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Mr. Lilley: I am sure that my hon. Friend is right: there has been much comment to that effect. We have led the way on most issues, from privatisation to labour market reform. Our reforms have been copied worldwide.
Ms Angela Eagle (Wallasey): The Secretary of State referred to labour market reform. Does he agree with me that, as a result of such reform, many men are now leading similar working lives to those that women used to lead? They are on low pay, in temporary jobs, and they change from one job to another, so they cannot build up an adequately funded pension. With basic pension plus, the right hon. Gentleman is offering the pension that the Conservative party has always said it wanted to let wither on the vine. Do not the calculations show that, by 2040, that pension, if it is increased merely in line with inflation, will be worth only 23 per cent. of average earnings?
Mr. Lilley: The hon. Lady seems to be attacking the policy of her own Front-Bench team, so she should address her remarks to them.
Mr. Clifton-Brown: Will my right hon. Friend give way?
Mr. Lilley: I shall give way to my hon. Friend, and then perhaps I can make some progress.
Mr. Clifton-Brown: My right hon. Friend's scheme is visionary, because it gives people ownership of savings
for pensions in their old age. More important, it is a basic pension plus, because, even on fairly conservative figures, it provides the possibility for the ordinary youngster starting out today to double the present rate of state pension. Does my right hon. Friend agree with that?
Mr. Lilley: I entirely agree with that. My hon. Friend is one of the people who first had the vision of moving in this direction, and I am happy to pay tribute to his contribution to the thinking that has led to this proposal.
Under the proposal, each fund should grow to provide the basic pension. If, for any reason, a person's fund is insufficient, the state will top up the pension that it provides, so he will still get his basic pension. Everyone will be protected by the basic pension guarantee. No one will do less well than under the present state scheme. Everyone stands to do better if, as we hope, the economy and people's investments do well. If returns are 1 per cent. higher than assumed by the Government Actuary, people will receive a pension 30 per cent. above the level of the basic pension. If yield is 2 per cent. higher, the pension will be some 70 per cent. better than the present state pension.
During the past week, I have been challenged to say what pension people will receive not on the basis of an actuary's assumptions, but if investments do as well or as badly over the next 50 years as they have over the past 50 years or so. Of course, they may do better or worse in the future. If they under-perform, people know that their basic pension is guaranteed.
Since 1950, equity investments have grown at a rate of 7.7 per cent. a year on top of inflation. The Government Actuary calculates that if, over the next half-century, pension fund investments grow a little less--let us round it down to 7 per cent. a year--the basic pension that will be received under our scheme will be double its present value.
We are determined that the new generation should have the opportunity to share in the potential growth. Basic pension plus extends that right even to the less well-paid. We call the scheme "basic pension plus" because it is the basic pension, plus a fund, plus a rebate, plus a guarantee, plus the prospect of growth.
In the 1980s, my right hon. Friend the Member for Sutton Coldfield (Sir N. Fowler) and my right hon. Friend the Prime Minister, as he now is, paved the way for more funded provision by allowing people to opt out of the state earnings-related pension scheme into their own funded personal pensions. Two thirds of those eligible now opt for private schemes, but a third do not, mainly because their SERPS would be too small to make it worth their while to set up a personal fund.
That problem will not exist when everyone has a basic pension plus fund. Everyone in the new generation will also be contracted out of SERPS, and, in addition to the £9 a week rebate to fund their basic pensions, employees will receive a rebate worth 5 per cent. of their earnings on which they pay national insurance. That will fund an earnings-related second pension.
A person on average wages will build up a fund that should--on the Government actuary's cautious assumptions--be worth £130,000 when he or she retires. That is sufficient to provide a pension of £175 a week at today's prices. If investments do as well over the next half-century as they have, on average, over the last, the
person on average wages stands to receive a pension of around £350 a week. That is based on the assumption that that person has made the minimum contributions over most of his or her working life. Once all those in work have their own funds, however, they and their employers will be able, and encouraged, to save more in those funds.
Ms Eagle:
Will the Secretary of State give way?
Mr. Lilley:
The hon. Lady has already had one bash, which turned out to be directed towards the wrong side.
Mr. Clifton-Brown:
It was helpful.
Mr. Lilley:
I suppose that it was helpful to me, but I do not think that the hon. Lady is helping herself.
Mr. Jeremy Corbyn (Islington, North):
Will the Secretary of State give way?
Mr. Lilley:
I will happily give way to the hon. Gentleman.
Mr. Corbyn:
According to the Secretary of State's assessment of the contributions that will be made under the proposed new scheme, what would be the cost to the individual of paying into, in effect, a compulsory private scheme, as opposed to paying through taxation and national insurance contributions during his or her working life?
Mr. Lilley:
Clearly, a scheme that relies on taxation and charges rather than on savings and investment costs more, because people do not receive the benefits of the return on the investments that have accumulated over a lifetime. That is the advantage of what we are proposing, and I am grateful to the hon. Gentleman for pointing it out.
The response to our initiative across the board has been overwhelmingly positive. The Times said:
The return on the Singapore state scheme for its population since 1980 has been just 2 per cent. a year more than inflation. Over the same period, the average British pension fund has earned nearly 10 per cent. a year more than inflation. That was the last we heard about stakeholder pensions, at least until last week.
The second thing that Labour's reaction to our initiative demonstrates is that its pretensions to be able to reform the welfare state are a sham. The pretence lies in ruins. Labour cannot reform the welfare state, not because it has no ideas, although it does not, but because it is wedded to keeping people dependent on the state.
"These reforms are a radical solution to a huge problem; they show a willingness to think far beyond this Parliament or the next; and they prove Britain to be an innovator ahead of its European partners. In sum, they are an example of good government."
But support did not just come from friendly newspapers.
"And even the ranks of Tuscany
The Guardian acknowledged:
Could scarce forbear to cheer."
"Like the concept of a shareholding democracy, it could also be empowering a new generation, which will have much more control over its own retirement arrangements."
The Independent put it succinctly when it stated:
"the Conservatives are trying to address the problem of how to provide a decent pension for all; Labour is not."
Of course, the only root-and-branch opposition to the proposals came from Labour, and that tells us all we need to know about the party. It still has a knee-jerk hostility to personal ownership. When the Labour leader wanted to launch his big idea, or his medium-sized idea, of stakeholder pensions, he flew off to Singapore. His model was a massive, centralised, state-controlled investment fund. The only trouble is that Governments, even the authoritarian kind that new Labour seems to admire, are not good at investing money.
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