they lose under the pension credit.
Things were not supposed to be like this. The Government made it clear in their first Green Paper of 1998—one of its authors is here today, and, as always, he is very welcome—that pensioners were then getting 60 per cent. of their income from benefits and 40 per cent. from funded pension savings, but that the Government's objective was to reverse that ratio, so that in future pensioners would get 60 per cent. of their income from funded savings and only 40 per cent. from benefits. In pursuit of cross-party consensus on these important matters, we are happy to endorse that very desirable objective, which we believe in and are committed to. Sadly—as with so many of the Government's targets—since they announced that target the percentage of income that pensioners get from social security and welfare has gone up, and the percentage that they get from funded savings has gone down.
They are heading in the wrong direction.
The latest evidence for that was the arrival last week of the pension credit, for which more than half of all pensioners are eligible. It is a far cry from the pledge made by the Chancellor—then shadow Chancellor—to the Labour party conference only 10 years ago, when he said:
That is not what Labour says now. We heard yet again at today's Prime Minister's questions a defence of the means test, despite the fact that many pensioners dislike it, that the savings industry opposes it and that there is mounting evidence that it does not work.
The hon. Gentleman issued a press release just before the Tory party conference entitled, "Tories to end the pensioners' means test by restoring earnings link". This afternoon, he has referred to reduced means-testing. Given that the press release promised to "end" it, in which decade does the hon. Gentleman envisage that happening?
We have set out our proposals and I shall talk about them later in my speech. Over time, our objective is to get more pensioners off the means test. A target is necessary, and ours is to increase the value of the basic state pension so that it catches up with the level of the means-tested benefit. That is how British social security policy has always operated. The breach in the British way of running social security came under the present Government, who have put means-tested welfare so much higher than the basic state pension. That is the source of many of our troubles.
I want to make some progress and explain why Conservative Members are opposed to the spread of means-testing and, most recently, to the operation of the pension credit.
Ministers will say that it takes only one phone call to claim the pension credit—but some phone call it is! Pensioners have to reveal to the official at the other end of the line all the details of their financial affairs, all their savings and all their money around the house. In practice, they have to empty their pockets to a civil servant in order to receive a means-tested benefit. That is why pensioners, their representatives and the industry itself do not like means-testing. Let me quote the views of Help the Aged, which states:
"Help the Aged believes that the Pension Credit is totally over-engineered . . . It would be so much simpler, and fairer, to boost the basic state pension".
That is Help the Aged's view and everyone knows that the pension credit is far too complicated.
Ministers say that after the one phone call pensioners can continue to receive the pension credit for five years without any interference or involvement. What Ministers do not say is how many different changes of circumstances have to be reported to officials. Pensioners have to tell officials if they have started marrying or cohabiting. They have to report whether they have died—I suppose that is logical. They have to report divorce or separation from a partner; change of name, address or payment location details; changes to any paid work; going into hospital or care home; going into prison and even joining a religious order. That is the information that the Government require.
In making his case, does the hon. Gentleman believe that he is encouraging pensioners to apply for what they are entitled to, or discouraging them?
Let me make it clear that we all believe that every person should secure the benefits to which they are legally entitled. Hon. Members on both sides of the House will do their best to help constituents find their way through the incredibly complicated process of securing the pension credit.
Does my hon. Friend share the concern of one of my constituents who, when he rang up to find out about the pension credit on behalf of his elderly mother, was told that he had rung the wrong number? He was then transferred to a further three people in the Pension Service, only one of whom was an expert and none of whom could provide an explanation of his mother's entitlement to pension credit. In view of the length of time that the Government have had to introduce it, does my hon. Friend agree that that is a shambolic state of affairs?
Yes, and it is a subject on which the Secretary of State made a written statement to the House yesterday—and it was indeed dismal news. The Secretary of State said that 1.9 million pensioner households were on the system and being paid the pension credit, but almost all of them had previously been in receipt of the minimum income guarantee and had been automatically transferred. After six months, it appears that only 200,000 extra pensioners are receiving the pension credit. The Secretary of State, having watched—doubtless in horror—the shambles that the Treasury made of the introduction of the child tax credit, had the ingenious idea that he could secure the smooth roll-out of the pension credit, provided that not many pensioners claimed it—the ultimate in bureaucratic mentality. Trains will run on time, provided that there are not any passengers; benefits can be paid smoothly, provided not many pensioners claim them. That is not how we believe the social security system should be run.
What would the hon. Gentleman say to one of my constituents who informed me this week that, as a result of the pension tax credit, he will gain £26 a week from October this year? Would he tell my constituent that that should no longer exist?
I am again grateful for the opportunity to make the position clear. The Prime Minister outrageously misrepresented our proposals at Prime Minister's questions earlier this afternoon. Our proposals involve no change whatever in entitlements to the pension credit. Rather, we believe in increasing the value of the basis state pension slowly over time, so that fewer pensioners need to claim the pension credit. It is not part of our policy to abolish the pension credit.
Is not the hon. Gentleman rather misleading the House when he says that the Conservative policy is to allow the basic state pension to catch up with the means-tested benefit? In fact, he would allow that to happen by holding down the means-tested benefit and ending its link to earnings.
The hon. Lady raises an issue on which I hope to receive some clarification from Ministers in the debate. In the course of preparing our own proposals, we attempted clearly to establish the Government's own proposals for the future of means-tested benefits and the pension credit. The Government have several times been asked to clarify whether they believe that the value of the pension credit would increase in line with earnings if, by some extraordinary mischance, they were to win the next election, but they have failed to provide a clear answer. When we know the Government's intentions on the uprating of the minimum income guarantee and the pension credit, we will be able to make our response. However, we do not yet know the Government's proposals for the future of the pension credit.
We now have an opportunity to find out what the Opposition intend. In common with my hon. Friend Mr. Tynan, I have a pensioner in my constituency who is £106 a week better off because of the Government's policies. Pensioners such as him are worried that they would lose out if, by some mischance, the Tories came to power. Will the shadow Secretary of State tell the House whether the Conservatives intend to spend more or less money on pensioners? If it is more, from where will they find the extra moneys?
Yes, we propose to pay more money to pensioners and we shall pay for it by offsetting savings in means-tested benefits and by the abolition of the new deal, which will allow us to increase the value of the basic state pension. Those are our proposals: no pensioners will lose and many will gain from them.
I want to make some progress with my speech. I have already taken many interventions and explained that the main problems with means-testing are complexity and low take-up.
The Prime Minister said today that the Government's approach provided targeted help for pensioners on the lowest incomes, but I am afraid that that is not so. I am sure that Labour Members who are genuine in their concern about poverty will be familiar with the statistics on the take-up of income-related benefits, which show that many pensioners who are entitled to means-tested benefits do not claim them and that many of them are among the poorest pensioners in our society. They are the people who are not reached by a Government who have become obsessed with spreading means-testing. I refer the Secretary of State and the House to table 1.10 on page 22 of the Department for Work and Pensions statistics on the take-up of benefits. I am sure that the Secretary of State is familiar with the document. It shows that approximately 60 per cent. of all the pensioners who do not claim means-tested benefits are in the poorest 20 per cent. for pensioner incomes. Our policy will help them, because our policy reaches the parts that the Government's policies do not reach.
I will not take seriously assessments of our policies that assume 100 per cent. take-up of means-tested benefits as the alternative approach. As one of the fundamental problems with the Government's approach is low take-up, it would be wrong, even absurd, to compare our policy, which would get to everyone, with an alternative approach that, sadly, does not reach many of the pensioners who are entitled to the benefits.
To prove how pernicious the spread of means-testing is, we asked actuaries to calculate how much people would need to save during their working lives to secure sufficient income to float them off means tests in their retirement. The answer is the shocking figure of £180,000. That is why Britain has a savings crisis. That is why the savings industry tells us that it cannot encourage people to save. The industry is worried about being accused of mis-selling savings products if people retire and subsequently discover that they have lost means-tested benefits as a result of their savings. That is why our policy is not only right for pensioners, but is essential to get Britain back into the savings habit. Unless we can tackle the pernicious spread of means-tested benefits, millions of people will conclude that saving is not worth their while.
Unless pensioners are able to save, they will not be able to bear the burden of the council tax. At Prime Minister's questions earlier, the Prime Minister did not deny that the Chancellor was budgeting for a 7 per cent. increase in council tax next year and a 6.5 per cent. rise the following year. Is it not grossly hypocritical for Downing street to announce that it is considering forcing local authorities to have referendums before imposing council tax rises of more than twice the rate of inflation? Why are the Government raising expectations when they know that they cannot deliver?
My right hon. Friend is right. Relations between No. 10 and No. 11 have reached the stage that No. 10 says that it will try to pass laws to stop people doing what No. 11 says is necessary for the public revenues to be secured. As an example of the failure of the Prime Minister and the Chancellor to communicate with each other, it is outrageous.
The hon. Gentleman will no doubt have read the Rowntree report that came out at one minute past midnight today. It says:
"Calculated after housing costs, more than 1.2 million pensioners will have been raised above the poverty line by policies that include the Minimum Income Guarantee."
It also says:
"Without the recent improvements made to the tax and benefits system for those with low incomes, poverty would be much worse."
Does the hon. Gentleman agree with the Rowntree trust?
One of the best refutations of the Rowntree trust was in that widely read document, "Opportunity for all", the fifth annual report that the Government produced only a few weeks ago. Page 200 gives the evidence on the percentage of older people living in low-income households and with persistent low incomes. [Interruption.] Well, they say it is out-of-date—[Interruption.]
Thank you, Mr. Speaker. I have to work very hard reading these tedious documents and now and again I like to share the little gems that I find with the House.
Page 200 contains a chart entitled "Percentage of older people living in low-income households" and it shows the percentage of pensioners with persistent low incomes who have had incomes
"Below 60 per cent. of the median income in three out of the previous four years".
It shows a slowly increasing trend in the number of pensioners in that group, from 16 per cent. in the mid-1990s, to 17 per cent. and, in the latest three-year period, to 18 per cent. The Government's policy is not working because people do not like all these means tests.
As the Secretary of State knows, I have great respect for him and I do not lightly throw around charges that he has produced misleading information. However, I am very troubled that his information leaflet on the pension credit contains the assertion, which he endlessly repeats, that the pension credit
"guarantees everyone aged 60 and over an income of at least £102.10 if you are single; or £155.80 a week if you have a partner."
That is simply untrue. It is not correct. That is not how the pension credit works. As my hon. Friend Michael Fabricant pointed out, if someone has modest savings, the pension credit assumes an income from those savings of 10 per cent. That is an interest rate on savings way above what any pensioner in the real world is able to secure. However, that assumption was made for the purpose of modelling the pension credit. I shall not inflict the detailed calculations on the House although I would be happy if the Secretary of State wished to intervene to correct my calculations. They show that a single pensioner with savings of £20,000 held in national savings, earning 3.1 per cent., would be assumed to receive an income of £26.92 a week on the £14,000 of her savings above the limit of £6,000, which she would simply not receive. As a result, her total income from her savings, the basic state pension and the pension credit to which she is entitled would be £98.78 a week, not £102.10. Any pensioner with savings of between £6,000 and £54,000 is caught in that trap. It is not the case that pensioners are guaranteed £102.10 a week under the pension credit. I hope that the Secretary of State will accept that the information leaflet is seriously misleading. It is just not the case that the pension credit works in the way that he claims.
My hon. Friend should not be surprised by that. The Government do not want pensioners to save, because they want people to be dependent on the state. That is the message that pensioners get time and again from the Government. They are told to forget saving because it is irrelevant and even irresponsible.
My hon. Friend gets to the heart of the issue. One of the worst and most pernicious examples of intrusive government is requiring millions of pensioners to fill in detailed claim forms to get means-tested benefits. The Conservative way is to try to roll back the means test, and provide people with a decent state pension, under which they are £1 better off for every £1 they save. That is what pensioners want.
No, because I must conclude so that the other hon. Members who wish to speak in this debate have a chance to do so.
We have been driven by an ineluctable logic through the following stages of argument. We have concluded that means-testing under this Government has increased, is increasing and should be diminished. We wish to see pensioners off the means test. We also do not believe that it would be right to take any benefits away from pensioners. We do not propose to take cash off pensioners, because none of us believes that that would be the right thing to do. The only way, therefore, to roll back the means test is by increasing the value of the basic state pension so that it catches up with the value of the means-tested benefits. What more powerful way is there to signal a slow but steady process of increasing the value of the basic state pension than by saying that we will increase it in accordance with earnings rather than prices? That is the policy that we have put forward as a way of rolling back the means test.
Paradoxically, the policy can be financed because the Government have spread means-tested benefits so far. They have got more than half of pensioners on the pension credit. For all those pensioners, we will replace—gradually and over time—the income that they get from their means-tested benefits, and instead provide them with money on the basic state pension.
Labour Members always argue that the problem is that large numbers of very rich pensioners will gain from our policy, so I refer them to another classic publication from the back catalogue of the Department for Work and Pensions. The pensioner incomes series measures pensioner incomes by quintile—every 20 per cent. of population. It shows that nearly 80 per cent. of pensioners have below-average incomes. It is not the case that there are large numbers of rich pensioners. The figures for the five quintiles are as follows. The poorest pensioner couples have a gross income of £165 a week. The next poorest get £221 a week, rising through £276 and then £373. The top fifth of pensioner couples get £889 a week.
It is not the case that there are large numbers of very affluent pensioners. Only the top 20 per cent. of pensioners are anywhere near what the rest of society would regard as prosperity. I would rather that they faced a 40 per cent. tax rate on their incomes than that millions of pensioners on much lower incomes faced a marginal rate of 40 per cent. at the best, and quite possibly of 100 per cent.
