House of Commons Hansard Debates for 30 Nov 1992

Mr. Kirkwood : I am closely following the development of the hon. Gentleman's argument, and he touches on a most important point. If he thinks that the National Audit Office calculations were wrong, will he venture a figure himself as to the likely savings and a cost-benefit analysis of that expenditure?

Mr. Willetts : I asked the Institute of Fiscal Studies but it has not made any calculations on its own basis. The National Audit Office appears to be the only body in a position to make such calculations, because it has access to information on 1 per cent. of all those who opted out of SERPS. The NAO is the only organisation that has the hard, empirical data on which to draw, because it knows the characteristics of the people concerned. As far as I am aware, the NAO has only made its calculations on the one assumption that I mentioned, and I much regret that it has not been commissioned by the Public Accounts Committee or anyone else to examine the figures on another basis.

Even if one accepts the extraordinary assumption that people who were given a 2 per cent. incentive to leave SERPS would all pile back into it in 1993, that seems a good argument in favour of continuing the incentive so that they do not do so. It points to the need to continue the

Column 70

incentive, and I welcome the proposal in the Bill for a further 1 per cent. incentive for those who stay out of SERPS over the next five years.

During the past few years there have been many arguments about the future of the state earnings-related pensions scheme. I regret that they have focused so much on cost. I shall turn away, therefore, from cost arguments to other arguments for encouraging people to contract out of SERPS. The Government have relied too heavily on the cost argument and insufficiently on a variety of other arguments that point towards encouraging as many people as possible to leave SERPS. There are four arguments that I shall put before the House. First, SERPS is, in effect, a negatively means-tested benefit. It is worth more to people on higher earnings--those between the lower and the upper earnings limit. It is not sensible for the state to run an enormous second pension scheme which, in effect, mimics what the commercial sector would do anyway.

As I tried to point out in my observations on the Beveridge report, we ended up with such a structure for the second pension because it was the only way that Ministers and officials in the 1950s and early 1960s thought that they could justify the shift from a flat-rate contribution to a progressive contribution. It is not right for the state to run such an enormous scheme. After the conclusion of the social security review, I understand the reasons which led my right hon. Friend the Member for Sutton Coldfield (Sir N. Fowler) to decide that complete abolition was not possible, but it makes sense to encourage as many people as possible to make provision for their own pension rather than to be trapped within a negative means test. My second argument, which is unashamedly ideological in its nature and not one which I expect Opposition Members to accept, is to examine the way in which people, currently of working age, are to make their claims on resources when they retire. There is no way in which those resources can now be set aside : we are talking about legal mechanisms whereby people who are working now can have a claim on the output of the economy in 2010 or 2020.

If we look at the way in which those claims on future resources should be levied, I unashamedly believe that as many of those claims as possible should be in the nature of private sector contracts and that as few as possible should rest on the state's future power to tax. It is good for the economy and it is good for people's sense of having a personal stake in the economy that as many as possible of those claims should be through assets-- such as share dividends and income from property. That is the most flexible and sophisticated way in which future pensioners can have a claim on future assets. That is far better than a system that rests on the state's power to tax. The third argument, to which insufficient attention has been given, is that although people have debated the future of SERPS they have ignored the extraordinary position of occupational pension schemes. Many more pensioners now retire with an occupational pension--and a good thing, too. I salute the performance of occupational pension schemes. However, we are so preoccupied with the increasing number of pensioners who retire with occupational pensions that we ignore the fact that there has been no increase since the mid-1960s in the net number of employees who are members of occupational pension schemes. Having reached 50 per cent. of the work force, they got stuck at 50 per cent. of the work force. An increasing

Column 71

number of people were employed in the public sector, but the number of members of occupational pension schemes who were employed in the private sector went down. The explanation appears to be that, although occupational pensions do a very good job for certain categories of future pensioners, there are others for whom they do not appear to be well suited. They do not appear to be well suited to women or part-time workers ; they do not seem to be well suited to small firms ; they do not appear to cover many employees in the services sector. Therefore, we must look increasingly at the provision of personal pensions to cover people in those employment categories who cannot enjoy the benefit of occupational pension schemes, which have remained static while the number of such employees has risen.

The fourth argument for encouraging personal pensions and for encouraging people to opt out of SERPS is a crude, simple, political argument : that if one conducts any research into what people want, one finds that they want a personal pension. One only has to look at the results of opinion polls. The hon. Member for Croydon, North-West (Mr. Wicks) referred to the research carried out for the Fowler review in the mid-1980s.

