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7.20 pm
Mr. David Lidington (Aylesbury): I do not think that anyone could argue that the hon. Member for Islington, North (Mr. Corbyn) does not demonstrate a consistency and a coherency in his argument that are lacking in Opposition Front Benchers. However, I cannot agree with his faith in the virtues of monopoly provision or in the beneficence of the state's organisation of services, because the history of the United Kingdom and of comparable European countries has shown the folly of doing so.
In his peroration, the hon. Member overlooked the fact that people are out on the streets in Italy, Germany and elsewhere in western Europe because their Governments are, belatedly and with great difficulty, trying to grapple with the problems anticipated a decade ago by my right hon. Friend the Member for Sutton Coldfield(Sir N. Fowler) and his colleagues in government. We are able to cope better than our European neighbours with the demographic and social trends we share with them, because my right hon. Friend and his colleagues were ready to take the difficult decisions then and did not try to postpone them, hoping that they would somehow go away and not have to be faced.
I agreed with the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood) about the sense of betrayal felt by some elderly people. They feel that they have been contributing through their national insurance contributions for many years, but that the contract which they believed was in place is not being honoured. One of the chief arguments in favour of a shift towards a fully funded pension system, as advocated by my right hon. Friend the Secretary of State, is that it would place pension funding on an honest basis for the first time since the second world war.
As the hon. Member for Roxburgh and Berwickshire said, both parties have led people to believe that they would receive something that was entirely dependent on
the readiness of future Governments and generations of taxpayers to deliver. I do not think that Governments of either party have acted in a spirit of malice, but they did not anticipate future demographic trends or the attitudes of future generations of taxpayers. They also did not anticipate the rising expectations of generations of pensioners, who saw the higher living standards that their contemporaries at work gained through their earnings
Today, hon. Members on both sides of the House have said that, with such an important reform, it is critically important that we get it right, and that we do not rush to legislate before the ground has been carefully prepared. I agree, and I welcome the fact that the Secretary of State's announcement presaged a Green Paper later this year and full consultation of all interested parties before we move on to a White Paper and a Bill.
I hope that we can achieve the greatest possible cross-party agreement on any eventual legislation, as we did when passing the Pensions Act 1995, after the disaster of the Maxwell scandal. If such reform is to last for the length of time that we envisage it will, it is important to have that agreement among hon. Members, regardless of party affiliation.
The basic pension plus scheme is good, because it is an honest way of funding pensions. It is right for the Government to continue to guarantee the safety net of a minimum pension, and it is right to have an element of compulsion in saving.
I was sorry to hear the hon. Member for Peckham (Ms Harman) criticise the Government's statement that, under the scheme, there would be choice in pension providers. An element of competition will breed a desire to attract customers, and therefore to provide a better service--including lower charges, as my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Clifton-Brown) said. In our history since the second world war, there have been too many examples of monopolies that have been established for very well-intentioned reasons but which have ultimately delivered fifth-rate services and been operated in the interests of the organisation itself rather than in the interests of those they were created to serve.
Whereas our European neighbours are still grappling with how to trim their pledges and to deal with their taxpayers' readiness to finance such pledges in future, we are attempting to ensure that future generations receive higher and more adequate retirement income levels than those currently provided under the basic state retirement pension.
Although I welcome the principle of the scheme announced by my right hon. Friend the Secretary of State, I should like to raise a couple of issues that I hope will be addressed in the Green Paper and afterwards.
The hon. Member for Birkenhead (Mr. Field) and my right hon. Friend the Member for South Norfolk (Mr. MacGregor) raised the first issue, which is how we can ensure that both the current generation of workers and those who take part in the pension plus scheme save at levels that are adequate to ensure themselves a relatively comfortable retirement.
If we are not careful, there will be a risk that new entrants to the pension plus scheme who sign up in their 20s will complacently assume that that is all they have to do. They may assume that their compulsory contributions will be put to one side and invested on their behalf,
and will consequently guarantee sufficient retirement income to support the life style that they expect at the end of their working lives.
