I beg to move, That the Bill be now read a Second time.
It is the duty of every Government to keep the contract between the state and the individual under constant review to ensure that the balance between rights and responsibilities is properly maintained. At the end of last year I set out how that contract will be renewed through welfare reform, as we move from a regime of passive benefits to one of active benefits. The Bill will enact the remainder of the landmark pensions reform package set out in May 2006 in the White Paper, "Security in retirement: towards a new pension system", the first part of which became legislation in the Pensions Act 2007.
The Government have achieved a lot since 1997. We are spending £11 billion more on pensioners each year than would be spent if the policies of the last Conservative Government had been followed. This year we have spent £75 billion on provision for pensioners—around 13 per cent. of all public spending. Pension credit, winter fuel payments, free TV licences and above-inflation increases to the basic state pension have brought more than 1 million senior citizens out of relative poverty. Rolling out free bus travel right across Britain has also extended opportunities for pensioners. However, the challenges posed by our ageing society mean that we have to look ahead not a year at a time, but decades at a time.
Our changing demographic profile opens up increasing opportunities for baby boomers—those of us born between 1945 and 1965—in the "active ageing" category. Looking around the Chamber, I see that we are well represented. However, those changes also present immense challenges, not least in preparing for the future. The reality, and perhaps the irony, is that as our society gets older, pensions increasingly become a young person's issue. In the next 50 years the number of people over pension age will increase by more than half, meaning that there will be only two people working for every one person in retirement, compared with four working people today, and 10 working people 100 years ago.
The cost implications of that increasing longevity for our children and grandchildren are arrestingly stark. Many more people expect to be active longer in retirement and need the resources to fund that. Unless we act now, and act decisively for the long term, we will bequeath a nightmare for future pensioners plunged into poverty, and for future taxpayers grappling with the consequences. We have already addressed some of the issues identified by Lord Turner's commission. We have legislated for a simpler, fairer and more generous state pension system. In addition, about 75 per cent. of women retiring in 2010 will receive a full basic state pension, and by 2025, over 95 per cent. of men and women will retire with a full basic state pension.
Does my right hon. Friend have any plans to address the difficulty faced by the other 25 per cent., or whatever it will be? If his answer is that that is too costly to address at the moment, can he tell us what the cost and the likely difficulties are?
I am grateful for my hon. Friend's question. As I indicated, we will move towards the 90 per cent. figure. We looked sympathetically—and I know that he takes a close interest in this—at Baroness Hollis's proposal, but when we considered the details, it proved costly and poorly targeted. The poorest women would be unlikely to benefit, first, because they would lose means-tested benefits such as pension credit and, secondly, because they could not afford the several thousand pounds needed to buy back their contributions. In addition, many of those who would benefit—we estimate 67,000—would be either expatriates or foreign nationals who worked in the UK, but retired abroad, including many wealthy men and women. We prefer to find a better-targeted way to help low-income pensioners in the UK, and I know that my hon. Friend shares that concern, especially regarding women pensioners.
The Secretary of State made the valid point that expecting women to find thousands of pounds up front to pay for missing years and receive some pension would be prejudicial to poorer pensioners. In the past, however, his Department has allowed people to offset such contributions. If someone had to pay £2,000 to get £3,000 back, they would simply be paid the difference. The Government currently do so in a different scheme, so could that principle not be applied in this case?
We have only done that in limited cases, but we are looking at it all the time. If we could find a way—we are open to suggestions, and we looked carefully and sympathetically, as I said, at Baroness Hollis's proposal—of targeting such a provision at women on low incomes, preferably living in this country, although that does not exclude others, that would be our priority. It is costly, however, to implement the proposal introduced in the summer by Baroness Hollis, who has long expertise in the area, to which I pay tribute.
The Labour Government can be proud of what they have done for women, but the group of 30,000 to 40,000 women should be allowed to purchase their national insurance contributions retrospectively. We could limit access to people who do not live in this country by requiring residency of 20 years or so. I very much hope that the Secretary of State will look at the proposal sympathetically, because it is not as expensive as the Treasury fears.
My hon. and learned Friend the Minister for Pensions Reform will continue to look at it. There are circumstances in which up to 12 years of contributions can be purchased in the current period. Within a few years, the new regime for which we have legislated will deal with the historical but anachronistic discrimination against women in our state pension system. As my hon. Friend suggested, I am proud that we are addressing that.
My right hon. Friend touched on the problem, as he put it, of affordability, but in a rich society I doubt that that is the case. Will he look at the tax breaks on savings given to the rich, which amount to at least £20 billion—some people think the figure is even higher? If we took some of that money we could overcome all the problems of affordability without much difficulty.
My hon. Friend ought to address taxation matters to the Chancellor. However, if the question was as simple as that, I think that it might well have been addressed already.
Before my right hon. Friend moves on from the subject of women in low-paid work or without work at all, may I ask him whether he has had the chance to consider women who have more than one low-paid job? Each job might pay less than the national insurance level, but collectively the jobs might pay enough for the national insurance stamp. If such women had the opportunity, they might pay the national insurance contribution. I have raised the issue in the House before. Has the Secretary of State had an opportunity to consider whether we could change the regulations so that such women could pay their contribution?
My hon. and learned Friend and I are aware of my hon. Friend's point; I know that she has championed the interests of that group. We will keep the issue under review and continue to consider it. We are not unwilling to do anything about it, but finding a way to target the issue appropriately is the problem. We shall certainly keep it under review and will be happy to continue to discuss it with her.
A guaranteed basic standard of living for pensioners forms the platform of our side of the renewed contract between the state and the individual, but we need to go further. We will restore the link to earnings, abandoned by a previous Conservative Government, by 2012. By 2050, the basic state pension will be worth more than twice as much as it would otherwise. That, in addition to the reforms to the state second pension, will ensure that people retiring in 2050 who have worked or cared for about 40 years will receive about £145 per week of state pension in today's earnings terms.
We also want to strengthen provision to support existing occupational schemes by simplifying the rules governing them through a rolling deregulatory review. The decline in private sector occupational pension provision since the late 1960s is serious, and in the face of increasing costs employers have been abandoning their defined benefit—that is, final salary—schemes, whose active membership numbers have fallen from 8 million in 1967, to 5 million in the 1980s and 1990s, to fewer than 3.5 million today.
We want to reduce the burden on current pension schemes by reducing the revaluation cap on deferred pensions to 2.5 per cent. from 5 per cent., saving the industry, over time, an estimated average of £250 million a year, to encourage as many final salary pension schemes as possible to remain in existence. Importantly, that would apply only to rights accrued after the change; anyone who has already deferred a pension would be unaffected. Any rights built up by existing members until the point of any change would also be subject to revaluation under the current regime. That is a reasonable step to take. At the very least, it sends a strong signal of our intention to reduce burdens on current schemes, encouraging employers to keep existing defined benefit schemes open while protecting the needs of employees.
The deregulatory review will not, of course, end there. We will also work further with the industry on some of the more complex issues and continue to seek out and cut unnecessary burdens, encouraging employers to keep schemes open while balancing the needs of the employee.
Although the legislation proposed today will enormously benefit the millions of workers who do not currently have pensions, there is a concern for the people about whom the Secretary of State has just been talking—those who have a pension scheme from their employers. Those employers may use the opportunity of the new personal accounts to level down employees' pensions and reduce their contributions to the 3 per cent. proposed. What measures will my right hon. Friend take to ensure that that does not happen and that those employees are protected?
I am glad that my hon. Friend has raised that matter because it allows me to put on the record reassurances that I hope she and others, including Opposition Members who have raised the issue too, will welcome.
Importantly, there will be a ban on transfers between existing pension schemes and personal accounts; people will not be able to move in and out according to their whims. The personal account scheme will have an annual contribution limit. Employers with good existing schemes will be encouraged to continue to offer them via a simple and straightforward qualification test, and we are helping them to adjust to the new minimum employer contribution requirement by phasing that requirement in over three years.
We have done some survey work on this question on behalf of the Department, and that suggests that any danger of levelling down will be very limited. Among employers who are already making contributions of 3 per cent. or more, the overwhelming majority—86 per cent.—plan to maintain or even increase contributions for current employees, and half intend to maintain or increase contributions for new employees. Employers will not suddenly go down-market, as it were, and discount their contributions if they have been substantially larger than the personal account's 3 per cent. minimum—it is a minimum, by the way, not a maximum—because they will then quickly find that they cannot recruit and retain their employees. Having a good pension is a valuable recruitment mechanism, especially in today's world.
As a former social security Minister, I am extremely pleased that the Government are moving towards a situation whereby it becomes the norm that employers pay pension contributions, but I worry whether 3 per cent. is enough to provide the sort of security that many people will require in retirement. What percentage of final income would a person on an average income have if the employer made a 3 per cent. contribution and an 8 per cent. contribution was made in total throughout that person's employment?
I am grateful for my hon. Friend's general support. This is a defined contribution scheme, not a defined benefit scheme, so I am not in a position to say what the final income would be. As regards the 3 per cent. figure, with tax relief and the individual's contributions, their minimum contributions would effectively double. That is a considerable boost to retirement income. The 3 per cent. figure was a consensus that came out of Lord Adair Turner's review and the wide consultations that were carried out on behalf of the Government, including with the Pensions Commission. This is an essential floor on pensions for the future without which we face dire straits indeed.
Does the right hon. Gentleman accept that the average payment that employers make into final salary schemes is 14 per cent., and the average for defined contribution schemes is 6 per cent., yet only 3 per cent. is being proposed for the personal account? Does not that raise the concern that everything needs to be done to make it easy for employers to enrol people automatically into those better schemes? What is he doing about the European rules that are creating such a problem for group personal pensions?
I am not sure about the hon. Gentleman's 14 per cent. figure, but I will certainly have a look at that. Let me deal with his final point on workplace personal pensions and the European directives. We are not satisfied that the European consumer protection legislation permits automatic enrolment into workplace personal pensions, and we are seeking clarification on that or, if need be, amendment of the directives to permit such enrolment. In the meantime, we are exploring a practical solution with the industry. However, in any such solution that my hon. and learned Friend and I seek to agree with the industry, I do not want in any way to undermine personal accounts. That is Lord Turner's view and the view of the chairman and chief executive of the personal accounts delivery authority. Working with the whole industry and all stakeholders, we are seeking to ensure that we get the best possible outcome. First, nobody has said that the Bill does not propose the consensus solution, because it does, and secondly, nobody has come up with a better, more affordable option. We have to work together with stakeholders to ensure that this works.
The Secretary of State is reassuring on the levelling down of contribution amounts. However, for many of us, the more critical question concerns the continuing drift of the level of contributions paid by employers out of defined benefit schemes into defined contribution schemes. Is his mind still open to the suggestion from the Association of Consulting Actuaries that there should be new indexation arrangements that would allow more defined benefit schemes to continue, not only for existing members but for future members? Many young people will not enjoy the same pensions as our generation—which he mentioned—unless something is done.
I agree with the hon. Gentleman that the slippage—it seemed at one point that it might be a haemorrhage—from defined benefit and final salary schemes to defined contribution schemes needs to be arrested. I hope that with the deregulatory review—this is the industry's view, and I expect it to deliver on it, given that we are making life easier and providing an extra £250 million in funds for pension schemes—we will see a stop put to that and will keep final salary schemes and defined benefit schemes as much as possible.
On the ACA's proposals, we obviously continue to consider all those things. The matter was raised with me at a dinner with representatives of the pensions industry, when one representative asked whether I was strongly in favour of the risk-sharing alternative. The rest of the representatives, who were reasonably representative of the industry, turned on the man who asked me the question and said, "No, we don't want to have anything to do with it." I believe someone is looking into that. Obviously, we will continue to consider everything.
The Secretary of State has acknowledged that he does not know what the outcome rate will be—that is, the pension that an individual who contributes will receive at the end of the day. It may well be that 3 per cent. is insufficient as an employer's contribution. There certainly was not consensus on whether that was the right amount. There was not enough information. Why is the figure of 3 per cent. set in stone in the primary legislation? Why was it not introduced as a regulation, which can be more easily altered if the circumstances demand it? Did the Secretary of State cave in to the CBI?
I understand my hon. Friend's point, which he made in an appropriately vigorous manner. He has been a champion of pensioners for a long time. As I said, the figure was a consensus figure. The industry was concerned that it should be in the primary legislation. To move forward in a fashion that enabled a serious prospect of getting some 7 million people without an occupational pension scheme into personal accounts, we needed to take the industry with us. That is where we are. That is the nature of delivering our proposals. Of course, we will keep the position under review. My hon. Friend should continue to make his points with his customary vigour, and I look forward to that experience.
Does the Secretary of State agree that one of the best ways to ensure the maximum pension entitlement is ultimately to try to drive down the administration costs of the pension schemes? The potential economies of scale involved in the proposals offer that opportunity. Will the Secretary of State outline what progress he is making in that area to maximise the potential benefit for millions of people in the future?
My hon. Friend makes a fair point. That is why the scheme is designed to reduce the administrative costs and to provide a simple scheme so that the benefits go to the people who need them. I am sure that he will see that as the debate on the Bill unfolds.
Does the Secretary of State agree that over time the salary levels of employees will be adjusted to accommodate the 3 per cent. contribution from employers? That will mean that employers will not make the contribution in reality, even though they might technically do so—it will come out of the remuneration that would otherwise have gone to an employee.
Obviously—in the sense that any enterprise's bottom line includes all the costs, such as employer contributions. However, it does not follow that the money would have gone on extra salaries. The 3 per cent. figure becomes 8 per cent. in the context of the total contributions to funding the scheme.
All the progress that we have made in cutting unnecessary burdens and encouraging, as I was pressed to do, people to keep final salary schemes open, while balancing the needs of the employer, is important and will help, but will not provide the full answer to the issues that Lord Turner and his commission raised.
There is a serious problem of undersaving, with perhaps as many as 7 million people not saving enough to fulfil their aspirations in retirement. Unless that is tackled, a chasm will grow between the income that they want and that which they receive in retirement. There are many reasons for people not saving. Many on low incomes or with broken working patterns do not have access to a workplace scheme. Some will be put off by the complexity of pensions while others will simply live for today. Some will lack confidence in pensions. That is why the Government set up the Pension Protection Fund, which safeguards more than 10 million memberships of eligible defined benefit occupational pension schemes throughout the UK. It is why we established a more powerful pensions regulator and delivered, through the financial assistance scheme, a fair and just settlement for 140,000 people who were robbed of their pensions.
The Secretary of State knows that many of us were disappointed that there was no statement on the new deal for the financial assistance scheme category of people. Those who have written to me—many in UEF and other companies such as Kalamazoo—who lost their pension would still like greater clarification of the 90 per cent. and of how much of the pension that they would have received will be covered by the Secretary of State's scheme. I would be grateful if the right hon. Gentleman clarified that on the Floor of the House now.
I shall happily remind the hon. Lady of the key points. A written ministerial statement was made to the House, and she is free to send it to her constituents. However, let me highlight the points that may help her. All scheme members will be guaranteed 90 per cent. of their accrued pension. There will be increasing payment of assistance based on the post-1997 service, in line with inflation. Assistance from the scheme's normal retirement age provision will be paid, subject to a lower limit of 60. Members will be allowed to take part of their pension as a lump sum. Assistance will be extended to members of schemes that wound up underfunded and, of course, dependants will benefit in the way that was intended. That is a good package in the circumstances. As I said, the hon. Lady can send the details from the written ministerial statement, which was tabled just before Christmas.
My hon. and learned Friend the Minister for Pensions Reform, who is sitting next to my right hon. Friend, will not be surprised if I mention the continuing problem of the small group of pensioners, such as those from Desmond's, who fall between the FAS and the Pension Protection Fund. Is there any clarity, following Andrew Young's observations, on whether there is a need to try to remove that gap? Will we have to formulate primary legislation on the matter or can action be taken through regulation so that the group does not remain disadvantaged?
Obviously, we are still considering the matter. I know that the points have been made to my hon. and learned Friend. We will examine them and my hon. and learned Friend has offered to discuss them with my hon. Friend to take his concerns forward.
My right hon. Friend mentioned the millions who are not saving for their retirement. He made a public statement today about the importance of personal responsibility. Is not the reality that millions of people will not be induced or exhorted to save and that, in time, we will have to establish a state compulsory savings scheme, which guarantees that people not only save but know what they will get when they retire?
Automatic enrolment is the radical change that we are introducing. We do not need to be patted on the back, but the proposal deserves applause. Automatic enrolment will take place for the first time, and it will be difficult not to enrol. People will have to be crystal clear that they would be better off not enrolling—for example, if they are coming up to retirement, enrolment might affect their pension credit. This is a major change, and my hon. Friend should recognise it.
I want to take this opportunity to congratulate my right hon. Friend on the written statement before the recess. It is regrettable that there was not an opportunity to make a verbal statement, which would have allowed me to say how pleased I am that that long-running saga has ended. Is he aware that during the holidays I received many telephone calls from ex-Allied Steel and Wire employees in Cardiff, who said how pleased they are that we have finally secured that achievement?
My hon. Friend has been a ferocious champion on behalf of the Cardiff ASW workers, as have many of my hon. Friends. It would have been nice to make an oral statement—my hon. and learned Friend the Minister for Pensions Reform and I would have been delighted, if it had been possible—and we were deprived of the opportunity of being congratulated by my hon. Friend and other hon. Members.
Earlier, it sounded as though hon. Members were going to be slightly crabby about the success that the Secretary of State, the Minister for Pensions Reform and staff elsewhere have achieved with the settlement. I do not want that event to pass—perhaps I will catch Mr. Speaker's eye later and be able to say more—without saying that the Secretary of State and his team have delivered what previous Secretaries of State and their teams failed to deliver to that group of workers, and we should put on record what an achievement that is.
I am grateful to my right hon. Friend for that comment, because he is not prone universally to congratulate the Government on everything that we do.
In my constituency, 4,000 people receive pension credit, which affects more than 5,000 families. How can we ensure that people, many of whom are in low-paid jobs, are prepared for saving and are equipped to deal with the impact of saving further reducing their income in order to allow them to prepare for retirement?
That is the fundamental objective of the Bill and of the policy that will be delivered around it. My hon. Friend is right; like her, many of my constituents had low incomes when they worked, and life in retirement would have been dire for many of them without the pension credit. Life was dire for such people before 1997, but they have had a major increase in prosperity since then. We must join together, because the consensus around the Bill, which was assembled carefully, has been important in taking the Bill forward.
Will the Secretary of State consider ways to remove the disincentives on personal responsibility? Perhaps he should consider Help the Aged's idea of at least investigating an income disregard scheme, which would allow the maintenance of some means-tested benefits. Many people at the margins feel that pensions involve robbing Peter to pay Paul.
That proposal is being kept under discussion with Help the Aged, which, as the hon. Gentleman knows, has been very supportive of the Bill and is keen that it gets through the House as quickly as possible. Its proposal has significant cost implications, which must be borne in mind.
Of those of working age, around three quarters say that they will need more than the state pension to live on, yet only around 40 per cent. of those who have not yet retired are saving in a private pension. We must get to the point at which saving becomes the norm and a savings culture is embedded in society in general and in the young in particular. Sixteen per cent. of 20 to 24-year-olds are saving for a pension, compared with about half of those aged over 35. Less than half of moderate to low earners with incomes from £5,000 to £35,000 are saving towards a pension, compared with three quarters of those earning more than £35,000. Automatic enrolment into a qualifying pension scheme introduces for the first time such a presumption to save. Evidence suggests that automatic enrolment is one of the most effective ways to combat people's tendency not to act when faced with difficult financial decisions. It also has the greatest impact among groups where participation rates are the lowest.
The Bill will introduce a mandatory duty on employers automatically to enrol their workers into a qualifying pension scheme. Many employers are already making substantial contributions to pension schemes and supporting their employees in saving for retirement. To make the package of reforms successful, however, the Government need all employers to play their part. That is why all employers will be required to contribute to their workers' pensions a minimum of 3 per cent. on a band of earnings for defined-contribution schemes, as recommended by the Pensions Commission.
We are all concerned that employers in marginal industries do not pressurise their staff to opt out. Is it not an incentive to employers to do so that if an employee opts out, the employer's contribution also falls away? If an individual decides to opt out, it would be better if no financial benefit were to result to the employer because of that decision.
