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Mr. Webb: I beg to move, That the clause be read a Second time.
Mr. Deputy Speaker: With this, it will be convenient to discuss the following: New clause 14--Enhancement of the state personal pension--
'.--(1) A person shall be entitled to one extra year's accrual of State Second Pension--
(a) for every four years in which that person paid National Insurance Contributions; or
(b) for every four years in which that person was eligible for Home Responsibilities Protection.
(2) The accrual to which a person is entitled under subsection (1) above shall be at the Stage 2 flat rate of the State Second Pension.'.
Amendment No. 67, in clause 30, page 26, leave out lines 30 and 31.
Amendment No. 64, in page 27, line 33, at end insert--
Amendment No. 69, in schedule 4, page 94, leave out lines 23 to 27.
Amendment No. 6, in page 94, line 38, at end insert--
Amendment No. 91, in page 95, line 5, after second "tax", insert "quarter".
Amendment No. 94, in page 95, line 7, leave out "tax week" and insert "quarter".
Amendment No. 92, in page 95, line 10, after second "tax", insert "quarter".
Amendment No. 93, in page 95, line 11, after "the", insert "quarter".
Amendment No. 96, in clause 34, page 31, line 9, after "appointed;", insert--
Mr. Webb:
The purpose behind new clause 10 is to introduce the state second pension more quickly, and amendment No. 6 deals with the level of that pension. The new clause recognises that many people at a late stage in their working life will, potentially, have had many years under SERPS and relatively few years under the state second pension scheme. Under the Government's proposals, those people will see virtually no improvement in their eventual second pension from the state.
If the new clause were accepted, for each year that such people were members of the state second pension scheme they could substitute an additional year's membership of that scheme in lieu of a year's membership of SERPS. Given that the Minister has said that the state second pension is more generous for the low paid and for carers, the new clause would in effect say to those people, "We are concerned about your inadequate second pension provision not only in 2047 but for the next few years, and we shall bring in the new scheme more quickly."
How quickly can a new pension scheme be introduced? The Minister's response generally is that these schemes take a long time to mature and cannot be hurried. Schemes like SERPS allow 20 years to take effect; the danger is that, by the time 15 or 10 years have elapsed, they will have been hacked by successive Governments. The state second pension scheme will take about 45 years to come in and will probably never see maturity. The graduated pension scheme lasted for about 15 years. SERPS,
before it was modified, lasted for about 10 years; the state second pension scheme will never get there if it is not allowed to establish itself quickly in the public's perception. It is much harder to cut something that people are starting to get than something that they might get in some distant decade.
We believe that the needs of pensioners in poverty are much more urgent than the leisurely pace at which the state second pension will be introduced. The Minister tells us that it will double the figures for people on certain income levels and quadruple them for those on others, but none of these statements will be true until 2047, when the whole scheme takes effect. That is beyond a realistic time scale.
The Government have set out their strategy for doing something this year if there is a problem of pensioner poverty. They have also set out their strategy for doing something in 2047, but there must surely be something between now and then. If the Government believe that second state pensions are a key part of that process, as the Minister has said he does, it will be a mistake to allow decades to pass before any real benefit is felt. In a written answer to me, the Minister indicated that by 2025, which is surely a reasonable time for Government policy to begin to have an impact, the poorest 20 per cent. of pensioners will on average be only £1.30 a week better off. The richest 20 per cent. will be better off by a similar amount. The scheme will not be redistributing effectively in 25 years' time.
The thinking behind the new clause is sympathetic to what the Government are trying to do through the state second pension. It is not how we would have done things, but if they are to go ahead with the second pension, we are saying that it should take effect more quickly, and new clause 10 would have that effect. The clause would especially favour women, who could forgo their entitlement under SERPS for a given year and substitute a state second pension year of entitlement. That would favour parents with young children and the lower paid, who predominantly would be women. Given that we know that pensioner poverty of the future, as of the past, is predominantly a female phenomenon, the new clause would target that poverty without means testing.
Mr. Burstow:
I am grateful to my hon. Friend for giving way. Can he confirm that, even when the state second pension reaches maturity in 2047, those who start to draw it will rapidly--within five, 10 or 15 years--fall back on to means-tested benefits?
