Orders of the Day — Rights of Savers Bill

– in the House of Commons at 9:35 am on 28th October 2005.

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Photo of Malcolm Rifkind Malcolm Rifkind Shadow Secretary of State for Work and Pensions 9:46 am, 28th October 2005

I beg to move, That the Bill be now read a Second time.

I am grateful to the House for the fact that the outside world will be given the opportunity to hear this important debate. It is a great privilege to have the opportunity to introduce the Bill. This is a somewhat unusual experience for me, in two respects. It is the first time since I first became a Member of the House a long time ago that I have been involved in promoting a private Member's Bill, and I must confess that it is the first time since 1979 that I have spoken from the Back Benches. That creates two problems for me: not only do I have no real knowledge of what the Minister might say in response to my Bill, but I am not even entirely certain what the shadow Minister, my hon. Friend Mr. Waterson, is likely to say. I am at least heartened by the fact that his name appears as a sponsor of the Bill, so his broad sympathy is more likely than not.

I am delighted that Mr. Field, who is the world's greatest expert on savings and pensions matters, has expressly said to me that he would like to be associated with the Bill. I am therefore particularly pleased that it will have bipartisan support. I hope that that will have the necessary psychological and political impact on the Minister and on the Government.

Before I turn to the details of the Bill, let us consider the wider context. We are all aware of the crisis in pensions—the problems for defined-benefit pension schemes, many pensioners falling into serious poverty and so forth—but linked to it and equally important has been the crisis in savings. It is primarily the savings side that my remarks will address, but the two are intimately linked. It is almost impossible to exaggerate the seriousness of what has happened, particularly in the United Kingdom, as regards the habit of saving.

Back in 1997, an average of something like 9 or 10 per cent. of household income was saved each year. That was a very good ratio. The figure has since fallen to about 5.5 per cent.—almost half of what it was. Before anyone suggests that it is a worldwide phenomenon because of what has happened with investments, equities and so on, I should point out that the international comparisons are not particularly attractive from the United Kingdom's point of view. Our savings ratio is down to 5.5 per cent; in Italy it is 9.5 per cent., in Japan 9.6 per cent., in Germany 9.6 per cent., in France 11.1 per cent. and in Canada 13.6 per cent. We have a particular problem in the United Kingdom, and, although the Government are entitled to say that the crisis in both savings and pensions is partially due to demographic and other reasons beyond their control, they cannot avoid all responsibility.

The Institute of Chartered Accountants has said that the single most important factor that has destroyed confidence in savings was the Chancellor's decision at the very beginning of this Government's tenure to withdraw tax relief on pension fund dividends, which not only hurt the pension funds, but sent a signal to the wider saving public that it was no longer as attractive, agreeable or important to indulge in saving.

The Adair Turner report on pensions and savings will come out in November, and before I discuss the details of the Bill, it is important to address one of the central issues that is already part of the wider public debate. The Turner report has been asked to consider the option of compulsion. Given that the public have chosen to stop saving to some significant extent, the Government appear willing to contemplate compelling them to do so.

A move towards compulsion is not only unjustified but would remove the possibility of a national consensus on the way forward on savings. Compelling people to save raises an issue of principle. The Turner committee has been asked to examine what people do with their post-tax income to influence their level of comfort in retirement, and the state cannot make that decision on people's behalf. It would be wrong in principle for the state to take powers to compel people to save to a degree that they would not otherwise choose, because that would imply that the state's priorities are far more important than those of millions of families up and down the country, who must decide their relative priorities throughout their working lives. The first objection is one of principle.

The second objection is that compulsion would be another form of taxation. Digby Jones of the CBI has said that compulsion would be another stealth tax, and he is right. Like national insurance, compulsory saving would not include a choice, so it would be taxation by another name.

The third objection is that compulsory saving would sometimes compel people to act against their economic interests, because there are circumstances in which it is extremely foolish to save. For example, if one takes out a very small occupational pension scheme, one loses one's entitlement to pension credit. What is the point of making that change if one's net standard of living is not improved as a consequence? Compulsory saving would compel some people to act against their own fundamental interest.

Photo of John Greenway John Greenway Conservative, Ryedale

My right hon. and learned Friend is making an excellent speech without notes.

Photo of John Greenway John Greenway Conservative, Ryedale

My right hon. and learned Friend's point about pension credit is one of the reasons why saving has reduced. Means-tested benefits are undermining the reason why people will save, which we, as a party, must address as well as the Government, because when we are in office we must alter that situation.

Photo of Malcolm Rifkind Malcolm Rifkind Shadow Secretary of State for Work and Pensions

My hon. Friend is right. When the Government took office, they said that one of their objectives was to reduce means-testing. Thanks to the benevolent supervision of the Chancellor, however, means-testing has increased dramatically in all areas in the past eight years. That is a huge problem, and the Pensions Commission under Adair Turner has already said that on current form it will lead to more than half the population being on means-tested benefits in not too many years.

Photo of Vera Baird Vera Baird Labour, Redcar

The right hon. and learned Gentleman knows that pension credit has brought more than 1 million people, three quarters of whom are women, out of the poverty in which the previous Conservative Government left them. Will he set out how his proposals will advantage women?

Photo of Malcolm Rifkind Malcolm Rifkind Shadow Secretary of State for Work and Pensions

The position of women is of huge importance. I wanted to include such a provision, but the powers that be would not permit it, because it would have contradicted the long title of the Bill. The hon. and learned Lady is right that women's entitlement to pensions will be a crucial consideration when Adair Turner reports and the Government decide their policy, because that blot must be addressed.

I was dealing with the principled objections to compulsion, and the fourth one is that it does not work. The one country that has tried it, Australia, introduced it about 10 years ago through a collective bargaining deal between the Government and the trade unions, whereby in exchange for restraint on pay claims, employers were required to make further contributions to pension funds. Over the past 10 years, the single biggest consequence of the change in Australia has been the diversion of savings held in other products into the compulsory scheme. Overall, Australia has the same problems as other countries.

Photo of John Butterfill John Butterfill Conservative, Bournemouth West

I am sure that my right hon. and learned Friend would not intentionally mislead the House, but Australia is by no means the only country that has introduced compulsion. Compulsion was first introduced in Singapore, where the scheme encountered problems because the money in the pooled pot was lent to commercial interests, sometimes with undesirable consequences. To name but two others, Chile and Argentina have successfully introduced such schemes.

Photo of Malcolm Rifkind Malcolm Rifkind Shadow Secretary of State for Work and Pensions

I have deliberately tried to compare the United Kingdom with countries that have comparable economies, and the Australian experience is especially relevant to our situation.

Two further points are important. First, some may point out that our system already contains an element of compulsion, because we have no choice but to make national insurance contributions. I have no objection to people being compelled to make savings when the alternative to their making such contributions is falling into poverty and therefore depending on benefits paid for by other taxpayers. It is entirely reasonable to compel people to provide for themselves through contributions such as national insurance that are designed to prevent them from falling into poverty, because otherwise other taxpayers have to perform that function. The current debate is not about using compulsion to avoid poverty; it is about allowing people to have a higher standard of living in their retirement than they would otherwise enjoy, which is where compulsion cannot be justified.

Secondly, it is sometimes suggested that the alternative to compulsion is laissez-faire—sitting back and hoping that things will improve—but that is not true. The alternative to compulsion is incentive, which can come from the state in two forms. It can come in the form of fiscal incentives, which I cannot cover because tax matters may only be dealt with by the Government of the day, and not by a private Member's Bill. My Bill concentrates on the second option, which is making structural improvements to the system in order to make saving more attractive, and there is a range of ways in which that can be done.

Savings and pensions issues are incredibly complex, so I hope that the House will forgive me if I go into detail.

Photo of Vera Baird Vera Baird Labour, Redcar

Before the right hon. and learned Gentleman turns to the detail of the Bill, may I return to my earlier point? He was cruelly deprived of the opportunity to include provisions to help women in the Bill. Will he take a minute to set out what they were going to be?

Photo of Malcolm Rifkind Malcolm Rifkind Shadow Secretary of State for Work and Pensions

I can tell the hon. and learned Lady only that I hoped to be able to make some improvements on protection for carers, because the way in which those rules apply is unduly restrictive. I personally take the view that the whole position of women, as of other carers, can be best improved by a more generous provision with regard to national insurance contributions as part of their overall pension entitlements. It is a very complex issue. I hope that the hon. and learned Lady will allow me to move on to what is in the Bill rather than what I should have liked to include had the rules permitted it.

The Bill covers four main areas. Part 1 provides for a major new savings scheme designed to offer the simplicity and flexibility of individual savings accounts but with the security normally available to pension products.

Part 2 is based on a successful Canadian initiative. It would expand the current options on retirement and permit an end to the compulsion that has existed for many years to purchase annuities from a retirement fund. It would also remove the unfair prohibition on return of unused capital from an annuity on death after the age of 75.

The final part of the Bill aims to address the worrying trend of pension proliferation whereby many savers have large numbers of often small private pensions caused by changes of circumstances such as new jobs.

Photo of Justine Greening Justine Greening Vice-Chair (Youth), Conservative Party

Does my right hon. and learned Friend agree that, given that the average life expectancy of a woman is now well over 75, changing the age limit of 75 in respect of the flexibility of annuities would help women even more than it would help men?

Photo of Malcolm Rifkind Malcolm Rifkind Shadow Secretary of State for Work and Pensions

My hon. Friend is correct. The age of 75 is an arbitrary age that was introduced by the then Government a good number of years ago. It has less and less relevance, and, as my hon. Friend says, women would benefit more than men if that arbitrariness could be removed from the system.

At this stage, I remind the House that I have an indirect interest as non-executive director of an asset management company.

I now turn in detail to part 1. Savings in this country are in crisis. We are increasingly a nation of consumers, not savers, and it is clear that the products that are currently available, successful though some have been, are failing fully to address the problem. It is now widely accepted that stakeholder pensions have failed in their attempt to stimulate long-term saving at the bottom end of the market. Utilisation is low and sales figures are actually falling. The supply side has also suffered due to a paucity of providers willing to promote these low-margin products. Indeed, the TUC said in a report published last year that stakeholder schemes are not helping low-income workers; instead, they are largely being used as a source of tax relief on savings by the better off instead of by the lower and middle-income earners whom they were originally designed to target.

At the time of the introduction of stakeholder pensions, it was estimated that approximately 5 million people earning between £10,000 and £20,000 per annum were not in an occupational pension scheme. The Association of British Insurers has suggested that although there are about 1.5 million stakeholder members, much of the money now in stakeholders has merely been transferred from other pension arrangements. Stakeholders are not doing much to stimulate additional pension savings; they are merely displacing other pension vehicles.

By contrast, sales of individual savings accounts have fared incredibly well. According to the PEP and ISA Managers Association—PIMA—more than £170 billion is invested in ISAs compared with £79 billion only five years ago. They have proved to be a useful savings vehicle for those on lower to middle incomes, but these products, although allowing greater flexibility in drawdown facilities, do not have the opportunity or ability to function effectively as a vehicle for retirement. We desperately need to combine the flexibility of ISAs with the security required for a pension product, which should be particularly directed towards the lower and middle-income earners who are not benefiting from stakeholder pensions.

That is the crucial objective of part 1. We need to target the people whom the Government have failed to attract with their own savings scheme, stakeholder pensions. I propose a savings and retirement account, otherwise known as a SaRA—I have unfortunately had to conclude that all these things need acronyms. The product would be based on the already proven ISA model while operating under pension tax rules and regulations and regulated by the pensions regulator. It would combine the management ease of the ISA with the tax advantages of pensions, thereby simplifying and promoting investment while enabling longer-term financial planning.

Photo of David Laws David Laws Shadow Secretary of State for Work and Pensions

I appreciate that there is a restricted amount that the right hon. and learned Gentleman can put into the Bill about tax relief, but will he confirm that he proposes that it should be given up front on this product?

Photo of Malcolm Rifkind Malcolm Rifkind Shadow Secretary of State for Work and Pensions

As the hon. Gentleman will be aware, the question of tax relief is not for a private Member to come to a view on. I am simply assuming that all the tax relief that is available for existing pension products would be available for anything proposed in the Bill. It is of course for the Government to work on the details of that; it is not within my competence.

The concept of a savings and retirement account has been consistently promoted by PIMA, with considerable interest from its members. Such an account would be a container for retail funds—a wrapper, in other words—which, it is hoped, could be sold by any company regulated by the Financial Services Authority, not just by life offices, banks or building societies, as in the case of stakeholders at present. Within that container, consumers would be able to choose from a variety of investments, each tailored to their individual risk-tolerance, which are specifically designed to generate income for retirement. Crucially, the opportunity to provide a SaRA pension would be open to all financial services firms authorised to manage investment schemes by the FSA rather than the limited numbers of life offices and others that currently offer pensions.

SaRAs would also have several important advantages compared with existing pensions and savings products. The first would be that of lower cost. Unlike many traditional pension products, a SaRA would have no requirement for trustees, although the option would be available, meaning that administration would be carried out more cheaply by the provider in-house. At present, stakeholder providers may charge only up to 1.5 per cent. of the pension value in administrative charges. The cost of providing a SaRA, and hence the charges that consumers would face, would be the same or very likely lower. Since more providers would be able to offer the product, competition in the market would increase and costs would be cut even further. Those lower costs, combined with more active promotion by providers than for stakeholder pensions and the simplicity of the product, would greatly encourage saving among lower and middle income earners.

The second major advantage of a SaRA would be its portability. At present, consolidating one's existing pension investments is complicated and costly. Once a SaRA had been set up, not only would employees be able to consolidate their pension and saving arrangements into a single pot—

Photo of Lyn Brown Lyn Brown Labour, West Ham

Given that the right hon. and learned Gentleman has referred to costs, has he calculated the bureaucratic cost of administering these schemes? In particular, if this is not about creating a vehicle to avoid inheritance tax, what extra provision would the Inland Revenue require to manage the calculations involved?

Photo of Malcolm Rifkind Malcolm Rifkind Shadow Secretary of State for Work and Pensions

If the hon. Lady will forgive me, I suspect that not only did she not write that question, but that the person who did does not understand the Bill either. [Laughter.]

Photo of Alan Haselhurst Alan Haselhurst Deputy Speaker and Chairman of Ways and Means

Order. Is the hon. Lady rising on a point of order or trying to intervene?

Photo of Lyn Brown Lyn Brown Labour, West Ham

I think that I am trying to intervene, Mr. Deputy Speaker. May I say that I am quite offended by the right hon. and learned Gentleman's remark? I do not know how much Conservative Members have in the way of resources to assist with research, but we certainly have to do our own.

Photo of Alan Haselhurst Alan Haselhurst Deputy Speaker and Chairman of Ways and Means

Order. I understood the hon. Lady to be making a point of order. It was not a point of order for the Chair, as I hope she will realise. What she will also no doubt realise over time is that we spend most of our lives in this place being offended.

Photo of Peter Bottomley Peter Bottomley Conservative, Worthing West

On a point of order, Mr. Deputy Speaker. If the hon. Lady was not given a Whips' handout, should not she ask for one?

Photo of Alan Haselhurst Alan Haselhurst Deputy Speaker and Chairman of Ways and Means

I think that we might end this particular point here.

Photo of Malcolm Rifkind Malcolm Rifkind Shadow Secretary of State for Work and Pensions

I simply say to Lyn Brown that whether or not there may be objections to a savings and retirement account, the question of inheritance tax is not remotely relevant to the Bill— certainly not to this part of it—and anyone who studies it will unavoidably come to that conclusion.

On portability, people would be able to ask their employer to make contributions into the same scheme. They would, furthermore, be able to transfer their SaRAs between employers. Each person would have one for their whole life so that it went with them through all changes of circumstances and income. Investments could be from personal resources, consolidation of funds, or pension contributions from multiple jobs—or even a combination of those.

Photo of Greg Clark Greg Clark Conservative, Tunbridge Wells

Will my right hon. and learned Friend explain in a little more detail the advantages of the consolidation of different pension pots? Are there not advantages in having a degree of spread between different providers, especially in the light of the events involving Equitable Life? Rather than putting all one's eggs in one basket, would not having a broad exposure convey greater advantages?

Photo of Malcolm Rifkind Malcolm Rifkind Shadow Secretary of State for Work and Pensions

I can easily respond to my hon. Friend on that point: the SaRA will enable that to happen. As I mentioned earlier, it is a wrapper in which people will be able to have different kinds of investment in order to minimise risk and to broaden the nature of their investment in the way that my hon. Friend recommends. At the moment, many people who move employment two or three times during their working lives have several pension pots, each of which is very small. Each has to be separately administered, and has costs associated with that administration, so the individual concerned often does not know what their pension entitlement is, and pays a significant sum towards administration. Although they are legally able to consolidate the different schemes, the cost of doing so is substantial.

The effect of that has been damaging, and has resulted in many pension funds not being contributed to, because the arrangements involved are too complicated. The national interest is suffering as a consequence. The protection to which my hon. Friend referred will be provided by the wrapper nature of a SaRA, within which people will be able to have different kinds of investments—in the form of equities, bonds or anything else that comes to mind—without the disadvantages that I have mentioned.

Photo of John Butterfill John Butterfill Conservative, Bournemouth West

My right hon. and learned Friend is putting a fascinating proposal before the House. However, it is not entirely clear to me how the consolidation process will take place. Is he suggesting that a pot of money will be transferred from each individual employer into the SaRA, and no longer administered by that original employer? Would not that result in the problem that always arises in these cases, namely, that the scheme actuary for the employer would value the pension pot very severely, resulting in some loss to the employee?

Photo of Malcolm Rifkind Malcolm Rifkind Shadow Secretary of State for Work and Pensions

I do not think that that would be the case, although I should be happy to have that point looked into. This provision and a later one in the Bill seek to ensure that an employee will be able to require an employer to pay the contributions into the pension product of the employee's choice. At the moment, that arrangement is available if someone is moving from one stakeholder pension to another, but the current legislation does not require contributions to be paid into a personal pension. I want to remove all such restrictions in order to give maximum flexibility, because such flexibility will make people more inclined to save in the first place.

Photo of Stephen Timms Stephen Timms The Minister of State, Department for Work and Pensions

I am listening to the right hon. and learned Gentleman's argument with great interest, and I agree with him about the benefits of being able to pool different pension pots into one place. I am not clear, however, about how his proposals will help in that respect. It is already possible to transfer between stakeholder pensions without payment. It sounds as though the right hon. Gentleman is proposing an arrangement that would impose quite a high cost on employers if they were required to contribute to any scheme that their employees wished them to, rather than to one scheme, as is currently the case under the stakeholder pension regulations.

Photo of Malcolm Rifkind Malcolm Rifkind Shadow Secretary of State for Work and Pensions

I hear what the Minister is saying, but I do not think that there will be a significant cost implication. With the benefits of modern information technology, employers are already able to pay salaries and wages into whichever account an employee finds preferable. That involves a relatively straightforward system, and millions of people benefit from that flexibility now. As the Minister said, his own legislation requires an employer to pay into a new stakeholder product. It cannot be more difficult administratively to pay into a personal pension instead. So the issue has already been conceded by the Government, and I do not see that there will be a problem in that regard.

Photo of Peter Bottomley Peter Bottomley Conservative, Worthing West

The Minister raised a serious point, and I think that the answer that he received was pretty convincing. If he needs any extra convincing, I should like to point out that the Government do not seem to find it difficult to ask employers, or themselves, to distribute money to the Student Loans Company, the Child Support Agency and various other bodies. The Government ought to look at these issues in the round, rather than simply picking up on something rather sensible that has been proposed by a member of the Opposition.

