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Mr. Webb: The state second pension will build up over a 45-year period, and it will help only women whose children are now aged five or under. Even in 45 years' time, the poorest women in retirement will not be those who have just hit pension age at 65; they will be the 80-year-olds. Even in 45 years' time, a full basic pension and a full state second pensionwhich will be quite hard to accumulatewill not lift a woman above the means test. The glory of the Government's goalthe full fruition of their policiesis that in 45 years' time, even if she is good and has a full basic pension and a full state second pension, a woman can be rewarded by needing to claim a means-tested top-up because she does not have enough to live on. That is not a goal that I would set.
If a simple target not of 40 per cent. but of 60 per cent. funded provision is arbitrary and inappropriate, what should be the Government's target? What should they measure to determine the progress of their pensions policy? The answer is so blindingly obvious that it is hardly ever said. Instead of measuring the numbers of billions in funds, which the Government appear to have great difficulty doing, they should measure how many people in the current work force are heading for an income in old age that will give them a decent standard of living. The target of policy should be to deliver that decent income to each individual in the most effective waywhether through state provision, private provision, or a combination of the two. It should not be an arbitrary figure40 per cent., 60 per cent., or whateverpicked out of the air, because that might not be consistent with the right number of people getting a decent income in retirement.
Such an exercise has been undertaken. NatWest Life produced a pensions index. It asked retired people what sort of income they needed for a decent standard of living, then projected how many of the current work force would, as things stand, attain such standards, and came up with a figure of 21 per cent. A year later, it found that that figure had fallen slightly. We can argue about thresholds and measures, but the principle must be right. We should be debating the proportion of people of working age who are heading for poverty or comfort in old age, not having obscure discussions about hundreds of billions of pounds and inflows and outflows. We have lost sight of the goal.
If we agree that there should be such a goal, the question is what should be done. As the right hon. Member for Birkenhead (Mr. Field) said, we have a duty not merely to whinge about the Government's performance, disappointing though it has been, but to say what should be done. I enormously welcome the fact that the Secretary of State for Work and Pensions is talking about flexible retirement and getting rid of arbitrary barriers. He even used a phrase that I have used for a long time, saying that he wanted to get rid of a cliff-edge notion of retirement. I heartily support that.
I hope that, following its review, the Inland Revenue will allow people partly to retire, partly to work for the same employer and partly to draw a part pension. It is absurd to assume that 99 per cent. of the work force are tax dodgers and to set the rules for them. Let us presume that people want to order their affairs to their own advantage but not to exploit the taxpayer. Let us assume that they want the system to allow flexibility in retirement, get rid of arbitrary rules that cut people off at 60 or whatever age, and provide choices. That would help funded pensions and would help to make the sums add up.
Geraint Davies (Croydon, Central): As the hon. Gentleman is moving toward making recommendations, will he say whether he favours the Australian occupational pension scheme, in which a certain level of coercion on employer contributions is matched by increases in productivity and tax breaks? That gives rise to much higher predictable income in later life.
Mr. Webb: I shall come to that very issue. Ideally, we want to enable people who are willing and fit to work longer. The question is how we complement that and get more saving donethe stick and the carrot. We can either force people, as the hon. Gentleman has suggested, or incentivise them. I shall return to compulsion.
The ABI has written to a number of us proposing an interesting scheme. Where, say, two thirds of a company's employees are in a scheme and the employer is contributing, say, 5 per cent., there could be a pension contribution tax creditnot a pension credit but a Government top-up. There could be some subsidy of good company schemes in which employers contribute a fair whack and to which a decent proportion of the work force belong. That idea seems to be well worth pursuing.
The Government may think that the decline in final salary schemes and the amount that is going in are problems, yet they have no control over that amount. It is determined by the entirely private decisions of employers. If the employer decides to cut the contribution rate, the Government cannot say, "No, you can't." They just have to sit and watch. That is my key point. The Government do not appear to have policy levers to stop the problem arising. Why not look at incentives such as the ABI suggests? There could be some reward for employers that run good schemes to which they contribute a decent amount. That could perhaps be financed by reductions in higher-rate pension contribution relief.
Mr. Webb: I should explain that this is me speaking; this is not yet official party policy. [Hon. Members: "Ah."] It is important that we put on the table the ideas that are kicking around and see what reaction we get. Should not that, rather than reading out prepared speeches, be the point of a debate?
Mr. Frank Field: Surely what is sauce for the goose should be sauce for the gander. If the hon. Member for Havant (Mr. Willetts) wants to discuss what we do with housing benefit, should he not be encouraged, rather than penalised, for doing so? Similarly, we should encourage the hon. Member for Northavon (Mr. Webb) to discuss ideas of redistributing tax privileges.
Mr. Webb: Absolutely. If the hon. Member for Havant had repeated in the House what he said at an IPPR conference, I would have been delighted. We could have kicked the idea around, but it has disappeared. We would not even have to get rid of all the higher-rate relief. The ABI has costed one of its proposals at £900 million; higher-rate relief costs substantially more than that. Higher-rate relief is not delivering a penny of extra pension savings to people who are not saving enough. That is the key. If a finite amount of Government subsidy is going into the pension business and we want people who are not saving enough to save more, it may be worth looking at redistributing money from people who are saving quite well and can look after themselves by putting it into good company schemes over which the Government have no sway. If that eventually becomes Government policy, you heard it here first.
John Robertson: Is the hon. Gentleman saying that he would like to introduce legislation to force companies to make a contribution to pensions? If so, will he say what should that contribution be, and develop an idea in which I am interested?
Obviously, the Australian situation is different because there is far more collective labour organisationnational labour unions can offer a deal in return for a pension contribution. The Australian system has achieved a huge increase not just in the proportion of male full-timers with pensions but women part-timers. We must therefore take a serious look at compulsionwe must not be afraid to use that word. It is hard to compel new young workers to pay for a pension. Even for me, telling a 21-year-old with a £10,000 student debt, "By the way, you've got to pay for your pension," is not a saleable proposition. However, we might tell people in their late 20s, before the onset of family responsibilities, "Now is the time to start thinking about a pension." The earlier that we do so, the less severe will be the contribution demanded of them.
Do the Government regard incentives as part of the solution, without which they have no lever on employers? Or do they regard compulsion as part of the solution? The Secretary of State is wary of that option, but does not seem to have ruled it out completely, which is probably the right approach. I hope that he will keep an open mind, as there is a widespread view in the industry that we may need to go down the route of compulsion.
I am concerned about where we are heading. The time bomb is not about paying for pensionsit is about pensioners living in poverty. As the hon. Member for Havant said, the Government have just published figures showing that newly retired people are less likely to have an occupational pension than they were a year or two ago. I asked the Secretary of State about those figures at Work and Pensions questions yesterday, but his response concerned a different set of figures, perhaps because my question was not clear enough. However, I was referring to the Department's own pensioner income series, which shows that in 19992000, 48 per cent. of single females had a company pension, but in 200001 only 39 per cent. had onea huge fall from one year to the next. In a written answer, the Minister for Pensions told me that that might because of the selection of an atypical group. That may be true, although a sampling variation alone cannot account for a shift of that size. We know what the scale of uncertainty is in samples, and it cannot explain such a big difference. Either the figures are wrongsomeone has done something wrong with the questionnaire or survey and, if so, I hope the Department looks into itor something more significant is going on.