Mr. Webb:
My hon. Friend gives me an unscripted but neat link into the second part of my remarks, focusing on the level of the state second pension. Amendment No. 6 would ensure that the combined value of the basic state pension, which is gradually ebbing away, and the state second pension would not be such that when a person reaches state pension age and lives an average life expectancy, he would be back on means-tested benefits before he dies. That is the nub of amendment No. 6.
We have used the figure of 15 years in the amendment as the typical life expectancy for a man aged 65. The accrual rate of the state second pension should be such
that someone who lives an average life span from the state pension age should not have to claim the means-tested benefit before he dies.
Clearly, we can argue about the detail of the amendment, but we are trying to highlight the principle--the adequacy of provision. The hon. Member for Birmingham, Selly Oak (Dr. Jones) pointed out that the combined value of the basic and second state pension as a fraction of average earnings will be below the level of the basic state pension at the end of the 1970s as a fraction of average earnings. A Government who seek to tackle pensioner poverty, but who leave many people who will reach pension age in 40 or 50 years expecting to draw a means-tested benefit before they die, are not being brave enough.
We can argue about the adequacy of present provision, but with 50 years to sort the system out, surely the Government could at least ensure that our oldest pensioners do not have to rely on means-tested benefit, especially if they are getting the full basic and the full state second pension.
That is the Government's answer to pensioner poverty--the basic pension combined with the state second pension. If that is not enough to keep pensioners out of poverty--not just the year that they retire, but into old age, which is likely to be increasingly old age as the years go by--it is an inadequate response.
Two issues are raised in our amendments. New clause 10 deals with the rate at which the state second pension comes in; 50 years is too long. Amendment No. 6 deals with the level; letting people end up on means-tested benefit is not adequate.
Dr. Lynne Jones:
I shall speak to amendments No. 67 and 69. I had hoped that today I would be in Washington with the Select Committee on Science and Technology to conduct our inquiry into cancer treatments. However, I feel so strongly about the issue of pensions policy that I am here today instead.
The Government are not getting it right on pensions. I offer these and other amendments later as suggestions for improving the Bill. I offered to participate in the Standing Committee that considered the Bill, and I thought from the Minister's comments in his winding-up speech on Second Reading that there might be an opportunity for me to contribute, but unfortunately the Whips seemed to think otherwise.
It is no secret that I believe that the framework of the Bill is far from perfect. I hope that the Government will use opportunities elsewhere to bring about some improvement.
During Question Time, the Minister did not dispute my assertion that the combination of the basic state pension and the state second pension, when they are fully mature in about 50 years, will pay out a lower proportion of average earnings than did the basic state pension in 1980.
The Green Paper on welfare reform was subtitled "New ambitions for our country". I hardly think that in the middle of the 21st century, in one of the richest countries in the world, to be paying out to a large proportion of pensioners a level of income that is scarcely above the means-tested benefit is much of an ambition.
"Opportunities for All", which the Government published, showed that after a lifetime of working, pensioners would be between £9 and £16 better off on the
state second pension and, as Liberal Democrat Members pointed out, that sum would be eroded in a few years and pensioners would be back on means-tested benefit.
The state second pension is a substitute for properly uprating the basic state pension, against which the Government have set their face. However, I cling to the Minister's words that the manifesto commitment was to uprate the basic state pension at least in line with prices. I hope that there will be an improvement in future uprating.
The state second pension replaces the proper basic state pension. Amendment No. 67 would therefore extend the category of people who will be credited into the state second pension to include those who are unemployed or whose earnings are below the lower earnings threshold, which is currently £67 a week.
Even someone on the minimum wage who works for 16 hours a week--for example, many women who cannot work full-time because of family responsibilities--will not be passported into the state second pension. That also applies to the unemployed. At the moment, unemployed people are credited with national insurance contributions for the basic state pension. If the state second pension really replaces the basic state pension, it would be logical to credit unemployed people into the state second pension.
The Government may argue that that is a disincentive to work. However, we are considering a deferred benefit from which people derive no immediate gain. When people who have been out of work have a period of employment, the disincentive to save that the prospective loss of means-tested benefit represents will be greater than for other groups. Their basic state pension will be further from the minimum income guarantee than the state pension is now.