The Conservative party has proposed a clear direction of travel that tackles the two problems at the heart of our savings crisis. First, we are proposing increases in the value of the basic state pension that will enable us, over time, to take pensioners off means-tested benefits by replacing those benefits with a decent state pension. Secondly, we are proposing measures to tackle the problem of the lack of incentives to save by introducing a much better way of using the incentives currently in contracted-out rebates. We believe that the combination of a simple, decent and straightforward basic state pension, with strong incentives to save, is the only practical way of solving the pensions crisis faced by the country.
I commend the proposals to the House.
I beg to move, To leave out from "House" to the end of the Question, and to add instead thereof:
"welcomes the fact that people are living longer than ever before;
welcomes Government action to tackle pensioner poverty and to promote retirement flexibility, occupational pension security and informed choice;
condemns the inheritance of 1997, with millions of pensioners in poverty, many being expected by the Government to live on under £68 a week, and the legacy of pension mis-selling;
endorses the Work and Pensions Committee's judgement that "current policies have been successful in reducing pensioner poverty";
notes that the Government is spending £9 billion extra per year in real terms on pensioners compared with the 1997 system;
further notes that this is £5.7 billion more than if the basic pension had been linked to earnings;
applauds the fact that the poorest third of pensioners will be £1,600 a year better off;
welcomes the successful payment of Pension Credit from this month to over two million pensioners and the fact that 1.3 million are gaining more money than they had before;
further supports the Government's approach to renew the pensions partnership, outlined in the recent Green Paper and Action Plan;
commends plans to introduce a Pension Protection Fund, guaranteeing protection if a company scheme winds up;
welcomes proposals to allow individuals to defer their state pension and draw it as a lump sum;
looks forward to further measures enabling people to make an informed choice in pension provision, increase flexibility approaching retirement and to work free from age discrimination;
and condemns the unfair, unaffordable and unsustainable policies of Opposition parties."
In moving the amendment, I am happy to set the record and proposals of this Labour Government against what we have just heard from the Opposition. This Government recognise the challenges that this country faces on pensions, and we are taking action to deal with pensioner poverty, to protect the pension promise, to help people save and to enable people to choose when to retire.
On pensioner poverty, pension credit is getting more money to those who need it and rewarding those with modest savings. On occupational pensions, we have said that we will legislate for a pension protection fund, and take action to stop firms dumping their pension obligations. On savings, we are simplifying the tax regime, enabling people—especially women—to build up rights in short-stay jobs, and giving people the information that they need to make their own choices on pensions.
On flexible retirement, we are giving people more options on when to retire, tackling age discrimination, and giving a better deal to those who defer their state pension. However, we will not force people to work longer, which is why we have not proposed raising the state pension age.
The House should remember that it is thanks to the reforms that this Government have put in place that, from next April, we will be spending more than £9 billion extra in real terms than in 1997. That is £5.7 billion more than if the basic pension had been uprated in line with earnings.
Does my right hon. Friend recall that for five successive years under this Labour Government, early-day motion 1 called for a restoration of the link between earnings and pensions. In some years more than 100 hon. Members signed the motion, but no Conservative Member ever did. Moreover, the Conservatives did not support the restoration of the link after the Conservative Government broke it in 1980. Does my right hon. Friend think that the Opposition's sudden Pauline conversion to the idea of restoring the link is nothing more than a shameless piece of opportunism?
How can the Secretary of State tell the House that the Government are giving money to the pensioners who need it most when we have just heard that the pensioners in the most persistent poverty are either unwilling or unable to take up the very benefits that he is talking about?
This Government have introduced the minimum income guarantee and improved it by means of the pension credit. That means that we are getting much more help to the poorest pensioners. That is borne out by the statistics for households on below-average incomes. On the basis of an absolute measure of poverty, more than 1.5 million pensioners have been taken out of poverty thanks to what this Government have done.
Mr. Willetts referred to cross-party consensus. I am all for a bit of that where we can establish it. However, that cause will not be helped by a Conservative party that has learned so little from its last time in office. We will take no lectures from a party whose record on pensions has so often been part of the problem and not part of the solution. The truth is that on one issue after another this Government are acting where the Conservatives failed to act. When the Conservatives were in power, they chose to increase the value of the basic state pension just once in 18 years—and then only to compensate for imposing VAT on fuel. They left millions in poverty, and expected the poorest pensioners to live on just £68.80 a week. It is this Government who have made sure that no single pensioner need live on less than £102 a week, and that no pensioner couple need live on less than £155 a week.
I do not blame the hon. Gentleman for asking that question, as Mr. Willetts slipped in what he really meant so quickly that one might not have noticed. The claim was not that people could earn 10 per cent. He actually referred to a 10 per cent. attributed rate above £6,000. We must remember that 93 per cent. of pensioners have less than £10,000 in savings. There is no attributed rate on the first £6,000, but the rate is £1 for each £500 of savings above that level. On £10,000, that equates not to 10 per cent. but to 4.2 per cent. That is the truth hidden in the small print of what the hon. Member for Havant said.
I am proud that it is this Government who are guaranteeing, through the pension credit, an income of £102 a week for single pensioners and of £155 for couples. We are also rewarding saving, whereas the Opposition penalised it by pound-for-pound withdrawals. Carp though they do about the pension credit, means-testing and the rest, the Opposition should have the grace to admit that, with the introduction of the pension credit, the Government have taken an important step away from pound-for-pound withdrawal. In government, the Opposition gave the strongest possible signal that it did not pay to save. Under this Labour Government, it does pay to save.
All hon. Members know that that was part of a comprehensive reform of corporate tax. The rate of corporation tax was cut by 3 per cent. as a way of ending the perverse incentive that existed in the system to distribute money through dividends rather than to reinvest it. I respect the sincerity with which the hon. Gentleman speaks, but I would have a great deal more respect for Conservative Members when they make such complaints if one of their Front-Bench team would pledge to reintroduce the dividend tax credit. They have been challenged time and again to do so and that is not their policy, so it is an argument that carries no force.
I shall make a little more progress before I give way.
As a result of the pension credit and the other measures that we have introduced since 1997, the poorest third of pensioners are on average £600 a year better off than if the same money had been put into raising the basic state pension. The Conservative party was happy with the situation where pensioners who had saved had their benefit withdrawn pound for pound, giving the strongest possible signal that it did not pay to save. This Government, with the pension credit, are for the first time rewarding those who have saved and who have so often just missed out.
People will never forget that it was the Tories who presided over the pension mis-selling saga, leaving hundreds of thousands short-changed, just as they changed the rules on inherited SERPS, halved their value and forgot even to tell those affected. This Government have had to sort out the mess and take action to rebuild confidence in the system. This Government will stop employers walking away from their obligations, stop companies using takeovers to scrap pensions, and stop firms changing schemes without consultation.
Does my right hon. Friend agree that the Opposition have shown their true colours here today by speaking about the top 10 per cent. and forgetting the bottom 60 per cent.—the people they should be looking after? Once again, the Opposition show that they have no concern and no care for the poor.
Yes, indeed. The Conservative party's proposals would do relatively more for better-off pensioners and relatively less for the poorer pensioners. It was ever thus.
Indeed. The truth is that both on state pensions and occupational pensions we are taking the action that is necessary. We are concerned that a pension promise made must be a pension promise honoured. That is why we will introduce a pension protection fund to give employees the protection that the Tories never saw fit to provide. The fund will step in to guarantee that, when a sponsoring employer goes bust and the pension scheme is underfunded, pensions already in payment will continue to be paid out in full and, subject to a salary cap, those who expect a pension will be guaranteed up to 90 per cent. of that entitlement.
I listened to what the Conservative spokesman was saying about pension credit. Not for the first time, we heard those on the Opposition Front Bench twisting and turning—first, deriding Labour proposals and then being forced by public opinion to accept them. Does the hon. Member for Havant remember the winter fuel payment? He called it "a gimmick" and pledged that the Conservatives would abolish it. We do not hear much about that any more, do we?
On the pension credit, the Conservatives have carped and criticised. First, they said that they would scrap it; then they said that they would "reconsider" it; now, they say that they are going to keep it—and so they should, because around half of all pensioner households will be eligible and stand to gain £400 a year on average. As of last week, pension credit is helping more than 2 million pensioners throughout the country.
Despite the claims from the Opposition parties, the systems are working well. More than 1 million pensioners have already contacted us and feedback is showing that they like the help that they are getting from the Pension Service—the first ever dedicated service for pensioners in this country.
About 4,000 of my constituents are up to £30 a week better off in real money than they would have been under the old Tory system of simply keeping income support up to inflation levels. More importantly, does my right hon. Friend understand the Opposition's policy to be that they will not give another rise for the next seven years if we have to wait for pensions to catch up with present benefit levels?
That certainly seems to be the case. My hon. Friend is right. As I told my hon. Friend John Robertson, Conservative policy consistently skews the odds against the poorest in the pension system, which is just what the Conservatives did when they were in office.
We all realise that big challenges are facing the country in relation to pensions. Thanks to the good news that people are living longer, between us we need to save more or work longer, or some combination of the two, if we are to sustain a given standard of living in retirement. We have already set out a number of proposals for addressing these challenges.
The recent announcements of the hon. Member for Havant and what he told us today fail three basic tests. First, they fail the test of affordability. It is just three years since the hon. Gentleman said that he opposed reintroducing the earnings link as it was "not affordable". Nothing has changed. That is why his figures continue to show that the sums do not add up. Even after taking more than £200 million off pensioners in extra tax—that is part of the cost calculations that he left out of his list today—there would be a £500 million shortfall by year four of a Tory Parliament. That £500 million black hole would in reality be far bigger because they are claiming "savings" where there are none to be had. For example, they claim that they can save hundreds of millions of pounds by scrapping the new deals—new deals that have now helped more than 1 million people into jobs. The evidence shows that the new deal for lone parents alone has saved the Exchequer £40 million pounds a year by getting people off benefits and into work. The report of the National Institute of Economic and Social Research on the new deal for young people showed that it was virtually paying for itself. The truth is that scrapping the new deals would make it harder to pay for pensions, not easier.
Once again, the Conservative party is making the mistake of imagining that it can put Britain's finances in order by keeping people on the dole. The Conservatives have learned nothing from the last time they were in power, when the British people saw all too clearly that mass unemployment was the way not to stronger public finances but to a net public debt of 44 per cent. of gross domestic product, which is where they left it. They have not learned the lesson that we cannot pay for pensions tomorrow by pushing up unemployment today.
Their failure on a second test, sustainability, is even more abject. I cannot honestly believe that the hon. Member for Havant does not know that. The further forward one looks, the more unsustainable Tory policy becomes, even though we all know that pensions policy should be for the long term. The hon. Gentleman told this House just three years ago that restoring the earnings link would be
"a wild and uncosted policy".—[Hansard, 8 June 2000; Vol. 351, c. 440.]
Before that, he had boasted to the House that his Government had taken the "crucial" step of
"ending the link between the basic pension and earnings" and he pledged that he would resist the
"seductive politics, but dangerous economics" that
"bedevilled state pension arrangements in other countries". —[Hansard, 8 July 1993; Vol.228, c. 516.]
The hon. Gentleman has been seduced into dangerous and unsustainable economics. At that time, he appeared to understand what he seems to have forgotten now. After five years, the earnings link costs £4.3 billion more; after 10 years, £9 billion more; and after 30 years, £45 billion more, which is equivalent to 14p on the basic rate of income tax. That is an unsustainable policy.
The Secretary of State said that nothing had changed, but something important has changed: now that the pension credit has arrived and is being implemented, more than half of all pensioners are on means-tested welfare and, as he knows, the predictions are that the number will grow and grow. That is what we need to reverse, and that will secure more than half the cost of delivering the earnings link.
That is another way of saying that what the hon. Gentleman purports to give with one hand he will take away from the poorest pensioners with the other. No wonder the shadow Chancellor admitted that the Tory policy would do nothing for the poorest pensioners in our community. Given that unsustainability, it is hardly surprising that only last week the hon. Gentleman's Front-Bench colleague, Mr. Letwin, once again let the cat out of the bag when he admitted that
"we may have to make some further painful decisions" to pay for the policy. He did not share his hon. Friend's confidence that they could afford it.
The Conservatives should tell the British people what painful decisions they have in mind. Where will the axe fall? Will it be on schools or on the police, or will it be on the hospitals on which our pensioners rely? The whole House will have been struck by the Conservatives' failure to match our commitment to invest in hospitals and schools.
I entirely agree with my right hon. Friend that it is essential that pensions policy is sustainable in the future, not least to allow younger people, who are currently trying to make informed choices about pensions, to know what they can rely on. Does he think that such people can rely on the current Government's pensions package being in place when they reach retirement age, because as he is aware, most informed commentators do not think that that will be the case?
I assure my hon. Friend that the Government's record shows that we have given more help to all pensioners and, especially, extra help to poorer pensioners in the dramatic terms that I have already set out. The combination of above-inflation increases in the basic state pension, the introduction of the winter fuel allowance—up to £300 this winter for those aged over 80—free eye tests, free television licences for the over-75s and the pension credit is the basis for helping pensioners out of poverty towards dignity and security in retirement. Of course, we shall need to do more for the future. Our record shows that as action becomes necessary, we will take it, but we shall do so on the basis of fiscal sustainability and financial prudence, not on the basis of opportunistic, unsustainable, half-cocked, half-baked, back-of-the-envelope, calculations like the Opposition's.
As the right hon. Gentleman is talking about the Government's record on pensions, may I point out that it has been said that, under seven years of Labour Government,
"occupational pensions . . . have come under particular pressure, which has undermined people's confidence in pensions."?
That is a quotation from a letter to me of
As I made clear earlier, we recognise that there is a challenge in relation to occupational pensions. I have already charted the history. What did so much to damage confidence was the whole mis-selling scandal, the Maxwell scandal and all the rest. Through our action to put in place a pension protection fund and our actions on full buy-outs on the wind-up of schemes and the requirement for protection under TUPE—the Transfer of Undertakings (Protection of Employment) Regulations—so that firms cannot use takeovers or mergers as an excuse to scrap pension schemes, the Government are setting up the building blocks to restore confidence. We should have the support of the Opposition in doing so, because those proposals are supported by the—
Will the right hon. Gentleman clarify an important point? Is it the Government's intention if re-elected to increase the value of the pension credit by earnings during the lifetime of the next Parliament?