Photo of Malcolm Rifkind Malcolm Rifkind Shadow Secretary of State for Work and Pensions

I shall be happy to facilitate an exchange between my hon. Friend Peter Bottomley and the Minister.

Photo of Stephen Timms Stephen Timms The Minister of State, Department for Work and Pensions

I was the Minister responsible for taking through the legislation on stakeholder pensions, and we were careful to ensure that the obligation on employers was only to pay into one designated scheme. If Sir Malcolm Rifkind were to discuss this matter with small business organisations, for example, he would find considerable concern about the additional burden that he is proposing.

Photo of Malcolm Rifkind Malcolm Rifkind Shadow Secretary of State for Work and Pensions

I accept that the Minister was extremely cautious when putting forward his original proposals. Perhaps, however, he might learn from his right hon. Friend the Prime Minister, who has said that he always regretted not being more radical in his approach to reform. In this respect, the Prime Minister speaks good sense, and the Minister might like to follow him.

Photo of Dari Taylor Dari Taylor Labour, Stockton South

This is an important part of the right hon. and learned Gentleman's proposals, and I wonder whether he has spoken to the Federation of Small Businesses about it. I have spoken to its representatives in the northern region, and they knew nothing about this new pension scheme. They were quite concerned to see the details, and not awfully happy to discover that they might find themselves involved in a scheme that they knew nothing about. Perhaps the right hon. and learned Gentleman has spoken to the association's national representatives.

Photo of Malcolm Rifkind Malcolm Rifkind Shadow Secretary of State for Work and Pensions

The Bill was published only on Tuesday morning, so I am not entirely surprised that the association has not yet familiarised itself with the details of such a complex matter. However, in regard to businesses large and small, the Government have already introduced a requirement for any business with more than five employees to provide for stakeholder pensions. My Bill simply proposes that, as an alternative to stakeholder pensions, people may choose a savings and retirement account. That is no more complex a proposition. Of course, I shall be happy to hear views and comments on these matters, but most responsible employers are keen to develop pensions and savings arrangements in a satisfactory way. Stakeholder pensions simply have not worked; they have imposed a burden on those companies without the employees using the facility. We need to be a bit more imaginative in addressing these issues.

Photo of John Greenway John Greenway Conservative, Ryedale

Would not an individual have a choice whether to transfer part of any other pension scheme into the SaRA wrapper? They would have to make that choice based on whatever capital transfer value was being offered by a pension scheme, and on the benefits that they would surrender if they were to make that transfer. It would be a matter of individual choice. This illustrates the point about flexibility to which my right hon. and learned Friend has referred.

Photo of Malcolm Rifkind Malcolm Rifkind Shadow Secretary of State for Work and Pensions

That is entirely correct. Indeed, people would even be able to transfer a stakeholder pension into the wrapper of the SaRA, if that was what they preferred. The objective will be to simplify the situation so that all their pension entitlement is in one wrapper, which they can understand and get information on easily, cheaply and to their own benefit.

The third advantage of a SaRA is choice. Offering a SaRA to employees will become another option available to employers when drawing up their retirement benefits plans. But equally important will be the greater choice available to consumers. Traditional pension plans tend to consist of a relatively limited set of lower-risk investment options, and the market is dominated by a small number of life offices. A SaRA, by contrast, will offer a full range of investment choices from a far wider set of providers, ranging from stockbrokers to asset managers to fund supermarkets. This will cater for consumers who may wish to benefit from a potentially higher rate of return from higher-risk products, while allowing more risk-averse consumers to continue to concentrate investments in lower-risk instruments.

The fourth crucial advantage is transparency. The wrapper structure of a SaRA will enable the investment to be treated independently from the administration, meaning that customers will have a much clearer view of the value and performance of their investment, thereby stimulating providers to provide better value, more competitive products. It will be possible for consumers to obtain a complete picture of the overall performance of their funds at any time, using a variety of servicing channels. Buying a wrapper separately from the investment will also mean that the initial decision to purchase is more straightforward and requires less advice, thus potentially attracting customers who have previously been deterred by the complexity of pensions products.

Perhaps the most innovative part of the SaRA scheme—a part which is not provided for by any other long-term pension savings vehicle—is that a proportion of capital can be taken out at specific times of need. This will give us a savings scheme designed to encourage long-term saving but with the flexibility to withdraw some savings. This is of particular relevance to younger people who wish to save for the future while remaining cautious of the possible need to be prepared for a change in circumstances during their working lives.

Several hon. Members:


Photo of Malcolm Rifkind Malcolm Rifkind Shadow Secretary of State for Work and Pensions

I will give way in a moment.

Many people nowadays are aware of the need to save for their future and recognise the need for early saving towards a pension, but they also often hope to be in a position to purchase a home or envisage taking a career break to pursue further education. That is often the main reason for people refusing to lock away their money until retirement. Few 20-year-olds know what major financial need they might have or what lifetime event might occur in the next 40 years.

This proposal is not just some theory, as it draws on the experience of the Canadian home buyers plan and lifelong learning plan. Under the Canadian scheme, 1.3 million individuals have made withdrawals for home purchase since 1992. Indeed, 123,000 individuals took withdrawals in 2002 alone.

The Canadian scheme allows withdrawals from a registered retirement savings plan for both home purchase and lifelong learning through education or training. The SaRA account could eventually include parents providing assistance to a child for first-time home purchase, but I emphasise that it would not cover children's school fees.

Young people today are struggling to get on the housing ladder, which has prevented them from thinking seriously about saving for retirement. A limited draw-down facility within a retirement savings account should help to address that problem while encouraging saving for retirement. Tax relief would be set, I assume, at marginal rates, as for other pensions, but any money withdrawn from the account could not include any tax relief from the state and would thus be restricted to 60 per cent. of the fund.

The scheme would allow for withdrawals to be replaced before retirement. However, if that had not proved possible, the state could claw back the tax relief from the retained funds. In any case, the fund would not be required to be repaid until four years after draw-down to allow for education draw-down where there was no income available to fund any replacement of capital.

Several hon. Members:


Photo of Malcolm Rifkind Malcolm Rifkind Shadow Secretary of State for Work and Pensions

I must finish this section and then give way first to my hon. Friend Mr. Vaizey.

The current specified maximum to be taken out is £40,000. A maximum has been set so that withdrawals would not be encouraged, but would be permitted. The level is designed to ensure that it would cover the deposit for the vast majority of first-time buyers and other individuals. The figure has been chosen because the most expensive area, London, has an average first-time buyer's deposit of some £31,100.

Photo of Ed Vaizey Ed Vaizey Conservative, Wantage

My right hon. and learned Friend's proposal builds on the work of the pensions expert Martin Campbell, who came up with the LISA—the lifelong investment savings account. Now we have the SaRA. Does my right hon. and learned Friend agree that a one-stop shop product is essential and that the requirement for a product that adapts to what people need in the 21st century, giving them flexibility, is overwhelming? That is what this would do. Will he comment specifically on whether a child trust fund could be rolled into a SaRA when one reached 18?

Photo of Malcolm Rifkind Malcolm Rifkind Shadow Secretary of State for Work and Pensions

Yes, I do not see why that should not be possible, and I hope it would indeed be available. I agree with my hon. Friend's broader point: we are all on a learning curve. Conservative Members and, I freely accept, the Government are trying to find ways to re-establish the savings habit, which has declined dramatically. The stakeholder has not proved successful, for reasons which with we are all familiar. The TUC, if not the Government, has acknowledged that. This proposal tries to build on the success of individual savings accounts and to learn the proper lessons from that.

Photo of David Laws David Laws Shadow Secretary of State for Work and Pensions

I am grateful to the right hon. and learned Gentleman for giving way again. Given that his priority is flexibility for people in relation to their savings, how did he decide on the conditions set down in clause 5(6), which would determine the basis on which people could draw down amounts before pension age? Why did he decide on those particular items, rather than giving even greater flexibility?

Photo of Malcolm Rifkind Malcolm Rifkind Shadow Secretary of State for Work and Pensions

The reason is quite straightforward: the primary purpose of the SaRA is to encourage long-term saving, not people withdrawing at an earlier stage. However, we recognise that many people, especially younger people, do not want to go for savings that will be locked in—for 40 years, in some cases.

Telling those people that they could use the funds they are saving now only when they retire at 65 or whatever age means that they simply would not save in that way. Therefore we acknowledge, as the Canadian scheme does, that many people—especially those in their 20s and 30s—would be willing to put their savings in a retirement product if they knew that, perhaps only temporarily, they could withdraw some of their savings to contribute to the deposit on a house or something of that kind.

The system would be properly controlled and could not be exploited because there would be no tax relief available, and therefore no benefit, for those who withdrew funds permanently. The scheme would be limited to house purchase or lifelong learning, which we believe is the proper approach, although it could be expanded, if that was what the House wished. That is an important point.

Photo of Geoffrey Clifton-Brown Geoffrey Clifton-Brown Opposition Deputy Chief Whip (Commons)

On the subject of controls, nothing does long-term pension schemes of whatever sort—my right hon. and learned Friend is proposing an excellent one this morning—more harm than the thought that they might end up in the liquidation courts. His scheme would not require any trustees. Will he say something about the control and regulation of his scheme and ensuring that it became a viable long-term product?

Photo of Malcolm Rifkind Malcolm Rifkind Shadow Secretary of State for Work and Pensions

Even stakeholders do not require trustees. Indeed, such stakeholder products as have been taken up are done in the main on contract rather than through the trustee system. The option is there, and it would be for people to decide which was more important to them, although the pensions regulator and the Financial Services Authority would be involved. There would be the normal safeguards that are available both on the investment side and on the pensions side. That is important, because I fully recognise that a pension product requires higher security than a normal investment product, as people's whole retirement income might depend on it.

Photo of Pat McFadden Pat McFadden Labour, Wolverhampton South East

The right hon. and learned Gentleman has spoken about the product in relation to house purchase and being an alternative to stakeholder pensions. On the issue of risk, does he accept that there are reasons for having safeguards in those areas, given what has happened in the past? For example, people have been exposed to endowment mortgages that carried risks that they were not aware of at the time. On pensions products, people have found themselves in situations that they did not expect to be in after paying into a scheme for years. Will he tell the House more about the balance between risk and people's freedom to invest their own money as they wish? This is an important area and safeguards are needed.

Photo of Malcolm Rifkind Malcolm Rifkind Shadow Secretary of State for Work and Pensions

The hon. Gentleman raises perfectly legitimate concerns. The important point to dwell on is the recognition that this is not some theory that has suddenly been thought up in the last few weeks. The system already works extremely well in Canada, and has done so for a good number of years. In addition, we are talking about withdrawal to fund a deposit for a first-time buyer's home, not some dramatic new reason to spend the money. If people cannot do that through money that has been put in a savings account, they will not save that money in that form in the first place. They will simply use other forms of saving and the whole retirement objective will not be assisted.

If someone wanted to continue to get the tax benefits, they would have to repay in later years the sum they borrowed from the SaRA. If they failed to repay, although they would not be legally obliged to do it, they would lose the tax benefits and would therefore be using their own money in a way that they had themselves chosen. So the incentive to put the money back would remain if they wished to get the full tax benefit. That is what one assumes most people would do as their income increased during their working life.

May I now discuss part 2? This principally covers reform of the current compulsion to purchase an annuity no later than the age of 75. This is a controversial matter, but the House should be aware that the obligation to purchase an annuity no later than the age of 75—I emphasise this—does not exist in any other western country. I am aware of no country in the western world, or anywhere else for that matter, that imposes such an obligation. So the Government, although they have always resisted change, cannot say that that obligation simply conforms with normal practice.

The Government's insistence on retaining the obligation has become less and less credible: for many people, an annuity might indeed be the best means of providing for their retirement income; for many others, it has become less and less attractive in recent years. That issue has been debated in the House and when private Members' Bills have been introduced by my colleagues on the Conservative Benches.

We have listened to the Government. They have raised the concern that proposals in previous Bills would have required as part of the solution everyone—not just those who do not take an annuity—to take out an index-linked annuity at 65 to the extent required to ensure that they did not become unnecessarily dependent on state benefits.

We understand the Government's concern, so that proposal is not repeated in this Bill, which does not propose any such obligation, or indeed any new obligation. It would put no new burdens on the large majority of people who currently choose to purchase an annuity when they retire. However, it would offer them an alternative and give similar freedom to those who reach 75 without having purchased an annuity.

I am proposing an alternative way of using a pension fund on retirement and a way to control the investments and income derived from it. In some circumstances, that new alternative could be more attractive to an individual than the purchase of an annuity. It could also benefit everyone—not just the well off, who have traditionally been considered the only beneficiaries of the removal of the compulsory purchase of an annuity.

The alternative that I propose is a retirement income fund—the fact that the acronym is RIF is a pure coincidence, and no one should draw any conclusions from that. Again, it is based on a Canadian alternative to annuity purchase: registered retirement income funds. They were first introduced in 1985 in Canada, so they have been in force for 20 years—long enough to judge whether they have provided income satisfactorily for the individual's life in retirement. In the 20 years in which this option, which I propose for this country, has been available in Canada, it has proved highly successful and very popular.

Retirement income funds are the most widely held retirement income vehicle for pension savings in Canada, and they continue to grow in popularity each year as more people retire with defined contribution pension schemes. For the last tax year in Canada, out of just over 3 million citizens above retirement age, no less than 1.4 million—almost half—received income from a retirement income fund of the kind that I am proposing today. With the move away from defined benefit schemes to defined contribution schemes, compulsory annuitisation will affect more and more people, and the proposed retirement income fund allows for greater flexibility and potentially a more affluent retirement for everyone.

As with the Canadian system, under the new system at retirement, individuals would be able to choose whether to convert their pension saving into an annuity or a retirement income fund. At age 75, people will need either to convert their pension funds into an annuity, or into an alternatively secured pension, which the Government introduced some years ago, or to place their funds into a RIF, to ensure that each individual has a ready income for their old age. If the individual remains in employment beyond 75, however, or if he has sufficient income to be above the minimum retirement income level, he would be under no requirements to withdraw income from his RIF. The funds could be self-administered—the individual could select, along with the trustees of the fund, what investments could be made or managed by the insurance or trust company. The advantage of such a fund is that unlike an annuity, the fund can continue to be invested in equities, mutual funds, banks deposits and bonds. It would be possible to change RIF providers or to have more than one RIF in order to diversify the portfolio and the risk.

Photo of John Butterfill John Butterfill Conservative, Bournemouth West

Would it also permit investment in property, either directly or through real estate investment trusts?

Photo of Malcolm Rifkind Malcolm Rifkind Shadow Secretary of State for Work and Pensions

Yes, I understand that it would. I do not see that that would be a problem. Depending on the size of one's fund, of course, the wisdom of investing in property would have to be taken into account, and for many people it would not be a serious option even if it were a theoretical one. There are collective vehicles, however, for those who wish to go down that route.

Photo of Stephen Timms Stephen Timms The Minister of State, Department for Work and Pensions

Is the right hon. and learned Gentleman aware of the concerns that, under the Canadian arrangements, there is a danger of people running out of money, particularly if they live until their late 80s or 90s? Does he have a sense of how large a pension pot people would need for them safely to go down the route that he advocates?

Photo of Malcolm Rifkind Malcolm Rifkind Shadow Secretary of State for Work and Pensions

Some concerns may have been expressed, but I am not aware of them. Certainly, the Canadian Government have no intention of withdrawing the scheme—it has been hugely successful, and almost half the pensioners of Canada use the arrangement that I propose. In addition, the Minister can be entirely assured because the amount that people will be permitted to withdraw from that fund for any purpose other than their retirement income will ultimately be controlled by the Government. They will determine what level of benefits are available to the public and the rate of entitlement to them, with actuarial considerations based on longevity as to what is a safe sum to be withdrawn in order not to run that risk. In 20 years, the problem has not emerged in Canada—it might be discussed at a theoretical level, but in practice it has not proved to be a problem.

Retirement income funds, again unlike annuities, allow individuals the flexibility to decide to use a larger proportion of their money in the earlier years of their retirement, on their leisure or on financially helping their children, without the risk that they would become dependent on state benefits by excessive erosion of their capital. The removal of compulsory annuitisation as the only retirement income option at 75 therefore allows individuals to have greater control over their investments and provides for the possibility of stronger investment growth in their retirement income funds and a variable level of income during retirement. The competition of such funds against the monopoly of insurance companies currently offering annuities might even encourage a more vibrant market and better value product.

One of the guiding principles behind my introduction to the House of this fund is, as I have said, choice. The other is that individuals should not become a burden on other taxpayers on retirement. Tax relief on pension savings recognises the benefit to society of encouraging savings to ensure that people do not fall into that category. The Government have previously objected to ending the compulsory annuity rule by emphasising that tax relief had been given for pension purposes and not for the accumulation of capital savings. But they have already undermined their own argument by allowing the withdrawal, tax free and without the need to repay the tax relief obtained, of a lump sum currently valued at 25 per cent. of the fund.

The conditions within the Bill, covered in clause 9, are designed to show our commitment to ensuring that those who choose to withdraw from the fund a lump sum or higher income than obtainable through an annuity do not then become eligible to receive pension credit. I refer specifically to the minimum retirement income, as defined in clause 11 of the Bill. That minimum retirement income will be set each year at a level equal to the Government's minimum income guarantee or the level at which an individual will find himself eligible to receive pension credit as a top-up of his total income. That total income includes state pension and other pension schemes or sources of regular income as calculated under the State Pension Credit Act 2002.

That would mean that where an individual's total income is higher than the minimum retirement income and assessed to be so over his lifetime, he can choose to withdraw more fully from his fund, leaving only what is needed to maintain him at or above the minimum retirement income, or to draw a low amount. That could lead to a nil balance left or a nil income taken. Conversely, where his total income is below that of the minimum retirement income, he will be obliged to leave within the fund sufficient funds to meet any shortfall over his lifetime and only withdraw to that limit. It is not my intention to provide for someone to withdraw all their retirement funds and later throw themselves on the mercy or charity of the state or other taxpayers.

Photo of Stephen Timms Stephen Timms The Minister of State, Department for Work and Pensions

How large a pension pot does the right hon. and learned Gentleman think that someone would need to have for that obligation to be met?

Photo of Malcolm Rifkind Malcolm Rifkind Shadow Secretary of State for Work and Pensions

First, that would depend on whether they had other sources of income. Most people—not all, by any means—have the state pension, and they might have an occupational pension, second state pension and so on. To meet the minimum retirement income, therefore, the retirement income fund will have to be maintained at the level needed to fill the gap between the income that they have from other confirmed sources of income and that which will avoid their falling into benefit. It will vary from individual to individual, but the ultimate parameters will be determined by the Treasury and the Government. For that reason, the Government's interest will be entirely secure.

Clause 10 covers the previously mentioned principle of allowing a retirement income fund to be taken either before or at age 75, in addition or as an alternative to an annuity or alternatively secured pension.

To promote fairness and a better deal for consumers, I have also addressed the need to make provision for people who purchase value-protected annuities, enabling them to have capital returned to their spouses or other beneficiaries when they die after age 75. At the moment, under the Government's rules, the return of capital, quite illogically and unfairly, is allowed if people die before age 75. If they die a day before they reach 75, their relatives get a proportion of the unused capital, whereas if they die a day after 75, they do not get a penny. That is a completely arbitrary rule, totally unfair and unjustified, and ought to be removed.

