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Mr. Steve Webb (Northavon): Will the hon. Gentleman give way?
Mr. Duncan Smith: In a minute, as I should like to finish this point.
The Government's pensions proposals are in a mess. Rather than creating reforms to simplify the provision of pensions, they have made the system progressively more complex and more difficult to understand. That, in turn, will lead to great uncertainty over future pensions. The Times stated:
"New Labour's new pension system was intended to make life simple for savers . . . Instead potential savers will be confronted with a mind-bogglingly complex array of options".
The Daily Mail said:
"Mr. Darling has come out with a muddled and muddling, half-baked set of proposals".
However, if the Secretary of State does not like hearing only from the media, he--and the Under-Secretary of State for Social Security, the hon. Member for Wallasey (Angela Eagle), who is sitting next to him--might like to hear from Mervyn Kohler of Help the Aged, who said:
"The Government has let a great opportunity slip through its hands. This pensions review could have made radical changes to a system in dire need of reform; sadly, it does not."
Mr. Webb:
If I have followed the hon. Gentleman's argument correctly, I believe that he said that Labour in opposition should have had a fully worked out pensions policy. Is he now promising that the Conservative party will have such a policy?
Mr. Duncan Smith: Labour, when in opposition, should have thought long enough to have produced a policy that they could implement on arrival. I think it is fair to say that. When we get ready to take over Government--it will be very soon--we shall have a plan worked out, and we shall present that plan and implement it. That is exactly what previous Conservative Governments have done, and we shall do it again.
Mr. Campbell-Savours: Will the hon. Gentleman give way?
Mr. Duncan Smith: No, I shall give way later.
There are four main problems with the Green Paper. [Interruption.] Labour Members do not like to hear of such things because they are so used to receiving briefs saying, "The Government are wonderful; intervene on this." They will have to hear the truth today.
There are four main failures in the Green Paper. The Secretary of State will not be surprised to hear that the first is that it massively increases means testing. One of the most significant areas of the Government's pensions proposals is the growth of means tests on pensioner
incomes. The introduction of the minimum pensions guarantee and the Green Paper's pledge on the guarantee--
The Association of Retired and Persons over 50 claims that:
The Government's reliance on an increasing means-test element will become a massive disincentive to saving as it claws further and further up the line of those who would wish to save. Frankly, anyone on average earnings might as well not bother; they will find that those who did not bother will receive just as much final retirement income.
Meanwhile, the Government preside over a falling savings ratio. They inherited a ratio of more than 10 per cent., but by the time that they leave Government, it will be around 7 per cent. We are at a stage of the economic cycle when the ratio would normally be rising, not falling. They already have the problem that it is going in the wrong direction. Their changes will make that problem worse.
The right hon. Member for Birkenhead has said:
Mr. Peter Viggers (Gosport):
Does my hon. Friend agree that someone who has made no provision might even be better off, because he will receive housing benefit and council tax benefit?
Mr. Duncan Smith:
There is no question but that my hon. Friend is right. The point is that anyone on the margins, with below-average income, who tries to save--perhaps putting away 10 per cent. of their income every year--will say, "I am losing that from my yearly spend and the bloke two doors down the road is having a wonderful time, travelling to Virginia and being dumped off the aircraft. One way or another, he is having a wonderful time, and he will receive the same income as I will."
Kali Mountford (Colne Valley)
rose--
Mr. Duncan Smith:
No, in a minute.
The Government have collective amnesia. The Chancellor of the Exchequer has clearly forgotten his 1993 pledge, when he said:
The second fault in the Green Paper is its attitude towards, and its attack on, occupational pensions. I began my speech with a reference to how occupational pensions have been hurt by the Government. The Green Paper states:
The Government's proposals for stakeholder pensions are more than likely to discourage employers from setting up such schemes in the future. There is also a serious danger that some employers will close occupational schemes to new entrants and simply offer access to stakeholder funds instead.
The National Association of Pension Funds today said:
The Green Paper says:
Kali Mountford:
The hon. Gentleman makes much of occupational pension schemes, but why, in 1988, did the Conservative Government encourage people into private pension schemes that were not properly regulated and that failed thousands of pensioners in Britain?