Despite the best intentions of legislation, it is sometimes difficult universally to enforce rights such as those introduced by this Government on the minimum wage and employment rights, and my hon. Friend has alluded to that problem with regard to small employers and small businesses. However, there will be a legal duty on employers, who would disobey the law and who would be liable to prosecution if they were to use an underhand method, such as recruiting somebody on the basis of a nod and a wink that they would not be in a pension scheme. If that were to happen, that employer would breach the law. It will be difficult to opt out unless there is a good reason to do so.
The Bill includes various restrictions on contracts. Zero hours contracts, especially as they apply to migrant workers, are a curse on too many communities around the country. Such contracts result in people turning up to work in the morning, only to find that there is no work and that there is no obligation to provide it. A pension would clearly be affected by such a situation, which reinforces our duty to ensure that the law is enforced. The law will be clear after the Bill is enacted.
The Secretary of State has discussed what he hopes will be the effectiveness of automatic enrolment in getting more people to become part of schemes, but is he concerned that it will affect some of the wrong groups of people? He has mentioned those in the early stages of their working career, for whom such a scheme might not be a sensible financial decision. The Government are trying to get round that problem with generic financial advice, but does he agree that there are currently no examples anywhere else in the world of generic financial advice provided with the level of detail and on the scale required to make the system work properly in the UK? If he cannot make the system work in the UK, what is plan B?
I am going to deal with that problem in a few minutes, and the hon. Gentleman can come back to me at that point. We are doing something very radical; I do not think that there is anything like this anywhere else in the world, which is why it is so important to get it right and deliver it with the maximum consensus.
As a result of our reforms, between 6 million and 9 million people will either be newly saving in a workplace pension or saving more than they would have been. That includes more than 1 million people currently in workplace pension schemes who are getting either nothing or less than 3 per cent. from their employer. We anticipate that up to 7 million individuals may join the new national scheme of personal accounts. It will be a simple, low-cost pension saving scheme targeted where the need is greatest: moderate to low earners currently without access to a workplace pension scheme.
The scheme will have low charges, allowing employees to keep more of their savings, and their contribution, combined with that of employers and tax relief from the Government, means that their own pension contributions will be at least doubled up front. All employees will now have the chance to save, and having a pension will be the norm. That will transform the savings culture in the UK, boosting overall pension contributions by around £10 billion annually by 2015. Automatic enrolment into a pension scheme is widely recognised as the most effective way of combating inertia and myopia.
About one in six employees are working for firms that already offer automatic enrolment, which include some of the most highly respected companies in the UK. The Bill will extend that opportunity to those currently without such access. We recognise that designing and delivering such a pension scheme is not a job for the Government and therefore we have set up the personal accounts delivery authority—PADA—to advise on, design and bring about the implementation of the reforms. We intend to extend the remit of PADA to enable it to design and build the infrastructure for the personal accounts scheme. We will also ensure employers' compliance with the new duties through the pensions regulator, who has proved to be a very effective regulator of UK occupational pensions over the last two years. The regulator is best placed to deliver an effective compliance regime that does not overburden employers. It will be a light-touch regime, but it will deal effectively with those who refuse to comply.
Politicians from all parties are often accused of putting too much emphasis on sending messages, but it is important that a clear message from the whole House is sent to those who may not face retirement for decades but who need to prepare for it now. That is why maintaining the consensus that was built up on pension reform—a greater degree of consensus than on virtually any other complex policy issue in my experience—is so important. If people are to have the confidence to invest in pensions for the future, they need to know that the rules of the game will not be changed by a future Government. Help the Aged, the Equality and Human Rights Commission and Age Concern, as well as key representative bodies such as the Engineering Employers Federation, the TUC and the National Association of Pension Funds, have publicly acknowledged and emphasised the importance of maintaining the consensus.
I read that Chris Grayling has "reserved his position" on the Bill, hinting that he and his party may ultimately vote against it. I say to him that we all have a duty to place the long-term interests of future pensioners ahead of short-term party positioning. It would be simply reckless for the Conservatives to abandon the hard-won consensus on pension reform and vote against the most momentous change in pensions since the introduction of the state pension a century ago.
The Secretary of State just quoted the National Association of Pension Funds at my party. Let me quote it back at him. It believes that without addressing the means-testing issue and its interaction with automatic enrolment, the Government could undermine the whole reform process. Does the Secretary of State accept that he still has work to do?
Is the hon. Gentleman saying that because of an argument over what has been described by the CBI as a finer detail of the Bill, he is going to vote against it? If he is going to, may I ask him why he has broken with the consensus established by his predecessor, Mr. Hammond? On
"Despite the obvious scope for political point-scoring in an environment where long-term, and sometimes difficult, decisions have to be taken, the Opposition is ready to engage in a consensus building exercise".
The hon. Member for Runnymede and Weybridge also said, on GMTV, that the Conservatives would not vote against the Bill because they wanted to see the consensus maintained. I fear that the hon. Member for Epsom and Ewell likes grabbing headlines, but not looking at the long-term interests of pensioners in this country.
Of course it is important that we get it right, but I want to know whether or not the hon. Gentleman will support the Bill. If he has lit upon what has been described by the CBI as a finer detail of the Bill, he can move amendments in Committee, and they will be considered by Ministers. But is he saying that if he does not get 100 per cent. of whatever he is proposing—no one has the faintest idea what he is proposing, and I am not sure that he does—he will sabotage the consensus on the Bill? In the Financial Times on
"Personal accounts provide an opportunity for millions of people who will benefit from them to save for retirement for the first time. It would be a pity to see that damaged by people unnecessarily breaking the consensus."
In the Financial Times on
"a difference of opinion over the finer details of the bill."
I could go on. I could quote the hon. Gentleman's predecessor, who adopted a far more constructive attitude, but I shall spare him the embarrassment.
I would like to make some progress, and if necessary, I shall give way if the hon. Gentleman feels that any points have not been answered.
Pension stakeholders from the City are clear: the promise for future pensioners embodied in this Bill must not be put at risk by disagreements about the finer details, still less by political posturing.
What we have just heard from the Opposition is really quite extraordinary. Has it not been the clear rule in this House for generations, and indeed for centuries, that a vote against a Bill on Second Reading is not a disagreement with its detail, but a disagreement with and rejection of the principle of the Bill? It is quite clear that the House is confronted by an Opposition who reject the very principle of the Bill. Otherwise, a vote on Second Reading has no meaning. They want to kill it at the outset. They do not want it to get into Committee, they do not want to look at the details and they do not want to improve it. They have made that absolutely clear this afternoon.
The hon. Member for Epsom and Ewell seems to be backing away. He likes to grab a headline by threatening to vote against the Bill, as he does the whole time, through his spin on various policies, but now he is confronted with a decision, it will be interesting to see what he does in the Lobby. He seemed to indicate in the Financial Times today that he was not going to vote against Second Reading, but he is also continually seeking to derail the progress of the Bill. He may vote against it on Third Reading—who knows?
Before closing I want to address head-on the issue of means-testing and whether it pays for people to save, which was raised earlier by John Penrose. The hon. Member for Epsom and Ewell raised questions on this point in the Financial Times today. He previously proposed a refund of contributions for those people who get less means-tested support in retirement because they have contributed to personal accounts.
I ask the House to keep in mind three points. First, our pension reforms lead to less means-testing rather than more. Secondly, those who receive means-tested benefits should still be better off in retirement if they save. The Government's creation of the savings credit, together with the right for all to take a pension lump sum, ensures that. Thirdly, nobody can be sure which individuals will end up needing means-tested support. What we can say is that few aspire to that, so we must say with a united voice that the downside of people not saving outweighs the small risk of their saving and later regretting that in 30 or 40 years' time, when individuals might be in who knows what predicaments.
I also have one simple question for the hon. Member for Epsom and Ewell. Does he stand by his announcement regarding a scheme of refunding contributions or has he recognised that such a scheme would result in chaos and threaten not just Government finances, but the finances of pension schemes throughout the country?
I am grateful to the Secretary of State for giving way. A lot of the misgivings that hon. Members throughout the House feel about the Bill are to do with punishing those with least who have saved when it is not in their interests to save. The Secretary of State has just said that everyone will be better off from having saved, including those on means-tested benefits, but that is not true of everybody. That gets to the nub of my misgivings about the Bill, namely that some of the poorest and most vulnerable people will put money in, but see either no benefit or so little that they would have been better off not investing in the first place. Will the Secretary of State address that point head-on?
Obviously if an individual was in a position where pension credit would be forthcoming a short time before retirement—the default position, as it were—it would not be in their interests to contribute to a personal account, and they would sign the form to opt out. That is just common sense. However, what I do not understand about the Opposition's line of attack is this. The hon. Member for Epsom and Ewell is talking about a situation 25, 30 or 40 years ahead, but what is he saying? He is saying, in effect, that we should simply just leave it to the taxpayer, and start a scare almost—that is what the Opposition are doing with all this noise—and thereby discourage people on low incomes from contributing. Those people will then end up in a worse situation and the taxpayer will have to bail them out, unfunded and at an unpredictable level.
The hon. Gentleman also does not take into account the proposals on trivial commutation—that is, to switch some of the contributions into a lump sum of potentially £16,000, an amount that could be kept under review. In other words, by all means let us debate the detail, but let us not use that as an excuse to derail the progress of the Bill.
I should like to press the Secretary of State on the point about generic financial advice. The Government have sought to use generic financial advice as a way of helping people to decide whether they will be better off and therefore whether they should exercise their right to opt out; obviously we hope that relatively few of them will. Is he saying that because everything is 25 years in the future, particularly for people who are under 21 or 24 years old, the decision is all too hard and that it does not really matter? If not, can he please tell us what he plans to do if the pilots of generic financial advice—I presume that there will be pilots—prove not to give people satisfactory levels of information and not to improve the generally terrible levels of financial literacy in this country, and if people therefore start taking the wrong decisions? Will he ignore that or does he have a plan B?
It is not a question of ignoring the issue. The hon. Gentleman makes some fair points about financial illiteracy about pensions and other things. These are complex matters. Indeed, Otto Thoresen is looking at precisely how we can offer generic financial advice, in co-operation with the industry generally, including with the Association of British Insurers, the National Association of Pension Funds and others. If the hon. Gentleman wants to make any points about that, I would be happy to consider them.
I am grateful to the Secretary of State for giving way again. We on the Conservative Benches take the issue seriously, for the reasons that have been eloquently set out. It is also fair to our position to say that some difficult questions arise as a result of the Government's plans with regard to benefits. Can the Secretary of State explain to the House how the Government's promises on the minimum income guarantee, which rises in line with earnings, are consistent with encouraging people on very low earnings to save today for a pension scheme in 10, 20, 30 or 40 years' time?
It is because people who contribute to the personal accounts will be better off. The position that the hon. Member for Epsom and Ewell has adopted represents a breach with that of his predecessor, the hon. Member for Runnymede and Weybridge, who I think understood the impact of the savings credit—the hon. Lady needs to look that up—to reward pensioners on low incomes who have saved for their retirement, which contrasts with the situation that we inherited. I still do not understand, first, why the hon. Member for Epsom and Ewell has changed his party's position from that adopted by his predecessor, who supported the Bill—he has provided no explanation for changing it, except opposition for opposition's sake—and, secondly, what the alternative policy is. Logic suggests that the alternative policy is to say, "Well, it's up to people just to take their chances. They'll have the safety net of pension credit, but they won't contribute to their own pensions and they won't have the chance of getting a much better pension outcome," which also answers the hon. Lady's question.
The Secretary of State made an interesting point about trivial commutation, whereby people could collect up to £16,000 as a lump sum, rather than losing it in a means-testing arrangement. That is worth knowing, but I am concerned that a lot of that money could be eaten up when housing benefit or council tax benefit is taken into account. Would my right hon. Friend be prepared to consider tabling an amendment in Committee, so that that lump sum could not be taken into account when assessing housing benefit and council tax benefit?
As my hon. Friend knows, there is already a £6,000 disregard to help in that respect. Clearly there are some individual circumstances—the situation with regard to housing benefit is an important dimension to all this—that need to be considered carefully.
I was just reflecting on the intervention that Miss Kirkbride made and on her apparent attack on the minimum income guarantee. It is not clear to me whether it is the Opposition's position to stop uprating the minimum income guarantee in line with earnings, which would plunge pensioners into even more poverty.
This issue can be best distilled in one simple question: will it be possible for an individual on low pay to put aside £25,000 for retirement and end up no better off for having done so?
Is it possible for anybody to save for their retirement through a pension scheme of one kind or another—a workplace scheme, an occupational scheme and so on—and end up not being as well off as they expected? Of course it is. Is it a consequence of the Bill that people will automatically not be as well off? No. [Hon. Members: "Yes!"] Ah! I see, there we have it. So, the hon. Gentleman is objecting to the principle of automatic enrolment, is he? [ Interruption. ] Well, what is he objecting to, then? He is not objecting to the principle of automatic enrolment, but why did he jump up and down and shout about it? Is he suggesting, then, that taxpayers should simply foot the bill? Having previously supported the Bill on a completely consensual basis—his predecessor expressly said on
The serious issue is the one to be explored in detail in Committee. The serious issue is not to create a froth of indignation that provides a pretext for voting against the Bill, as the hon. Gentleman has threatened to do, or for seeking to derail its progress. This is historic, landmark legislation, but the Opposition have not come up with one practical alternative to the broad perspective laid out in the Bill.
I think that this had better be the last occasion on which I do so, because I have taken up a great deal of time.
I thank my right hon. Friend. I speak as one who fully supports the legislation.
My right hon. Friend will recall the Work and Pensions Committee's suggestion that the Government examine the system in Sweden, where people receive an orange envelope every year containing details of their entitlement in relation to a variety of pensions. Six or seven years ago, the Government legislated for an annual report on pension projections. Will he consider adopting the Committee's recommendation in order to reassure people about the benefits of investing in personal accounts and pensions, and to proceed with his reforms?
That is an attractive proposition and I will consider it, although I am not sure what the pension providers would make of it. I understand that Sweden has only one state pension scheme, and does not have the variety of pension provision that we have in this country.
I shall now bring my speech to a close. I have responded to a good many interventions, but I have spoken for quite a long time as well. I said at the outset that we were renewing the contract between the Government and the individual on the basis of shared responsibilities in the most fundamental reform of the pensions system since the state pension was inaugurated in 1948. Looking back further, I note that 2008 marks 100 years since Lloyd George's Old Age Pensions Act, which resulted in a non-contributory pension of five shillings a week payable to those aged over 70—subject to a means test.
Very few did.
This Bill, alongside its predecessor, will be considered equally historic. It is a blueprint for a new understanding between individuals, employers and the state, which will give all workers the chance to take control of their own retirement, providing for themselves and their dependants. These radical reforms are necessary to the establishment of a sustainable, affordable and trusted pensions system, which will meet the needs of the country and future generations by delivering security and dignity to all in retirement on the basis of new responsibilities: employer responsibility through contributions to a pension scheme, employee responsibility through employee contributions to the scheme, and Government responsibility through an improved state pension linked to earnings.
I commend the Bill to the House.
It was disappointing to hear the Secretary of State demonstrate so little understanding of what are serious issues. Later, I shall explain in detail why we are so concerned about the aspects of the Bill that we have been discussing.
Yesterday, the Secretary of State issued a press release warning of the danger of a future pensions crisis. Has he not noticed that, under this Government, we have experienced a pretty significant pensions crisis for the past 10 years? When the history of the Government is written, their stewardship of our pensions system will be remembered as one of their greatest failures. Indeed, the word "pensions" should be chiselled in large letters on the Prime Minister's eventual political tombstone.
In 1997, the Prime Minister took over what was widely regarded as one of the strongest pensions systems in Europe. Although Mr. Field and I regularly engage in discussions about what took place before that, the reality is that in 1997 we had a strong pensions system. The then Chancellor, now the Prime Minister, made grandiose promises about how it would transform the lives of our pensioners, and—just for a change—the opposite happened. Millions fewer people are saving for retirement, the latest Government figures show that the poorest pensioners are getting poorer, and we have a system of means-testing so complex that many elderly people do not know how to gain access to the money that they need. We have seen that once strong pensions system damaged beyond repair, and we have seen the Government's great response—their first response—to the pensions crisis, stakeholder pensions, fail before even taking off.
Although today's debate concerns an important set of reforms and although the principle underlying those reforms should and does command support throughout the House, when the Secretary of State boasts about his plans we should remember that the debate is all about recovering 10 lost years, and about reviving a culture of saving that has been systematically destroyed since 1997. The Government's track record on pensions contains nothing that they can be proud of.
Is the hon. Gentleman proud of the fact that the Government's most recent figures show that the poorest pensioners are getting poorer?
Let me be fair to the Secretary of State, and give praise where it is due.
I want to praise the Secretary of State. I want to echo the words of the right hon. Member for Birkenhead. We can engage in debates and exchange banter across the Chamber and we can discuss points of disagreement, but I genuinely congratulate the Secretary of State. He deserves the House's praise for the way in which he faced down the opposition of both the Prime Minister and the Treasury to support a rescue package for the 125,000 people who lost out when their schemes collapsed. We know that it was not an easy job. We know that the Secretary of State had difficult internal hurdles to overcome. Clearly he cannot talk about those, but both he and the Minister for Pensions Reform deserve enormous credit for what they have done. They have made a real difference to the lives of a large number of people, many of whom we know because we have worked with them over the last few months.
I am grateful to the hon. Gentleman for finally seeing the light and congratulating the Government on something good that they have done, but will he also acknowledge that this is essentially a sweeping-up exercise to deal with the failures involving occupational pension schemes and pensions mis-selling over which the Conservative Government presided? We have merely tidied up their mess.
I am afraid that the hon. Lady clearly does not understand the pensions system. Issues involving defined contribution pensions have nothing whatever to do with the collapse of direct benefit occupational pension schemes.
In the wake of what has happened, I urge the Secretary of State to ensure that payments to the pensioners who lost out begin as soon as possible. He and I have talked about the practical difficulties of the way in which the financial assistance scheme is run. I think that we should give the claimants the benefit of the doubt, and start paying them as quickly as possible. I assure the Secretary of State that he will have our support if he can find a way of ensuring that that is done.
I am grateful to the hon. Gentleman for his offer of support on this issue, at least. We will clearly need to change the regulations and, of course, enable the Bill to deliver what is necessary. The Bill will therefore need to be passed quickly, which means that the answer to the hon. Gentleman's question lies partly in his own hands.
We have not yet seen any of the details of the proposals, but we want to support the Bill, and we want it to be right. I hope that, in the spirit of consensus for which the Secretary of State argues, the problems can be resolved and the Bill can receive Royal Assent in a form that we can all applaud. That is certainly our objective.
The Secretary of State has, of course, inherited a troubled pensions legacy for which he is in no way responsible, and I applaud him again for his work in sorting out some of the problems. The real culprit is sitting in No. 10 Downing street. The Secretary of State was not responsible for all the pressures on pension funds over the past 10 years, and indeed the Prime Minister was not responsible for all of them. Some developments, such as the fact that people are living longer, are outside the control of any politician or pension fund trustee. But—this is relevant to the point made by Ms Stuart—there are two areas in which the Government have clearly had an impact on the fortunes of pension funds: taxation and regulation. In both those areas, the decisions made by the Prime Minister since 1997 have been the equivalent of a series of logs placed on the camel's back. No wonder the camel's back broke.
The Bill represents the Government's second major attempt to sort out the mess that they have made of our pensions system. The last one, the stakeholder pension, proved to be a complete white elephant. The Bill consists of the final part of a set of reforms initiated after the Government called in Lord Turner to help them to find a way out of the mess.
The House has already approved the changes to state pension arrangements. The establishment of new pension arrangements designed to persuade more people on lower incomes to put money aside for their retirement is clearly the right thing to do, so we support the establishment of personal accounts. However, the Government have built a long track record of grand announcements followed by failure to deliver, and these reforms are in danger of continuing that tradition. There are real issues in the detail of what the Government are establishing, and we—along with, I hope, Members in all parts of the House—will subject them to intense pressure so that we can put matters right as the Bill is debated in the coming weeks.
