Standing Committee F
Thursday 10 February 2000
[Mr. Nicholas Winterton in the Chair]
The Chairman: I bid good morning to all members of the Committee. I gather that the debates have been very good natured and I have no doubt that they will continue to be so. The clause is highly complicated and technical, but I know that I can rely upon all hon. Members of both sides of the Committee who contribute to the debate always to be entirely within order. I know that my advice will be heeded.
Earnings from which pension derived
Mrs. Jacqui Lait (Beckenham): I beg to move amendment No. 201, in page 25, line 35, leave out '£9,500' and insert '£8,500''.
The Chairman: With this it will be convenient to take the following amendments:
No. 188, in clause 29, page 26, line 43, leave out '10' and insert '20'.
No. 251, in clause 29, page 26, line 44, leave out '3LET-2QEF' and insert '2LET-QEF'.
No. 252, in clause 29, page 27, line 1, leave out ''3LET-2QEF' and insert '2LET-QEF'.
No. 191, in clause 29, page 27, line 1, leave out '20' and insert '10'.
No. 229, in clause 29, page 27, line 3, leave out '2009' and insert
'in the tax year immediately after the coming into force of this Act'.
No. 258, in clause 29, page 27, line 7, leave out
'but no exceeding 3LET-2QEF'.
No. 192, in clause 29, page 27, line 7, leave out '10' and insert '20'.
No. 230, in clause 29, page 27, line 7, leave out '10' and insert '12-`.'.
No. 253, in clause 29, page 27, line 8, leave out '3LET-2QEF' and insert '2LET-QEF'.
No. 232, in clause 29, page 27, leave out line 9.
No. 254, in clause 29, page 27, line 9, leave out '3LET-2QEF' and insert '2LET-QEF'.
No. 195, in clause 29, page 27, line 9, leave out '20' and insert '10'.
No. 235, in clause 29, page 28, line 3, leave out from 'and' to 'QEF' in line 4.
No. 198, in clause 30, page 28, line 46, leave out '£9,500' and insert '£8,500'.
Mrs. Lait: Thank you, Mr. Winterton, and welcome to the Chair. I suspect that you may well find yourself in the Guinness Book of Records, because the list of chairmen for this Committee is possibly the longest ever and it might make an entertaining entry. I am sure that we shall enjoy sitting under your chairmanship and I know that, should we stray from order, we shall be brought back immediately into order. [Hon Members: "Shame".] I suppose that it would be an intellectual game to see whether one can go out of order without being pulled up, but we will try not to do that.
It will be a great comfort to you, Mr. Winterton, to know that you have missed the easy part of pensions, the part that we could all understand. Last Tuesday we were debating the perennial issues of pensioners who work and child benefit. It was noticeable, however, that Government Members were not so involved in debate on those issues: there was a diminution in their contributions after the social security and child support discussions.
Today we enter the difficult part. It is boring, ridden with jargon and highly technical. I can tell from the reaction of my team working on it that it is of mind-boggling and eye-glazing complexity. Front Benchers on both sides have agreed that it would be useful if, from time to time, we could use hi-tech equipment in the Committee to produce illustrations of our proposals. The proposals under discussion would be more easily understood in terms of figures, tables and charts than they are in words, however lucidly and clearly we express ourselves.
When I was preparing for this morning's debate it occurred to me that it might be an occasion on which we could usefully stand procedure on its head and have the clause stand part debate before discussing the amendments, to make sure we understood what the Government were trying to do. I will make as good a fist of it as I can. I do not want to steal the glory of the Minister of State, Department of Social Security (Mr. Rooker), but to introduce the amendments, I need to try to explain what we believe the Government's proposals to be. If I am wrong I shall no doubt be corrected. We all wait--not exactly with bated breath, because we would probably all expire if we did that--to hear the Government's own explanation of their proposals.
