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Audrey Wise: I can do without "hear, hears" from the Conservatives, thank you very much. The hon. Gentleman is several years too late.
Mr. David Winnick (Walsall, North): Take my "hear, hears", then.
Audrey Wise: I shall take my hon. Friend's.
The Government are urging people to make private provision. The Secretary of State will then say, "Well, you are going to be well off. You're going to have £9,000 a year. Why should you get state benefit?" People should get state benefit because they have paid for it.
Mr. Deputy Speaker (Mr. Michael Lord):
Order.
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Mr. Howard Flight (Arundel and South Downs): Before I come to the stakeholder measures in the Bill, I should like to make some brief points on the other territories covered. As others have pointed out, the reneging on the widow's pension arrangements is outrageous. When I spoke to a group of constituents about the issue recently, they were horrified. There has been pension mis-selling in the private sector, but the proposal is downright robbery in the state sector.
I am still not clear what the gateway interviews are all about. Are they about helping people, or are they meant to be a real discipline? My hon. Friend the Member for Buckingham (Mr. Bercow) asked the Secretary of State whether people would not receive social security benefits if they did not turn up, but the Secretary of State declined to answer and ducked the issue. Bluntly, there is no point in issuing threats unless they are for real. If, on the
other hand, the interviews are about genuinely helping people, they need to be approached in a much more helpful fashion.
Clause 55--which has not been mentioned--gives the Government considerable scope for regulation making in relation to attendance allowance. My fear is that the clause is there to enable the Government, in due course, to move to means-testing attendance allowance, along with everything else.
On stakeholder pensions, I am concerned that the opportunity for a real and sensible rationalisation and reform of pensions has been missed. America has a simple approach to pensions--one is either a member of an occupational scheme or a 401K, where employers are incentivised to provide 401K schemes. People understand what is on offer--it is very easy. In the UK, we are adding two further complications: the stakeholder, on top of personal and occupational schemes; and the LISA, which can apparently be used as a method of managing money by any one of additional voluntary contributions, or occupational, personal or stakeholder schemes. However, it is not clear how one will plug in from one to another, or whether the LISA is merely a money-management vehicle or--in terms of retirement--whether one can use a draw-down mechanism for what has been accumulated in the LISA.
The main objective of the stakeholder pension surely must be to address pension fund provision by the self-employed. On the Government's own figures, there are 10 million people with occupational schemes, 10.5 million with personal schemes and 7 million in SERPS. There is a work force of working age of about 35 million, with the maximum potentially in work of 31 million. Beyond the 27.5 million who are already provided for, those who are not, overwhelmingly, are the self-employed--the issue of carers being a separate territory.
I cannot see what will make the self-employed take out stakeholder pensions. For those who are in paid employment, there is no choice. They either accept SERPS2, or they take out a stakeholder scheme, if they are not already in a personal or occupational scheme. For the self-employed, there is no proposal that they should be forced to choose between the SERPS2 replacement or a stakeholder scheme. The Government may be hoping that they will be so attracted by stakeholder schemes that they will take one out automatically. I fear that this will be in vain.
The state guaranteed minimum pension now offers a pension top-up that will be approximately equal to that which the average wage earner will accrue within a stakeholder scheme, assuming capital build-up of about £85,000. The incentive for the self-employed individual to take out a stakeholder scheme is dramatically negative. He would be saving £85,000 for absolutely nothing, and would end up in the same position, free, under the state pension guarantee. Yet that is the one key area where there is cross-party agreement: that we, as a country, want as many people as possible to provide for their pensions privately.
My next objection is the limit of £3,600. What is that all about? Many people using stakeholder schemes will find, in relation to their salaries, that that is inadequate--and yet, apparently, they cannot then do a personal pension on top. They may find themselves accumulating
much less than 10, 12 or even 15 per cent. of income. Why not make the limit on stakeholders £3,600 or 15 per cent. of income? My fear is that the £3,600 is a marker for that sum being the maximum that anyone will be able to put into a pension scheme on a tax-exempt basis. In a couple of years, it will be asked why one pension scheme should allow more tax advantages than another.
