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Mrs. Laing: I certainly did not mean to imply that there is dependency. I was making the point that we have a pay-as-you-go scheme, which is a perfectly reasonable scheme for those who have worked hard all their lives and paid into it. They paid for the previous generation, and the current generation is paying for those who are now retired. They worked hard and paid into the scheme.
The point is that, in future, there will simply not be enough working people to pay for retired people. I entirely accept the hon. Member's point that that is not dependency, and that people are simply drawing money that they have paid in.
Mr. Flynn:
That is based on the assumption that our working life will remain as it is. Someone who is aged 62, such as myself, may feel that he or she is approaching the peak of life and intends to work for a very long time. Most people of my age feel that way. Some people presume a very static life style, and assume that things will not change, but things will change enormously. Elderly people such as myself feel very patronised when we are told that we will have to retire at 60 or 65. In the next century and possibly before, people will make worthwhile contributions way beyond the age of 60 or 65.
I should, however, reinforce the point made by the hon. Member for Havant (Mr. Willetts) in his book. He supported the previous Government's exaggeration of the
myth of a demographic time bomb, because he was not in favour of SERPS, which he thought was inequitable as a system.
There is no doubt, however, that the Government have worked on the "time bomb". We have long been aware of a demographic time bomb, and of baby boomers--one of whom is now President of the United States--who would fill the school system when they were teenagers. We know that there will be such a time bomb. We also know when it will start and when it will finish. It will, however, last for a finite period, and we cannot allow it to distort all our policies.
My questions are mainly for Ministers. I should, however, like to remind Conservative Members who were Ministers in Conservative Governments for all those long years of the promise made, in June 1979, by their then spokesman, Lord Jenkin, when he was defending the proposal to break the link between pensions and average earnings. He said that he wanted to
Far from having the "same broad effect", however, breaking the earnings link has resulted in today's pensioners losing more than £20 a week. I asked the Library to provide me with the latest figures, and was told that the basic pension is now £62.25. The Library estimates that, had pensions increased in line with earnings, that figure would be £87.
Ministers argue that, on average, pensioners in 1997 are better off than pensioners in 1979. The reason, of course, is that most of those who were pensioners in 1979 are no longer with us, because they have died, and many current pensioners are benefiting from the previous Labour Government's pension legislation, receiving a combination of SERPS--which is now a considerable sum if people have been paying into it since the late 1970s--and increasingly valuable occupational pensions.
The picture is very different for those who are now in their 80s and were over pension age in 1979. Since 1979, there has been no increase in their living standards, although average earnings in real terms have increased by at least a third. Even people retiring today are not that well-off. They need an occupational or SERPS pension of at least £20 a week simply to make up for what has been lost in the basic pension. Under the Tories, unemployment among older workers deprived many of them of an opportunity to contribute to any type of second pension.
The promise in the Labour manifesto is now in early-day motion 1, which I recommend that all hon. Members read, because it will be referred to many times in the next 12 months. The manifesto promised:
Mr. Flynn:
Does the hon. Gentleman think that it is equitable that tax advantages were enjoyed by some pensioners but that there were no tax advantages on SERPS contributions? Does he think that it is equitable that a sum was taken out of the national insurance fund, which is the property of everyone, to benefit a small number of pensioners who joined personal pensions?
That is what happened. One group of pensioners--those who were bribed to leave decent occupational schemes, or unwisely advised to leave SERPS--gained advantages that other pensioners did not receive. As it turned out, many of them suffered because they were badly advised in that. The system is already inequitable for those who contribute to SERPS.
Mrs. Gorman:
Is it not a fact that state earnings-related pension schemes are not funded, that they come within the group of pensions that are forked out for by current taxpayers? What is so wrong and wicked about what the Government propose is that they are taking money from people who are setting aside something from their net income for their old age. That is the trick which the Government are playing on people.
Mr. Flynn:
I am shocked by the hon. Lady's immoderate language. Tomorrow I shall send her a copy of a pamphlet entitled "Our Pensions", written by Tony Lynes, which has a splendid forward by the hon. Member for Newport, West. I am sure that she will enjoy it greatly. It maps out ways in which SERPS should be reformed; the main suggestion is that it should become at least a partly funded scheme.
If we are to continue with a pension for the next century, SERPS should be funded. I am sure that, having read the pamphlet, the hon. Lady will join us in our enthusiasm for SERPS. It is also suggested that SERPS should be managed independently of the national insurance scheme, and run by managers who will be responsible for maximising and investing much of the fund.
The basic advantage of SERPS and other state schemes is that the total cost of administration--the wasted money--is only 2 per cent., or, in many years, even less. Someone investing in a private scheme now will lose a minimum of 25 per cent. in commission, charges and administration. Someone who does not contribute to the scheme for a long time could lose 90 or 95 per cent.
How could Conservatives talk about the advantage of money purchase schemes without saying what a gamble they are? They encouraged people to join such schemes, but, if they study what happened to annuity rates between 1990 and 1994, they will find that someone who was to retire in 1990 but put off his retirement until 1994 and who was a customer of Norwich Union--the position is the same with other, similar companies--would have lost 35 per cent. of his pension. A third of his pension would have gone because of changes in the annuity rates and what they could buy.
Money purchase schemes are a gamble, far worse than any other scheme. The previous Government deliberately encouraged 6 million or 7 million people, or however many it was, to join such schemes, even though no one can say what the annuity rates will be in a month's time, let alone in 20, 30 or 40 years. The precise figures of the terrible losses are only wild estimates, and could be miles out. The Opposition are taking a cynical view of what the Government are doing.
Mrs. Gorman:
The Government are talking about the surpluses of the invested pension funds, but these are sums of money built up by wise investment by the people who operate the funds. The money belongs to the people who invested, and it is that money which may mean that, by the time they come to draw them, their pensions are often much higher than they expected. It is that money--the so-called surpluses--which the Labour party is seeking to plunder.
Mr. Flynn:
The Government are removing an unfair advantage that people contributing to some schemes have. If the advantage is spread to SERPS, it would be equitable. It has never been enjoyed by people contributing to SERPS. Why on earth should one favoured group enjoy it simply because the previous Government wanted to unload what they saw as the burden of the state pension?
Mr. Letwin:
Will the hon. Gentleman give way?
Mr. Flynn:
I was going to conclude, but I shall certainly give way to the hon. Gentleman.
Mr. Letwin:
I am doubly grateful to the hon. Gentleman for giving way again.
"make it clear . . . that it remains the Government's firm intention that pensioners and other long-term beneficiaries can confidently look forward to sharing in the increased standards of living of the country as a whole."--[Official Report, 13 June 1979; Vol. 968, c. 439.]
That is a significant promise. The next day, he commented on a proposal to retain the earnings link in a modified form, and claimed that the Government's proposal would have the "same broad effect". That was a very clear promise on retaining the tie.
"We believe that all pensioners should share fairly in the increasing prosperity of the nation."
9 Jul 1997 : Column 1016
There are many ways in which some pensioners can share in increasing prosperity.
Mr. Letwin:
Does the hon. Gentleman agree that itis slightly odd to begin a programme enabling allpensioners to share in the nation's prosperity by taking£5,000 million a year from those pensioners?
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