If people are asked what sort of pension they would like, they say that they would like a pension that gave them a personal, direct stake in it. The Government are undoubtedly going with the grain of human nature. They are meeting the aspirations of the majority of our fellow citizens. Therefore, I welcome the 2 per cent. incentive for personal pensions during the first five years of the policy between 1988 and 1993. I welcome also the 1 per cent. incentive that will be in place from 1993. When the Minister replies to the debate I hope that she will address certain questions that I shall put to her regarding various aspects of the Bill.

The hon. Member for Garscadden was not alone when he asked why this incentive applies only to personal pensions. He was wrong when he implied that it should apply to all occupational pensions, but it is odd that it does not apply to contracted out money-purchase schemes, unlike the current 2 per cent. incentive, and that it does not apply to group-run personal pensions. I should be grateful if the Minister could explain the Government's thinking about a provision which, on the face of it, is a little odd.

Secondly, I support the Government's clear commitment to moving, in the longer term, to more age relating of the structure of incentives for people leaving SERPS. Although it is rational that people in their twenties or thirties should opt out of SERPS into personal pensions, there is a cross- over date. Learned experts may differ, but it is probably when people are in their mid-forties that it becomes rational for them to go back into SERPS. That is not a sensible basis upon which to plan pensions. I hope that the Minister will set out in more detail how the Government intend to improve the sensitivity of the rebate system and relate it to the age of the person involved. Thirdly, I am slightly concerned about the role of the Occupational Pensions Board. Several hon. Members have asked about the future security of personal pensions. I very much hope that the 5 million people who have taken out personal pensions will continue to contribute to them and will enjoy the benefits of their personal pensions in retirement. The Occupational Pensions Board, however, is

Column 72

under a clear responsibility to supervise and monitor personal pension schemes to the highest possible standards. Some people in the personal pensions industry take the view that too many people on the Occupational Pensions Board are Department of Social Security officials who were moved to the board and that they do not have a feel for the way in which the personal pensions market operates, or a feel for how the pensions industry is changing. I hope that the Minister will deal with that point in her speech.

My final point is that it is always difficult to strike a balance between wishing to encourage personal pensions but not wishing to do anything to deter employers from contributing to their own occupational pension schemes. Some people with grandiose plans for forcing employers to do this or for obliging them to do that ignore the fact that many employers will at some point say, "This is too much trouble ; I'm not going to carry on with this. I'll close down my occupational pension scheme." Every person who has an interest in pensions policy must bear that crucial point in mind.

Nevertheless, is it not possible to think of additional ways by which employers could be encouraged to make contributions to personal pensions as well as to occupational pensions ? Is it impossible to expect employers to make contributions to personal pensions if they are in any case making a much larger contribution to occupational pension schemes ? If we believe in personal pensions--all my hon. Friends strongly believe in them--we must ensure that by their behaviour employers do not provide a disincentive to people who wish to take out personal pensions.

The Beveridge report, to which the hon. Member for Croydon, North-West referred, is fascinating reading. I did not reread my copy last weekend, but it has melancholy traces of sun tan cream on it--I shall not name the sun tan cream involved--which remind me of the happy days of the summer. One brief passage sets out a philosophy for social security, which I am sure would command the support of the majority of hon. Members, and certainly Conservative Members. Beveridge said :

"The State in organising security should not stifle incentive, opportunity, responsibility ; in establishing a national minimum, it should leave room and encouragement for voluntary action by each individual to provide more than that minimum for himself and his family."

I believe that the Bill is a modest contribution to achieving the objectives that Beveridge set out.

6.40 pm

Mr. Archy Kirkwood (Roxburgh and Berwickshire) : I begin by apologising to the Minister and the hon. Member for Glasgow, Garscadden (Mr. Dewar) for not being able to listen to their words of wisdom, because I was attending an important meeting elsewhere in the House.

I was impressed by the speeches of the hon. Members for Croydon, North-West (Mr. Wicks) and for Havant (Mr. Willetts) who, despite being new Members, brought new and welcome experience and knowledge to the subject. I can now claim to be the longest serving social security spokesman of the major parties, but it is always good to see fresh faces, who no doubt have fresh ideas. I look forward to their contributions, to the remaining proceedings on the Bill and to other debates on this important subject.