I genuinely fear that we will have death by a thousand cuts for occupational schemes. Stakeholder schemes will become irresistible for new businesses, especially for covering middle management. There may still be top hat schemes for the top executives, but there is a danger of pension provision for the people in the middle worsening.
The proposals were supposed to help job mobility, but one cannot continue a stakeholder scheme if one moves to new employment where there is an occupational scheme. That seems contrary to the objectives.
The industry has not been given nearly enough detail to get the products up and running. It is keen to co-operate, but there will be a planning blight and the Bill's objectives will not be met by 2001 unless there is a lot more detail. I believe that, as with 401K schemes, people should be able to choose their stakeholder pension; but if the company provides the stakeholder pension, it chooses the manager and the product.
The question of annuities has been completely ignored. The route down which we are going will vastly increase money-purchase pension schemes. Are the Government content that the annuity market will provide adequately? There are overwhelming arguments for scrapping the compulsion to buy an annuity at 75, and reforming the draw-down rules. In the 226 schemes--personal pension schemes--one has to buy an annuity at the time of retirement.
There are some awkward tax rules in relation to equity-linked annuities, whereby, if there is success and the with-profits results exceed the return limit by 3 per cent. in a year, one could easily die and lose some of the net accumulation, after providing from the annuity profit for bad years as well as good. That puts people off using with-profits annuities.
I do not see how the country will cope with the massive proliferation of pension choices without some form of central register for individuals' pension provisions. People will need to discover what cover they have, and it will be needed to provide advice as economically as possible.
As my hon. Friend the Member for Chingford and Woodford Green (Mr. Duncan Smith) said, there has been some progress with stakeholders; and I am a great supporter of the LISA as a way of managing money; but the biggest change that the Government have introduced for pensions is the abolition of advance corporation tax recovery, thereby robbing pension funds of £5 billion a year. They have endeavoured to excuse that by saying that it was a process for the rational reform of company taxation.
Many will have seen in the newspapers that Unilever has paid a massive dividend because it could not find any investment that met its investment criteria. It was in any case always old-fashioned nonsense to argue that a tax bias in favour of retention would lead companies to reinvest, giving pension funds the benefit of capital appreciation. The--
Mr. Deputy Speaker:
Order. I call Mr. David Lock.
Mr. David Lock (Wyre Forest):
I am grateful for the opportunity to contribute to the debate and I wish to concentrate my brief remarks on the issue of stakeholder pensions. Occupational pension funds are one of the great successes of the past 50 years, and I am pleased to serve as the secretary of the parliamentary all-party occupational pensions group. They are the principal reason why millions of pensioners have a reasonable living in their third age, enjoying retirement and living life to the full in their 60s, 70s and 80s. Anyone who thinks that an active life is over when one finishes work should look no further than the Lords and Commons rugby team, whose scrum-half last weekend was aged 69.
However, for many, an occupational pension was never an option when they were working. Today's poor pensioners are, by and large, those who never joined an occupational scheme or were not in a position to make alternative provision for their retirement. They are the 35 per cent. of employees whose employers did not have a pension scheme, those who moved from job to job, the self-employed and those in a number of other categories. Those pensioners are scraping by on a low income. I am delighted that, with the minimum pensioner income guarantee, free eye tests, winter fuel payments, concessionary travel and other measures, the Government are doing so much to target help on those pensioners who need it most. But state help is no substitute for self-reliance. Being entitled to benefits is not the same as having the confidence of one's own income. Our challenge is to ensure that those who are in work today do not become tomorrow's poor pensioners.
