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Mr. Eric Pickles (Brentwood and Ongar): Hon. Members are probably having more fun at the rally.
Kali Mountford: It seems that the hon. Member for Grundy wants to make an intervention from a sedentary position, but I shall resist comment, as time is short.
On pensioners, the Government inherited a downward spiral, and that spiral had to be arrested. The way to do that was by considering today's poorest pensioners. It is right to remove taxation anomalies from the system. It is right to provide a wide range of services for pensioners today. It is right to study the changes in demography and accept that, in future, there will be fewer people in employment as a proportion of the population, and that we must find a way to fund pensions for tomorrow.
Mr. Edward Leigh (Gainsborough):
Despite the Government's good intentions, we now have a very confusing mixture of public and private provision in pensions--a mixture of personal pensions, occupational pensions, the basic state pension, the second pension and the stakeholder pension. I believe that there will be real confusion among people about how best to plan for retirement.
We should continue, on a cross-party basis, to seek solutions that have been tried abroad--although not necessarily by South American economies, which might be less developed than our own, or by city-state economies such as Singapore, which may have altogether fewer problems of an aging population.
In the five minutes that I am allowed, I shall cite the example of Australia. Australia is a highly developed economy, very similar to ours. Interestingly, it went through much the same stages as did our economy between 1900 and 1983. In 1900, it had the highest per capita gross domestic product in the world. By 1980, it had fallen to 14th place, and it had adopted many of the Keynesian solutions of nationalisation and of subsidies to manufacturers that our Governments had adopted.
Such was the state of the Australian economy, especially regarding pensions, that the then Treasurer, Paul Keating, announced that something had to be done radically to reform pensions. He said:
All workers in Australia--this was done in consultation with trade unions--were required to put 3 per cent. of their earnings into those mandatory private funds. That figure will increase to 9 per cent. by 2002, when the system will be fully implemented. In 2002, all workers in Australia will be required to set aside 9 per cent. of their income in a superannuation fund of their choice; that is the underlying principle. A series of options will be open to them. The market will be highly regulated, to ensure that there is no mis-selling, but the worker is required to put the money into a fund of his choice.
I believe that compulsion is essential. I do not believe that one can have a voluntary system at the same time as a high safety net. We all want a high safety net; that is the reason for the minimum income guarantee. We do not want to allow pensioners to fall into poverty. It may not be their fault that they have not built up an adequate pension--take the example of a woman who has been divorced, who has worked hard all her life bringing up her family.
We want a high safety net, but if one has a high safety net--I know that that is why the Government are taking this route--and a voluntary system of contributions, inevitably, as my hon. Friend said, one ends up with a tremendous disincentive to save. Therefore, one must have a compulsory scheme, such as the one that the Australians have developed.
Mr. Field:
Will the hon. Gentleman cast his mind back to the day, a couple of months ago, when I introduced a Bill to require compulsory stakeholder savings? The one hon. Member who stood up to oppose it was himself.
Mr. Leigh:
The right hon. Gentleman knows full well why I did that. I was trying to tease out his hon. Friends to support his Bill, and hardly anyone came along. He well knows that. The right hon. Gentleman was going around--he had a complete headache--saying, "Please do not force a Division, because no one in the Government will support me." So let us not have any of that. The right hon. Gentleman knows perfectly well what we were doing then. However, I salute him. He was right to try to remind the Government of what they should try to achieve.
The Australian system has achieved more income for retirees. In future, average-waged workers should be able to retire with two or three times the income that they would have had under the original Government-run scheme. The new system has also resulted in increased national savings. The overall savings rate could climb by more than 3 per cent. of gross domestic product.
If that scheme in Australia is so good, and if it was introduced by a left-of-centre Government, why have not we heard more from our Government as to why they are not introducing it here? Why have they rejected the plans suggested by the right hon. Member for Birkenhead?
There is one difficulty with such a scheme--the Australian Government are moving down the road of means-testing to pay for it. Is it possible to introduce such a radical reform without an element of means-testing? The Government must think seriously about that.
Mr. Quentin Davies (Grantham and Stamford):
I must deal with one important matter before I say anything else. The Government's proposals involve doubling the rate of accrual for entitlement to state second pension over the rate of accrual that applies under the SERPS system, from 20 to 40 per cent. of eligible earnings. In response to an intervention from me this afternoon, the Secretary of State denied that, on the subsequent band of earnings, from £9,000 to £18,500, the rate of accrual would be halved.