Before I deal with the weaknesses, I want to make one thing clear to the Government. There is broad consensus about the direction of these reforms, but Ministers have used that consensus as a shield from serious debate, which is unacceptable and undermines the very concept of consensus. Anyone who challenges the Government over the detail is accused of undermining the consensus. That is true not just of debates in this House. People involved in the stakeholder briefings held by Ministers have told me that when they expressed concerns, they were warned about the risk of undermining the consensus. That is not good enough. Consensus has to be earned.
If Ministers want the consensus to continue—I assume they do—they need to engage in constructive dialogue with, and listen to, everyone involved: maintaining the consensus is not just about insisting that everyone has to agree with Ministers. It is absolutely right and proper that Parliament and outside bodies debate these measures vigorously in the coming weeks. There are things about this Bill that are not right and more information needs to be published. Ministers need to respond constructively to suggestions and questions from both sides of this House. If they fail to do so, it is they and no one else who will be undermining the consensus.
The Government could start by engaging in a proper and constructive debate about means-testing: everyone agrees that the problem has to be addressed. I have already quoted the National Association of Pension Funds' most recent document, which states that
"without addressing the means-testing issue and its interaction with automatic enrolment the Government could undermine the whole reform process."
"it is unacceptable that people who conscientiously save for their future could receive no benefit from being prudent. Because of means-testing, up to one in five future pensioners could effectively be worse off than those who opt out of personal accounts and choose to rely on state benefits."
Age Concern states:
"The interaction with means-tested benefits is not a reason to delay or reconsider the policy of auto-enrolment. However the Government should set up a review to look at the options and trade-offs."
It is a matter of concern to all the organisations involved that, as yet, the Government are not engaging in constructive debate.
Is not the hon. Gentleman using the Government's progressive introduction of help for low-paid people as a weapon to criticise the further improvement of pensions? Is not it more reasonable to support means-tested benefits for those who are genuinely suffering hard times while supporting the Pensions Bill proposals for the broad scope of people who need to save for their retirement?
I do not think that many Labour Members understand the issue. Let us consider two people in identical circumstances. It is possible for one to save for retirement and put aside £25,000 and for one to do nothing at all and for them both to have an identical income in retirement. If Labour Members think that that is a good thing, I am afraid that I do not agree with them. This issue has to be addressed.
I think that most Labour Members do understand the relationship between the two issues. My right hon. Friend the Secretary of State asked the hon. Gentleman a question earlier and I am still struggling to understand whether he has provided an answer. It is a question not of whether there is a relationship between means-testing and automatic enrolment and possible problems there, but of what he would do about it. What is he suggesting? I still have not heard anything from him on that.
If the hon. Gentleman will bear with me for a few minutes, I will address that issue.
My concern is that if the issue is not addressed, the reforms will be launched with a huge hole below the waterline and I do not want the next Conservative Government to have to pick up the pieces. The problem is straightforward; the interaction between means-testing and these reforms means that some people who are encouraged to save for retirement, or are auto-enrolled to save for retirement, will derive no benefit from doing so because they will not be able to save enough money to provide them with a pension income that is greater than they would have received anyway from means-tested benefits. The point made by my hon. Friend Miss Kirkbride, who is no longer in her place, was that that issue will become more pronounced because of the link between earnings and the pension credit threshold. That is a fact; it is not a statement of intent one way or the other about the pension credit threshold increasing in line with earnings. We do not know how many people will be affected.
I am listening in bewilderment. Today, one in six people are automatically enrolled into their pension schemes. Many of those who have been automatically enrolled today are on pension credit because their second pension has not put them above the levels to which they should be entitled. Is the hon. Gentleman now suggesting, as he did on Radio 4's "Money Box", that every pensioner in that position today and from here on would have to have their contributions refunded? Would every private pension scheme have to do that? Is that what he is suggesting?
It is really important for Labour Members to understand the point. There are difficulties now and my hon. and learned Friend the Minister for Pensions Reform made a legitimate point about people being "compulsorily enrolled" into existing employer schemes. Universal enrolment is a different ball game and I for one do not share this supposed consensus about how wonderful the reform will be.
I am grateful to the right hon. Gentleman, who speaks on these matters with great authority. I hope his colleagues on the Front Bench will listen carefully to what he said.
We do not know how many people will be affected. The Pensions Policy Institute has made some guesstimates; it has highlighted particular at-risk groups, such as people in their 40s and 50s or people who will rent in retirement, who are said to be particularly at risk. But it seems pretty clear that the number of people who could lose out amounts to hundreds of thousands. I for one do not think that that is good enough.
Is it not also right to reflect on who these people are? They are people who, at the moment, do not save because they spend all their money on essential items. We are asking those people to make a sacrifice if they are to be part of the personal accounts scheme. They should not sacrifice essential items for nothing.
My hon. Friend is absolutely right. Interestingly, my next remark was to be precisely what the Minister just said; "Ministers will say that this is a problem for everyone who saves for retirement." This is different, because people are being auto-enrolled for personal accounts. The Secretary of State made it clear that he wanted it to be difficult for people not to auto-enrol.
Let me just repeat for the hon. Gentleman's benefit that, today, one in six pensioners are automatically enrolled. It is a gold standard that we want to provide universally. That is not a major change. It is a change in numbers, but it does not change the basis of his argument. Is he saying that all those people who, under previous Conservative Governments and under this Government for the past 10 years, have been automatically enrolled into a pension scheme ought somehow not to have been automatically enrolled and should have some sort of compensation? Does this matter now have to be dealt with before he can accept that auto-enrolment has to go further?
I fear that the Minister still does not understand the issue. Parliament is legislating to auto-enrol everyone in this country who is not currently in a pension scheme in a system that the Secretary of State says is designed to make it difficult to opt out from. These are low-cost products in the pensions market. No one will be able to afford to provide these people with personal advice about whether they should or should not save. They have to take the decision themselves. We live in a country where, as we know, people have a propensity not to save.
As people are saving for tomorrow, they will presumably have less money in the present. Does the hon. Gentleman anticipate that there will be any increase in Government support through mechanisms such as family tax credit to compensate for what people will lose in the present for their future savings?
We know that people in this country have a propensity not to save. By any current standard, the local authorities pension scheme offers attractive benefits, yet local authorities struggle to get all their employees to enrol. We can understand why: we are talking about people who are earning some of the lowest wages. Most people earning £12,000 a year would rather not put aside money out of a tight household budget each week to save for retirement.
What will happen? Whatever I say, or Ministers or other people say, in 2012—or whenever plans are now due to be launched—the same story will be written. Does anyone in this Chamber honestly believe that in 2012 " Sun money" or " Mirror money" or the money column in our local papers will not write stories saying that because of means-testing some people will lose out if they save in a personal account? Does anyone honestly believe that that will not happen? Does anyone honestly believe that some small employers faced by an unwelcome increase in their wage costs will not quietly show those stories to their employees? Does anyone honestly believe that employees generally will not chat about these issues in the pub or the sandwich queue? Does anyone honestly believe that the number of people who decide to opt out of personal accounts will not increase as a result, with the consequence that future generations and future Governments will have to bear a much larger cost for means-tested benefits than they would have done had these reforms worked as intended?
I simply do not understand why Ministers are behaving like ostriches with their head in the sand. Having a proper debate about solving the problem would not undermine the consensus; it would strengthen it. Ministers seem convinced that providing generic advice to potential savers will do the job, but how much real advice do they think they can provide to people from a low-cost product that will have to pay off the start-up costs of the first years of its operation and that will be at the lowest possible end of affordability within the pensions market?
The Minister asks what we should do. Many alternatives have been suggested to the Government. Two detailed approaches have been produced by the Pensions Policy Institute, looking at potential options such as raising the limit for trivial commutation. I have suggested to Ministers—it is only a suggestion and I would happily talk privately to them about it—that we might be able to offer those who lose out some form of money-back guarantee, perhaps through a higher lump-sum entitlement. However, Ministers do much to undermine the concept of consensus by not saying in response, "That's an interesting idea; we'll take a look at it"; instead, they accuse us of making uncosted commitments and coming up with ideas without foundation. They do not seem to understand that nobody except them has the ability to work all this through in detail—not Her Majesty's Opposition, not the Liberal Democrats, not Mr. Field, not the PPI, not the CBI, not the Association of British Insurers. Only the Secretary of State and the Minister have access to the necessary modelling, data and information to be able to look properly at the options—to be able to look at how much it would cost us to do nothing and how much it would save us to do something.
Will the Secretary of State carry out a proper public assessment of the available options? Will he look at all the alternatives that have been suggested and what they will cost? Will he look at the cost implications of higher or lower levels of take-up, and the impact on the cost of means-tested benefits in the future? Will he do that work? He has the teams of people to do it—I do not have them, and nor do the Liberal Democrats. After he has done that work, will he lay a paper before this House? We could then have private and public meetings; let us discuss these issues and between us try to work out a solution. The Secretary of State cannot refuse to have such discussions and to provide access to his databases and to allow all of us to look at the options, and then accuse us of undermining the consensus; that is not good enough.
Means-testing is not the only area where we are unconvinced that the Government have got things right yet.
I have a point to raise before the hon. Gentleman leaves the subject of means-testing. One way to get away from the problem described would be to reduce the value of means-tested benefits. I would not want that to happen—I would not want there to be any reduction in eligibility for pension credit or a reduction in the uprating rules—but is that what the hon. Gentleman's party has in mind? Does it have in mind reducing the value over time of pension credit?
The trouble is that whenever we try to engage in a constructive discussion of what we might do, a Labour Member pulls the debate back to a simplistic option. None of us has any desire to reduce the amount that our pensioners, and particularly our poorest pensioners, receive. I happen to think that the Government have introduced a means-testing system that is much too complex, but I have no desire to remove money from the pockets of the poorest pensioners; they struggle enough as it is. Nevertheless, it is important to get this matter right. The hon. Gentleman should understand that; he should have a private chat with his colleague the right hon. Member for Birkenhead, who understands these issues far better than any other Labour Member. There are many other aspects of the Bill that need to be properly debated, but this is one that they must get right.
Does my hon. Friend share my dismay at the approach of Ministers—and, indeed, of many other Labour Members—which is one of indifference to the most vulnerable in our society, who could spend decades paying into something that does not benefit them? This is not insincere indignation on our part; it is a genuine concern. It is extremely disappointing that the Secretary of State fails to take this issue seriously—and, perhaps, to give figures at the Dispatch Box today—not least for those who may well lose out if we do not get this right.
My hon. Friend is right. I hope that a Minister will, either now or in the closing remarks, say, "Yes, we're happy to do that. We're happy to open our books and have a dialogue, and to work through models and alternatives, and to make all that public and let the Committee discuss it, so we can really work through this issue properly." I still hope that they will offer to do that.
I am genuinely puzzled. The hon. Gentleman does not make a sufficiently clear distinction between state pension provision and occupational pension provision. Let us consider any modelling or any actuarial assumptions that he might choose. Employment patterns, for example, have changed over the past 10 years. Even the Government Actuary has had to keep changing assumptions over the past 10 years. There is a notion that if we talk for long enough we will arrive at the proper answer. The Turner report tried to reach a compromise between what the state does and what the individual does. Tapering of benefits has always been a problem. The hon. Gentleman needs to be a little clearer about what he considers to be the alternative to the Government's answer to long-recognised problems. Essentially, he has slagged off the Government. The hon. Gentleman also should not patronise us by saying we do not understand, as some of us have been Members for longer than him and have been interested in pensions for longer than him. I have no sense of what he is proposing, other than that he does not like what we are proposing.
If the hon. Lady really had taken an active interest in pensions for all those years she would understand both the difference between a DB scheme and a DC scheme in terms of the issue of mis-selling and that the original Turner report made its recommendations on the assumption that there would be no expansion of means-testing—indeed, that the opposite would be the case. I have made a request to the Secretary of State and the Minister in the spirit of the consensus of us all wanting these reforms to work. I hope that that will be taken up in the winding-up speech or at any stage over the next few weeks, as it is essential that we get this right.
Let me turn to other areas where there remain issues that need to be debated. Ministers need to explain in much more detail how they are addressing the issue of levelling down. Concerns have been raised about that in the debate, and it has been raised as a concern by the PPI and actuaries over the past few weeks. Ministers have not had that much to say about it. The Secretary of State tried to reassure us but did not address all the issues. There is a danger that many small employers will choose to close down existing provision, including some of the stakeholder schemes that got off the ground as part of the Government's last set of reforms. The risk is that if levelling down does take place the amount saved will be affected and there will not be the increase in overall saving levels that we want to see.
Ministers should remember that the success of these reforms will depend not only on attracting more savers, but on generating higher overall saving. That is why the Secretary of State must do better in ensuring a level playing field for different types of pension provision, and particularly different types of pension product. It would be disastrous if existing provision were downgraded because it was easier to operate a system of personal accounts.
That is why the Government's failure to sort out the issue of auto-enrolment for group personal pensions is so disappointing. There is no logical reason why auto-enrolment should be acceptable for personal accounts but not for group personal pensions. We know that, in fact, the reason that has not happened is European law, but why have not Ministers sorted this out in Brussels? Does anyone actually believe that the Secretary of State's French counterpart would not have sorted things out by now? There might even be solutions that avoid Brussels altogether. There have been detailed discussions between the Secretary of State's Department and the industry, which has identified possible solutions to this problem, but he and his team have not acted on them. Why not? Will he introduce amendments to the Bill in Committee that will address this issue?
It is disappointing again to hear a Labour Member trying to divert attention from what are, as the Secretary of State rightly pointed out, serious issues relating to a serious Bill.
A number of important technical aspects of these reforms also need to be debated in detail, and I hope that Ministers will be ready to listen to sensible advice on them. We know that this Bill has been rushed into the House for entirely unrelated parliamentary reasons, and, as a result, too many details remain unresolved and too many clauses leave most of the important elements to subsequent regulations. We will need a lot more information as it is considered in Committee. Let us take the example of lump-sum contributions to personal accounts. Many groups are arguing that people who save in personal accounts should be able to make one-off contributions to them. I understand the logic of, for example, allowing people who take a career break to make catch-up contributions, but Ministers must not forget the nature of the product that they are launching. A pension plan that allows only 0.3 per cent. for running and marketing costs is going to be as basic as basic can be in the pensions world. Proper advice to savers is not going to be available. I am not convinced that it would be right to encourage payment of lump sums such as an inheritance into a personal account when proper independent advice cannot be obtained first. I hope that Ministers will address that issue as the Bill goes into Committee.
Ministers must handle the enforcing of auto-enrolment—the Bill does not contain all that much on this—with extreme care. There is rightly a duty of auto-enrolment on employers, and there will rightly be a sanctions regime for those who do not comply; equally, we know that employers are going to be at the sharp end. They will receive questions from employees about what to do, and they will be unable to avoid ending up in some form of discussion with them. There is precious little in the Bill to explain how those conflicting pressures will be balanced.
There is also far too little in the Bill about the role and remit of the personal accounts delivery authority. We want to see a much clearer definition in the Bill of the role of the authority and its successor body. We want clear provisions that prevent mission creep in the years ahead. The authority will become, if not the biggest, certainly one of the biggest pension organisations in the UK. If we are not careful, it could have a significant and disruptive impact on other aspects of the pensions market. It has an important role to perform, but that role should be properly defined and set in statute.
We also want to see rapid progress in the governance of the new authority. At the moment, its board is made up of a chief executive—who clearly has had one or two friendly conversations with the Minister in the past few weeks—a highly controversial chairman and a non-executive director from the TUC. The Secretary of State and its current directors need to do a lot better than that if the authority is going to operate in the way that it should.
I want to touch on two final points, the first of which relates to the regulatory package in the Bill. The Government's proposals are a useful step, but they also represent a missed opportunity. The job of this House should be to ensure that adequate regulation is in place to provide the protection that investors rightly expect, but it is not our job to do the pensions industry's job for it. Over the past decade, the Government have interfered much too much in the detailed management of pension schemes. They have made it more difficult to run schemes, more difficult to adapt to changing circumstances and more difficult to innovate. That should change. Many of the professional bodies in this field have put forward ideas that have the potential to help pension provision evolve and improve; some of them require deregulatory measures of a kind that this Bill simply does not address. We will press the Government in Committee on such improvements, and I hope that Ministers will respond constructively to those discussions.
My second point relates to the timing of the measures set out in the Bill. As the Secretary of State knows, the reform package introduced by his predecessors had a specific target start-date of 2012, and he is required to set a date for the re-linking of the basic state pension to earnings by the end of this Parliament. Given that this Parliament came within one green bottle of ending last October, can he confirm definitively to the House today when the full reform package will come into force? Will it be introduced in 2012? We now know about the discussions that have taken place on personal accounts, but will the rest of the package—in particular, the re-linking of the state pension to earnings—start in 2012? I will happily take an intervention now from the Secretary of State if he wants to answer that question; if not, I ask the Minister to address it in his winding-up speech.
This Government's track record on pensions in the past 10 years has been lamentable. They have presided over the rapid decline of our pension system and let down many of our most vulnerable elderly people. Their past efforts at reform have failed abysmally. The one man on the Labour Benches who appeared to have any idea how to tackle our pensions challenge had his ministerial career summarily terminated by the then Prime Minister—probably because he is smarter than him. I want these reforms to work and this Bill to make a difference not just because they are right for the pensions of tomorrow and for all our futures, but because we fully intend that a Conservative Government will implement these reforms in four years' time.
I want to make just two points, and in doing so to come back to the praise that has rightly been given to the Secretary of State, the Minister and the many people in the Department who must have worked with them to achieve the successful settlement for people who thought that they were paying into an occupational pension, and were cruelly robbed. Through the actions of the Secretary of State and his team, the lives of those people and their families, although not put back together exactly as they were, have been massively changed. Many people will now go into retirement without having heart attacks and various other terrible illnesses brought down upon them through the feeling of injustice that they were suffering in not getting the due deserts of their pension savings.
In no way do I want to divert attention from that achievement, but in fact the achievement is even greater than the House has said so far, in that it ricocheted into the wider debate on pensions. Although we might say that only 140,000 families were affected, every one of those families were affected 100 per cent. All those families had children, grandchildren, neighbours and friends, and they all went about their business cursing the day that they saved, either voluntarily or because they were told to, for their retirement pension. Newspapers were putting forward the message throughout the country that it is not sensible to save for old age through any pension scheme. We could not have had a serious debate on pension reform until we brought justice and closure to that group of people. Although those wounds will take some time to heal, those people are not now instructing their children and grandchildren not to behave like their parents and grandparents, who foolishly saved for their retirement income. They now know that although they had to wait—as we, in a lesser sense, had to wait—for justice to be done, it has been done. Not only has justice been done for the individual; a different atmosphere has been established for people who are thinking about planning long-term savings for their retirement.
Although, in turning to my second point, I am critical of the Government, I do not in any way want to withdraw my endorsement of the positive comments made by others in the House. However, I do want to sound a genuine note of caution about the consensus that even the Opposition share on this measure, because I do not share even their sense that the Bill is going in the right direction. Whenever we discuss pensions, we wind ourselves up into a moral fervour because we are desperately anxious to get them right, and to do well by our constituents and our country. Not that long ago, we were debating stakeholder schemes and being told that they were the great solution that would solve everything. I disagreed with my party on that, because I did not think that they would do anything like the claims that were being made for them. I did not think them dangerous; I just did not think that people would buy the damn silly schemes, and, to a large extent, they have not done so.
The Bill moves us into new territory by establishing a body to run the scheme and providing for automatic enrolment. If we are to be responsible to our constituents, we must address two dangers. First, we do not know where we will be in the business cycle when the new scheme comes into force. The Government have been extraordinarily well judged in running the economy. The 10 years of growth, which follow growth from 1992, are a remarkable achievement of governance and the benefits to our constituents have been enormous, but we might be foolish to think that we have abolished what used to be called the trade cycle and has more recently been called recession.
If this measure is introduced when the economy is in a much more difficult situation than it is today, employers will look around to find ways by which they can cut costs, not because they are evil people, although some of them may be, but because they will want to keep their firms going and to keep people in employment. An official Government-sponsored scheme that lays down a modest contribution from employers towards the pension coverage of their employees will be coming on stream, and I fear that many employers, who at the moment would not think of cutting their contribution to their occupational pension scheme, or even to personal pensions, may think that they need to do so in order for their firms to survive. They would, in a sense, feel justified, in that this is the new state scheme and they would still be fulfilling what is required. What the Government rightly judge to be a minimum floor on which to build may become a horrendous ceiling over which contributions do not rise. Thus, the big issue that the Government are genuinely grappling with and have put a huge effort into—I admire the way that they have gone about their task—might result in even less saving being undertaken than happens now.