Our pledge for this Parliament is to increase the pension credit by earnings, and so we will. As I told my hon. Friend Lynne Jones, we will take such decisions for the future as are necessary and we will announce them at the proper time. Unlike what we have heard from the Opposition, those decisions will be based on what is financially responsible, fiscally prudent and sustainable. We are taking the long view and maintaining control of public expenditure, while the hon. Gentleman and his colleagues are seeking a quick fix that they know cannot be sustained. They are putting a false prospectus to the nation's pensioners. They know that they could not sustain their policy in the future, any more than they thought a few months or years ago—
I must make a little more progress.
Nobody can believe the Leader of the Opposition—whoever that is—when the Conservatives claim on one hand that they can make such huge spending commitments for the future while on the other claiming that they can cut taxes.
The most important test that the Conservatives are failing is the test of fairness. Under their plan, as the shadow Chancellor conceded, nothing will be done to help the poorest pensioners, who would not only fall further behind but would see any increases in their state pension knocked straight off their pension credit. As a consequence, women would fare especially badly; half of them do not receive a full basic state pension so they would be seriously short-changed. With pension credit, women actually get two thirds of the available money, so our policy helps to tackle entrenched gender inequality while the Opposition would make it worse, as borne out by an analysis published this morning by the Pensions Policy Institute.
On fairness, how typical it is of the Opposition to look for extra funds to benefit the better off by going straight to a cut in the support provided to unemployed people. That is madness, given that the best foundation for retirement and pensions is to have a job in one's working life, and given that the policies that the Opposition propose to abolish have helped more than 1 million people into work since 1997.
The hon. Member for Havant has re-started his war on lone parents. He only called it off a year ago, so the truce did not last long. He will deny them their opportunity through the new deal for lone parents by his proposal to abandon it. Furthermore, he has not come clean about how young children will be affected by his plans to force lone parents to look for work. That is another part of the hidden arithmetic behind his plans. He and his colleagues must make it clear how young a child has to be before the Tories would allow its mother to stay at home to look after it.
The Government have helped 200,000 lone parents into jobs and expanded child care provision, and we have also ensured that 15 million people on low to moderate earnings will be able to build up a better state pension. With the state second pension, 5 million carers and disabled people will for the first time be able to build up entitlement. Yet just as that is going into people's hands, along come the Conservatives with their half-baked plan to take it away. If their ramshackle policy were ever implemented, even the higher pension that they say they could deliver, taken with the scrapping of the state second pension, would eventually mean losses of £43 a week for millions of carers, disabled people and low earners.
While the Tory policy is unfair, unsustainable and unaffordable, the Government will continue our drive to tackle pensioner poverty, while giving more help to all pensioners. With pension credit, we put the poorest first and reward saving.
As the Secretary of State is talking about fairness, does he accept that one element of fairness is ease of applying? The problem with the pension credit is its complexity, even when applying by phone. I spoke to an old lady who phoned the helpline, got a recorded message that she did not understand and was so frustrated that she gave up, so we had to intervene on her behalf. What would the right hon. Gentleman say to her? There is a problem even applying for the pension credit.
I should be happy to look into any case that the hon. Gentleman or other hon. Members would like to raise with me. Both the feedback that we are getting and our own monitoring show that the pension credit application line is working remarkably well and that 94 per cent. of calls have been answered within 30 seconds—not by a mechanical answering machine, but by a human voice. People really appreciate the help that they are being given.
I shall quote a letter in today's Daily Mail. It is not always my pleasure to quote the Daily Mail in the House, but I am pleased to do so now. The question at the head of the letter was, "Is pension credit too hard to get?" Someone wrote in and said:
"Here's my timetable for having obtained the new pension credit. I received the letter from the pension service and phoned through my application last month. I was connected in seconds. My application form was completed in 20 minutes. Two days later the form was returned to me for signature and proof of income. I returned the form, signed and with the relevant proof. On September 23 my application was approved. I received my payment book on September 29 and my first payment on October 6. The application process is very efficient."
We are getting scores of messages from pensioners who not only find it easy to use the service, but are greatly appreciative of the individual help and support that they are getting from members of the Pension Service.
The hon. Member for Havant spent a large part of his speech claiming that he would keep pension credit; that the Conservatives would not want to take money away; and that, yes, everyone should apply, while spending the rest of the his speech—95 per cent. of it—branding the pension credit as means-testing, saying that it was complicated and effectively discouraging people from getting it.
People are getting that help and receiving the credit itself from a dedicated Pension Service and, along with all the other things that we have done to make the application procedure simple and straightforward, the policy is a million miles away from the old-style means test and the images of carting people's furniture out the door that it raises in people's minds. All hon. Members ought to join in helping the whole country to understand that pension credit is an entitlement, that it is helping poorer pensioners and rewarding saving, that the Pension Service is doing a first-rate job in delivering it and that we should all get behind it and make it a success.
I have visited my local pension centre and the telephonists who deal with the pension credit, and I was assured that, on average, applications are dealt with in less than nine minutes. People in the remoter parts of my constituency have been visited in their homes by people from the local Pension Service to help them to complete the forms. It seems that we are bending over backwards to make things as easy as possible. I am sure that my right hon. Friend would agree that the worst disservice that the House could do would be to put obstacles in people's way and dissuade anyone from applying for what is rightfully theirs.
I wholeheartedly agree with my hon. Friend, especially in suggesting that praise is due to his constituency's local Pension Service, which is clearly doing such a first-rate job.
Was my right hon. Friend as surprised as I was that Mr. Willetts did not tell us about another of his hare-brained ideas for pensioners: that we need people to breed more to reduce the burden on the state? I know that the hon. Gentleman has been seduced by something that he previously spurned, but in thinking that he can affect the birth rate, is he not exaggerating his own allure?
Does my right hon. Friend agree that the biggest pension crisis that we have inherited is a lack of proper pension provision for many of the oldest women living in our society today? The Opposition have offered nothing to assist those women. In fact, their policies will specifically work against them.
Yes, indeed. I certainly accept that the pension credit already has the potential to help much more effectively the older women on low incomes to whom my hon. Friend refers, but we must do even more, through the Pension Service, to ensure that they get their entitlement. As I said earlier, I believe that the fact that the pension credit comes through the Pension Service, rather than the social security system, helps to tackle the stigma. I invite any hon. Member to go out with those in the local Pension Service and to see the meetings that they are holding in sheltered housing schemes and lunch clubs and how they are sitting down with pensioners and helping them through this. That is the way in which we can ultimately ensure maximum take-up. I hope that I have the support of the whole House when I say that we want everyone to get their entitlement.
I will draw my remarks to a close now, but I shall sum them up by saying that, whereas the Tory policy is manifestly unfair, unaffordable and unsustainable, the Government will continue our drive to tackle pensioner poverty, while giving more help to all pensioners. With pension credit, we both put the poorest first and reward saving. Looking more widely, we will simplify the occupational pensions landscape, removing millions of pounds of unnecessary cost and making it easier for firms to get on and run good schemes.
We will offer the chance for flexible retirement, enabling people to combine part-time working with drawing a pension from the same employer—something that could be very popular—giving a better deal when people choose to draw their state pension later and tackling the age discrimination that is still a barrier to so many. We will also drive forward with our measures to bolster occupational pensions security, working in partnership with employers and trade unions.
As I have said, greater longevity brings challenges to both state and private pension provision, but we should never forget that longer lifespans are good news and that, to make the most of them, older people need security in retirement. They must be enabled to lead full and fulfilling lives. The measures that Labour has taken—and the further steps to come—will help them do just that.
Hearing the Conservative party's announcements on pensions in the past few weeks has felt like stepping into a parallel universe. The Government are pledged to extend mass means-testing, but Mr. Willetts demands that the link with earnings be restored. We might have assumed that a policy that became public only about 10 days ago would have formed the centrepiece of today's debate, so it is rather interesting to read the motion that the Conservative party has tabled. In rather a long motion about state pension reform, there is no mention of restoring the earnings link. If that is that party's flagship new policy, why is it not in the motion? It is possible that the Conservatives are not absolutely sure whether it is their party's policy, or whether it will survive any hypothetical change in leadership, for example.
The Conservatives might, if they had the opportunity, restore the earnings link for perhaps four years, although the sums do not add up, but they will then break it again. As the Conservative party spent 18 years undermining the real value of state pensions, can pensioners believe that it will restore the link and keep it? The hon. Gentleman has already stated in the past that the earnings link is unsustainable in the long term, and the costings that the Conservatives have put together to show how it will be afforded simply do not stack up.
During the hon. Gentleman's speech, I showed the House a press release from Conservative central office. That press release is not available on the Conservatives' website unless people have a password, but the password is available only to the press, because the Conservatives do not want the public to know what they are claiming about their policy because it is not true. The Conservative news press release is headed "Tories to end the pensioners' means test".
I think that it is IDS, or something like that, but I cannot remember.
The Conservative motion says nothing about ending the means test; it suggests reducing it. One of the problems with that policy is that it is relatively limited—£7 over four years does not take people a terribly long way—yet that has been elided into getting rid of the means test. The means test is £25 above the pension, not £7, so despite the policy being described as ending the means test, that will be nowhere near by the end of one Parliament. The first problem with the policy is therefore that its potential benefits are absurdly exaggerated—spin indeed.
It gets worse. Other things are not included in the motion. The Conservative party conference also featured an announcement that the Conservatives want to scrap contracting out. That would give the hon. Member for Havant £11 billion burning a hole in his back pocket. He does not know what to do with it—he knows that he wants to scrap contracting out, which, dare I suggest it, is an £11 billion tax hike, and even I, in my wildest tax-and-spend moments would not go quite that far—so he is going to consult the industry. I have a suggestion for him. His motion suggests that the Chancellor of the Exchequer is responsible for a £5 billion hole in pension funds. If he is going to have £11 billion burning a hole in his back pocket, why does he not pledge to use half of that to restore the dividend tax credit? That would have been a reasonable idea, but he did not propose it. Even when he has £11 billion to spend, spending it on restoring what is complained about in the motion is low on his list of priorities. His are crocodile tears.
The critical point on which the Tory policy is dishonest is that it conceals the fact that the poorest pensioners will do worse under it, because we have seen the minimum income guarantee linked to earnings. The Tories want to pay for some of their policies through those recipients of the minimum income guarantee and the pension credit getting smaller rises in future years, which is part of how they make the sums add up. The hon. Member for Havant says that the people who are not claiming it will do well out of a good state pension, which is right. He would accept, however—I think that he has used these numbers—that in a year or two roughly 3 million pensioner households will get the pension credit and 1 million will miss out. Of those 4 million poorest pensioner households in the land, therefore, three quarters will do worse under his policy than under maintaining the link with earnings of the means test.
The hon. Gentleman may not have been listening when I asked the Secretary of State what his policy was. I did so to establish whether the Government intended that the pension credit should be uprated by earnings not prices. In our careful costings, we have used the cautious assumption that the pension credit will rise in line with prices. If and when we hear any alternative policy proposed by the Government, we can decide how we should reply. He should work on the basis of what we have just heard from the Secretary of State, not on fantasies that the rise will be in line with earnings.
We tend to judge political parties by their record in office. Whereas in their 18 years the Conservatives broke the link—so there is no reason to believe that they would restore it—we have the evidence that this Government have linked the means test to earnings and most of the projections produced by the Department for Work and Pensions are on that basis. If the Government go ahead with linking the means test to earnings, will the hon. Gentleman clarify what will be the Conservative policy in relation to poorer pensioners?
As the hon. Gentleman says from a sedentary position, up to 3 million poorer pensioners will have to wait and see. It is therefore no surprise that the Pensions Policy Institute has looked at the Conservative proposals and has found that they favour the better off.
When I said, "Wait and see," what I meant was that we will wait and see what the Government say they will do to the pension credit. It is perfectly reasonable for us to say that, in preparing our plans, until we know what they will do to the pension credit, it is sensible for us to assume price indexation, which is all that they are committed to do. In relation to the Pensions Policy Institute, does the hon. Gentleman accept that the other flaw in that analysis is that it assumes 100 per cent. take-up? As one of the big problems with these means-tested benefits is low take-up, there is no point modelling effects that assume away one of the biggest problems that we all know that our constituents face.
The Pensions Policy Institute's analysis of the Conservative proposals published today considers an illustrative person who claims the pension credit. As I just said to the hon. Gentleman, of the 4 million poorest pensioner households in the land, we are agreed that 3 million will claim it, and 1 million will not. While the hon. Gentleman's proposal will be better for the 1 million who will not do so, it will be worse for the 3 million who will, because he wants to give them price indexation.
As the hon. Gentleman has such a command of statistics, and as he is talking about illustrations, can he enlighten the House as to what proportion of pensioners in this country have savings of £20,000, as in the illustration given by the hon. Member for Havant?
Among pensioners who might consider claiming the pension credit, it would certainly be a tiny fraction. The hon. Member for Havant made another somewhat disingenuous observation. He harangued the Government for assuming that pensioners can get 10 per cent. on their savings when they apply for the pension credit, not mentioning that when he helped to introduce this system in 1988, the assumed rate was 20 per cent. Perhaps he has changed his view.