I refer the House to page 45 of the Green Paper, which I have read several times. Paragraph 3 states:
As I said earlier, I am sure that the Secretary of State did not intend wilfully to deceive the House, but he was close to doing so, if I may say so.
Mr. Darling:
The hon. Gentleman is one of the most good-natured Members of the House. It would be unfortunate if he suggested that I did anything other than answer what I understood him to say, which was that people earning between £9,000 and £18,500 would have half the rate of accruals. The point that I was making, which is common ground between us, is that, on the portion of those people's income before £9,000, they, too, get the double rate. Of course it is tapered out to £18,500.
I want to make it clear that I responded to what I understood the hon. Gentleman to say, both today and in the article in the recent pensions magazine. There is common ground between us. There is double the rate of accrual up to £9,000, then it is tapered out to £18,500 in an entirely sensible way.
Mr. Davies:
Of course I accept the good faith of the right hon. Gentleman in his last remarks. Hansard will bear out the point that I made in the intervention, that, when the Government make announcements to the House, it is right that they should present both sides of any equation--they should give the good news but not conceal the bad news. I said that it was not enough to say that the rate of accrual below £9,000 would be doubled, and to leave out the material fact that the rate of accrual from £9,000 to £18,500 would be halved.
Mr. Davies:
No, I cannot give way, as our time is limited. I apologise to the hon. Gentleman. As the House knows, I rather like giving way in such debates, and I wish that there were more time. Last Thursday, we were not running up against a time limit, but we are today.
I want to say something about some of the contributions to this interesting debate. I apologise in advance for the fact that I do not have time to deal with all of them--interesting contributions were made by members of all three parties. I single out my hon. Friend the Member for Bromsgrove (Miss Kirkbride) and thank her for a spirited and effective defence of the previous Government, which has the advantage that I do not have to say anything on that subject myself, as she said it so well for me.
My hon. Friend the Member for Gosport (Mr. Viggers), who knows a great deal about the subject, as does my hon. Friend the Member for Arundel and South Downs (Mr. Flight), presented a calculation that should make us all think carefully. If somebody saves £40,000 for a pension, he loses the whole amount. He does nothing other than generate a level of income equivalent to the means-tested benefits that he would have received if he had had no money or pension over and above the basic state pension. That is the dead-weight cost of saving.
Unfortunately, I think that my hon. Friend miscalculated that--he was too generous to the Government. It is important to realise that the means-tested benefits are indexed to the index of prices, and prospectively the minimum income guarantee even indexed to earnings. If one takes an annuity rate that is indexed to prices, one comes up at present with an annuity rate of just over 5 per cent., or under 5 per cent. if widows' benefits are offered.
On that basis, to generate an income of £4,000 in retirement, the sum of £80,000 would be required. It would be pathetic to imagine someone on a modest income setting aside £1,000 a year for 40 years, after expenses. With a total reasonable investment gain of about 3 per cent. compound, he might end up with £80,000, and it would all be a waste of effort--he would be cheated by the new Labour Government.
My hon. Friend the Member for Arundel and South Downs pointed out a crucial aspect of the present scene--the decline of the traditional salary-related, defined benefits scheme. My hon. Friend the Member for Gainsborough (Mr. Leigh) spoke tellingly of the Australian experience.
The right hon. Member for Birkenhead (Mr. Field) spoke extremely well, as he always does in these debates. He, too, expressed his fears about the future of occupational pensions in the light of the Government's proposals, and made some telling points on means-testing.
The hon. Member for Northavon (Mr. Webb) effectively devastated the Government's propaganda about the £140 a year additional earnings to pensioners as a result of their measures. He brought it down to a few pence a week. The House should be grateful to him for that cogent analysis.
It was obvious from the beginning of the debate that the Secretary of State was embarrassed about the subject. He did not come to the House full of pride, trying to sell the Government's proposals. He began with a complete red herring--the basic pension plus. He tried to put the argument back historically to the position several years ago. If he had any pride in the Government's own record or proposals, he presumably would have found an opportunity over the past six weeks to debate those proposals, but we had to wait for the Conservative Opposition to table the motion in order to get a debate on the Government's record.
