|Draft Social Security (Reduced Rates of Class 1 Contributions) (Salary-Related Contracted-out Schemes) Order 2001
Mr. Webb: From my initial reading of the regulations, it seems that the Government Actuary's Department produces a report and the Government then produce regulations. That sounds scientific with the regulations matching the Government Actuary's report. However, the Minister's latter comments sounded more discretionary. He said that they have had to balance this against that and some people wanted a bit more. I am not clear whether the Government have slavishly followed the Government Actuary's report or whether they have deviated from it. Will the Minister highlight where the Government have deviated from the Government Actuary's recommendations?
Mr. Rooker: In the main, we have accepted the Government Actuary's recommendations on rebates, but the decision to raise the cap from 9 per cent. to 10.5 per cent. was ours. The Government Actuary consulted on his original recommendations, but stuck with them and my right hon. Friend the Secretary of State accepted them. We are legislating on the Government Actuary's assessment for the rebates and we have not interfered with those recommendations in any way. We remain committed to encouraging private pension provision. Our big picture plan is to shift from 60 per cent./40 per cent. to 40 per cent./60 per cent. in public and private provision.
The orders are a fair reflection of the value of the state scheme benefits that were given up by those who went into other schemes. In due course, we shall encourage more people at the upper end of moderate earnings to go into funded schemes as stakeholders. The orders strike a balance between public considerations. National insurance is a pay-as-you-go system and funded schemes are not. The two systems are entirely different.
I shall try to answer the question of the hon. Member for Northavon (Mr. Webb). The amount of rebate and the state scheme top-up will be calculated by computer and we are spending a lot of money on new computers. Someone in a personal pension scheme and earning £6,000 will receive a rebate based on actual earnings. The top-up will be calculated on the difference between actual earnings and the low earnings threshold, which is £9,500 in 1999-earning terms. The computer will be programmed to make the calculations for all concerned and about 5 million low and moderate earners in private pension schemes will receive a state scheme top-up. That will ensure that the total rebate and the top-up will replace the state benefit given up. That is a broad brush explanation of the change and the number of people involved. I shall try to answer any questions during our debate.
Mr. Peter Atkinson (Hexham): It is a pleasure to serve on the Committee under your chairmanship, Mr. O'Hara.
The Minister started by saying that he did not want to wind anyone up and then stated that the Government are providing a subsidy to the private sector, which winds me up because I need not remind the Minister that the Government are doing that to encourage people to have their own pensions so that they do not become a burden on other taxpayers. The Government are not being nice to the private sector; they are trying to persuade people to make provision for their old age, which will save money for taxpayers later.
The background to the orders has not been mentioned. The original stealth tax on pensionsthe £5 billion taken from pension fundsis reflected in today's figures. Its consequence has been an appalling and dramatic fall in saving in the United Kingdom, for which we shall pay.
One must also recall that the number of occupational pension schemes has fallen. The peak of occupational pensions was sadly in the mid-1960s, although I may be wrong about the year. Those pensions, which I consider to be ideal, have been in decline and it is a pity that nothing has been done to encourage their growth. A total of 22,500 occupational pension schemes have been wound up since 1997. The number of new occupational pension schemes has fallen from 9,000 a year between 1979 and 1996 to a current average of less than 5,000 a year. The number of new personal pension products has fallen from 30 a year between 1988 and 1996 to only 16 a year since 1997, which paints a gloomy picture of pension provision. One must ask whether today's proposed changes will improve the situation.
The Minister said that the orders will add £10.3 billion to private pension provision. However, one must deduct from that the £5 billion subtracted from pension funds by changes to advance corporation tax. The figures in the Government Actuary's report have been adjusted. The Government Actuary took into consideration the inability of schemes to reclaim tax credits on dividends payable by UK companies. He proposed a reduction in the assumed rate of return relative to earnings of 0.25 per cent to 2 per cent., which again shows the pension tax affecting future pensioners' funds. Scottish Equitable has examined the documents and considered the Government Actuary's recommendations. It estimates that 9 million future pensioners will be up to £300 a year poorer because of the changes, which stem from the Government's failure to increase their contributions.
Another criticism, on which the hon. Member for Northavon touched, is the complexity of the British pensions structure. We have second state pensions and stakeholder pensions, but the majority of the public hardly understand the technicalities, which is worrying. The Government's complex changes have made the situation worse and even those with some experience of pensions will find it difficult to decide how to make proper provision for their retirement. It is therefore a shame that the orders fail to make the complexities of the issue more transparent.