It gets worse. How will the largesse be paid for by scrapping the new deal, which is a flat amount every year, whereas the cost of the earnings link is a rising amount every year? That provides no sustainable way of paying for it. The hon. Gentleman's other proposal, apart from the netting off of means-tested benefits, which is of course what would happen, is forcing lone parents with secondary school age children to apply for jobs. Apparently, that would save £400 million a year by the end of this Parliament. I do not follow that logic. If we require a lone parent with secondary school age kids to look for work and she does not get it, we have not saved anything. If she does get it, unless it is a new job that has appeared like confetti from the sky, it is a job that someone else who was otherwise on benefit would have taken. Therefore, where does the £400 million come from, and how is the policy sustainable when most of it is paid for by abolishing something that costs the same amount every year? It simply does not add up. I hesitate to lecture the hon. Gentleman on fiscal rectitude, but as we believe in it in our party, I should share it with him.
Reference has also been made to other aspects of the hon. Gentleman's proposals for solving the pension crisis. Kevin Brennan mentioned the fertility proposals of the hon. Member for Havant. I have been back to the Conservative website to find a rather amusing proposal on that front—[Interruption.] There is a different password for the section on fertility. The hon. Member for Havant's policy is headed, "Make more babies to solve EU population problems". It states:
"David Willetts has called on couples"— not single parents—
"to have more children to counter Europe's ageing population and boost . . . flagging economic growth."
Later, it mentions a good soundbite:
"Europe has a birth-dearth."
The final line, if anyone understands a word of it, states:
"Feminism is the new natalism."
The hon. Gentleman's solution to the pension crisis is therefore that couples have more babies. The trouble is that he wrote an article in Prospect this month entitled "Too many kids". The general thrust of his argument is that on run-down estates there are too many kids and not enough adults. Therefore, it is really a problem of the wrong sort of people having the wrong sort of children.
What we have had from the Conservatives is an entirely opportunistic policy of allegedly restoring the earnings link and breaking it in four years, smaller rises for the poorest pensioners that cannot be paid for anyway, scrapping rebates—which is an £11 billion tax hike but they are not sure where the money will go—and, dare I say it to the hon. Gentleman, saying different things to different audiences. I always find that very difficult.
What of the Government's strategy for dealing with the pensions problem? The Secretary of State did not counter the hon. Gentleman's assertion that so far virtually everybody receiving the pension credit was already on the previous system. He published figures yesterday saying that 1.9 million pensioner households are now getting payments of pension credit. I understand that 1.8 million pensioner households, to the nearest 100,000, were getting the minimum income guarantee—I hope that he will correct me if I am getting anything wrong. That implies only about 100,000 to 150,000 new extra recipients. He has written to 1.6 million pensioner households, so fewer than one in 10 of them are gaining from those letters. If I am wrong on that, I hope that he will clarify the matter. That gives us real cause for alarm, however, about the prospects for hitting even his meagre take-up targets. If only one in 10 of the people to whom he writes are claiming, what prospect do we have of reaching the 4 million who should be entitled, or even the 3 million that he is trying to reach? If what is happening is that vulnerable pensioners are getting those letters and do not know what to do with them, or are not responding in significant numbers, his whole policy is flawed. He has not queried those numbers or that analysis, so we must take it that it is correct.
The other key pension crisis that we need to address is confidence in occupational pensions. If people's occupational pension rights are not honoured, they will find themselves claiming state benefits, and many people do not want to be in that position. At our party conference, we were visited by workers from Allied Steel and Wire, including workers from the sister plant to the one in the constituency of the hon. Member for Cardiff, West, and by workers from Dexion in Hemel Hempstead. They will not benefit from the pension protection fund to which the motion refers, because it will come in too late for them.
We have joked about a cross-party consensus, and a key question for the House is the problem faced by a relatively small number of people. About 20,000 seems to be the best estimate, but if the Secretary of State disagrees with that figure, I hope that he will provide me with an alternative. Those people have worked hard for firms and saved hard, but found as they came up to retirement that their company had gone bankrupt and that there was not enough money in the pension fund. Those people have lost catastrophically; they have lost not just a pound or two but potentially all their life savings.
We met Dave Allen from Dexion in Hemel Hempstead, who told us that he was coming up to his 40th year of working for the company. All his pension was in that pot and, because he will receive virtually no pension, he feels that he has failed himself and has failed to provide for his wife in retirement. In the town where the company is based, the people who have retired and who are drawing their pensions cross the road rather than talk to him. They feel embarrassed, because they receive a pension when he will not. The problem is dividing communities and causing catastrophic losses for relatively small numbers of people.
Although we are not talking about millions, the problem is critical for each of those whom it affects. I condemn the Government because they do not know how many people are affected. When a scheme winds up, the Government do not ask for and collect the information. Ros Altman and the campaign groups have been to see the Secretary of State and they have come up with their own estimates. They think that about 20,000 people are affected and that it will cost an average of £60 million a year to sort out the problem. The Secretary of State's Department has annual unallocated expenditures of £150 million for next year and £200 million for the year after that. I should have thought that, prior to the introduction of the pension protection fund, such a scheme would make good use of unallocated departmental resources to help a small number of people who would otherwise suffer catastrophically.
I listened to the Secretary of State's conference speech with great care, and he repeated the same soundbite in his speech today. He said:
"A pension promise made must be a pension promise honoured. When a firm goes bust, it can't be right that workers see their life savings destroyed."
We say "Amen" to that, but why is that not true now? Why will it be true only in 18 months' time? If a pension promise made should be a pension promise kept, why should not those workers receive some form of compensation? Governments of different parties have in some cases required them to join company schemes—it was often a statutory requirement—and the Pensions Act 1995 put them at the back of the queue when the schemes wind up. Subsequent legislation removed the requirement on companies to warn them that their pensions were not safe. These people have been done down by successive Governments, and they deserve compensation.
We all understand the usual reluctance of Governments to legislate retrospectively, but is there not a special case to be made for such workers? I do not think that anyone, including even the most virulent opponent of the Conservative party, would suggest that the Pensions Act 1995 ever envisaged that workers would be left to suffer from the jaw-dropping injustice that resulted from the collapse of these companies. As the pension promise was made by successive Governments, is there not a case for considering providing compensation in these instances?
That is right. It is helpful that the campaign group, for which I have an enormous amount of respect, has not called for future legislation to be made retrospective. It is not suggesting that these workers will be covered by the insurance scheme in some way. It has done the work that Government should have done by finding out how many people are affected and how much it would cost to solve the problem. The solution is relatively cheap, because if all the balances of the funds go into one big pot of money, it will not be necessary to buy annuities, which are very bad value for money. It will cost the taxpayer nothing for a few years and then, on average, £60 million a year. In the context of even the Department's spare cash, that is affordable.
I hope that people across the parties will recognise that this small group of people has lost catastrophically. Some of them will end up claiming means-tested benefits if we do not help them, and the savings there have not even been included in the costs that I have given. The net cost could be less than I have suggested.
I will deal with that point in a second, but I want to round off my points on the issue of compensation.
Trying to amend the forthcoming pensions Bill against the will of the Government will always be an uphill struggle. I hope that between now and the final drafting of the pensions Bill further discussions will take place. I know that a number of Labour Members are keen for them to take place. My colleagues will be happy to help in a positive way to see whether something can be done. I know that many people have seen the Secretary of State and his colleagues about the issue, but the losses to some people are catastrophic. It is time that we addressed the problem.
I know that many folk wish to contribute to the debate, so I shall draw my remarks to a close. However, I shall deal with the intervention that I have just taken. If the strategy is not mass means-testing or the opportunistic restoring of the earnings link for a few years and then stopping it, what is the alternative way forward?
I welcome this debate, but I am surprised that the Conservative party has chosen it for its Opposition day. Normally, it would select an issue on which the Government were failing and not making progress and on which the electorate were not benefiting from Government policy. When the Conservative party selected this debate, it was good news for the Government. Perhaps the choice is part of a plot to sustain the Labour Government in power until the Opposition manage, perhaps with a new leader, to attract some voter support.
We have no need to apologise for what we have done for pensioners. Many issues have been raised, and I commend Mr. Webb on his thoughtful speech. He made several excellent points that I shall touch on briefly in my short contribution.
Targeting payments at the poorest people is essential. They are not able to save for retirement, and current pensioners do no have that luxury. The poorest people never had the option of being able to save for retirement, so there is no contradiction between some people saving for retirement and others receiving benefit from the Government. Such benefit can support the people who need it most and who never had the chance to save in the past. We must dispel the myth that targeting the poorest pensioners will create the conditions in which people will not save. The pension credit overcomes that problem and it creates an opportunity for people who have saved.
In the general election campaign, I remember speaking to someone whose support I was seeking. His big concern was the minimum income guarantee. He had contributed to a small occupational pension scheme and, because of that, he did not benefit from the minimum income guarantee. I was able to tell him that there would be a pension credit, and I asked for his vote. I hope that he voted for me. If he did not, he will now realise that what I said at the time was correct. We have introduced the pension credit and he will be one of the beneficiaries.
The issue of occupational pension schemes has been raised. I have come across the problems caused when Melville Dundas went into liquidation in Scotland. People who had 36 years' service and contributed to a sixtieth pension scheme are now worried that they will receive nothing. They do not know whether they will get 100 per cent., 10 per cent. or 15 per cent. of their pension. They have been told that the matter is in the hands of Aon and that they will have to wait and see what money will be available from the pot. We must address that issue in the future.
A television series that was broadcast over three Sundays a few weeks ago showed the dire poverty in which people lived in the early 1900s. I was fortunate because I was not born until 1940, but I lived in a tenement. Conservative Members might not know what a tenement is—they will never have lived in one.
I am delighted that someone knows what a tenement is. I lived in a two-room and kitchen with three sisters, my brother and my mother and father—there were seven of us. My mum and dad had to let one of the rooms so that they could survive in 1940. One should think about the means-testing that applied at that time and the disdain with which people were treated when they asked for help from the state. If their request was successful, the uniform that they were given to wear was made up of the same jacket, trousers, blouse and skirt, so it could be recognised that they had been to the parish. That was a real stigma for those people. My mum and dad were too proud to accept such help because they did not want their sons and daughters to be identified as those for whom their mum and dad could not provide. That is what I call means-testing.
I despair when I hear people speaking about the 5 million people who are means-tested because elderly people in our society remember the stigma of the means-testing days. At the moment, we are reaching out to the people who most need our help. They have the opportunity to phone a helpline or ask a person such as an MP to help them to fill in a form so that they will receive more money. That is something that we should applaud. We talk about cross-party support, but if we were working efficiently and effectively, we would not worry about take-up because as long as we continue to refer to the means-testing that once existed and deprecate what exists now, we consciously encourage people not to participate in the pension credit. I implore every hon. Member to ensure that we do the best that we can to encourage people to take up the benefit.
I am grateful to the hon. Gentleman for acknowledging that at least one Conservative Member knows what a tenement is. I accept that hon. Members of all parties want all benefits to be accepted by as high a proportion of the population as possible. Why does he think that after three years of pension credit, 1.4 million pensioners, by the Government's figures, are still not in receipt of it?
There are people in this country who are in poverty and some who are not taking the opportunity to get recompense from the Government. We continue to debate means-testing but that system is stigmatised in this country. We must get out of the mindset of comparing the current system with what existed before. I believe—although I have obviously not impressed the hon. Gentleman given that he made his intervention—that it is essential that we do as should be done.
When the last Conservative Government were in power, the Labour party talked about means-testing. In "Getting Welfare to Work", it said that means-tested benefits were claimed by more than 3.5 million people. The document went on to deplore the fact that 600,000 people did not receive the income support to which they were entitled and said that those people were forgoing £14 per week and were among the poorest in Britain. The Chancellor—he was not the Chancellor then—called for the end of the means test. Now that Labour is in power and failing with the means test because people will not claim the benefit to which they are entitled, surely it is a bit rich for the hon. Gentleman and his colleagues to say, "Oh, don't let's talk about this; let's keep it quiet." We should not keep it quiet because it is a disgrace.
I thank the hon. Gentleman for his intervention but the final part of it was a disgrace. My position is clear. I am speaking from the perspective of the constituents whom I represent. I was not a Member in 1996 but I understand the damage that the Conservative party did to the poorest people in this country during its 18-year reign—that was a disgrace, as far as I am concerned. If we continue to have the mindset of depriving each other due to the means-testing provision, we will destroy a great opportunity for the people whom he and I represent.
Although my hon. Friend is right that we must try to encourage people to apply for the benefits to which they are entitled, stigma is not the only problem with means-tested benefits. Does he agree that there is a problem relating to younger constituents who try to make an informed choice about how to save for their retirement? We are not addressing the disincentive for younger people to save for retirement when they do not have a clue what the state will provide for them in 20, 30 or 40 years.
Occupational pension schemes are the key to moving forward on retirement. I was fortunate to be a member of a good occupational pension scheme. It was a sixtieth scheme that allowed me to transfer to a full-time officials' pension scheme and then the parliamentary scheme. No hon. Member will need the state pension when they retire because they will earn much more than £400 a week. I hear people talking about pensions as a universal benefit and saying that everyone should receive the same benefit. If that system is put against one that allows the poorest people to get more, I believe that the system should be run in the latter fashion. People might think that I am wrong but we should target the poor. I understand that one third of pensioners in this country receive more than £400 a week, although I am sure that I will be corrected if I am wrong. They do not need to be targeted because they receive a substantial pension. We need to target those who do not have a substantial pension at present, which is what the Government are doing.
I accept that there are problems with occupational pension schemes. As I said, a constituent contacted me about Melville Dundas. He was a foreman but, unfortunately, he had no union representation at the plant. As a union official, I recognise the benefits of trade unionism—I am sure that some hon. Members disagree with that. After 36 years' service with two years left to go, my constituent thought that he was protected for his retirement. He thought that his pension scheme would give him £17,000 a year but he is now in despair because he does not know how much he will receive. I ask the Government to consider seriously redressing the problem experienced by the 20,000 people who have been identified. It will not be easy to decide how to do that because those people will find themselves in a situation in which they might receive some money from the pension scheme. We may need to compensate people on a universal basis if, through no fault of their own, and through no fault of the Government, they are suffering because a company and its pension scheme, run by trustees, has gone bust. We should apportion blame where blame exists. We must be sympathetic and deal with the problem. The Government should seriously consider that.
