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Mr. Levitt: One element that seems to have been forgotten, as I am sure my hon. Friend is aware, is that when ACT was abolished, a 3 per cent. cut in corporation tax made it the lowest in Europe.
James Purnell: I am grateful to my hon. Friend. He has saved me from making that point.
Secondly, the real cause of the decline in occupational pensions lies elsewhere, as the hon. Member for Daventry (Mr. Boswell) said in the Standing Committee that I
quoted. There are several reasons for the changes in occupational pension funds, the main one being that employers face exactly the same pressures as the Government—people's longevity. People live longer, so the cost of maintaining a pension fund is becoming greater. Is that an excuse for companies to close their pension funds?
Andrew Selous: The hon. Gentleman is right to say that there has been a gradual decline in the membership of funded schemes, but does he accept that it has been far steeper since 1997?
James Purnell: The figures do not justify that because, as I understand it, the latest ones are projections rather than facts.
Between 1991 and 2000, the stock market was booming, so companies were taking holidays from pension contributions. My hon. Friend the Member for Ayr (Sandra Osborne) quoted stark figures: out of the almost £19 billion taken by funds at that time, the figure put into pension holidays was 16 times higher than the amount put into reducing employee contributions. In that period, pension schemes were getting a large surplus because of the performance of the stock market, but companies used it to profit themselves, and now that the stock market is going through a more difficult period, they are using the excuse of Government policy to reduce their contributions, which effectively reduces their employees' pay. If they directly reduced people's salaries to that extent, there would be absolute outrage.
It is no surprise that when the TUC surveys people about their conditions of work, it now finds that pensions are their greatest worry. That may start to make a difference to people's attitude to this issue. Employers will find it much more difficult to reduce contributions if individuals begin to treat their pension as part of their salary.
John Robertson: Does my hon. Friend agree that pensions are in people's thoughts so much because the Government have raised awareness of the issue and taken the debate to the people?
There are legitimate issues to be discussed. Unfortunately, the main ones are not those raised by the Opposition today. We never hear what their policies are. The hon. Member for Havant (Mr. Willetts) claimed that he would come on to Conservative policy, but he spent 25 minutes talking about statistics, rather boring those on the Benches behind him. He may come to regret the large attendance that he enjoyed today. He then spent one minute talking about his policies, one of which is to support the Government's policy on Pickering. The only other two that he mentioned were support for annuities, which overwhelmingly benefits the rich, and a reduction in means-testing, but he did not tell us how he would achieve that.
Luckily for us, the hon. Gentleman is rather less coy outside the Chamber. He is fond of being expansive at seminars or in print, as the hon. Member for Northavon (Mr. Webb), whom I am glad to see is still present, and I found at the conference I mentioned earlier.
Kali Mountford: Did my hon. Friend glean from the speech of the hon. Member for Havant (Mr. Willetts) the telling point that he hoped that there would be less reliance on, and indeed no need for, the basic state pension?
James Purnell: That is deeply worrying. The hon. Gentleman wrote the last Conservative manifesto, and after his great success at the election he may have a hand in writing the next one. If we cobble together his policy from the indications that he has given, we find that the manifesto is likely to include opting out of the basic state pension, which may be paid for by getting rid of SERPS and the state second pension. That is what he seemed to be saying at the conference that the hon. Member for Northavon and I attended last week.
The hon. Member for Havant said that other Opposition Front Benchers were already enviously eyeing SERPS and the state second pension, especially now that it had been made into what he described as a "rather odd system", with a flat rate. The reason it has been made into a flat-rate system is to make it redistributive, so that those who benefit from the state second pension are those with broken career records or caring responsibilities who have not been able to build up the same entitlement as those who work their whole life.
It is not surprising that the one pensions policy for which the Conservatives—who claim suddenly to have discovered the vulnerable and the poor—voice clear support is a change to annuities, which would overwhelmingly benefit the rich, and the one area that they are prepared to raid to fund their pensions policy is one that overwhelmingly benefits the poor. People outside will notice that.
It is worth wondering what would have happened had the plan proposed by the hon. Member for Havant been introduced—if we had a system in which people opted out of the basic state pension—and the stock market had fallen by £270 billion or £480 billion. People who, because they had opted out, relied on the stock market for the whole of their pension would suddenly have found on reaching retirement age that the value of their pension had been decimated—that it had fallen by 20 or 30 per cent. Our current pensions system would be regarded as a triumph compared with that. People would be beating down Downing street's doors demanding that their pension entitlement be restored to the level it would be under the current system.
Under the hon. Gentleman's plans, this country's entire pensions system would be dependent on the fluctuations of the stock market; that is an extremely strange position to want to be in. The hon. Member for Sutton Coldfield (Mr. Mitchell), who is supposed to be responsible for this policy area, shakes his head. Presumably, in the Conservatives' system the state would guarantee a fixed sum that people would receive. In that case, in the scenario that I have described, the Government would have to find a huge sum to make up the shortfall. As
the stock market fell, the Chancellor would be faced with having to find a huge sum to make good the difference. That is not a sensible policy.
Mr. Webb: The hon. Gentleman describes the 100 per cent. funded scenario, but he supports the Government's aim of getting one third of the way there—going from 40 to 60 per cent. funded provision. Is he not at least one third vulnerable to that criticism?
James Purnell: Of course I support Government policy, but I thought that the hon. Gentleman's suggestion of monitoring how many people will have sufficient income in retirement while pursuing that policy was interesting.
The real question is how we can further stimulate private saving. According to some estimates, we are saving 50 per cent. less than we should be. The TUC produced a thoughtful document on whether we should look again at compulsion, pointing out that although employees are already obliged to contribute through SERPS and the state second pension, there is no such obligation on employers. It would be worth debating such a proposal. Or perhaps a tax incentive could be used, as the hon. Member for Northavon suggested. I hope that the Work and Pensions Committee, of which I am a member, will consider that important matter soon.
I urge the Minister to consider how to encourage stakeholders further. The last time but one that we debated this subject, the hon. Member for Havant bemoaned the failure of stakeholder pensions. Unfortunately the facts have undermined his case again, because in the six months that have elapsed since that debate the number of people in stakeholder pension schemes has more than doubled. He claimed during that debate that most of those pensions were being sold to children or people who did not benefit from them; in fact, most are sold to people on incomes of between £10,000 and £30,000—precisely the middle or low-income earners who we want to save more. I believe that that policy is developing into a success. Individual savings accounts took a while to get off the ground but then acquired a momentum of their own, and I hope that the same will happen to stakeholder pensions.
I encourage the Minister to consider a couple of suggestions about how to build on that success. One idea is to allow employers to promote the system more actively to their work force. If they have opted into a scheme, they should have more freedom to promote it and encourage people to join it, but they are currently held back from doing so by regulation. I hope that such a recommendation will emerge from this summer's reviews.
Last week, Adrian Boulding of Legal and General made the interesting suggestion that instead of tax incentives remaining as they are now, they should be changed, so that, for example, a lower-income worker saving £100 a month would receive £50 a month in direct cash contributions. Tax incentives should be brought up front. Everyone likes free money, and the way in which incentives currently operate is too complicated for people to realise what benefits can accrue from saving and what help the Government will give.
This is an interesting time in pensions policy—if I can say that with a straight face. There are genuine issues that we should consider, and we shall continue to focus on them. Meanwhile, the Conservatives try to distract people
from the substance, and by so doing give cover to those employers who are cynically closing schemes and cutting their contribution rates. That is a genuine issue, and it would have been a much better subject for today's debate.
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