Can the Minister explain exactly where the Government's hands have been in relation to the Government Actuary? Several references in his report are unclear and it appears that he is responding to Government dictation. One such reference is contained on page 2 of the report:
Will the Minister also explain a further point in the report? Under the heading ``General principles'' on page 3, it states:
I have already mentioned the way in which the Government Actuary has reduced the assumed rate of return. Did he decide to do so, or was that determined by the Government?
An appendix mentions a phased reduction in the accrual rate from ``25/N''I am sorry to be technicalto ``20/N''. I think that ``N'' is the number of years to retirement. That appears to be a cut. I could ask several other technical questions if I understood them better, but I do not want to burden the Minister and his officials with many technical details.
We shall never have a sensible pension scheme, and people will never make sensible provision for their retirement, until we simplify such matters. I suspect that the Government are trying to do some social engineering in the order. That is how Labour Governments work. In doing so, they are causing great complexity in the pension system and a dramatic drop in savings and pension provision. That is completely contrary to the direction in which we need and want to go.
Mr. Steve Webb (Northavon): I am grateful to the Minister for taking us through the regulations. I have some brief observations.
The Minister implied that the consequence of the changes in rebates would run to hundreds of millions of pounds, in terms of the change in the effect on national insurance revenues. With due deference to the hon. Member for Hexham (Mr. Atkinson) and excluding him from my comments, it struck me what desultory consideration such matters receive. I sense that the Minister has today tossed hundreds of millions, if not billions, extra in the direction of rebates over a period. Relatively few of us know exactly what has been done, having no more than a vague idea. Were we to announce the spending of, say, £25 million, we would probably have a long debate. However, for several billion pounds in rebate, no one has much of a clue. Perhaps the processes of the House need to be considered.
I return to the idea of the state scheme top-up. I am grateful to the Minister for his prompt response and the figure of 5 million. If I understand matters correctly, if SERPS had continued, people who contracted out from occupational schemes would have had only flat-rate rebates. Those rebates would have meant that they paid less national insurance and put what they wanted into the fund. That will carry on, but there will be an additional 5 million transactions. Some will be for small sums, because presumably there is a crossover point at which the rebates on SERPS and on the state second pension become more or less equal. For some people, the whole bureaucratic process will be carried out by computer, although I am not sure that I am reassured to learn that.
The hon. Member for Hexham mentioned complexity. The details are extraordinarily complex, and ever more so. Governments of all parties pay lip service to simplicity on the subject, but they all make it more complicated. Such details are a classic example.
I think that the Minister said something about wanting SERPS rebates to carry on for the administrative convenience of the occupational schemes. Of course, the figure is not right, so the Government have to carry out 5 million top-ups. That seems extraordinarily messy. I would be interested to know whether we will go on in that way indefinitely. If so, in the dim and distant future when no new SERPS entitlements will have been accrued for years, we will still be paying rebates based on the SERPS figures. Will my grandchildren say to me, ``Grandad, what are these funny SERPS rebate things, and why do the Government pay a separate amount?'' I wonder how long it will go on; it seems very complicated.
My second observation is that the rebates in some of the regulations are for personal pensions, and the money goes straight into the personal pension pot; except that it does not do so because the computer is still in a bit of a mess. Will the rebates go through on time? Has the backlog been cleared? Are the funds getting proper compensation for the late payment of the rebates? It has been suggested that the Government have made a profit from the duff computer because the interest and compensation that they paid on rebates to the fund have not been as much as the interest that they have gained by having the money sitting in the Treasury coffers. Is that really true? Do the Government plan to do anything about that?
The hon. Member for Hexham mentioned the relationship between those rebates and stakeholder rebates. I do not know whether this is true, but I understand that the rebates that will apply in April 2001 to stakeholder pensions have been published and that there is a sweetener in themthere are generous rebates to get stakeholder schemes off with a bang. When the regulations come into force in April 2002, it will be odd if the stakeholder pension has a favourable rebate regime, but improved personal pensions and others do not.
I have not studied the proposals closely and I am not clear about the relative level of stakeholder benefits in April 2002. Is there a sweetener to encourage people to take out a stakeholder pension, or is there neutrality between stakeholder pensions and continuing personal pensions? There is political capital at stake on stakeholder pensions, which may be a reason to push people in that direction, but if public money is being spent, I should like to know. How will the relative rebate structures work?
There is a lack of clarity on the issue, which is constantly changing, and I should be grateful for the Minister's clarification.
|©Parliamentary copyright 2001||Prepared 20 March 2001|