As for compulsion, I believe that employer contributions, whether they be 2.5 per cent. or 4 per cent., to occupational pension schemes are the best way forward for this country's future. We need to grasp the nettle on compulsion.
Does my hon. Friend agree, however, that occupational pension schemes will not deal with the many hundreds of thousands of people who receive just above the minimum guaranteed wage? We will always have to look after that group because when they reach retirement age they might not have contributed enough.
I agree wholeheartedly, but we have to start somewhere. Once we address the problem of occupational pension schemes, we can move forward and deal with other problems.
I am grateful for the opportunity to participate in the debate. We need cross-party consensus on pensions because that will enable us to make progress on eradicating poverty. We make no apology for what this Government have done for pensioners. We no longer talk about the changes to the rules governing the 52-week stay in hospital, but those changes were sought for a long time. We have taken a great step forward. The debate is essential. I look forward to the Government considering the suggestions made.
It is a pleasure to follow Mr. Tynan, whose concern for pensioners is obviously genuine. All I say in response is that pensioners in my constituency do not think that it is politicians who stigmatise the means test, but that it is the means test that stigmatises them. They hate having to prove how little they have saved or have by way of income in order to claim benefits and to find that every extra pound of savings that they have made results in a loss of some, all or a commensurate amount of benefit.
I congratulate my hon. Friend Mr. Willetts on securing the debate and putting the focus on means-testing. That is central to the consideration of pension issues. It is good that the Opposition have chosen to debate pensions because the most important single issue facing every modern Government in developed countries is how to provide pensions for an ageing population with fewer children.
The UK used to be better placed to face that problem than most of our European partners because we had persuaded more of our population to put aside savings. As a result, we had more funds to meet future pension liabilities not just than any other country in Europe, but than all our partners in the European Community put together. Now that very healthy situation is under threat. The situation with regard to the provision of occupational pensions, not least of defined-benefit pensions, is little short of meltdown. According to Adair Turner, the pensions tsar appointed by the Government, 60 per cent. of occupational schemes have already closed to new members and a further 10 per cent. have closed entirely, and that is weighted by membership of those funds. Employers are contracting members back wholesale into the state system. We know that that is not purely the Government's fault. The stock market fall was a shock to the system and the anticipated rises in longevity have increased the liabilities of pension funds, but the Government must stand convicted of imposing a £5 billion a year tax on pension funds and introducing means-testing, which will increasingly affect the majority of pensioners, thus making it less likely that they will save for the future.
Four key questions have to be asked and, more important, answered when we consider what to do about pension provision. For those who cannot stay until the end of my speech, they can obtain a copy of "Save Our Pensions" for £15 from the Social Market Foundation or free from my website, www.peterlilley.co.uk.
The first key question is how much, if any, pension provision should people be required to make during their working life? My conclusion is simple. Everyone in work should be required to provide for a pension that will be sufficient to avoid dependence on means-tested benefits when they retire. That is the ideal. I do not prejudge whether that provision should be made through a state pay-as-you-go system or funded savings. When I initially considered the matter, I was hostile to compulsion until I reflected that we already compel people to contribute towards the basic state pension and the state second pension if they are in employment. We also compel taxpayers, including those who have made voluntary provision for themselves over and above anything required by the state, so ensuring that they do not need means-tested benefits, to pay through the tax system for those who do need means-tested benefits.
We would all agree that everyone should pay through the tax system to provide help for those in retirement who need means-tested benefits because during their working lives they could not provide a sufficient pension for retirement, perhaps as a result of disability, unemployment or some other misfortune. But is it right to compel people to pay through the tax system to provide state benefits for those who could have made provision for their old age but failed to do so? It is better that the compulsion, if it exists in the system at all, should compel everyone to provide for a basic minimum pension for their retirement, sufficient to ensure that they do not need state means-tested benefits if at all possible.
The compulsion applies to employee and employer because they both contribute to the national insurance system and, through that, to the state system, and to people who contract out but who receive rebates from national insurance. I hope that that answers the hon. Gentleman's question.
The second key question is, how much of any compulsory requirement of provision for retirement income should be funded by saving? I concluded that the state second pension should be replaced by a mandatory funded pension system set at a level, together with the basic state pension—which would remain unchanged—that is sufficient to float clear of means-tested benefits. The Government have set an admirable target of increasing the proportion of future pension liabilities that are met from genuine savings to 60 per cent. against the current 40 per cent. That is good and I am glad that my Front-Bench colleagues have endorsed it. I cannot envisage an alternative way of achieving that target other than to require people to have a funded state pension. That would avoid leaving many people—indeed, an increasing proportion of people—contracted back into the state second pension when they could be contracted out.
I propose that everyone in work should be required to have a pension fund of their own into which national insurance rebates would be paid that are sufficient to meet the level of pension that I have described. That rebate would mirror the structure of the present state second pension, having a strong flat-rate element that is the same for everyone, even if their income is below half the average earnings, which is probably the rough target. That element of the pension should be guaranteed by the state. If, when people retire, they find that, owing to bad investments or for any other reason, their pensions cannot be provided at target level, the Government should top them up—just as, in a defined-benefit scheme, an employer guarantees a certain pension level.
The system that I propose would be introduced gradually. Initially everyone under 30, say, would benefit from the fund, but eventually it would apply to everyone entering the labour market.
I am listening carefully to the right hon. Gentleman's thoughtful speech. Is he aware that the system that he is describing exists in broadly the same form in Canada, under the Canada and Quebec pension plans? If so, will he tell us whether he thinks it is working there?
It would be truer to say that the system that I propose has counterparts in Australia, where everyone is now required to have a personal or occupational pension fund and is compelled to make a minimum level of provision. That has demonstrated one of the benefits of my proposed scheme. When everyone owns his or her pension, with ownership comes greater choice. It is easier for people to choose to save more. They need not go through the hassle of setting up pension funds, because they have them automatically. They can make marginal extra contributions if they wish—and in Australia the level of additional voluntary contributions has doubled since everyone has had his or her own fund.
As under the present state second pension scheme, the low-paid worker would receive a flat-rate rebate. At present, he accrues flat-rate pension entitlement. If he earns less than half average earnings, he is treated on the assumption that that is the case. Under my scheme, he would receive a rebate on the same basis—a flat-rate rebate. Even if no additional voluntary contributions were made, everyone would be able to save enough to be free of means-tested benefits; but people would find it easier to save more, and I think that many would take advantage of that.
The third question is, how long should people be required to work before drawing a pension? If we do not adopt a scheme like the one that I propose, the Government will be able to achieve their objective of enabling 60 per cent. of pension liabilities to be met from genuine savings only by postponing retirement—by reducing the amount that people pay by making them retire later. That is the only arithmetical possibility, and the Government are clearly edging, or nudging, in that direction.
One great advantage of everyone having his or her own fund is choice. After all, this should not ultimately be an issue on which the state makes the decision. Whenever possible, the individual should be free to decide how long to work and when to retire. When people have their own funds, once those funds are sufficient to ensure that they require no additional state benefits, they should be free to retire—but once they have the funds, they will have a double incentive to work for longer. For every extra year they work, they will be able to make an extra year's contribution, or have it paid automatically into the fund if they choose. As they will have one year's less pension requirement to fund, they can look forward to a higher income in retirement.
The present system is not fair on those with low incomes and in manual or stressful occupations, who tend to have the lowest life expectancy. The life expectancy of manual workers retiring at 65 is four years shorter than the upper quintile. Although they are paying into the system on the same basis as everyone else, they are drawing out four years' less money. At present, the annuity providers accentuate the problem, because annuities are based on the life expectancy of those who buy them and are thus geared towards the long-lived rich, who are artificially subsidised by the less long-lived and less well-off. I should like the providers to be able to produce annuities that reflect average incomes during people's working lives and that correlate with their life expectancy. It would be easier if we could provide information from the national insurance recording system computer, such as an income tax code number giving a coded overall picture of lifetime earnings. The least well-off would then be in a better position to choose what to do in retirement, and consequently to enjoy a more prosperous retirement.
The fourth question is, how can we cut the costs of pension provision—costs that are absorbed by administration or other measures and do not go into saving and investment to provide for the future? The stakeholder pension schemes were designed to help to achieve that by setting a cap of 1 per cent. on costs, and I hope that the Government will think carefully before relaxing that; but it has not worked, because stakeholders have not spread the costs over a greater volume of savings.
In fact, the single most effective way of reducing the cost of providing funded pensions would be to make them compulsory. If everyone has a pension fund, there will be a larger volume of savings over which to spread the costs. More important, between half and two thirds of the costs at present are absorbed by the costs of acquiring customers. If customers are delivered on a plate, those costs will be greatly reduced, and in some cases eliminated.
I hoped that the right hon. Gentleman would speak today, because he has thought long and hard about a long-term vision. But will he comment briefly on the short-term policy that we are discussing today? His policy was price indexation, while that of his hon. Friend Mr. Willetts is earnings indexation. Will he now give us a ringing endorsement of earnings indexation?
My hon. Friend the Member for Havant correctly identified the big problem. A huge gap, which did not exist in the 1980s when we ended the earnings link, has opened between the basic state pension and the level of means-tested benefits. I propose filling that gap with compulsory funded savings, and my hon. Friend hopes to reduce it by restoring the earnings link. It must be done in one way or the other, and I think that my proposals and those of my hon. Friend are compatible, based as they are on a common analysis. I am only sorry that we heard nothing from the Liberal Democrats about what they propose to do, this being an issue in which creative thought rather than party political point scoring is needed, although, to be fair, the hon. Gentleman is less prone to party political point scoring than many of us.
The right hon. Gentleman will correct me if I am wrong, but he seemed to be saying earlier that people at the lower end of the income scale might be forced to make contributions to private pension schemes in order to retire on an income similar to that of means-tested benefits. Why should people obtain better value for money by doing that than they would obtain by contributing more to a state scheme that assured them of a decent pension in the first place?
I commend my pamphlet, which may explain what I mean more clearly. The essential point is that we compel everyone in employment to contribute to a state second pension. At present, that is done on an unfunded pay-as-you-go basis; we hope that the amount will subsequently be met from future taxation, but I should prefer it to come from savings that have accumulated through investment and to be underwritten by the taxpayer, so that the target level is a certainty—the target level being higher than the current compulsory level, which leaves people still subject to means-tested benefit. I hope that that explains the matter a little more clearly than I had evidently done up to now.
I return briefly to the point that I was making about reducing costs. Compulsion will reduce costs. In Australia, despite the fact that I have many criticisms of the Australian system and the fact that it has not paid much attention to reducing costs, overall costs have been steadily falling and are down to the sort of level that the Government are talking about for stakeholder pensions, because of the increasing volume over which those costs are spread.
There is one aspect to which little thought has been given as to how we can reduce the costs. After people have accumulated their pension fund, it is converted into an income for the rest of their life—an annuity or a pension income. Annuity or pension provision is a good way of pooling risks within a population with known characteristics. We know the mortality rates on average for the whole population and we can pool them. The annuity companies do that and pay out, taking that into account.
There is no effective way of taking into account the possibility that the characteristics—the mortality rates—of the population as a whole may change in unexpected ways in the future. The companies have all been caught out because longevity has increased more rapidly than they anticipated. They therefore have to make provision not for the best estimate of future longevity, but for conceivable but unlikely increases in life expectancy that may occur. If they do not occur, people will be paying for something that they never receive, so they will be paying too much.
Since the greatest risk about unexpected future life expectancy is that people will live beyond, say, 85, my proposal would require that they provide themselves, through the state rebate system, with a funded pension for the first 20 years of retirement, and that, after that, the state resume paying on a pay-as-you-go basis for the over-85s at a similar rate to that guaranteed for the years prior to 85. That would mean that the state was bearing the risk of unanticipated increases in future longevity, and that it would not be borne by people who subsequently get no benefit from it.
I believe that the proposals that I am putting before the House are compatible with those advanced by my hon. Friend the Member for Havant and are based on a similar analysis. They would mean the greatest extension in wealth ownership that this country had seen since the spread of home ownership. Everyone would own a pot of money that was theirs. If they died prematurely, they could leave it to their heirs and successors. They could add to it and would have an incentive to do so. They would have a stake in the wealth-creating system because they would know that they, through their pension pot, would benefit from it. That would transform relations between people in this country and the economic system in a way that was profoundly to the country's benefit.
It is a great pleasure to follow Mr. Lilley.
Compulsion is an interesting issue. It has often been pointed out to me that the quid pro quo of compulsion is sanctions. What happens if people do not take part in the compulsory scheme? Are they to be denied benefit when they are old? It has consistently been shown that the British public will not tolerate pensioner poverty. Pensions policy must not only tackle absolute pensioner poverty, but make sure that pensioners can lead comfortable and satisfied lives, which implies a reasonable level of income, services and so on. There has never been a satisfactory response to the question of what happens to those who do not take part in a compulsory scheme. Are we to apply sanctions when those people are at their most vulnerable? I have not read the right hon. Gentleman's leaflet, but I shall do so.
After the Conservative party conference, two approaches became apparent. Is there to be a graduated system of state support that targets and progressively wipes out pensioner poverty and provides people with increasingly comfortable lives in their old age and good options, or is there to be a single flat-rate system, which is regressive and might give money where it is not needed? That money might be clawed back through the tax system, but such a system would put many people back into an unacceptable level of poverty.
It is clear from the debate this afternoon that the choices are not quite so stark. It is important that we consider carefully what the Conservative Opposition spelled out. Although Mr. Webb made an immensely amusing speech, he did not tackle some of the key issues. He did so in the previous debate on the subject, and his proposals then fell into the same hole as the Conservative proposals today.