Confidence is essential for the pensions market to work, because we invest today and must have confidence that benefits will accrue in many years' time. The pensions industry in Britain has suffered a massive blow to confidence for those who are outside the occupational pension world, as a result of the crass mismanagement and under-regulation of the industry in the 1980s. The history of pensions mis-selling and its 2.5 million victims has been told on numerous occasions, and I shall not repeat it. However, there is an equal, if not larger, problem with personal pensions, to which the previous Government and the industry should have faced up. It is the issue of charges. I can do no better than quote the authors of the Pension Provision Group, who said:
The Bill paves the way for the creation of a new vehicle that will restore confidence to the pension marketplace for those who do not have the benefit of an occupational scheme but can none the less save for their retirement through, of course, stakeholder pensions. A number of issues arise from the proposals for stakeholder pensions. The first is that of trust. No financial institution will be able to start its own stakeholder pension scheme to generate profits for its shareholders rather than benefits for the scheme members. I trust that regulations will
ensure that the nature of all stakeholder pension schemes will be explained in plain English. Members need a clear annual statement stating exactly how much has been paid; the value of the fund to date; and what that would produce in retirement benefits.
I also look to my hon. Friend the Minister for an assurance that regulations will ensure that charges will be strictly capped, so that there is a fair balance between the costs that fall on the scheme generally and those that fall on the individual policyholder. If an individual contributes for three years or more, he should be able to point to that part of the annual statement that shows the benefit that he or she has accrued. That will be the incentive to carry on contributing.
The second issue is that of confidence. Stakeholder pensions will inspire confidence because they will be run as non-profit-making trusts, rather than designed to benefit external shareholders. The stakeholders can know that the funding to which they are subscribing will be focused on them, designed to give them benefits and not simply used--as many personal pensions have been--as a vehicle for somebody else to cream off the profits.
Who will be the trustees for the new trusts? I am delighted that many organisations have expressed an interest in setting up stakeholder pension funds. Trade unions, chambers of commerce, employers' organisations and many other bodies are in a position to offer stakeholder pensions to the people within their influence. I especially welcome the work of trade unions. Many trade union members have earnings that fall between £9,000 and £20,000. They no longer work predominantly for the public sector or for large employers: many work for smaller employers or move from job to job. Union members look to their union to look after their interests at work. It is logical that they should also look to the union to offer them the opportunity to invest in a pension for when they finish work.
Thirdly, stakeholder pensions will catch people early. When they are up and running, they will encourage employees to become involved in a pension fund when retirement is the last thing on their minds. I appreciate that retirement from work may seem a distant prospect for some hon. Members, such as my hon. Friends the Members for Shipley (Mr. Leslie) and for Watford(Ms Ward). I have just emerged from the halcyon days of youth, and can recall what a distant prospect reaching the age of 60 once seemed. However, the reality is that, if it is left solely to young people to plan and pay for pension provision at the crucial time, they will put off doing it until they "get around to it". There is always a better use for money today than saving for a distant tomorrow.
Yet, the longer money is in a savings scheme, especially a pension fund, the more it grows. It earns interest, and interest on that interest. As many people have found to their cost, they get much less if they start saving late in life.
Clause 3 imposes a duty on employers who do not operate an occupational pension scheme to select which stakeholder pension scheme should apply to their employees. That is a modest duty and employers should not be able to sidestep it. After consultation, they will be obliged to designate one or more schemes to their employees. That will be of great benefit to the 35 per cent. of employees without an occupational pension.
Finally, I strongly support the growth of ethical investment funds, which have been a remarkable and impressive development in recent years. Many people ask about the type of businesses in which their savings are invested, and they are right to do so. I would not want to invest in a tobacco firm, or in a company that improperly exploited people and natural resources in developing countries. Other people feel strongly about companies that carry out animal experiments. However, because pension savings are pooled, investors lose the right to control how their money is used.
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"Of the main forms of second-tier pension provision, personal pensions have the highest costs, and their charging structure makes them unsuitable for lower paid people who have a high risk of not being able to keep up the payments in the longer term".
There are massive introductory commissions and start-up charges. One third of people who buy a personal pension abandon contributing in the first three years and 40 per cent. do so within four years. That means that vast sums are being contributed to the financial services market with no benefit returning to the investors.
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