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6.15 pm
The Government propose to introduce a state second pension, which will supplement the basic state pension. It is being promoted as a replacement for the state earnings-related pension scheme which will redistribute money to those on lower earnings and is therefore more generous than SERPS. That is true, but the combination of the state second pension and the erosion of the basic state pension will result in the pension constituting approximately 21 per cent. of average earnings in 2051, compared with a bigger proportion--23 per cent.--in 1980. The state second pension is a substitute not for SERPS but for uprating the basic state pension properly.
The Government are trying to tackle means-tested benefits; they are introducing the state second pension to try to ensure that people retire on incomes that are above means-tested benefits, but it will not work. The Government's figures in "Opportunity for All" show that after a lifetime of working, those who earn £300 a week will get only £16 a week more than they would receive if they relied on income support. A woman with caring responsibilities would receive £9 a week more than she would get if she relied on income support.
We are creating disincentives to saving for retirement and taking out additional pensions. Parliamentary questions have shown that in 12 years and nine years respectively, the two individuals I cited would be back on means-tested benefit after a lifetime of work. We must tackle the nonsensical position whereby a means-tested benefit is far higher than the basic state pension. The proposal to uprate the retirement pension in line with earnings will ensure that the difference will not become even greater and that the disincentive will not increase.
The Government say that additional increases to the minimum income guarantee target resources at the poorest. However, that is not the case. The poorest do not apply for the minimum income guarantee. I am pleased that the Government have a campaign to increase take-up, and I hope that it is successful. However, there is a marked reluctance among pensioners to apply for what they perceive to be a handout. People understand that they contribute to the basic state pension through a lifetime's work, or caring responsibilities such as bringing up children or looking after disabled people. They should be entitled to a reasonable state retirement pension at the end of that period.
We should not forget that although the money will go to those who are better off, the pension also targets those who are only slightly above the level of income support. Those people feel most aggrieved that, after accumulating modest savings, and perhaps having an occupational or private pension, they are only a few pounds a week better off than they would be through relying on income support. They feel that they would have been better off spending the money when they were younger.
The Government have made welcome moves to increase the savings that can be built up before benefit starts to be lost and I know that they are considering tax credits, but whatever they do there will still be a cut-off point at which people will feel that they might as well not have bothered to put money aside for their retirement. Having such a disincentive in the system affects people's behaviour, and many of those on modest incomes would be better advised not to save for their retirement and not to build up pensions, but to make sure that they spend their money on a well-built, well-insulated home and other possessions that they will not have to buy in their retirement.
If people's behaviour is affected in that way, more will rely on means-tested benefits. Although the Government say that they want to reduce such reliance, they already predict that the number of people on them will increase. That was the conclusion of the pension provision group--an independent body set up by them to advise on their pensions policy--and its submission to the Green Paper predicted that although the reforms would reduce the number on means-tested benefit to a lower level than if there were no change, more pensioners would need means-tested benefit than at present. It is predicted that
one in four will rely on income support, as compared with one in five today, and that number could increase if there is a further disincentive to save and to opt for additional pension provision.
During their years in government, the Tories learned that the more they tried to target benefit on the poorest, the more the social security budget grew. Our new clause aims to restore the incentive to top up the basic state provision with private provision and, in the long run, that will be the most effective and efficient way to spend public money. I beg to move new clause 36.
Mr. John McDonnell (Hayes and Harlington):
With some surprise, I, too, beg to move new clause 36, which stands in my name and in the names of many others, some of whom are on Council of Europe duty and send their apologies.
Mr. Deputy Speaker (Mr. Michael J. Martin):
Order. To assist the hon. Gentleman and the hon. Member for Birmingham, Selly Oak (Dr. Jones), the lead new clause has been moved and he will be able to move his new clause formally when we reach the appropriate stage.
Mr. McDonnell:
I am grateful for your advice, Mr. Deputy Speaker. I ask for a separate vote on our new clause, with your permission, because this is a matter of considerable concern in the House and in our communities. My hon. Friend the Member for Islington, North (Mr. Corbyn) has sought to legislate on it on 12 occasions and, more recently, my hon. Friend the Member for Blaenau Gwent (Mr. Smith) initiated an Adjournment debate on it.
Our new clause is simple and straightforward: it would restore the link between increases in pensions and increases in earnings that was established by a Labour Government in 1975. There had been years in which there was no increase in pensions at all, but we secured not only increases that protected pensioners against the erosion of their pension by inflation, but the earnings link. We wanted to ensure that pensioners shared in the wealth of our community as it developed and thought that the best indicator was average earnings. We decided that, if everyone's income increased, so should that of pensioners. I would rather establish a link between pensions and the biggest bonus in the City, but that is too moderate.
The link was broken in 1980 by the then Prime Minister, Mrs. Thatcher, and there was an angry response from the community and especially from Labour Members of Parliament. We gave a commitment to address the issue. As a result of the link being broken so many years ago, Age Concern and others calculate that pensioners have lost £30 a week and, as my hon. Friend the Member for Birmingham, Selly Oak (Dr. Jones) said, the pension represents only between about 21 and 25 per cent. of average earnings, which is significantly less than the pensions paid by many of our European partners.
Pensioners feel that they were robbed by the break of the link because for nearly 20 years Labour Members told them that they had been robbed. There was a £2 increase
in pensions before the 1992 general election and a Labour spokesperson stood up in the House to call it
Mr. Llew Smith (Blaenau Gwent):
Some days back, Lord Falconer said that he could live on current pension levels. I have to admit that I could not. Could my hon. Friend?
Mr. McDonnell:
Not only could I not live on the current pension, but I find it difficult to understand how many of my constituents do so and stave off poverty. I see that week by week in my constituency. The poorest groups in our society are those with young children and people with disabilities. We are trying to tackle the problems; this is a life-and-limb issue not only for the poor, but for the elderly. How many pensioners will die of hypothermia this year because they cannot afford decent heating for their homes?
Ms Diane Abbott (Hackney, North and Stoke Newington):
Is the right hon. Member for Birmingham, Perry Barr, to whom my hon. Friend referred, the same Member who sits on the Front Bench and speaks for the Government on pensions policy?
Mr. McDonnell:
As I said, it is not my duty to embarrass Members.
miserly . . . not even enough for a pound of sausages and a couple of loaves, while workers on average pay are receiving increases of more than £20 a week and some executives increases of more than £2,000 a week.
I do not want to embarrass hon. Members--that is not my purpose--but another hon. Member said that
we cannot get a decent link for pensioners . . .--[Official Report, 21 October 1991; Vol. 196, c. 645-651.]
He wanted it to be restored and to be based on the pay of Members of Parliament. I do not want to embarrass the Minister of State, Department of Social Security, my right hon. Friend the Member for Birmingham, Perry Barr (Mr. Rooker).
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