My second point is that I want the House to consider what would happen if instead of establishing our own delivery authority, we gave those powers to the private sector—to Legal and General and the Pru—and they, with minimum advice, could automatically enrol employees into a scheme that might not leave them a penny better off. Labour Members would all be jumping up and down saying that this is the beginning of the next horrendous mis-selling scandal. It will be different from the previous one in that it will be Government inspired, and our poor constituents will not be able to take the Government to court in the way that they have tried to do over previous mis-selling.
I ask the Government to try to separate out what they think are the petty party points that the Conservatives might be making, and address the genuine issue for many of our low-paid constituents. They may have high hopes that they will one day climb the occupational ladder and make returns for their labour that ensure that they get a fantastic pension in retirement, but we know that many who start out at the bottom sadly too often end there. Tonight, we might be beginning to introduce legislation that will require compulsory savings by groups of people who would not see things in such terms. They want to look after themselves, to save and to be independent—they have all those noble aspirations—but at the end of the day they will not be able to save anything like enough to take them free of means tests and make themselves one penny better off. Before the Bill passes this House and receives its Third Reading, we owe it to those people, the most vulnerable in our community, to address that issue and that group of workers seriously.
As often happens on these occasions, I have the pleasure of following Mr. Field, who made perspicacious comments on the Bill. I start by echoing what he and hon. Members from all parties have said about the Government's announcements on the financial assistance scheme. After a good deal of campaigning—the Secretary of State and the Minister for Pensions Reform attended demonstrations in Downing street and so on to hear directly from the pensioners concerned—an issue that had been a running sore for far too long was resolved. Those Ministers deserve a good degree of credit for what they have achieved in that respect, and have rightly been given that from both sides of the House.
As has been said, there is now a need for speed in implementing these reforms, and I agree with the Secretary of State about the Bill being a way to achieve that. I should draw his attention to one other thing in that respect. The Pension Protection Fund is an organisation and administration that is already trying to run schemes that have many of the features of the new version of the financial assistance scheme. The PPF could be given the role of speeding up the administration of the FAS and its new characteristics. I press the Secretary of State, if he has not already done so, to consider that option urgently as a way of ensuring that those pensioners get the money that they are now due to receive as quickly and as happily as possible.
I start by giving a general welcome to some of the proposals in the Bill on the personal account scheme. Some of the features embodied in the Bill are welcome—for example, the principle of automatic enrolment, the principle of compulsory employer contributions and the principle of low charges, although I have concerns about how we can be sure that that will continue once the personal accounts board takes over from the personal accounts delivery authority—based as they are, in part, on the only relevant international example, the New Zealand KiwiSaver scheme, which is delivering some benefits in that country. The Liberal Democrats have proposed such a scheme with such characteristics for a number of years, so it would be churlish not to recognise that the Government have come forward with a proposal that has many welcome features.
It is important to try to move on from some of the slightly shrill exchanges that have taken place. We want the Bill to work, but for that to happen some big, serious and important problems need to be debated and resolved. We believe that the important two related issues are the interaction of means-testing and how advice will be dispensed and dispersed.
We want consensus, but all sides need to enter into that. Developing a consensus means that all sides must listen, must give way and must work to maintain it. It is not good enough for the Government to say, "Here we stand. This is the consensus. Come and join us or be vilified for failing to adopt the policies that we have put forward in this Bill." A consensus needs to be built, and that means give and take on all sides.
I cannot disagree with what the hon. Gentleman is saying, but I remind him that the Government have not said, "Here is our consensus, take it or leave it." The consensus was built up through the Pensions Commission headed by Lord Turner. It took some effort to find a way forward for a problem that we all acknowledge to be serious and that is where the consensus comes from. In the course of the Bill, if the hon. Gentleman makes some practical suggestions—I will certainly look at what he has said so far—we will see what we can do.
The Secretary of State is of course right to point out the history of the debate, which goes back—as he mentioned in his speech—to the days of Lloyd George. The more recent history shows that this consensus has taken some development, although the proposal in the Bill is different in some respects from that made by Adair Turner—and rightly so, because the position has evolved with arguments from industry, political parties and so on. However, the Secretary of State also effectively accused those Liberal Democrats and Conservatives who are highlighting the genuine concerns about means-testing of scare tactics. That suggests an attitude that is not especially open to new ideas. It does not suggest that the Government are willing to put their shoulder to the wheel to find new ideas to resolve the problem. It is not a question of scare tactics, but of a debate between people who want to try to find a way to make the scheme work.
I warn the Secretary of State that the slightly shrill tone that he adopted in parts of his speech was unfortunate, because it will give some people outside the House the impression that the Government are trying to hide something. We should avoid that impression.
The key question is whether the scheme will work for the target audience. As the Secretary of State outlined in his speech, the benefits are potentially huge. Estimates vary, but between 6 million and 9 million—even up to 10 million—people could benefit from a properly constructed personal account scheme. So the prize is significant. I draw the Secretary of State's attention to some groups that will not be able to take part in personal accounts, such as the very low paid, for perhaps obvious reasons, as well as those who may have several jobs that are paid below the minimum threshold. In my constituency, for example, many people work in the tourist industry on a seasonal basis, with one job in the summer and another in the winter in the ski industry—for as long as climate change allows that to continue. Each job may pay less than £5,000, but the total earnings over the year may take them well above the threshold. The way in which the scheme is set up—I understand the reasons behind that, such as cost minimisation—means that such people would not be able to benefit from a personal account. The tourism sector might be one in which the benefits will not be as widely felt as perhaps they should.
The key issue is means-testing. Since 1997, means-testing for pensioners has substantially increased. The Pensions Policy Institute estimates that overall levels of eligibility for any means-tested benefit are likely to be 50 per cent. in 2050, although they could be as high as 65 per cent. Its estimate suggests that 40 per cent. will be in receipt of pension credit, but other means-tested benefits at stake include council tax benefit and housing benefit. I realise that making predictions about the benefit system in 2050 is hard, but we have to base our approach on where we are at the moment.
In addition to the potential problems for personal accounts, the means-testing strategy has wider problems. Many people do not claim means-tested benefits because of their complexity. For example, more than 1.5 million pensioners eligible for pension credit do not claim it. In recent years, council tax bills have gone up substantially, but only 53 per cent. of pensioners claim the council tax benefit to which they are entitled. Means-testing also erodes the returns from saving and reduces incentives to save.
Does the hon. Gentleman agree that that is an argument in favour of the scheme? Although there are people who, for one reason or another, do not claim council tax benefit or housing benefit, it is likely that almost no one will fail to claim the pension for which they have saved.
I am not sure that that is an argument in favour of the scheme. Presumably all Members would want people to claim the benefits to which they are entitled, and using the fact that some do not as an argument in favour of the scheme seems wrong. It does however reinforce the importance of a basic state pension that raises people above the poverty line and forms the firm foundation that is needed to make the personal accounts workable for everybody.
The Pensions Policy Institute analysis shows that the people who run a high risk of personal accounts being unsuitable are likely to receive back less than the value of their contributions. The institute has highlighted several groups, including single people who are likely to rent in retirement and have no additional savings. Those people are likely to qualify for less means-tested housing benefit as a consequence of saving in a personal account. In 2005, 20 per cent. of pensioner households were eligible for housing benefit, which is likely—according to the PPI—to place them in the high-risk group. The latest projection suggests that that figure could fall to 15 per cent. if current home ownership trends continue, but the interaction between personal accounts and housing benefit is a critically important part of the argument that must not be lost in the debate.
That is an important point which we would all be more able to understand if we were given access to the Government's model. That would be a start to a more open approach to building a consensus. The hon. Gentleman is right.
It is important to note that the 15 per cent. is not a ceiling for the number of people at risk of losing out if they save in a personal account, but a floor, because other people fall into what the PPI describe as medium-risk groups, such as low earners who are in their 40s or 50s in 2012 and who have not yet started saving. Those people could lose entitlement to pension credit, council tax benefit or housing benefit as a consequence of saving, depending on their circumstances.
The Secretary of State implied that almost everybody would be better off saving, and the first thing that we must do is to acknowledge that, given the current structure of the benefit system and pension credit, some people—we can debate how many, and it would be nice to have some information from the Government on that—will find that the personal account is simply not suitable in its current proposed construction. Therefore, to argue that everybody, no matter what their personal circumstances, should save risks the sort of mis-selling scandal that the right hon. Member for Birkenhead predicted. The question is what can be done about that problem, and several ideas have been floated, such as increasing the trivial commutation limit. The PPI has suggested a disregard. Both ideas have been knocked down by the Secretary of State on the basis of what he calls affordability, but it is inconceivable, in circumstances in which the number of people of pension age rises significantly in the next 30 to 40 years, that the proportion of our national income that we spend on pensions should not also rise.
The Secretary of State's remarks about affordability are based on the idea that spending on state pension will remain broadly constant as a share of GDP for the next 20 to 25 years, but the number of people claiming pensions will rise. That suggests that the cake is being divided in such a way that pensioners will receive ever smaller crumbs. That is not the way to provide a firm foundation so that people can save for themselves. That is why the Liberal Democrats propose a citizen's pension, so that the basic state pension raises people above the poverty line, whereas at the moment people have to rely on pension credit for that in most cases.
Does the hon. Gentleman accept that the point about the citizen's pension is not how much it is but that everybody receives it? One of the fundamental issues on which his party is wrong is that people have a sense that they should contribute towards their pension. Initially I was attracted to the idea of the citizen's pension, but the contributory principle is important. People think it is important to work and save for retirement; they seem to appreciate that fundamental principle.
Given the fact that over recent years Governments have dramatically eroded the contributory principle in a range of ways, the idea that it should be treated as a shibboleth in the pensions world is wrong. The proposal is that the citizen's pension should be based on residency. One of its benefits would be for women. The hon. Lady has expressed concern about women's pensions, because a huge number of women do not have access to a full state pension.
I apologise for interrupting my hon. Friend, but the difference between him and Ms Keeble is 10 per cent. The Secretary of State said that 90 per cent. of people, through a complicated mechanism, would receive a full pension. Under our proposal it would be 100 per cent. The state spends billions of pounds keeping decades of records to exclude 10 per cent.—almost all women—from pensions. That cannot be a sensible use of taxpayers' money. Does my hon. Friend agree?
I agree wholeheartedly. There is lasting consensus between my hon. Friend and me. He makes a serious and important point. The UK pensions system is hugely complicated—the most complex in the western world—with all its ifs, buts, caveats, contributory principles, means tests and so on, to exclude a relatively small number of people from a pension that would keep them from poverty in retirement.
The first step should be uprating the basic state pension in line with earnings. The Government say they might do that in 2012, but perhaps not until 2015. It would be nice to know, but as we said at the time of the last Pensions Bill, uprating in line with earnings should be introduced now. Why should the basic state pension, which is lower in real terms than it was in the 1950s, continue to fall in real terms until 2012 or 2015? That uprating should be the first building block of our citizen's pension.
I am grateful to the hon. Gentleman for his interest, but we need to aim for what is defined as the poverty line—the minimum income guarantee in the current pension credit. My maths is not quick enough to work out whether that would be 25 per cent. but it probably does not quite reach that amount. The hon. Gentleman's proposal is a further degree of ambition, from a policy and financial point of view, to which I cannot agree at this stage. However, the citizen's pension would certainly be one way of providing a firm foundation whereby anyone saving in a personal account would know that they would receive full value and full return on their savings.
The most frustrating thing about the Government's attitude to means-testing is that, in effect, they throw up their hands in horror saying, "It's someone else's problem—think of an answer." If both sides of the House accept that there is a problem and that it will not be worth while for some of the people—probably hundreds of thousands—who will be encouraged to save in a personal account to do so— [ Interruption. ] The number may be higher; it may be millions, as the right hon. Member for Birkenhead suggests. I am not sure whether that is right, but in the absence of the proper research and information that the Government could provide, it is hard to know. Even if the number is only hundreds of thousands—
The right hon. Gentleman is right about the figures, although to be fair to the Government, if we are talking about people who get back less than they put in, some of them will have built up a big enough pension pot to ensure that they receive some return on their savings even if it is not the full return we hope everyone will get, especially if the compulsory employer contribution is set up correctly.
The Government seem to be saying that it is up to other people, such as Opposition parties or think tanks, to find a way out of the problem. To reinforce the point made by Chris Grayling, the Government have the resources, as well as the civil servants and policy wonks, to work through a range of options. They have not done so, and given the importance that many of the lobby groups, who broadly support the Government's proposals, and the House attach to the issue it is astonishing that the Government have not done more work. If the consensus is to be maintained I appeal to them to do that work as a matter of extreme urgency.
Advice will be needed. A wide range of factors will affect people's decision about whether it is worth their while to save: age, future earnings, whether they plan to take time off work, the sort of work they do and their level of personal indebtedness. Advice will be required on all those factors. It may be relatively straightforward to reflect some of them in a generic advice system, but it will be much harder to do so for others, such as the affordability of contributions, indebtedness or likely future earnings. The Pensions Policy Institute concludes:
"People will need very clear information to help them make informed decisions about whether they should stay in or opt out of personal accounts. Any system of generic advice will need to be able to cope with providing advice to a wide range of individuals with different characteristics and financial circumstances."
Likewise, Which? believes that
"generic advice arrangements on a one to one basis, probably through a telephone advice line but possibly supplemented by face-to-face provision must be included".
Unfortunately, the Bill leaves all aspects of the advice system to be determined by regulation at a later date. Presumably the Government will say that is because the Thoresen review is still under way and they are waiting for its recommendations.
That is not good enough. We need a well worked-out advice system, which will not impose extra costs on personal account holders, if the risk of mis-selling to some groups is to be avoided. In another context—personal debt, which is a huge problem—my hon. Friend Dr. Cable proposed the establishment of a national network of financial advice centres. The Government should actively work with the financial services industry to achieve a national roll-out of independent advice centres, providing financial health checks and advice.
At present, following the new polarisation rules, it is difficult for many consumers to obtain independent financial advice. The CAB provides advice, but usually only for people who are already in debt difficulty. A network providing genuinely independent advice would be in the best interests of the financial industry, the pensions industry and particularly the Government in relation to personal accounts. It would help to restore confidence. Clients could be offered advice on a wide range of issues, including personal accounts. Setting up such a network, with proper resources from the taxpayers, not from personal account holders or through the personal accounts delivery authority, would enable us to offer the range of advice people need.
The Bill offers us a chance to address the issue of women's pensions, to which the Secretary of State referred. He was talking about the Government's disgraceful decision, sneaked out on
The Government have done the right thing on the FAS, but I give the Minister for Pensions Reform notice that we shall return to their pensions decision during the passage of the Bill. Members on both sides of the other place may want to do so, too. At present, there could be the absurd situation that female twins born on either side of midnight on
There is also the important issue of levelling down to address. It is of course hard to predict how employers will respond to the increase in costs that some may face as a result of auto-enrolment, but there is some evidence. Department for Work and Pensions research, quoted in the National Association of Pension Funds briefing for the debate and in the response to the Work and Pensions Committee, shows that 30 per cent. of employers contributing 3 per cent. or more say that they will level down to 3 per cent., with a further 19 per cent. saying that they have not yet decided how they will respond. The Minister may well have new evidence, but the Secretary of State said in his speech that half of employers would maintain or improve the conditions for new entrants to their pension schemes. That prompts the question: what will the other half do? The serious issue of levelling down therefore needs to be addressed.
Under the Bill, the resolution on the issue of workplace personal pensions is highly unsatisfactory. We are talking about an argument that the Government could win in Europe. It is simply not good enough for the Minister to put his hands up and say, "We cannot persuade other European Governments." There is very little evidence to suggest that the Government have really tried. I suspect that if a proper effort were made to persuade other European Governments, it could be done quite simply, given the common-sense argument being advocated on automatic enrolment. The situation is perhaps evocative of the Government's attitude to matters European. Their attitude is to turn up to meetings with exceedingly bad grace, if they bother to turn up at all, not to contribute in the way that they could at the European level, and not to put forward the arguments for what they want. The argument is one that we could win.
One suspects that if the Government of France, Germany or another European country faced the same problem, they would be busy winning the argument well before the 2012 date, not putting their hands up and saying, "We've got to try to find another way round the issue, although it may impose substantial additional costs on the employers concerned." I urge the Minister to go to the European Union and to win the argument. I suspect that with the proper effort and commitment, the argument could be won straight out.
There has been a lot of talk about consensus in the debate, but in future, and particularly in Committee, that consensus has to be based on proper debate and a proper resolution of the genuine concerns and worries about the Bill and the personal accounts scheme. However welcome, well thought through and well constructed they are, they have to benefit as large a section as possible of the target audience, which is people who do not currently save. That is why the arguments on means-testing and advice are so important. The Minister will have to do better in his reply than the Secretary of State did, and will have to do better throughout Committee to ensure that the issue is resolved, so that we can ensure a scheme that can genuinely be recommended to everyone in the target audience.
I hope that it does not damage the standing or career of the Secretary of State or the Minister for Pensions Reform if I, too, congratulate them on making tonight's debate worth having. If they had not intervened effectively to restore the stolen pensions of the 125,000 pensioners affected, the House would have had to understand what my right hon. Friend Mr. Field said, which is that huge numbers of walking newspapers across the country would have been saying to their families, friends and communities, "You've got to be a mug to save." If the pensions guarantee was not a guarantee, it would have been worthless. The changes that the Secretary of State has been able to make really transform the context in which the debate takes place.
Between them, the Secretary of State and the Minister have done what none of their predecessors were willing to do. Predecessors did the House, and the Labour party, a disservice by requiring Labour Members to parade through the Division Lobby making fools of themselves by claiming to support a financial assistance scheme that never did, and never would, work. We all owe both the Minister of State and the Secretary of State a huge debt of gratitude for getting us out of a hole. However, let us try to put that in the context of where the Bill takes us. I have no doubt that as a society we need to save more and spend less. In a society that increasingly expects to live longer, the issue is more a biological than a political one. The question is how we make good provision for the increasing length of the part of our life that we expect to spend in old age, and in receipt of a pension. The question is how we get there.
My worries about the Bill concern what it does not address, rather than what it tries to address. In a sense, it does not address the failures—the legacy of successive Governments who have messed about with pensions provision and retreated from a policy that would genuinely be fit for the 21st century. We are still not addressing our collective failure to restore the value of the state pension, as well as its link with earnings. We are not addressing our failure to halt the retreat from defined benefit schemes, and the drift into defined contribution schemes. We are not addressing questions about the ability of the poor to pay into schemes—a concern that a number of Members have legitimately raised—and we are not addressing the failure to challenge our naive presumption that the market is a mechanism that will get us out of the pensions crisis, rather than take us into another one. I want to concentrate on those two final points.
The question of who will save is inextricably linked to the issue of means-testing. We need to understand where we are, as a society and as an economy. The Institute for Public Policy Research has reported that 51 per cent. of those in low-income families have working parents. Some 2.5 million households need tax credits to give them a living wage. In addition, Britain is in the midst of our own credit and debt crisis. Last year, personal credit debt rose to £1.35 trillion. UK gross domestic product stands at £1.33 trillion. For the first time in our financial history, personal debt exceeds personal created wealth. That will present us with huge challenges in the year—and years—ahead.
Grant Thornton accountants predict that in 2008 there will be an increase in insolvencies, with 120,000 in the coming year. That is 20 per cent. more than in 2006. They also say that excess spending on credit in the Christmas period will account for a third of the 28,000 personal insolvencies that they expect us to face in the next three months. Repossessions are currently running at 77 a day, and there were 14,000 in the first six months of last year, which is the highest rate since 1999. That was before Northern Rock and the global credit crunch kicked in.
Mortgage bills have risen by 20 per cent. in the last two years, and in the coming year there will be 1.4 million households whose preferential periods of access to low-interest mortgage repayment starter periods will come to an end. They will almost certainly not get preferential treatment in the deal that follows. In addition, up to 4 million households are being forced back into fuel poverty as a result of ever-increasing fuel prices.
Over the weekend, the Prime Minister warned:
"This is one of the most difficult years for the world economy."