The Conservative spokesman said that his party would continue with the pension credit for as long as it took for the flat rate to catch up. The pension credit is means-tested, and the means test or any other kind of assessment cannot be abolished as long as the pension credit is retained. That was the point raised by the hon. Member for Northavon last time. The Conservative Opposition might be offering something different, but it is not the ending of the assessment of pensioners' income and the provision of additional benefits.
If we take £77 as the basic state pension and either £98 or £102 as the means-tested level, so to speak, and we assume an inflation rate of about 3 per cent.—it could be a little more or less, depending whether it was based on prices or earnings—it would take at least seven years to catch up, assuming that the means-tested levels were capped. The present system would have to continue for at least the lifetime of one Parliament. The Opposition should be honest about that when they spell out options to the public, on which they will have to decide. Decisions about pensions are critical and, as other hon. Members have pointed out, they must be kept in place for a long time because of the time span between paying in pension contributions and retirement.
I have no doubt that the first approach, the one adopted by the Government, is the right one, with money being paid to those who need it most. We need to make sure not only that pensioners are not poor—nobody wants to see pensioners living in absolute poverty—but that they have comfortable lives with dignity and good services. They should be able to make good choices about their quality of life not just for a couple of years after they stop working, but possibly for another 20 years or so. The only way that that can be achieved is through proper targeting.
We all know the state of pensions in 1997. In my constituency people who had worked virtually all their adult lives were still left poor, particularly the women, mostly because they did not have the employment and contribution history to qualify for pensions, and they did not have the same occupational pensions.
The hon. Lady will have heard the Secretary of State say that in 1997 there were people managing on £68 a week. Those were people who were not claiming means-tested benefits. Today, there are people managing on £77 a week because they are not claiming means-tested benefits. Only proposals such as we are putting forward tackle that problem. The pension credit does not. According to the Government's own figures, by 2006 1.4 million pensioners will not be claiming it.
I take the point about the difficulty of getting people to claim their entitlement. I intended to deal with that. People should not be on just the basic state pension. They should have access to a range of other benefits, including the minimum income guarantee and the targeted benefits that have been described. The increase in personal tax allowances for pensioners and the introduction of a 10p starting rate in tax have certainly been important for my local pensioners, many of whom have income and employment profiles that differ from those in big city communities.
Now we have the pension credit, too. It is completely wrong to scare people off from claiming it by likening it to means testing—I agree with my hon. Friend Mr. Tynan about that. The approach taken to assessment of income is exactly the same as that taken in respect of claiming the child tax credit, whereby every family with children gets child benefit, and its income is assessed to decide whether extra income is needed. The procedure does not take place every year, but after five years or if circumstances have substantially changed—for example, if people get married, which is fairly straightforward to declare.
The working of the pension credit introduces important changes that take into account the consultations that took place on the proposals. I had such a consultation session in my constituency, where pensioners expressed concerns that have since been addressed. For example, they wanted to keep their nest eggs, which are mostly not huge amounts of more than £10,000, but around £5,000. They do not want that money to be touched by any kind of means-testing, because they want it to pay for their funerals. The assessment considers factors such as income from savings and it can be done on the phone, which is important. I particularly congratulate the Pension Service on its outreach work. I have run street stalls with the Pension Service and Age Concern. Of course, some people will have criticisms, but we are encouraging pensioners to apply for the benefit and making it easier for them to ensure that they can get the extra money to which they are entitled. Take-up in the Northampton area has been quite good, which has a lot to do with the innovative work of the Pension Service.
I accept that there is more to do to ensure that people can enjoy the living standards and life chances in retirement that we would all want for ourselves. We need to tackle a range of issues such as annuities and the problems of occupational pension schemes, as well as council tax and house rentals, about which large numbers of pensioners complain. I am particularly concerned about pensioners' housing. We should support schemes similar to an equity release scheme to enable them to realise some of the value of their property in order to carry out home improvements and thus to live in their own homes in comfort for a longer period. It is also important to ensure that people are not ripped off by home income plans and equity release schemes, which represent a growing sector of the market.
The flat-rate approach is an illusion, because any flat rate that the country could afford to apply across the board would not be enough for people who rely solely on this benefit to live on. It will always be necessary to have the option of increasing income over and above the flat rate level. Any system that is to provide an enhanced income will have to include measures to allow for its proper assessment. Otherwise, it becomes completely insupportable in tax terms; and I have no doubt that my constituents would be the first to complain in the event of large tax increases.
Has my hon. Friend studied the proposals by the Institute for Public Policy Research suggesting that the basic state pension could be set at the same level as the means-tested pension credit if the state second pension were to be done away with; and that it could be done over 30 years if the retirement age increased to 67? In that context, it is not correct to say that it is impossible to set a reasonable level of basic state pension without substantially increasing taxes.
I shall look carefully at that publication. My hon. Friend mentioned a progressive increase in the retirement age over 30 years, but we need to consider the matter over a shorter term than that. I do not see how one can get from £77 a week to £98 or £102 a week in a few years without a very big tax increase, which will not be supported. Moreover, most people would recognise that taxpayers' money has to be spent in the most cost-effective manner—that is, where it is most needed. There is no way round that, unless, as the right hon. Member for Hitchin and Harpenden suggested, one develops a system that makes it possible to feed money in at the savings end to get the equation right in terms of support for pension schemes. I fail to see how one can have a flat rate that is comfortable without having a very big tax increase. Furthermore, in any flat-rate system the pensioners who would be most likely to miss out are women, who often have the most interrupted employment patterns, the most difficulty in making up contributions, lower earnings and longer life expectancy. We have to be careful about holding out a flat-rate approach as a panacea.
We should consider how much pensioners' expectations have changed in terms of making choices. The speech from the Conservative Front Bench was completely opportunistic and targeted at getting the so-called grey vote. People should remember which party gave them the pensions mis-selling scandal—people paying into a Government-sponsored, Government-advertised scheme that sold them down the river—and the botched handling of the abolition of the widows' state earnings-related pension scheme.
I just say this: which party gave this country the most stable economic management, with the lowest unemployment and lowest inflation, that I can remember in my lifetime? It was this party. The sound working of the economy is the underpinning of any pensions policy. That is why, painful as it was, the decision on tax credits was right.
Who gave us cold weather payments? We should remember the lack of dignity involved in trying to get benefits at the time when if the temperature went below a certain level for four nights one could claim £5. As a councillor, I ran around in the snow with claims forms so that bitterly cold pensioners could claim £5; now, they automatically get £200 as of right.
I also remember who introduced the eye tests. Let us think back to the time when only the pensioners who lived in Labour areas got bus passes; now all pensioners have them as of right because they have a Labour Government.
Women will remember how, if they were lone parents, they used not to be able to get out to work because they did not have help with child care costs or nursery provision, and they did not get the support that they now receive through the new deal for lone parents, which is one thing that the Conservatives have said they would scrap. Having been unable to get out to work, those women then copped it by not having proper pension provision or carer's allowance for their old age. I hope that people will remember what happened before and think about how things have now changed. Pensioners can now be warm enough in winter, and women can go out to work and have a proper pension entitlement.
We all recognise that life is not perfect, but I hope that people will realise that this Government's carefully worked out approach to pensions is on the right track—even though everything is not perfect yet—and that there has been a quantum leap in the living standards of older people in this country.
Yet again, it is an Opposition day debate that provides us with the opportunity to discuss the pensions crisis in the United Kingdom. Ms Keeble talked about the carefully crafted approach to pensions, but I came across some extraordinary figures yesterday that referred to the liabilities in Government pension funds. They showed that, whereas in 1997 the liability figure was £290 billion, it is now estimated by Mercer—an independent consultancy firm—to have exceeded £600 billion. In the last year alone, it has gone up by £110 billion. Is it any wonder that we are debating—in Opposition time—a pensions system that is in crisis?
There was a regrettably long delay last year before the appointment of a Pensions Minister, and this year we have seen a tax grab of another £5 billion. I think that the cash register is now ringing up a figure of £35 billion taken from the nation's pensions. Is it any wonder that the system is in crisis? We have no debates on this issue in Government time because, irrespective of what Mr. Tynan says—I regret that he is no longer in his place—the Government do not want to talk about pensions because they know that there is a crisis in the system.
May I inform the hon. Gentleman that the reason that my hon. Friend Mr. Tynan is not here at the moment is that he is in the European Scrutiny Committee? My hon. Friend said earlier that the Conservative party had done absolutely nothing to help the poor; perhaps the hon. Gentleman can tell the House what he would do in that regard.
I am grateful to the hon. Gentleman for making that point. I shall come to that matter in a second, and I shall be delighted to have the opportunity to do so.
My hon. Friend Mr. Willetts rightly pointed out the spiralling system of lower-funded schemes and increasing means-testing. In 1998, the Green Paper stated that the Government wanted that situation to be reversed. Has the policy changed, or has it just failed? I hope that, if nothing else, the Minister will provide an answer to that question when he responds to the debate.
As a constituency MP, I am aware that 60 per cent. of the pensioners who are not claiming means-tested benefits are among the poorest fifth of pensioners. My constituency is very rural and isolated, and a significant problem is that many of those who live in rural areas are simply excluded from the most complex and detailed of benefit systems. I am engaged in a regular dialogue with the Dumfries and Galloway elderly forum, which I am happy to recognise as the pensioners' voice in south-west Scotland. It is an active organisation that gives politicians a hard time. It is not party political; it gives politicians on all sides of the fence a hard time, and I am delighted to recognise the role that it plays in doing so.
The forum's members are powerful advocates for all pensioners, and particularly for the poor. They would recognise that, as the Pensions Policy Institute has pointed out, the income of the bottom fifth of pensioners in 1979 was 23 per cent. of average earnings, yet by 2001 this figure had fallen to just 21 per cent. The poorest pensioners are getting poorer. Pensioners recognise that, I recognise that, and I hope that, if nothing else, this debate will give us the opportunity to provide a pointer towards a way of reversing that trend.
Pensioners have welcomed the proposal elaborated at our party conference last week to restore the earnings link. They remind me constantly that that is the one item that they wanted to see: a simple restoration of the link that would give a benefit to each and every pensioner up each and every farm track, including those who do not have access to the telephone and free phone lines. Each and every pensioner should be able to get an earnings-linked pension, and I am delighted that my Front-Bench colleagues have proposed such an innovative scheme. Our proposal is supported by all pensioners' groups. Help the Aged has welcomed our
"commitment to lift pensioners off a dependence on means-tested benefits. The pledge to link pensions to average earnings will allow older people to share in the rewards of growing national wealth."
I, too, welcome the proposal, and I hope that it will reach fruition when we see a Conservative Government within the next two years.
He understood the problem; he saw that means-testing was part of the problem and not the solution in terms of providing dignity for people in their old age. Yet, since then, we have seen an extension of means-testing. I accept the genuine approach of the hon. Member for Northampton, North to the question, but the fact is that, if the pension credit looks like a means test, breathes like a means test and walks like a means test, it is a means test. Pensioners know that. When this Government took office, 40 per cent. of pensioners were dependent on means-tested benefits; that figure has now reached more than 60 per cent. and is heading for 75 per cent.
The hon. Gentleman said that he was in favour of restoring the link to earnings. Would that include the catch-up for what has been lost? What level does he envisage for the pension? A figure of £84 has been floated.
I shall try to put this as simply as possible. Pensioners' groups throughout the UK will welcome the fact that the next Conservative Government will restore the annual link between the old age pension and average earnings.
The trend towards greater means-testing is wrong and is taking away people's dignity in retirement. The hon. Member for Hamilton, South—who I understand is now in Committee—painted a moving picture of life in a tenement where means-testing had a stigma attached. I understand that, and to many people, there is still a stigma attached to lifting the phone and having to go into great detail about their life savings. That does not provide them with any dignity. An increasing proportion of our pensioners have to go cap in hand to the Chancellor of the Exchequer to find dignity in their retirement, and I believe that that is wrong.
The pension credit was lauded by the Government as their great solution, but the simple fact is that 1 million households will be excluded from it after three years. Even on the Government's own figures, some 1.4 million pensioners will not be getting the money to which they are entitled. I do not want Labour Members to suggest that I am talking down the pension credit. I am always accused, when discussing Scottish issues, of talking down Scotland. I am talking down neither Scotland nor the pension credit. I want every single person in my constituency who is entitled to this credit to get it, but the Government's own figures tell us that it will not reach every person who is entitled to it.
"does significantly increase the number of pensioners who fall within that means test."
I find it surprising that the hon. Gentleman suggested in a sedentary intervention that MPs say, "That's what we're paid for", when dealing with increased inquiries to expand the use of the pension credit. It is the Government's role to provide benefits to those entitled to them. I was astonished by the amount of time it took my office to sort out the chaos in the child tax credit a few months ago. I was willing to do that because it is part of my role, but it should not have been necessary. It was chaos of the Government's making and it is shameful that they have continued to preside over a system that does not provide benefits to those entitled to them.
There is a growing perception, and reality, that looking after oneself is not worthwhile. I was shocked last week to be described for the first time as old; I am only 38. I read that I was at the end of the baby boom generation, born between 1945 and 1965, who are now becoming old and having to look after themselves. Where is the incentive for people of my generation to start looking after ourselves?
Figures provided by Mercer, the independent consultants, show that a pension fund of £180,000 is required for a married couple before they are better off. If that is not the case, the Government must deny it. That is our understanding. It is a shocking figure and an indictment of how means-testing has so permeated the system. Means-testing takes away all incentive to look after oneself, not least by the ridiculous 10 per cent. assumed rate on savings beyond £6,000, which, as my hon. Friend the Member for Havant said, is an appalling travesty of reality.
The pensions crisis will never be resolved until we reverse the trend towards greater means-testing and go back to a system whereby it is in people's own interests to start looking forward to their old age and the opportunities that it provides, and until we provide dignity in what is surely one of the most attractive phases of life.
There is no doubt that the Government have substantially increased the incomes of many of our poorest pensioners. Many are better off than they have ever been in their lives. Certainly that is what my mother told me; she is looking forward to receiving about £10 a week pension credit because she receives a small occupational pension as a result of 25 years of working and paying into a scheme.
