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Ms Harman: Now, 12 million people in the work force have no access to occupational pension schemes. They have to choose between the state earnings-related pensions scheme, which the Government have halved in value, and personal pensions which, as the Consumers Association pointed out, can be poor value for money because of high charges and low contributions. People on low and modest incomes may find that the fees and charges associated with personal pensions can consume up to a third of their hard-earned savings--the money goes to the financial services companies and is not available for them when they need it in retirement.
Nearly 6 million people have no second pension provision whatsoever. Basic pension plus will give no help to today's work force who are destined to retire on means-tested benefit, having paid higher taxes to finance the Government's privatisation of pensions. The cost of the transition to basic pension plus will be borne by the current generation of workers who will have to pay twice through their taxes: they will have to pay for the pensions of the retired and for the pension funds of the rising generation.
The cost of privatising pensions over the next 40 years would be £312 billion. The Secretary of State said that he will get £160 billion from abolishing tax relief on pension contributions, but he may not be able to raise that amount. The NAPF warns that a new tax on contributions would cause a drop in contributions and so reduce the base and the yield for the new tax. As I said in response to the right hon. Member for Sutton Coldfield (Sir N. Fowler), the NAPF today said that the Secretary of State's scheme threatens the occupational pension system. How can people benefit from increasing prosperity and have security in retirement if the Government's plans are undermining their occupational pension schemes?
The Secretary of State has not even tried to explain how he will raise the other £150 billion and who will pay it. It will mean either increased taxes or increased borrowing. He has offered nothing to today's pensioners and nothing to today's work force except extra taxes and a threat to their occupational pensions, but has he put the public finances on a sounder footing for the future? No, he has not.
The Secretary of State claims that his plans deal with the so-called demographic time bomb but, as Andrew Dilnot of the Institute for Fiscal Studies points out in The Guardian today, he has got his timing wrong. The cost of introducing basic pension plus will peak at £14 billion a year at the very time when the demands of an aging population will be greatest. Pension costs and extra costs for long-term care and health care will be at
their highest between 2020 and 2030, but during that decade billions of pounds will be spent privatising pensions. The public purse will be less able to meet the extra demands for health and long-term care--there will be less available to spend on the elderly just when the number of the elderly compared with the number in the work force is at its greatest.
Mr. Iain Duncan Smith (Chingford):
Will the hon. Lady give way?
The Government's plans also fail to provide a secure retirement for all, whatever people's income. The Government have claimed that everyone will get £175 when they retire, but this morning the Government doubled that figure to £350, not at the suggestion of the Government Actuary because, as the Secretary of State admitted at his press conference this morning, he wrote it on the back of an envelope.
The £175 is not guaranteed, as my hon. Friend the Member for Wallasey (Ms Eagle) said; only £61 is guaranteed. The £175 is available only for people on average earnings, but three quarters of all employees earn less than average earnings. Today, £175 is worth half average earnings, but in 2040 it will be worth only 21 per cent. of average earnings.
If a private pension company fails to warn that the markets can go down as well as up, it is guilty of breaching the Financial Services Act 1986. If a private pension company fails to warn that one can lose the money that one puts into savings, it is guilty of breaching the Financial Services Act. If a private pension provider promoted £175 promises, as the Government have done, it would be found guilty of breaching the Financial Services Act. When the Government behave worse than the worst cowboys in the private sector, the regulatory system is wholly undermined. The regulators ought to give the Secretary of State a call--the Government have made false claims.
Mr. Robert G. Hughes:
The hon. Lady is right to talk about regulation and making sure that people understand the figures. It is clear that her plan for a flexible decade of retirement would cost £15 billion, but she has said that a Labour Government would not raise that money. The alternative is that the basic pension would have to go down by £20 a week. I am perfectly prepared to accept in good faith what she told my right hon. Friend the Secretary of State in her letter to him last August--she said that she would not raise the extra money--but will she now confirm that her plans would reduce most pensions by £20 a week?
Ms Harman:
There is absolutely no question of Labour cutting the basic state pension. That is a scurrilous suggestion which the hon. Gentleman knows is untrue; it is unworthy of him--[Interruption.]
Mr. Deputy Speaker:
Order. The hon. Gentleman asked the hon. Lady a question. She is having great difficulty replying because she is not being given the opportunity to be heard. There is too much noise.
Ms Harman:
I think that the hon. Gentleman's intervention was a case of the same old Tories making the same old Tory--what we have to call in this House--misrepresentations.