That record is disgraceful. There is no other word for it. The Government were elected on a manifesto that contained three pension pledges--first, to preserve SERPS; secondly, to set up a citizenship pension for carers and the disabled; and thirdly, to set up a stakeholder pension.
The first promise has been explicitly broken in the Green Paper. SERPS is to go. The second promise has been covertly buried. We have heard no more about citizenship pensions. Nothing in the document offers carers or the disabled anything better than the means-tested--[Interruption.] Oh yes, I have read it. If the Minister of State wishes, we can have a debate on that, and I will demonstrate that those people are no better off under the Government's proposals than they would have been under the current means-tested arrangements.
As to stakeholder pensions, what a monumental shambles. For 15 months, the right hon. Member for Birkenhead and the right hon. Member for Camberwell and Peckham (Ms Harman) worked away on some scheme that was then rejected, and they were both sacked for their pains. So we did not get the original Green Paper when we were promised it last summer. Then, for six months, the Secretary of State and his team worked away on something else. We had the usual press spin and press leaks. We were told that they were working on compulsion and on something for the self-employed. Nothing emerged for the self-employed, and nothing emerged on compulsion.
It is clear that the Government had been vacillating and dithering about compulsion right up to the 11th hour, 59th minute and 59th second. Page 105 of the
document--this will show that I have read it, although of course the Government will wish that I had not--refers to
The fact is that the Government's proposals are a complete and utter mess. What is more, the Treasury believes that they are a mess because it produced its own document this afternoon. Is the timing significant? I think it is, because the Opposition's debate was scheduled for this afternoon. The Treasury document is another shambles. In 11 years in the House of Commons, I have never seen a Government produce a document like this. They did not even send it to the printer--I suppose because they were afraid that they might have to change it at the last minute. This piece of rubbish was produced on a do-it-yourself brochure-making machine in some office somewhere. The document falls apart in your hands if you read it two or three times--which is more times than anyone would want to read this particular rubbish.
The document is rubbish because it does absolutely nothing to increase the total pension provision in this country. In fact, it has the potential to damage profoundly some very good pension schemes. Employers will have to wind up their group personal pension schemes and replace them with stakeholder schemes because the document says that the group pension will not qualify as a stakeholder pension. The vast majority of group personal pensions involve employer contributions, but there is no obligation for employers to contribute to stakeholder pensions. Therefore, employers may wind up schemes involving employer contributions and replace them with Government stakeholder pensions, which require no contributions on their part. People will be much worse off.
The Government have not considered the administrative burden for employers. How are those who employ one, two or three people supposed to cope with the administrative burden associated with establishing the schemes? The Government have not dealt with the issue of people who move jobs. Who will look after their interests? Who will send the annual report to those who have moved? Perhaps that will be done by the employer several times removed from the current one. None of those things has been thought through.
As my hon. Friend the Member for Chingford and Woodford Green (Mr. Duncan Smith) said this afternoon, we now have a plethora of proposals, including not only stakeholder pensions, group personal pensions and existing personal pensions but the Treasury's LISA proposals. It is obvious that everyone will have to seek advice about whether and at what point they should opt out of the new state second pension and what to opt into or whether--this is the vital point upon which the House should focus--they should save at all. Each time they introduce a new means-testing proposal, the Government make the situation worse. There has been one such proposal a month since the autumn, when I found myself on the Front Bench.
"We must let Australians know, truthfully, honestly, earnestly, just what sort of international hole Australia is in. If this Government cannot get a sensible economic policy, then Australia is basically done for. We will end up just being a third-rate economy. Then you are gone; you are a banana republic."
The left-of-centre Labour Government of Australia--I am making this speech because I hope that the Government are considering what is happening in Australia--decided something very radical indeed, far more radical than the measures that the Government are introducing. They went down the route that was suggested to them by the right hon. Member for Birkenhead (Mr. Field), but they went further. In 1986, under Mr. Paul Keating, they devised an innovative retirement system, based primarily on mandatory private savings in plans called superannuation funds.
"The rate on the band of earnings £9,000 to £18,500 a year would be 10 per cent."--
as opposed to 20 per cent. at the present time, so that has been halved.
"compulsory funded pensions for those earning over £9,000 a year".
They changed the policy even after the document had been sent to the printers. It does not get much more shambolic than that--especially in view of the fact that the Government had 18 months to think about it.
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