Lynne Jones (Birmingham, Selly Oak): My right hon. Friend said that his proposals have been warmly welcomed by the pensions industry. It welcomes the extra assistance for today's pensioners to reward them for their saving, but there is concern that the proposals do not send a clear message to pensioners of the future that it always pays to save. Is that not the major flaw in the Bill? It does not give a clear message or provide the certainty of a stable system for younger people. The system is so complicated that
It is true that some people in the industry take the view that rather than have something like the pension credit, which rewards people for every pound they save, depressing the amount the state gives will force them to go and buy pension products. I am sure that my hon. Friend does not subscribe to that view; if she does, she has moved her ground substantially. I always thought that she took a dim view of the pensions industry; it will find it very odd indeed that she is attempting to gallop to its rescue.
The important point is that the pension credit removes for the first timethis has been widely recognisedthe disincentive in the present system whereby someone with moderate savings can find that they are no better off than somebody who has made no effort whatsoever. That is why I find it odd that perhaps not my hon. Friend but many Opposition Members are against the Bill.
Linda Gilroy (Plymouth, Sutton): Does my right hon. Friend recognise that one of the most powerful messages that young people hear comes from their familyfrom their grandparents, who tell them that it does not pay to save? As from October 2003, every grandparent who has been thrifty enough to save will be rewarded and will be able to tell their grandchildren that it definitely pays to save.
I always hesitate to quote people who support the Conservative cause, but I was struck by the words of Lord Fowler, who was of course a Secretary of State for Social Security forif I remember rightlysome six years. He said:
Mr. Darling: If I remember rightly, one amendment that the ABI wants to be made in Committee concerns changes to disregards and capital. However, for somebody who receives the basic state pension but saves more than that, it will pay to save. That is a big leap forward. I am not saying that the Bill cannot be improved and that we cannot do even better. Indeed, a number of those who made representations, such as Age Concern, asked us to do a lot more. Age Concern is a bit like the Liberal party: whatever one does, one can never do enough.
Mr. Darling: That is the case; the hon. Gentleman knows that, for reasons of which he is certainly aware. Although it is nice that Age Concern has welcomed the Bill, I hope that it recognises that we have done a lot for pensioners. A balance must be struck when deciding how much can be spent on any measure, but the general principle behind the pension credit is right. I find it odd that Opposition Members should be against a measure that removes what I regard as a fundamental unfairness of the social security system.
Right on cue, my hon. Friend the Member for Birmingham, Selly Oak intervened as I was about to talk about redistribution, which might cheer her up. I was talking about the state second pension, which is of course also creditable under the Bill. I was about to make the point that, when it is introduced, it will benefit some 18 million people on low incomes. I find it difficult to understand how people who claim to be concerned with helping low earners and those with broken work records can be against the state second pension. It is one of the most redistributive measures that any Government have introduced.
Let us be clear about what the state second pension does. Somebody who, for example, takes five years out of the labour market to care for their children or an elderly relative can be credited with the state second pension as though they were earning £10,800 a year. That never happened in the past. People who take time out to do the right thing by their children or an aged relative will be assumed to be earning £10,800 a yearyet the Conservatives and Liberals are against that. People on low earnings who build up 40 years of state second pension will get at least double what they would have received under SERPS. That is a long overdue redistributive measure.
We have implemented reforms to tackle poverty, we are making saving possible, and we are building on the partnership between the state and the funded sector. We now need to ensure that it pays to saveand that is what the Bill does. As I said, the pension credit will address a fundamental unfairness in the system. For the first time,
I want to explain briefly how the pension credit will work. The detail is set out in the consultation paper that was published in November and, of course, in the explanatory memorandum to the Bill. The Bill works in two ways. First, it replaces the minimum income guarantee as the means to provide a floor beneath which we believe pensioner incomes should not fall. The pension credit will bring pensioners' entitlement up to a guaranteed minimum next year of at least £100 a week, or £154 a week for couples. Clause 2 provides for a higher guarantee for carers and for pensioners with severe disabilities.
Secondly and critically, the pension credit will provide an additional top-up to reward pensioners aged 65 or over who have saved for their retirement. Clause 3 will ensure that pensioners aged 65 or over who have a modest occupational pension or modest savings in the bank will get more as a result of their thrift. Those with income from paid work will also be rewarded for their efforts. The pension credit provides the incentives that are missing from the present system. Pensioners will generally qualify if their incomes are up to £135 a week for single people or £200 a week for couples. On any view, many pensioners are among the vulnerable and least well off in our society.
Mr. David Kidney (Stafford): I have no doubt that the new savings credit will be very popular with my constituents, but let us return to the comments of the Association of British Insurers and of the National Federation of Post Office and BT Pensioners. Both have raised with me the assumption that the savings credit will cut in only once the full basic state pension has been reached, and that those with a lesser entitlementoften womenwill lose the first bit of their savings in reaching that level. Is any change in prospect in Committee to address that criticism?
Mr. Darling: We believe that it is right that people should first use their money to pay contributions to the basic state pension. It would be curious if somebody who had chosen not to pay all such contributions then asked us to apply those they had paid to a pension credit, rather than in the first instance to the basic state pension. The basic state pension is of course contributory, but that is the argument.
I am glad that my hon. Friend recognises that the main thrust of the Bill is to reward saving among very many older people, especially those whom he rightly identifies as likely otherwise to be poor in retirement. Let us remember that the majority of the beneficiaries under the Bill will be women, who particularly benefit from the minimum income guarantee. I suspect that many Members will have met women at their surgeries who have paid a half stamp, for example, and have found that their pensions are a lot lower than they expected. For such people, the minimum income guarantee is very helpful.