Crediting the unemployed into the state second pension will not discourage them from working but will encourage them to save for retirement when they are in work. We should not forget that, for the better off, breaking the link between employment and tax relief for the stakeholder pension means that a substantial tax benefit per pension is available to those who do not work. However, making pension contributions is out of the question for most unemployed people. I hope that the Government will consider granting entitlement to the state second pension to those who are unemployed or whose earnings mean that they do not qualify under the proposed arrangements.
The Government intend to change the state second pension from an earnings-related pension to a flat-rate scheme. Amendment No. 69 would delete the power to make that change. The first stage of the state second pension will be earnings related. The Government state that, at that stage, people who earn less than £21,600 will receive more than they would have received under SERPS, while those earning £21,600 and more will receive the same amount. However, in time the Government want to encourage everyone earning more than £9,500 to contract out to a non-state-funded scheme.
The second stage, which is to be introduced once stakeholder pensions have become established, will change the state second pension into a flat-rate scheme for those with a significant part of their working life ahead of them--for example, those under 45 at the point of
change. Once the scheme becomes flat rate, the intention is that everyone will be better off contracted out to a stakeholder pension or another non-state-funded scheme. To encourage the better off to opt out, the Government are prepared to put up a lot of money in generous rebates, which they say are likely to cost about £12 billion to £15 billion. That will be all very well if people contract out to good, defined benefit pension schemes, but it will be another matter if they make money purchase pension arrangements with no guaranteed level of benefits.
The Government can do and are doing a lot to provide better value for money from private pension arrangements by driving down charges. Even so, a 1 per cent. charging regime will eat up 25 per cent. of any pension fund and there is no guarantee that stakeholder pensions will give a good return. Are people on modest earnings keen to have their pension on a risk basis? Do we approve of people on low incomes gambling with them? Many may do no more than put the minimum national insurance rebates into their scheme, as many did for personal pensions.
The position of those with earnings that vary above and below the £9,500 threshold ought to be considered by the Government. Women in particular are in that category and their incomes often fluctuate when they take time out for their caring responsibilities. Would it make sense for them to switch between the state second pension and stakeholder pensions, as each at times apparently offers better value? Will they stay in the state second pension and lose in their good years what they had gained in their bad? Despite all its shortcomings after Tory cuts, SERPS still enjoys considerable public support, which can be interpreted sensibly only as support for a concept. That concept is a decent, good-value, earnings-related defined benefit scheme that offers a natural home for all those on moderate earnings who are not fortunate enough to be in a good employer scheme.
Under the Government's proposals, the state second pension scheme will become a pension for the low paid. Encouraging everyone earning more than £9,500 to opt out means that it will become solely for people with no or very low earnings--a pension for the relatively poor. That could mean that voters will have less interest in maintaining it, particularly if it takes a long time to build up, which seems to be the case. It will also limit choice. I see no reason why those with higher earnings should not have the choice to continue to join the scheme, with benefits reflecting the contributions made. The Government should consider being as generous to those who want to stay in the state second pension as those who want to opt out.
In opposing stage 2--making the state second pension flat rate--we could at least argue that we are honouring our manifesto commitment to retain a state earnings- related pension, even if it is not exactly SERPS. It is appropriate to remind my right hon. Friend the Minister of that commitment and I hope that the Government will reconsider their decision to move the state second pension to a flat-rate scheme.
'(4A) an employee who is of pensionable age within subsections (2), (3) or (4) above shall be entitled--
(a) to have secondary contributions paid by an employer on his salary which shall contribute to his pension entitlement; and
(b) to make primary contributions which shall accrue towards the state second pension.'.
'(9) If the application of the above percentages should produce an entitlement to additional pension such that a person entitled to a full basic pension and a full additional pension on reaching pensionable age would be expected to have recourse to Income Support within 15 years of pensionable age, there shall be inserted instead of '40' in Table 1 and Table 2 the lowest such percentage as would be required to ensure that he did not become entitled to Income Support within 15 years of reaching pensionable age.'.
'and the first appointed year shall not precede the publication and distribution of guidance from the Financial Services Authority concerning those income groups for whom in its opinion, stakeholder pensions are likely to be suitable, and those for whom State Second Pension is likely to be suitable.'.8.45 pm
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