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Mr. Burnett: The Secretary of State has recently talked about incentives, but earlier he said that it was common ground that tax relief should remain for pension provision. Does that mean that he acknowledges that it is common ground that tax relief at the higher rate should remain for pension provision?
Mr. Darling: The hon. Gentleman will know that the Government have set out the tax relief available for the stakeholder pension and for other pensions. The Government obviously need to consider that from time to time, but I agree with the hon. Gentleman that it is absolutely necessary to give people proper incentives to save for their retirement. We are determined to give them such incentives.
The big problem that we faced in this country was that far too many people who could save were not saving, and one problem was that there were not enough options available to them. That is why we introduced stakeholder pensions. I believe that most people think that our approach, building on the developments of the past few decades, is right.
The basic state pension will remain in place. It will increase in line with prices, as we undertook in our manifesto, and it will still account for a significant proportion of pensioner incomes for a considerable time to come. Yes, we have introduced a new minimum income guarantee, and I do not apologise for a minute for having done so. I believe that there is a basic level of decency on which people should retire--and if that is a difference between the Labour Government and the Tory party, so be it. We want people to do better.
I do not accept for a minute the glib argument that people would prefer to live on benefit than on a pension for which they have saved during their working life. If people save and build up a pension, they will always be better off than they would be on benefit. If we were to follow the argument used by the hon. Member for Chingford and Woodford Green to its logical conclusion--if we did not provide a minimum pension guarantee and did not uprate that support in line with earnings--those people who were unfortunate enough not to have saved would be left with a lower and lower income. If the hon. Gentleman is really saying that only the threat of destitution will make people save--which was Tory philosophy in 1980--I am afraid that I do not agree with him. I believe that society has certain basic obligations. The scheme that we have introduced is designed to ensure that as many people as possible do not rely on that minimum pension guarantee, but do better than that.
Let me first consider the position of low earners--people earning about £9,000 a year or less. The problem is that, because SERPS is income related, a person earning about £6,000 a year would receive a pension of about £13 a week. By replacing SERPS with a new state second pension, we have doubled the rate at which a person accrues his pension at the lower end, so that the same person would receive about £46 a week--£33 a week extra. That approach has been welcomed not only by a majority of Members of Parliament, but by the industry, which recognises that people on lower incomes are far better off in a scheme under which they contribute to the state. It is recognised that that is better than trying to force those people into a funded scheme, as the Tories wanted to do, which would be manifestly unsuitable.
Mr. Quentin Davies:
Will the right hon. Gentleman give way?
The House will also recall that, for the first time ever, we have brought into the state second pension 2.5 million carers who were excluded from it. Over time, that will give some of them, after a lifetime's caring, about £50 a week. I believe that that change alone is worthy of support, but we have gone further.
We are ensuring that people on lifetime low earnings will be better off as a result of our reforms. They will be able to accrue a decent pension during their working life, thereby putting an end to the scandal of people working all their life, saving hard all their life and still ending up on benefit. We want to ensure that people who work and save throughout their life retire on a decent income, which they have earned, which they can see building up year after year, and to which they can add.
Mr. Sutcliffe:
Will my right hon. Friend give way?
Mr. Darling:
The hon. Member for Grantham and Stamford (Mr. Davies) has been champing at the bit; I shall give way to him and to my hon. Friend in a moment.
That firm basis--the basic state pension and the state second pension--is the right foundation. I shall deal in a moment with the help that we are giving to moderate and higher earners to ensure that they, too, make adequate provision for themselves.
Mr. Davies:
I am grateful to the right hon. Gentleman for giving way. Will he try to get into the good habit of giving the House the full picture, not just half the picture? He said that, under the Government's proposals, the rate of accrual for SERPS for those earning less than £9,000 a year will double. Will he add, as it is a fact that he has not yet mentioned, that the rate of accrual for those earning between £9,000 and £18,500 will be halved?
Mr. Darling:
The hon. Gentleman is wrong about that. I noticed that he said the same thing a few days ago in an interview for a magazine. My hon. Friend the Minister of State has replied to that charge. The hon. Gentleman should read my hon. Friend's response; he will find that he is quite wrong about that.
Mr. Sutcliffe:
My right hon. Friend has identified the key difference between the Government and the
Mr. Darling:
My hon. Friend makes a good point. The Government considered their pension reform long and hard. When I was appointed as Secretary of State, of course I looked at everything that the Department was doing, including pensions. As I said to the House during Question Time, if there was any delay, part of it was caused by me because I wanted to satisfy myself that our approach was absolutely correct.
I shall deal with the point raised by the hon. Member for Chingford and Woodford Green on the radio this morning. By sheer good fortune, when the Treasury was working up the scheme to which he referred, I happened to be Chief Secretary to the Treasury, and I also happened to be responsible for that part of the Treasury, so I knew about it and I encouraged the work because I was enthusiastic about it. Then, by another stroke of good fortune, I became Secretary of State for Social Security. To complete that good fortune, I still hold the same views as I held when I was Chief Secretary. I was thus able to bring all the strands together into a coherent, sensible pensions strategy, which I believe people will welcome.