If it will be difficult for the wealthy, it will be even harder for the poor. We will have to take a long, hard look at how we expect those who cannot afford to live to be in a position to afford to save. That is a practical, day-to-day issue, precisely as fuel poverty is: as we have expressed it, people are faced with a choice between heating and eating. The question is: how will those whom we wish to include in the new Pensions Bill schemes be able to afford it? We need to look at new mechanisms that address the question of affordability, and the most sensible starting point may well be tackling the current provision of £20 billion a year or more that we give in pension credits to the wealthiest in the land. If we have to dip into that money to provide access for the poor, that would be a genuinely progressive and relevant measure.
The question of who pays is likely to be dwarfed, however, by the question of where the money goes. How short a set of memories we seem to have. In 2002, there was a pensions and investment crisis. In that year alone, £250 billion was wiped off the value of UK pension funds, because the deregulation of world financial markets resulted in pensions being increasingly drawn into short-term, speculative markets. When the bubble of those markets burst, inevitably what people thought were secure savings disappeared. We have not learned from that that there is an increasing incompatibility between short-term speculative markets and long-term, secure pension aspirations.
If we doubled the amount of money that went into UK pension funds in 2002, we would simply have doubled our losses. To double them today using the same mechanisms would throw petrol on the fire. We cannot pretend that by introducing a new mechanism while shovelling the money in the same direction would do anything other than accelerate the drift into the next crisis. The global credit crunch has been driven by precisely the same mechanisms that took us into the crisis in 2002. Sadly, creative accounting is used extensively in the banking and investment world, and Northern Rock is just the tip of the iceberg. Commentators in the United States have tried to analyse what happened in the off-balance sheet accounting world, which has transformed international banking. They have calculated the impact of what is referred to as "toxic waste" in the banking industry—loans made upon insecure loans upon insecure loans. Using a mechanism outside accounting rules, the banks have created their own credit default swap clubs, in which they swap bad debts and spin them round the table to allow themselves to create more debt. The scale of that activity is estimated to be £45 trillion, or three times the size of the US economy.
It is no wonder that while central banks, whether in the US, the UK or Europe, have intervened to create credit for the banking world, banks will still not lend to one another, because they know how shaky the foundations are. Throwing more money into that crazy pot will simply accelerate the drive into the next crisis. We have to move the rules about where money goes in a different direction. In 2003, I helped to write a pamphlet on people's pensions that looked at the ways in which the allocation of pension savings had changed in the past 50 or 60 years. I shall give the House just one set of figures. In 1962, 51 per cent. of the total pension fund assets in the UK were invested in UK Government bonds. Today, that figure stands at 9 per cent. Some 80 per cent. of pension fund contribution goes into private equities or corporate bonds, both of which have become increasingly short-term, speculative, mythical and, in some cases, illegal. The danger of throwing money in that direction is that it would simply accelerate the next crisis, which would be a repeat of the last one.
We do not have to go down that path, and I should like to offer some suggestions to the Minister and the Secretary of State. Some 99 per cent. of share transactions trade in second-hand shares, and are decades away from the principal investment that built anything. They are just swap clubs for second-hand financial entities. If we genuinely want mechanisms that invite people to save, and if we want that saving to be a productive investment in their future security, we must direct those savings into investments in infrastructure, health, education, housing and environmental improvements and security. We could do so extremely easily. We contribute about £50 billion a year to personal pension schemes. If the Bill delivers the Secretary of State's expectations, it will add another £10 billion a year. If we used that money for infrastructure investments, we would not need a single private finance initiative scheme in the land. Last year, the Government received £3.6 billion in capital receipts for the privatisation of public services. Across the piece, we pay an average of 16.6 per cent. interest on PFI schemes, which is an absurd charge on the taxpayer for the next 30 to 50 years.
If we paid half that rate of interest to bond holders, we could halve the rate of tax for taxpayers, and we would all be better off. Do we have the courage not only to include the poor in a comprehensive, 21st century pension package but to redirect how and where our savings are deployed? The Bill does not do so. It does not address the question of how the poor will participate, and it does not address the question of how those resources will be deployed productively, creatively and constructively to deliver long-term security for pensioners and society as a whole. If we fail to do so, we will end up passing a Bill that favours the City but not savers, which would be a tragedy for which the present generation and those who follow it would not forgive us.
It is a great pleasure to be able to speak in the House at all. In recent months, I have spent so much time in the Council of Europe Parliamentary Assembly that one of my new year's resolutions was to try to speak in the House more often. Tonight was the first available opportunity to do so, but this is an issue of which I have some knowledge as a result of my long association with the insurance industry and my chairmanship of the all-party insurance and financial services group since 1992—a long period, throughout which issues relating to pension reform have been high on the agenda, and have often been raised by the industry and pension groups.
I wish to begin by telling the Minister that there is genuine good will among pension providers towards the initiative, and they want it to succeed. In the spirit of the contribution by my hon. Friend Chris Grayling, however, may I tell him that good will is not enough? We have to face the fact that the issue of pension reform has dogged successive Governments for 25 years, and it is critical that we learn the lessons of past mistakes. It is not yet clear whether all the lessons of past failures have been fully taken on board in the Bill. When the previous Secretary of State, Mr. Hutton, announced just over a year ago, in December 2006, the Government's intention to proceed with the Turner proposals for personal accounts, I asked him two questions. First, who would be responsible for information, advice and explanatory literature under the regime? Secondly, what would be the impact on existing schemes of the new floor of 3 per cent. of contributions? It is absolutely clear from today's debate that the answers to both questions remain unclear, so I want to concentrate on them in my brief remarks.
The issue of information and advice is crucial. People need to make properly informed judgments about how much to invest in their pensions, whether to invest at all, or whether, difficult though the Secretary of State has reminded us it will be, to opt out of auto-enrolment altogether.
Much has been said in this debate about the impact of means-tested benefits, and that is undoubtedly important. However, there will be a deterrent if people think that saving is not worth the sacrifice. We must address the issue, and I hope that the Minister will have something more positive to say in his winding-up speech.
We should be in no doubt that it is difficult to judge in advance whether low-paid employees should stay in the schemes, because there are so many unknown and imponderable factors. What will the contributions during a working life be worth come retirement age? How much income will those contributions then generate? What will annuity and interest rates be like? What will be the impact of inflation at that time? What type of annuity should people buy? Will employment experience and record over a long period enable an individual to build up a worthwhile investment record through their fund? Those questions are critically important, but the answers are extremely difficult to predict in this debate today.
Not only the Government but Parliament and the country are in a Catch-22 situation on the issue of means-tested benefits. It is clear to me—and I think this was what the Secretary of State was trying to hint at in his robust exchange with my hon. Friend the Member for Epsom and Ewell—that unless people make provision for their retirement in much greater numbers, pressure to provide help through means-tested targeted benefits will remain. It will be there for all Governments. However, affordability will eventually be the issue. How much longer can we afford our expectations, given that there will be two employees per pensioner to fund everything on pay-as-you-go? Clearly, we will not be able to.
In a sense, we should not be debating whether the existing structure of means-tested benefits will continue indefinitely but whether the principle and philosophy should be that people must realise that they should save for their own provision because there will be limits on what the state can provide in the future. That has nothing to do with whether one political side or the other wants to be more generous or has a greater feel for low-income pensioners' problems; it is the reality that we are beginning to face.
When I first came to the House more than 20 years ago, I thought that that was the only issue. However, today we face what in principle is a good idea and scheme, but one that, if we are not careful, will be wrecked or undermined because of the expectation that the state will always provide in the end. Mr. Field was exactly right, and I shall come to his point in a moment. We have to address the issue before this Bill leaves the House. Unless people who invest in the personal accounts and choose not to opt out believe that they will be better off as a result, the provision will fail—for exactly the reasons given by the right hon. Member for Birkenhead. It is not rocket science. The Help the Aged briefing note makes clear a number of ways in which the issue could be resolved. I urge the Minister to take them on board.
Past initiatives came unstuck when retrospective judgments rightly concluded that people took wrong actions. When those had been subject to advice, compensation had to be paid, at huge cost to the financial services industry. That means all of us—all of us contributed to that compensation in one way or other, if only through the reduction in the value of the residual funds of life insurance companies and pension funds.
All that has induced a climate in which providers seek to avoid giving advice. Advice also adds to cost, which undermines return and value. The Government themselves were criticised by the parliamentary ombudsman for the misleading nature of Government leaflets on occupational pensions. The Secretary of State made a comment about sending messages, and that is precisely the point. The Conservative Government in office in the Parliament before I was elected, when I was working in the financial services and insurance industry, actively encouraged people to get out of occupational pensions and into personal pensions. Even the state said that portable pensions were the things to have. However, that turned out to be completely wrong and we are in danger of doing the same thing again.
Ideally, advice should be available, but it is unlikely that it can be given on an individual basis in the current regulatory framework. The all-party group on insurance and financial services keenly awaits the outcome of the Thoresen review on generic financial advice. I am not as pessimistic as some of my hon. Friends, including my hon. Friend the Member for Epsom and Ewell; I think that Thoresen may provide a solution. We need to foster greater understanding of what people do with their pension investments, insurance products and so on. They should be absolutely clear, but for that the detail must be right.
My hon. Friend made a point that concerns me. There is an opportunity for people, without advice, to put lump sums into personal accounts instead of, with advice, putting lump sums into other investments that may not be pension investments at all. That concerns me.
I shall deal briefly with my next point, because my time is going. The Secretary of State said that most employers were unlikely to reduce existing contribution levels. I would like to share his optimism but, as the right hon. Member for Birkenhead clearly said, the future is less certain and if employers are under financial pressure, they may reduce them.
However, my greater concern—and the point that I made in my intervention on the Secretary of State—is the continuing demise of defined benefit provision. There may be reason to believe that the haemorrhage has been stemmed for the moment. However, the signs are crystal clear: remarkably few young workers in the private sector—our children—will enjoy a final salary or defined benefit pension. That is an appalling shame, because such pensions were the bedrock of employment for the generation that preceded ours and our generation. What is the result? Comparisons with the public sector are already putting pressure on the retention of defined benefit schemes, our parliamentary pensions included. In defined benefit schemes, the employer takes all the risk; in defined contribution schemes, the employee takes all the risk. There must be a middle way. The Association of Consulting Actuaries proposal may not be perfect, but I say to the Minister that the Bill is an opportunity for further reform. Conditional indexation works in Holland; I am about to get married to a lady from Holland, and I recommend all things Dutch to the Minister.
Time does not allow me to address the many other issues. I agree with all that has been said about the group personal pension problem, which must be resolved. However, there is a lesson there as well. I believe that that problem is an unintended consequence of European Union rules on distance selling. Nobody thought that the rules would have that effect when they were approved in Statutory Instrument Committees. Similarly, we need to be clear that there will not be unintended consequences from the existing provision for the new personal accounts, the personal account delivery authority structure and the regulatory framework.
If good intentions and an aspiration for consensus and progress were sufficient, we would not be in this position. We have one last chance to get this right, and if we fail this time, we fail a whole generation and beyond of future pensioners. As many colleagues who know me are aware, I am an optimist—a glass-half-full person, not a glass-half-empty person—but the half-empty glass needs to be filled in Committee; otherwise, I share the concern of the right hon. Member for Birkenhead that we could stare further failure on pensions firmly in the face, not now, but in a generation's time.
I, too, am an optimist and a glass-half-full person; that is why I welcome the Bill. Some of the tone of the debate so far has suggested that there has been a lot more criticism than one gets a sense of from all the briefings from various organisations in the financial sector and charities that work with older people. In most cases, those briefings welcome the principles of the Bill.
As the Secretary of State said, the issue of pensions is not about old people; it must be a young person's issue. For the first time in this House, the Bill looks far into the future, dealing with how future generations will make provision for the pensions system. As my hon. Friend Alan Simpson said, this is about demographics and biology as much as anything else. As Mr. Greenway pointed out, we must make it easier for people to save for their retirement and make their own contributions to the pension pot. If the demographics determine that more and more people are not paying into their own pension provision, the state will not be able to deliver anything, no matter whether one believes that the state pension should be linked to earnings, that it should exist at all or that it should be uprated. We must ensure that it is as easy as possible for future generations to pay as much as they possibly can into their pension.
I want to concentrate on two areas that the Government have to get right in order for the system to work: first, preventing any kind of levelling down; and secondly, getting the costs right by ensuring that they are as low as possible. Several hon. Members have mentioned their fear of levelling down. Personal accounts will work only if they are targeted at the particular audience that they are aimed at, which is not the 40 per cent. of people who already have occupational or private pensions, but the 60 per cent. who have no extra provision other than that which they pay through national insurance contributions or the state second pension. The Bill will have done nothing if all it does is transfer people out of very good or even quite reasonable occupational pension schemes and into personal accounts. The scheme is not for them. We must be clear that the Government are not saying that all occupational pension provision should be delivered through personal accounts, because those who are in good occupational schemes with contributions of 16 per cent. or more are able to deliver up to two thirds of their earned income as their retirement income. Personal accounts must be a floor, never a ceiling. Eight per cent. is only half of 16 per cent. I hope that once the system beds down in the years to come, if the consensus is right and this is the way forward for pension provision, Governments of the future will try to raise the contribution level beyond 8 per cent. For the time being, however, it must be seen as a floor, and it is clearly not aimed at employers who already provide good occupational schemes.
The scheme will be aimed at those who are on low or medium incomes. A large number of the people who are missing out on occupational schemes are women. This will improve the coverage that women have in terms of pension provision. The whole system will fail if few people enrol in the new personal accounts and the savings ratio does not shift at all. We need more people to enrol and to make higher contributions than at present.
The real failure of the system would not be the scenario that the hon. Lady paints, but one where many women, who are often part-time workers with broken employment records, contribute to the scheme when they can least afford it because they are auto-enrolled and end up at the end of their lives no better off as a result. That would be the true disaster, not the fact that yet another Government initiative, like the stakeholder pension before it, has failed, because we are well used to that with this Government.
Obviously the hon. Gentleman can see into the future far better than I can. We do not know what kind of Governments will come in, whether they will continue with any kind of means-testing or whether the pension credit will survive. We are looking up to 50 years into the future, not at the next 10 years or so. As we do not know what will happen, it must be right that we encourage young people to save as much as they possibly can today in order that the scenario that the hon. Gentleman describes does not happen in future.
Whatever the system with regard to the state pension, if we are dependent on all pension provision in future being down to the state, means-testing will grow, not lessen. To ensure that means-testing develops a much narrower focus, we must encourage more and more people to invest in their pension today so that when it comes to retirement they will already have lifted themselves out of any kind of means-testing. People do not know what their employment record is going to be. Since the second world war, there have been huge changes in the working patterns of women. The Bill moves us ever closer to individual entitlements and away from the old dependency culture that existed under the married person's allowance and the basic state pension. Pension provision and the working lives of women and men have changed so much in the past 60 years that I foresee that in the next 10 or 20 years they will change a huge amount more. The basic message that we have to get over is that it is important that individuals who are working today continue to save in an occupational scheme so that they will have more than just what the state is able to provide through the basic state pension.
It is important that we understand that this is about deferred wages. Many people have not opted into some of the very good occupational schemes even when they have not had to pay anything themselves. I remember speaking to one young man who had lost out on 10 per cent. of his wages because he had not got around to signing the form, although he was not even expected to add anything to his employer's contributions. Compulsory opt-in is very important in getting over that inertia. We must ensure that there is auto-enrolment and that people do not have to make such decisions. We must also bear in mind low earners who have multiple jobs. As Mr. Stuart said, they are mostly women who have to find some way of increasing what they can contribute. I can understand why there is currently a contribution cap of £3,600—it is obviously because the Government do not want people who are sitting in fairly good schemes to move their contributions across into personal accounts, which are not aimed at that market. I hope that once the scheme beds down, the contributions cap can be lifted.
The cost must be as low as possible. I would like it to be as low as three basis points. People say that 1 per cent. does not sound very much—it does not, but that was probably partly the death knell of the stakeholder pension. It is 1 per cent. not as a flat rate of contributions but 1 per cent. of the pension pot; once someone has built a big pot, 1 per cent. becomes a viable amount to be taking out of it every year. I hope that we can get it down to 0.5 per cent., but if possible it should be even lower. If the scheme is going to work, it is crucial that costs are kept as low as possible.
I welcome the Bill. I am glad that there was generally consensus on its principles, although other areas will have to be worked through as it proceeds through this House and the other place.
It is a pleasure to follow Miss Begg. She is right to mention the special problems that women face with regard to pensions, but perhaps that is not a debate for tonight.
Giving pensioners a fairer deal, which means a greater share of the nation's wealth, is long overdue. I warmly congratulate the Government on the pensions review and their response to the Turner report. However, let me set the Bill in context. The incoming Labour Government in 1997 took over one of the strongest pension systems in Europe, which is now one of the poorest. They committed an appalling robbery on people's private pensions, which still costs pensioners some £7 billion every year and has added to the downfall of many schemes. One of the most damaging and surprising failures of the Labour Administration since 1997 is that their policies have led to a fall in the share of British national wealth that goes to pensioners. Frankly, I expected better from Labour on that.
Pensioners see £25 billion thrown at the Northern Rock problem and wonder at the absence of the financial constraints that the Government always claim to be under when pensioners need help. What about the Government's failure on the Equitable Life debacle and their breach of trust on police pay? I put it to the House that this is no time for politicians to say, "Trust me, I'm a fairly straight sort of guy", as Mr. Blair once infamously did. It is time to get all-party consensus on a decent system to take politics out of pensions and to take more pensioners out of relative poverty. It is particularly galling to see, as we do, our pensioners' share of Britain's wealth falling, when they built Britain's institutions and national wealth after they won national and international security in world war two. Hon. Members do not see things in that way, but pensioners do. It is against that legacy that people's trust in Government policies, particularly on pensions and savings, must be viewed.
I acknowledge and welcome the fact that the Government have followed the Pension Commission's recommendations on the broad scheme design. While the Bill needs fine tuning, I support its key objectives to encourage more people to save in workplace pension plans and to create a new system of personal accounts.
I turn now to the specific principles of the Bill. It is right legally to force employers automatically to enrol their eligible employees. The Government should guarantee the quality of those workplace pension schemes and, through the Bill, deliver a strong framework for the introduction by 2012 of well-governed personal accounts. The scheme must be flexible and avoid the baffling complexity that dogs the current pension saving systems. That will help to target specifically the needs of below-average earners, thereby ensuring the highest economically sound levels of participation. Savers must not lose because they have saved. That issue must be addressed.
It is crucial to ensure that the interaction between means-tested benefits and personal accounts does not lead to benefit losses and thereby act as a disincentive from saving for low earners. I accept that if it is designed correctly the scheme can give millions of low to moderate earners first-time access to secure and worthwhile workplace pensions savings with decent and affordable contributions from their employer. I believe that the 3 per cent. level given in clause 18 is right at the moment. There must be stability on that point, at least in the medium term if not for ever. As
Clause 53 will enable the Secretary of State to set an annual contribution limit for personal accounts. I believe that £3,600 has been mooted. That may be inadequate; the figure should perhaps be higher. In addition, there should be flexibility so that individuals can, from time to time, pay in lump sums when they can afford to, if it is financially sound for them to do so and providing that they receive proper independent advice. The Government should find a way to ensure that they do. That would help people who start saving for a pension later in life, and who need to make up for lost time. Those people represent a significant number of workers.
I agree with Help the Aged, Age Concern and the People's Pensions Coalition that there should be a distinct lifetime lump sum limit alongside the annual contribution limit. That would allow people to pay money into their pensions from small inheritances, divorce settlements, redundancy payments and other windfalls. I do not see how that could be wrong provided that the people—particularly low earners—who chose to do so received proper advice. We should also consider the transfer of limited existing pension pots into and out of personal accounts to help people with various small pension funds. Again, that is not an unusual situation.
The Government must deliver on consolidating people's existing state pensions, including the state earnings-related pension scheme, graduated retirement benefit and the state second pension. We must enable people to see more transparently what state pension rights they have accumulated thus far, which should help to encourage further pension savings.
We should focus on clause 3(5), which will enable employers to be exempt from the requirement to offer personal accounts if they offer group personal pensions, or GPPs. Many hon. Members agree that the exemption of GPPs from automatic enrolment, forced on this country by European laws with no control by this democratic Parliament, would be totally unacceptable. I was not at all convinced or comforted by the Secretary of State's comments in his introduction to the debate. He was quite woolly on the subject, and the Committee will no doubt want to investigate that carefully. The House should fight back and do whatever it takes to remove that EU enforced exemption and to take control of this Parliament away from unelected EU Commissioners.
