Pensions

Part of the debate – in the House of Commons at 9:18 pm on 31st January 2006.

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Photo of David Laws David Laws Shadow Secretary of State for Work and Pensions 9:18 pm, 31st January 2006

I am most grateful to the Minister for updating me; it is difficult to keep up. I hope that I have not missed anything new today.

The right hon. Member for Oxford, East had previously put it clearly on record that the Government opposed any increase in the state pension age. Some of the concerns about that came from the Treasury. I do not know whether, when the Secretary of State spoke today about the increase in the state pension age being inevitable, he was speaking on behalf of the Government with the support of the Treasury, or whether he was simply speaking on his own behalf.

The right hon. Member for Birkenhead spent some time talking about the difficult issue of what any additional pension should be, if one were available in addition to the basic state pension or citizens pension. It is clear that no one would want simply to rely on a basic state pension in future, even if it were considerably higher and better than the state pension that people rely on today. We are still talking about a pension that would seek to protect people from poverty rather than to give them a life of luxury in retirement. We want most people not only to have access to the state pension but to have a second pension into which they put savings and to which their employer contributes. It would be right, particularly if we are to address the unfairnesses of the public sector scheme, to ensure that employees, employers and the state contribute to those second-tier pensions, although clearly that highlights particular issues for small businesses and others to which the Government will have to be sensitive. A partnership between those three seems to me to be sensible and the only way to get enough money in the pension pots of workers on low incomes to make a real difference.

There are some massive issues here, which the right hon. Member for Birkenhead highlighted very clearly. He was concerned about the impact on defined benefit schemes. Frankly, my view is that defined benefit schemes, in the private sector at least, seem to be on the way out anyway because of the economics of such schemes. How will we manage the risk transfers involved? We are talking, potentially, about an enormous transfer of risk from the Government—as we have seen many times, there is a risk in relying on them—and from employers, who have not been able to handle this risk recently, towards individuals, many of whom are completely unprepared to handle risk of this type. Indeed, I dare say that most people are completely unprepared to handle it.

I do not see many alternatives to transferring those risks to individuals and I think we will end up going in that direction whoever is in government, but I am under no illusion about people's preparedness to take on that responsibility. An enormous extension of financial literacy, starting from school, and of financial advice to people on low incomes is required. As the right hon. Gentleman correctly said, careful thought from the Government on maximising choice for those who want to be able to choose their second pension and structure it in a way that they, rather than the Government, think desirable is also required.

Careful consideration is required to deal with the issue that the right hon. Gentleman raised about risk and not ending up with people thinking that they have two Government-guaranteed pensions. The ingenious scheme proposed by Lord Turner must not be considered a Government-guaranteed second pension, because it is not that. No future Government could provide such a guarantee.

Those are the major challenges that the Government have to address on pensions policy. I genuinely hope that we can find a consensus across parties that lasts rather longer than consensuses have in the past. The experience of the 1970s is not encouraging in looking at the period for which a consensus can be held together. This is a big challenge for the Government, as is seeking consensus internally first. I look forward to the time—in the promised couple of months I hope, although such periods tend to expand, as we see with the Child Support Agency—when we have the opportunity to hear the Government's proposals and to know that they are agreed across the Government. Then we can engage in a serious debate, knowing that something will come out of it.