Column 73

The Bill mentions the new Treasury grant. I hope that, in future uprating and autumn statements, greater care will be taken to dampen speculation--of both kinds. I see that the Under-Secretary is raising her eyebrows and hands in horror, but despite the ethic of secrecy that suffuses Departments to a ridiculous extent, it must be possible to be more open about the options in a way that will quell some of the speculation. I hope that the Government will try to be more objective in press announcements made before statements.

The Bill offers us the opportunity--the hon. Members for Croydon North-West and for Havant referred to it--of considering the principle of national insurance contributions. For some years, Liberal Democrats have been considering abolishing it. I accept that it would require much public discussion, because it would be a fundamental step, but there is a prima facie case for abolishing it. The national insurance contribution system is now so shot through with anomalies and piecemeal reforms that we should start from scratch.

There is an argument, on which we have been trying to work for the past few years, for integrating the tax and benefits system. Such a proposal would require careful thought, but we must bear in mind the fact that it costs £1.2 billion to administer the national insurance system. The Bill proposes extra administrative costs of about £1 million, which is not a lot in the context of the sums that we are debating, but the panoply of bureaucracy that we are employing to deliver national insurance contributions and means-tested benefits is a cause of concern. The more often we debate how we deal with such sums and systems the better it will be in the future.

The Bill deals with the future provision of pensions. I remain convinced that the most urgent problem facing the Government is dealing with pensioners who are in pension today but who have to rely for most or all of their income on state provision. My father receives a small occupational pension from his career on the railway that takes him out of eligibility for means-tested or other benefit. Although he and his generation continue to enjoy the twilight years of their lives, they are under much financial pressure.

The Government will say that recent measures have attempted to target benefit--I accept and welcome that ; it would be churlish not to acknowledge it--but between now and the end of the century that group of pensioners will face continuing adversity unless the difference between increases in prices and average earnings is addressed. The Social Security Advisory Committee--some years ago, admittedly--expressed its opinion on that, but the Government do not accept it. Although the Government have done something recently, they must do more.

Statistics issued by the Office of Population Censuses and Surveys have caused me some concern. Its 1991 general household survey covering the proportion of people in employment by type of pension scheme showed that about 13 per cent. of the total work force were not in occupational or personal pension schemes. That hides, as the hon. Member for Havant said, the fact that 8 per cent. of men but as much as 20 per cent. of women have no cover.

In addition, 12 per cent. of men and 27 per cent. of women have no occupational pension scheme available to them or are not in a personal pension plan. As the hon. Member for Havant said, at the beginning of the next century, when those who fall in the self-employed categories move into retirement, they will not be able to

Column 74

have the kind of protection that we would all like. The Bill does not do enough to address that problem, but the Government will have to do something about it.

I listened carefully to what the hon. Member for Havant said about the cost -benefit analysis of incentives offered now to make savings in the future. I have always been fairly relaxed about incentives, and I am sure that the hon. Member for Havant is only too well aware of the dangers with personal pensions that arise from the 1986 Act. They are more unpredictable than final salary schemes. We should not run away with the idea that personal pensions are a panacea, although they have a role to play.

I come back to the question how much we are spending and for what return in terms of the long-term savings to the state

earnings-related pension scheme. I am also concerned about the National Audit Office figures. The hon. Member for Havant, who has obviously studied the matter, as one would expect, was honest enough to say that the answer to the question is unknown in a sensible, statistical way. The hon. Gentleman and I are in agreement on the matter, and I am sure that other hon. Members also want an answer to the question.

The Government should set in train some more objective research into what the assumptions were and what the assumptions should be so that we can try to come to an objective view about what we are saving from the future costs in SERPS. I shall return to that subject in Committee. If some thought can be given to the question between Second Reading and Committee, I shall welcome a Government statement giving more details, if that is possible.

The age-related provisions of the Bill are rather crude. I understand that there are difficulties, and I know that the Government do not want to make things too complicated. However, the Institute for Fiscal Studies took the opposite view, pointing out that other elements of the pension industry already have sophisticated age-related mechanisms which are perfectly workable and which are well understood by the people who operate them. My criticism of the age-related aspect of the Bill is that it is not sophisticated enough. There are mechanisms that we could have adopted which are not contained in the Bill.

Like the hon. Member for Havant, I have serious reservations about whether the state should be in an earnings-related pension scheme, for the reasons that the hon. Gentleman rehearsed--I will not repeat them, because he argued his case succinctly. However, we should think about that matter. I am not persuaded, in spite of the fact that the 1986 changes took some money out of the costs of SERPS, that the sums add up. I believe that, in the long term, the SERPS provisions cannot be afforded. Of course, we cannot withdraw any entitlement accrued to date, but I should be interested to consider how we could redeploy some of the resources freed by any change to deal with the problem faced by the existing generation of pensioners who are struggling so hard.