We must find a way to reject EU laws that prevent auto-enrolment into GPPs and would, as Age Concern points out, fatally undermine the principle of the Bill by encouraging employers to side step contributions in to personal accounts. That loophole must be closed.
The Bill should protect members from excessive charging and from poor investment performance. Clause 62(2)(d) sets out that
"the cost of membership of a scheme...should be minimised".
We need to hold down scheme costs to an annual management charge of no more than 0.3 per cent., and less if possible. That limit should be specified in the Bill. We have specified the 3 per cent. that employers must pay, as well as many other things. Why cannot we put a specific limit on the costs?
People must feel that saving in their personal accounts is totally secure and good value, or else the accounts will fail. People will not have that confidence at a time when, sadly, they doubt the integrity of political parties. Public trust in politicians and Government is at an all-time low, so promises from politicians will not help. People must have clear, unequivocal and permanent guarantees that their money is safe in personal accounts and that they will benefit from saving in them and not be punished through the means-tested benefit system.
Advice will be crucial, as we have heard this evening. It is in society's best interests for the Government to ensure that good financial advice is readily available to everyone, and particularly the low-paid, as they plan for retirement. If people receive good advice and have confidence, we may see personal accounts dramatically improve the levels of pension savings in the UK. That is what we all seek. That will lead to far fewer people retiring into relative poverty and falling on to means-tested state benefits in the future.
Finally, as I have said before, it is time to take the politics out of pensions and to give pensioners the decent deal that they so richly deserve. If the excellent people of Castle Point allow me, I will fight for the better pensions that they need month by month and year by year. I will fight to force this Government—and the incoming Tory Government whom I expect at the next election—to give current and future pensioners specific delivery of the better pensions deal that is promised by the Bill and that is so long overdue.
It is a pleasure to follow Bob Spink. I had some difficulty in reconciling his plea to take the politics out of pensions with the content of his speech, especially the early part. Time prevents me from rising to most of his points about the Government's record. I simply say that, if he was present at the start of the debate, he would have heard my right hon. Friend the Secretary of State referring to our commitment to restore the link between pensions and earnings from 2012. He may also have heard the rumble of discontent that emanated from the Opposition Benches. I heard one hon. Gentleman saying that the commitment would bankrupt the nation. If there is to be a shift in Tory policy, perhaps the hon. Gentleman should take account of it.
The Bill represents the second stage of implementing the sort of proposals that emerged from the Turner review, and it has much to commend it. The problems, as many hon. Members have said, are stark: more than 7 million people do not save enough for their retirement, and only half those aged 35 or over and only one sixth of 20 to 24-year-olds are saving for a pension. The problem is most acute among low and medium earners.
The Bill introduces several measures to tackle the problem, including reforming private pensions saving to ensure that qualifying workers are enrolled automatically into workplace pensions and providing for compulsory minimum employer contributions. There is much to commend both proposals, but I ask my hon. Friends on the Front Bench to take seriously some of the points that have been made, especially about the level of contribution. As my hon. Friend Miss Begg said, there may be a case for staging the amount, but it is important that we take seriously the point that my right hon. Friend Mr. Field made about not allowing a minimum to become a maximum.
Although there is much to commend automatic enrolment, the relationship between that and means-testing is a genuine problem. There are no easy answers and anyone who pretends that there are has missed the point. In addressing the problem, I ask my hon. Friends on the Front Bench to consider a couple of matters. First, when the pension credit was introduced, its main thrust in the 1997 to 2001 Parliament was an incentive to save. Over time, it was merged with the minimum income guarantee, so that when people refer to the pension credit today, they tend to mean the lower rather than the upper element of it. There may be scope for reconsidering and perhaps rediscovering some of the early purposes of the pension credit to try to deal with the problems.
Secondly, and perhaps more radically, I was struck by the point that my hon. Friend Mrs. Humble made when she rightly asked the Secretary of State to examine the position in Sweden and the value of good pension forecasts covering all elements of pension provision. The answer given was that, although there was something in her point, the pension structure in Sweden is different, and based much more on state provision. There are times when we should reassess the balance between state and private provision. Perhaps we can learn one or two things from the position in Scandinavia.
I mainly want to concentrate on confidence. My right hon. Friend the Member for Birkenhead spoke graphically about the "walking newspapers" of the families of the 125,000 members of collapsed schemes. If their position had not been addressed, there would have been a gaping hole in confidence in pension provision in this country. I want to add my thanks to Ministers for grasping the nettle. I especially thank the current ministerial team, but I want to say something about previous Work and Pensions Ministers—one of them, now the Minister for Competitiveness, has just sat down on the Front Bench—because although I, and doubtless others, crossed swords with them for many years about the need to do more, it is fair to acknowledge that they were trying to do what they could at the time. I therefore pay tribute to their efforts, but particular credit must go to the current ministerial team for grasping the nettle and concluding the years of campaigning just before Christmas.
The matter says something about the way in which we achieve political change in this country. It was partly to do with Ministers and partly to do with colleagues in this place, who maintained the pressure, month in, month out and year in, year out; it was certainly to do with the unions, which kept up the pressure and the campaign from outside, and with the tireless campaigners outside this place. It is worth mentioning Ros Altmann and her campaigning. Her representations were not always comfortable, but she was tenacious and her commitment is unquestioned. Ros Altmann urged us for years to consider the position of the existing assets of the failed schemes and putting them to use. That became a vital part of the Young review.
Most of all, we need to thank and pay tribute to the members of the collapsed schemes. Kalamazoo, one of the firms whose pension fund collapsed, is in my constituency. Members of that pension fund and those of other schemes, such as that of ASW, put in effort at which many of us can only marvel at a time when they were worried about not only their futures but security in retirement for their families. They kept up the pressure and refused to take no—or even maybe—for an answer. People such as Peter Wheeler and Brian Mealings, former Kalamazoo employees, were at the centre of the campaign from the word go. It is right to pay tribute to them.
All the people whom I have mentioned played a role in bringing the issue to a conclusion. As I said, that says something about the way in which we achieve political change in this country.
I welcome much of the Bill. Many hon. Members referred to the detail—doubtless, many issues will be considered further in Committee. The measure will provide a framework for stronger pension provision than we have had for some time. However, difficult decisions will still need to be made, not only about what is right but about the protections that will be needed—not tomorrow or next month, but in 20, 30 and perhaps 50 years. That will need to be combined with decisions about what is affordable.
There are many issues to consider, but I want to refer briefly to Baroness Hollis's proposal in another place. The Government presented a powerful argument about the affordability of her proposal and whether it would achieve the intended aims. However, the problem of women's pensions remains. If the method of tackling it in Baroness Hollis's proposal is not correct—it may not be—it nevertheless remains unfinished business. I hope that, as the Bill proceeds, Ministers will revert to the issue and tackle it in the coming weeks and months.
It is a pleasure to take part in the debate and to follow Richard Burden.
The debate is against a background of pension tax, which devastated and undermined what at least one Labour Member recognised as one of the strongest pension systems in Europe. As my hon. Friends have said, we have witnessed the calamitous loss of defined benefit pension schemes, partly as a consequence of such undermining. Alan Simpson powerfully showed that under this Government a massive escalation in personal debt has eclipsed the amount of national wealth created in a year. We must consider the Bill, which appears to be fair and on which a degree of consensus has been built up, against that backdrop.
The Secretary of State tried to use the consensus, which is based on the need to encourage saving for the future because things are so uncertain in the future, like a hammer to oppose anyone who questioned him. The consensus is that those with the least in our society need to have a stake in society and security in old age, but that will not come from filling in long, complicated documents to obtain their council tax benefit, to pay their rent, to purchase food or to buy a present for their grandchildren. That is the current situation, when 1.5 million or more pensioners who are eligible for benefits do not claim them for reasons that hon. Members on both sides of the House decry.
When the Minister for Pensions Reform winds up the debate, I ask him not to suggest that anyone who thinks that there are problems with the specifics of how the Bill will work is engaged in political point-scoring, which is the last thing that anyone wants to do. I am certain that my hon. Friend Chris Grayling did not seek to do that in his measured, solid and serious contribution to the debate, which, sadly, followed a weak effort, which would have been hilarious if the issue were not so serious, by the Secretary of State. The Secretary of State's contribution was poor.
I will press on, because I want Ministers to tackle the substance of the issues.
When the Minister for Pensions Reform intervened on my hon. Friend the Member for Epsom and Ewell, he sounded angry and indignant that anyone would suggest that there is an issue with low-paid people paying in for long periods of their lives when they cannot afford it and ending up with no benefit at the end of their lives. Surely Labour Members have some care and some concern—the old Labour party would have done so. Perhaps Labour Members of 20 years ago would have shown more social conscience.
Few current Labour Members have worked in the private sector. It is outside their safe, cosy work environments, which are normally very close to the Labour party, so they have no idea about the harsh realities for the people whom the Labour party traditionally sought to represent. The abnegation of responsibility for those people and the failure to tackle means-testing are the central problems.
Let us consider the reality in small firms. Again, I understand that Ministers have no understanding of what it is like to run or work in a small firm, because so few Labour Members are involved in private business. The 3 per cent. contribution by small businesses may have a serious short-term impact, as the final Pensions Commission report stated, but ultimately it will come out of what would have gone in pay to the employee. The money will not magically appear from the employer's secret pot. Employees of small businesses are often on low earnings and might have student debt or credit card debt, which has been promoted in the past few years. The employer will have a conversation with an employee who earns £16,000 a year about whether that employee should take out one of the pension schemes. Can any hon. Member on either side of the House say that they would advise someone who earns £16,000 a year and whose career trajectory does not suggest that they will ever earn vastly larger sums that they would be better off contributing towards the scheme, when we have no vision of a future picture of means-testing?
The Secretary of State lashed out angrily, but he gave us no light. We need certainty and a consensus on what will happen with means-testing over the next decade so that people can make a rational decision about whether they should proceed. The truth is that many people who should be saving for their pension will not do so, because it will become known that it is not a wise thing to do. Ministers have singularly failed to tackle that issue.
Turning to the powerful and devastating speech by Mr. Field, we are at risk of a double whammy. Ministers are laughing, because they are so out of touch with ordinary people that people making contributions and losing out is of no matter to them. They say, "The consensus is all. We must be seen to take action." We face levelling down, because the minority who currently have decent pension provision in the private sector will see it decrease and the contribution by employers reduce in tough times. At the same time, those who should not be contributing to such a pension will be doing so out of very low earnings, when they have high levels of personal debt and their personal situation does not suggest any long-term benefit to them. They will do so, and will lose out. If Ministers do not take some of the issues raised across the House seriously, we could end up with a Bill that causes double damage to the British pension system.
Another topic that we have not heard anything about—I will be interested to hear from the Minister about it later—is protection. It is easy for us in this House to say, as Miss Begg and other hon. Members did, that pensioners must be protected. Quite right. We all want them to be protected, but how will they be protected? What is there in the legislation that gives them protection? We have heard the rosy views of Ministers about what the return will be on the investment of the moneys put into this fund, or some aspects of it, but what if those returns prove to be disastrously poor? What guarantees are there? We could end up with a triple whammy, where people on low earnings who have made a contribution receive very little back, and who end up finding that the money they have invested has also done extremely badly, so that they lose out yet again. It is a serious issue, and I hope that the Minister will return to the question of what we can do to guarantee the benefits for people who invest in such a way.
I have to disagree with my hon. Friend Bob Spink, who suggested that it should be easy for us to support the idea of people being able to contribute lump sums—although he did say, to be fair, that they should do so with the right advice. Having read the Bill, and on the basis of the provisions we have seen so far, we can have no certainty about such advice being properly available for those who are most vulnerable and likely to take a bad decision. Without that certainty, and reassurance on that point, we should not support a measure involving lump sums.
The Secretary of State talked about auto-enrolment. He said that it would be extremely difficult for someone to opt out. We have just talked about the many people who could find that it is not in their financial interests to opt in finding it extremely difficult to opt out. I would like the Minister of State to expand on what is meant by that, and on what the mechanics will be to prevent it from happening. I expect that there will be a form. Many employers of people on low earnings, or of part-time workers, women workers or people with broken careers, would be quite likely to have such a form available in a filing cabinet. They will pull it out, put it on the table and say, "What do you want to do about this reduction of 4 per cent. from your earnings, then?" The answer will be, "I'd rather not have that loss of 4 per cent. when I've got credit card debts, Christmas coming up and I'm in serious financial difficulties trying to look after my family."
The truth is that such a form will be on the table. It will not be extremely difficult; people will just sign it. We then have the prospect of Ministers of this Government—it would be sad if they were still in power—desperately going round trying to prosecute employers for their irresponsible encouragement of people opting out of a scheme, which, as far as their employees are concerned, is highly unlikely to be of benefit. I will be interested to hear the Minister respond on that point.
It is in the detail that we will find out whether more people will benefit from the scheme than lose out because of it. Much of that detail is left to regulation, and we could do with hearing from the Minister—we did not hear from the Secretary of State—about whether regulations will be subject to affirmative resolution, or whether the Government will be able to push such measures through. This matter will be of enormous importance for millions of people for a long time, and it is important that the House scrutinises any regulations made by Ministers.
The right hon. Member for Birkenhead described this Bill as dangerous. He suggested that there was a chance of a serious mis-selling scandal, but there would be no one to take to court over it, apart from a discredited Government who would be long gone. That is no position from which to move forward on the basis of consensus for the long-term benefit of people in this country, not least those who have least, whom we should be concerned about the most. One would have thought that a Labour Government would be concerned, but, as my hon. Friend the Member for Castle Point pointed out in his powerful speech, the amount spent on the elderly by the Government as a percentage of GDP has reduced over time. This Government need to take seriously all the contributions made, and the criticisms of the current situation, if we are to have a proper set-up for the future.
If the previous two contributions from the Conservative Benches reflect a wish to take politics out of pensions, I would not like to see the Opposition in partisan mode.
One thing that has not been said yet is that we should give credit to Adair Turner, as well as to the Government, for the degree of consensus that has been achieved. Despite all the criticisms that we have heard today, they focused on the detailed implementation of the scheme, but a couple of years ago I would not have put money on our achieving any consensus on the structure at all. It is worth recording that before moving on.
I should like to make three points. The first is about the issue that has preoccupied many hon. Members who have spoken—the interaction with pension credit, housing benefit and council tax benefit. We are all familiar with the arguments about means-testing in general. There will always be a trade-off between spreading whatever money we have thinly and concentrating it on the people most in need, with the risk of creating a trap if they then receive additional income. That is a long-standing issue. It is not trivial and it will reappear in other contexts. However, we should be clear that all such devices are designed as a safety net. Nobody sensible aspires to ending up on housing benefit and council tax benefit, which are there in case things go wrong in people's lives.
A constituent once told me that it was not fair that she contributed so much in tax to the national health service, because she had never been in hospital. I told her that it was good news that she had not been in hospital and that the NHS was there as a back-up in case of bad news. We do not tell people considering signing a personal account that a huge profit is guaranteed at the end of their lives; rather, we say that if their careers follow a normal pattern—even a low-earning pattern—and they contribute over their lifetimes, the probability is that they will be glad that they did so. However, if things go horribly wrong, either in people's investments or their personal lives, that safety net is there.
That is a reasonable package, although I appreciate that there are issues for people who are close to retirement when the scheme comes in. In the interests of securing a high take-up for the scheme, we should try to address the concerns that have been expressed today.
The hon. Gentleman talks about the safety net and I take his point on board. He refers to our telling vulnerable groups—women, low earners and people in part-time employment—that the safety net is there, but does he not understand that, for various reasons, those people do not listen whenever we say such things? All our cogent and logical arguments are lost on many people, for an abundance of reasons that we all understand. Therefore, however logically we put the case, many tens of thousands of people will miss it.
That is right, which is one of the arguments for the opt-in. We believe that there is a logical and serious case, which many people for whatever reason do not take on board, so it is reasonable to make it the default position that they become part of the national pension scheme, rather than staying outside because of misplaced or other fears and just hoping for the best. However, as I was saying before the hon. Gentleman's intervention, we need to do what we can to reassure people on those points.
The second issue that I should like to raise is employer evasion. We are making the scheme compulsory for employers, but we are all aware that some employers will, for good or less good reasons, seek to minimise the number of employees for whom they pay a 3 per cent. contribution. As I mentioned in an intervention on the Secretary of State, it seems reasonable to ask in Committee why employers are being given a financial incentive to encourage their employees to opt out. Why should not every employee be part of the national scheme? The optional element would be paying the 4 per cent. and receiving the 1 per cent. tax rebate; the 3 per cent. would be paid by employers regardless. From the employers' point of view, the issue would be entirely neutral. They would not be concerned about whether or not people signed up—that would be a matter for the people concerned—and there would be no risk of the "wink and nudge" influencing people. I agree with Mr. Stuart: employers will have a sheaf of forms to offer employees asking them whether they want to be part of the scheme, and the less good employers will nudge them in a way that is impossible to prove or to catch.
I am pleased, as I know my trade union colleagues will be, that agency workers are covered by the proposals in what I consider quite an elegant way, but there remains the problem of self-employed workers. We all know of the increasing tendency for some companies to farm out important elements of their operations to people who are at least nominally self-employed, and we do not want to reinforce that tendency by giving an additional incentive for the establishment of such arrangements. However, it would be helpful if there were ways of bringing self-employed people into the scheme.
My hon. Friend Mrs. Humble referred to the Swedish yellow envelope scheme. In today's debate, we have still subliminally accepted the traditional model according to which people spend most of their lives working for one employer, but that is now very much the exception. The norm is that during their lives people work for a number of employers, perhaps a dozen or more, experiencing voluntary or involuntary interruptions in their employment. In such circumstances, it is easy for people to lose track of their pension rights. The attraction of the Swedish scheme, as I understand it, is that people receive annual statements providing an overview of their position.
I appreciate the Secretary of State's point that in the absence of a defined benefit scheme it is not possible to tell people that, in the present circumstances, they will receive X pounds a week. However, they can be told "Here is an overview of what we have on record for the pension schemes to which you have contributed so far, and a statement of the current assumptions of what that could lead to", with all the usual provisos issued by pensions firms; only the Government, or a Government-appointed agency, could do that.
It would be a real, visible, concrete service to British citizens if, as part of the package of being British, they received a statement from the British Government every year telling them where they stood in terms of pension provision. I think that it would stimulate saving without imposing an administrative burden on pension funds. They have to collect the information anyway; it is just a matter of passing it on. I believe that this is something we could do to help people make sense of the complex world of personal finance—which, up to now, many have struggled to do.
I shall focus on just one issue in my brief speech. I shall return to where the Secretary of State began—the issue of women's pensions, which has been touched on throughout the debate.
I want to be helpful to the Government for two reasons. I thank the Secretary of State and, through him, his officials for the constructive dialogue in which I have been able to engage with him in recent months on a range of matters related to women's pensions, and for the efforts that he is now making to help resolve some of the technical problems connected with home responsibilities protection. I thank him and his officials for their constructive approach. However, he has, with due deference to the noble lady, what might be called the Baroness Hollis problem. Last summer, the Government were defeated in another place in the attempt to do something about the 2010 pension changes and the issue of women who retire before 2010 on a much less generous state pension regime. Baroness Hollis came up with one suggestion that the Government said they would do something about. They looked at it and have said that they will not do something about it. I want to offer the Government a way out and to offer my solution to the Baroness Hollis problem. I do so in a constructive spirit and, as the Minister knows, I will be happy to speak to him at great length about it if he wants.
After the announcement in the Lords that no progress was going to be made on the issue, Jackie Ashley wrote a column in The Guardian on Christmas eve describing what a problem this was. As I had nothing else to do on Christmas eve, I wrote to The Guardian and my letter was published a few days later. I pointed out that there were a set of women with gaps in their national insurance record who could do something about it now if only they knew about it. Interestingly, I read The Guardian letters column a few days later and found that a citizens advice bureau manager had written to say that I was right—it was a good letter, obviously. She said that even she had no idea that people could fill their national insurance record gaps on those special terms because the system was so complicated.