My problem is that even at £102 a week the pension credit still does not provide a high standard of living. Age Concern says that a modest but adequate income for today's pensioners would be about £130 a week. The other concern is the disincentives built into the system as a result of the universal benefit—the basic state pension—being set at nearly £25 a week below the means-tested benefit. Under Labour's proposals, the pension credit would be set to increase over the next four years to about £122 a week—making various assumptions about rises in earnings—whereas the basic state pension would be expected to rise from £77.45 to £85.55 a week. The gap between those two pensioner benefits would continue to increase.
The Tories have proclaimed that they have suddenly seen the light and decided that they want to restore the link to earnings. That is not what they are proposing. Their concern, and I agree, is that there is too big a gap—I do not think there should be a gap at all—between the basic state pension and the means-tested benefit, and they want to reduce the gap. Over four years, they would do that by restoring the link to earnings; that is a four-year commitment.
Under the Tory proposals, according to the Institute for Fiscal Studies, the basic state pension, instead of being £85.55 as under Labour's proposals, would be £92.40. In order to bridge the gap between the pension and the means-tested benefit, about which the Tories are rightly concerned, they would thus slightly boost the level of the basic state pension but hold down increases in the means-tested benefit. Under the Tory proposals, if the means-tested benefit were linked only to earnings, it would be £10 a week below Labour's proposals. In other words, the Tory proposals reduce the maximum help that would be available to the poorest pensioners. It will not be acceptable in 2009 if the means-tested pension is a mere £112.70 a week, in today's figures.
It is dishonest of the Tories to suggest that they would restore the link. They want, rightly, to reduce means testing; in that, I agree with them entirely. But we must also ensure that we tackle pensioner poverty, and the Tories have not come up with proposals to deal with that.
A person in their twenties planning for retirement will have to bear it in mind that when they retire in 40 years' time, there will be 40 per cent. more pensioners. The Government's plan is that we should spend no more than 5 per cent. of GDP on state pensions—the current level. Clearly, if there are to be 40 per cent. more pensioners, that is an unrealistically low and socially unacceptable level at which to aim.
It might be possible to have a massive increase in private saving, but under the current arrangements with means-testing, that seems unlikely to be the case. My concern is about younger people who are trying to make an informed choice about saving for retirement, something the Government say they should be able to do. Unfortunately, the complexity of the current system makes it impossible for them to work out what they can expect from the state when they retire in up to 40 years' time. People doubt that the state will commit to paying a decent basic pension, particularly those who, unlike Members of Parliament, are not fortunate in having reasonably high salaries and good pension schemes. People on low incomes cannot see the point of saving for pensions, hence we see the crisis in the private pensions system, fuelled by an inadequate state system.
If we want to alleviate pensioner poverty, we have to save more for our pensions. The question is how that should be done and what the combination of state and private contribution should be. For the last 20 years, the financial services industry has tried to persuade opinion formers that state provision is failing and that the Government should privatise the process. Clearly that is what Mr. Lilley believes.
The financial services scandals have proved that markets cannot provide the level of security needed by people on low incomes if they are to be persuaded to put their money into retirement savings. We must decide what gives us the best value for money; whether it is putting money into a state pension through national insurance or taxation, or whether it is through private investment. The only way in which there will be a better return if money is put through private investment is if that increases growth in GDP above that which would have been the case had the state invested the money. There is nothing to indicate that that is the case. People now realise that the stock market is not a secure place for people on low incomes to invest their savings. In talking about compulsion, we need to guard against potential future accusations that the state forced people to contribute to a pension that did not give a decent return on their investment. If they are not careful, those who advocate compulsion could be accused in future of mis-selling.
If we are to have a sustainable pensions policy, people of all political persuasions must come together to create it. I welcome the Conservatives' commitment to the establishment of the means-tested benefit at the same level, hopefully, as the basic state pension. That would surely provide a foundation for people to plan for the future. I do not believe, however, that in being committed to that, they are also committed to ensuring that pensioners are kept out of poverty. If that really is their aspiration, they would have to ensure that the basic pension is set at a decent level. There are plenty of arguments for spending more, in terms of contributing to a state pension. The Pensions Policy Institute said that bringing the basic state pension up to the same level as the means-tested benefit would cost 0.5 per cent. of gross domestic product. This Government should aim for that over time, because it would then be possible to phase out the pension credit. That would also provide a real incentive for younger people, in that they could keep for themselves everything that they saved above the state provision.
I am an unreconstructed believer in universal benefits, coupled with a progressive taxation system through which people such as me—who benefit from child benefit or, eventually, a basic state pension—pay higher taxes if they have a sufficiently high income. That is a simple, affordable system that people can understand. Organisations such as the Institute for Public Policy Research and an increasing number of people in the pensions industry are saying that, to encourage private saving and to save taxpayers' money and spending on future means-tested benefits, we must set the basic state pension at a decent level.
We need to start talking about how we can simplify the system. If the Government really want people to make informed choices, they must tackle the interrelationship between basic state provision and private provision. I urge my hon. Friends to extend the remit of the pension commission, so that it can examine this important issue.
I shall examine the proposals of the right hon. Member for Hitchin and Harpenden, but it appears that they have nothing additional to offer today's pensioners or future pensioners, when compared with the Government's state second pension. Of course, if we were to do away with contracting-out provision and examine how we spend tax relief for private provision, we could release some £17 billion. That money would be much better spent on ensuring that the basic state pension is set at a decent level, and on giving greater incentives to people on lower incomes to save privately, or in other ways. For example, Richard Murphy, Colin Hines and my hon. Friend Alan Simpson have come up with an interesting proposal in a pamphlet entitled "People's Pensions", which is about investing in Government bonds. I remind Members that in the 1960s, 50 per cent. of pension fund assets were invested in Government bonds; now, only 6 or 7 per cent. are so invested. So there are ways other than equities—investing in equities is a highly risky business—in which people can invest money, over and above what the state provides. I encourage people to look at such provisions.
We have to do more to ensure that people on low incomes can rely on the state, and on the fact that anything that they save will be available to them when they retire, rather than being clawed back through means-tested benefit. That is the real flaw in the Government's policy, even more so than the question of stigma. The Government are not making clear to younger people what the state will provide for them when they retire. That is a crucial flaw, and I urge the Government to rectify it.
I shall be brief as I appreciate that time is rather short. I must confess that this debate has a slight feeling of unreality, given the free transfer of policies that we have witnessed between Government and Opposition Front Benchers. As that great philosopher Yogi Bear might have said, "It looks like yet another case of déjà vu, Boo Boo." The party that broke the link between pensions and benefits and earnings—albeit under different circumstances—is now advocating the re-establishment of that link and a return to universalism. And the party that condemned the breaking of that link—to its credit, it established it when in government, between 1974 and 1979—is now arguing contrariwise.
Many good people in the Labour party who are my friends—some of them are even in the Labour party in Wales—despair at the Government's determination to extend income testing even further. These are the people alongside whom I worked to ensure that child benefit was retained and, indeed, improved as a universal flat-rate benefit. They are the same Labour people who argue, rightly, that applying the income test guarantees that some people—often the poorest, who should be receiving additional benefits—will not claim, for a variety of reasons. Those people are guaranteed to lose out in the very long term.
They are also the Labour party people who realise that applying the income test on an ever-increasing scale will inevitably lead to ever-increasing complexity, which has been a theme of today's debate. The Government might say that their new income test is not like previous tests, and I am sure that there is an element of truth in that assertion. But in the end, we cannot buck the fundamentals. If the payment of benefit is contingent on an individual assessment, that assessment has to be carried out. Even the simplest and most infrequent of individual assessments will inevitably lead to more complexity and more scope for mistakes, and to disincentive effects on claiming and saving. We know that, in reality, those assessments will not apply for five years, because people will have to report changes much more often. I wish that I shared the confidence of Ms Keeble, who said that reporting the changes would be straightforward and unproblematic. It might be unproblematic for Members, but not to older people in my constituency and throughout Wales.
I want briefly to draw attention to some of the problems experienced at the Swansea pension centre—the only pension centre in Wales. It is our national pension centre and its problems are a national issue in Wales. It has proved a problem to get through to workers dedicated to particular cases, rather than to a different person every time that people phone. Indeed, people certainly experience a problem in accessing the telephone lines. I look to the Minister for an assurance—perhaps in a letter—that the workers who staff the telephone lines, and particularly the Welsh language telephone line, will be suitably trained and qualified. They should be directly employed by the pensions centre and not, as people suspect, agency workers.
I have to say that the experience of my constituents is not good, certainly in respect of the computer system. Members will be interested to know that this morning I phoned the new directory inquiries companies to ask for the pension line number. One company had no idea what I was talking about, so I phoned a competitor company, which was equally baffled. So much for the privatisation of the old 192 system. Pensioners in my constituency who are looking for the number will be equally baffled.
Reference has been made to home visits. Local pension clinics are certainly held in my constituency and their work is valuable, but they are run fortnightly and there is a question about what counts as local. I shall provide one example for people who are familiar with the geography of north-west Wales. A clinic is held in Porthmadog, which my constituents might be able to attend, but, unfortunately, it is about 30 miles away and public transport is not what one would like.
We know that pensioner poverty is not evenly spread; it is much worse in northern England, Scotland and Wales. Such regional problems are real. Will the Minister give an assurance, again by a letter, that the Government have targets for take-up in the appropriate regions of England, Scotland and Wales? What are those targets and what is the time scale for their achievement?
The pension protection plan, which has already been discussed, is welcome. However, Plaid Cymru Members, particularly my hon. Friend Adam Price, highlighted the scandal at ASW months ago. The Secretary of State for Wales said that the then proposed protection was a gimmick. I am glad to see that that gimmick has now crossed the Floor from these Benches to the Government Front Bench.
Another issue is the extension of the right to work up to the age of 70. Members on both sides of the House are concerned about extending employment protection to those working longer into their lifespan. The right to sue for unfair dismissal is essential and should be in place now rather than in 2006, if it comes at all.
I should like to finish with a couple of points that apply particularly to Wales and to some of the ways of solving the conundrum posed earlier by Lynne Jones—how to pay for it all. My party's policies on regional economic matters and national Welsh economic matters come into play. The inactivity of large parts of the work force over the age of 50 is an important factor, and such economic inactivity is much worse in Wales, Scotland and some English regions than in the south-east of England. On some calculations, if the rate of economic activity were raised in those regions, it would provide sufficient tax take and national insurance contribution to pay for a much better pension. I am no mathematician and I am not sure that that income would be enough, but I certainly commend that way of dealing with the problem. Finally, my party believes that greater means-testing will play badly in Wales, particularly among poorer people. It is not the way to proceed.
I was interested in the contribution from Mr. Duncan or, as he is known in Scotland, the Tory one. I feel that he is a friend, but a misguided one. I have been surprised by the crocodile tears of the Conservatives. Those tears are a ruse: they do not care one jot about means-testing and that has been shown over many years. Nor do they care one jot about the poorest in society. It is political point scoring at its worst and it is done without any thought of or consideration for the people who they are using to make those points.
I represent Glasgow, Anniesland, and we have some 13,500 pensioner households on a conservative—with a small c—estimate, or about 18,000 over-60s. The pension credit appears to be working well. The complaints that we have heard today about the telephone lines are not matched in the Anniesland area. The only problems that we have relate to paperwork and letters received. I have talked to the pension people and, apparently, the letters are written by a computer. They are formulated according to the answers given on the forms. However, that is not the way to do it when dealing with real people, especially the elderly. I ask the Minister to look at the problem—I have mentioned it to him before—so that people receive letters that they can understand. More importantly, MPs should be able to understand them—it has taken me a few readings to work some of them out. I have some knowledge of what has happened with the pension credit, however, and I pay tribute to the people manning the telephone lines for the good work that they are doing.
We should remember what the Government have done and people should realise what could be lost if the Conservatives were to come to power. My pensioner households receive £200 every winter as their winter fuel allowance, not the measly £5 that was mentioned earlier by my hon. Friend Ms Keeble, who talked about running all over her constituency trying to hand out forms. The £200 is given to every pensioner household every year and I am glad to say that after my prompting and prodding the Chancellor put it up to that amount. I take personal credit for that.
Are any of the pensioner households that the hon. Gentleman mentions paying more council tax? Is that increase greater than the £200 that he mentions?
I thank the hon. Gentleman for that intervention. The sad fact is that many pensioner households in Anniesland do not pay council tax, because they are so far down the economic ladder. However, for those who do pay it, the council in Glasgow has kept it fairly level over the past four or five years and it has actually gone down in real terms. I thank him for that question because I am sure that it has added a couple more votes to my majority.
The Government have not and should not apologise for means-testing. It was not introduced by this Government, but it is necessary if we are to find out who are the poorest in society. The number of people we have taken care of holds up against any Government in the past and, I hazard a guess, in the future as well. The Government should be commended for their work on pensions. It is important that we look after those who need to be looked after the most. Anybody who suggests otherwise is talking through a hole in their head.
Exactly. The across-the-board increases mentioned by the Opposition sound very nice, but—as was clear from their speeches—they are trying to help only the top 10 per cent. The Opposition do not care about 60 per cent. of the population. Why not? Because that 60 per cent. do not vote for them. If that 60 per cent. voted for them, they would start to care about them. As it is, the Conservatives are happy to throw that 60 per cent. in a dustbin.
I am aware of the time and I shall be interested to hear what the Opposition spokesman has to say, but I have one further comment about the 18 years of misrule during which the Tories did little for pensioners. We have known for decades that there is a pension problem. It is not confined to the UK, but affects the rest of the world, especially those countries in the western hemisphere that do rather well in financial terms.
We do not need to take lessons about pensions from the Opposition. The Conservative Government created 4 million unemployed. Where were the pensions of the long-term unemployed? I congratulate the Government on what they have done, and want them to do an awful lot more. I wanted to say a word about final-salary pensions, but that will have to wait for another day.