The new Treasury grant is an interesting device. The former Secretary of State for Social Security, now Leader of the House, used always to start our debates by saying that national insurance debates dealt with enormous sums and that no one paid any attention to the fact that the House was dealing with a new Treasury grant of, for example, £8 billion. He said that we had arguments over £5 million here and £2 million there, although we were dealing with huge sums. It is worrying that we may be

Column 75

having such a discussion here and that we are not giving the matter more thought. I look forward to the Committee, when we may be able to give the matter more thought.

I repeat my apology for not having been able to be present for the opening speeches. I am certain that my next point was raised then. I believe that there is a bias in the Bill against occupational pension schemes, such as group pensions and contracted-out money purchase schemes, or COMPs. The industry is worried about that bias. I do not understand why the Government have not produced a level playing field. All I can make of the Government's reasoning is that they believe that all the provisions are temporary because there is going to be a review, so they do not need to worry too much. If that is the Government's reasoning, it is not acceptable. I have no doubt that the Minister will expand on that point.

I see no justification for the differentiation between the two systems. I understand that it is not possible to get a level playing field for occupational pensions in some respects, but it is perfectly possible to make the provisions on group pension schemes and COMPs equitable in terms of personal pension plans and occupational schemes. That is the one improvement that I should like to see included in the Bill in its remaining stages. I hope that the Minister will say a word about that when she sums up.

6.54 pm

Mr. Patrick Nicholls (Teignbridge) : I declare my interest in the Waterfront Partnership.

I very much enjoyed the speech by the hon. Member for Glasgow, Garscadden (Mr. Dewar). I have debated social security matters in the House several times. I have sometimes felt that the voices from the Opposition Front Bench induced hyperbole fatigue. That has its advantages at times, because if a debate comes across in that way, it makes it easier to avoid any points that one might want to avoid. I did not agree with all the hon. Gentleman's conclusions, which I am sure is as much a comfort to him as it is to me, but I very much valued the way in which he set out the stall. I accept that he has identified the way in which we need to approach the Bill. He made a fair point in saying that the key was the additional 1 per cent. rebate and what the motives might have been for introducing it. He also said that our debate takes place in a wider context, which I am sure is right.

It is fair to say that the hon. Member for Garscadden doubted our motives for the additional 1 per cent. rebate. It is not up to me to speak for Treasury Ministers, but I will say that it seemed to me that the motive behind it was either to encourage people to take out their own pensions or to stop them going back into the scheme. That was a perfectly proper thing to want to do.

The hon. Member for Garscadden also said that the whole debate had to take place in a far wider context. As the Bill is rather narrow and specific, the debate so far has not concentrated on the wider aspects. It is worth while taking a moment or two to dwell on those aspects.

We have heard how much the Department of Social Security budget is per week. I do not know whether it is a tribute to the uncertainty of Government spending or the fact that the Secretary of State's research is more

Column 76

up-to-date than mine. I was minded to say that I understood that the Department of Social Security budget was running in excess of £1 billion a week. My right hon. Friend was able to say with some confidence that it was running at £1.5 billion a week. I am happy to adopt that figure.

The figure forms part of the totality of projected Government spending for 1992-93 of £244.5 billion, which is a pretty dramatic sum. The Department of Social Security budget is close on £80 billion. In a rough and ready way, one can say that one third of what the state spends is spent on social security, which is a dramatic sum. One can make the point-- which, in different ways, would come as a comfort to all hon. Members and to many of our pensioners--that the sum represents an increase of 50 per cent. in real terms since 1979. In any event, it is a pretty massive commitment.

The question then immediately posed, as it was by the hon. Member for Garscadden, is whether such a level of commitment can be sustained. We must be prepared to consider that question. The hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood) touched on an important point in questioning the continuing role of national insurance contributions. The difficulty with national insurance contributions is that there are some rather odd ideas out there about what national insurance contributions really are, as one learns if one talks to people.

We might consider the Albert Tatlock syndrome. Devotees of "Coronation Street" over the years will remember that Albert Tatlock was a man of advanced years. In fact, he made Dixon of Dock Green look like a newcomer. Albert's great line was that he had spent three years going through muck and bullets in the first world war, and that meant that he was entitled to everything free for life and subsidised pints of beer down at the Rover's Return.

