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17 Dec 2002 : Column 692—continued
Civil Emergency Contingency Planning
39. Miss Anne McIntosh (Vale of York): What recent discussions he has had with ministerial colleagues on the organisation of civil emergency contingency planning. [85940]
The Minister of State, Cabinet Office (Mr. Douglas Alexander): Within the Cabinet Office, the Minister for the Cabinet Office, Lord Macdonald of Tradeston, has ministerial responsibility for civil emergency contingency planning. He is in regular contact with ministerial colleagues on civil contingency issues, both within formal committee meetings and on an ad hoc basis.
Miss McIntosh : As the Minister will be aware, the emergency planning college is situated at the Hawkhills campus near Easingwold in my constituency. Who is responsible for delivering contingency planning? What should Members of Parliament do in the event of a terrorist attack on the House?
Mr. Alexander: My noble Friend Lord Macdonald of Tradeston recently visited that college, and heard about the important work being taken forward there. I pay tribute to that work today. The Minister responsible for the protection and safety of UK citizens is my right hon. Friend the Home Secretary. He is in charge of three Cabinet Sub-Committees, and he co-ordinates the work of Government not just in one locality but across the country.
Occupational and Private Pensions
3.31 pm
The Secretary of State for Work and Pensions (Mr. Andrew Smith): With permission, Mr. Speaker, I wish to make a statement on the Government Green Paper entitled XSimplicity, Security and Choice: Working and Saving for Retirement".
Decisions on pensions are some of the most important of our lives. Since coming to office in 1997, this Government have faced three specific challenges on pensions—of affordability, pensioner poverty and expectations. Rising longevity poses important challenges for the affordability of pensions systems right across the developed world. The old age dependency ratio is expected to more than double in the EU, with even greater increases in other developed economies such as Japan.
It is good news that people live longer, but if people want their standards of living to continue to rise in retirement, they must either save more or work longer, or a mixture of both. The UK is in a stronger position to meet this demographic challenge than most other developed countries, not only because our dependency ratio is expected to increase by half as much as the European average, but because of the choices that the Government have made over the past five years to ensure that the UK pensions system remains affordable.
We rejected demands to link the basic state pension to earnings, because that short-term solution would not have been sustainable over the long term. Instead, because of our targeted approach, projections show that public spending on pensions in this country will remain stable over the next 50 years at around 5 per cent. of gross domestic product. In contrast, EU forecasts show that other European countries such as Germany and Spain will require increases of between 40 per cent. and 80 per cent. in public spending on pensions over the next 50 years in order to meet their pension liabilities.
That same targeted approach has enabled us to meet the second challenge, of pensioner poverty. Since 1997, we have strengthened the foundation of basic state support through the introduction of the minimum income guarantee and, from next October, the pension credit. As a result, next year the poorest third of pensioners will be on average #1,500 a year better off.
I can tell the House that the Government continue to reject calls from the pensions industry and others that all targeted support for pensioners should be scrapped and instead added to the basic state pension. Such a move would mean an increase in the maximum basic entitlement of #10 a week for some pensioners, but at the expense of a cut of #17 a week for the poorest pensioners. That would amount to taking resources from the poorest pensioners and redistributing them to the richest, and it is not our way.
Over the past five years, as we have taken action to tackle pensioner poverty, the pension contributions of people on higher incomes have risen by 40 per cent., increasing the incomes that they can expect in retirement. The challenge facing society today, therefore, has to do with the expectations of middle-income earners—people who expect continuing rising standards of living in retirement, but who to achieve that will either have to save more or work longer, or both.
Evidence shows that perhaps 3 million such people are currently not saving enough for their retirement, and others may not be saving enough to provide the pensions that they want. At the same time, occupational schemes have come under pressure from rising costs and increasing complexity. Some employers are closing schemes or cutting the amount of contributions, and many people are leaving the work force earlier.
There is a choice to be made on how we meet these challenges. Some believe that a radical strengthening of the voluntarist approach to pension provision can never be made to work and that the United Kingdom should move beyond it, for example, adopting further compulsory pension contributions. We believe that the partnership between Government, individuals, employers and the financial services industry has long been a strength of the pensions system in the United Kingdom, and that the proposals we are setting out today will renew that partnership and reaffirm the responsibilities of each member.
Our proposals show how, if all partners play their part, the voluntarist approach can work to maximum effect. The test will be whether, with this radical strengthening of our approach, employers and employees can rise to the challenge voluntarily, or whether we will need to introduce more compulsion. In a voluntarist system, over and above the level of support provided by the state, individuals are best placed to judge their own long-term savings needs and aspirations for retirement; but the success of that approach rests on the information and understanding that people have, and the clarity of the options open to them. The approach will fail if the complexity of products and the cost of financial advice deter people from saving.
Since 1997 we have taken action to rebuild trust in the financial services industry, to clear up pensions mis-selling—[Hon. Members: XOh!"]—for which Opposition Members ought to apologise—and to introduce new savings products such as individual savings accounts and stakeholder pensions, opening up new opportunities for people to save. For too many people, however, pensions planning—as we all know—has remained an incomprehensible maze.
- XPensions simplification has to be at the heart of any strategy to encourage greater pension provision". —[Official Report, 11 July 2002; Vol. 388, c. 1053.]
