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Mr. Frank Field: While we all accept that charges can be so low that the industry will not be able to provide a service, the Minister also accepts that charges can be too high. There is a weight of evidence that, in some schemes, people have the whole of their savings wiped out by charges. As the aim of the Government's reform is to ensure that people have a substantial sum of pension capital, so that they will have an income and will not be dependent on welfare when they retire, surely, in instances in which the level of charges is such that it puts at risk whether a person receives an adequate pension or any pension, the Government ought not to sit back and wait for competition to push down charges. Surely they ought to flex their muscles and let the industry know that they will act if such levels of charges continue.
Mr. Heald: The danger in the hon. Gentleman's approach is that, if one looks at one year in isolation and says that, in that particular year, 77,000 out of 5.6 million personal pensioners paid one contribution in and they have not done so since, one gets a false picture of what pension provision a lifetime of work will achieve. That is the point that the hon. Member for Southampton, Itchen (Mr. Denham) made.
Mr. Denham: Is the Minister saying that it is of no consequence that 70,000 people who bought personal pensions in one year entirely wasted their pension savings and will have no contribution to their pension to show for that year? Surely to those 70,000 people that is of
enormous importance. A large number of people who have been in pension schemes for longer will have nothing to show for it. Surely the Minister cannot dismiss that so lightly.
Mr. Heald: It is a small proportion, and it is not indicative of what the result would be over a lifetime of work. The whole point of personal pensions is that they are flexible. People may pay in one year, not pay for several years thereafter, and then pay in solidly for many years. The Government have encouraged a form of pension that is flexible. The same is true of SERPS. If people pay in one year, it does not buy them much. If they have a long contribution record over years, the pension is judged on that basis, and the benefits they receive are higher.
Mr. Denham: Does the Minister accept that the point about SERPS is that people cannot lose a year's pension rights once they have earned them? It is wrong to say that personal pensions are the same as SERPS. In SERPS, if people work for a year and earn above the lower earnings limit, they establish a year's pension rights, which they cannot lose. Everyone accepts that the pattern that the Minister described of someone in and out of a personal pension produces a result that is bad value for money.
Mr. Heald: The hon. Gentleman surely concedes that one year's contributions to SERPS taken as indicative of final pension provision would not amount to more than a few pence. Any pension scheme depends on a contribution record. The Government have always recognised that, but one of the advantages of personal pensions is their flexibility. They are a vehicle that can be built on. Many people who have bought personal pensions welcome that.
It is wrong to say that there is firm evidence that rebate-only personal pensions are unsuitable for specific types of employee. Neither low earnings nor time out of the employment market necessarily means that the final personal pension will not be as high as that from SERPS. One of the reasons for that is the high levels of yield that have been achieved in the private sector in the years since 1980. The hon. Gentleman knows the figures as well as I do--10 per cent. in real terms. It is true that charges vary from scheme to scheme, but only a financial adviser, who is in a good position to judge, can determine what is the best product for an individual.
Some of the other points raised included the level of the rebates. Some detailed points were raised about that. The hon. Member for Itchen asked whether it was the Government's objective to see employers with occupational money purchase schemes switch to group personal pensions. The answer is no. The Government want to see the second tier of funded provision, which has been built up carefully over the years of this Government, protected and improved.
We should like to see more individuals taking the option of funded pension provision, if it is the right scheme for them. The hon. Member for Itchen should bear it in mind that employers are not obliged to have occupational schemes, and not all do. Group personal pensions are an additional option especially suitable to those who currently make no provision. We have no reason to think that occupational money purchase schemes will disappear.
As for the question whether contracted-out money purchase schemes are viable according to the pensions industry, I do not know whether the hon. Gentleman had an opportunity to read the comments by Alan Jenkinson, the highly respected policy director of Sedgewick Noble Lowndes. He said:
I believe that the hon. Gentleman will agree that the views of someone such as Alan Jenkinson, who has spent a lifetime in the field and is well respected, are worth considering. They were some of the first comments made after the orders were laid.
The hon. Member for Itchen said that employers might use the trend towards contracted-out money purchase schemes and away from contracted-out salary-related schemes to reduce their contributions. We attach great importance to good-quality pension provision and we hope that employers will not reduce their level of contributions. We want them to make the best use of the flexibility available to them to maintain good levels of provision for their work force.
I hope that the hon. Member for Itchen and his hon. Friends concede that the contracted-out money purchase scheme and appropriate personal pension are viable options for various categories of individuals and companies. They have enabled us to expand pension provision in the private sector. I believe that it is wrong always to defend state provision at the expense of private sector provision. It is easy to become Mr. Nationalisation. The hon. Gentleman must recognise that personal private pension provision has given this country £600 billion-worth of assets--more than all the other European countries put together--which will enable us by 2030 to pay off the national debt and start accruing assets at a time when other countries will be beggared.
Mr. Denham:
Does the Minister accept what I said in my opening speech, that this debate is not about the value of funded pensions, but about the fact that so much of the money that goes into funded pensions goes down the drain? The Government have tipped it down the drain like there is no tomorrow. We need funded pensions where people know that their savings are going to grow, be used to provide pensions and not be wasted in fees and charges. The Minister has not yet addressed that issue.
Mr. Heald:
The Government have addressed those problems. It is easy always to carp and criticise and say that everything that the Government do is wrong--that every aspect of personal pensions is wrong, but that the principle is right. As a result of the Government's policies, 5.6 million more people have pension provision. For many of them, that will mean a far better retirement than they would have had otherwise.
I was asked why there had been a reduction in the cost of the rebate. The reduction is owing to the reduction in the contracted-out salary-related rebate. The cost of introducing age-related rebates is broadly neutral. The figures that set that out are given in my answer to a parliamentary question from the hon. Member for Birkenhead.
I was asked about whether flat-rate charges drastically reduced the value of individual personal pension funds in years when people could not contribute. I accept that all charges affect the total amount of funds in a personal pension, including the flat-rate charges. Not all personal pension providers levy flat-rate charges, and all such charges are now disclosed to individuals when they take out such pensions. The new age-related rebates have been calculated excluding flat-rate charges and have been based on the charges of the more efficient pension providers.
I was asked whether people earning £10,000 a year or less should invest in personal pensions. There is no golden rule that people who earn less than that should remain in SERPS. It depends on the circumstances of the individual, investment performance and the charging structure. The fact that some providers use that figure is not proof that people would be unwise to take an appropriate personal pension with another provider. The hon. Member for Itchen has said:
That was a sensible comment, with which I would agree. It runs counter to some of the arguments that he was putting.
Mr. Heald:
The hon. Gentleman spent a good deal of time telling us his views about people earning £6,000, £7,000 or £10,000 a year.
"Directly invested contracted-out money purchase schemes now start looking as attractive as personal pensions. What Mr. Lilley has done with contracted-out money purchase schemes is to bring them into line with personal pensions."
"There is no single, simple measure of whether an individual will be better off in SERPS or with an APP. This will depend on the cost and charges of individual schemes, the performance of investments and the number and level of contributions people make."
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