Clause 12, in part 2, covers the removal of the age limit for annuity protection lump sum death benefit. When people buy an annuity, they are buying an insurance policy against living longer than their funds allow. Annuities are sold by insurers who cope with the risk of paying out for longer than is profitable by retaining any remaining capital after an annuitant's death. Therefore, if an annuitant dies soon after purchase, the annuity provider stands to keep a large amount of capital. Many consumers feel that that amount of risk represents a bad deal.

From April 2006, as I have said, people can pay extra for value protection on their annuities, so if they die within a protected period, the remaining capital can be passed on in their wills, minus a tax charge. Under the Government's current proposals, that return is available only to those who die before the age of 75. I believe that the Government, like me, are committed to fairness regardless of age, and believe in helping consumers to get a better deal. This is the sharp end of equal opportunity and anti-age discrimination policies, and it is crucial if we are to persuade people to save more for retirement. When people know that the retirement income market is fair and that products represent good value, they will be more likely to save in the first place.

Part 3 covers the promotion of personal pension schemes, and it will not take more than a moment to explain. There is broad concern about the problems that are caused when people collect a large number of small pension pots. That has already been mentioned today. It is often known as high proliferation. When people stop paying into their main pension arrangements after a short period, it is known as low persistency. The problems largely stem from people's moving between employers, or in and out of employment. As a result, large numbers of people retire with private pension savings that are over-complicated, numerous and inadequate at the same time.

A recent survey by the Association of British Insurers found that more than 40 per cent. of people over the age of 30 have more than one personal pension, with some having more than five. ABI figures show that there were nearly 23 million personal pensions in existence in 2002, although Her Majesty's Revenue and Customs suggests that only about around 10 million were active and receiving tax relief.

A key problem is the fact that past practices and current stakeholder pension designation requirements ask employers to deduct pension contributions at source, but to pay the contributions into a single designated scheme. According to recent research, only 15 per cent. of people in receipt of an employer's pension contribution are able to choose where it is paid. That encourages low persistency, as when people move jobs they are likely to have to end the contributions to their former employer's pension schemes and start paying into a new alternative scheme. Allowing people to go on paying into the same pension after moving employers, and allowing easy consolidation of different pension arrangements, would not only benefit people who move jobs, but help those who return to paid work after a break and who already have an individual pension arrangement.

My Bill proposes reforms designed to make it easier for consumers to start paying and continue to pay into the same pension scheme, regardless of whether they move jobs. That will be achieved by allowing many more employees to have their employers' pension contributions paid directly into a pension scheme of the employees' choice. My reforms will increase radically the number of employers who offer the facility of paying pension contributions directly into a pension scheme of each employee's choice. The change would be implemented by asking those employers who have to designate a stakeholder pension to offer a payroll deduction for contributions to any stakeholder or other personal pension scheme, including SaRAs.

The Bill would also reduce the cost of running pension schemes, because providers would have fewer small funds to administer. For example, if people tended to take their pensions with them from job to job, there would be less need to pay initial commission to cover the sale of a new product, with a resulting impact on charges for consumers. The end result will be fewer, bigger pension funds which are easier for consumers to understand, which cost less to administer, and which provide higher incomes in retirement.

I apologise for detaining the House for so long, but I was of course pleased to respond to so many interventions. Let me finally say this. The Government have said on numerous occasions over the past few months that they hope it will be possible to achieve a degree of national consensus on savings and pensions so that future generations of savers and pensioners can be given certainty and security. We have told the Government that we understand that aspiration, but consensus requires the Government not only to speak but occasionally to listen, and to be prepared to accept sensible, constructive proposals that may come from other sources. It would not be acceptable for the Government, either explicitly or implicitly, to reject proposals simply because they were not invented here.

I hope that the Government will consider my proposals on their merits. I have no doubt that some changes will be needed in Committee to much of the detail. That is true of even the Government's legislation from time to time, so that in itself could not be an objection. I do not think that anything in the Bill conflicts with any of the objectives of Government policy. We all recognise that a savings crisis exists. The schemes in the Bill are not theoretical: they are not "unthought" ideas. They have worked in practice, particularly in Canada, for the last 20 years.

The Bill has bipartisan support. I have already mentioned the right hon. Member for Birkenhead, who carries a good deal of weight in the House when it comes to these matters. I hope that the Minister will be able to give a positive response, and that the House as a whole will consider the Bill worthy of its support.

Photo of Sarah McCarthy-Fry Sarah McCarthy-Fry Labour, Portsmouth North 10:45 am, 28th October 2005

I congratulate Sir Malcolm Rifkind on his success in the ballot. I sympathise with his discomfort in speaking from the Back Benches. I too am speaking from the Back Benches, but then I know no different.

Perhaps the right hon. and learned Gentleman should ask himself why he was so summarily deprived of the comfort of the Front Bench, and why he spent eight years out of Parliament. The reason is the Conservative Government's mismanagement of the economy, the shocking poverty in which our poorest pensioners were left after 18 years of Tory government and the perception that the Conservatives were interested only in the better off, not the lower paid, the disabled or pensioners who had only the state pension to live on. The Bill is laudable for his supposed aim of introducing flexibility and simplicity, but I fear that while its flexibility may assist those who are financially literate, it does not address the needs of those who face financial exclusion.

Photo of Tobias Ellwood Tobias Ellwood Opposition Whip (Commons)

Is the hon. Lady suggesting that the current state of our pension systems is due to the actions of the last Tory Government? That is preposterous. The system has been ruined because of the present Government, not the last Tory Government. We handed over a very good system in 1997; it is now in an utter mess.

Photo of Sarah McCarthy-Fry Sarah McCarthy-Fry Labour, Portsmouth North

The pensioners who were living in poverty after 18 years—the poorest pensioners, having to live on the state pension—would not agree with the hon. Gentleman.

Photo of Mark Harper Mark Harper Conservative, Forest of Dean

May I support my hon. Friend Mr. Ellwood? Mr. Field said

"The big issue that ought to be worrying the whole of the Government, because it's worrying voters, is that when Labour came to power we had one of the strongest pension provisions in Europe, and now probably we have some of the weakest".

Photo of Sarah McCarthy-Fry Sarah McCarthy-Fry Labour, Portsmouth North

We need to return to the point about who the pension provisions were for. Let me repeat that the millions of pensioners living in poverty, having to live on just £69 a week, would not consider themselves to have a very strong pension provision.

Photo of Angela Smith Angela Smith Labour, Sheffield, Hillsborough

Many retired steelworkers in my constituency are now in the awful position of being spiritually broken by the destruction of 30 years of pension savings by employers who raided pension funds. Does my hon. Friend agree that it was this Government who did something about that awful situation?

Photo of Sarah McCarthy-Fry Sarah McCarthy-Fry Labour, Portsmouth North

Of course I entirely agree with my hon. Friend.

Photo of Andrew Gwynne Andrew Gwynne Labour, Denton and Reddish

Did not many people find that they have been mis-sold private pensions? That too is something that this Government have started to tackle.

Photo of Alan Haselhurst Alan Haselhurst Deputy Speaker and Chairman of Ways and Means

Order. If we are to retain some order in the debate, Sarah McCarthy-Fry should be given a chance to finish her reply to the last intervention before another tumbles in upon it.

Photo of Sarah McCarthy-Fry Sarah McCarthy-Fry Labour, Portsmouth North

Thank you, Mr Deputy Speaker.

I agree with my hon. Friend Andrew Gwynne. Many people were mid-sold pensions and are having to find their way through their difficulties, and it is this Labour Government who have helped them to do that.

I have been accepting interventions because I was advised, as a new Member, that it was very bad form not to accept them. I now give way to Mr. Binley.

Photo of Brian Binley Brian Binley Conservative, Northampton South

I thank the hon. Lady for her kindness. I had hoped, however, that the debate would not descend into party-political point-scoring. I honestly feel that it is not helpful.

Speaking as a secondary modern school boy who left school at 15 and has all the classical working-class attributes, I consider the hon. Lady's remarks to be particularly unhelpful to those who did work for a living. If she wants to get into point scoring, will she tell me what good levying £5 billion-worth of tax for the last eight years has done for any pensioner in this country?

Photo of Sarah McCarthy-Fry Sarah McCarthy-Fry Labour, Portsmouth North

Pensioners have benefited greatly from the strong economy that our Chancellor has delivered in the past eight years, and which certainly was not delivered under 18 years of Tory rule. I want now to address the Bill.

My concern is that although the flexibility described in the Bill assists those who are financially literate, it does not address the needs of those facing financial exclusion. Some 1.5 million households lack even the most basic of financial products, and these people are heavily concentrated in communities with high overall levels of deprivation.

Photo of Justine Greening Justine Greening Vice-Chair (Youth), Conservative Party

I thank the hon. Lady for giving way. It is clear from my constituency experience that one reason why many people have poor personal financial provision is that they do not understand the products on offer. However, does she not accept that the simplicity that the Bill would introduce to saving through the SaRA is at least a step forward compared with the current system? Perhaps it is just part of a wider solution to the pensions and savings crisis that we face, but surely it is a step forward, rather than back.

Photo of Sarah McCarthy-Fry Sarah McCarthy-Fry Labour, Portsmouth North

As I have already said, the Bill's aim of bringing simplicity is laudable, but the simplicity that it offers is not relevant to many of my constituents. There are areas of severe deprivation in my constituency, where between 14 and 17 per cent. of residents are seriously in debt, and between 38 and 50 per cent. experience stress in paying household bills. Financial exclusion—the lack of access to mainstream financial services—often affects the most vulnerable residents, such as the unemployed, single parents and people with disabilities. Inadequate access to appropriate financial services has forced many residents in my constituency to resort to high-cost lenders such as loan sharks.

The authors of a 2001 study on tackling social exclusion worked with residents of a community similar to the Portsmouth community that I have just described, in order to identify their most pressing needs and the most appropriate ways of meeting them. They found that such people welcomed being consulted and had a clear idea of what would best meet their need. They welcomed, for example, the development of basic bank accounts that cannot be overdrawn. They aspired to save but frequently needed to borrow, and they were attracted to schemes that linked saving and borrowing, such as credit unions, to which I shall return.

The SaRA, or "Sarah"—I am very flattered, but I am sure that the right hon. and learned Member for Kensington and Chelsea did not mean to name it after me—appears to offer flexibility, but for people facing financial exclusion such flexibility is in the realm of dreams. They could not commit to the sums that they are required to save every month, and the options for the drawdown are absurd. People facing financial exclusion need to withdraw funds—

Photo of Malcolm Rifkind Malcolm Rifkind Shadow Secretary of State for Work and Pensions

The hon. Lady says that such people would be unable to afford the sums that they are committed to contributing, but there is no commitment at all. They can pay as little or as much—or, indeed, nothing at all—in a given month, if their financial circumstances point in that direction. So there is total flexibility to adapt not just once and for all, but each month throughout their working lives.

Photo of Sarah McCarthy-Fry Sarah McCarthy-Fry Labour, Portsmouth North

The right hon. and learned Gentleman and I are talking about different worlds. I am talking about people who will save small change and who may not be in regular work.

Returning to the drawdown, such people need funds to buy a child a pair of shoes, not a house. They do not earn enough to buy a property themselves, let alone to help a child purchase their first house. People facing financial exclusion have often been caught by loan sharks, and they have to be able to break the cycle of borrowing before they can even start saving.

The 2001 study also noted that among people facing financial exclusion, there was a widespread mistrust of banks and insurance and credit companies, and a very high level of disengagement from financial services. Levels of knowledge were low. However, although people had little money to save, saving was considered a high priority. Saving was an almost universal aspiration—for the sense of security that it gives, and because it can reduce dependence on high-cost credit. But as I have said, those facing financial exclusion can afford to save only very small amounts, and they often do so informally. In the main, banks and building societies are not interested in small sums, particularly if they come in the form of loose change. These people are looking not for a savings and retirement account, but for a simple and secure savings account into which they can pay small sums.

A further study was undertaken in 2002 by National Energy Action, the New Economics Foundation and the Personal Finance Research Centre. This research linked fuel poverty with financial exclusion, and sought ways to help financially disadvantaged groups to use financial products to enable them to take advantage of cheaper, electronic methods of bill paying. Focus groups in three cities, including my own constituency, featured in the study. The profile of households paying their bills in cash revealed that more than half were tenants in the social rented sector; that almost half were single adults, a large proportion of whom were single parents; and that a disproportionate number were non-pensioner households with no one in paid employment.

The report concluded that financial exclusion imposes costs on everyone. The excluded are denied access to essential services, and providers of those services can incur enormous costs in pursuing and recovering debt. The consequences of debt go further than simply not being able to pay a bill. They can lead to desperate and chronic debt problems, resulting in people incurring further debt at exorbitant cost. This becomes a vicious circle, leading to further impoverishment.


Rather by definition, people who aren't in work and don't ever have access to money to save won't be investing in any kind of pension at all. Nothing that Sarah McCarthy-Fry has said here relates to the bill at all.

There is nothing to be done to encourage people with no money to save it, but it seems reasonable to provide an incentive for people with small or moderate amounts of money to save some.

Submitted by Sam Evans

Photo of Brian Binley Brian Binley Conservative, Northampton South

You are very kind in giving way. I understand what you are saying about the people whom—

Photo of Alan Haselhurst Alan Haselhurst Deputy Speaker and Chairman of Ways and Means

Order. I am always very kind, but I think that the hon. Gentleman is referring to the hon. Lady.

Photo of Brian Binley Brian Binley Conservative, Northampton South

I am indeed, Mr. Deputy Speaker. I understand what the hon. Lady is saying and she is speaking for such people particularly well, which is appreciated. I am not sure, however, that her defence of them is an argument against the Bill proposed by my right hon. and learned Friend Sir Malcolm Rifkind. In what way are her observations an argument against trying to help the many millions of people that this Bill will benefit?

Photo of Sarah McCarthy-Fry Sarah McCarthy-Fry Labour, Portsmouth North

If Members allowed me make progress, they would perhaps see where my argument is leading. This is a question of the differing priorities of Members in different parts of the House.

One thing that this report had in common with its predecessor was the acknowledged role of credit unions in helping to tackle financial exclusion. Throughout the English-speaking world, credit unions have been highly successful in extending low-cost financial services to communities, particularly those not well served by mainstream providers. As of September 2003, there were 665 registered credit unions in the UK. Based on either a geographical area or a work force, credit unions operate as co-operative savings and loans agencies. A credit union is required to establish a "common bond" between its members, and in recent years this has been taken to include whole cities, including my own constituency.

In Portsmouth, Pompey Savers Credit Union has proved a valuable tool in tackling social exclusion by helping people to learn the value of making regular savings, however small, which the union then uses to provide a source of low-cost credit. That is particularly valuable for those who have difficulty borrowing at affordable rates of interest from mainstream financial providers, and who might otherwise turn to loan sharks.

Photo of Ed Vaizey Ed Vaizey Conservative, Wantage

The hon. Lady is talking the language of priorities, but is she aware that when this House debated the Consumer Credit Bill, her Government resisted calls from Conservative Members for an interest rate cap on loan sharks? Surely she should address her remarks to Government Front Benchers, who missed the huge opportunity provided by that Bill to crack down on loan sharks.

Photo of Sarah McCarthy-Fry Sarah McCarthy-Fry Labour, Portsmouth North

Credit unions are a way of tackling loan sharks, and recent financial services legislation greatly enabled credit unions to make progress in this regard.

As a co-operator, I have long supported credit unions. They are financial co-operatives, which are part of Britain's long-established co-operative movement. Since the Rochdale pioneers of the 19th century, people have been working together to share skills and resources and to make their communities a better place.

People in low-paid jobs need security and flexibility over day-to-day financial decisions—putting food on the table and paying the electricity bill. They do not have the luxury of massive amounts of disposable income to save, but please do not think that I am ignoring the needs of those members of our society who do. However, those people do not need yet another uncosted savings scheme offering tax breaks, when we already have one—the individual savings account or ISA, which is the Government's primary vehicle for tax-free savings outside pensions. It has worked well and more than 16 million people currently have an ISA. More than £180 billion has been subscribed to ISAs since their launch in 1999 and it has been supported by about £1.6 billion in tax relief for savers. In short, the Government's aims of targeted support and incentives for saving from childhood through working life and into retirement are, I believe, already met by the current products on offer.

As for the retirement income fund, it seems to me that, like the savings retirement account, it favours those with above-average earnings. I am struggling to see how it would benefit those for whom it is difficult to build up pension entitlement, particularly women, as my hon. and learned Friend Vera Baird mentioned. The incomes of female pensioners are lower than those of men because, historically, pensions have been tied to the workplace and the national insurance system. That has disadvantaged women because so much of the work that they have traditionally done—caring and bringing up children—is in the home and is unpaid.

The Labour Government have recognised that and given many women, as well as other carers, low earners and disabled people, the chance to build up a decent pension for the first time by introducing the second state pension. That is particularly important for low earners and those with caring responsibilities, since they are credited as if they had at least £11,600 a year. The second state pension is at least twice as generous to low earners as the previous state earnings-related pension scheme and, of course, SERPS completely excluded carers and disabled people from building up a decent state pension.

I am not convinced that the proposals in the Bill offer an advantage, even to those people it purports to help—namely, the better off—because the new rules for income drawdown and alternatively secured pensions that come into force next April will offer additional options that are easier and simpler to administer. In addition, they will allow a tax-free lump sum when benefits are taken.

Photo of Justine Greening Justine Greening Vice-Chair (Youth), Conservative Party

In my Putney constituency, the average voter age is 34, and I believe that the Bill would greatly help the 20-somethings and 30-somethings. In the context of what is being proposed, there is ample evidence in Britain that such people, who are trying to get on the property ladder, often prefer a mortgage product with a huge amount of flexibility to allow for stopping payments or drawing down lump sums in order to invest in a property. Surely that suggests that the sort of savings and retirement vehicle offered in the Bill is precisely the product and tool that many of my constituents would like.

Photo of Sarah McCarthy-Fry Sarah McCarthy-Fry Labour, Portsmouth North

Once again, it comes down to priorities. We are talking about pensions and the fact that we are asking people to prepare a secure pension for when they retire. I believe that the vehicles already on offer under the present Government meet those requirements.

In conclusion, given that the Government already offer—[Interruption.]

Photo of John Butterfill John Butterfill Conservative, Bournemouth West

Before the hon. Lady concludes, does she really think that the existing annuity rules are tenable in the long term? Does she agree that no independent financial adviser would, if there were no compulsion, advise anyone to buy an annuity, particularly if they had limited life expectancy through a severe disease? Yet some people are being forced to buy an annuity when they know they may die within two years.

Photo of Sarah McCarthy-Fry Sarah McCarthy-Fry Labour, Portsmouth North

The right hon. and learned Member for Kensington and Chelsea has already said that, in the majority of cases, purchasing an annuity would be the best option. I would also draw the hon. Gentleman's attention to the fact that we are varying the annuity rules that come into effect next April.

Given that the Government already offer significant incentives to save via tax relief and national insurance relief—

Photo of Nick Hurd Nick Hurd Conservative, Ruislip - Northwood

Specifically on that point, the hon. Lady talks about the Government's record on delivering incentives to save. Does she agree with the Pensions Commission, which found that

"means testing within the state system both increases complexity and reduces, and in some cases reverses, the incentives to save via pensions which the tax system creates."?

