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5.22 pm
Mr. Steve Webb (Northavon): Towards the end of his speech, the hon. Member for Bradford, North (Mr. Rooney) used a critical phrase--that "in time" we shall see those changes. I should like to start my speech by focusing specifically on the Bill's pension proposals. It seems incredible that, despite Liberal Democrat Members' opposition, and with virtually no parliamentary scrutiny, the House will abolish one of the two principal state pension schemes and introduce a new scheme. I make no apology for emphasising the Bill's pension aspects, which--shockingly, unlike the Bill's child support provisions--the Secretary of State almost skated over in his speech.
The time scale in which the new pension scheme will be introduced would make a glacier look positively dynamic. Based on the Department's figures, by 2025, the poorest fifth of pensioners--who, presumably, are the pension scheme's target audience--will be £1.30 a week better off. The Minister of State is already shaking his head. I assume that he does so because he cannot refute the argument, and not because the figure is wrong. I
should be delighted to give way to him if he wants to challenge the fact that, in 25 years, they will be £1.30 better off.
Miss Kirkbride:
Is that figure adjusted for inflation?
Mr. Webb:
It is in today's prices, and is therefore a real £1.30 over 25 years--or about 5p or 6p a year. There is much to look forward to.
It is a shame that the Secretary of State is unable to remain with us in the Chamber; the first point was so crushing that he had to leave.
The Secretary of State said that, by 2047, there will be major increases in state pension entitlements. When I raised the issue of time scales with the Minister with responsibility for pensions, the right hon. Member for Birmingham, Perry Barr (Mr. Rooker)--who generously and helpfully briefed hon. Members before Christmas--he said, "When SERPS was introduced, everyone said that it would take a long time. Look at it now--it's giving people decent pensions." Unfortunately, it is about to be abolished. Nevertheless, the point is that, whereas it took 20 years to build up a full SERPS pension, it will take over 40-plus years to build up a state second pension.
The hon. Member for Bradford, North is shaking his head. Does he believe that that is not the position?
Mr. Rooney:
SERPS took the 20 best earning years, but one did not receive the maximum pension after 20 years. If one worked for only 20 years, one did not receive the maximum.
Mr. Webb:
The hon. Gentleman is quite right. There is no contradiction. The first people started to get full SERPS pensions within 20 years of the scheme being introduced. No one will get a full state second pension until 2040-odd. That is the difference. The critical point about state pension regimes--apart from the basic pension--is that they tend to last only 10 or 15 years. The hon. Gentleman mentioned the graduated pension, which was abolished. He mentioned SERPS, which is about to be abolished. We have had a succession of state pension regimes that do not last very long. We need sustainability. The state second pension will not exist in 2047. All these promises about what will happen 40 years down the line are not worth the paper that they are printed on.
Mr. Laurence Robertson (Tewkesbury):
Does the hon. Gentleman agree that the schemes are changed because of their huge cost to the Exchequer and the fact that the ratio between those drawing pensions and those paying into the schemes changes? Is that not their weakness, and does it not point to the fact that the funds to which my hon. Friend the Member for Havant (Mr. Willetts) referred are a far better option?
Mr. Webb:
Our view is that there must be an appropriate balance between funded and unfunded schemes because there is a risk attached to both. Unfunded promises get ripped up by Governments and entirely funded income is much more subject to the volatility of the stock market. There must be a balance between the two.
The main reason why pensions schemes get ripped up is that no one understands them. No one has a clue how their entitlements are worked out. The previous
Government halved widows' SERPS entitlements and only now--14 years later--have people realised that. These matters are so complicated.
Professor David Piachaud, an adviser to previous Labour Governments, said of the Labour Government's second pension proposals:
The state second pension will be the preserve of the low paid. It will be a second pension only for the low paid and for carers. If it is a scheme just for the poor, what is to stop future Governments doing away with it altogether because the majority of people will have no stake in it?
The current proposal is in breach of a manifesto promise. It is a promise that the Government should never have made but, having made it, they will bring us all into dishonour if they breach it. As we heard from the hon. Member for Havant, the Labour manifesto explicitly pledged to retain SERPS for those who want it. The state second pension will not be an earnings-related pension; it will be a flat rate pension. So, no matter how much the Government try to twist the wording of their manifesto, this is a direct contradiction.
The Government's annual report, which lists their manifesto pledges and whether they have been fulfilled, marks "done" against retaining SERPS. It has certainly been done for.
We do not know a great deal about the state second pension. When will it start? Will it be 2002 or 2003? We do not know for sure. When will it go flat rate? That depends on the success of the stakeholder scheme. What will the rebate structure be? Guess what--a consultation paper has been produced with two alternatives, neither of which are penetrable.
