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7.21 pm
Mr. Frank Field (Birkenhead): This is an important day for the Government and for my right hon. Friend the Secretary of State. No one who has witnessed his performance over the few months for which he has held the post could come to any conclusion other than one of admiration for the way in which he commands his brief, presents his brief to the House and regularly demonstrates the quality of humour, which is rare in politicians; it is even rarer for politicians to be able, as he is, to see the joke about themselves and to join in.
Today, we learned of another quality of my right hon. Friend--one that is a crucial quality for someone in his position--knowing when to give way before one is defeated. I very much welcome the announcement of the crucial change of raising the age limit for severe disablement allowance from 20 to 25. The position was not defensible, and it shows good sense and compassion that my right hon. Friend moved quickly to confront reality.
There is much in the Bill that Labour Members will want to support, so I will be very surprised if the enticement offered by the hon. Member for Newbury (Mr. Rendel) has any effect other than to drive us together. The extension of disability benefits to children under five is welcome, and it is a great compliment to my hon. Friend the Member for Preston (Audrey Wise) who, in every year that I have been in the House, has made the case for that reform. It must be a sweet day for her to see that important concession made. Many parents with disabled children owe her a great debt.
There is much to be welcomed in the single gateway. Not only do our constituents think that we have been lax in not operating the rule continuously since 1948, but many claimants themselves express surprise at how little interest Government officials take in them once they have registered for benefit. Before the general election, we said that we wanted to talk to people as they register for benefit and say, "This is the first day of the rest of your lives; how can we make the rest of your lives as happy and constructive as possible?" For that to work, attitudes will have to change in some local offices and staff will need to be trained in new ways; but I do not believe that there is a great deal to fear.
If this great project, the Bill, is a craft that is about to set sail, it is still in harbour. The crew on this side of the House may be anxious to catch Ministers' ears and tell
them of the parts of the Bill that may cause trouble on the voyage. I regret to say that there are aspects of the Bill that are weakest where one would have thought that a Labour Government would be strongest and areas in which it seems that the Government are setting out to defeat their own objectives.
The hon. Member for Newbury was right to say that he was puzzled by the Prime Minister saying that he wanted to root out the something-for-nothing society. The Bill takes much away from those who contributed in the sure faith that they would be able to draw when benefits were needed; but there is not much in the Bill that takes away from people who have contributed nothing or very little. Some of the crew may want to talk to the captain about matters of much concern before the great ship sets sail.
The Government have two policies on pensions: the proposals in the first part of the Bill, grouped around the idea of the stakeholder; and the ideas, also quite properly being promoted, about trying to guarantee today's pensioners a decent minimum income. The two policies are inconsistent.
As the hon. Member for Northavon (Mr. Webb) has demonstrated on several occasions, pensioners face a poverty trap--if their income is above a certain level, they are disqualified--and a savings chasm is opening up, so it will be impossible for people to save during their working lives sums that will allow them to breach the growing gap. There is that growing gap because, for all the good reasons in the world, the Government have said that they will index the guaranteed minimum against earnings, while most other pension incomes, if we are lucky, will be indexed against prices.
Over time, the gap will grow and an increasing number of people who have done everything that the Government have said and do not want to be part of a something-for-nothing society--and would be appalled to think that they were being so categorised--will be told, as a reward, "Well done, good and faithful servant, but you didn't try hard enough and your pension isn't big enough" or "You didn't manage to amass enough savings." Those people will not be better off, and some of them will be worse off, than other people who laughed at the Government and decided not to behave properly. We are talking not about the very poorest people but about the bedrock of Labour supporters: the people who turned out for us in abundance at the general election. Those are the people who will lose.
There is a similar problem with widows. It is not good enough for the Government to say that those who are currently widows will not be affected. Nobody, not even the Conservative party in government, came up with reforms of that kind. Many of our constituents are budgeting on the basis that, should they die, their wives will be covered by the scheme. They have had no option, because the scheme is compulsory, which I think is quite proper. They have not been able to put contributions into a private scheme to protect their wives. They now know that, if they die, the chances are that their wives will not be covered.
It is impossible to square the provisions on incapacity benefit with the despicable phrase about something for nothing. We are talking about people who, through their working lives, have persevered and struggled to get back
to work, often many times, after suffering disability.They did that in the knowledge that their contribution conditions were safe--they had to make only one year's contribution in the whole of their working lives--but now that is to be changed, and they will have had to make one year's contribution in the past two years.
The message will quickly go out from doctors and others, "Please don't bother to go back to work, where you may fail, because by doing so you will probably--not inevitably--disqualify yourself. Get on to benefit straight away, because that is the only way that you can secure the contribution that you've made." That is the very opposite of what the Government said before the election, during the election, and even in presenting the Bill.