Photo of Sarah McCarthy-Fry Sarah McCarthy-Fry Labour, Portsmouth North

In my constituency, means-tested benefits have lifted an inordinate number of pensioners out of poverty and enabled them to live an independent life. Many pensioners living on £69 a week in 1997 have told me that, now, they have never been so well off.

If one takes the view, as I do, that tax reliefs on pension savings should be used to provide a secure income in retirement, not to build up a capital asset to pass on to one's heirs, I consider the Bill to be unnecessary. Notwithstanding that, I also consider it to be premature, as we are shortly to see the publication of the second report of the Pensions Commission.

We are all aware of the serious demographic challenges facing us over the next 50 years. Quite frankly, we are all living longer, and that trend looks set to continue. Back in the 1980s, a man could probably count on an average of 14 years of post-65 retirement, but on current trends, we can expect that to be 22 years by 2051. If we set that trend against a falling birth rate, it easy to see why there will be a large increase in people of pensionable age and the challenge for the Government is to find a solution that tackles poverty, that is open to all, but which keeps Government expenditure at sustainable levels. That, of course, is the reason why the Pensions Commission was set up. It seems to me to be premature to bring forward this Bill in isolation—given that it is narrowly focused in favour of the better-off—in advance of the wide-ranging debate that I am sure we will have when the Pensions Commission report is published.

Photo of David Laws David Laws Shadow Secretary of State for Work and Pensions 11:06 am, 28th October 2005

I am pleased to be able to contribute to the debate and I start by congratulating Sir Malcolm Rifkind on introducing the Bill and on the constructive way in which he made his proposals. Clearly, the attempt to incentivise savings in this country and to increase the amount of private saving is timely. Government figures released yesterday show that only 44 per cent. of people of working age are currently making any provision for their own retirement on top of the state pension. That must surely be a matter of concern.

Photo of Stephen Timms Stephen Timms The Minister of State, Department for Work and Pensions

I apologise to the hon. Gentleman for intervening so early in his speech and I am grateful that he has allowed me to do so. May I correct him, as there have been some misleading headlines about those figures this morning? The proportion to which the hon. Gentleman refers is the proportion of employees in defined benefit schemes. If we add in the other forms of pension savings, the proportion of employed people contributing presently is, on the basis of the new figures, 56 per cent. compared with 55 per cent. in 1997.

Photo of David Laws David Laws Shadow Secretary of State for Work and Pensions

We could trade statistics for some time. I was talking about people of working age, not just people who are in employment. Surely we should be concerned about all individuals of working age. I am sure that the Minister would agree that, irrespective of what figures he wants to place on the table and in the light of the figures reported in the media today, there is a massive crisis in respect of the lack of additional private saving that is being made on top of state provision. I am sure that Lord Turner would agree with that, too. So far, the Government have been unsuccessful in shifting the balance of provision away from reliance on the state towards more private forms.

In that context, the Bill is timely and we agree with a number of proposals within it. It also highlights the need for the Government to join up their thinking in a number of areas in respect of pensions and savings policy. Mr. Vaizey pointed out earlier that the Government are spending a considerable amount of money establishing child trust fund accounts. They will initially cost about £0.25 billion a year, stepping up to more than £0.5 billion over a period of time. The idea behind the accounts is to get young people engaged in the savings habit from an early age. We are sceptical about the value of those accounts, but if the Government are going to introduce them, why on earth is there no joined-up thinking about them? The accounts mature when the person reaches the age of 18; why are not those 18-year-olds then encouraged to use the accounts as a vehicle for saving and, ultimately, as a vehicle for retirement? When the Child Trust Funds Bill was in Committee, I put to the Financial Secretary precisely the point raised today by the hon. Member for Wantage, and it was clear that the Government had not thought about it. That is baffling.

The right hon. and learned Member for Kensington and Chelsea has set out some important proposals today, which may be of help in addressing the savings gap. It is also appropriate to say that Sarah McCarthy-Fry—she was obviously encouraged to give way to interventions to an extent that she may never do again—highlighted the fact that the pension provision crisis is far wider than the issue of incentivising private saving, which will always be easier for those individuals on higher incomes. Today's debate, therefore, covers only a small proportion of the debate that we will want to have once Lord Turner has presented his report at the end of November. Indeed, I am sure that the right hon. and learned Gentleman would concede that his Bill does not seek to address all of the problems in the pension system and that it would leave many people with considerable problems under the present system.

The Bill contains three major proposals, which I shall address in order of my enthusiasm for them, but I shall give the right hon. and learned Gentleman two cheers, not three. I agree with the first proposal to do away with the existing, inflexible rules on annuities. My hon. Friend Steve Webb has spoken several times on that issue in the past few years, and our party believes that we need more flexibility in the rules to give people more choice in retirement. That would become much easier if we had a state pension system that took people above the means-tested level or out of poverty. The Government's inclination to stick with the annuity rules is partly, I presume, driven by their concern that people might blow all their money early in their retirement and then fall back on means-tested benefits. We hope that Lord Turner will propose a movement away from the means-tested system, towards which we have been increasingly driven since 1997, through the introduction of a much better state pension that would lift people out of poverty, set at or above the means-tested level. If that happened, it would be much easier for the Government to be more relaxed about how people manage their private funds in retirement. The questions that the Minister asked about the risk that people might run out of money towards the end of their retirement, especially as they are living longer, would be less of a concern. That risk would still be of concern to the individuals, and they would have to take personal responsibility for the way in which they managed the funds, but the state's responsibility is to ensure a minimum level of provision. Therefore, we support the right hon. and learned Gentleman's proposals for removing the inflexibilities in annuitisation, which include his well-named RIF proposal.

The second proposal would increase the portability of private employer-provided pensions. That is an important issue, given that people increasingly have several different employers during their working lives and may want to take their pensions with them, instead of having several different pensions in different places. The right hon. and learned Gentleman's proposal seeks to update the present pension system for the modern era and I hope that it can be linked with some of the suggestions—welcomed by all three parties—for more auto-enrolment, so that every employee ends up in a pension scheme unless they decide to opt out. If that happens, new pension options will be necessary, because small and medium employers may not want to establish their own pension schemes. We may need to consider options that give people confidence that they will not pay a large portion of their savings in commissions, that are solid in terms of credit risk and that take low market risks. The Minister will know that my hon. Friend the Member for Northavon, in pensions proposals we made earlier this year, suggested that National Savings and Investments might have a role in establishing a low-risk, low-cost pension that could be the default option for people who are auto-enrolled by small and medium-sized employers who may not wish to establish schemes of their own. The right hon. and learned Gentleman's proposal fits in well with the thinking—I hope—of all three parties about the need to ensure in the future that we use the force of inertia to keep people in second pensions, instead of keeping them out, which has been the case for many years.

The Minister raised an important point about the burdens that the proposals may place on business, which will need to be addressed if they are taken forward. The right hon. and learned Gentleman pointed out that his proposals were published only a few days ago and it is therefore rather early for business organisations to comment. The Investment Management Association has already released a briefing paper on the Bill, which welcomes aspects of it, but also says that it does not address the genuine concerns of small to medium-sized employers who will have serious difficulty meeting the obligations in clause 3. The proposals would need to overcome some serious practical issues and we would also need to ensure that they did not undermine good existing employer provision. Employers must be very tempted to shed any responsibility for pensions, given the increase in longevity and poor asset market performance in recent years, which have made many employer pension schemes a massive financial liability. Many employers would welcome the opportunity to be rid of that responsibility, so we must ensure that giving people more choice of pension product does not erode the commitment of employers to that savings vehicle and result in inferior provision.

The third proposal, for a savings and retirement account, is the one that I approach with greater caution. It is proposed that people would be able to save and draw down their money under certain circumstances. I accept that the right hon. and learned Gentleman is attempting to create the most flexible possible system of saving to give people as much freedom and independence as possible, and we should all look favourably on proposals motivated by such considerations. However, we would need to resolve several serious practical issues, the first being tax relief and whether the proposals would simply shift savings around rather than increase the amount of saving. The hon. Member for Portsmouth, North mentioned the fact that the existing tax relief largely favours those in the upper income brackets. Some 60 per cent. of existing tax relief goes to upper-rate taxpayers and tax relief is not usually very relevant to people on low incomes. The second concerns the practicality of the draw-down mechanisms that the right hon. and learned Gentleman proposes. The issue really is whether his proposal that people should be able to save and draw out money in a pension vehicle is right, or whether we should focus on improving the existing pensions regime and enable the provision of a flexible savings vehicle for people who want to save money but have access to it.

On the first point, last year the Association of British Insurers released a report on UK pension reform that referred to the individual retirement accounts used in the United States, which are similar in some ways to the right hon. and learned Gentleman's proposals. The ABI points out that the current limit on contributions in the US is £1,058, plus £132 for a non-working spouse, which is just over £2,000 per household. However, it points out that tax deductibility under that scheme is limited to those who are not members of an occupational pension scheme and those who are on low earnings. It mentions that during the 1980s, when the rule was removed, it led to a surge in pension saving by those on higher incomes, and there was a fall when the rule was later reapplied.

Following an announcement in 2004, the Bush Administration plan to consolidate the wide range of existing IRAs and create a new form of personal pension product: the retirement savings account. Unlike most IRAs, the accounts will operate on a TEE basis—taxed, exempt, exempt—which means that contributions are made after tax, but returns and benefits are free of tax. In other words, the proposal in the US and the general way the accounts have operated there focus tax relief at the lower end of the income distribution scale. Unlike pension tax reliefs in the United Kingdom, which are all upfront with tax relief on retirement, the proposal in the US is to have the contributions made after tax and the accounts thereafter tax exempt. That is the same tax relief structure as we have on ISAs in this country.

I appreciate that the right hon. and learned Member for Kensington and Chelsea cannot say a lot about tax relief under the terms of the Bill, but my concern is that the proposal might become a vehicle for greater avoidance or postponement of tax by those at the upper end of the income distribution scale who already have significant tax reliefs and protection from double taxation. I would not want to spend much more on tax reliefs for higher earners, who are largely making good provision for their pensions. If that is what is implied by the Bill, I am very nervous about it. I am concerned that it would lead only to shifting of savings from non-tax advantaged accounts to tax advantaged accounts.

Photo of Justine Greening Justine Greening Vice-Chair (Youth), Conservative Party

Are not the hon. Gentleman's concerns analogous to those that he may well have about the Chancellor's proposal for self-invested personal pensions, in which people can invest in a second home and put it into a pension vehicle where it will be tax-free?

Photo of David Laws David Laws Shadow Secretary of State for Work and Pensions

The hon. Lady is right. We are concerned that the Government's proposals will be very expensive and that it is higher earners who will take advantage of it, as they will be able to gain even more tax relief on pensions. I return to the figure cited earlier: at the moment, 60 per cent. of tax relief on pensions already goes to upper-rate taxpayers, so the vast majority of people get very little help from it. We would not want to do anything to increase tax relief for, or direct it to, those on higher incomes, as the Government's existing proposals do.

The next consideration is the drawdown mechanism in clause 5. Subsection (6) sets out the terms under which drawdown can occur. There are two problems. One is the practical issue of monitoring the drawdown and ensuring that people pay the amounts back in later on, so that they do not take advantage of the tax relief and then blow it all on other assets without paying it back. The right hon. and learned Gentleman touched on that.

The other issue is whether these are the right items on which to allow people to draw out money from their pensions. The right hon. and learned Gentleman highlighted important events in people's lives, such as purchasing a house or investing in education, but it is not obvious why those particular conditions should be given a higher priority than the many other important events in people's lives; for example, being made redundant, facing substantial health costs or discovering that a child has a terminal illness. We can all think of many pressures and unexpected events that may be of a higher priority than those identified by the right hon. and learned Gentleman. The conventional way for people to deal with those problems is to have savings on which they can draw at any time and top back up whenever they want. That is the ISA provision already made by the Government. It is not tax advantaged in the same way as pensions, but it is tax advantaged to the extent that there is tax relief when the money is drawn out and the yield received.

Photo of Angela Smith Angela Smith Labour, Sheffield, Hillsborough

Does the hon. Gentleman accept that buying a first home is one of the key events in adult life? The Bill, in a sense, would help people to deal with the problem of the price of housing and the raising of a deposit. Does he agree, however, that the provision of affordable housing, not the Bill, is the key response to that problem?

Photo of David Laws David Laws Shadow Secretary of State for Work and Pensions

The hon. Lady is absolutely right, but I am sure that if I go too much into the provision of affordable housing, Mr. Deputy Speaker, you will quickly warn me that my remarks are wide of the Bill. Even the right hon. and learned Member for Kensington and Chelsea would not suggest that he is trying to deal with that problem in the Bill. I certainly share the hon. Lady's view that this is not the right way to solve it.

I am concerned about the third aspect of the right hon. and learned Gentleman's proposal. I do not want to end up spending more tax relief on those on higher incomes who may simply be redistributing their existing savings. I wonder whether the complexity of his proposal is worth the extra flexibility it is designed to achieve. Perhaps we ought to be focusing much more on improving the pensions architecture, allowing the existing ISA scheme to continue and making that the vehicle through which people deal with their rising and falling demand for cash as they go through their working life.

We welcome a large element of the Bill: two of the key proposals made by the right hon. and learned Gentleman. We are concerned about the third, as I have said. Like the hon. Member for Portsmouth, North, we think that the debate on pensions must go much further than incentivising people who are typically on high or upper middle incomes to save more. There are many other reasons why people are not saving more at present. They are related to the fantastic complexity of the pension system—the most complex in the world, according to the Turner Commission. They are related to means-testing, an issue raised by an hon. Gentleman earlier, which may ensnare up to 70 or 80 per cent. of the population in 50 years' time. It is leading many financial advisers to be very cautious about advising people to save when they fear that many of them may lose the advantage of those savings because their benefits will be withdrawn.

The problem of saving is exacerbated by people's recent lack of confidence in the pensions system, by their concern about the extent of charges and by the inertia that keeps many people from making private provision when there are so many other demands throughout their working life—demands that are increasing because of the cost of housing and the transfer of tuition costs from the taxpayer to students who have to pay back throughout their working life. These are the bigger issues that need to be resolved if Britain is to tackle the pensions crisis that it faces.

The Bill is a worthwhile contribution to the debate, but I hope that even the right hon. and learned Gentleman will agree that we will need to debate those other big issues when Lord Turner's report comes out.

Photo of Alan Haselhurst Alan Haselhurst Deputy Speaker and Chairman of Ways and Means

It may be helpful if I say to hon. Members that although spontaneity is never to be discouraged, it is helpful if they notify the Chair of their desire to speak in advance, as is customary.

Photo of Lyn Brown Lyn Brown Labour, West Ham 11:28 am, 28th October 2005

The Bill is a narrow reflection of the concerns that many of us have about pension policies. The hallmark of a good, decent society is not how well the strong prosper but how the weaker and most vulnerable are supported. A decent society is one that gives its eldest citizens dignity in retirement, and that is what the debate should be about. How can we honour the contribution of the older members of our society to the fortunes of our nation? To that end, I shall outline what I believe the Bill should have addressed, and make it plain why I do not support a Bill that does not face up to those obligations.

I shall start with some general observations on the proposals, then make specific points about the details of the Bill. First and foremost, I believe that the presentation of the Bill jumps the gun in the debate on pension provision in modern Britain. The Government have already acknowledged the importance of the issue not only for current pensioners or for my generation, but for those who are starting their working lives. That is why they set up the independent Pensions Commission to investigate how best society can alleviate the pressures on our pension provision. That reflects the fact that Labour Members are keen to find a solution not just for the short term, but for future generations. I welcome the Government's commitment to consultation, debate and consensus across all political parties and among the wider public, and their recognition of the importance of collective consent on the matter.

The commission has already contributed much to our understanding of the scale of the issues that we must address. It has highlighted the fact that 12 million over-25s are not saving enough for their retirement. Many members of the public share a concern about their financial future. The Henley Centre reports that 55 per cent. of the British public are worried that they will not have enough money on which to retire. I look forward to the final report at the end of the year and to seeing the broader picture that it will offer of the challenges facing us.

Photo of Tobias Ellwood Tobias Ellwood Opposition Whip (Commons)

The hon. Lady refers to several reports. Does she not think that a Government who have been in power for seven years—[Hon. Members: "Eight."] How time flies. Have we not had enough reports? Have we not had enough people commenting on the issue? Is it not now time for action? Sarah McCarthy-Fry said that Labour inherited a bad system, but I say that the system has got worse. The longer we wait before getting on with the job of improving our pension system, the worse it will be for pensioners of my generation.

Photo of Lyn Brown Lyn Brown Labour, West Ham

It is difficult to know where to start. I come from a poor area of the country. My pensioners would not recognise what you are saying about their position now compared with their position when the Conservatives left government. Perhaps one of the reasons why you are not speaking to my community is that you fail to understand their concerns—

Photo of Alan Haselhurst Alan Haselhurst Deputy Speaker and Chairman of Ways and Means

Order. The hon. Lady may have just guessed what she is getting wrong. She means the hon. Gentleman, not me.

Photo of Lyn Brown Lyn Brown Labour, West Ham

Thank you, Mr. Deputy Speaker.

What are the problems facing our society that we must tackle through legislative programmes? We must honestly appraise them, which is why we have had so many reports. We have listened and learned as the demographic profile of this country and many others changes.

Photo of Lyn Brown Lyn Brown Labour, West Ham

Like many nations throughout the developed world, our people are living longer and, thankfully, better lives. In 2002, there were 10.9 million pensioners in the UK; according to Government figures, their number will increase to 15 million by 2031. The issue does not only affect us. Age Concern points out that by 2050 more than 30 per cent. of all European Union citizens will be aged over 60. All developed nations are looking to secure their future. If we want future pensioners to share in our nation's prosperity, as is right, we must recognise that the changing demographic picture creates new challenges for our society. That is why the Government are taking action. It is a sign of those changes that when the state pension scheme was first introduced, there were 10 people in work for every pensioner; now, there are four, and within the next 50 years we will reach the point where there are only two people in work for every pensioner.


...and will she realise that two people paying tax to support a third person is just not sustainiable?

Submitted by Sam Evans

Photo of Greg Clark Greg Clark Conservative, Tunbridge Wells

If things are as rosy as the hon. Lady implies, why is indebtedness at an all-time high?

Photo of Lyn Brown Lyn Brown Labour, West Ham

I do not think that I painted a rosy picture. I clearly stated the difficulties facing us. I said that by 2050 more than 30 per cent. of the citizens of the European Union will be aged over 60. We should be concerned about how we will provide for the retirement of all those citizens, not just a few. The Bill will not help us to do that.

Those who are now under 50 will be affected by the changes that I have described. We need to make decisions now to avoid difficulties in 15 to 20 years' time, especially given the rapid and extremely welcome increase in longevity that this country has experienced in recent decades.

As the Member of Parliament for West Ham, I know that the picture of personal financial prosperity that the Bill represents does not speak to the majority of people in this country. The biggest difference to the incomes of many of the elderly residents of my constituency has come not from the stocks and shares they possess, but from the Labour Government's increases in the basic state pension and their introduction of the minimum income guarantee and pension credit, which I understand the Bill does not reflect.