The clause is the meat of the changes made to pensions by the Bill. It provides for a new form of state provision which will replace over time the state earnings-related pension scheme, which the Labour party in its manifesto promised would remain. The manifesto stated:
"Labour will retain SERPS as an option for those who wish to remain in it. We will also seek to develop the administrative structure of SERPS so as to create a 'citizenship pension'."
Perhaps that is what the Government are talking about, but it is not a way forward that we would take.
It is only fair to the Committee to make sure that the Government understand that, in principle, we want people to be encouraged to make their own provision rather than relying on the state. However, we recognise that there is a debate between those who believe that the state should provide all pensions, or most pensions, and those who wish to see a much higher proportion of pensions provided by the private sector. Although it is not my intention to go into the philosophy and principles, we need to recognise that some people in the community want to rely on the state and others want to rely on private provision.
The problem that we have with the clause is that it forces more people to rely on the state. Our amendments try to help the Government produce a state second pension that fits better with the desire of those people who wish to rely on the state, but makes better provision for those who wish to move on to private provision--perhaps through stakeholder or occupational pension. However, many of our comments are about the interaction with stakeholder pension. Although we are talking about the formula for the second state pension in this debate, all the issues involving stakeholder tend to come in so I should like to discuss the implications of stakeholder.
The stakeholder pension is geared to helping people save for a private pension when they have an income between £9,500 and £21,000. Hon. Members on both sides of the Committee will agree, that on that sort of income a family is financially stretched; every penny of the budget is carefully looked after and monitored to make sure that there is no overspending and it is a strain to have to put an extra £20 a month away. We should admire those who can do so, are determined to save for their future, and understand the need for long-term savings so that they can have an easier retirement. However, we also have to recognise that many of the people on such incomes are the least financially sophisticated. Many members of the Committee, whatever their income, probably agree that they, too, are fairly financially unsophisticated when it comes to pensions. Pensions are of huge complexity. I understand that at least 12 different tax regimes are involved in pension provision across the board, and I can quite understand why people say that they do not want to think about it, that it is all far too complicated, and that retirement is too far away. However, hon. Members on both sides of the Committee will also agree that we want to see people focus much more on providing for themselves in their old age.
One of the problems with stakeholder, which we pointed out as it was going through the Committee last year, is that it will take a long time before the amount saved in a stakeholder pension exceeds what people can get on state benefits at present. If one tots up minimum income guarantee, housing benefit and council tax, on stakeholder alone it would be a long time before anybody saved enough to equalise that.
If we also look at the combination of state second pension and basic state pension, the Library has calculated that it would be 2028 before anyone would equal the minimum income guarantee. Those who are financially unsophisticated will have to make an arithmetical calculation to assess whether they should bother to put any long-term savings into the state second pension or stakeholder pension rather than continue to rely on state benefits. We must always bear that fact in mind when we talk about the formula and how people are encouraged to save.
The Government have not picked up on the opportunity to simplify. As I have already said many times, and will undoubtedly say again, the Bill complicates the pensions regime--it does not simplify it. It is a legal minefield. Pensions lawyers, the pensions ombudsman, the Occupational Pensions Regulatory Authority and the Financial Services Authority are all trying to resolve pensions disputes and complaints. There is a growing legion of unhappy consumers of pensions in both the state and private sectors. Everyone, unless they are tax planners, actuaries or accountants, is switched off by pensions because they are so complex. The Government have the opportunity to create a clean sheet on pensions, but they are complicating it further. The formula that they have produced would make it still more complicated.
The Minister of State, Department of Social Security (Mr. Jeff Rooker): I welcome you to the Committee, Mr. Winterton. We are talking now about clause 28, but many of the amendments relate to clause 29. If the basic concept is kept to the fore, it is not too complicated. We know that low earners, carers and those with a disrupted employment pattern will be treated for state second pension as if they had earned £9,500 a year. Those who earn more than that will have an earnings accrual rate to ensure that moderate earners are better off than under SERPS, that high earners get the same and that those who contract out will have an earnings-related rebate. That concept is simple.