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Dr. George Turner: On a point of order, Mr. Deputy Speaker. As a new Member, I am surprised that it is in order that those who have tabled an Opposition motion are not even present on the Front Bench. Is it in order for that to continue?
Mr. Deputy Speaker: The hon. Gentleman has been here long enough to realise in his heart of hearts that that
is not a point of order. It is entirely up to individual Members whether they present themselves in the Chamber or in any Committee of the House.
Mr. Edward Leigh (Gainsborough): Further to that point of order, Mr. Deputy Speaker.
Mr. Deputy Speaker: It was not a point of order.
Mr. Sutcliffe: We do not want the debate to descend too low, but the Opposition's intention is clear.
It is important that pensioners in my constituency and across the country know where the pensions debate is going. The hon. Member for Gosport (Mr. Viggers) spoke about the need to restore the link between pensions and earnings and to re-examine pension provision, but we heard nothing from the other Conservatives Members whose party had 18 years in which to put right a problem that we tackled as soon as we came to power.
We could see the pensions disaster ahead, and we knew that we needed to be honest with people. That is our strength. The Government are committed to honest debate about pension provision and the difficult decisions that people have to face. We acknowledge that there are sections of society that need support and protection. I understand that pensioners just above the income support level are concerned that they have saved whereas others might not have, but I want us to create a society in which, as my right hon. Friend the Member for Birkenhead says, the community is considered as a whole. The Government have polices to deal with people who might deliberately not save or who might avoid work, but I should prefer there to be a decent standard of living for all and a minimum income level below which people should not fall.
With the introduction of the national minimum wage, and of better employment conditions through the fairness-at-work proposals, we are creating a society that looks after the individual, a society in which people who can do well are enabled to do so but in which those who fall through the gap, through no fault of their own, are looked after.
Mr. Howard Flight (Arundel and South Downs):
I must first declare an interest as I am the chairman of a company that manages pension funds.
Getting pension policy right for everyone is crucial for an advanced society like ours. Getting it right means that people can have a decent standard of living in their latter years, but it is also of great economic importance. It is unfair not to recognise as a major achievement of the past 20 years the fact that we built up £800 billion of private sector funding and that some 85 per cent. of people who retired did so with an occupational or personal pension at the age of 65.
In most of continental Europe, the economies are out of balance because of a lack of private funding; and, because of high add-on employment taxes, 20 million
people are priced out of work. At the other end of the scale, Japan has the problem of excessive personal saving because of inadequate pension provisioning, in both the private and state sector. That has resulted in individuals saving too much for fear of retiring in poverty. Economically speaking, getting the system and the balance right is extremely important.
It is rather glib for Labour Members to brush off the importance of the advance corporation tax attack on pension funds. In my personal election address in 1997, I warned my constituents, many of whom were approaching pension age, of the risk of that ACT recovery attack on pension funds, and I believe that it is no accident that my constituency produced one of the largest Conservative majorities in the country. To dress up the proposal to reduce pension fund accumulation by some £5 billion a year and to say that it is justified by tax reform is, frankly, to mislead people. The accumulation of reserves out of which to pay pensions in future is crucial.
The increased costs of funding have not yet worked their way through the system, but, in the company sector, they will lead to a substantial move away from defined benefit final salary schemes to defined contribution money purchase schemes. No new defined benefit schemes are coming through now, and, from within the industry, I see many companies looking to move to money purchase schemes in order to control their costs. At the end of the day, such schemes will provide smaller pensions for the great majority in the middle.
I suspect that it will not be popular among those on the Labour Benches if I say that the Government's handling of pension mis-selling has been unwise. I do not deny that there was a huge difficulty, but, as others have said, the main problem has been the success in bringing down inflation over recent years, the fall in gilt yields and the resulting virtual doubling of the cost of annuities. It is fine to say that the annuity one buys will hold its value better, but when one retires at 65, much of the money purchase provisioning ends up buying a great deal less than people reasonably expected 15 years ago, whereas company occupational schemes have improved and their members have benefited at the expense of members of money purchase schemes.
There has been a major improvement in the standards of financial advice in the United Kingdom in this decade, largely as a result of the Financial Services Act 1986. In a sense, that improvement is being undone and negated by the message being sent by the Government.
There has historically been pension mis-selling in the state sector. I have had substantial correspondence with women who worked for the state in the 1960s, 1970s and even the 1980s who feel that they were talked into cashing in their pension rights for a capital sum and that the Government's response was simply that advice in a magazine at that time was sufficient. However, that was 20 years ago and standards were different.
More recently, two or three constituents have written to me about Department of Social Security projected pension arrangements which omitted to include the fact that the state earnings-related pension for widows is to halved with effect from April 2000. They complained that even the DSS did not advise them of the correct situation and they had not made adequate provision.
Ten years ago, people running occupational pensions schemes frequently behaved badly. They did not give fair transfer values or advise those leaving a company of the
potential value of their deferred pension, and the transfer payments made were often ludicrously low. I well remember that, particularly people under 30, could not wait to get out of their occupational scheme. They wanted their own portable pension scheme and, even though circumstances and the lack of sound advice at the time have caused problems for many, the personal pension movement of the past 15 years has been a major benefit for many. Hundreds of thousands of people have pensions beyond the state provisioning, which they would have otherwise not have had.
It might be utopian, but I believe that it would be wonderful if there were cross-party agreement on this subject. It does not help if the system keeps changing all the time. People need a straightforward framework that they know and can trust. Although the Government say that they took many soundings before publishing the Green Paper, I, and most of the people whom I know in the industry, believe that there is a certain quick-fix approach to it. It focuses on a particular aspect that I admit needed focusing on, but the Government have not thought about the knock-on effects or other relevant aspects.
I do not know whether LISA was dreamed up by the Treasury with the knowledge of the Department of Social Security. However, it appears that it is not in tandem with the main thrust of the proposals contained in the Green Paper.
It has correctly been made clear that the Government have focused on the major issue of what should be the decent minimum income in old age, and on the fact that, over the next 50 years, much more than at present, people are heading to be dependent upon income support. If anything, the number of people earning less than £20,000 a year without funded pensions is growing, not reducing.
My criticism of the Government's proposals is that the thinking behind them amounts substantially to determining the cheapest and slightly quick-fix way of addressing the problem. As has been said, there is the major problem of disincentive to work and save. In particular, it is felt by some that they will do better by not participating in the scheme.
The second big issue involves the self-employed, who represent a huge area of lack of personal provisioning. Indeed, there is no incentive for the self-employed. They cannot become members of the revised scheme and they have little incentive to participate in a LISA.
The final objection, which has not yet been brought out, is that there are major threats to the bottom half of the middle of society. There is a great risk that many companies will embrace the new stakeholder schemes and that collective personal pension schemes will have to be given up. For many who belong to occupational schemes where the company contributes, there is a dangerous incentive to use a stakeholder scheme and not to contribute to other than top-hat schemes.
Given that everything is moving towards more and more money purchase, we must address the issue of whether to buy annuities, and the requirement to buy them at 75. There are many schemes for the self-employed which involve buying an annuity upon retirement. As we have heard, many people are now being forced to buy an annuity at potentially the wrong time. We need to have new rules and a reconsideration of the draw-down
arrangements. As others have argued, we need more imaginative ways to deploy pension assets once the pension is to be drawn.
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