Photo of Mark Harper Mark Harper Conservative, Forest of Dean

I do not think that my right hon. and learned Friend Sir Malcolm Rifkind suggested that the Bill is the answer to every aspect of the pensions crisis. It is worth remarking on means-tested benefits, to which the hon. Lady has drawn the House's attention. I do not criticise the Government for their initial reliance on means-tested benefits—the Conservatives had means-tested benefits when we were in power—but it is becoming clear that increasing reliance on such benefits to the point of being over-reliant on them gives younger people only negative incentives. She talks about the current older generation, but we must also be concerned about the younger members of our community who are not saving; we should worry about whether they will be in a good financial position when they are older.

Photo of Lyn Brown Lyn Brown Labour, West Ham

I recognise that we live in a world in which some people are getting by on the minimum wage. Report after report from the social exclusion unit shows that a person who starts work on a very low wage often finishes work on a very low wage. Such people do not have the opportunity that every Member of this House has to save for their old age. They are the people I want to protect. It is low-wage earners who keep our social services and our public services going; they contribute to our industry, our economy and our community, and just as they have provided for us, we must provide for them in their old age.

If we are to address the pressures on our pension system, our focus must change. As my hon. Friend Sarah McCarthy-Fry said, we must think about priorities—our own and those that the Bill reflects. I am concerned that SaRAs and retirement income funds will do little to help those who do not already have pensions or those who are at risk of pensioner poverty in future. The proposals would create tax breaks for the wealthy, I fear. Labour Members' interest is and will continue to be how to ensure that we in the UK end the scandal of pensioner poverty and make decent pension provision for all. It is no coincidence that retirement income has increased faster than earnings in recent years, with the largest increases seen among the less well-off, which reflects our priority of tackling pensioner poverty. In the past eight years, the boost to the state pension and the introduction of the tax-free winter fuel payment have helped all pensioners, whose average net incomes have increased by 19 per cent.—7 per cent. more than the increase in earnings.

The Government's pensions policy has been one of progressive universalism. I wholeheartedly support that approach, which has ensured that all pensioners benefit from a Labour Government, but that the most help goes to those who are in greatest need.

Photo of Julia Goldsworthy Julia Goldsworthy Shadow Minister, Health

Is the hon. Lady aware that a quarter of all people entitled to pension credit do not receive it? That is 1 million households. What are the Government doing to help to improve that situation? What is being done to reduce poverty among pensioners?

Photo of Lyn Brown Lyn Brown Labour, West Ham

I am pleased to say that in my local authority, the London borough of Newham, we have done a great deal to ensure that there is a take-up. I understand that the borough has one of the highest take-up rates for pensioners in the UK. I believe that take-up is 80 per cent. That is good but it is not good enough. Twenty per cent. of the community in Newham need to have the message put out to them. It is the duty of us all in the House to ensure that our communities have access to the information that they need.

Photo of Dan Rogerson Dan Rogerson Shadow Minister (Environment, Food and Rural Affairs)

The hon. Lady rightly points out that good work on take-up is going on throughout the country. I would not seek for a minute to say that that work is not taking place, but is it not right that there is not the money in the budget at present to pay all pension credit claims, if everyone were to take them up? Is that not a rather cynical move on the part of the Government? They are banking on people not having access to pension credit.

Photo of Lyn Brown Lyn Brown Labour, West Ham

It is incumbent on us all to ensure that the people who need the money most get that money. That means that everyone on pension credit is entitled to the money that is owed them. I do not see anyone on either side of the Chamber stating that that is not the case.

Measures such as pension credit have done so much to change the legacy that we inherited, when the greatest predictor of poverty was old age. In contrast, we have lifted almost 2 million pensioners out of poverty, and 3.3 million are receiving pension credit. That is why, on average, pensioner households are £1,500 a year better off than they were in 1997. The poorest pensioners are £2,000 a year better off.

It is a source of pride to me that in West Ham nearly 5,000 pensioners received the additional funding of pension credit, with an average award of £65.41 per week. That is a sign of the difference that the credit is making to the people of West Ham. That sum is nearly the total amount that the previous Administration were prepared to offer.

I am giving way.

Photo of Alan Haselhurst Alan Haselhurst Deputy Speaker and Chairman of Ways and Means

Order. The hon. Lady should be a little more explicit before she resumes her seat, otherwise another Member may have been called and her remarks would have come to a premature conclusion. I think that Justine Greening has been given the opportunity to intervene.

Photo of Justine Greening Justine Greening Vice-Chair (Youth), Conservative Party

The hon. Lady has moved on from the point on which I wished to intervene, so I do not intend to interrupt her flow any further.

Photo of Lyn Brown Lyn Brown Labour, West Ham

Lower pay often keeps the state second pension and the basic state pension out of the reach of many women. It is a great pity that space was not found in the Bill to include women within its remit. For example, 1.4 million women do not earn enough in a week to pay national insurance contributions. It is worth noting that anyone earning the minimum wage, working 16 hours a week, will not earn enough to build up an entitlement to the basic state pension. For many women who choose to work part-time to fit in with family commitments, those restrictions guarantee pensioner poverty in retirement.

In seeking to reform our pension provision to meet the needs of the age, our focus must not be limited to those who have capital and the assets to take part in occupational pensions or private savings schemes, or to those who are eligible for large payments upon retirement. We must seek legislation to ensure that in the years ahead all members of our society are offered the security and dignity in retirement that their contribution to our society requires.

Photo of John Penrose John Penrose Conservative, Weston-Super-Mare 11:44 am, 28th October 2005

I support the Bill even though I accept that it does not do everything for everybody, and that there is a much larger issue at stake. It is wrong to oppose it because it fails to do the complete job all in one go. After all, it is a private Member's Bill and is necessarily limited in scope.

I think that the Bill will help three groups in society, which all deserve help, if we can manage it. The first of these groups are people who are trying to buy their first home. I am sure that we all have examples in our constituencies of people who are finding it hard to put together the money to put down a deposit on their first home. My constituency, for example, is within commuting distance of Bristol. The price of houses is rising rapidly and local people, particularly those on lower incomes, are finding it extremely hard to make that all-important and vital first step on to the housing ladder.

Photo of Angela Smith Angela Smith Labour, Sheffield, Hillsborough

I return to my earlier intervention when I made the point that it will be precisely those people on lower incomes who will not be able to benefit from the provisions of the Bill, because they will not have the money in the first place to put into the plan. Deposits are too high and affordable housing has to be the answer for the sort of constituencies that the hon. Gentleman is talking about.

Photo of John Penrose John Penrose Conservative, Weston-Super-Mare

I accept that affordable housing will be part of the solution. However, I do not accept that it is the only answer. I think that the Bill sets out a useful and valuable contribution to helping people get on the housing ladder. It may not be the complete answer, but that does not mean that it is entirely a bad thing to do.

The second group of people who will be helped by this measure are those who have had forced upon them a career break of some sort. This is mainly to do with the opportunity to draw down part of the fund that has been created.

Photo of Anne Snelgrove Anne Snelgrove Labour, South Swindon

Does the hon. Gentleman not accept that there are huge risks in drawing down a pension, which have been identified in the USA? Only a fifth of those in the USA who opt to unlock their pension fund on changing jobs plan to put their pensions into a new pension. They use the money, as the hon. Gentleman has identified, for housing or for a career break. Tax relief on pension savings is there to provide pensions, not tax release on house buying and adult education. These are areas that need different solutions, solutions that the Government are providing, which Opposition Members always vote against.

Photo of John Penrose John Penrose Conservative, Weston-Super-Mare

I draw the hon. Lady's attention to two points. First, the analogy with the USA is perhaps not an apposite one. The scheme that we are discussing is based on the Canadian model, which does not have the same parameters within which the USA model currently exists.

Secondly—this point relates particularly to adult further education—last night I attended a governors' meeting of my local FE college. There is great concern in the FE sector about the proposals that are being put about by the Learning and Skills Council and the effect that they will have on people who want to take up adult FE courses, particularly at level 3 and above, and the effective cuts in the funding of those courses. If those cuts are to take effect, it is vital that we find other ways of assisting people who are out of work for one reason or another. They may have been made redundant and need to change careers. They may have been forced into leaving their job through sickness and be on incapacity benefit. There are young mothers who are seeking to return to the work force after a period away. All these three groups need some help in returning to the work force. They also need some help in reskilling. Given the Government's current plans, with the Learning and Skills Council, they will not be helped. They need some additional provision. The Bill will help to provide it.

The third group, which is crucial, is that of pensioners. As an MP who represents a constituency with one of the highest proportions of pensioners, I have lost count of the number of pensioners who have complained about the requirement to buy an annuity at 75. In some cases that is the right thing to do, but they think that the lack of choice at that age takes away their dignity and the flexibility to make decisions for themselves. They accept the need for financial stability and, wherever possible, they wish to avoid becoming a burden on the state by drawing down state benefits. However, they want the respect to which their years entitle them, and wish to be allowed to make their own decisions rather than being told what they have to do. The Bill is a valuable and flexible measure that will restore a great deal of that dignity.

Finally, while those important groups in society need help, the Bill will have an economic benefit, as it should help to improve the savings ratio by reducing the number of pension schemes. Last night, I added up my pension schemes—perhaps this is a declaration of interest—and found that I have eight. I would be willing and able to save much more, and I suspect that many other people would too, if our pension schemes could be rolled into one. I therefore support the Bill.

Photo of Dari Taylor Dari Taylor Labour, Stockton South 11:49 am, 28th October 2005

I congratulate Sir Malcolm Rifkind on securing a high place in ballot. It is important that we discuss new proposals on retirement pensions, which are a serious problem, so he has my warm support thus far.

The right hon. and learned Gentleman's proposal falls into four distinct parts. First, it suggests that we should increase the opportunities for long-term savings with tax incentives. I have no objections to that proposal save for the reservations that have already been outlined by other hon. Members. Mr. Laws dealt with the issue, as did my hon. Friend Sarah McCarthy-Fry, who spoke eloquently about the problems of poverty that many of us confront day after day. It is the Government's role to prioritise need, but to support a scheme that excludes a large percentage of our constituents would put that role in jeopardy.

Photo of Malcolm Rifkind Malcolm Rifkind Shadow Secretary of State for Work and Pensions

I am puzzled by the approach taken by the hon. Lady and one or two of her hon. Friends. They say that the Bill excludes many people and is not worthy of their support. Did the hon. Lady take the same view when the Government introduced stakeholder pensions, which are of no use to people in serious poverty because they are unable to make any savings at all? She and her hon. Friends welcomed stakeholder pensions because they help many people on lower to middle incomes, so why does she not take the same view of my proposals?

Photo of Dari Taylor Dari Taylor Labour, Stockton South

The right hon. and learned Gentleman is right that I supported stakeholder pensions. I did so because they are aimed primarily at the low-paid.

Photo of Dari Taylor Dari Taylor Labour, Stockton South

I disagree.

Secondly, the right hon. and learned Gentleman's measure would establish an amount of savings that can be taken from employer to employer. It is a flexible wrap-around measure, as he said, it is problematic. He should have discussed his proposal with the Federation of Small Business and the Chambers of Commerce. He laughed at me for making such a suggestion, but when I introduced the Cardiac Risk in the Young (Screening) Bill I spent three months with cardiac specialists to make sure that my proposals were effective and appropriate. The right hon. and learned Gentleman is well versed in these matters, and he should have adopted a similar approach. We should know what the Federation of Small Businesses says about the additional responsibility imposed by his Bill. Pension funds have been raided not once but many times, which makes us wary about trusting individuals who administer them. Of course, not all of them are at fault, but there have been enough worrying cases to give rise to concern.

Finally, Sir John Butterfill is highly regarded in the House as a pensions expert. He said that actuary values were a problem. The response of the right hon. and learned Member for Kensington and Chelsea was not clear, but his own colleagues have already identified complications to which his proposals would give rise.

The third part of the proposal suggests that savings can be taken directly from income. Is it not superb that many of us who are employed could save from income? However, only 13 per cent. of women are eligible to receive a basic state pension. That tells us what their income is, and that they could not possibly save from it. They do not have an income from which to save. They are on low pay or, as carers, on no pay. The right hon. and learned Gentleman would have done the House proud if he had focused on that issue and challenged the authority of the House through his Bill. There would have been great support from Labour Members.

The fourth part is the proposal that savings should remain tax free, as it is savings directly that will achieve a pension. Again, I have no problem with that, but the Bill suggests a drawdown. I take my information from the Conservative website so I can be sure it is correct. Four examples are given. One is that people could take 60 per cent. or £40,000, whichever is the lesser, out of the account. They would have to repay it, though not until at least four years after the date that the money was taken out. If they did not repay the withdrawal, the money would be taxable. If my constituents were able to take £40,000 out of their pensions pot, I wouldn't half feel good. If I could take that sum out of my pension pot, I would feel good.The Bill is supposed to be for people on low and average incomes, but it clearly is not.


You can't disagree, you daft bint. If Sir Malcolm introduces a bill aimed primarily at low-to-middle income workers, you can argue about how well the bill achieves those aims, but it makes no sense to just "disagree".

Submitted by Sam Evans Read 1 more annotation

Photo of Malcolm Rifkind Malcolm Rifkind Shadow Secretary of State for Work and Pensions

As I tried to explain in my opening remarks, the figure of £40,000 was not plucked out of the air. We are trying to help lower and middle income people who might wish to purchase their first house. That means paying a deposit. The average deposit for a first-time buyer—not for a wealthy person buying an expensive property—in London, which is the highest expense area, is £31,000. The figure of £40,00 is geared around that level. It does not mean that people must withdraw that sum. That is the maximum that can be withdrawn, in order to help people on low or middle incomes. The hon. Lady has many young married couples in Stockton, South who will wish to purchase their first property and will wish not to be deterred from saving in order to do so.

Photo of Dari Taylor Dari Taylor Labour, Stockton South

I entirely accept what the right hon. and learned Gentleman says. However good or bad the example is, the opportunity of withdrawing £40,000 suggests to all of us that the proposal has no universal intention. It is only those on above-average incomes who can afford to benefit from the proposal.

I am pleased to have the opportunity to speak in the debate. It is a useful debate, although I disagree with the right hon. and learned Gentleman's proposal. It is important for all of us to consider such a proposal, even if, as I shall do, we gut it and throw it out.


Do the words "up to" mean something different in Stockton? In words of very few syllables: Low to medium income people are not saving much money in pensions. One of the reasons that young people are put off pensions is that they know they will need lots of money to buy a house. This bill lets you withdraw a house-depsit sized amount of money from the pot. ...

Submitted by Sam Evans Continue reading

Photo of Justine Greening Justine Greening Vice-Chair (Youth), Conservative Party 11:58 am, 28th October 2005

I am grateful for the chance to speak in the debate. I shall start by expelling a few myths that seem to exist among those on the Labour Benches. My constituency, Putney, includes what may be Europe's largest council estate, the Alton estate in Roehampton. I have 12,000 people there, many of whom experience exactly the problems outlined by Labour Members. As their MP, I am determined to represent those people and their interests to the best of my ability. Of the Labour Members who are promoting private Members' Bills, I see none introducing Bills relating to pensions.

Photo of Anne Snelgrove Anne Snelgrove Labour, South Swindon

Labour Members have not introduced private Members' Bills on pensions because we are waiting for the Government's pensions review.

Photo of Justine Greening Justine Greening Vice-Chair (Youth), Conservative Party

Lyn Brown has discussed not jumping the gun, but we have waited a long time for it to be fired—it has been primed, but we are still waiting. Once the final Adair report is published on 30 November, I hope that the Government have the guts to consider introducing the proposals. Given the problems that Labour Members have outlined so eloquently, pensioners and my constituents have waited a long time for concrete proposals. I speak on behalf of not only my constituents, but my generation—the 30-something generation—who tend to move from role to role, generating pension pots as they go. Such diverse lifestyles allow some women to come out of work, possibly bring up a family and then return to work.

The Bill would introduce flexibility into system. It is not a complete solution to the pensions crisis in this country, but it is part of the solution and should be welcomed as such, instead of being thrown out because it does not address all the issues. Urgent action is required to address the root causes of the pensions and savings crisis in this country.

The current system is neither simple nor certain, which sometimes prevents people from making financial choices, and the Bill addresses both of those problems. My right hon. and learned Friend has outlined the savings and retirement vehicle, which would allow people to contribute, to stop contributing and to contribute again, and the choices on annuity provision, which include value-protected annuities. Hon. Members should welcome those measures, which should become law.

The Bill addresses the problems that we face in today's Britain. The law must change, because Britain is changing. Britain is a place where people lead diverse lifestyles and have diverse financial situations. All the Bill seeks to do is to give people diverse choices that are simple enough for them to manage throughout their lifetimes. I hope that it becomes law, and I commend it to the House.

Photo of Andrew Gwynne Andrew Gwynne Labour, Denton and Reddish 12:02 pm, 28th October 2005

It is a pleasure to contribute to this interesting and wide-ranging debate. I congratulate Sir Malcolm Rifkind on securing his place in the private Members' Bill ballot and on choosing this important topic. It is a pleasure to follow Justine Greening, who has made a valuable contribution to today's debate.

I shall be brief, because much of what I wanted to say has already been said, particularly by my hon. Friend Sarah McCarthy-Fry, who made an eloquent speech. Although I have some specific concerns about the Bill, the right hon. and learned Member for Kensington and Chelsea has raised some important issues about pensions and savings that will not go away and which must be discussed.

Whoever won the election on 5 May—thankfully it was my party—knew that they would have to examine the issue very seriously, which is precisely what the Government are doing. As the right hon. and learned Member for Kensington and Chelsea knows, and as other hon. Members have confirmed, the Government set up the Pensions Commission, led by Adair Turner, to consider many of the issues that hon. Members have raised in today's debate. The commission is due to publish its second report in a month's time, and it is right to wait and see what it has to say and place the proposals in the Bill within the context of its findings.

There is a Bill before us that must be debated, however, and there is no hiding from the fact that the United Kingdom is facing a stark demographic challenge. As has been said, we are living longer but tend not to work for longer. People retiring today are likely to spend nearly twice as long in retirement as previous generations did. While it is undoubtedly good news that we are living longer and healthier lives, these demographic changes mean that sadly we cannot rely on the existing pension system to support us in retirement. Therefore, the way in which we meet the challenge of an ageing society and what it means for lifetime income, savings and how long we work is an issue for all of us.

Many Members have mentioned the so-called savings slump. However, there remains a healthy level of saving, and we should not lose sight of that fact. I could say that I am surprised that Conservative Members have not pointed out that back in 1992 the savings ratio reached a peak at 11.5 per cent., but then again, given the reasons behind that, I am not surprised that they have remained quiet about it. Trends in saving are cyclical. When the economy is doing well and people are confident about their future and feel secure, they tend to save less. I am not suggesting that that is necessarily the right thing to do, but it is a fact.

Likewise, when the economy hits the buffers people tighten their belts. I suggest to Conservative Members that back in 1992 people saved more through uncertainty. They were uncertain whether they would still be in jobs as unemployment topped 3 million and factories closed.

Several hon. Members:


Photo of Andrew Gwynne Andrew Gwynne Labour, Denton and Reddish

I will give way to John Penrose when I have finished this point.

People were uncertain whether they would still be in business as insolvency soared, whether they would be able to pay their mortgages as interest rates shot up, whether they would still have a house as repossessions increased, and whether they would have enough money to make ends meet. That is why people saved more in 1992 than in any year since, and I suspect that Conservative Members privately accept that.

Photo of John Penrose John Penrose Conservative, Weston-Super-Mare

Is the hon. Gentleman seriously suggesting that falling savings rates are a good thing and rising savings rates a bad thing? If he is, no economist would ever agree with him.

