House of Commons Hansard Debates for 3 Feb 1999 (pt 32)

Mr. Duncan Smith: I do not want to make a point that is parti pris, but does the right hon. Gentleman agree that part of the problem is that, in the Green Paper, the Government set out to introduce a stakeholder pension that is simple to administer and cheap and easy to understand? That is the basic element all the proposals must have if they are to succeed. Now, the Government have come up with the additional idea about paying for advice, and there may be other ideas to come. Does that not run counter to the initial premise, and will it not cause people to wonder whether they are doing the right thing? Is it not possible that, in years to come, people will say, "Why did I take out that investment?"

Mr. Field: The hon. Gentleman is being slightly unfair to the Government. The Secretary of State made it clear that today's proposals are aimed at people on middle and high incomes. However, there has never been any difficulty in getting such people to save. The real problem is to set up a redistributive scheme that the poor can join. The aim is to ensure that poor people will be free of means-tested assistance--not merely for a year, but for all their lives.

My final point has to do with annuities. Most hon. Members will understand that the European central bank is committed to a policy that will keep inflation below 2 per cent. That policy means that, for the indefinite future, annuity rates will continue to fall. It is hoped that they will hit bottom at some stage. The result will be that many people who have saved, in the belief that their savings would provide them with an adequate pension in retirement, will be deeply disappointed. I hope that the Government will devote some new thinking to the question of what sort of bond provision should be introduced to offer pensioners an alternative to buying annuities.

I do not accept that pensioners do not understand their finances. They seem to be a lot better at it than I am at understanding mine. The Secretary of State said that

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annuities are sometimes tax-free vehicles, but he went on to say that a pension probably will turn out to be a more important investment than a home. Yet a home is also bought with some tax-free concessions, and we do not get too exercised about what people should do with those. We do not decide that people must, at a certain date, trade in their homes because they may misbehave with those assets. It is time to make a big jump and to reconsider the way in which people are forced to trade their pension capital for annuities, something that substantially disfavours them for the rest of their lives.

In my speech, I wanted to make two points. First, I wanted to congratulate the Government on the moves that they have made for existing pensioners. The Government are backed by a huge majority of hon. Members wanting that record to be improved by the next election. My guess is that the Government are pushing at an open door to such an extent that, at the next election, Conservative Members--for opportune reasons if not for good ones--will support further reforms introduced by the Government to improve pensioners' living standards.

The second element of my contribution has to do with long-term reforms. I am very grateful that the Government have published the Green Paper, and that they want to listen and to learn.

5.18 pm

Mr. Peter Viggers (Gosport): So far, no hon. Member has declared an interest. I am a member of the--rather bad--parliamentary pension scheme. I am fortunate to have some modest provision of my own, and am also the chairman of a pension fund.

The 1997 Labour election manifesto stated that a Labour Government would

"lay the foundations for a modern welfare state in pensions and community care."

That was clearly regarded as very important ground on which to fight the campaign, as the party chose to execute what I consider to be the dirtiest trick in recent electoral history. As The Daily Telegraph reported on 26 April 1997, the previous day, the present Chancellor of the Exchequer had said:

"it was a known and admitted fact that the Conservative plan is to abolish the state pension".

The same report stated:

"Although looking distinctly uncomfortable and visibly irritated, Mr. Blair, flanked by Gordon Brown, the shadow Chancellor, refused to condemn such tactics. Instead he defended the party's decision to attack the Government's plans."

That was a scurrilous and disgraceful incident in recent politics.

In fact, the Conservative plan was quite different. The scheme called basic pension plus proposed by my right hon. Friend the Member for Hitchin and Harpenden (Mr. Lilley), who at that time represented St. Albans and was Secretary of State for Social Security, was a carefully considered framework for ensuring long-term pension efficiency. However, the Labour tactic certainly worked: canvassing revealed that many elderly pensioners were deeply worried that their pensions were to be scrapped. That was really awful.

