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6.44 pm
Mr. Nigel Forman (Carshalton and Wallington): I shall try to be fairly brief, in order not to trespass on others' time.
I welcome this timely and interesting debate. Having sat through all of it so far, I have found all the speeches interesting, and have learnt a great deal already. It is good for the House as a whole to have effective opportunities to influence the development of long-term policies, and I hope that the usual channels in both this Parliament and the next will strive to ensure that we have many more timely debates on pensions policy.
I will not comment in detail on many of the interesting points that have been made, but I shall make a couple of comments. My right hon. Friend the Member for South Norfolk (Mr. MacGregor) said many fascinating things, but I was particularly struck by what he said in passing at the end of his speech about the strong case for tax neutrality in the encouragement of all forms of personal savings. A simple tax-free allowance of, say, £10,000 per person per year should be introduced, about which, under the law, the taxman need not know anything, provided that the saving was made in the full range of approved savings--personal, institutional or of any other kind. Such a scheme--which has been suggested by many people who are wiser than me--would encourage an aggregate approach to personal savings, rather than displacement from one category to another. That would also be useful in the context of self-assessment.
Listening to another interesting speech, that of the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood), I could not help thinking that one of the dilemmas involved in the whole area of pensions policy is that many people who are retiring now are either asset-rich and income-poor--hence all the schemes for reverse mortgages to help people meet the cost of long-term care
by exploiting the capital value of their principal asset, the family home--or, in the case of the poorest 30 per cent., both assetless and income-poor. The House should be concerned about such people, and never forget their needs, as well as the needs of the more prosperous section of the population. The challenge for the longer term is to bring about circumstances, by the middle of the next century, in which those who retire have both assets and adequate income. That ideal should be the benchmark for any longer-term schemes.
I want to ask three main questions. First, how can we best look after the interests of today's generation of pensioners? A number of speakers have made that point. Secondly, how can we best address the needs of pensioners in the middle decades of the 21st century, in view of the demographic projections and the outlook for public finances? As we all know, much of the problem is due to the difficulty of persuading taxpayers to part with enough money to finance a pay-as-you-go system. Thirdly, how can we organise the transition from where we are now to where we hope to be between 2040 and 2060?
Over the past 18 to 20 years, we have had a coherent strategy for pensioners, based on three main pillars. First, we have maintained the real value of the state pension in relation to prices overall. Secondly, we have encouraged younger people to make their own provision for retirement, with the result that the majority of existing pensioners have done so. Thirdly, we have focused extra financial help on the poorest pensioners, and those in the greatest need. Those happen to be Conservative principles, but I am glad to say that they command widespread support on both sides of the House.
The strategy has had successful results. Between 1979 and 1994-95, the average incomes of pensioners have risen by nearly two thirds from all income sources. Almost nine out of 10 recently retired pensioners have incomes in addition to the state pension, and nearly two thirds of all pensioners have incomes from occupational pensions. That compares with about two fifths in 1979. In view of my earlier remarks, it is gratifying to note that the proportion of pensioners in the poorest decile has fallen from about 35 per cent. in 1979 to about 18 per cent. in 1991-92, the latest full year for which I have seen figures.
Despite the achievements there is a strong case, which I have put to my right hon. and learned Friend the Chancellor several times, for a well-targeted increase in the state pension for the oldest pensioners who form the cohort that is most likely to be poor and in need and who may be too proud to claim means-tested income support to top up their low incomes. My proposal, which I shall briefly outline again, is that everyone born in or before November 1921--to take the example that would have applied at the last Budget--should have a sizeable increase in the state pension. For example, in round figures it should be £90 a week for a single person and £120 a week for a couple.
The attraction of such a proposal, apart from its simplicity and its natural justice, is that it would be a limited public expenditure commitment which, by definition, would decline over time. Clearly, if it is linked to the date of birth, the scheme has a diminishing impact on public finances. I asked the Library to supply figures and yesterday I was told that the net cost rather than the gross cost--obviously in such a calculation, one must
look at the net cost because of the impact on income support--would be £3.3 billion in the first year. For the reasons that I have given, it would decline in subsequent years.