Photo of Andrew Gwynne Andrew Gwynne Labour, Denton and Reddish

Clearly the hon. Gentleman was not listening. I said that it is not necessarily a good thing, but a fact, that when people feel secure and believe that their future is certain they tend to spend more and save less. It is a cyclical trend.

Photo of Andrew Gwynne Andrew Gwynne Labour, Denton and Reddish

I will not give way, as I want to make progress and other Members want to have their say.

Putting to one side that political point, I would like briefly to discuss the proposals from the right hon. and learned Member for Kensington and Chelsea for a savings and retirement account and retirement income fund, which are certainly interesting. Savings and retirement accounts appear to be a wrapper in which people can accumulate long-term savings, mainly for their pensions, while remaining accessible at times of need. On the face of it, the scheme has some clear attractions. But in many ways it is, as the right hon. and learned Gentleman admitted, very much like the Government's individual savings account but operating under the pension tax rules—although the Bill does not outline how that would work in practice, and that requires clarification.

The proposals remain uncosted, and I would be interested to see estimates of the cost of establishing the schemes.

As my hon. Friend Lyn Brown said, the ISA is the Government's primary method of encouraging savings. Some £180 billion has been subscribed since 1999, and £1.6 billion given in support in the form of tax relief for savers. Perhaps, therefore, it would be more productive to encourage enthusiastically even more people to open an ISA.

The Government also encourage saving through a range of measures including tax relief on employee and employer pension contributions, national insurance relief on employer pension contributions, arrangements to allow those with contracted-out pensions to pay less in national insurance contributions or to receive a rebate from the Government, and the option of taking out a tax-free lump sum when people start to receive their pension.

Photo of Nick Hurd Nick Hurd Conservative, Ruislip - Northwood

How does the hon. Gentleman justify his enthusiasm for the Government's track record in this area when the Association of British Insurers' report on the state of the nation's savings tells us that only 12 per cent. of the population think that the Government are doing enough to encourage them to start saving or to save more in a pension?

Photo of Andrew Gwynne Andrew Gwynne Labour, Denton and Reddish

Of course, statistics can be quoted either way, and I am fairly certain that there are numerous opinion polls and surveys that would suggest that the opposite was the case.

The right hon. and learned Member for Kensington and Chelsea has put forward some interesting proposals on the retirement income fund, but I have concerns about them, which have been echoed by some of my hon. Friends. My first is that funds built up with the tax privileges should be used to ensure security in terms of sufficient retirement income, and for no other purpose. My fear is that, given that most people's pension pots aggregate at £30,000 or less, some of the proposed changes would benefit only a small proportion of people who are relatively well off.

Photo of Andrew Gwynne Andrew Gwynne Labour, Denton and Reddish

No, I am nearly at the end of my speech.

It is crucial that any changes to the pension rules should ensure that all pensioners benefit and prosper from them. How well we treat all our pensioners—particularly those at the bottom of the scale, not just the privileged few—is a sign of a decent society. That is all that I wish to say about the two schemes set out in the right hon. and learned Gentleman's Bill. This is an interesting debate, and I thank him for enabling us to discuss these important matters. I look forward to extending the debate once the Pensions Commission has produced its report.

Photo of Nick Hurd Nick Hurd Conservative, Ruislip - Northwood 12:11 pm, 28th October 2005

Several Labour Members have spoken with great passion on behalf of those members of society who do not have the resources to save, and that is entirely respectable. However, in their passion, they have been deaf to the purpose of the Bill, which is to address the important issue of how to arrest the collapse of the culture of savings.

I congratulate my right hon. and learned Friend Sir Malcolm Rifkind on introducing a set of proposals that will address some of the structural barriers to saving, including the complexity and rigidity of pension products, and the inflexibility and poor value of annuities. I also congratulate him on recognising that the savings industry and the Government have to move with the times, and to respond to a new generation of workers who have much greater job mobility and who ask different things of their savings across their life cycle. I represent a London constituency in which the first rung of the housing ladder is looking increasingly out of reach for first-time buyers. To my eyes, the proposals benefit from drawing on the experience of what appears to work in other countries, notably Canada. They are underpinned by a set of principles that I understand, namely choice, flexibility, a desire for simplicity, and a desire to give people more control over their lives rather than increasing their dependency on the state. In doing that, the proposals go with the grain of human nature and aspiration.

The proposals are a persuasive response to a problem, the scale of which is astonishing. The Pensions Commission has warned us that 12 million people are drifting towards inadequate retirement income. In its own words:

"Britain's funded private pensions system is in serious decline".

The Government's own statistics tell us that only 44 per cent. of 16 to 65-year-olds have a private pension. That is 300,000 fewer people than only four years ago. Andrew Gwynne echoed the astonishing remarks of the Chief Secretary to the Treasury at Treasury questions last year, when he seemed to suggest that a collapse in the savings ratio was a symptom of economic success. There is no room for complacency when the Association of British Insurers' report on the state of the nation's savings tells us, as I said earlier, that half the population feel that they do not understand pensions, and that only 12 per cent. think that the Government are doing enough to encourage them to start saving or to save more in a pension.

All this is hugely important for public finances, because if this trend continues, the taxpayer will have to spend more on means-tested benefits or on raising the state pension. It is also important for our sense of social justice, because we are heading in the direction of much greater inequalities in retirement provision. It is also hugely important for the competitiveness of our economy and for our quality of life. When we consider what the country is going to have to spend on upgrading its transport and energy infrastructures, and when we consider the implications of longer life expectancy and medical advances on our expenditure on health provision, it is increasingly obvious that this country will need to look to private capital and private savings to bridge the investment gap. However, the trend is going in completely the wrong direction.

These proposals chime with my own sense of priority, my own personal experiences, and the voices that I hear in my constituency. I particularly welcome the proposals to allow employers' pension contributions to be paid directly into a pension scheme of the employee's choice.

Like my hon. Friend John Penrose, I can confess that I, too, am guilty of high proliferation and low persistence. At the tender age of 43, I have four of those very modest pots, so I welcome the prospect of people being able to keep all their accumulated pension funds in one simple, accessible vehicle, particularly with the introduction of a flexible pension-regulated product such as SaRA, whose very name should at least endear itself to the Chancellor.

I also welcome what appears to be fresh thinking on the old chestnut of annuities. I, too, hear persistent messages from my constituency. The first is, what is the point of saving when the person who does not save receives the same amount from the taxpayer via means-tested credits? The second is resentment at having to buy a life annuity by the age of 75.

That resentment involves not having freedom of choice and it is fuelled by the fact that people consider annuities a bad deal—illiquid and inflexible, they provide a low return and are undermined by the inability to pass on a pension pot if the person dies after what looks like an arbitrary cut-off age of 75. I therefore recognise the retirement income fund—RIF—as a product that moves the debate on in the face of a long-term problem. I sincerely believe that only a bipartisan approach will solve it.

I hope that the Government are big enough to recognise that these proposals add enormous value to the debate.

Photo of Barbara Keeley Barbara Keeley Labour, Worsley 12:16 pm, 28th October 2005

Like many of us here this morning, I do not claim to be any sort of expert on pensions but, as a fairly new MP, I understand the need to get the future of pensions right. There are factors that we have to balance. The first, which has been referred to, is increased life expectancy. The second is an ageing population. The burden of paying for services for that ageing population will be borne by a smaller group of those of working age. For me, the politics of pension reform is just as important as the policy itself.

As we can see from the attendance this morning, there is an increasing interest in the national pensions debate, especially the issues involving women and carers. Developments in pensions must address those groups in particular. My party's manifesto for the May 2005 election stated:

"We need to forge a national consensus about how we move" to a pensions system that is right for tomorrow's pension problems.

What is the pensions situation now? I contend that it is not one of crisis, as some Conservative Members have said this morning, but it is recognised that there are problems. There are concerns about overall pension provision and future pensioner incomes. Our concern is to lift more pensioners out of poverty. A great deal has been done to achieve that, but more needs to be done.

Our pensions environment is complex, as many Members have said—particularly for those who have four, or even eight, pensions to juggle. Over the coming decades, it is clear that there will be a sustained increase in the proportion of older people in the population. If we seek to maintain or increase pensioners' income, the share of national income going to them will rise. That rise will clearly have to be paid for by the shrinking population who are of working age. Such a settlement between the generations means that there must be a consensus on how to go forward on pensions reform.

The Finance Act 2004 made changes to the resulting system for pensions, which is due to come into force in April next year. It relaxed the rule concerning taking an annuity at 75. The Act allows people to take an alternatively secured pension. At the heart of the debate on compulsory annuities or whether to allow income drawdown after the age of 75 seems to be the issue of whether a pension scheme provides an income stream for a pensioner or whether it is designed to allow build-up of capital, which can be passed on to heirs.

When that matter was debated in 2004, my right hon. Friend the Secretary of State for Education and Skills said on behalf of the Government that offering

"additional incentive for higher rate taxpayers to pass their pension funds down through the generations could have significant behavioural effects".

With more being saved in pensions than is currently the case, she said:

"Inland Revenue estimates suggest that that could cost hundreds of millions of pounds."

She concluded that removing the requirement to take an annuity at 75 and allowing pension funds to pass on through the generations

"would . . . be to the detriment of . . . ordinary pensioners" and would

"cost the Exchequer hundreds of millions of pounds."—[Official Report, Standing Committee A, 8 June 2004; c. 489–90.]

I do not think that that is the right to choice to make on pensions reform, and nor do I think that it would command a consensus nationally. Clearly, this Bill would help the top 5 per cent. or so of the population.

Photo of Barbara Keeley Barbara Keeley Labour, Worsley

No, we are very short of time.

On pensions reform, the real priority is to address the pensions shortfall for carers and the pensions gap for women. As to the choices facing the UK with regard to pension provision, given that we want to improve the position of pensioners relative to the rest of society, we will need a mix of higher taxes, national insurance contributions, higher savings and a later average retirement age. To take pensions reform forward, any such option requires trade-off, for which we need a public consensus. Whatever the merits of the options in the Bill, I do not believe that they can gain that consensus, as they are really about prioritising the creation of better retirement choices for the wealthy. As the Secretary of State for Education and Skills said, such proposals would cost the Exchequer hundreds of millions of pounds. Our priority now should be women and carers. I want to refer briefly to why carers should be a priority consideration in relation to pensions reform and any extra funding from the Exchequer.

A key aspect of pension savings is length of working lives. While there is a national debate about the rise in retirement ages, carers are a group who curtail their pensions in retirement by voluntarily cutting the length of their working lives to take on a caring responsibility. The working lives of some carers, many of whom are women, are cut short in two ways: after losing years of their working lives in their 20s and 30s to have and care for children, they find their working lives curtailed again in their 50s when they take on caring for elderly relatives or spouses who become ill or disabled. Nationally, carers organisations find that that is increasingly a pattern. In taking on that caring role, carers are saving the health and social care economy a substantial amount, and they can also offer a more personal and flexible type of care than paid carers and nursing staff.

It is interesting that Sir Malcolm Rifkind told us that he wanted to put provision for carers into his Bill. Perhaps the Bill could then have been called the rights of carers Bill. I am afraid that it will not impress carers that he did not do so, because there have been three private Member's Bills enhancing the rights of carers since 1997, all of which have been put forward by Labour Members. Addressing the issue of new and better pension provision for carers must be a key priority for pension reform, and would certainly command more of a consensus nationally than the provisions of this Bill. While, clearly, it is attractive to encourage saving through new savings vehicles, I support the Government's view that privileged pension saving must be used for retirement income for life, and not for other purposes. My priority would be to focus on the bigger issues of the pension shortfall for carers and the pensions gap for women, and not to prioritise pensions choices in retirement for the wealthiest strata of society.

Photo of Greg Clark Greg Clark Conservative, Tunbridge Wells 12:23 pm, 28th October 2005

I warmly welcome the Bill brought forward by my right hon. and learned Friend Sir Malcolm Rifkind and shall make some brief, spontaneous suggestions on how it might be taken forward in Committee.

Both sides of the House agree that the key to solving the pensions and savings crisis is to make sure that those who need savings and income in retirement most make provision for that. The shocking state of affairs today is that the median level of financial assets across the country is just £750—that is what the average person has in financial assets during their life. Moreover, 11 per cent. of the population have no financial assets whatever. Therefore, if we are debating saving, it is important that we focus our efforts on what we can do to make sure that those people have some kind of buffer to fall back on.

Two issues arise from that. The first is whether the use of tax relief is the best way of incentivising saving. Traditionally, we have fallen back on tax relief as the standard method to encourage people to do one thing rather than another. People who are on low incomes and in irregular employment do not pay much in tax, however, so encouraging them to save for their retirement through tax relief might not be as effective as some other ways.

Consistent with the Bill is an approach based on a cash incentive involving no discrimination relating to the level of earnings. Everyone can benefit from savings to the same extent. There are variants, such as a one-to-one match, which makes it clear that saving for retirement—or indeed for a rainy day—will be rewarded by the Government. Paradoxically, we consider it necessary to reward high earners to the tune of 40p in the pound in tax relief to encourage them to save, while penalising those who do not pay tax, through the withdrawal of benefits, to a comparable degree—about 40p in the pound. I hope that the Bill will give us a chance to remedy that gross anomaly, which is depriving many of our constituents of savings to fall back on.

Another innovation introduced in the Bill is flexibility in saving for retirement: the ability to withdraw funds. My right hon. and learned Friend explained the circumstances in which people would be able to withdraw from pension funds, but I urge him to go a little further. Members of my generation—people in their thirties, or perhaps their twenties or forties—are used to a degree of flexibility in their lives which the old pension savings arrangements do not recognise. People in their twenties and thirties may have a few pounds left at the end of the week, and may feel inclined to save it for their retirement. Saving it in a pension fund means locking it away for 30 or 40 years, never to see it again until then. In an age of flexibility, that is a considerable disincentive to saving in the first place.

There is a principle that I call the Marks and Spencer principle. In happier times, Marks and Spencer used to do quite well as a result of a sales tactic. People who bought items knew that they could return them and get their money back. That made them more likely to buy, say, a jumper in the first place. I think that that principle can be applied to savings. If we are flexible and allow people to save whatever extra pounds they have at the end of the week for their pension funds, and to withdraw the money in the circumstances described by my right hon. and learned Friend but also in any other circumstances, I believe that just as Marks and Spencer found that most people kept the jumper rather than returning it, most of our constituents would save the money and find it there when they retired. They would have the comfort of knowing, however, that they would not lose their ability to be flexible in years to come.

I have made those two brief points in commendation of my right hon. and learned Friend's Bill. I wish it well in Committee, and I should be delighted if it could be taken a little further to deal with my points.

Photo of Diana R. Johnson Diana R. Johnson Labour, Kingston upon Hull North 12:28 pm, 28th October 2005

I, too, congratulate Sir Malcolm Rifkind. I had some fun trying to get to grips with the Bill, but I have a difficulty with it.

Like many of my hon. Friends, I look forward to reading the recommendations of the Turner commission at the end of November. I think that the commission has the most sensible approach to dealing with the complex issue of pensions and savings. As Members will know, it has already produced an interim report, identifying four areas that we should examine. The first option is to do nothing, but I think all Members will agree that that is not actually an option. The second is to increase tax and national insurance contributions, and will provoke a healthy debate among all parties. The third, which conforms with the Bill, is to increase individual and employer savings through pension schemes and other savings opportunities. The fourth option, which will also generate a great deal of debate, is for people to carry on working for longer. Members will want to discuss that in some depth, given that many are over the normal retirement age and will wish to continue serving their constituencies for many years beyond 60 or 65. That is an issue that we need to think about.

Norwich Union conducted research into why people do not want to carry on working beyond the normal retirement age. It found that many, particularly those in the 45 to 55 age group, felt that there were a number of barriers to carrying on in work that they enjoyed. That should give us all pause for thought. Next year, provision will be made for the outlawing of age discrimination. Many employees want to carry on working beyond the normal retirement age and that should be encouraged, but I am sure that we will return to this debate in due course.

I want to deal with certain of the Bill's clauses. It is not clear to me how the savings and retirement account will simplify provision for ordinary members of the public. As has already been said, pensions and savings provision is very complex. I found the SaRA difficult to understand, and I am not sure in what way it will simplify matters. We have heard how successful individual savings accounts have proved since 1999. Some 16 million people now have ISAs, and we must reflect on that success. Moreover, the SaRA has not been costed; how much will it cost to implement? We also need to bear in mind the costs that allowing people to contribute through the payroll will impose on small businesses in particular.


What is all this "costs for small businesses" nonsense that I hear. Most businesses, even small ones, pay employees by BACS transfer. It's certainly less work and more efficient to do it that way than to handle envelopes of cash every week (except possibly for casual staff, paper boys and the like).

If a small business is to contribute to a SaRA, you just make two transfers per employee. When the employee fills out the form with his bank account number on it, he also writes down the account number and reference for his SaRA. The overhead required is almost zero.

Submitted by Sam Evans Read 1 more annotation

Photo of Diana R. Johnson Diana R. Johnson Labour, Kingston upon Hull North

No, I shall carry on, as I want to be brief.

Clause 5's list of opportunities for people to draw down is rather limited and needs to be looked at again. As has been said, other issues and events occur in people's lives that might cause them to want to access their savings. The Canadian model of the retirement income fund, which has been referred to, covers only one third of the Canadian work force and concentrates on those with above-average earnings. We must be mindful of that point.

I welcome the opportunity to participate in this debate. However, the Bill is very premature and I hope that Members will agree that we need to return to the proposed provisions at a later date, in the light of the Turner recommendations.

Photo of Tobias Ellwood Tobias Ellwood Opposition Whip (Commons) 12:33 pm, 28th October 2005

I am very grateful to my right hon. and learned Friend Sir Malcolm Rifkind for bringing this Bill to the House. We have had a very interesting debate and Members in all parts of the House have put forward their views on pensions. I hope that the Minister has taken stock of the passionate views that have been expressed, and that he recognises that, whatever our views on Britain's pension situation, it cannot stay as it is and it needs to be resolved.

We heard a lot about pensions during the general election, including the Government's big announcement to pensioners: a one-off payment of £200 towards the council tax. I hope that the Minister will provide something a little more concrete for pensioners. Some six months after the general election, we have still yet to hear anything concrete, and it has taken a private Member's Bill for us to have a proper debate on these issues.

Many references have been made to the previous Tory Government, the events of the early 1990s and the achievements of the Labour Government, but we cannot get away from the fact that in 1997, we had a pension system that was the envy of Europe. Today, that is not the case. More than 1 million pensioners are not receiving the benefits that they deserve, because the system is too complicated.

The burden that we now face is that the younger generation—my generation—do not consider sorting out their pensions to be a priority. That is fundamentally wrong. For the people of my generation, as we have heard, property is a far greater concern. We are concerned with getting on to the housing ladder, not looking to sorting out our pensions. The Bill challenges and provides a way of rectifying the problem.

Property and education are important. I reiterate a point made earlier—that adults who want to change direction in life and do something different no longer receive money from the Learning and Skills Council to help them. The Government have stripped that support away, so people can achieve that objective only by using their own savings.

Labour Members frequently make the point that money put into a pension system must be used when people retire, but what is wrong with saying, "Yes, of course I need to save for when I retire, but I also need some money right now to invest in a property or spend on education"? Will the Minister deal with that issue, because education and property are as important as a pension is in the future?