Baroness Hollis is trying to address the problem arising from the fact that many women are approaching, or have passed, pension age, have gaps in the national insurance record and could fill them, but have not done so. We need to use the existing mechanisms to enable women to fill those gaps.
As the Secretary of State said at the start of the debate, women—we are principally talking about women—can fill up to 12 years of contributions' gaps now. We are in 2008, and one can pay back for any of the last six years, which takes us back to 2002. Between 1996 and 2002, there was a different mess; the Government were not telling people about such gaps in the national insurance record. To make up for that mess, there is a special scheme that allows people to pay back from 1996 to 2002. The problem is that lots of people do not know about it. I have set myself the goal of trying to find them individually. This might be slightly adventurous and I would like to enlist the Minister's help in the process. I have found a few so far, but there are a few still to go.
My serious point is this: the Government hold records on everybody's national insurance, so they hold records on all of those women who have gaps in their records for the years for which the special scheme applies and since then. If those women knew that they were entitled to fill the gaps in their record on these very favourable terms, many would do so. I have found dozens of such women who, when we have told them about the scheme, have found they could get, literally, free money. They have found out that they could pay a couple of thousand pounds in back contributions and earn £3,000, £4,000 or £5,000 in back pension. The scheme is so generous that the Government do not even ask them for the money and simply pay the difference.
I have had the pleasure of ringing up women the length and breadth of Britain—I have had several proposals of marriage—and helping them to discover that they could have free cash and a bigger pension. The problem is that the Government know exactly who they all are. They never told one set of women and they told another set but only once, several years ago, and in a somewhat complicated way. All those women have that latent entitlement that they are not taking up. The Baroness Hollis problem—the problem of lots of women with incomplete records who could fill them—could be made much better if the Government were to access their own records proactively and contact the women who are missing out.
Very briefly I shall identify the two groups about whom I am most concerned. The first are the women who did not get a letter from the Government telling them about gaps in their record. Such women are perhaps atypical now but are typical of a generation of women who left school at 15, worked full-time and paid some national insurance, left work to have children, went back for a period and paid the married woman's stamp, but perhaps stopped altogether when they had other children. They might work in Oxfam, or they might care for an elderly relative. Basically, their working lives stopped in 1980. In other words, they have a dirty great gap in their contribution record.
A few years ago, the Government took the view that they would not tell these women that they were entitled to fill the gaps in their record on very favourable terms. The scheme is brilliant and the Government know all the women who are entitled to it, but they chose not to tell them; they did not write to them. This set of women could benefit if the Government used their own information to tell them. I am not asking for legislative change. All the information and powers are there and the Government just need to tell the women. Even if the Government were simply to prioritise those who have most to benefit from the scheme, that could help a lot of the women whom Baroness Hollis is concerned about to get better pensions.
The second group is the women the Government did write to in 2004-05. Some of them responded, but, even on the Government's own figures, tens of thousands have still yet to respond. There is a ticking time-bomb in that there is a deadline, as the Minister well knows; the scheme will run out by 2009 or 2010. There are lots of women out there who could take advantage of it. I find them practically every day—the Minister looks mildly sceptical, but I can give him names and addresses. Practically every day I find another woman who could take advantage of the scheme and who received the initial letter and either did not understand it or, crucially, received it at a time when it was not right for them to respond. They might have been 60 when they received it and they did not have the £2,000 but they are now 64 and it is worth their while to respond, as they will get the offset and they will end up in cash. So it was right for them not to respond when they received the letter, but I would bet any money that they binned the letter because they thought, "I haven't got thousands of pounds," instead of putting it in an envelope marked, "Open again in 2008 when it is worth while." The Government know who those people are.
There are a lot of women of the type whom the noble Baroness is rightly concerned about—as is the Minister, and as am I—and whom the Government could help without a massive spending commitment. Of course, some money would be involved.
I had better not, as I am pressed for time.
The critical point is that the Government know who these people are; they have their records. Even if they identify only those who could most benefit from the existing schemes, they would do a huge amount to address the concern that is felt in all parts of the House about women who have incomplete records, often because they have done something that was very worth while which has not been reflected in their pension benefit.
I also want to pay tribute to Front-Bench Members for their outstanding work in tackling pensioner poverty, and in particular in dealing with issues to do with women's pensions. My hon. Friend Mr. Davies said to me earlier that there are many men in the low-income pensioners pot as well, which is of course right, but the figures show that the pensioners who are in poverty and who particularly miss out are overwhelmingly women.
The Government have done two particular things to help them. One is the much-reviled means-tested benefits, especially pension credit and the minimum income guarantee; many of those payments have gone to women pensioners and have been responsible for lifting them out of poverty. The other was to commission the Turner report, which produced excellent proposals on women's pensions. It highlighted two issues. First, it identified that one of the main reasons why women pensioners were poor was that they were not qualified for the state pension. In the last round of legislation, that was addressed by reducing the number of years needed to qualify. In addition, there is, of course, the changing demographic profile and the change in women's status which means that more of us now work for longer. As a result, by 2025 more than 90 per cent. of us will be entitled to a full state pension. That is a major plank in getting women pensioners out of poverty.
The second particular cause of pensioner poverty for women that the Turner report identified was the fact that many women do not have pensions linked to their work—in the past, the term for that was occupational pensions. The Bill is particularly important as it will bring in the mechanism that will give women—especially those on low incomes—pensions that are linked to their work. That obviously raises a lot of issues, which I want to discuss. It will impact on their ability to get means-tested benefits, which have kept up women's income in retirement. However, it is right that we say that there will have to be a fundamental shift in pension provision such that people start to save even if they are on a low income. That will mean that people will have to start looking at saving, which will be the ultimate way in which they will achieve security in retirement.
Members have talked about incentives to save, and as I know from personal experience, the best incentive is to say to people, "You put so much in the kitty and your employer will have to put in so much, and the Government will put in so much." That is a basic incentive to save. I speak as one of those women who missed out on their state pension, for all the reasons that Steve Webb identified.
I want to touch briefly on three of the various issues relating to personal accounts, which I hope Ministers will look at. It is important that personal accounts work for people on low incomes who have never saved for their retirement before, particularly women. I understand from looking at the figures that people will get the full benefit of personal accounts only if they have their basic entitlement to a state pension; it is not a requirement—it is just the way that the figures work out. That is why it is particularly important that in paving the way for this provision we ensure that pensioners can buy back missing years. I take the point made by the hon. Member for Northavon about the schemes that are open; when people get such letters—I get them—they think, "I'll worry about that later." It is important that the issue be dealt with so that women can buy back the missing years from the early years of their employment, which are often the years that they miss. They also need to be able to buy back enough of the years to ensure that, if they have the means, if it suits them and if they think it the right thing to do, they get the full state pension. I will not go into the figures in detail now because my time is limited.
Secondly, the provision must work for women who have more than one job. Women in my constituency who have always worked and have a record of being in paid employment will often make up their income package through a basket of different jobs, all of them quite small and some of them not very well paid. It is particularly important that those women also get the full benefits of the personal accounts, which perhaps means some tweaking of the requirements.
Thirdly, perhaps women should be able to vary the amounts that they pay into personal accounts, so that they can buy back years when they were unable to pay in as much. Women's employment goes in peaks and troughs—often troughs. When one occasionally hits the grassy uplands of having some money, it is very important to be able to make provision for one's retirement, particularly given that, as we know from research, women, when there is choice between their pension and their children, have a tendency to ensure that their children get the money. We therefore need to ensure that the patterns of how women save and work are properly reflected in the structure of the personal accounts. It is particularly important that these accounts perform the miracle of getting people who do not have a track record of saving to save not for a rainy day, for a holiday or for their children, but for their retirement.
We must also make sure that while this is going on, other elements of what the Government are doing do not damage women's pensions. Let me give an example. A constituent came to see me—she is between 60 and 65 and her husband is over 65—to explain that the tax on her quite measly pensions is doubling. She is losing the 10p starting rate, which is going up, and she will not get the benefit of the increased personal tax allowance for pensioners. So whereas this year she is paying, as it says in a letter that I wrote to the Treasury, a total of £132 in tax, next year she will pay £261.40 on her pension income of £6,545.20.
I ask that while we do all this good stuff through the Department for Work and Pensions and this legislation to bolster women's savings, we ensure that other bits of Government policy do not penalise women because of differences in retirement age and such like. It is not enough to say that the husband gets the benefit, because the argument about women's pensions is about poverty and equity. Women expect to be treated as individuals when they have retired as well as when they are employed. With those caveats, I welcome the Bill. I hope that we can fine-tune those small bits in Committee to make it work for women.
I join other hon. Members in commending the Ministers and officials responsible on the successful outcome on the collapsed pension scheme. The broad thrust of the Bill is imaginative. The time bomb that has existed for many years was, as several hon. Members said, like a nettle that had to be grasped, and the Government are to be commended on grasping it.
None the less, my concern about vulnerable groups has not been assuaged, even though I have listened to Ministers and various Labour Members elaborating on it. Many hon. Members have said that we are talking about a group of people who have no interest in pensions. The people involved are mainly female, many of them are in low-paid and part-time employment, and some of them are in periodic bouts of employment. No matter how much we say that an interest in pensions is desirable and beneficial, and is in their own financial interests, they are simply switched off to the concept.
Until we change that mindset, and however much we establish even the automatic enrolment, if an opt out is available on the basis that a small employer finds that it would be advisable and advantageous, at least in the short term, for the employee to avail of it and that that would save the firm and the employee some money, and if it is a matter of signing one or several forms, the onus and incentive will be on that employee, who may have no interest in the concept anyway, to sign the form to secure what they believe to be a short-term gain.
Many other employees stand to benefit if gaps can be filled through the delivery authority. More clarity is required in that regard and I hope that will be provided as the various stages of the Bill unfold. We need to get a Government response on an issue that has been raised by several hon. Members. If we go through the pain—I believe that it is right to do so—of automatic enrolment and we help most people in society, that will be good and beneficial. However, if a hard core of female, part-time and low-paid employees see this as not being a desirable process for them to engage in, if we miss them and still do not target them, and if they are being told, and they are saying, that there is no point anyway because they will be no worse off opting out from a process that they do not feel part of anyway, that will only compound the problem that the Government tell us they are attempting to address. I want to see and hear more tangible ways of ensuring that that hard-to-reach section of employees will be reached as a result of the Bill. If we can achieve that through a process of Government engagement with the various parties, that will be progress made.
I listened with some interest to Steve Webb who spoke of the women who do not have pension entitlement because of the national insurance contributions issue. I hope that the Government will respond positively to those points, but if they do not I and other hon. Members will be in touch with the hon. Gentleman to see how we can help those women. The Government should be targeting and writing to those women to ensure that they get their entitlement.
If the points that I have made can be met, I hope to be able to give my unambiguous support to the Bill. As things stand, I welcome the measure in so far as it goes.
I shall start with the Opposition, because we had a truly characteristic and classic performance from their Front Bench this afternoon. We heard a lot of vituperation and aggressive epithets, but no policies, no ideas, no commitment and no sense of conviction. I shall give some concrete examples.
We all know that means-testing is a problem and poses potential difficulties, but should we have it or not? We heard a litany of complaints about means-testing, but no indication of whether the Conservatives would abolish means-testing or increase its use. We all know that generic advice is not ideal and it would be splendid if we could pay for everybody to have customised advice. The Opposition complained about the generic advice proposals in the Bill, but they did not say whether they thought that the taxpayer should pay— [ Interruption. ] They do not like being criticised, but they must understand that they will be. I see that the Opposition Chief Whip is now to be my audience on behalf of the Opposition. We never heard what their view is on generic advice. Would they prefer the Bill to provide for customised advice? In that case, who would pay for it? We did not hear that. Or do they want no advice at all? I presume that that is not the case.
Another example is automatic enrolment, about which we heard much from the Opposition spokesman. He mentioned it over and over again and appeared to be totally against it, but he never said that he would table an amendment to remove it from the Bill. There was a complete abdication and a void where we should have heard some solid and concrete proposals from the Opposition if they want to be taken seriously. It is no use just complaining about things or saying that life is not perfect. We all know that life is not perfect. Compromises have to be made and decisions taken. If one wants to be in government, one has to be prepared to face decisions and come down on one side or the other. We had none of that.
By contrast, the Government deserve to be congratulated on the Bill. It is a historic Bill. It is the first time in our history that we will have a contributory pension scheme that covers the whole work force, every man and woman who is working, unless they specifically opt out. That is a special moment in the history of pensions in this country. It means that everybody who is working will have a stake through the contributory pension system and the equity market in the prosperity of this country. Indeed, through the international equity market and diversification, they will have a stake in the future wealth of the world, and that is enormously important.
In another important achievement, the Government have succeeded in doing something that no other Government have even attempted, which is to provide for compulsory employer contributions. What is more, the Government have managed to do so through negotiation, and that is a fine achievement. Many people would not have put the Government's chances of success very high, but they have succeeded. It is against that background that I wish to make one or two points on issues that are left open by the Bill.
We all agree that there is a problem with means-testing. Some people should not contribute under the scheme because they would be better off relying on means-tested benefits. But the important point is that they are in the minority. It would not be sensible to throw the baby out with the bathwater and say that because that minority will not benefit we should deprive the majority of these new, positive measures. It is however right that some flexibility should be provided, and the Government have done so in allowing people to opt out and through the provision, which the House has so far rather missed in the Bill, for trivial commutation. However, the amount is not actually trivial; it is £16,000.
To take a concrete example: at 8 per cent. the total contribution of someone on £20,000 will be £1,600 a year, so it would take 10 years of cash contributions to reach £16,000. Making a reasonable assumption about the normal market return of those contributions, and as compound interest is rather low at the beginning of a contributory scheme, it would be about eight years before there was any danger of someone losing contributions at all now that the Government have provided for a so-called trivial commutation level of £16,000. That gives people a long time to think again in the light of changing personal circumstances or different rules about means-testing or pension contributions.
Finally, I should like to express something that the Government may not be able to say so easily. I have no idea what is in their mind on the matter and no idea of the substance of their discussions with the CBI and employers organisations, but it seems to me highly desirable, and natural over time, that the 3 per cent. compulsory contribution by employers should increase. The Australian superannuation system is interesting. It started at less than 3 per cent.—it may have been only 2 per cent.—but has risen to 9 per cent. over many years; there has been only a slight increase in the burden each year so that it could be absorbed. The House will see immediately that in so far as the compulsory and global contributions increase from a total of 8 per cent. at present to 10, 12 or 15 per cent., we will reach a point when not only will the proceeds of the sums invested through the contributory scheme in terms of an annuity available on retirement be much more significant than at present, which is highly desirable from all obvious points of view, but the means-tested problem will have been relatively eroded over time. Fewer people will find themselves in the perverse situation of having no incentive to contribute to the scheme.
It would of course be highly desirable if the Government could make sure that in future there will be no increase in means-testing, as that would go against the whole logic of the scheme. I congratulate them on a major move forward in that regard, for which they received little credit in the debate—deciding to restore the link between earnings and the contributory national insurance pension. That is an anti-means-testing measure and will enable people to improve their pension income globally without its being negated by the loss of pensions elsewhere through the means-tested system.
We welcome the Bill, albeit with some reservations. Many of us have long awaited consensus on pension provision after the difficulties and complications of the past 25 years, beginning with the Thatcher Government's disastrous decisions about the state earnings-related pension scheme and the breaking of the link between pensions and earnings.
In the interim, pension provision, particularly for the least well-off, has too often been characterised by confusion, missed opportunities, mis-selling and sharp practice or, disastrously, no provision at all for many people, including many of the self-employed, some of whom are my constituents. That has left pensioners with a well-founded sense of grievance.
Unfortunately, public trust in pensions in general has been undermined, which is reflected in the growth of forms of investment that are obviously less safe. Recently, I was ill for a week and watched some daytime television. I was amazed and dismayed by the property programmes, because so many people thought that investment in what looked like extremely dodgy foreign property would be a more desirable nest-egg than investing in a pension.
The Bill has particular relevance for Wales and Scotland. In Wales, we have proportionately more pensioners and lower pensioner incomes, and there is significant under-claiming of means-tested benefits. Twenty-two per cent. of Welsh people are over 60 and the number is projected to rise to 29 per cent. in 20 years' time. Many of those people will be very elderly and, as we know, elderly people have smaller incomes.
Pensioner incomes in Wales and Scotland are lower than those for the UK as a whole. Let me give some figures for the past three years. The net income per week for pensioner couples is £338 in Wales, £347 in Scotland, £365 in the UK and, interestingly, £445 in south-east England. Single pensioners' net weekly income is £164 in Wales, £170 in Scotland, £171 in the UK as a whole and £189 in outer London. Obviously, we would welcome any steps towards improving pension provision, particularly for the less well-off. I have not even taken account of lifespan issues, which are particularly relevant.
I am glad to say that there has been great progress in reducing poverty in Wales in the past 10 to 15 years, not only in income terms, but through measures such as free bus travel for pensioners and free prescriptions for all. In 1995, a quarter of low-income households in Wales were pensioner households; now it is a fifth. The figure is down from 25 per cent. to 20 per cent., which is welcome. However, 150,000 pensioners in Wales are still in poverty. Significantly, 30,000 of them would be lifted out of poverty if they took up in full the means-tested benefits to which they are entitled. I shall make a general comment, as the Secretary of State for Work and Pensions is also the Secretary of State for Wales: given that the Government are irrevocably wedded to means-tested benefits, I would welcome a vigorous take-up campaign to make sure that pensioners take up the money to which they have a right.
Hon. Members will have heard the Minister for Pensions Reform assert in Question Time that the start date will not slip from 2012. I hope that he will not regret those words at his leisure. I also hope that he will reassure the House that employers will not see the Bill as an opportunity to establish a ceiling, rather than a floor—a point that other hon. Members made, too.
I now turn to my main concern, which is the relationship between existing provisions, particularly means-tested benefits, savings and other pension provisions. That relationship can seem fiercely complicated to many people, and that leads to confusion, badly uninformed decision making and subsequent potential loss of income. The advent of personal accounts may complicate matters in the minds of some people. There must be careful consideration of the relationship between personal accounts and means-tested benefits, not least, as has been said, to make sure that it pays to save.
Many years ago, I was involved in advising claimants. Some hon. Members will remember the infamous "better-off" calculations that we used to do, to determine whether people were better off on unemployment benefits or family credit, as it was then called. The calculations were fairly complicated for benefit advisers, but for ordinary claimants they had the character of one of the lesser branches of mediaeval theology; people just did not understand. I repeat the plea for the wide availability of good-quality information. Advice must be available, and not just from the personal accounts delivery authority. As the Minister will know, Age Concern is pressing for that, as are other bodies. People will need detailed, clear, face-to-face advice, if that is possible. It is expensive, but we are talking about people's income for the far future. The advice should cover all provision, including savings, and not just personal accounts.
Lastly, I have two points of a more local and domestic nature. I shall take this opportunity to make my traditional demand that all the information and advice services in Wales be made available in Welsh and English, particularly given the linguistic preferences of many of my constituents, and the linguistic preferences and abilities of some older people in Wales. I urge the Government to liaise with the Welsh Language Board on those matters at an early stage. Finally and happily, I am sure that the Minister will welcome the announcement at the weekend of the appointment of Ruth Marks as Commissioner for Older People in Wales—the very first such commissioner in the world, as far as I know. The commissioner is appointed specifically to work on the remit of the National Assembly for Wales. However, I hope that the Government will assure us that they in London will not raise artificial barriers, but will work closely with the Assembly and the commissioner on matters to do with older people.
This is a genuine attempt by the Government to tackle the serious problem of under-saving, too few contributors and insufficient contributions. Some 7 million people have not saved enough for their retirement. Half of them are over 35, and only a sixth of 20 to 24-year-olds are saving for retirement. Only 40 per cent. of people earning between £5,000 and £30,000 a year are saving towards their pension, so there is a serious problem.
In the short time available, I shall make some brief points. First, contributions are too low. Turner said that contributions of 8 per cent. would bring about a 45 per cent. replacement rate—someone's pension level, compared with what they earned—which is a long way from the figure of two-thirds that most people regard as acceptable. I think that the figure will be much lower, because someone who has not saved enough at 30 will not get anywhere near 45 per cent. There will be much less for people who have undergone periods of unemployment. The figure depends on unspecified stock exchange gains and on administrative charges being kept down. That might not happen, so it is likely that employers' contributions will have to be increased. The state may have to target measures on low-paid and older workers. Tax relief of 1 per cent. may not be enough, especially for the low-paid.