Secondly, the scheme that I have sketched would be a sensible recognition of the fact that the most elderly pensioners tend to be those who are most likely to depend solely on the state pension and/or income support. Thirdly, I know from my mailbag that it would be much appreciated and that it is truly needed by the cohort of pensioners to whom we all owe so much. They are the people who participated on the home front or in the forces in the second world war and, relatively speaking, they feel that they have been left behind compared with the younger cohort of pensioners who came after them. There is a legitimate sense of concern and grievance which in natural justice we need to address.
Mr. Leigh:
What research has my hon. Friend carried out on pensioners who were born in or before 1921 who are relatively well-off? Apart from the high initial cost of the scheme, there is surely no point in spending £3 billion or a large proportion of that amount on people who are already well looked after and well funded because they were able to provide for themselves in their old age.
Mr. Forman:
I am not sure what proportion of the age cohort that I have mentioned is well-off according to my hon. Friend's definition. We would need to have a long discussion about what constitutes being well-off. In the context of large sums of public expenditure, I would prefer to see this approach to looking after a deserving cohort in our population in preference to some other uses of comparable amounts of public money. We should need to examine the matter further to see how many super-rich people there are in that category. Of course, if the extra pensions that I have mentioned went to people such as Lord Hanson, as the pension is taxable, the state would claw some back. However, I do not want to spend too much time on that: I prefer to rush to the second part of my contribution and speak about the principles underlying the excellent scheme that has been proposed by my right hon. Friend the Secretary of State for Social Security.
I welcome the Secretary of State's initiative for a basic pension plus. It is an example of the way in which the Government are still generating all the most constructive ideas in British politics. They are still following a Conservative agenda and, as the Secretary of State has said, Ministers are responsibly and thoughtfully directing their attention to the longer term. The challenges that lie ahead derive essentially from demographic projections of an aging population. In a sense, those problems are to be seen in the figures and the only consolation is that the projections suggest that we are likely to be affected less seriously than some comparable countries.
Secondly, as the House knows, the worsening nature of the dependency ratio suggests that whereas five working people were contributing to the support of one pensioner in the late 1940s when the present arrangements were introduced, by the year 2030 it is projected that five working people will have to support three pensioners. Plainly, that is a significant change in the dependency ratio.
Those factors also need to be considered alongside the significant changes in the labour market to which hon. Members have referred. Those seem likely to make it more difficult to sustain pensions based on traditional assumptions, which could classically be described as people working a 45-hour week for 45 years in full-time employment. That pattern of the labour market is disappearing fast. In such future circumstances it must be right to move away from the precarious basis of intergenerational transfers based upon the pay-as-you-go system to a funded system that is similar to the one proposed by the Secretary of State. That is the approach that was originally advocated by William Beveridge at a time when most people lived no more than three to five years beyond state retirement age. Therefore, how much more necessary will it be to have a funded personal system in the decades to come when the average length of retirement will be about twice or thrice as long as it was in the late 1940s?
In principle, the Secretary of State is right to pursue the line that he has suggested. I hope that it will have all-party support in the years ahead because that is essential for such a system to work satisfactorily.
Lastly, I should like to speak about how to organise the transition. In such matters the devil is often in the detail, but another form of devil is often found in negotiating the difficult transitional arrangements. It is vital to ensure that the transition from one system to the other is comprehensible, fair and affordable. That is especially important because the transitional generation, if I may call it that--those entering the labour market in the early years of the next century--will have to pay twice: once on the current basis to support the pensions of those of us who will then be pensioners, and again on the funded basis to pay for their own new pensions.
I stress the importance to those people of three factors. The first is the long and gradual phasing-in of the new scheme, which is essential. The second is the degree of burden sharing that will be involved in the role of taxpayers in helping to finance the shortfall in national insurance contributions, which is implied in the promised rebates and in the ingenious switch in the tax treatment of pension contributions. That will make it easier to finance and to offer the benefit of pension income, which will be tax free to the recipients. All that has not been sufficiently brought out in the debate or in earlier debates. We are debating a partnership to help to finance the transition from one system to another.
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