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2.45 am
When the age addition at 80 was introduced in 1971, the typical male aged 65 had one chance in three of reaching 80. Now, he has one chance in two. Rather than being a minority sport for men, reaching 80 is becoming the majority experience of those who reach pension age, but the state pension system and the basic state pension have not changed.
A few moments ago, the Minister ended his remarks with a flourish by saying why widows pension arrangements needed to move on. I believe that he used the phrase, "Things do not stand still." However, the 25p age addition to the basic state pension has stood still for 28 years. He implied that the modern social security system should take account of modern trends and modern demographics, but that provision is a relic of an era during which I was six. I should add, hastily, that that was over a quarter of a century ago.
The Minister may say, "Why do we need multiple additions to the basic pension? Surely an age addition at 80 is good enough." Why does he not consider income support, which has one rate for those slightly over pension age, a higher rate for those over 75 and another rate for the over-80s? That recognises the diversity within the large pensioner population.
What about the income tax system? Income tax allowances rise at 65, rise again at 75 and rise again at 80. The tax and social security systems recognise that pensioners are not a large homogenous lump to be treated identically, but have differing needs which can be met in differing ways. The new clause would allow the Secretary of State to take account of that in structuring the basic state pension.
Will older pensioners always be poorer? Do we want to enshrine in legislation a structure that is not necessary? Will older pensioners catch up? If anything, the evidence is to the contrary. In 1979, which is the earliest year for which the Government produce their pensioner income series, the newly retired single female pensioner had a typical weekly income of £60 a week, in today's money. Her elderly counterpart aged over 80 had a weekly income of £58, which is virtually the same. In the mid-1990s, there was a substantial gap. A newly retired single female pensioner could expect £96 a week; her elderly counterpart could expect £83 a week. If anything, this policy is for today and for tomorrow. That gap is growing, not diminishing, and the provision could be included in legislation now to meet present and future needs.
At pension conferences, the Minister speaks of the three pillars of the Government's pensions policy: a minimum income guarantee for the poorest pensioners; stakeholder pensions for those who lack private provision; and a state second pension for the low earners. Higher state pensions for older pensioners are not inconsistent with that vision--they would get the Government off the hook. As one of the principal Opposition parties, it is not normally our role to do that, but, because we want good rather than bad policy, and in a spirit of co-operation, we offer them a route off that hook.
Why would that policy get the Government off the hook? The Minister has said that he wants to do most for those most in need. As he well knows, the neediest pensioners are not those on income support, but those who are entitled to it but fail to claim. The Government's best guess is that there may be 500,000 such people. They have received precious little so far--of the £2.5 billion for the income guarantee, they have not received a penny. The only way to guarantee those people money is through the basic pension, targeted on older pensioners. We know that two thirds of the pensioners who fail to take up the income support to which they are entitled are over the age of 75, so the new clause gets the Government off the hook with today's pensioners. In addition, it deals with the Government's big problem with tomorrow's pensioners.
The Government have set up an extraordinary pensions proposal, whereby the basic pension will be massively below the poverty line. They propose to fill that gap with a state second pension, which edges people just above the poverty line in the year in which they retire. Within a few years of retirement, however, according to written answers given to me, income from the basic state pension
and the state second pension--it is pegged to prices--will have fallen back below the poverty line. Ten years after retirement, at the age of 75 or 80, people will be well below the poverty line. If the Government take advantage of new clause 2 and tier the basic pension so that 10 or 15 years after retirement people have a more generous state pension, they will not fall below the poverty line. All their additional savings will be on top of their pension income and there will be no disincentive.
There are two extreme positions on pensions. Thefirst puts everything into universal provision. The Government's response to that is that it is expensive and poorly targeted. The second relies heavily on means-tested provision. The Government's projections assume thatin 2050, 2 million or more pensioners will receive means-tested pensions. That cannot be a sustainable long-term approach. If the Government use tiering and target by age, they will have a well-targeted strategy that does not discourage people from saving.