We have had an excellent debate this afternoon. John Robertson got a little overheated, but even he made some excellent points about the need for everyone involved to take a serious look at this issue. Early in his remarks, he made the point that there must be means-testing if we are to find out who are the poorest pensioners. That contrasted with the comment made just before by Hywel Williams, who said that it is the poorest pensioners who will not and do not claim under the means test.
A range of excellent speeches were made by Back-Bench Members. My right hon. Friend Mr. Lilley made a distinguished contribution, to which I shall return. My hon. Friend Mr. Duncan did not deserve the somewhat uncharitable comments from the hon. Member for Glasgow, Anniesland, as he made an excellent speech too. Hon. Members of all parties recognise, as Lynne Jones noted, that reform is needed. We must improve the situation with the state pension scheme in particular if we are to tackle the problems that the country faces.
Before this Labour Government came to power, Labour Members were deeply concerned about means-testing. I remember well a document published in 1996 entitled "Getting Welfare to Work", in which the Labour party made the point that means-tested benefits at that time were claimed by 3.5 million people over state retirement age. It complained that 600,000 were not receiving the income support to which they were entitled, and said that they were among the poorest people in Britain. In fact, the present Chancellor of the Exchequer called at that time for an end to the means test, and spoke about the massive increase in inequality among pensioners. He made the point that the poorest pensioners were those who did not claim.
In this debate, we have heard the comments made by the hon. Members for Hamilton, South (Mr. Tynan) and for Northampton, North (Ms Keeble), by my right hon. Friend the Member for Hitchin and Harpenden and by my hon. Friend the Member for Galloway and Upper Nithsdale. They all noted that we parliamentarians will have to work hard to encourage people to take up the benefits to which they are entitled, and of course they are right.
When I was a junior Minister, we used to have take-up campaigns with Age Concern. We used to push hard for take-up. The current Government have made a real effort in that regard, but it has not worked. That is what has led the Opposition to review our policies.
Labour made bold statements in opposition, but the income of the bottom fifth of pensioners, as a percentage of national average earnings, is now lower than in 1979. Stakeholder pensions were supposed to be the solution for those earning between £9,000 and £20,000 a year. The information company Datamonitor has said that that policy was simply "cannibalising" existing retirement provision, and noted that almost everyone joining the schemes was simply changing within the system, rather than being a new applicant. Ninety per cent. of the company schemes set up for stakeholder pensions have no money in them. Pension credits have been introduced, and they have spread means-testing to more than 50 per cent. of the population.
The Government's ambition means that in 2006—that is, in three years' time—1.4 million of the poorest pensioners will still be missing out on the benefits to which they are entitled. And the Government say that they are targeting help on the poorest pensioners. It is nonsense.
The modelling assumes that every poor pensioner will claim the benefits to which he is entitled—the Secretary of State is always saying that, but he is defying the experience of Ministers and individuals who have been concerned about the problem for the past 10 years. We have seen what happens; it does not work. One has only to read the comments of people such as Gordon Lishman, who heads Age Concern, to realise that. He says that there is further evidence that money is not getting to the poorest older people and that hundreds of thousands of older people who are eligible for the minimum income guarantee do not claim because they are put off by the stigma or because they do not understand their pension rights. He has explained all the difficulties.
It is not enough to suggest, as some hon. Members have, that if one calls the means test something else, one gets rid of that stigma. That is not what is happening. Let us look at the latest figures, six months into the pension credit. Of course, there are the 1.8 million households that were transferred automatically to the new system, but only 100,000 further households have been processed in six months, which is fewer than 200,000 individuals. The case load is 3.1 million. How long will those people have to wait for the money that the Government have already committed themselves to? They say that those people are entitled to the money, but it will take years even to reach the point where 1.5 million people get it. It is a failed system.
The hon. Member for Birmingham, Selly Oak has been involved in these issues for years. She and others who spoke in the debate, such as my right hon. Friend the Member for Hitchin and Harpenden and, of course, my hon. Friend Mr. Willetts in his opening speech, pointed out that there is a massive disincentive to save if we have means-tested benefits so high up the income scale. The approach is misplaced. Even Mr. Field pointed out that the current arrangement is damaging retirement income because it is such a disincentive to save. Under this Government the savings ratio is half what it was under the Conservatives.
What has happened to funded pensions? My right hon. Friend the Member for Hitchin and Harpenden described them as being in "meltdown" and other hon. Members have described the situation as "disastrous". Why did that happen? There was the £5 billion a year pensions tax—the ending of dividend tax credits—and the erosion of the basic protection provided by the minimum funding requirement, which the Government twice deliberately eroded. They slashed it. There were the contracted out rebates, which have not kept pace with the actuarial value of the rights for which they are supposed to pay—a further £1.5 billion pension tax imposed by this Government. Then, we are supposed to be surprised—they say that it is due to the economic conditions—when only 19 per cent. of final salary schemes are now open to new members. What will that do to the future livelihoods of our people? For the first time in generations, workers will expect a worse income in retirement than their predecessors.
Twenty-six organisations have called for state pension reform. The Conservative party has looked into that and come up with proposals that are costed, hold water and will improve the situation. People throughout the country are despairing about the fact that this Government will not even consider reform—even members of the Labour party in Wales are despairing of that fact, as the hon. Member for Caernarfon said.
All that the Government have come up with are proposals designed to limit the damage that they have done: proposals for protection schemes, for example. One can cautiously welcome such proposals, but what about creating incentives to save? As my right hon. Friend and most other hon. Members who have spoken in the debate have acknowledged, savings are what will give people the pensions that they need. Until we have a system that gives pension schemes, employers and individuals some scrap of incentive to save, we will not solve the problem.
I have a lot of sympathy with the point made by Mr. Webb about the winding-up victims. I have met them and marched with them. We have held debates in the House about them. We supported the Second Reading of the Bill promoted by the right hon. Member for Birkenhead, but blocked by the Government time after time after time.
The Government promised so much. They promised less means-testing, but we got more; more equality, but we got less; better take-up, but we got worse take-up. They promised a move towards more saving and funded provision compared with state benefits, but we got less. Some people say that less is more and perhaps in the language of new Labour—the language of spin—that is the case, but the truth is that this is the failed record of a failed Government. They live in such an unreal world that they believe that failure is the new success. "New Labour—best at its boldest." Bold as brass—brass neck!
Follow that indeed. I was about to say that we had heard a fine debate with thoughtful speeches, but it went off a bit towards the end. I had not realised that I was following a marcher and a demonstrator. I can imagine the chant, "What do we want? Tory leadership. When do we want it? Now".
The debate has been useful. The Liberal Democrat spokesman, Mr. Webb, made a significant speech that I much enjoyed. I did not agree with all of it but it was an important speech. I heard recently that the Liberal Democrat leader had shuffled away all the lefties. I have never seen a leftie on the Liberal Democrat Benches, but it is good to see that the hon. Gentleman is still in his place in the senior common room.
The hon. Gentleman mentioned the concerns of the shadow Secretary of State about the nation's fertility but I shall not follow him down that path. We do not want Mr. Willetts to be referred to as "two brains and three or more babies".
My hon. Friend Mr. Tynan made an important speech in which he contrasted the mean-minded means-testing of yesteryear, drawing on his family's past and experience, with the approach to pension credit today—[Interruption.] I hope that people will read his speech, including the laughers who were not in the Chamber during the debate, and that, whatever their concerns about income testing, they will at least understand the significant points that he made. It was a moving speech.
Mr. Lilley, a former Secretary of State, made an important speech about occupational pensions. He modestly advertised his new Social Market Foundation pamphlet. I already have a copy, but I imagine that others might wait for the January sales to get a better bargain. He presented his proposals with great care and research and I enjoyed his speech.
My hon. Friend Ms Keeble talked about policy objectives and the importance of ensuring not only the relief of poverty but also comfort and dignity in old age. I commend her efforts in Northampton in boosting pension credit; such action is important.
Mr. Duncan referred to issues in his rural constituency. I should like to talk to him more about that so that we can ensure that our local Pension Service, which is doing a good job across Great Britain, can be of greater significance in his constituency in respect of the location of advice surgeries. I shall be happy to talk to him about that.
My hon. Friend Lynne Jones outlined her concerns, which are well known. I appreciate her points although I do not agree with them. She was in some difficulty; I thought that I heard a tremor in her voice when she said that she agreed with the Conservatives' new approach to the earnings link. However, as the right hon. Member for Hitchin and Harpenden praised the Australian Labour Government's approach to pensions, it has probably just been one of those interesting afternoons.
Hywel Williams expressed some concerns about the Pension Service in Wales. I should like to talk to you seriously about those. I think that the service is doing a good job there, but if there are concerns I want to look into them and I should appreciate your advice.
My hon. Friend John Robertson, among other things, paid tribute to our Pension Service.
Order. May I remind the hon. Gentleman that he should be speaking in the third person? I let it go to start with but he seems to have got into a groove.
I am so carried away by the debate on pensions, Mr. Deputy Speaker.
We have touched on a range of issues about the state's responsibilities for pensions. Of course, those important responsibilities include establishing a reasonable basic pension and related rights; tackling poverty, which I want to come on to; increasing access to second and earnings-related state pensions; promoting confidence and trust in pensions, which has been a theme today; and informing and educating the public, particularly younger people, about pension choices and the importance of pension forecasts.
Finally, the responsibilities include enabling the development of flexible work and retirement patterns so that we can promote work among the over-50s, abolish age discrimination, promote favourable financial arrangements for those who defer the state pension—my right hon. Friend the Secretary of State has introduced proposals—and, of course, allow older people to draw their pension and continue employment at the same time.
On the central issue today—pension credit—I urge right hon. and hon. Members to be careful about how we discuss such issues. It is important to have a debate and there are differences between us, but if we use words such as "stigma" in relation to claiming pension credit, I am afraid that we may achieve the result that we all do not want to achieve.
In the Minister's tribute to all those who have contributed to the debate—sadly, although I have been sitting here, I was unable to do so—he has still not mentioned the word, "means-testing". Given that mean-testing has increased dramatically under this Government, can he explain how my generation can be encouraged to save for the future?
I am sorry that the hon. Gentleman missed the debate. No doubt he will catch up by reading Hansard. The point that I am trying to make is that, if we talk about stigma, we will put off frail and vulnerable people from applying for their rights to pension credit.
"I fail to understand why the current pensions regime should attract so much criticism. As someone who has recently dealt with the pension service on behalf of an elderly relative, I can say that the process of applying for pension credit was extremely straightforward, with the form being almost fully completed over the phone."
Yes, I think that the director general is wrong. That is the short answer to that question.
We have had much success on pension credit. All those on the minimum income guarantee have been successfully transferred to pension credit. We have written to 1.6 million households, and 1.1 million households have already gained extra money as a result of pension credit. It is heartening to hear many of the success stories about people ending up with £86 more a week—not only from pension credit, but from other benefits, such as housing benefit—and, in another case, in Essex, with £35 more a week.
The Tory proposal to return to the earnings link is far-fetched, given that a Conservative Government abolished it back in 1980. If this goes on, we will soon see the shadow Home Secretary visit a comprehensive school just to show that he understands such things and, no doubt, he will talk to the lads and lasses about whether they prefer fox hunting or fives as a sport.
I have not got time.
I am afraid that, if the Conservatives were ever to implement their policies, it would be bad news for women, who should be major gainers, and the very group who would not receive any help would be the very poor. Let me quote what the shadow Chancellor of the Exchequer said on the Dimbleby programme on
"Those who are entitled to the pension credit and do claim . . . will not be better off" under Conservative proposals. There we have it. If the Conservatives abolished the state second pension, carers would be no better off either.
The fact of the matter is that, whatever the Conservative party says today, people contrast the Conservative Government's record, when nothing was done for the poorest, with the policies of this Labour Government who, as well as bolstering the basic state pension, have helped the poorest, with the pension credit, free television licences for the over-75s, the winter fuel payments and re-establishing the eye tests that the Conservatives abolished.
That is our record. We will debate it, put it to the British people, and compare it not with the promises of the shadow Secretary of State for Work and Pensions but with the record of the previous Conservative Government. I hope that everyone will go out and argue for the pension credit and ensure that those people in our communities and constituencies who most deserve pension credit receive it. Our take-up target is 100 per cent. We want everyone to get it. There will be those who sneer, but we will do our best to ensure that everyone who deserves pension credit will receive it.
Question put, That the original words stand part of the Question:—
Question accordingly negatived.
Question, That the proposed words be there added, put forthwith, pursuant to
Mr. Deputy Speaker forthwith declared the main Question, as amended, to be agreed to.
That this House welcomes the fact that people are living longer than ever before; welcomes Government action to tackle pensioner poverty and to promote retirement flexibility, occupational pension security and informed choice; condemns the inheritance of 1997, with millions of pensioners in poverty, many being expected by the Government to live on under £68 a week, and the legacy of pension mis-selling; endorses the Work and Pensions Committee's judgement that "current policies have been successful in reducing pensioner poverty"; notes that the Government is spending £9 billion extra per year in real terms on pensioners compared with the 1997 system; further notes that this is £5.7 billion more than if the basic pension had been linked to earnings; applauds the fact that the poorest third of pensioners will be £1,600 a year better off; welcomes the successful payment of Pension Credit from this month to over two million pensioners and the fact that 1.3 million are gaining more money than they had before; further supports the Government's approach to renew the pensions partnership, outlined in the recent Green Paper and Action Plan; commends plans to introduce a Pension Protection Fund, guaranteeing protection if a company scheme winds up; welcomes proposals to allow individuals to defer their state pension and draw it as a lump sum; looks forward to further measures enabling people to make an informed choice in pension provision, increase flexibility approaching retirement and to work free from age discrimination; and condemns the unfair, unaffordable and unsustainable policies of Opposition parties.