Those on low incomes are of most concern to me. They may not benefit as they should—in some cases, not at all—from the personal accounts system. People may be ineligible because they are too poorly paid and have multiple jobs. The way in which the system has been set up is wrong. Individuals who are over the lower limit—perhaps they have two jobs—will not receive money from their employers to match their contributions, which is not reasonable. A great deal has been said about the issue of older women, who have sought entitlement to a higher basic state pension. It is not right that the Government should cut their options and not provide that higher basic state pension. I hope that the Government will make a commitment to return with proposals to help those women increase their pension entitlement.
The relationship with the means test is important. There are two splendid articles by experts in the current edition of Parliamentary Brief. May I say to Ministers loud and clear that saving must be worth while for low-paid individuals who contribute to personal accounts? It is not right that they should be caught up in the means-testing problem and end up with nothing. I urge Ministers and the Secretary of State to look at the issue to ensure that they get something. Hopefully, the Bill can be changed in Committee or afterwards. I agree with the point that my hon. Friend Kelvin Hopkins made about higher-rate taxpayers. The Bill provides for the overall reform of pensions, and for them to be left out so that they can carry on receiving their £21 billion or whatever—the figure is in the tens of billions—is not right. The overall reform package should be skewed towards low earners so that, to coin a phrase, we end up with pensions and pension tax relief for the many, rather than the few.
The Bill is a laudable effort, but significant reform was required, not just because of the crisis in savings for retirement but because of the other side of the balance sheet. We are going to raise the state pension age, which will go up to 66 in 2024; to 67, 10 years later; and to 68, 10 years after that. Those changes might not have consensus anyway, but they certainly will not if the other side of the reform package is not generous enough. Again, I urge Ministers on the issue. There are still issues of differences in life expectancy and health inequalities, especially for the lower socio-economic groups, and they must be addressed. I am concerned that the raising of the state pension age will affect the poor the most; one independent organisation said that it would be immoral to force the poorer sections of the population to wait longer for their state pensions just to save those who are richer some tax. As I said, the reform needs to be much more substantial for the socio-economic groups at the bottom of the ladder.
It is always a pleasure to follow Harry Cohen, who always speaks with total conviction on these matters. This has been a wide-ranging debate and I thank all hon. Members on both sides of the House who have taken part.
As we enter a new year, we see that the Government have learned nothing new. The age of spin is still alive and well. In his press release about the Bill, issued this morning, the Secretary of State seemed to be in total denial about the real and current problems in pensions. In it, he talked about the
"nightmare of a future pensions crisis".
Does he not know that the crisis is here and now, and has been for some time? Does he not realise that savings in this country are at their lowest since the 1960s—a point touched on by Alan Simpson? Does he not remember that just before Christmas he and his colleagues were finally forced into a humiliating U-turn over the 130,000 pensions victims? I do, however, join my hon. Friend Chris Grayling in paying tribute to the Secretary of State's role in persuading the forces of darkness in the Government to relent on the issue.
Does the Secretary of State not know that nearly 2 million pensioners are living in poverty and that the worst-off pensioners are getting poorer in real terms? He has talked about restoring the earnings link for the basic state pension, but he still will not tell us when that is going to happen— [Interruption.] If the Secretary of State wants to intervene, I shall be happy to give way. He talks about taking action, but his Government have been in power for 10 long years, having presided over the pensions crisis and been responsible in some measure for it.
In his press release, the Secretary of State also holds to the line that personal accounts will come into effect from 2012. Is he really still in a position to make that remark in the light of the comments of the new chief executive of the personal accounts delivery authority on Radio 4? When that point was put to the Minister for Pensions Reform, he was good enough to say that he had told the chief executive in no uncertain fashion that he, the chief executive, would introduce them in 2012. That is the equivalent of the military saying, "Take this objective or do not come back alive." It would be interesting to hear in the Minister's winding-up speech what response he got from the new chief executive.
We shall have more to say in Committee on the role of PADA, the principles that should drive it and the criteria for its success. Simply to increase the number of savers without substantially increasing the overall amount of savings in this country would clearly constitute failure— [Interruption.] I welcome a former and distinguished Pensions Minister, now the Minister for Energy, to our debate.
One of our main concerns is about so-called levelling down, which was mentioned by Miss Begg and my hon. Friend Bob Spink. Let me be clear about where we stand on the issue. We do not wish to see anything in this legislation that might give extra encouragement to an employer already making more generous contributions than those envisaged in personal accounts to close an existing scheme. PADA must focus on its target group—predominantly those on low incomes with no or inadequate pension savings. That is a real concern, not one dreamt up by the Opposition.
The Pensions Policy Institute has set out various scenarios in a recent report, rather snappily entitled "Will Personal Accounts increase pensions saving?" One of the models that it comes up with is very sobering, but it considers a range of possible scenarios, the most pessimistic of which could result in only 4 million to 5 million new savers in work-based pension schemes. It notes that there is a lot of uncertainty about how employers will respond to the reforms, and goes on to say:
"This poses the question of whether the reforms would be considered successful if they did not increase annual total pension contributions but did increase the number of people saving and made the distribution of saving more equal."
Soberingly, under its pessimistic scenario, the overall size of pension saving would shrink, despite a healthy amount of personal accounts, because of the levelling-down effect on existing provision. Ministers need to think long and hard about how we do what we can to ensure that that scenario does not come to pass.
After five years of a rearguard action, the Government have finally agreed that the 130,000 pension victims should get proper compensation. Ministers seem to think that they deserve three cheers for that, but it has taken far too long to face up to doing the decent thing. Let me remind the House that in the meantime some of the victims have died, others have had to work beyond normal retirement age, sometimes with serious medical conditions, and all have faced the prospect of penury.
I am happy to accept that form of words, because it summarises what I have been trying to say and what my hon. Friend the Member for Epsom and Ewell said in opening the debate.
There is nothing about those victims in the Bill as it stands. It could have been in the previous Bill if hon. Members had voted for our lifeboat amendments or had been given the chance to include it by the Government. However, we will consign that to history. What we want to know now is when the relevant amendments to the current Bill will be tabled. Provided that the small print delivers what Ministers have promised, we can assure them that that part of the Bill, at least, will have our enthusiastic support. Prior to last year's election that never was, my party promised that if we won that election we would ensure that payments reached the victims within three months of our taking office. Can the Minister confirm that these payments will be made as soon as possible, and certainly within that time scale?
We welcome the parts of the Bill that tackle deregulation or simplification—they will have our broad support, as we have already made plain. However, the plain fact is that the future of traditional defined benefit schemes is hanging in the balance—a point well made by my hon. Friend Mr. Greenway. This may be the last chance to remove as many as possible of the disincentives to good employers who want to keep those schemes open in the future. We think, with respect, that Ministers are being too timid, and we shall table amendments that have the support of organisations such as the Association of Consulting Actuaries so that we can take matters further. I hope that Ministers will give those amendments serious and sober consideration.
The main reason why we will not support the Bill in the Lobby tonight is that Ministers are still clearly in total denial about the potentially damaging effects of means-testing—an issue touched on by the right hon. Member for Birkenhead and others. At least the Secretary of State, judging by his press release, now accepts what he calls the "downsides", but how can he say that those downsides
"far outweigh the small risk of saving and later regretting it"?
I am sorry, but I do not agree with Dr. Palmer, who talked about a safety net and means-testing simply being there in case something goes horribly wrong. We are talking about means-testing that is already affecting nearly half of people as they retire. The Pensions Policy Institute and others have set out some genuine concerns that go to the very heart of these proposals, but the Government are the only organisation in a position to model the likely effects and to come up with detailed proposals to avoid disaster. All Ministers seem to be able to do is come up with bland assertions that it will be all right on the night. They are sitting on their hands and hoping that the problem will go away.
The situation is worse than that. In recent weeks, Ministers have tried to shut down any debate on the issue. They have tried to bully the Opposition and even third parties into silence on this crucial point. It has been put like this: the Tories are letting the side down and making party political points for the sake of it, whereas what matters is the majority of people who should be better off with personal accounts. [ Interruption. ] I have that more or less right, I think, judging by the reaction on the Government Benches. However, that is simply not good enough. If Ministers wish for consensus only on their own terms, they have come to the wrong shop. We are interested in consensus only if our concerns and those of other people are listened to and taken seriously. That point was also taken up by the hon. Member for Inverness and other places, all of which seem to have a distillery—Danny Alexander.
If consensus merely delivers ill-thought-out and poorly designed solutions to the pensions crisis, it is a force for ill and not for good. In its usual painstaking way, the Pensions Policy Institute has identified at-risk groups—people who will be no better off and may be worse off if they are auto-enrolled into personal accounts. However, the institute cannot tell us how many people are likely to be affected. The Government could tell us if they wanted to. They have the model, the manpower and the means. However, they seem to be doing nothing. That issue was touched on, I think, by Richard Burden.
Can the Minister for Pensions Reform tell us what modelling, if any, his Department has done, is doing and intends to do on this subject? How many people does he think are likely to be in the at risk groups—thousands, hundreds of thousands or even millions? Surely he has some idea. His answer may be that he and those advising him have not given it much thought, but I must tell him that the issue will not go away. That point was made by my hon. Friend Mr. Stuart. The subject will be written about by journalists, raised by financial advisers and used by unscrupulous employers who wish to induce their employees to opt out. I can assure the Minister that the official Opposition will not let it drop—not because we wish to make life gratuitously difficult for Ministers, but because we are genuinely concerned, as are many interested third party organisations, that the problem, if it is not addressed, will undermine the success of personal accounts.
I am sorry, but I do not have time.
I can tell the Minister that my colleagues and I are already working with independent bodies and the House of Commons Library to try to find the answers to those important questions. We will do that in parallel with the passage of the Bill. The process will no doubt be more laborious and will take longer than if the Department was doing it itself. If it will not, we will. Perhaps there is another more selfish motive for our attitude. We do not wish to inherit the problems in government. We wish to be the ones who implement a system of personal accounts that is designed to succeed and not set up to fail. To misquote Marks and Spencer, that is because there is no plan B.
Let me begin by saying that I will take no lessons from the party that introduced pensions holidays for employers and the 1986 Lawson cap on surpluses that saw a drop in contributions. The Conservative party was responsible for the mis-selling scandal, the inadequate Pensions Act 1995, the so-called minimum funding requirement introduced by Mr. Hague after the Maxwell scandal, and the 2.7 million pensioners left in poverty, some living on as little as £69 per week. Those who had a private pension had their benefits taken from them, pound for pound—a situation unlike that under this Government, who introduced the savings credit. The Conservative party also removed the earnings link. A little more humility from Conservative Members is therefore necessary.
Having got that off my chest, let me say that the debate has been broadly good. Despite the usual knockabout, there has been a fair amount of consensus. There were strong contributions from my hon. Friends the Members for Broxtowe (Dr. Palmer), for Birmingham, Northfield (Richard Burden), for Grantham and Stamford (Mr. Davies), for Aberdeen, South (Miss Begg), for Nottingham, South (Alan Simpson), for Leyton and Wanstead (Harry Cohen) and for Northampton, North (Ms Keeble), from the hon. Members for East Londonderry (Mr. Campbell) and for Caernarfon (Hywel Williams) and from my right hon. Friend Mr. Field. Steve Webb, who is, I suspect, even more of an anorak than I am about pensions, made an especially lively contribution. He appears to be following the great tradition of Gladstonian Liberalism in seeking fallen women, albeit only those who have fallen behind with their national insurance contributions. He deserves much credit for that.
We heard some more critical but considered contributions from the hon. Members for Castle Point (Bob Spink) and for Ryedale (Mr. Greenway), as well as a series of interventions from many others, some of which were more helpful than others. I do not have time to deal with all the points that were made but I hope to be able to tackle many of them in Committee.
One of the key issues in the debate was: will it pay to save? It was raised by Conservative and Liberal Democrat Front Benchers as well as the hon. Member for Ryedale and my hon. Friend the Member for Nottingham, South. It is a genuine and important matter, but the potential solutions are far from easy and often expensive. I am happy to discuss them in detail in Committee. However, the difficulties of resolving the issue should not undermine the need to support the Bill, promote personal responsibility, build confidence in pensions and be fair to the taxpayer in the process.
For most people, the downside of not saving far outweighs the risk of saving and later regretting it. Some people will find that their lives did not turn out in the way they expected. Some people who saved for a pension end up on pension credit.
Are not we in danger of setting up a monopoly with the personal accounts delivery authority? If contributors find a better product elsewhere, how easy will it be for them to transfer? Will they be stuck with the monopoly that has been established?
The personal accounts delivery authority is there for development. Chris Grayling was wrong about it. The PADA will not become the organisation that delivers personal accounts. That will be done by the personal accounts board, which is a follow-on organisation. [Interruption.] Mr. MacNeil is signalling—I have no idea what about, so perhaps he had better intervene again.
Regardless of whether there is to be yet another body, which could be a monopoly behind a monopoly behind a monopoly, what sort of competition will there be to achieve the best return for the investor?
There will be widespread competition with the private sector—those who currently provide various schemes. We hope that they will continue to do that. The idea of personal accounts is that they will complement rather than compete with current provision. We want the current provision to stay and we expect many people who benefit from automatic enrolment to be automatically enrolled not into personal accounts but into the private pension scheme that the employer is currently running.
The Minister obviously did not hear me correctly because I referred to the delivery authority and its successor body. Will he assure the House that there will be a constructive debate in Committee on the amount of prescription that should appear in the Bill about the remit of the two bodies to ensure that there is no mission creep in the years ahead?
Of course, there will be a debate in Committee and I am sure that we will have a substantial opportunity to consider all the issues. I look forward to that.
Let me deal with one of the hon. Gentleman's key points, which was whether it will pay to save. People will face health and employment problems—the sort of risks that we all face in our daily lives. It is vital that, if those problems arise, and people retire without adequate provision, there is a state safety net for them. Most people should still be encouraged to save, which is what the Pensions Commission recommended and what we are seeking to encourage as part of the process of pension reform. By disproportionately focusing on those people who might get low returns because of health or employment problems, we need to avoid creating a problem by which those who would benefit from saving lose out. We therefore need to be careful about how the debate is developed. We should ensure that those who could benefit substantially from years of employer contributions and investment returns are enabled to do so, and we should not encourage people to gamble on what benefit levels will remain in place for the next 20, 30 or 40 years.
The hon. Member for Epsom and Ewell has been very vocal on the issue, and he has gone to great lengths to try to rewrite Conservative social philosophy. He told the BBC that the state should give an explicit guarantee to those who save, which is an innovative idea. He has asked me to welcome innovative ideas, and I am certainly interested in that idea, which I want to discuss because it seems to undermine the idea of individual responsibility. It would create an administrative nightmare, and it would probably create a nightmare for Mr. Osborne, who would have to find the money to fund it. Where would he find that money?
Let us look at the detail of what the hon. Member for Epsom and Ewell has said. He wants to create a
"mechanism that would allow people to retrieve contributions".
What does he mean by that? Let us explore the idea. Is he saying that he wants only those in personal accounts "to retrieve contributions", or will that apply to every pension scheme now and in the future? Or is he saying that all private pension schemes should make provision to repay premiums to anyone who gets less than pension credit levels?
Is the hon. Member for Epsom and Ewell saying that pension schemes with automatic enrolment should have to repay the premiums? That is what he seems to be saying. Today, one in six people are automatically enrolled—they work for companies such as Tesco. Some of them will retire, and some of them will be on pension credit. Is he saying that those pension schemes must repay those premiums? Or is he saying that the retrieval mechanism would apply only to personal accounts, in which case would that not give personal accounts a competitive advantage against private schemes by providing a state guarantee? That would be an extraordinary step for the Conservatives to take. I am sure that the pensions industry would not be terribly impressed by those proposals, which would mean that it would have to repay anyone who is on pension credit. If he were in government, he would have to come up with a plan to pay the extra funding for all the people who would have to claim extra pension credit. It is an ill-thought-out proposal.
I have set out the various problems arising from the various proposals in a number of speeches. It has been suggested that we should increase trivial commutation, which would be very expensive and likely to lead to some wealthy people using it as a way to avoid taxation. A further option would be to deal with the issue by having a disregard, which has been proposed by the Pensions Policy Institute, but the cost would be enormous at more than £600 million. If it were to apply only to personal accounts, the cost would still be substantial, and applying it across the board to other sorts of pension schemes would be enormously expensive.
We could mess about with the tapers on various benefits. There are various different costings, all of which are substantial, and it would increase means-testing. The various obvious options do not provide the answers. The hon. Member for Epsom and Ewell has asked me what we are doing about it. I am happy to discuss with him and with others ways in which we can deal with the issue, but coming up with proposals such as he has and suggesting that because there is a problem there is therefore a magic bullet solution is not worthy of him. That is not a constructive approach for the Conservatives to take, and using it as an excuse not to introduce any proposals is not acceptable. I listened with growing incredulity to the comments I heard about—
Let me just finish dealing with the hon. Member for Epsom and Ewell; I may then deal with the hon. Gentleman.
The hon. Member for Epsom and Ewell and his colleagues kept talking about the Government's models. The Government do have a computer system that forecasts pensioner incomes up to 2050, but it has taken on almost mythic status in the interventions we have heard from the Opposition during the course of the debate. They told us that they cannot come up with any proposals because they do not have access to the computer. Our system is one of a range of models we use to tell us how people might end up in 2050 with regard to pension credit. It does not model behavioural changes arising from policy decisions and, to the best of my knowledge, the Pensions Policy Institute one does not either.
My predecessor, my right hon. Friend James Purnell, discussed making the Department's models available to the Opposition so that they could model their proposals, and neither party has taken us up on that offer. The Opposition can make their proposals; we are happy to run them through the system. They could see the results and so could we.
I happened to be involved in those discussions, although, in fairness, the hon. and learned Gentleman was not in his current post at the time. The conditions that the Government sought to impose for any access to the Pensim 2 model were so burdensome and outrageous that there was no basis on which any sensible Opposition party could accept them.
I make the offer, and the Opposition will not accept it. They always come up with excuses. We have said to them constantly, "Come up with your proposals. If you say that there is a problem here and that you are not going to vote against the Bill because of it, what are your proposals for dealing with it?" The Opposition come up with nothing at all. I am happy to have a debate on the issue, but we must be realistic. We should not start scaring people just for the sake of what is basically opportunistic point-scoring. We need an end to that.
Just before Christmas, I met a group of pensioners who were among the 140,000 investors whose private pension schemes had failed, and I was able to tell them that the Government had put together a package that would deliver a just settlement for them. I am grateful for the kind words that have been expressed to me and my right hon. Friend the Secretary of State, but they should also be expressed to the Prime Minister and the Chancellor for bringing forward a settlement to deal with that problem.
The settlement generated a flurry of publicity, but we must not lose sight of the fact that it was part of a larger package of Government proposals that seek to renew confidence and faith in our pensions system—confidence and faith that was rattled by the previous Conservative Government. Today, by contrast, quietly and without controversy, we are carrying out massive social reform of pensions that will benefit tens of millions of people. The Bill is only a part of it. Our reforms address the real issues that face this country: a major demographic change with people living longer; a lack of saving to pay for it; confidence in the pension system; the move away from final salary schemes; and pensioner poverty itself. The Government have recognised those problems and are making one of the biggest changes to pensions in years.
We are reforming for the long term. We have put in place the pensions regulator, the Pension Protection Fund and proposals that address the issue of pensioner poverty. We have lifted more than a million pensioners out of relative poverty. The Bill will be another major reform that will tackle undersaving and give people who work the opportunity to save in a pension scheme. About 60 per cent. of the work force are not saving enough for their retirement. This major Bill will enable many of them to do so, and ensure that people on low and middle incomes are given many of the benefits that were available only to those who were richer.
This is a quietly done, but important and major piece of social reform. It is part of a wider package of reforms that we are undertaking. As part of those reforms, we aim, in the Pensions Act 2007 and other legislation, to renew confidence in Britain's pensions. I look forward to a responsible debate, and to genuine and effective consensus for lasting change. We will keep our eyes on the prize: up to 9 million people saving more for the first time, and £10 billion more being saved. I commend the Bill to the House.
Question put and agreed to.
Bill accordingly read a Second Time.