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Under current pension provision, those in private sector schemes are well funded and well cared for. UK pension funds contain £800 billion in pension assets, which is equivalent to 77 per cent. of gross domestic product, and is the same as the amount reserved in pension assets for the whole of the rest of Europe. It compares with 7 per cent. of GDP in France and 14 per cent. in Germany.

However, the benefits are thinly shared. According to a NatWest study, only one in five of the people currently working is heading for comfortable retirement. Half are heading for financial difficulties, and one in three will be essentially dependent on the state. That is based on the definition of an income of £180 a week as comfortable, rather than the £70-plus that is the current pension. The amounts required to fund that level of provision are considerable. If the normal pension multiplier of 16 is applied to the extra £100 a week, or £5,000 a year, some £80,000 is needed to provide £180 a week.

What principles should we use to approach the problem? I have quoted the noble and formidable Lady Castle before, and I find myself in strong agreement with her once again. In a booklet entitled "We can afford the Welfare State", co-written with Professor Peter Townsend, she set out three basic principles which I should like to endorse. Those principles should have underlined the Government's commitment to pensions. The booklet says:

"If we want to encourage people to move from welfare to work, we must reduce the area of means-testing, not increase it."

I agree with that. Secondly, the booklet says:

"We must resurrect the state basic pension as the foundation of security in old age for everyone."

There were sound reasons why the Conservatives broke the link between pensions and earnings, but the process has gone too far. We must resurrect the state pension.

The third principle is unattractive, but unavoidable. The booklet states:

"It should be compulsory for everyone to contribute to an adequate second pension."

Mr. Sutcliffe: I should not miss the opportunity to find out whether the policies that the hon. Gentleman is advancing are shared by his colleagues on the Conservative Front Bench. I think not.

Mr. Viggers: The hon. Gentleman will have to ask my hon. Friends. He might read last Thursday's speech by my hon. Friend the Member for Grantham and Stamford (Mr. Davies), who will wind up for the official Opposition. I heard that speech, and thought it so fine that I handwrote a note to my hon. Friend to congratulate him on it. I look forward very much to hearing him again if he happens to catch your eye tonight, Mr. Deputy Speaker.

Compulsion is unavoidable, for reasons that have been discussed by several hon. Members, including the hon. Member for Northavon (Mr. Webb). The anomaly is that people who save will be worse off. If there is no compulsion, people will not save. Compulsion is essential.

The Secretary of State said that he had been involved in pension planning both in his present post and in his previous one at the Treasury. However, many informed journalists believe that a turf war between the Treasury and the Department of Social Security lies at the heart

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of the mess over pensions in which the Government find themselves. In the words of the Prime Minister, the DSS is tasked to

"deliver significant savings over the longer term"

from the social security budget. Clearly, the Department is not finding that possible.

Introducing a minimum pension guarantee--a rebranding of income support--which is indexed to wages will inevitably increase the gap between that guarantee and the state retirement pension. Means testing is being institutionalised. The single person's guarantee of £75 a week, and the couple's guarantee of £116.60, will be available only to those who have savings of less than £8,000. Anyone who has more will not be eligible for the minimum pension guarantee, or for housing benefit of £40 a week and council tax benefit of perhaps £10 a week.

The hon. Member for Northavon made the same calculation that I made on how much would be required to provide a pension of £50 a week, or £2,500 a year. Applying the pension fund multiplier of 16, some £40,000 would be required. Anyone who cannot save £40,000 need not bother; they would be wasting their time, and their money.

It is extraordinary that the present Chancellor of the Exchequer declared in 1993:

"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 our elderly people."

What he has achieved is exactly the opposite, and there will be widespread resentment throughout the country as people who saved and provided for their futures realise that others who live in the same road and who made no provision are better off than they are.

The effect on the taxpayer is also significant. According to answers to my parliamentary questions, means-tested benefits cost an average of 7 per cent. to administer, while universal benefits cost 2.5 per cent. The basic state pension costs only 45p a week to administer, while income support costs £5.45. Means tests bring disadvantages of costs as well as of resentment.