Standing Committee F
Tuesday 15 February 2000
[Mr. William O'Brien in the Chair]
Amendment proposed [this day]: No. 168, in page 28, line 8, at end add—
Question again proposed, That the amendment be made.
Mr. Edward Leigh (Gainsborough): It is three and a half hours since I started to put my question, and in that time I have had lunch—I have even had a little sleep. That reminds me of a story about someone who dreamed that he was speaking in the House of Lords, and he woke up to find that he was. I shall try to put my mind in order and ask the Minister of State the question that was put to him by my hon. Friend the Member for New Forest, West (Mr. Swayne) to which the Minister did not give a satisfactory reply.
The Minister constantly tells us that everyone will be better off under the state second pension. [Interruption.] I should be grateful if the Minister would at least listen to the question, because I have been thinking about it for three and a half hours. He constantly gives us this little mantra, but he has not yet told us whether people will be better off under stage 2. I am not sure that he can give us that reassurance. I want to make it absolutely clear that his reassurances about everyone being better under the state second pension apply only to stage 1, not to stage 2.
The Minister blames us for our unilateral changes to the SERPS arrangements. If it was wrong for us to impose those changes on people against their will, why is it right for a Labour Government to impose their own changes? He cannot right a wrong by committing another wrong.
The Minister of State, Department of Social Security (Mr. Jeff Rooker): I shall do my best to reply to the hon. Gentleman. I freely admit that I have not given this matter a moment's thought in the past three and a half hours, because I have been dealing with another part of the Bill. It is true that we said that no one would be worse off, but with a caveat that we debated at some length. We know that a few people in the circumstances that we discussed about a week ago, and another little group whom I shall come to in answer to the hon. Member for Beckenham (Mrs. Lait), may have difficulty.
However, the generality of employees will be better off under stage 1. All the evidence from the past and from our knowledge of the pensions industry leads us to believe that in stage 2 people will be well advised to move over to stakeholder pensions, given their earnings, because that will, by and large, deliver better pensions. The scheme has not started, so we have only historic evidence to go on. The history of funded schemes shows that people should be better off in a stakeholder pension than with a state second pension. I have a graph showing the first phase of stage 1, which has three shades of grey. I do not have shades of grey for stage 2: it is not that precise.
I thought that the hon. Member for Gainsborough (Mr. Leigh) was going to ask me why we do not turn the clock back, given that in 1985 and 1996 there were unilateral savings on SERPS—I shall put it that way so as not to raise anyone's temperature even more. I hope that we have had that debate, because the decision was taken, and it is impossible to turn the clock back to make the state earnings-related pension scheme what it was in 1978.
We had consultations, and we produced a Green Paper, the Welfare Reform and Pensions Act 1999 and this Bill to form a package of measures to enhance SERPS and to deal with the perceived problem that SERPS was no good for low-paid workers, and that the long-run changes in SERPS had made it such that it would be a problem. Those changes are still taking place: some are still to come into force as a result of the accrual rate drop from 25 to 20 per cent. over a 10-year period starting this April. The Government are still considering a way forward on the inherited SERPS issue, although nothing will change in April in that respect—the inheritance will still be 100 per cent. I think that my explanation has been fair.
I shall deal now with the second part of the amendment, because it relates to a different aspect of the clause from the first part. The second part of the amendment proposes that members of any second tier pension could transfer to any other pension scheme so as to provide maximum flexibility. That would include transfers from the unfunded state scheme. That is where the difficulty lies. It would mean meeting both the cost of the transfer and the current pensions bill from today's contributions. Current employers would find that an unacceptable burden. There would be a real problem—in fact, there would be more than a problem. The fundamental difference in the nature of the state and private provision means that there is no obvious method of calculating the value of pension rights that would apply equally to both. It is an apples and pears situation.
People who do not have access to an employer's scheme will have the opportunity of a stakeholder pension because such schemes will be required to allow transfers in and out at no cost, and they will be able to switch them on and off over a lifetime at no cost. That adds to flexibility on pensions, but there is no way that we shall be able to regulate that further by including the state scheme in that provision. It is not possible to put a price on it. If we could, it would break the bank, because it would require the transfer of the SERPS accruals that have not been taken but have been worked for over the years. It would be horrendously expensive, and would have to be paid for by today's contributors. We would have major problems on national insurance contributions.
That said, this is a legitimate issue to raise, and I make no complaints about that. I may have gone a bit far on the first part of the amendment, although it does say ``may''. There is a price for that, and we would hope that people would not go down that route based on the information with which we shall be able to provide them. They would be much better off coming out of state second pension than they would have been if they stayed in it, although for most of those people state second pension will be better than SERPS.
The Chairman's attention having been called to the fact that eight Members were not present, he suspended the proceedings, and other Members having come into the room and eight Members being present, the proceedings were resumed.
Mrs. Jacqui Lait (Beckenham): Before I sum up, I should be grateful if the Minister of State would answer my question about the lower earnings limit and working families tax credit.
Mr. Rooker: I am happy to deal with that, and I apologise to the hon. Lady because I promised that I would do so. She is right. The working families tax credit claimants earning below the lower earnings level will be in the same position as other people earning below the LEL. The generous boost to those who earn at or above the lower earnings level will be an incentive for lower earners to increase the amount of work that they do to take them over the level.
I obviously cannot comment on the press speculation about the national minimum wage. It is a few pounds from the lower earnings level. To take a hypothetical figure, if the minimum wage were set at £3.70 an hour, 16 hours' work would earn £59.20, which is less than £8 from the lower earnings level. Those lower earners would require just another couple of hours or so to get above the lower earnings level.
We touched on this issue when we discussed people who pay class 1 and class 2 contributions at or around the lower earnings level. There are unintended side effects: they are certainly not part of the policy. Recipients with earnings above the lower earnings level will be better off than they would be under the existing arrangements. Once they have crossed that threshold, they will receive the low-earners boost. Unfortunately, it is not possible at the moment to give the hon. Lady any estimates of the numbers involved.
There may be some quirky outcomes according to people's particular family circumstances. Some high earners may be losers, especially if they have six children or more, depending on the tax credits. Those sums exist. It is not possible to give a 100 per cent. guarantee that all will be gainers and there will be no losers. The position of the self-employed is a separate issue not included in the Bill. The commitments I gave stand at that point.
Working families tax credit claimants may be close to the lower earnings level. There is an incentive for them to get those extra couple of hours in so as to go above the lower earnings level. Once they go above that, they are on the low-earners boost of £9,500, which is a substantial increase from the £3,400 of the lower earnings level. I hope that that answers the hon. Lady's question, and I apologise again for missing it out.
Mrs. Lait: I am grateful to the Minister for that reply. I should like to have a longer think about that point. People at that low level should not miss out on the changes. I mentioned earlier the iron law of unforeseen consequences, and this is possibly one of them. I may return to this issue at another time.
The Minister dismissed the idea of transferability too lightly, because that has been done in other countries and it is possible, with the right approach, to think these things through. I understand that it is not within the scope of the Bill to do that, but it should not be dismissed as briefly as it was.
The other point that has emerged is the huge cost to the economy in 2050—some £18 billion, which is about 9p in the pound or 9 per cent. in VAT, unless the Minister is convinced that the economy will grow by that amount and will continue in this high level of growth pattern that would defy economic gravity, let alone any other forms of gravity over 50 years. It just does not happen like that. However, that is looking into the future. We are not 100 per cent. happy with the replies that we have received, but as this issue is so complex, we shall think further about it. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Question proposed, That the clause stand part of the Bill.