If Mr. Tatlock had been asked what he felt about his national insurance contributions, he would have said that having been through muck and bullets and returned to a land fit for heroes to live in, he had paid his dues, and that gave him the right to a decent pension. It is all very well to say that the world owes one a living--many people fairly make that claim. However, the difficulty is that the world has a nasty way of showing that it will not come up with the swag.

The difficulty with national insurance contributions is that they are not a funded scheme. Many members of the public will say, "What's a funded scheme? And anyway, who cares?" When we participate in a private scheme, we make a judgment for better or for worse about the scheme into which we intend to contribute. The success of that scheme rises or falls in relation to the country's economic prosperity, the worth of the scheme and the professional judgment of those who manage the scheme.

The private scheme is a funded scheme. The money one contributes is invested and, at the end of the day, one receives a pension, annuity or contribution. The national insurance scheme is not funded. The scheme reflects one's moral right to be supported by future generations. In a sense, it gives a legal right for one to be supported by those generations.

One can pay one's dues whether one is Albert Tatlock or a Member of this place, but whether one obtains a pension from the state which will sustain one--or, as was said earlier, would sustain our parents in a state in which

Column 77

we would want them to be sustained--depends not on one's own contributions but on the ability of future generations to meet the moral obligations that one has in mind.

It is relevant to consider the number of people who will be available to make those contributions. In 1990, there were 10.3 million over the state pension age. By 2030--many of us, with some confidence and perhaps a little hope, expect to be alive then--there will be 14.1 million people over the state pension age. That is an increase of 40 per cent. It is good news. It shows that people are living longer and can write more letters of complaint to their Members of Parliament.

Although I do not have the precise figures, I am sure that the Minister will be able to confirm that the number of congratulatory telegrams sent by Her Majesty the Queen has increased dramatically over recent years. Although I cannot find the figures now, I recall that at the beginning of Her Majesty's reign she sent about 100 telegrams a year. I understand that she now sends well over 1,000. That is absolutely tremendous. However, those people must be supported.

Between 1990 and 2030, the number of pensioners over state pension age will increase by 40 per cent. Who will support them? In 1990, there were 34.4 million people of working age. By 2030, that figure will have decreased to 33.6 million. To make the point as succinctly as I can, in 1990 3.4 workers supported a pensioner. By 2030, only 2.4 workers will be supporting a pensioner. We must consider the consequences of that.

The question that underpins the SERPS debate is whether our children and grandchildren will be prepared to look after 40 per cent. more pensioners in a state to which they are likely to have become accustomed and to which they believe that their dues have, over the years, entitled them. I believe that our children and grandchildren probably will not be prepared to do that. Therefore, the Government are strongly encouraging people to make private arrangements, so that the burden--be it a tax burden or whatever-- that the state imposes on people in the early decades of the next century will not be intolerable.

The problem exists not simply in the United Kingdom, but throughout Europe. We are a member of the European Community. Some of us greet that with more enthusiasm than others. Some of us greet it with no enthusiasm at all, but recognise that it is something that we must tolerate. France reduced its pension age to 60 in the early 1980s, but the demographic trends in France have led the Government to publish a White Paper which reopens the debate.

Italy faces a 35 per cent. increase in its elderly population by 2040. The Italian Government are proposing to raise the pension age from 60 for men and 55 for women to 65 for both. Germany is equalising its pension age at 61 to replace the current minimum pension age of 60 for women and 63 for men. The standard common pension age in the United States is 65, and that is to be raised to 67 for both sexes by 2027.

It seems that, in due course, all things Japanese come to us. Japan's rate of demographic change has been faster than that of anywhere else in the developed world. The proportion of people over 65 in Japan will rise from 9.1 per cent. in 1980 to 27.7 per cent. in 2040. That is a hell of a lot of Hondas.

Column 78

Holland's budget deficit is directly related to its social security expenditure, and that will have to be cut by ending the earnings-related part of social security provision. Belgium, Germany, France and Denmark all face other problems.

Debates in this House about the equalisation of pension ages are often presented in terms of equality between the sexes. That is a somewhat difficult area for Government Members to broach. If I tell a 59-year-old woman who has worked all her working life in my constituency that I have great news for her in the equality stakes and that she will now have to work five years longer than she had intended, that message would not be particularly well received. Therefore, we talk about equalisation in a fiscally neutral way at about 64 years of age.

