|Draft Social Security (Reduced Rates of Class 1 Contributions) (Salary-Related Contracted-out Schemes) Order 2001
Mr. Rooker: I apologise for my initial comments. I said that I did not want to wind anyone up, but I could not resist the temptation. On the other hand, as the hon. Member for Hexham saidI congratulate him on speaking from the Front Benchit goes without saying, therefore we must say it, that the Government wholly support private sector pensions, which have been a big success since the last war.
We have a stated, avowed intention to reverse the current pensioner income provision of 60 per cent. state, 40 per cent. private over, say, 30 years. That is the big picturethe framework within which we are working. We make no secret of the fact that we are shifting the balance; there will be less impost on public sector provision for pensioners in future because they will have done more for themselves, with Government assistance such as tax relief, rebates and so on.
The hon. Member for Hexham raised issues relating to the numbers of pensions schemes. There is a huge number of pension schemesabout 120,000, I believealthough some are extremely small, with only one or two members. I accept that there has been a hiatus in some respects simply because measures have gone through to promote stakeholder pensions, after consultation with the industry. Many people did not want to market new products until they could see the final shape of stakeholder schemes.
There are now 36 or 37 approved stakeholder providers, somewhat more than people forecast. A lot of big players are coming in, one of which, the Trades Union Congress, will run the first trust-based scheme. The Prudential will manage it, but it will be a TUC stakeholder pension, which harks back to the original trade unions, which also had a friendly society role. That will hopefully capture a group of people who have no second pension. The hon. Gentleman mentioned that that was a political issue; it is political only in the sense that we want everyone to have a good second pension provision.
For the permanently low paid, the state second pension will be by far the best way to achieve good second pension provision, because of the low earners boost. However, others of modest earnings of between about £10,000 and £20,000 by and large, all things being equal, and if they have no access to an occupational pensionif there is, we would advise them to join itshould get into a stakeholder pension scheme as early as possible in their working life. Joining two or three years earlier can make a tremendous difference later on.
On the other hand, I can say without fear of contradictionI did not deal with the Welfare Reform and Pensions Act 1999, which set up stakeholder pensions, but I dealt with the state second pensionthat there is no hidden subsidy for stakeholder pensions. There is no hidden Government motivation. We will be measured by the percentage of the target group who take up stakeholder pensions. That group is not the same as the market; the market for stakeholders covers children from the day they are born to non-working spousesthe lot. There is complete flexibility for stakeholding, but the market is not the target. The Government's target is 3 million to 5 million people on moderate earnings of between £10,000 and £20,000 a year with no second pension. We think that they should get into a second pension. When we count our success, we must ensure that we do not count churningpeople moving out of expensive private pensions with high charges into stakeholder pensions. We will not count them; we must get new people in. However, we will not do that by subsidising stakeholding; we are trying to treat it in exactly the same way as other pensions.
The hon. Member for Hexham is right about the technicalities. I freely admit that pensions are incredibly complicated, technical and, for most people, dead boring. Taking out a pension is like making a will. People do not want to do know about a pension; their eyes glaze over. From this October, another weapon in the Government's overall strategy will roll outthe combined pension forecast. During a three to five-year period, we will produce up to 15 million of them a year. People will start receiving an annual combined pension forecast, like a P60, with their name, address, national insurance number and, what is more, money attached to their name from both the state and their occupational, stakeholder or personal pensionwhichever they are paying into. When they can see what they would retire on if they carried on in the same way, many people will say, ``I didn't know it was so low. What can I do to make it more?''
Pension forecasts will further our pension information and education programme to the wider population, which generally takes place through cinema, radio and television advertisements, as well as through the leaflets that we have designed for women, the self-employed, and so on. The pension forecast will make it a reality, especially when some people receive one and their colleagues and neighbours do not. That will make the issue of pensions come alive. People do not need to know the technicalities of how they work; people want the bottom line, and the beauty of the combined pension forecast is that it will give them the bottom line.
I was asked about the treatment of stakeholder pensions and what the Government told the Government Actuary. We decided to treat all occupational pension schemes in the same wayregardless of whether they were stakeholder schemes. We want equal treatment for all appropriate pensions. We wanted to avoid incentives for salary-related occupational schemes; we did not want money purchase schemes taking advantage of rebates. Under a different operation, a lot of schemes may have closed or moved over. I freely admit that there is a trend away from salary schemes to money purchase schemes; many large companies are now closing the one and opening the other. However, a large percentage of peopleI do not know the exact figure, but it is about 70 or 80 per cent.are still in final salary schemes. The two types of scheme are different; we do not say that one is preferable to another. There are pluses and minuses to both money purchase and final salary schemes. We have therefore asked the Government Actuary to give them equal treatment, rather than try to manipulate them.
I was asked whether the reduction in the pre-retirement rate of return from 2.25 per cent. to 2 per cent. was inspired by the Government Actuary or the Government. It was arrived at by the Government Actuary, in consultation with the Government, as part of the consultation process last October. It was not a question of the Government ordering the Government Actuary to do it.
The state scheme top-ups are complicated for the state, but there is no extra complexity for the occupational pension schemes. We went out of our way to ensure that, having had debates on the matter during the Child Support, Pensions and Social Security Act 2000. We could have made it simpler for the Government, but it would have caused the pensions industry substantial upheaval to have to change its schemes. We did not want to do that. We are trying to work in partnership with the pensions industry to deliver Government policysecond pension provision. All the levels will be reviewed after the five-year period.
I cannot answer off the top of my head the question about the delays to the national insurance recording system 2NIRS2. Some of the money to be collected at the end of the year, and paid over to pension schemes in a lump sum, was not paid at the due time, and the Government have paid interest. The rates of interest have been lower than the rates of return that the trustees of some schemes say that they would have received on their investments. I do not know the cause of the current delays. I shall be happy to write to the hon. Member for Northavon, as it is a while since I have seen the figures. NIRS2 is settling down, there is no doubt about that. A big effort has been put into the new computer system for the national insurance recording system since it was realised that it would not work as fast or as well as had been envisaged. The pension forecasting will come off the back of that, and that is on course to roll out from October.
The hon. Member for Hexham raised the issue of accrual rates. I do not want to make a cheap point, as I might be wrong. He quoted a change in accrual rates from 25 per cent. to 20 per cent. Speaking from memory, I would say that that change occurred as a result of legislation in 1986 or 1995 that came into force in 2000 as part of the SERPS changes. It was a reduction in the accrual rates under SERPS. The Government accepted it. We have not gone back and changed it, so I cannot be too critical of it. Inherited SERPS was an issue that we had to deal with separately; many changes were made to SERPS, and that was one of them. We have to take account of the fact that the accrual rate for SERPS reduced over a periodnot in one stepafter April last year, as a result of legislation passed many years ago. No one bothered about it at the timepensions are boring and complex and it was agreed long agobut that is the reality. In dealing with it, the Government Actuary had to note that that change came into force as a result of earlier legislation that we did not choose to reverse. We had to take account of that when looking at the accrual rates for the state second pension, which is why some of the formula is complicated.
Question put and agreed to.
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