Mr. John Greenway (Ryedale):
It is a privilege to follow the right hon. Member for Birkenhead (Mr. Field) and I wish to contribute in the same spirit that he did. I recall my experience of 29 years working in the insurance and pensions industry, and I remind the House of my interest, especially the fact that I am the president of the Institute of Insurance Brokers and a member of the Insurance Brokers Registration Council, which is a regulator. We have had our share of work to do on the pensions mis-selling issue, about which we have had other debates.
The industry feels a great sense of deja vu at the Government's proposals for pension reform. The Government's objectives are similar to those of the 1980s and are also laudable. They include transferring provision for income in retirement from the state to personal pensions for as many people as possible, and to encouraging a greater uptake of pension provision. We all agree that the present arrangements are capable of improvement, but we should also remember that this country has done significantly better than most other countries in the European Union. We have greater provision, but we need to extend it into lower-income groups, because many in those groups have made little, if any, provision for their retirement.
It is also clear that some lessons have been learnt from the problems that have beset the industry following the changes of the 1980s. The Government are right to concentrate their efforts on costs and charges, which were too high for many. Time does not allow an analysis of why that happened. We also have a much better regulated industry than we had in the late 1980s, and we have a more professional industry giving advice. It is to be hoped that the contracting-out arrangements will be better.
Other problems remain, and I do not believe that the Government will achieve a smooth transition to stakeholder provision. There is a real danger of paralysis for the next two years, as people do nothing while waiting for stakeholder pensions to come on stream. Those people
in the under-£18,000-a-year income group will be most affected. In an intervention in the Secretary of State's speech, I commented about the lack of provision for mixed provision, and I wish to stress the importance of providing complete portability through the stakeholder arrangements.
Stakeholder pensions have been given a positive welcome by the industry. I chair the all-party insurance and financial services group and we have had numerous meetings on the Green Paper and the Government's proposals. More meetings are likely, because major concerns remain. The benefit design of a stakeholder pension is much the same as a personal pension. It will be taxed as earned income. Yes, it will be available over a long time, between the ages of 50 and 75, and there will be an entitlement to a quarter lump sum, tax free, but the pension will still be based on an annuity purchase. The industry and many right hon. and hon. Members understand and appreciate the concern that annuity purchase currently represents poor value and is the major cause of many of the losses on personal pensions that have attracted compensation. That will cause a big headache for arrangements in the second phase. There is no compulsion to include life assurance. Nor is there any guarantee that people will be better off, because the annuity payment may not be index linked. That is the other side of the coin of the problem mentioned by the right hon. Member for Birkenhead.
The biggest problem arises from the generous provisions on contributions that the Government propose--100 per cent. of salary or £3,600, whichever is the lower. That is good for those under the figure, and it is a huge improvement on what happens now for personal pensions. However, it is incongruous and illogical that the benefit of that improved contributions limit will not apply to personal pensions. Another problem is that the five-year rule, and even the one-year rule, will be income related. It would have been better to allow everyone a flat rate contribution of £3,600 regardless of income. In an ideal world, that would apply equally to personal pensions, and I urge the Government to think seriously about that suggestion.
The low charges that are envisaged mean that commission is unlikely to be payable, but advice is important and information is not advice. The proposal for maximum charges is less of a problem for large contributions paid by cheque or by direct debit than it is for small contributions paid weekly or monthly. There is strong support in the industry for a requirement for employers to provide access to stakeholder schemes, but individuals should be free to nominate their preferred stakeholder, especially if they move between jobs. Serious practical difficulties could arise for those people whose income fluctuates either side of the threshold, at both ends of the spectrum at the interface between the second state pension and the stakeholder pension at one end, and between the stakeholder pension and personal pensions or other arrangements at the other.
I emphasise again the need for flexibility and mixed provisions. I cannot understand the logic of arguing that people who have personal pensions now but who will fall in the stakeholder income group should have to cancel those contracts to contribute to a stakeholder pension. That is illogical. I understand the Secretary of State's point about costs and charges, but there is a danger that personal pension holders will be penalised twice over.
If his argument is that, in some instances, the personal pensions are poor value, why disallow the benefit improvements to personal pension holders that will be allowed to stakeholders? That, too, is illogical. It is no solution to cancel policies and turn them into stakeholder plans.
Costs are not the sole problem. No one has yet addressed the regulatory complexity that is placed on the industry by the Superannuation Funds Office and the Inland Revenue, which adds to costs. Equally, inflexibility undermines value.
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