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Mr. Smith: Last October, in partnership with volunteer employers and private pension providers, we launched combined pension forecasts that will allow people to see more clearly what pension they can expect to receive when they retire. That will form a crucial first step in raising—
Mr. Francois: Will the right hon. Gentleman form a partnership with me and give way?
Madam Deputy Speaker (Sylvia Heal): Order. The Secretary of State has made it clear that he is not giving way.
Mr. Smith: We have taken a crucial first step in raising awareness to ensure that people have enough income
when they retire. All too often at present, they have a rude awakening when they realise that they will be getting less than they expected. Inevitably, it is also a lot less than they were getting while they were at work. It is a scandal—[Interruption.] Opposition Members are grinning, but when they were in government, they never did anything to enable people to estimate their retirement income.We shall build on our approach from April next year when members of money purchase occupational schemes, stakeholder pensions and personal pensions start to receive an annual illustration of their future pension rights.
Those are important steps, but we need to go further still. I want talking about pensions and financial planning to be more of an everyday issue. The attention received by this debate about the situation facing the country on pensions will do some good if more people realise that they must consider their pension prospects. They have a right to expect reliable information about how they can save more for the future. To that end, we are working closely with the Financial Services Authority and others in the industry to promote the need to save and to ensure that people have the information that they need to make savings choices that are right for them.
Lynne Jones: Does my right hon. Friend agree that it is vital that people are given information in pensions statements about the impact of their own savings on their likely receipt of state benefits? Would not it be better if we rewarded pensioners who save by setting the basic state pension at the same level as the guaranteed pension credit, as proposed by the Institute for Public Policy Research? Would that not offer a more robust system for the future?
Mr. Smith: No, I do not believe that. [Hon. Members: "Why?"] For reasons of cost and the effectiveness of the scheme in concentrating available resources on those who need them most. That is the merit of the minimum income guarantee and the pension credit reform that we have introduced. I must now make some progress.
I was outlining the key drivers in these matters, one of which is ensuring that people have the right incentives. It should pay to save, yet, until we introduced reforms, that had not always been the case. That is why we are introducing the pension credit from next year, and why the Inland Revenue, as part of the review that we are carrying forward, will report later this year on tax simplification. Simplification, of course, is a third key principle.
Mr. Gary Streeter (South-West Devon): Does the Secretary of State see any connection at all between the Chancellor's £5 billion a year tax on dividends and the increasing number of final salary pension schemes that are closing their doors to new members? Is there any connection—yes or no?
Mr. Smith: I have already explained the reason for that policy and the impact that it has had on raising levels of investment in this country, thereby strengthening British industry and services and putting in place a stronger economic foundation, which, surely, is the way to ensure that we can pay higher pensions in the future.
On simplification, we need to make sure that as much goes into the pension pot as possible, avoiding excessive costs in selling or in running schemes. The key next step will be the Pickering and Sandler reviews, which are due to report shortly. As I said, the Inland Revenue will report on its review of tax simplification later in the year. Alan Pickering's report will consider how we can strip away unnecessary legislation and make pensions much simpler, thereby making it easier for employers who run a company scheme, easier for the industry to sell pensions, and, above all, easier for people to save.
Mr. Julian Brazier (Canterbury): The Secretary of State referred again to encouraging saving. He will know that, for nearly 40 years, a measure has been taken of savings across the economy—the savings ratio. Will he tell the House why it is now at an all-time low—a miserable 3.5 per cent.?
Mr. Smith: The hon. Gentleman was clearly not listening, or did not comprehend fully, when I explained this matter to Opposition Members. I shall give the short version: the savings ratio tends to go down when the economy is doing well, and it tends to go up when the economy is doing badly. That might explain why it was often higher under the previous Administration than it is now, as the economy has been doing so well.
On simplification, we need to take a hard look at the regulations surrounding pensions and make a conscious decision to simplify the system. We need to make sure that pensions are accessible to the people who need them.
David Winnick (Walsall, North): Would not large companies find it useful to use as their model the pension scheme that exists in the House of Commons? We now have—it may have been different in the past—a very good pension scheme. What I cannot understand is why we should have that scheme, which is right and proper, when it is denied to many other people. Every effort should be made to ensure that large companies have—or introduce—a final salary pension scheme. What is good for us should be good for others.
Mr. Smith: We recognise the contribution that final salary defined benefit schemes make more widely in the economy, as well as in Parliament and across much of the public sector. It is important to explain, however, that the final salary or defined benefit scheme is not the most appropriate vehicle for everyone, especially more mobile workers and those who do not have the prospect of progressing up the salary spine, for whom a defined contribution system can offer more. The crucial consideration is the amount of contribution that goes into the pot and the security and return on the investment.
Gregory Barker (Bexhill and Battle): Will the right hon. Gentleman give way?
Mr. Smith: I have given way many times and I must finish my remarks.
Another aspect of the debate is important in informing the national consensus that we need to build. As well as making it easier for people to save, we need to provide more and better opportunities to prepare them for retirement. We need to reverse the trends of the 1980s and 1990s in which, for example, the proportion of men
between the age of 50 and state pension age not in work doubled. We need to get rid of perverse incentives to retire when it might suit people to carry on working, perhaps part-time, for longer. Far too many people experience a cliff edge between work and retirement—
Mr. Smith: The right hon. Gentleman should know.
On Friday, someone could be deemed a valuable member of the work force, but the following Monday find himself shuffled off to retirement.
Youth unemployment was the focus of many Government efforts to get people into work in the 1990s. The focus now must be on the over-50s. Progress has been made. The rate of employment for the over-50s has risen every year for the past four years and is now one of the highest in Europe. Already 900,000 more people aged over 50 are in work than in 1997, but there is still more to do. With increasing longevity, people should be able to choose to combine work with income from retirement not just in the years up to state retirement, but beyond.
Mr. McLoughlin: Will the right hon. Gentleman give way?
Mr. Smith: No, I am concluding my remarks.
I firmly believe that our framework is based on a combination of state and private provision that strikes the right balance. Like the Conservatives, I do not believe that state pay-as-you-go pensions should dominate, but unlike them I do not believe that we should rely exclusively on funded private pensions. Privatising the basic pension, as the Conservative party proposes, would force everyone to put their retirement nest egg into one basket.
The future is risky and we need a balanced strategy to spread those risks—a partnership between the state and the private sector. We will continue to build on the changes we have made to enhance that partnership. The principles on which our approach is based are clear: first, the basic state pension as the foundation; secondly, our responsibility to those who save; thirdly, our continued commitment to tackle pensioner poverty; and, fourthly, radical reform to support occupational pensions. We will carry forward our work, building on what has been achieved to help people gain security and fulfilment in retirement.
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