Mr. Duncan Smith:
What a wonderful intervention from the daily notes yet again--as though that were a real surprise. The previous Government set out to deal with the problem and this Government have continued that action. No hon. Member would think such mis-selling acceptable. The hon. Lady should be careful. I am about to come to what will be the biggest mis-selling scam of the lot, which is in the Green Paper. She should keep quiet for a little and listen because the reality is that she will be thoroughly ashamed of her Government who have set out to defraud the electorate.
Mr. Campbell-Savours:
Will the hon. Gentleman give way?
Mr. Duncan Smith:
No, not just yet. The hon. Gentleman has had his moment in the sun and that is good enough for him.
The Government have made much about reducing the need for individuals to seek financial advice, so let us move on to the concept of mis-selling in terms of the Government's proposals. The Green Paper's stakeholder proposal lies at the heart of a serious problem as to whether the public, the consumer, will take the right product.
The Government will recommend their product. In encouraging future pensioners to join those cost access terms schemes, which could turn out to be neither the best nor the cheapest investment or, critically, no better than the previous arrangement, the Government will rightly stand accused of mis-selling pensions on a grand scale. Unless the Government are prepared to step forward right now and underwrite their value, which I doubt, future Governments will have to suffer because this Government seem to have learnt nothing from what the hon. Lady has just referred to. The mis-selling to which she has just referred will become small beer in comparison with what the Government are likely to set in train--a huge problem, of which others will have to pick up the pieces. That confusion is the mother and father of mis-selling.
Peter Murray, the chairman of the NAPF, rightly said:
The fourth problem strikes right at the heart of the real divide that exists in Government, and it concerns the Government's culture. The Government's ill-thought- through plans in the Green Paper are likely to lead to greater confusion and result in pensioners finding that they are worse off in due course than if no change had been made at all. Particularly badly hit will be anyone who saves on the margins.
Whether the new product is called a lifelong individual savings account, and whether "pension" is substituted for "lifelong", at its heart is the real problem. Almost every commentator now believes that LISAs demonstrate how the Government are pursuing two clear and different agendas in two different Departments. The Times of 27 January stated:
"Over the long term, our aim is that it should rise in line with earnings"--
mean that the Government are rapidly increasing the role of the means test in pensioner incomes.
"the Government's own estimates suggest that the number of UK pensioners relying on means tested benefits under the Minimum Income Guarantee could rise from 1 in 5 today to 1 in 4 by 2050."
The Institute for Fiscal Studies, which the Government no longer likes although they used to work with it when they were in opposition, says that the means-tested guarantee "institutionalises means testing".
"It means that if you don't bother to save you will just pick this"--
the minimum guarantee--
"up in the end anyway. So the Jack the Lads who don't intend saving will benefit."
That is precisely the point: by increasing the level of the means test, the Government have discouraged saving. They leave everyone saying, "Why should I bother?" People who do not bother will get roughly the same income as those who take the difficult choice, year after year, to save money that they could otherwise have spent.
"I want the next Labour Government to achieve what in 50 years of the welfare state has never been achieved. The end of the means test for elderly people."
A few years ago, he made that bold pledge, but the reality is exactly the opposite.
"Occupational pension schemes are the great welfare success story of this country."
Hear, hear. They were, but, under this Government, they are not.
"Smaller companies will see it as easier and cheaper for them to encourage employees to move into stakeholder arrangements instead of creating occupational pensions."
The proposals in the Green Paper will increase the regulatory and cost burden on employers of maintaining salary-related schemes.
"Our proposals to create a framework for stakeholder pension schemes are not intended to change the commitment that employers already have to providing occupational pension schemes."
Yet, the Government's proposals are, frankly, a stake through the heart of salary-related occupational schemes. On the one hand, the Government attacked them through the dividend tax credit, then they dealt them a blow through the rebate, and now they are dealing them a blow in the Green Paper. It is a blow which they will not survive, and for which the Government will stand condemned.
"This means confusion for the man in the street and when the consumer is confused, it means misselling on a large scale is inevitable."
The Government will then stand accused, but, more than likely, they will have lost the election. They will be out and someone else will have to pick up the pieces.
"Two departments are trying to run the show instead of one."
The scheme was put forward by the Association of Unit Trusts and Investment Funds. I know that the association was working up this scheme for some time before the Government took office, and it approached the Treasury to discuss it. It is only recently that the Treasury has finally decided to go ahead, and I understand that it was the Treasury that set about leaking the details in the past couple of weeks to bounce the Department of Social Security and force its hand on the matter.
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