The ways in which we can help moderate and high earners to improve their pension prospects are relevant to the comments of the hon. Member for Grantham and Stamford. We believe that people on moderate earnings, as well as those on higher earnings, are far better off in funded schemes. The advantage of the state second pension, as the Green Paper makes clear, is that, if people go into a funded scheme, they can take the rebates with them, which will give them a good boost for their funded pension.
Again, that has been widely welcomed by the industry. I find it difficult to understand how Conservative Members can oppose that. I thought that they believed in the partnership between state, private individuals and the insurance sector. We want them to work together. People recognise that our arrangements will enable those on moderate earnings to be far better off than they would otherwise be.
As I said earlier, we identified the obvious fact that, as labour market conditions change, the pensions options need to be extended. That is why we have introduced stakeholder pension schemes.
I repeat the point that I made on the radio this morning, because the hon. Member for Chingford and Woodford Green was wrong about it then. It has always been the Government's view that people should seek advice before they make pension arrangements. Buying a pension is far more important than buying a house. It is probably one of the most important decisions that people will take throughout their working life. They would be wise to take advice, as the history of the matter shows. No one should be in any doubt about that.
The stakeholder pension provides options that did not previously exist.
The Green Paper makes it clear that we will legislate to provide for trustee-based stakeholder pension schemes. Those schemes will be designed primarily for people who work for small employers who do not have their own
occupational scheme or for circumstances in which employers or another affinity group come together to provide an umbrella scheme for employees. In other words, it will offer benefits that are similar to those in occupational schemes, something that is not possible at present.
We have also provided a new option, and the hon. Member for Chingford and Woodford Green made great play of the fact that we had thought it up a mere moment ago. I know for a fact that we did not, because I was a Treasury Minister when it was being worked up. I refer the hon. Gentleman to paragraph 39 on page 55 of the pensions Green Paper--which I am pretty sure that he had never read until he heard me mention it on the radio this morning. [Interruption.] He admits it. That is why he was wrong on this point. Paragraph 39 is quite a long paragraph, which states in pretty stark terms that the Government intended to publish the proposals that have been published this afternoon. I knew that the announcement was coming when I published the Green Paper in December. Therefore, no one should be surprised that the Government are delivering on a promise that they made about six weeks ago.
The hon. Member for Bournemouth, West (Mr. Butterfill)--who is no longer in the Chamber--said that he thought that the measure is similar to section 401k of the American scheme. That is not quite right. As I understand it, under that section, saving schemes in America can be drawn down at any time. I make it absolutely clear that the new scheme that was announced today will not be in competition with the other stakeholder model partly because it is a pensions vehicle. It is not possible to get tax relief for pensions and then take out the money in advance of a pension. That would clearly be wrong.
The new scheme addresses a particular need. The Conservatives sometimes claim to be in touch with the City--indeed, it looks as though many Conservative Members have returned there to earn a bob or two before the offices close. Many people, who move from job to job and take a far keener interest in their investments than was the case 20 or 30 years ago, want to be able to invest in unit trusts and open-ended investment companies and so on and build up a fund for their pension, which they can adjust from time to time as fund performance changes. I think that there is everything to be said for encouraging people to do that. As I have said on numerous occasions, it must be right for the Government to ask what is changing in the financial services market, how labour conditions are changing and what we can do to ensure that people have as many options to save as possible.
Hon. Members will recall that, in my statement of 15 December, I made it clear that the Government are considering the position of the self-employed and whether they should be compelled to save for their pensions. Part of the present problem is that the choice is between occupational pensions, which the self-employed clearly cannot join; and private pensions, which are not suitable for many people. The more options we provide, the easier it will be for us to be blunt with people and say, "Look, if you want a decent income for your retirement, you must save; you can't expect the state to stand behind you."
That is why I want to ensure that people have options. Some people will save for their pensions through unconventional means--for example, through their businesses or their houses if they are fortunate enough to live in an area of the country where that is possible. Above all, the Government must ensure that people have a range of options. We must increase flexibility to ensure that as many people as possible save. That is our objective: we want people to save more, invest more and to ensure that they can provide for themselves adequately in their retirement.
That is the Government's strategy, which was set out clearly in the Green Paper, "Partnership in Pensions", which we published last December. Today's consultation document adds to that. It is very clear: we are telling people to do the best that they can for their retirement. We are certain that a one-size-fits-all approach to pensions will not do. We must give people more options than they have at present--between occupational pensions and personal private pensions--which is why we introduced the stakeholder pension. We have responded to changing labour market conditions and to a greater sense of awareness among some investors. We want to provide an additional option that will allow people to accumulate sums for their retirement. That is an essential part of any pensions strategy. I repeat that the Green Paper was widely welcomed upon its publication last year. I readily accept that, if people run around for long enough, and prod people enough, they can get someone to grunt and say that they have an odd complaint, but the Green Paper has been widely welcomed because its proposals are right, pragmatic and workable.
On top of that, people should remember that the Government are committed to rebuilding trust in pensions overall by strengthening the financial services industry and regulating it. We are also introducing a new annual pensions statement, which will mean that people will know how they stand for their retirement. Again, that initiative has been widely welcomed.
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