Mr. Cousins:
Is it the hon. Gentleman's view that the state second pension is better when it is flat rate or in its initial phase--which, as he said, we do not know the end of--when it is earnings related?
Mr. Webb:
I would prefer the first phase, as the second phase represents back-door compulsion. Essentially, it pulls the rug out from everyone on middle incomes and commits them to stakeholder pensions without being honest about it. As a result, the badly advised will stay in the poor-value state scheme and the well advised will probably opt out. We do not want that sort of regime.
The critical factor in pension arrangements is certainty. People need to be able to plan with certainty and these arrangements do not provide for that. No one knows when the scheme will start, when it will go flat rate or what the rebates will be. People hardly know anything about it, so how can they plan their pensions?
It is more complex still. I am grateful to the Minister for allowing his officials to track down this point for me. Page 62 of the explanatory memorandum states that the state second pension will apply only to people who have a good chunk of their working lives ahead of them. People just short of retirement age will not suddenly be switched to the flat-rate scheme. So one group of people close to
retirement age will be on one structure, another group will be on the flat-rate structure and others will be in stakeholder, occupational or personal schemes. The whole system will be so complex that it will be a mess. We need simplicity and clarity.
The final and fundamental point about the pensions aspect of the Bill is that, even after 30 or 40 years of reform, the pension will be inadequate. The hon. Member for Bradford, North talked about adequacy and giving people a decent pension in old age. He mentioned the poor return that people may get on private pensions, but a poor return would be to spend 40 years making contributions to the state second pension but to be on income support within five years of retiring. That would be absurd and a waste of time, but that is the Bill's approach to pensions.
Mr. Frank Field (Birkenhead):
The hon. Gentleman referred to what a future Government might do with the state second pension. Is it not a danger that the state second pension will be uprated only in line with prices, but the minimum income guarantee pension will be uprated in line with earnings? It would be open to a future Government to argue that it would be a far better deal to put people on to the minimum income guarantee pension compulsorily instead of leaving them on the state second pension. That is a worry to those of us who wonder how long the scheme will last.
Mr. Webb:
As so often, the right hon. Gentleman puts his finger on the crucial point. A future Secretary of State, when asked to improve the state second pension, will give the same response that the present Secretary of State gives when we say that 75p is not enough--"Oh well, we'll just put it on the means test." Soon the state second pension will do nothing except fill the gap between the basic pension, which will hardly be worth having, and the means test. What is the point of that?
We also object to the child support proposals. The hon. Member for Bradford, North highlighted some of the ostensibly desirable aspects of child support reform, such as the maintenance disregard, which I support. Indeed, I called for it in my maiden speech, so I have again had a major influence on Government thinking. However, support for the maintenance disregard does not presume support for a particular method of working out maintenance liabilities. In other words, we can agree that, however the figure for maintenance is reached, some of it should be then disregarded. To oppose the Government's method for calculating maintenance is not to oppose the disregard--it is the method of calculation that is the problem.
How can I put it?
The Government recognise that the new system will be unfair and create onerous duties on individual absent parents. The giveaway is that they have lowered the average maintenance figure. The Government know that
there would be a storm of protest if they tried to collect the same amount of maintenance on average in the rough and ready way described in the Bill. Parents with care and children will lose out, because the Government have had to set lower maintenance assessments to overcome the injustice of a crude formula.
The trade-off for the simple formula that everyone is lauding today is that some children will lose out. How many? That is a subject on which the Government have been astonishingly silent. I tabled a written question just before Christmas asking which categories of people would lose from the reforms and how many people would be affected. The short answer is that the Government have not got a clue. The reply stated:
"It is the long-term sustainability . . . that seems most doubtful. The plans of Crossman, Joseph, Castle, Fowler and Lilley that were to last for a generation are all no more . . . the odds are that the name Darling will be remembered longer in association with Never-Never land than with pension reform".
That is true. Pension schemes have to be made to last.
"Ministers have made no attempt to build flexibility into an inflexible financial formula."
Those are not my words, but those of the First Minister of Scotland commenting on the Conservatives' reforms of the CSA in the mid-1990s. The Labour party used to think that the system should take account of individual circumstances. It used to think that flexibility mattered because it would add to the justice of the scheme, but it no longer thinks so.
"to forecast which individual families are likely to be better or worse off . . . we would need to establish the extent to which the non-resident parent is compliant now"--
in other words, whether maintenance is already being paid--
"and estimate future compliance. We have not made such estimates".--[Official Report, 10 January 2000; Vol. 342, c. 77W.]
Is not that irresponsible? How can the Government introduce a far-reaching reform to family support without knowing how many gainers and losers will be created and who they are? That is the action of a Government who are irresponsible on child support.
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