While we talk about the matter in terms of equality between the sexes and then, to some extent, shy away from the electoral consequences, many European countries believe that something must be done about the matter in order to discover a way to cope with the burden which would otherwise be supported by the state.

Mr. Wicks : I do not intend to undermine what the hon. Member has said about demographic ratios because they are very important, but if we are not careful, we may verge on demographic panic. The hon. Gentleman was projecting beyond the year 2000 and 2020. If we can produce hundreds of motor cars in that time--let us be optimistic and suppose that we will still produce motor cars in this country then--simply through technology and by using robots, without any workers, surely we will still be producing wealth.

That wealth can help future pensioners even if the ratio between the number of workers and elderly people appears to be poor. I do not dismiss the hon. Gentleman's point, but I believe that national wealth, and not necessarily ratios, is the key ingredient.

Mr. Nicholls : One man's panic is another man's foresight. Inevitably, the truth lies somewhere in the middle. The hon. Member for Croydon, North-West (Mr. Wicks) made a fair point when he said that the wealth of the nation is important. Ultimately, the wealth of the nation is reflected in tax revenue. That makes it possible to pay pensions. If fewer people produce that tax, and there are more people to live off it, there would be a problem that must be addressed. I cannot say precisely what the position will be in 2030, but we can make projections and it is clear that we will have to have some regard to the consequences. While I have tried to set the matter in the overall context, this is not 2030 but 1992, and I want to examine some of the consequences for our current pensioner community. During the election campaign, I received a visitation from a new political party called the Pensioners Protection party. I am delighted to say that it did not stand in Teignbridge ; it stood in Thurrock, and it obtained a perfectly respectable result. I should like to think that its results will always be respectable but perhaps no more than that. The interesting point about that political party is that it was first suggested in a BBC Radio Cornwall programme. Its literature states :

"Despite what they say, all the existing political parties, whether of the right, left or centre are just not interested in pensioners, treat us as second class citizens, who are powerless and unable to improve our situation."

Column 79

It continues in a similar vein. I do not share that analysis, but I can certainly understand why pensioners will sometimes come to that conclusion.

In an area such as Teignbridge, the averages that we can talk about in relation to pensioners are not particularly reflected on the ground. For example, the Pensioners Protection party quoted Hansard in its pamphlet, and it is worth mentioning. I suspect that it would no longer be entirely accurate. It is a 1989 statistic which the party produced to show that 58 per cent. of pensioner households depend on state pensions and benefits for at least 75 per cent. of their income. I suspect that the position has changed for the better, but that illustrates an interesting point.

The Under-Secretary will correct me if I am wrong, but I believe that nearly nine out of 10 pensioners have some secondary form of income other than the state pension. That is good, and it is an improvement--the problem is, not around Teignbridge, they don't. There is no way in which one could expect the Minister to come up with Teignbridge-specific figures any more than one could come up with Birkenhead-specific figures, although if she has them I shall be impressed and thank her for them. One of the joys of being a constituency Member is that one develops a feeling about one's area which one cannot quantify in terms of hard statistics. One develops a feeling for the way in which a situation applies on the ground. Many pensioners in Teignbridge have worked hard all their lives--sometimes perhaps in not desperately exciting jobs, and certainly not in particularly well-paid jobs. They did so at a time when, under previous regimes, such savings as they had were ravaged by inflation. Now, they are at a stage in their lives when, having worked hard, they have not been around for occupational pensions and the like, and are more or less dependent on state -related benefits. The Pensioners Protection party suggested--I do not say this lightly, because its suggestion is very brave, and I have never seen it before--"Why don't you pay us a pension on which we would pay income tax? There would be no question of our receiving means-tested benefits as such." That party made the point that its members "are entitled to proper pensions, not means-tested handouts." Their idea is that, if their pensions could be increased, losing means-tested handouts and having to pay tax as well are things that they would be prepared to take on board. When I put it to them that that would mean they would not be able to have free television licences, which is sometimes a rallying cry in the House, the pensioners said, "Okay, if we don't get free television licences, at least we will have a choice about whether to have them or not." It was interesting that, when the delegation came to see me, I was not expecting to receive a delegation of like-minded people who just popped in to tell me that the Government's track record on retirement pensions was first rate, that they would not detain me--they just wanted me to tell everybody else that. My perception was entirely correct. They made the point that they had examined the matter and were concerned about trying to highlight the group of people who are not properly reflected in the idea that nine out of 10 people receive some secondary income. That group is becoming smaller, and it will continue to become smaller over the years.