People taking part in pension plus will probably need to be encouraged to make additional provision for their retirement on top of what is invested on their behalf through the state scheme. I agree with my hon. Friend the Member for Carshalton and Wallington (Mr. Forman) and others that it would be helpful if we introduced a simplified tax treatment of long-term savings products so that people could be encouraged to make such provision, and in a way that best suited their circumstances throughout their working life. That might provide a solution which would assure the new members of the work force of the standard of living they would want.
The present generation of workers is going to have to pay twice. The hon. Member for Peckham said that in terms of horror, as if it was a wicked Government plot. In fact, it is a statement of the obvious. If we are to move towards a funded pension system, it is inevitable that at least one generation of workers will have to pay twice. If that key decision is taken, the political debate needs to focus on how we phase in the new arrangements and try to ensure that adequate provision is made for the current generation, who will, by definition, not be participating in the basic pension plus scheme.
The question-and-answer brief issued by the Department refers to the possibility that the basic pension plus scheme might be extended beyond the category of newcomers to the work force for whom it is intended. One question reads:
Above all, if we are to look after the current generation of workers, we need to make sure that we keep in place the tax incentives for saving, particularly for contributions towards occupational pension schemes to which my right hon. Friend the Member for Sutton Coldfieldrightly drew the House's attention. I, too, was very disturbed to hear from the hon. Member for Peckham what I interpreted as an implicit threat that a putative Labour Government would seek to trim, or even withdraw altogether, existing tax incentives for pension contributions.
As many hon. Members have said, as well as trying to make sure that people save over and above what is provided by the compulsory element of the proposed new scheme, we need to look carefully at the quality of regulation and advice available. I have read the minutes of the evidence given recently by the Personal Investment Authority to the Treasury Select Committee. I found the PIA's performance and attitude unsatisfactory.
While it is certainly true that rules are in place to ensure that anyone who is proved to have been missold a personal pension is properly compensated, the PIA and other organisations with responsibilities in this sphere seem to have been going about their work far too sluggishly. I am therefore pleased that my hon. Friend the Economic Secretary is now knocking heads together and trying to get action taken more speedily.
When the new system is set up, there will clearly need to be rules covering investments by approved organisations. We do not want to end up repeating the mistakes of the United States, where the Government's guarantee underwriting the savings and loans schemes led to silly, risky decisions being taken by some of those organisations because they knew that, at the end of the day, the taxpayer would step in and mop up the mess.
Some framework of regulation will clearly be needed. It could relate to the balance of portfolios held by the approved organisations. I am attracted by the proposal of the hon. Member for Birkenhead for a reserve fund, financed by the institutions, to guarantee against loss.
Perhaps we could also consider some guaranteed minimum level that would be promised to pensioners over and above the basic pension underwritten by the Government. Perhaps the institutions themselves could guarantee at least a minimum level of bonus pension, so that we could not only assure pensioners of a decent standard of living in retirement but protect taxpayers against too many people falling back on that ultimate Government safety net.
The quality of advice also needs to be improved. As a newly elected Member of Parliament in 1992, I was faced with many constituents who were victims of the Maxwell scandal. I vividly recall how difficult it was to explain to men and women in their 70s and 80s who were not accustomed to dealing with financial institutions how this disaster had come about, and what the Government and the various regulatory authorities were doing to try to recoup their pensions.
I shall give one example of the problems. Every month, the trustees of the pension funds would write to pensioners and, in accordance with their legal duty, say that, because of the uncertainties about the fate of the Maxwell empire, there could be no guarantee that they would be able to make further pension payments after that month. In fact, Members of Parliament who were talking to the trustees of the institutions knew that there was enough money in the bank to ensure that pensions could continue to be paid for a reasonable period, at least while things were sorted out, but the law insisted that such a statement was made by the trustees every month.
That placed elderly people under the most appalling stress. People came to see me who did not know how to cope with what they feared would be the removal, at the drop of a hat, of their chief source of income other than the basic state pension. We therefore need to ensure that people are given advice in language that they can easily understand, so that they can make well-informed decisions.
"Can I join this new scheme?"
The Department's answer is:
"Our plan is to phase the scheme in gradually so that it is affordable. However, it may prove possible, if finances and growth permit, to extend the scheme up the age range."
I would be interested in anything that the Under-Secretary of State can say later to throw greater light on that matter.
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