Ms Harman:
It looks as though we are going to get another one.
Mr. Lilley:
I received a letter from someone purporting to be Harriet Harman which said:
Ms Harman:
Some people describe the Secretary of State as an intellectual. He knows that we are not proposing to means-test all pensioners, although that is what he said this morning, and that we are not proposing to--and will not--cut the basic state pension. We will protect the basic state pension. He also knows that we are considering some additional flexibility and choice for a flexible decade of retirement. At present, some people are able to draw their pension later and take it at a higher level. We are against the idea that we are inevitably stuck with a one-size-fits-all welfare state. We shall continue to put forward proposals to modernise the welfare state to give people more choice and more flexibility. There is no suggestion of forcing anybody to retire early and take a cut in their basic state pension. If the Secretary of State wants to continue with his leadership bid, he had better build on his credentials. The main one is supposed to be his brain.
I should like explain the £175. The Government's proposals will not guarantee the full £175-a-week pension that they claim that someone on average earnings will get on retirement in 2040. The basic pension guarantee will cover only the basic pension element, not the 5 per cent. earnings-related element or any additional savings that an individual might make. The basic pension guarantee guarantees only £61 a week, which will be worth just 7 per cent. of average earnings in 2040. It is not a guarantee of £175.
The new second-tier additional earnings-related element will not provide a generous or adequate pension either. The £175-a-week pension that the Secretary of State claims that someone on average earnings will get in 2040 will result in pensioners falling further behind the living standards of people at work. A man on average earnings who retired last year, solely dependent on the basic state pension and SERPS, got a pension worth 36 per cent. of his earnings. By 2040, when living standards will have risen significantly, under the Government's plan a man on average earnings would retire on only 20 per cent. of his earnings.
Mr. Edward Garnier (Harborough):
Will the hon. Lady give way?
Ms Harman:
I shall not give way to the hon. and learned Gentleman. I have given way six times. Each
Mr. Deputy Speaker:
Order. What is going on in the House this afternoon? I repeat, I hope that the hon. Lady will be given the same hearing and the same courtesies as the Secretary of State was. She has made it clear that she is not giving way, so I advise hon. Members to take that on board.
Ms Harman:
The £175 guarantee, which is not a guarantee, does not apply to everyone, but only to those on average earnings. Three quarters of the work force earn less than average earnings.
Some 2.6 million pensioners live on the basic state pension, topped up by income support. In 2040, after spending £312 billion on their privatisation plan, the Government predict that 3 million pensioners will be living on the basic pension guarantee, topped up by income support. Mervyn Kohler of Help the Aged has said that under the Government's proposals, a poor worker will progress to become a poor pensioner. Basic pension plus would be a guarantee of poverty in old age for more than 3 million people. After more than £300 billion has been spent, 3 million pensioners will still be struggling on the bread line.
Basic pension plus fails to strike a fair balance between the generations. It fails to give people on all incomes a decent standard of living in retirement and it increases risks because it abandons the partnership between public and private provision, putting every penny of every pension into the private sector basket. Every part of every pension will be at the mercy of the market and every taxpayer will have to stand by to bail out failed schemes. The Secretary of State has made reassuring noises today, telling people not to worry about misselling because it is all sorted out and will not happen again. The Government have a bad record on protecting people from the risk and cost of their ideological forays into personal private pensions.
In the mid-1980s, the Government's policy, backed by hundreds of millions of pounds, was to encourage people to opt out of occupational pensions and SERPS and go instead into personal pensions. Labour warned at the time that many people would wrongly be lured out of good value for money occupational pensions and would lose out. The then Under-Secretary of State for Health and Social Security, now the Prime Minister, swept our concerns aside. He assured Parliament that the Government would
"We will have to consider what level of basic state pension should be paid. . . . we anticipate . . . a lower level of basic state pension."
Is the hon. Lady denying that it came from her?
"safeguard people against unscrupulous overselling of personal pensions."--[Official Report, Standing Committee B, 4 February 1986; c. 27.]
That was the Prime Minister's promise. He did not safeguard people and 1.5 million lost out. There are 500,000 urgent cases awaiting compensation. Only 7,000 have received compensation. At least 18,000 will never receive their compensation. The Personal Investment Authority told me last night that 18,000 people have died before they could be compensated. Why should the public trust the Government's reassurances this time when they got it so badly wrong last time? They are forcing everyone into the schemes that have failed so many.
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