Comments about stocks and shares also need to be qualified. It is often implied that they are the bastion of the middle class and are used only by people who have lots of money. No matter how much someone wants to save—whether it be £5 in a basic savings account, much larger sums or even an ISA—we need to ask what the banks and building societies do with the money. They put it into stocks and shares; that is exactly where it goes. Anyone who has a mortgage needs to know what the bank or building society does with the money: it goes into stocks and shares. If the Government change national insurance contributions or raid pension funds to the tune of about £5 billion every year, it has a ripple effect right across the pensions system. That is one of the reasons why we are where we are today.

I agree with my hon. Friend Mr. Hurd that it is false to believe that the Bill is about looking after only one slice of the electorate or the middle class. That is completely wrong. If hon. Members read the Bill carefully, they will see that it does not replace one bit of pensions legislation, but adds to it and develops further pension options, simplifying the system to provide a clearer and more transparent way of saving. What is wrong with that? The Bill provides a simpler way to save, grouping things together and drawing in the employer as well.

If we are to have a full debate about the issues, we need to expand. Labour Members are looking to crush the Bill, but I hope that the Minister will give it further time. We need to debate further issues that came up in the general election campaign, which we do not hear much about now—for example, a review of capital gains tax or the phasing out of means-testing, linking pensions to earnings or introducing free care for the elderly. The biggest burden facing pensioners is, actually, council tax. We need a proper review of that tax and its effect on pensioners, which is greater than all the other things that we have mentioned today.

I greatly welcome the Bill. It is workable and long overdue. It will improve our pensions system, which has been an embarrassment up to now and needs to change.

Photo of Angela Smith Angela Smith Labour, Sheffield, Hillsborough 12:38 pm, 28th October 2005

We have heard a lot today about people on low incomes. I congratulate Mr. Hurd on showing some sensitivity on the Conservative Benches in recognising the problems that people on low incomes face when it comes to saving for retirement. It should be placed on record now that people on low incomes or with broken records of employment find it extremely difficult to save on a regular basis.

The hand-to-mouth culture in working-class communities has not disappeared. It is so difficult for working-class people on low incomes to save, and they often discover, as the Liberal Democrats acknowledged, that money is needed at crisis points in life in order to survive. If the Bill were to be placed on the statute book, the danger is that it would encourage people on low incomes to believe that they could save for a pension, only to find that, because they had to draw on the funds to meet those crisis needs, they had no pension to draw on in later life. That is exactly where we are at the moment, which is why the Turner commission provides the right way forward.

The Bill is a buy-now, pay-later option. As my mother would tell me, it is robbing Peter to pay Paul. In her darker moods, she would probably quote Mr. Micawber at me, emphasising the need to equate expenditure and income and to balance happiness and misery. That is often the reality of the lives of working class people, in which the difference between poverty and a reasonable existence is so fine.

On the pensions issue, Justine Greening made more than one reference to the 20 and 30-somethings, the Bridget Jones generation, about which we hear so much. She mentioned that many 30-somethings want the flexibility to organise their finances and their lives as they see fit, but the reason they have the luxury of that flexibility is because this Labour Government have delivered macroeconomic stability and family-friendly policies that allow career breaks. It is the 40 and 50-somethings who do not enjoy that luxury. My generation was seared. We are scarred with the memories of the instability that we faced in the early 1980s, when most of us had cracked or broken records of employment because millions of people were made unemployed at that time. Those of us who came to maturity in the late 1970s and early 1980s still face the black hole in our pensions created by the economic instability of the early 1980s, because we do not have provision built up in our funds.

Photo of Brian Binley Brian Binley Conservative, Northampton South

I want to be sure that I know what the hon. Lady means when she talks about the instability of the late 1970s and early 1980s. Is she referring to the situation when Mr. Healey, the then Chancellor of the Exchequer, increased interest rates to 27 per cent. because of the borrowings from the International Monetary Fund?

Photo of Angela Smith Angela Smith Labour, Sheffield, Hillsborough

I am referring to the many activities in the early days of the Thatcher Government, when we saw 3 million unemployed, high levels of inflation and people in cities such as Sheffield thrown on to the scrap heap because your Government—

Photo of Michael Lord Michael Lord Deputy Speaker (Second Deputy Chairman of Ways and Means)

Order. First, it is important that we use the right parliamentary language. Secondly, we are not having a macroeconomic debate this morning, but discussing the rights of savers. The hon. Lady should return to that issue.

Photo of Angela Smith Angela Smith Labour, Sheffield, Hillsborough

I apologise, Mr. Deputy Speaker. I was led down that path by the intervention. I return to my point that macroeconomic stability is important in delivering the right pension settlement for the future. We need the outcome of the Turner commission and the right structural arrangements to provide for the future, as Sir Malcolm Rifkind made clear, but we also need above all the economic stability that will allow people to build up their own prosperity for the future.

Photo of Ed Vaizey Ed Vaizey Conservative, Wantage 12:43 pm, 28th October 2005

I am grateful for the opportunity to speak in this debate. Ms Smith suggested that her generation was seared, but—to use another cooking analogy—my generation has been stuffed by this Government as far as our pension provision is concerned. When I look at the Government's record in the past eight years, I sometimes wonder whether they are as hostile to savers as they are to smokers. The Government have done everything possible—short of banning the purchase of a pension in a public place—to discourage saving.

Photo of Vera Baird Vera Baird Labour, Redcar

I am sure that the hon. Gentleman is about to embark on a serious analysis of the problem and he will therefore be unable to refute the point that, inevitably, the gross pensions mis-selling presided over by the last Tory Government shattered people's faith in saving and we are doing all that we can to rebuild it.

Photo of Ed Vaizey Ed Vaizey Conservative, Wantage

I am concentrating on the past eight years, and we are having a pensions review because of the failure of those years. It began even before the Government came to power, during the 1997 election campaign, when Labour rubbished the proposals of my right hon. Friend Mr. Lilley for basic pensions plus, which over a period of a few years would have put a fully funded state pension in the hands of every worker in this country. The Labour Government attacked that as the privatisation of pensions, pushed it into the long grass and proposed no alternative. They then appointed a far-sighted and radical Minister for Welfare Reform—so far-sighted, so radical, so talented and such a threat to the Chancellor that he was sacked after a year. They then introduced a pensions tax of £5 billion a year, which not only hit pensions directly but stuffed the stock market, costing about £150 billion in share values over the past eight years. They abolished TESSAs and PEPs out of spite.

Photo of John Hayes John Hayes Shadow Minister (Transport)

Before my hon. Friend moves on from referring to Mr. Field, will he draw to the Minister's attention the right hon. Gentleman's comments on the Government's record? He has been among the chief critics of the Government's record on pensions and particularly of the failure of stakeholder pensions to benefit the target group. Perhaps my hon. Friend will invite the Minister to deal with that matter when he sums up the debate.

Photo of Ed Vaizey Ed Vaizey Conservative, Wantage

I certainly accept my hon. Friend's comments; in fact I will incorporate them in my remarks. He is right: the stakeholder pension was a damp squib. One hears the pious nonsense preached by Labour Members about the need to help those on low incomes and the financially excluded, but the stakeholder pension has helped only the middle classes and the latest initiative allows people to put their second home into a pension. That, I am sure, is welcomed in low-income households throughout the country, which are only now planning to purchase a second home.

As I said earlier, the Consumer Credit Bill contains no measure that would really help the financially excluded. There is no definition of "unfair" to help them avoid unfair contracts. There is no cap on interest rates, so loan sharks remain free to go about their business. If ever a Bill missed its target and failed to take an opportunity, it is that Bill.

For the benefit of Labour Members, I point out that a pension is not necessarily a complicated instrument. It is simply a long-term savings instrument. All one asks from a pension is that when one is working one can put aside enough money, over the years, to have sufficient income when one retires. The Government help by providing tax incentives, not only to incentivise saving but to top up those savings. A pension should be a very simple product, and there should be every incentive for people to save.

People do not save because, as my hon. Friends have pointed out again and again, they do not want to lock up their savings 30, 40 or 50 years before they have access to them. They want flexibility: a simple product; a one-stop shop where they can make savings which can be used at key moments in their life which, in the 21st century, include purchasing a first home, returning to education and retiring on sufficient income.

Photo of Vera Baird Vera Baird Labour, Redcar

Will the hon. Gentleman be so kind as to help me understand how, by the time a person is anxious to purchase their first home, they are supposed to have saved through this clever scheme £40,000 on which they can draw?

Photo of Ed Vaizey Ed Vaizey Conservative, Wantage

There is a counsel of perfection among Labour Members which is epitomised by the hon. and learned Lady. My answer is that I do not know, but perhaps a person would have saved if they had a long-term savings product with tax incentives. They do not have that at the moment. As Mr. Laws pointed out, in the debates on child trust funds his party sensibly proposed that people could simply roll the child trust fund into a long-term savings product. Perhaps if Labour Members adopted the principles in the Bill, someone aged 25 who had been saving since birth would have, with tax incentives and contributions from parents and relatives, enough for a deposit on a home. It is ridiculous simply to dismiss the idea and say, in a mocking way, that people could not possibly have enough money. This is a good plan; it is welcome and it is long overdue.

Photo of Angela Smith Angela Smith Labour, Sheffield, Hillsborough

The hon. Gentleman suggests how people born now might be able to afford to buy a house, but what would he do for those who are reaching maturity now? How many years will it take someone on £12,000 or £15,000 a year to save the deposit necessary to buy a house?


Ah yes, here we are. A couple on £12,000 to £15,000 each should be able to put aside £5,000 a year without too much hardship, or £10,000 if they tighten their belts...

Submitted by Sam Evans Continue reading

Photo of Ed Vaizey Ed Vaizey Conservative, Wantage

I never opposed the child trust fund. How ironic that the Government propose a saving scheme for babies but oppose one for my generation. Why not adopt the principles behind the child trust fund? Labour Members talk constantly about social exclusion and say that the scheme proposed in the Bill will not work because people on low incomes will not be able to use it, yet the Labour Government created the child trust fund for precisely that purpose. I urge Labour Members to adopt those principles, to vote for the Bill and to have the vision at last to create a long-term savings scheme for everyone in our country.

Photo of Anne Snelgrove Anne Snelgrove Labour, South Swindon 12:51 pm, 28th October 2005

Sir Malcolm Rifkind started the debate in fine rhetorical style, for which I thank him. His was an impassioned, interesting and well delivered speech. I do not agree with much of what he said, however, so I will take lessons from him in rhetoric, but not lessons in content.

The Rights of Savers Bill does not respect the rights of taxpayers or the wishes of the majority of pensioners and working people, especially women. Conservative Members should look at the Government Benches and see how many lady Members are present here. We have a passionate interest in pensions for women in this country and are greatly concerned about solving the problems in that area. I recommend that you look at your own Benches and see what you can do about women's representation—

Photo of Michael Lord Michael Lord Deputy Speaker (Second Deputy Chairman of Ways and Means)

Order. I repeat what I said earlier: hon. Members must use correct parliamentary language.

Photo of Anne Snelgrove Anne Snelgrove Labour, South Swindon

No. We need to make progress.

The Bill does not respect the Government's consensus approach to pensions reform. Getting the politics of pensions reform right is as important as getting the reform itself right. Consensus is important because we need to make changes that are durable in the long term, so let us stick with what the Government are doing—the ongoing national pensions debate and the Pensions Commission report—rather than take up a Bill that represents the Opposition's fourth attempt in the same mould in recent memory.

Labour Members have identified the many savings plans and important measures that the Government have introduced in recent years, including generous tax reliefs granted on pension savings in particular, to encourage people to provide themselves a secure income on retirement. However, the purpose of the tax relief on pension savings is to provide pensions; it is not to enable people to accumulate money to pass on to their heirs, or to allow them to save up money to spend on another purpose altogether, as the Bill would do.

Savings and pensions are as important in South Swindon as they are in Kensington and Chelsea, but perhaps the number of people in Chelsea with pension pots of more than £30,000 is very high. When the Labour candidate in that constituency, whom I know well, was campaigning in the general election, she issued a leaflet saying that she was running on policies that benefited the majority of people rather than the millionaires. She received a sack load of complaints from the millionaires, so I think we know where the right hon. and learned Gentleman is coming from. His Bill is about slush funds for rich people.

People in my constituency, many of them women, have told me that under the pension credit system they are better off now than they have ever been in their lives. Some 3,500 pensioner households in South Swindon are benefiting from pension credit, with a local average award of more than £40 a week, and most of the beneficiaries are women—but we do not stand still.

Before I judge the Bill, I ask a series of questions. Is it fair to me and to others? Does it reward responsibility and discourage irresponsibility? The answer to both questions is, no, it does not. In the context of the ongoing national pensions debate, the Bill is an interesting sideshow, but we will wait for the Pensions Commission to publish its second report. We will go for consensus rather than this con.

Photo of Nigel Waterson Nigel Waterson (Also PPS To the Chairman of the Party), Work & Pensions & Welfare Reform 12:55 pm, 28th October 2005

I hope that Anne Snelgrove feels better after that. It is interesting that she, like almost all Labour Members today, effectively attacked the Bill from the left. She described the Bill as an interesting sideshow when potentially it will benefit tens of millions of people. Her description of it was extraordinary. I do not think that it bodes well for the Government's likely response to Lord Turner's final report.

I begin by congratulating my right hon. and learned Friend Sir Malcolm Rifkind on his good fortune in securing the Bill high up the pecking order of private Members' Bills, and on his elegant manner in describing it from what one of our former colleagues described as the icy wastes of the Back Benches. It was a bravura performance.

I declare an interest as having my own private pension provision. I am sure that that will produce moans from Labour Members.

For eight years, the Government have presided over a pensions crisis of unprecedented proportions and a collapse in savings. At times they have appeared to be entirely paralysed by indecision. Meanwhile millions of our fellow citizens are in real danger of being condemned to relative poverty in their old age. It is to the Conservative Opposition that people have to come and to whom the British people must come to look for fresh thinking, radical ideas and bold proposals.

Only this morning, we have seen the press reports of the Office for National Statistics. The figures that they contain are chilling. They show that only about half our fellow citizens are making pension provision, that the number of generous final salary schemes has halved in the past four years and, echoing what the Pensions Commission has said, that some 12 million workers are not saving enough, or even at all, for their retirement. I echo the words of Patience Wheatcroft in The Times today. She said of my right hon. and learned Friend:

"His sensible proposals deserve all-party backing. The Government has said that it is seeking consensus on pensions: now is the chance to provide it."

There have been interesting contributions from a number of Members. I cannot do them all justice. Mr. Laws, who spoke on behalf of the Liberal Democrats, raised some issues and concerns of his on tax relief. That is not an issue that can be dealt with centrally while discussing the Bill. He spoke also about incentives and drawdown.

My hon. Friend John Penrose is already building a reputation in work and pensions matters. He spoke with particular authority, especially on the funding of further education for older students. My hon. Friend Justine Greening made a thoughtful speech, by contrast, if I may say so, with blundering through the handouts from the Government Whips, which has happened during much of the debate. I have already said that much of the attack on the Bill has come from the left rather than from the middle ground.

My hon. Friend Mr. Hurd made the point that the Bill goes with the grain of human nature, something that has always been the fundamental backing of Conservatism. My hon. Friend reminded us of the 12 million people without provision for their retirement.

My hon. Friend Greg Clark made excellent points on the tax incentive system and stressed the real importance of encouraging saving. My hon. Friend Mr. Ellwood brought together the issues of young people and attempts to get on the housing ladder, both of which are dealt with cleverly by the flexibility contained in the Bill. Finally, my hon. Friend Mr. Vaizey eloquently described the way in which the Government's policies have damaged pensions over the past eight years.

I do not think that it is my task to go over all the ground that my right hon. and learned Friend covered in his excellent opening speech. However, it is worth touching on some of the central advantages of the proposed legislation. First, there is the savings and retirement account, which combines simplicity, flexibility and accessibility. Crucially, consumers would have genuine choice about provision for their retirement. The requirement on employers to provide access to the SaRA scheme is extremely important. The fact that payments can be transferred from previous pension schemes to a SaRA has many advantages for individual savers. My right hon. and learned Friend avowedly based his proposals on the Canadian system, but Conservative Members have learned many lessons from the 401(k) pensions system in the USA. It, too, is based on simplicity and flexibility, and allows a drawdown of pension funds for major life events such as house purchase and educational costs. It works extremely well, and has achieved a high penetration among the work force, largely because of its simplicity.

My right hon. and learned Friend has struck a commendable balance between the need to encourage genuine long-term pension saving and the provision of flexibility so that people can withdraw substantial amounts of money for major life events. Clause 5 allows money to be withdrawn to purchase a property, but only if it is someone's principal residence. That contrasts with the Chancellor's generous provision for second homes, perhaps in Spain, under self-invested personal pensions. My right hon. and learned Friend's proposals allow for the purchase of property for a child and for the funding of education, as pointed out by my hon. Friend the Member for Weston-super-Mare, speaking from his experience as governor of a further education college.

Retirement income funds—RIFs—are based on the Canadian experience. On retirement, individuals, regardless of their age, can choose whether or not to convert their pension savings into an annuity or a retirement income fund. By contrast with annuity arrangements, capital as well as income can be withdrawn from the account, with the proviso that people cannot blow the cash in their retirement pot and become an unnecessary burden on the taxpayer and the benefit system. That thread runs through all private Members' Bills on annuities introduced by Conservative Members, and it demonstrates the importance of the minimum retirement income.

At least one Government Member was outraged by the fact that someone could name a spouse, a common-law partner or one of their children to receive their RIF assets on death, with those assets being transferred on a tax-deferred basis. We believe in passing on hard-earned wealth to the next generation, and I am surprised that some Government Members still take offence at that. As my right hon. and learned Friend pointed out, the question of annuities is an anomaly only in the United Kingdom. No other country, as far as we know, has a system of compulsory annuitisation. The USA and Canada do not, and neither do comparable economies across the world. Why should we retain the absurd notion that at the age of 75, if not before, people are obliged to act under the requirement, unless they belong to the Plymouth Brethren, whose members can avoid it and whose numbers, I suspect, are rising dramatically as we speak? Why should people be put in that position when it is their money, saved from hard work over many decades?

My right hon. and learned Friend has introduced practical proposals on pension proliferation. Ministers should not find it difficult to accept those provisions, which are a sensible step to meet the needs of the modern era, in which people move from job to job. My hon. Friend the Member for Ruislip-Northwood made an eloquent argument for such arrangements, but he is not untypical, as many people change jobs several times and acquire a number of small pension pots.

As I said, we must look at the Bill against the background of a collapse in savings, the fact that many millions of people are not saving anything like enough for their retirement, and consumers' need for greater choice and greater control over how they structure their retirement.

In conclusion, my right hon. and learned Friend's Bill is especially attractive because it benefits a series of different groups in our society. Previous attempts have concentrated on the annuities issue, important though that is. The Bill will benefit older people—those nearing the age of 75—plus those still in work who have a variety of separate pension pots. It will also benefit young people, who are strongly turned off the concept of pensions. For young people in work or perhaps just starting work, who are looking for simple, flexible and easy to understand savings vehicles, the SaRA will be an excellent scheme. I am delighted to be a sponsor of the Bill and, on behalf of my party, I wish it a fair wind.

Photo of Stephen Timms Stephen Timms The Minister of State, Department for Work and Pensions 1:06 pm, 28th October 2005

It is a great pleasure to take part in the debate, which has been much more enjoyable than I anticipated, thanks to some lively and thoughtful contributions from Members in all parts of the House.