Column 80

In due course, the average statistic, even if it is not a reflection of the position in Teignbridge, will come to pass that ultimately almost 10 out of 10 people will have some form of income other than their retirement pension. That is extremely healthy, for all the reasons that my hon. Friend the Member for Havant (Mr. Willetts) mentioned, and for the reasons that I mentioned about the burden that would otherwise be represented on the state.

In our social security policies and judgments about available resources, we have to bear in mind the fact that looking after those who ultimately are not in a position to look after themselves is one of the first responsibilities of the state. There is no doubt that the Government have a good track record on that. The state retirement pension has been fully proofed against inflation since 1979. In a particularly amicable debate-- let us try to keep it that way--I will not dwell at great length on the history of earnings and incomes matters of that sort, but, behind the averages, one must consider some specific problems.

In our desire to look forward, to understand that there is a limit to what the state can be responsible for, and to understand the implications of an increasing pensioner population and a decreasing tax-paying base, we should not lose sight of another section of society which, in the nature of things, will dwindle. If we can understand the needs of people such as members of the Pensioners Protection party in the context of a global view, we will be doing the right thing.

7.15 pm

Mr. Frank Field (Birkenhead) : It is clear that the Pensioners Protection party won many votes in the west country. The hon. Members for Teignbridge (Mr. Nicholls) made a bold bid both for its votes--

Mr. Wicks : And for the leadership.

Mr. Field : As my hon. Friend says, he made a bold bid for the leadership of that party.

I apologise to my hon. Friend the Member for Teignbridge--I call him hon. Friend this evening because we are members of the Social Security Select Committee--as I shall not immediately pick up his points. I apologise also for not being present for the opening speeches, because I wanted to compliment both spokesmen not on their performances in the House today but on their performances on another day, as the Bill is a consequence of the autumn statement. The autumn statement was a success for the Secretary of State. When questions are asked it is difficult to put on the record the extent of one's feelings and the extent of that success. [Interruption.] That attitude makes it difficult to make constructive points.

The Secretary of State said that we whipped up fears about cuts and so on. He did himself an injustice. He did a brilliant job of engendering such stories and then swept into the House to show us that our fears could be put to one side at a time when the public sector borrowing requirement will probably grow to about £50 billion. It was a success that the Secretary of State was able to protect his budget. Whether hon. Members will cheer him quite so loudly a year or so hence when the effect of the public sector borrowing requirement comes to roost is another matter, but this evening we should not quibble ; we should pay him a compliment.

My hon. Friend the Member for Glasgow, Garscadden (Mr. Dewar) must have found the Secretary of State's

Column 81

speech one of the most difficult to respond to. I was delighted with the skill and finesse with which he dealt with it.

The hon. Member for Havant (Mr. Willetts) said that when we are considering pension provisions or welfare provision generally we should emphasise the successes that have occurred and should be keen about spreading successes. I am reminded of a comment by a first world war poet in a footnote to his first poem. He said that, if the British were promoted from inferno to paradise, they would still gather around and talk about the good old days. Something in the British culture wallows in failure and despises success. All three parties need to encourage success when it is there.

The hon. Gentleman asked why there appears to be a glass ceiling on the membership of occupational pension schemes. In the post-war period, the extension of occupational schemes has been one of the big successes, linked to the size of the pensions that they are providing to an increasing number of our constituents.

Some storm clouds are gathering over the occupational pension scheme and I shall relate them to the Bill. The hon. Member for Havant said that we must be careful when we advocate reforms of occupational pension schemes and perhaps of the legal framework in which they operate, because there is no compulsion on employers to provide such schemes. If one goes about reform hamfistedly, an increasing number of employers will wind them up and go into money-purchase schemes. That is already happening.

I think that one of the changes that will be evident from the reports of the Select Committee on Social Security this Session--as opposed to those during the previous Session--is that Committee members will be more mindful of the difficulties facing employers when meeting occupational pension requirements. There have been changes in economic growth. We face a decade of sluggish growth, and the assets of pension funds will not grow as they have done ; nor will funds get the income that they had in the past decade. Employers will take that factor into account when they decide whether to continue an occupational scheme, let alone extend it.

There are worries about how the Barber judgment will be enforced on occupational pension schemes, and about the other non-discrimination decisions that the European Court is about to make. That time bomb is waiting to explode on the finances of all occupational schemes. During the recent past, surpluses in funds have been run down. The difficulties associated with sluggish economic growth and the enormous cost of implementing the Barber judgments, and others, will come at a time when pension schemes have less surplus than they had a decade ago.