Today I can announce a radical simplification of the rules. We propose to sweep away the eight existing pensions tax regimes with their associated limits on annual contributions and benefits. We propose to replace them with a single lifetime limit assessed at the point of retirement, and we propose to set that limit at #1.4 million. The lifetime limit will be complemented by a light-touch compliance regime based on an annual
limit of #200,000. That limit will not affect the majority of people. Further details are contained in an Inland Revenue consultation document published today by my right hon. Friend the Chancellor. As my right hon. Friend announced in the pre-Budget report, the tax-free lump sum will remain, as will existing tax reliefs for pension contributions by employees, the self-employed and employers.These proposals will help people to make clear, confident decisions. They will encourage more saving, and enable more people to build up a bigger tax-free lump sum. They mean far greater individual choice and flexibility in terms of when and how much to save for a pension. Over 99 per cent. of the population will be able to save more, with tax incentives, than is possible under current rules. The proposals will also reduce administrative burdens on employers and pension providers alike. Taken with the other measures that I am announcing today, they could save employers between #150 million and #200 million a year in pensions administration.
We will match this radical simplification of pensions taxation by breaking down other barriers to pension saving. We will provide individuals with more information about their own circumstances, and our proposals will increase the availability of state pension forecasts and extend the coverage of combined state and occupational pension forecasts. We will promote total benefit statements in the workplace, and highlight the additional value that tax relief contributes to saving in a pension.
To broaden access to advice, we will work with the financial services industry to develop mass-market financial advice in high street banks, and will consult on options for a possible requirement on employers who do not provide pensions to provide financial advice free of charge through the workplace. I can confirm to the House that we will implement the recommendations of the Sandler report to make it easier to save through simpler products, dramatically stripping out regulation and sales costs.
We also propose to offer the self-employed the right to opt in to the state second pension. I can also announce that we will increase product choice and flexibility in the annuities market by consulting on proposals to allow limited-period and value-protected annuities.
The proposals that we are setting out today will also reaffirm the role and responsibilities of employers in the pension partnership. Many employers recognise the important benefits to recruitment, retention and staff motivation that good pension provision brings. But, elsewhere, some employers have been reducing their financial commitment and contribution to workplace pensions, causing anxiety and damaging confidence in pension provision. There is a difficult balance to strike, here. We want to increase member protection without imposing burdens on employers.
I can announce today that we propose to create a new proactive pensions regulator, to focus on schemes where there is a high risk of fraud, bad governance or maladministration. We are also setting out proposals for a fairer sharing of assets when schemes close,
with more priority for workers closer to retirement or those with more years of contributions. We propose stronger protection for members where employers wind up schemes, and the capping of provisions to prevent executives abandoning ship and taking the lifeboat with them. We recognise, as good employers already do, the vital interest that employees have in their pension arrangements, so we propose requiring employee consultation before schemes are changed.We can only expect to enhance protection for employees if we make it simpler and easier for employers to run schemes. Following Alan Pickering's report, we propose radically to reduce the regulatory burden on occupational schemes by simplifying the contracting out rules, including reforming the reference scheme test and ending restrictions on how and at what age contracted-out rights can be drawn. We will also replace the minimum funding requirement with scheme-specific funding requirements, saving companies #80 million a year. We will also consider allowing employers to make membership a condition of employment. I can also announce our aim to consolidate all pensions legislation into a single pensions Act.
These radical reforms mean big cuts in the administrative burdens on employers and schemes. We will also work with a new employer-led taskforce, including trade union membership, to identify and promote good practice.
Enabling people to work a few years longer can make a huge difference to retirement income. The 1980s and early 1990s saw the employment rate for older male workers decline. That trend has been reversed, with 900,000 more people over 50 now in jobs than in 1997. However, we must go further, by doing away with inflexible and outdated approaches to retirement. Our proposals will allow people to choose to work for longer if they want to do so.
We propose to promote flexibility in retirement by building on the success of the new deal 50-plus; legislating against age discrimination; ending compulsory retirement ages; and raising the normal pension age for most groups in the public services to 65 for all new entrants. To smooth the cliff edge between work and retirement, we propose to allow people to carry on working while drawing an occupational pension; and to improve the incentives for those who want to work past state pension age, we will bring forward increases to the extra state pension that people get by deferring. That means that a single pensioner who has accumulated #100 a week state pension and second pension entitlement could choose to take their pension at 70 and get #150 a week instead.
We are also consulting on the chance for those who defer to take a lump sum instead of the enhanced pension. For a single pensioner, that would be a one-off payment of #20,000 on top of their normal pension, or #30,000 for a couple.
I have one further announcement to make about the state pension age. We have received representations for a significant change, with persuasive arguments to move to a higher state pension age, releasing resources for use elsewhere in the pensions system. I have carefully considered that option, but have concluded that it would disproportionately impact on the poorest workers—those most dependent on the state pension, many of whom have had hard working lives.
As well as being forced to work for longer, those people would, because of lower life expectancy, see a bigger than average slice of their retirement taken away. I have therefore decided that we should not raise the state pension age. Our measures to give people far greater choice about flexible retirement are the right way to address the issue—not raising the state pension age.
The proposals that we are setting out today seek to renew the pensions partnership in the UK. They show how, with all partners playing their part, the voluntarist approach can be made to work to maximum effect. As I have said, some people believe that the voluntarist approach to pension provision can never be made to work, and that the UK should adopt a system of compulsory pension contributions.
There is a choice. The case for compulsion has not yet been made, but because of the magnitude of such a decision and the need to help to build a wider consensus on the way forward, I am today establishing an independent pensions commission, reporting to me as Secretary of State on whether the current voluntary system is sufficient to ensure that employers and employees rise to the challenge. I can tell the House that Adair Turner, former director general of the CBI, has accepted my invitation to chair that commission. It will report to me regularly on whether there is a case for moving beyond voluntarism.
The time has come for all the partners in the pensions system—the Government, employers, employees and financial services—to rise to the pensions challenge, and I commend the statement to the House.
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