I join others in congratulating Sir Malcolm Rifkind on his success in the ballot for private Members' Bills and on his choice of topic for the Bill. It covers a range of complex issues which address concerns that are of great importance to many and to the Government. I congratulate the right hon. and learned Gentleman and others who have contributed to the debate on the clarity with which they set out their arguments. It has been a thoughtful, well informed and enjoyable debate.

My hon. Friend Sarah McCarthy-Fry was right to remind the House of the dramatic and welcome reduction in pensioner poverty since 1997. She pointed out that there were hundreds of thousands of single pensioners in 1997 whose total income through income support was £69 a week. Today everybody who is a single pensioner is entitled to an income through pension credit of at least £109 a week, and there has been a sharp fall in the proportion of pensioners who are below the threshold for poverty, as a result of that change in particular. The proportion of pensioners in relative poverty has fallen dramatically at a time when income through earnings has risen sharply. My hon. Friend Anne Snelgrove made that point powerfully.

My hon. Friend and neighbour, Lyn Brown, was right to emphasise, as did many of my hon. Friends, the importance of a solution to the pensions challenge ahead of us that works for everybody, not just for some. We set up the independent Pensions Commission chaired by Lord Turner to make recommendations on how to achieve that. The commission will publish its final recommendations in just over a month, so it is not a long time to wait. Also, over the past few months we have engaged in a national pensions debate around the country, which we want to continue over the coming months.

That debate is vital for raising awareness of the tough choices that we need to make in the near future. We want people to have a good understanding of the options available to us and to build as broad a consensus as possible, so that we can develop a solution that people can be confident will last for the long term. I welcome the opportunity today to pursue that debate and to help build towards a consensus. My hon. Friend Barbara Keeley rightly highlighted the importance of the consensus that we are aiming for, and to do that through the vehicle of today's Second Reading debate.

Photo of Philip Hollobone Philip Hollobone Conservative, Kettering

A number of Labour Members have pointed out the importance of waiting for the Turner report and the need to establish an all-party consensus on pensions. Why therefore have the Government already made an announcement about pensions in the public sector?

Photo of Stephen Timms Stephen Timms The Minister of State, Department for Work and Pensions

The Turner report will address pension saving across the economy. Separate negotiations needed to be held on public sector pension schemes, and an announcement was made about some of those schemes the other week. The Turner commission is addressing the whole question of pension saving for the work force and people of working age, and, as Mr. Hollobone has reminded us, it is important to wait for the outcome of that work because everybody who has been in touch with the members of the commission has been impressed by the thoroughness with which it has set about its task. I am confident that the commission will make a valuable contribution to the debate, and hon. Members will understand that my response on some of the detail of the Bill will be somewhat circumspect ahead of receiving the results of its work.

Photo of Tobias Ellwood Tobias Ellwood Opposition Whip (Commons)

We have waited eight years for something substantial from the Government, and now we must wait for the Turner report, too. Will the Minister let us know how long we must wait after the conclusion of the Turner report for the Government to introduce a White Paper?

Photo of Stephen Timms Stephen Timms The Minister of State, Department for Work and Pensions

I am sorry that the hon. Gentleman has chosen to make that kind of contribution. The overriding priority for Labour Members—having listened to the more thoughtful contributions from Conservative Members this morning, they understand this point, too—was to address the scandal of pensioner poverty in 1997. As I have said, hundreds of thousands of single pensioners had a total income through means-tested benefit of less than £69 a week, which was not an acceptable state of affairs. Over the past eight years, we have been very effective in addressing that issue. A former director of the Institute for Fiscal Studies recently pointed out that arguably the ending of abject pensioner poverty has been the most dramatic of all the major social advances since 1997. It is not true that we have not made progress, because we have made dramatic progress.

We set up the Turner commission recognising that we need to made progress. If we look 15 or 20 years into the future, we must make changes now in order to avoid problems in the future and make sure that the progress of the past eight years does not go into reverse.

Photo of Nigel Waterson Nigel Waterson (Also PPS To the Chairman of the Party), Work & Pensions & Welfare Reform

Before the Minister leaves pension credit, will he confirm that for the first time ever this month's figures show no increase in the take-up of pension credit? The Treasury is still budgeting for some 1.4 million people who are entitled to pension credit never getting round to claiming it.

Photo of Stephen Timms Stephen Timms The Minister of State, Department for Work and Pensions

The latest figures on pension credit take-up show a small increase. It is becoming increasingly clear that the number of people who are eligible for pension credit is somewhat less than the initial estimate. It is also clear that the overwhelming majority of those who stand to benefit most from pension credit—in particular, elderly, single women—have taken it up, which is why we have seen a dramatic reduction in pensioner poverty over the past few years.

At this stage, all options remain on the table, and we will not rule anything in or out until we have had an opportunity to reflect on the commission's recommendations and what people say as we take the national pensions debate around the country.

Photo of Brian Binley Brian Binley Conservative, Northampton South

The Minister knows that I am a member of a county council, and he also knows about the problems that pensions create for local authorities in terms of council tax rises for all of our pensioners. Will he give me the real reasons behind the announcement on pensions for the public sector, because his earlier explanation did not help? The announcement seemed to have a great impact and the Minister has argued that we should examine it, but it has already been put to one side.

Photo of Stephen Timms Stephen Timms The Minister of State, Department for Work and Pensions

I am grateful to the hon. Gentleman for reminding me that he is a local authority member. The outcome of the negotiations for local authority pensions has not yet been announced. The Deputy Prime Minister is taking forward those negotiations at the moment, and the conclusions will be announced in due course.

Let me draw the House's attention to some genuine concerns about the proposals. The Bill covers a range of technical issues, and it would have been useful to be able to study it for somewhat longer than was possible. As the right hon. and learned Gentleman said, it was only published earlier this week. I recognise, of course, that until very recently he had his mind on other matters which no doubt took up all his time.

My hon. Friend Ms Taylor was right to highlight the need to discuss such proposals very widely. I am sure that that will now take place, particularly as regards the effects on small businesses of potential additional burdens. My hon. Friend Ms Johnson made some thoughtful contributions to the debate and was right to mention that.

Let me start with the proposals for the savings and retirement account, or SaRA. SaRA is related to LiSa, or the lifetime savings account, which featured in the Conservative party's election manifesto, and is possibly related to RIF—the retirement income fund—as well. On the basis of what the right hon. and learned Gentleman said, I characterise the SaRA as a stakeholder pension with additional flexibility. He made a good case for the additional flexibility that he advocates. The drafting makes me feel quite nostalgic because it borrows heavily from the framework for stakeholder pensions set out in the Welfare Reform and Pensions Act 1999, with which I was closely involved. Indeed, it copies much of that legislation word for word; it is good to see it again.

The right hon. and learned Gentleman argued that the introduction of SaRAs would reduce the proliferation of small pension pots and increase persistency in long-term saving. I agree about the benefits of doing that, as have other Members. He said that SaRAs would do that through reforming and simplifying the stakeholder system, so that more employers offer payroll deductions in a wider range of pensions. He also said that they would be similar in structure to ISAs—I am grateful to him for underlining, rightly, the importance of the success of ISAs over the past few years—but operate under pension rules and regulations.

I want to return to a point that I made earlier. The Bill provides that, as with stakeholder pensions, employers would have to offer their employees access to a designated SaRA, facilitate deduction of the employee's contributions from the payroll, and then pass them on into the scheme. It is proposed that regulations will provide that employees would take their SaRAs with them when they change employer. I think that the intention would be that when someone moves to a different employer, that new employer would be required to hand over contributions to the SaRA of which the employee was a member. That would be a significant additional burden on small businesses, in particular. I do not know whether the right hon. and learned Gentleman envisages the SaRA obligations being imposed. I noticed that there is some divergence among Conservative Members on that point. If they were imposed on the smallest employers, who were excluded from the obligations on stakeholder pensions, that would be another, very considerable, additional burden on them. That would certainly need a great deal of exploration before one could support the proposals.

Mr. Laws helpfully drew our attention to a brief from the Investment Management Association—which I have not yet seen—and I am glad that that concern has been picked up elsewhere. The hon. Gentleman made some thoughtful and helpful points, but I was disappointed that he took the opportunity to remind the House of his party's opposition to the child trust fund. The fund is finding increasing support across the country as a very effective mechanism for renewing the savings habit. I would remind the hon. Gentleman that Conservative Members supported our proposals for the fund, as did Labour Members; the Liberal Democrats are in a shrinking minority.

Photo of David Laws David Laws Shadow Secretary of State for Work and Pensions

The people who are in a shrinking minority are those who have actually cashed their child trust fund vouchers. Will the Minister confirm that only about 40 per cent. of the vouchers sent out this year have been cashed? Does that suggest that there is a problem with the Government's flagship scheme?

Photo of Stephen Timms Stephen Timms The Minister of State, Department for Work and Pensions

No. It has always been made absolutely clear that, if the voucher is not cashed, an account will be set up by the Revenue. For the first time, every child will have an account that has been set up in their interest. They will understand the nature of the account and the nature of saving, and they will have familiarity with a financial institution. The overwhelming majority of hon. Members recognise what a big contribution that will make to renewing the savings culture in the UK, which will be of inestimable value in building pension saving in the future. Mr. Vaizey made an interesting point about rolling over a child trust fund into whatever form of pension vehicle is available when the first child trust fund holders reach the age of 18. That is an option that we should encourage. The child trust fund is certainly a welcome and important innovation.

Greg Clark made some interesting points about the benefits of matching savings contributions. I am sure that he will be aware of the savings gateway pilots that have been conducted, with the Treasury's support, working with Halifax and other institutions. They are starting to show good evidence of the efficacy of matching as a means of encouraging saving among those for whom tax incentives are not very effective.

Part 2 of the Bill aims to establish a framework for retirement income funds. We have of course debated the rules on annuities in the House on a number of occasions, including during debates on at least two private Members' Bills and during the passage of the Pensions Act 2004. We heard some of the arguments again today from Conservative Members, who proposed the abolition of the rule that requires people to convert their pension fund into an annuity by the age of 75 at the latest. My right hon. and hon. Friends in the Department for Work and Pensions, as well as those in the Treasury, have argued for retaining that obligation on the ground of cost, or on the ground that that proposal goes fundamentally against what a pension is.

The Bill could well have the effect of reducing annuity rates for those who will always be dependent on annuities. However, I would say to the right hon. and learned Member for Kensington and Chelsea that his interesting proposal is clearly different from those that have been made in the past, and it deserves a considered response. A maximum annual withdrawal limit would be set based on life expectancy, involving the minimum income requirement that the Bill envisages. Each year an individual would have to withdraw income at a level that would ensure that their total income was at least at the level of the prevailing rate of the pension credit guarantee. That is currently £109.45 a week, and is being uprated in line with earnings until 2008.

Where this gets difficult is in trying to guarantee that that will continue to be possible for the remainder of an individual's lifetime. The RIF would need to generate more each year, as the guarantee element was uprated, when often one would expect a fund to shrink over time. That is the background to my concern, which I raised with the right hon. and learned Member for Kensington and Chelsea in an intervention, about a real danger of people running out of money when they reach their 80s or 90s.

This option might look quite attractive to people aged 70, but if they live to their late 80s or their 90s—or even to 100, as increasing numbers are—the money will run out. The danger is of huge anxiety for such people.

Photo of Malcolm Rifkind Malcolm Rifkind Shadow Secretary of State for Work and Pensions

I am grateful to the Minister, who is giving a constructive response. Before he comes to any further view on these matters, will he consult his Canadian colleagues? These are not theoretical proposals. They have worked for 20 years in Canada and almost half the Canadian pensioner population enjoy such a structure. The problems to which he refers have not been created. That should give him the reassurance he seeks.

Photo of Stephen Timms Stephen Timms The Minister of State, Department for Work and Pensions

The right hon. and learned Gentleman makes a fair point. I have a couple of points to put to him. The rest of the system is rather different in Canada, but the concern I have raised has been a real issue there. For example, I draw his attention to the warning from the university of British Columbia:

"As there is no maximum withdrawal limit, you must be careful not to exhaust your account balance earlier than you would like".

The Canadian Bankers Association said:

"If you take out too much, too soon, you may outlive your RIF and may be short of funds."

It is difficult to say to people in their 80s or 90s, "Watch out, you're running out of money. You'd better cut back." That is the danger of the proposal, which has been evidenced in Canada.

The upshot is that if the proposal was put in place it would be available only to people with large pension pots. That is what my hon. Friends were drawing attention to: the worry here is that the proposal is attractive only to people with large pension savings.

Photo of David Laws David Laws Shadow Secretary of State for Work and Pensions

Would not the Minister's concerns be addressed if Lord Turner were to propose a higher basic state pension without the extent of means-testing that we have currently? The Government could loosen up the rules without running the risk of people having to fall back on means-tested benefits.

Photo of Stephen Timms Stephen Timms The Minister of State, Department for Work and Pensions

I shall not anticipate what Lord Turner might recommend. Certainly, if there was a change along those lines that would help, although it would not by any means remove the problem. Only about 10 per cent. of defined contribution pension pots hold more than £50,000. Of that 10 per cent., on the basis of some quick calculations, it looks to me as though only a minority could safely go down this road and be confident that they would still have money in their pot if they lived to their late 90s or thereabouts.

Even if someone was assured of an income of £109.45 a week, that would not be enough to keep them out of income-related benefits. There is also the question of housing benefit and council tax benefit, as well as the issue of savings credit, which, for a single person, can be available for an income of up to £151 a week. There are some real issues here involving how widely this mechanism would be attractive and valued.

I shall conclude by congratulating the right hon. and learned Member for Kensington and Chelsea and thanking him for making these proposals.

Photo of Nick Hurd Nick Hurd Conservative, Ruislip - Northwood

I have listened very carefully to the Minister's detailed response, but what did not come through was any sense of urgency. The World Economic Forum ranks Britain's savings ratio 98th out of 117 countries. Does he share the view expressed in the debate from the Labour Benches that that is somehow a symptom of economic success and therefore something about which this country can be complacent?

Photo of Stephen Timms Stephen Timms The Minister of State, Department for Work and Pensions

The UK savings ratio is about twice that of the US. What my hon. Friend Andrew Gwynne said about the factors that people have in their mind is absolutely right. People were saving a great deal more in 1991 and 1992 because they were rightly scared about the prospects for the economy. Today, we have benefited from unprecedented stability and rapid rises in property values, which enter the equation for many people in the arrangements that they want to make.

I hope that I have been able to persuade the right hon. and learned Gentleman that we share many of the Bill's objectives and very much welcome his contribution to this important debate, which I hope will lead to a consensus on the long-term future of our pension system. I hope that he will understand why I am not able to support his proposals at this time, and indeed why I have some serious misgivings about a number of them. I will not, however, press my hon. Friends to deny a Second Reading to the Bill. I look forward to continuing the debate on future occasions, in the House and elsewhere.

Photo of Malcolm Rifkind Malcolm Rifkind Shadow Secretary of State for Work and Pensions 1:31 pm, 28th October 2005

If this debate was memorable for no other reason, it will be remembered for many years as a result of the extraordinary theory endorsed by the Minister that the collapse in the savings ratio is a sign of our healthy economy and that people only save to a significant extent when the economy is in desperate straits. Why, then, was the Adair Turner commission appointed in the first place? We understood the Government to believe that there was a savings and pensions crisis. It appears that the Minister has not yet been persuaded of that view.

Notwithstanding that, I want to thank my right hon. and hon. Friends for their welcome to this Bill, and the Liberal Democrat spokesman who, with all the necessary qualifications, has also spoken warmly of many parts of it. As my hon. Friend Mr. Waterson said, it was significant that while Conservative Members spoke about the Bill, both pointing out its strengths and asking questions about the detail, which is perfectly fair, the contributions from Labour Back Benchers hardly touched on the content of the Bill.

Over the years, I have noticed that there is a code on such occasions. When one finds it difficult to attack a measure, one does one of two things. The first is to say, as virtually every Labour Back Bencher did, "Whatever is in the Bill, it doesn't deal with the real problem, which is terrible." I freely concede that the Bill will probably be relevant to only about 40 to 50 million people in this country. I acknowledge that there are millions of people for whom the Bill will be completely irrelevant. It could be said that that is probably true of most Bills that the House considers, but Labour Members have never used that as an argument before.

It was also suggested that this Bill will help the wealthy. First, that is wrong—it will not; it is designed for lower and middle-income persons. If that is the preoccupation of hon. Ladies opposite—it was almost entirely hon. Ladies who were speaking—I should have thought that, at some stage during the debate, they would have commented on the Government's proposals, which from April next year will allow the wealthy in this country to put their pension savings into Picasso paintings, second homes, yachts and various other forms of investment. For those hon. Ladies to show such passion in the interests of the poor and to excoriate my poor, harmless little Bill because it does not deal with the problems of poverty and shows a preoccupation with the needs of the wealthy, while not saying a word about the extraordinary largesse that the Government are offering to many of my constituents in Kensington and Chelsea—for which I ought to be extremely grateful—suggests a slight absence of proper proportions.

The other code on these occasions is to say, "Whatever the good or bad in the Bill, we must wait. It is premature. The Turner report is coming out." It is rather like "Waiting for Godot". It gives a splendid catch-all excuse for not even expressing a view, never mind coming to a conclusion. Labour Members know perfectly well that that is a pretty bogus approach.

The Minister will not be surprised to know that I was following his words extremely carefully. He is a careful and cautious man, and I found some interesting comfort in his choice of words. Perhaps I am grossly exaggerating the significance of what he said, but he concluded by saying that he could not support the Bill "at this time". Quite right, too—this is a Second Reading debate, and I am not sure that even I can support the Bill until we know what its final shape will be.

The Minister kindly said that in part 1, which deals with the proposed SaRAs, I had made a good case for the increased flexibility that such accounts would represent. I thank him for that. Referring to the possible implications for small businesses, he said that more exploration would be needed before the proposals could be supported. That is a perfectly reasonable qualification. The Minister conceded that the proposal in part 2, relating to the retirement income fund, was significantly different from earlier proposals that had been debated in the House and had incurred the Government's wrath. He said that it deserved a considered response.

By ministerial standards, that strikes me as encouraging, although I may be unwise to find it so. I am delighted that the Minister is not going to ask his hon. Friends to oppose the Bill. Let me emphasise that the Bill contains nothing ideological. The Government maintain that they are keen to revive the habit of saving. My proposals may not deal with every single problem that Members have raised, but they will do no harm and would do significant good.

I make no apology for repeating a crucial point relating to, in particular, the retirement income fund. There may be concerns about it, and the Minister has a duty to express potential concerns before any measure can be endorsed. I reiterate, however, that these are not just theoretical ideas; they have been put into practice for 20 years in Canada. In a less charitable comment, the Minister said that they were mainly designed for the better off. That cannot be true. In Canada, half the pensioner population use the system and have found it worthwhile.

I welcome the Minister's qualified comments. Of course I understand why he cannot simply say that he supports the Bill at this stage. It will, I hope, proceed to Committee, when it will be subject to detailed discussion. No doubt changes will be needed in order for it to win the Government's support, but the Committee stage will be an important test of whether the Government genuinely want national consensus. National consensus means responding to serious and constructive proposals from the Opposition or from other sources, not just those made in the Government's own factory.

I thank the House for the responses given to the Bill, and commend it to the House.

Question put and agreed to.

Bill accordingly read a Second time.