We should not consider pension reform unimaginatively. I am sure that the Goode committee will take that into consideration when it deals with any reforms of the legal framework and with whether we should try to enshrine people's expectations of their occupational schemes into legislation. If we move too fast on that front, there will be a mass exodus of employers from the provision of occupational schemes and that will be a bad move.

The second storm cloud is one that the Government have made for themselves. They worked themselves and the House up into a frenzy and tried to get the country to share their worries about financing SERPS. Perhaps they were right to have that debate. However, we cannot now

Column 82

guarantee that if people remain in SERPS they will draw a pension adequate to lift them free of means-tested assistance.

Mr. Nicholls rose--

Mr. Field : I shall give way in a moment. I might answer the hon. Gentleman's question. The fact that we cannot guarantee that adequate pension must be taken into account when we consider the bribes or incentives--whatever we want to call them--that the Government are offering to people to leave SERPS and to make private arrangements. One of the disadvantages of the personal schemes that people are contracting into is that they also cannot guarantee the sort of income that pensioners will have.

I am worried that we are building up a new army of pensioners who will not receive the sort of income from the private sector that people who have recently retired--or will do so shortly--get from occupational schemes. It is not right to think that the success of occupational pension schemes will be writ large, either from SERPS or from the private pension arrangements that the Government are encouraging and we are debating.

Mr. Nicholls : Is the hon. Gentleman saying that it is safer for pensioners to be part of a huge state pension scheme than to be in a private occupational pension scheme? If so, he must consider that there will be a smaller number of people to supply the funds.

Mr. Field : Both the hon. Members for Teignbridge and for Havant have put the case--or the incentive or bribe--more effectively than any Treasury Minister or Minister on the Treasury Bench, that at least if one takes out a personal pension one knows that one will have a nest egg, whatever the amount.

When we are pensioners, we will be the majority of the electorate and we will be trying to enforce a contract on workers, who will be the minority. Pensioners will have the majority of votes and therefore it will be much easier to sway candidates--whether in Teignbridge or Birkenhead, and whether there are pension action groups or not--to support that majority view.

The working population will be able to get back at the pensioner majority by behaving in a way which will engender inflation. The majority might be able to win through the legislative reforms to gain pension increases, but the minority will get their own back in an inflationary society by redistributing the gains that the majority have enforced on them.

Mr. Nicholls : The hon. Gentleman is right, as is so often the case. Is it not even worse than that? Experience and sheer common sense show that if taxpayers feel that their burdens are unfair they will evade tax. They always have done and they always will do. If the working population know that they cannot win in a vote and if too much money is being taken away from them by the majority, they will evade tax, revenue will decrease and that will exacerbate the problem.

Mr. Field : Perhaps, or they might ensure that the Government have inflationary policies, so that the real gains for pensioners are wiped away by rising prices, but they--being in the labour market--could protect their living standards by successfully negotiating wage and salary increases. We might have to face those politics.

Column 83

The hon. Members for Havant and for Teignbridge made a case for the incentive or bribe more effectively than the Treasury Bench, because if the form of political struggle that I have described takes place, at least people with assets in personal pensions will be able to realise them in a way that those who remain members of SERPS will not. That is the most powerful argument that I have heard for personal pensions. I do not agree with it, but it is more powerful than the arguments that I have heard from the Treasury Bench. Another storm cloud over the future shape of pension politics is the fact that a new army of poor pensioners is already coming on to the rolls. That is not because an increasing number of people are going into schemes which might not provide them with an adequate pension. All constituencies now contain a large number of elderly constituents, who are below retirement age but are unemployed and have been pushed on to disability benefits. We are disguising part of our unemployment problem by so categorising them and they are not building up pension entitlements.

It is wrong to think that the frail and elderly are the only poor pensioners, as my hon. Friend the Member for Croydon, North-West (Mr. Wicks) commented. As they die, a new group of poor elderly will come along- -those constituents who do not have a job and have been classified as sick or long-term disabled, who are not building up entitlements and will be totally dependent on the minimum state pension and on income support.

Five years ago one might have thought that the spread of occupational pensions and the generosity of some of the schemes would guarantee that an increasing number of pensioners would be lifted free of poverty in old age. That will happen to some of us but not, sad to say, to all of our constituents.

Next Section

Home Page