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Mr. Edward Leigh (Gainsborough): Is not the main problem with the present system that, if one is on a low income, it is not worth one's while to take out a pension, because one loses income support? How will the situation be eased by linking the minimum earnings guarantee to earnings but not the pension? Are not the questions posed by the right hon. Member for Birkenhead (Mr. Field) and the hon. Member for Croydon, North (Mr. Wicks) unanswerable? Because the Secretary of State has ducked compulsion for political reasons, the numbers of people on means-tested benefits will increase, not decline, in the years to come.
Mr. Darling: I am surprised that the Conservatives are in favour of blanket compulsion.
Mr. Duncan Smith: No, we are not.
Mr. Darling: Oh, they are not. Is that another split in the Tory ranks? The argument against compulsion is a practical one. If people are on low earnings, it does not matter how much of their disposable income one takes away from them, because they can never earn enough to get a proper pension. Most of those at the other end of the income scale are already saving enough. The self-employed are another matter, but the compulsion argument falls when we consider who would be asked to
pay more. The main problem that low earners face is that they cannot earn enough now to get a pension that would lift them above means testing. The reforms that I am making to the second state pension will enable people to work for their whole lives and get pensions above the minimum income guarantee.
I still believe that, despite those changes, having a minimum income guarantee is wholly justifiable. The logic of the hon. Gentleman's position is that there should be no safety net at all, on the grounds that that would compel people to do more. What I am proposing is practical and workable, and I am more than happy to rest my case on both those assertions.
Mr. Paul Flynn (Newport, West):
Does my right hon. Friend recognise the argument that compulsion must be necessary for young people, as it is impossible to convince 20-year-olds that they will ever grow old and need a pension? Although the Government deserve credit for giving £140 a year to people on a basic pension, that amount goes only a small way towards compensating them for the £1,040 that they have lost--that they were cheated out of--when the link between pensions and earnings was broken in 1980.
Does my right hon. Friend accept that the Government's targeting of poor pensioners is wide of the mark, and that 1 million pensioners will miss out on the guaranteed minimum pension because they regard income support as a handout, or charity? They would accept it if it were added to the basic pension as a right, as for 50 working years they have paid contributions that have increased at the rate of inflation. Why should we continue to cheat them by increasing the basic pension at a rate that is below that of inflation?
Many Labour Members are surprised by the faith that my right hon. Friend has shown in the private pension market after years of mis-selling. He said that the charges on the private stakeholder scheme would be below 25 per cent. Will they fall to the level of the national insurance charges on the basic pension, which at present is 2 per cent?
Mr. Darling:
I shall deal with the various points raised by my hon. Friend. I think that I am right in saying that he has a hostility towards private funded schemes, which, frankly, I do not share. Over the next 25 years, pensioners as a whole--although not the poorest--are likely to retire on higher incomes, in part because of the growth in occupational pensions, which essentially are private pensions.
It is true that there have been problems with mis-selling, but the industry as a whole sells products that are very good for very many people. However, I believe that people are far better off if they can save through a funded pension than they ever would be if they relied on the state.
My hon. Friend returned to the question of the basic state pension. I shall not labour the point, other than to say yet again that I and my colleagues took the decision that it is far better to use the money at our disposal to help those on lower incomes--some might think disproportionately--to ensure that they have a proper pension on retirement.
My hon. Friend asked what can be done about the 19-year-olds who would rather go out and enjoy themselves than pay money into a pension. If those
19-year-olds earn less than £9,000 a year, compelling them to save quite a lot of money from that income will not make much difference. By the age of 25, those young people may be earning more money and therefore be more amenable to facing up to the future.
However, for the avoidance of doubt, I repeat that hon. Members who believe in blanket compulsion should think about what would happen if such compulsion were applied. It would not help the lowest paid, but would penalise those very well-off people who do not need to save more. It would increase the burden on people who already have enough pressure from children, mortgages and so on and who are not in a position to meet the requirement for extra compulsory help. What I am proposing is workable, affordable and acceptable, and therefore I believe that it will be durable.
Mr. Nicholas Winterton (Macclesfield):
I warmly welcome the Government's recognition of the circumstances of carers and of the contribution that they make to society, but is not the hon. Member for Newport, West (Mr. Flynn) right to say that people must begin to contribute to pensions virtually as they start work? If that is not to be achieved through compulsion--I sympathise with both sides of the debate on that matter--could not the Secretary of State offer people more flagrant, blatant and obvious fiscal encouragement to save for pensions rather than for, say, a car?
Mr. Darling:
I appreciate that hon. Members suffer from a disadvantage in responding to Government statements, and that they are not always able read 100 pages of the relevant Green Paper beforehand. However, if the hon. Gentleman does get the chance to look at it, he will find that it contains incentives to encourage those earning moderate and higher incomes to go into funded pensions. I think that he will welcome the quite substantial rebates that are available.
I shall certainly not hold out the hope of more handouts of money, and it is unusual for Conservatives--or, at least, it used to be--to call for that. It cannot be justified, but increased incentives are available. People who say, "Let's compel 19-year-olds," should first ask themselves how much a 19-year-old has got, how much we could compel them and what difference it would make. A combination of all the measures that we are proposing, not least the annual pension statement, will concentrate minds as has not happened before.
Mr. Michael Clapham (Barnsley, West and Penistone):
My right hon. Friend will be aware that, at present, about 1 million people are in work and have access to an occupational pension scheme but do not join it. He will also be aware that, in 1988, the Tory Government changed the rules, which was a disaster for occupational pension schemes, as employees were allowed to move away from salary-based to money-purchase schemes, which do not provide a minimum pension. As the hon. Member for Bournemouth, West (Mr. Butterfill) said, such schemes are linked to an annuity, and go up and down with shares. Therefore, will my right hon. Friend consider how he might encourage those 1 million people back into occupational schemes, perhaps by encouraging employees to return to salary-based schemes?
Mr. Darling:
My hon. Friend makes a good point, and the Green Paper covers it. He is right to say that the
Mrs. Margaret Ewing (Moray):
Clearly, the Green Paper must be read carefully, scrutinised and responded to--hopefully, constructively. I must pursue one matter with the Secretary of State. One concern that has been brought to my attention is that carers who reach pensionable age find that the state pension impacts on other benefits, such as attendance allowance. Will they be considered as special cases? The plans are long-term, but that group of carers has been cruelly treated under the old system.
Mr. Darling:
I understand the hon. Lady's point. For carers who were in receipt of invalid care allowance, or who qualified for home responsibilities protection by caring for people on attendance allowance or disability living allowance, there will be qualifying credits back to 1978.
Mr. Jeremy Corbyn (Islington, North):
Would the Secretary of State explain why he has linked not the state pension but the minimum income guarantee with average earnings? Is that why he is proposing a reduction in the public contribution--as opposed to individual contributions--to pensions over a 50-year period? Will he estimate how much more money people on low incomes will be paying towards their pensions compared with the amount that they are paying now through national insurance?
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