When I have put that proposal to the Minister before, his response has been, "You can't spend this money because some of it will not be well targeted." Some of it will go to the woopies--well-off older people. That is fine. If a certain amount goes to the well-off over-80s, good luck to them. However, the Minister will have to explain to the House how he can support a Chancellor who gave £100 in the Budget to every single pensioner household in the land. That is completely untargeted expenditure.
Mr. Duncan Smith:
The new clause does not specify ages or amounts. That is probably a good thing, but I am interested in the hon. Gentleman's view about age breaks. Will he explain it?
Mr. Webb:
I shall complete the point that I was making, and then respond to the hon. Gentleman's question.
The Minister's key objection seems to be that, although targeting by age is fairly effective, because poverty increases with age, it is not perfectly targeted in the sense that he believes income support to be perfectly targeted on the poor. I hope that he accepts that income support is not perfectly targeted on the poor, because it misses half a million of the poorest in the land who fail to claim. He must also accept that his Government, at precisely the same time, are giving money to pensioners in an untargeted way. He cannot have it both ways. If paying £100 to every pensioner household in the land is a good idea, why is not a targeted increase in the basic state pension, which is more targeted than that, a good idea? He cannot say that it is because it is not targeted.
The hon. Member for Chingford and Woodford Green (Mr. Duncan Smith) asks at what age we would set the age break. We have suggested a first cut-off at the age of 75 and a second at the age of 80. We have used the illustrative figures of £3 at 75 and £5 at 80. Interestingly, that proposal would cost exactly the same as the Chancellor's £100 for every pensioner household in the land, but would do more for the poorest households because they tend to be the oldest ones.
We would not want to enshrine those age cut-offs in primary legislation because the state pension was initially introduced--by a Liberal Government, as I recall--as an insurance against extreme old age and the risk of living
too long. It was to cover the final years of life. Life expectancies are increasing all the time, so we wouldwant to look at those age cut-offs and at people's life expectancies, and adjust them accordingly. The new clause would free the Government from the rigidity in the current primary legislation.
The new clause contains a proposal that the Government must welcome. It gives the Secretary of State a new power, which he may or may not wish to exercise. If he chooses not to exercise it, it is in place for when I, or one of my colleagues, become his successor and can implement it on the first day of a Liberal Democrat Government. Failing that, it would provide a structure that would allow us to target without means testing. Surely that is the right balance to strike. The Government are encouraging people to save, but the savings they make will be taken from them in reduced income support payments.
The new clause is a way of getting money to today's poorest pensioners, who are most in need, and to tomorrow's poorest pensioners, and it gives them an incentive to save to top that up. It would give the Secretary of State new powers to make sensible reforms to the pension system, and I commend it to the House.
Mr. Quentin Davies:
Conservative Members are not desperately attracted by the prospect of joining the new form of Lib-Lab pact that is being put together by the right hon. Member for Birkenhead (Mr. Field) and the hon. Member for Northavon (Mr. Webb). We would be wise to maintain our freedom to manoeuvre for a little longer. Nevertheless, there are at least two aspects of the hon. Gentleman's proposals, supported as they are by the right hon. Gentleman, that we think are on the right lines.
The right hon. Member for Birkenhead and the hon. Member for Northavon are certainly on the right lines by trying to do something for the mass of pensioners who do not qualify for income support. Normally speaking, an intention to do something for the mass of pensioners who do not qualify for or claim income support would be platitudinous and scarcely worthy of comment. Such is the state of affairs brought about by two years of this Government, that it is remarkable that someone is thinking of this category of pensioner. What is striking about the Government is that they have done nothing for pensioners who do not qualify for income support. They have come up with some hare-brained schemes for prospective pensioners that will not work. Such people are now providing for their pension or could be induced to provide for their pension if better and more sensibly thought out policies were introduced.
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