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10.47 am
The Minister of State, Department of Social Security (Mr. Stephen Timms): I too congratulate the hon. Member for Sutton and Cheam (Mr. Burstow) on his success in securing the debate. I was pleased to hear that he is a regular attender at meetings of the older people's forum his constituency. I commend that to the House; it is important that Members listen to what older people say. I will say a little more about how the Government are listening to older people and I hope that the hon. Gentleman's practice will be taken up much more widely.
The complete absence of Conservative Back-Bench Members is striking and telling, as a number of contributors have said. This is the International Year of Older People, whose slogan is "A Society for All Ages", and it is appropriate that we are having this important debate at a relatively early stage of it.
There have been big changes in the structure of the economy during the past 50 years. Traditional industries have declined and working patterns are very different. During that period of immense social change, spending on social security has moved inexorably upwards. Despite the increase in spending, poverty and inequality have increased--in particular, for pensioners. The average pensioner income has risen sharply over the past 20 years, due largely to the success of occupational pensions, which I welcome, but a large number of people have not shared in the benefits of that rise.
The best-off 20 per cent. of pensioners have an income that is, in real terms, 70 per cent. higher than in 1979. The figure for the least well off 20 per cent. is only 30 per cent. There has been a huge rise in inequality among pensioners, and hon. Members were right to draw attention to that. The hon. Member for Meirionnydd Nant Conwy (Mr. Llwyd) provided some interesting figures on the position in Wales.
Addressing that inequality requires fundamental reform of the pensions system. Our pensions Green Paper, which was published before Christmas, sets out our strategy for reform. It is based on the principle that everybody who
can save for their retirement has a responsibility to do so. In turn, the Government have a responsibility to provide security in retirement for those who cannot save enough, and to regulate the pensions system effectively.
We want to put pensions on a sound footing, so that every pensioner is assured of a decent income in retirement and people can rely on secure and effective private pensions. We want to deliver security for today's pensioners and peace of mind for tomorrow's.
I want to focus most of my remarks on today's pensioners, but my hon. Friend the Member for Hornchurch (Mr. Cryer) and the hon. Member for Northavon (Mr. Webb) raised important questions about the future of pension provision, so I shall respond briefly to those points. Our proposals are based on four interlinked pillars.
First, we had a manifesto commitment to uprate the basic state pension annually at least in line with prices, and we have honoured that commitment as we have all our others. The basic state pension will not be means-tested and will not be privatised. Secondly, the minimum income guarantee, delivered through income support, will provide an income floor below which no pensioner without savings will fall, and we aim to uprate the level of that guarantee over time in line with earnings. Thirdly, the state second pension will ensure that everybody who has worked and contributed throughout their lives--allowing, for the first time, for periods out of work caring for a disabled person or bringing up children below the age of five, and for periods out of work through long-term disability--will have an income on retirement above the minimum income guarantee.
My hon. Friend the Member for Hornchurch asked for more details about how that will work. Under the state second pension, anyone who has earned in lifetime earnings less than £9,000 a year will be treated as if they had earned £9,000. In addition, the accrual rate for someone at the £9,000 point will be twice as much as it would have been under the state earnings-related pension scheme. I hope that it is clear from that explanation that, for people earning above the lower earnings limit and below £9,000, and for those earning rather more than £9,000, the state second pension represents a significant improvement on what is available under SERPS. It should come into effect in 2002 and, to gain the whole benefit of that, a person would have to have spent his whole working life in the state second pension. As with everything to do with pensions, it will take a long time for the full benefit to work through. I think that my hon. Friend will recognise that we are proposing a substantial improvement.
The fourth pillar is stakeholder pension schemes, which will provide people for whom no suitable funded scheme is now available with good value, reliable, funded pensions, which will benefit from higher levels of national insurance rebate than are currently available. There are large numbers of such people. In answer to my hon. Friend the Member for Hornchurch, let me say that employers will be required to give access to a stakeholder scheme under our proposals. We will not require employers to contribute to them, although some are considering doing so.
That approach has been widely welcomed, and we are now analysing more than 550 responses to the Green Paper. However, the central point in this debate is that
there are millions of existing pensioners for whom those reforms will come too late and who need help now to enjoy their retirement. We are determined to do more to help those who need it most. We have taken action to help all pensioners while giving priority to the least well-off, who are the central concern in this debate.
We have announced a £2 billion a year package for today's pensioners. From this month, income support rates for eligible pensioners will increase by three times the rate of inflation to give a minimum income guarantee for pensioners who are entitled to income support of £75 a week for a single person and £116 for a couple. As a result, pensioners receiving income support will be at least £160 better off in real terms in the coming year, and 65,000 pensioners not previously entitled to claim income support because they have been just above the threshold--a point made by the hon. Member for Meirionnydd Nant Conwy--will for the first time be able to do so and enjoy the benefits of the higher level of minimum income guarantee.
In April next year, the guarantee will be increased in line with earnings. That will help to ensure that even the least well-off pensioners are able to share in rising national prosperity. From that month, a further 20,000 will become entitled and so benefit from the guarantee.
The guarantee is being set at a higher level for older pensioners. The hon. Member for Sutton and Cheam referred to the needs of older pensioners. Given the earnings-related rise, from this month, the rate will be £125.30 for couples one or both of whom is over 80, and we expect that rate to increase by another £5 per week next April. So, next year, an older pensioner couple on income support is likely to be more than £600 a year better off in real terms over this two-year period. Those are substantial gains for the least well-off pensioners--those on income support. We are proposing a series of well-aimed darts, to use the term of my hon. Friend the Member for Knowsley, South (Mr. O'Hara).
Mr. Burstow:
Hon. Members have drawn attention to the fact that 700,000 pensioners are not taking up their entitlement to income support. I hope that the Minister will say something about the Government's pilot projects, because that is an important matter. Those well-aimed darts are not hitting their targets, because those pensioners are not getting the benefits.
Mr. Timms:
One and a half million pensioner households certainly are receiving the benefits. However, the hon. Gentleman is right: this is an important issue.
However, we are left with the problem of pensioners with low incomes and modest savings that are just above the savings limits for income support. They see little benefit from the effort that they have made to save for their old age, and we do not think that that is right. People should feel that it is worth while to save, and we want them to do so. That is why we said in the Green Paper that we want to examine ways in which we can better reward those who have saved for their retirement. We have consulted on that and we are analysing the responses. We shall announce our proposals for change later in this Parliament.
The Budget made substantial changes to improve the tax position of pensioners. The income tax personal allowance for pensioners aged between 65 and 74 rose by £310, which is £130 more than the normal indexation. Other changes were made for people aged over 75. As a result of those substantial changes, 200,000 pensioners will be taken out of income tax. Two thirds of pensioners will not pay any tax at all.
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