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Mr. David Rendel (Newbury): The Secretary of State said that the Conservatives had introduced no pension reforms but perhaps he has forgotten that they reformed the state earnings-related pension scheme. As I understand it, the effect of that reform is that, if somebody's husband died on 5 April next year, she would get an average widow's pension of about £33, but, if he died on 6 April, she would receive an average of only £12.
Mr. Darling: The previous Government greatly altered the original intention of SERPS and at the time gave no indication that they were about to do so. We propose further reforms to SERPS, which I shall refer to in a moment, that will be of far greater benefit to people on lower incomes.
I want to emphasise two points that the hon. Member for Chingford and Woodford Green made light of. We inherited not only one but two pensions scandals. The first, obviously, was the mis-selling of pensions, which the hon. Gentleman glibly brushed aside, saying, "Oh, we know about that." Two and a half million people certainly know about that. Ten years ago, we all remember the scandal of Government-sponsored advertisements, which showed a man breaking out of a straitjacket, when the Conservatives tried to tell us that the very act of going private was both spiritually and, of course, materially enriching.
The truth is that 2.5 million people were mis-sold pensions. When we came into office in May 1997, absolutely nothing had been done to clear up that mess. It took our efforts--principally those of the former Economic Secretary, my right hon. Friend the Member for Airdrie and Shotts (Mrs. Liddell), who did sterling work--to convince the pensions industry that it had to clear up the mess and restore the public's trust in it. We got absolutely no help from the Conservatives, whose Government had created that problem.
The second problem that we inherited, which is the root cause of the problems that we face for the future, is that, unless we change our pensions policy as we propose to do, a third of people now working will retire on means-tested benefits. The hon. Member for Chingford and Woodford Green was complaining about the means test and making much of it. He ignores the fact that, during the 18 years in which the Conservatives were in power, means-tested benefits rose from about 16 per cent. of all benefits to 34 per cent. In other words, for all his rhetoric, the Conservatives more than doubled the application of means-tested benefits.
The real scandal is that, if we do not change direction, a third of people now working will retire on benefit. We do not consider that acceptable--
Mr. Butterfill:
Will the Secretary of State give way?
For that reason, we decided that pensions policy needed to change and put forward our proposals in the Green Paper last year.
Mr. Butterfill:
I am most grateful to the Secretary of State. Of course we are all concerned about those who
Mr. Darling:
The hon. Gentleman will know that a discretion is now exercised concerning when someone must buy an annuity. He will also be aware that the Government give tax relief to people to make pension provision because--there is cross-party consensus on this--it is right to encourage people to do so. We must watch, however, that the tax relief that we provide cannot be used to save for purposes other than pensions. The matter of low annuity rates has been raised on several occasions. Yes, they have fallen, but that is a consequence of lower interest rates and lower inflation. I firmly believe--I hope that the hon. Gentleman does not dissent from this--that one of the best things that any Government can do for pensioners is ensure a stable economic background and low inflation. For people on fixed incomes for 20 or 30 years, low inflation is central to helping them enjoy a decent standard of living. I make no apology for being part of a Government for whom that is a central objective.
Mr. John Burnett (Torridge and West Devon):
Will the right hon. Gentleman give way?
Mr. Darling:
I will in a moment. I am very conscious of the fact that this is a three-hour debate, and I want to deal with the Conservative Opposition's point about the abolition of advance corporation tax and tax credits.
The central objective behind these abolitions was to help companies' profitability. The House will be aware that, as a result of removing tax credits, we have been able to cut corporation tax to its lowest-ever level. That will help companies' profitability and therefore benefit investors. Some of the biggest investors in this country are pension funds. Increased company profitability benefits pension funds. [Interruption.] The hon. Member for Bromsgrove (Miss Kirkbride) can squawk as much as she wants, but the fact is that, if we leave companies with more money due to a reduced tax burden, they can decide whether to distribute or reinvest the profits.
It is interesting that no serious commentator is calling on us to reverse this tax change. Most people believe that it was the right one to make. When the hon. Member for Chingford and Woodford Green was tackled on that point by my hon. Friend the Member for Workington (Mr. Campbell-Savours), the hon. Gentleman could not say what the Conservatives would do. Will his reaction be the same as that to the working families tax credit, which the Conservatives have pledged to reverse, resulting in a tax increase for some of the poorest people of £17 a week? Are we to hear yet another pledge, along with the one to remove the independence of the Bank of England? Corporate Britain would be dismayed if that
were the stated objective of the Conservative party. The tax changes that we have made will benefit companies and shareholders and therefore pensioners. That is the right thing to do in the long-term economic interests of the country.
Mr. Duncan Smith:
What does the right hon. Gentleman say to representatives of funds that have declared that they are now worse off directly as a result of the Government's policy? They should be given an answer instead of lectures from the right hon. Gentleman about what he thinks they ought to be doing.
Mr. Darling:
I have of course spoken to many pension fund managers and companies. When they are asked whether they would like us to reverse that tax change, they all say no, because they understand that it was the right thing to do in the long term. This Government, unlike the previous one, have always taken the view that we should act in the long-term interests of the country.
I note in passing that pension funds performed well in 1998; returns averaged about 14 per cent.
Mr. Duncan Smith:
No thanks to this Government.
Mr. Darling:
Pension funds have done so well precisely thanks to the economic environment that we are creating.
Mr. Quentin Davies (Grantham and Stamford):
Will the right hon. Gentleman give way?
Mr. Darling:
No, not just now. Knowing the hon. Gentleman, he will want to speak at great length when he replies on behalf of the Opposition. We look forward to listening to him then.
I want to set out our approach to pensions reform. We firmly believe that everyone who can save ought to save. We want to give people the flexibility, the choice and the incentives to do so. A one-size-fits-all approach to pensions will not do; everyone has different requirements. There have been huge labour market changes. In the past, many people had access to occupational pension funds, which are extremely good options for those who are lucky enough to be able to take advantage of them. As the House well knows, however, many people do not have that option. Although personal pensions are certainly a good option for some, they are not so, as we know only too well, for low-paid people or even for some moderate earners.
We believed that, if we were to encourage more people to make provision for themselves, it was necessary to add to occupational and personal pensions, filling a gap. That is why we have introduced the new stakeholder pension scheme. That development was widely welcomed, as was the entire Green Paper, and it remains the case that most people recognise that there is sense in the Government's position.
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