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17 Dec 2002 : Column 703—continued
Mr. Smith: I thank the hon. Gentleman for his welcome. I greatly appreciate the work that the Select Committee is currently undertaking and, as part of the consultative process on the Green Paper, I shall look with great interest at its recommendations and the outcomes of its work. The commission's proposed terms of reference are set out clearly in the Green Paper. First, it will make an assessment of the information that it needs to do its job. I know that the hon. Gentleman, like others in the House, has questioned the adequacy of statistics on pensions in the past—the hon. Member for Havant (Mr. Willetts) referred to that. It is therefore important that an accurate baseline assessment is made. Having done so, the commission will assess long-term trends in savings—not just pensions, but other savings vehicles as well—and how well various partners in the pensions partnership are meeting their responsibilities, and will make recommendations accordingly.
Miss Anne Begg (Aberdeen, South): I welcome the suggestion of a flexible retirement age and the rejection of any increase in the state retirement age. There is certainly a job to be done by the Government and employers in encouraging more people to work until the existing retirement age but, to do so, they need to tackle the issue of age discrimination in the workplace.
Mr. Smith: I thank my hon. Friend for her welcome. She is absolutely right—good as it is to enable people to
work beyond 65 if they wish to, the really important thing is to get more people to participate in the work force up to the age of 65. Building on the work that we have already done in the Age Positive Campaign, which has turned the tide—900,000 more people over 50 are in work now than in 1997—we should move on from the Green Paper to introduce legislation to prohibit age discrimination, as well as introducing other measures to enable and encourage people to carry on working where they are able to, and want to.
Mr. John Butterfill (Bournemouth, West): We would all welcome any simplification of the tax rules, which will help some employers in particular. May I press the Secretary of State on a couple of matters? First, how will the proposals interface with all the legacy schemes introduced by the state—graduated pensions, SERPS, the guaranteed minimum pension and state second pensions? Will all those still be burdens on employers, as they are on our own pension scheme, as I know to my cost and that of the other trustees? Secondly, will the changes that the right hon. Gentleman is making in taxation effectively be retrospective? If so, will there not be some substantial losers, particularly those in pre-1970 schemes where, despite what the right hon. Gentleman said, there were no cash limits on what could be put in? Finally, will the Secretary of State and the Chancellor look at the possibility of allowing the first 25 per cent. of an annuity to be taken tax free, where the annuitant puts all of their pot into a pension, as many poorer pensioners should? At present all they can do is take a tax-free lump sum, which may be to their disadvantage.
Mr. Smith: I acknowledge the hon. Gentleman's expertise in these matters and welcome his recognition of the fact that the simplification measures will be of benefit to employers. With reference to the interface with the state system, I think I made it clear that the basic state pension, our proposals for the pension credit and the state second pension remain. There will, though, be a considerable gain to schemes and scheme administrators through the radical simplification of the measures in respect of the guaranteed minimum pension which, as he knows, is a great cause of complexity and cost. As regards the rights that people have under previous regimes, all accumulated rights will be respected and honoured. In so far as there will be losers, there will be disappointed expectations on the part of as few as 1,000 people, who might have been expecting to go beyond the limits that we are confirming with the new lifetime approach.
Mr. Kelvin Hopkins (Luton, North): Does my right hon. Friend accept that for millions of ordinary people on average and lower incomes, a universal state pension at a much higher level than it is now will be the only way to avoid poverty in old age? Does he therefore accept the view expressed by his own adviser in The Times today that we should proceed towards a much better state pension without means-testing and based on compulsory contributions from both employers and employees?
Mr. Smith: I addressed that argument in my statement. I acknowledge and share my hon. Friend's concern that those on the poorest incomes should gain
security in their retirement through the state system, as well as through their own efforts. However, as I spelled out, the arithmetic is such that if we were to wrap up the minimum income guarantee in the basic state pension, yes, the basic state pension could go up by #10 a week, but those getting the minimum income guarantee—the poorest pensioners—would lose out to the tune of #17 a week. That is the arithmetic, which confirms that we are right not only to have increased the basic state pension, as the foundation, by more than inflation and by more than earnings, but to build on top of it an improved state second pension that will help 18 million people—many of them on low incomes, many of them carers or disabled people—as well as bringing in the pension credit, which will reward modest pensions and savings income, whereas it was penalised in the past.
Mr. James Arbuthnot (North-East Hampshire): I welcome some of the things that the Secretary of State said, particularly about simplification of the tax regime and simplification of pensions in general. Does he recognise that some of the things that the Government have done in relation to introducing a minimum income guarantee and pension credit on the one hand, and on the other pledging themselves to the target of 60 per cent. from private funding, which I was pleased to hear him reconfirm to my right hon. Friend the Member for Hitchin and Harpenden (Mr. Lilley), the former Secretary of State, give the impression that the Government did not really know in which direction overall they were moving? Will the Secretary of State now commit himself to doing his utmost to reduce means-testing, and if so, what target would he introduce for reducing means-testing?
Mr. Smith: I accept and welcome the spirit in which the right hon. Gentleman acknowledges the benefits and gains from the statement and the Green Paper proposals that we have set out. On the core of his question, I believe that there is indeed a consistency of purpose in what we are doing. That purpose is to use the available resources to the best possible effect. Yes, we should help all pensioners, as we are doing—on average, they will be #1,150 better off next year in real terms—while giving greatest help to those who need it most in the #1,500 of benefit that will go to the poorest third of pensioners. At the same time, as we are proposing today, we must simplify and reform occupational and private pensions saving so that those who can afford to make more provision for their retirement or want to contemplate a longer working life can do so. At the interface between the two, we have the pension credit, whose great strength is that it gets us away from the pound-for-pound withdrawal of lower levels of saved and pension income to which I am afraid that the right hon. Gentleman's Front Bench and the Liberals would return us.
Sandra Osborne (Ayr): I welcome the fact that the Secretary of State is not ruling out compulsion in the longer term if the voluntary approach does not work. I also thank the Minister for Pensions in particular for listening to the concerns of former United Engineering Forgings employees in my constituency, who stand to lose out greatly on their pension entitlement as the
company has gone into receivership. How will the proposals announced by the Secretary of State affect those workers, and how will they help them?
Mr. Smith: I acknowledge my hon. Friend's record of work on behalf of the constituents to whom she refers. We are consulting on proposals in the Green Paper that will strengthen protection for workers on the winding up of a company. In the case of solvent employers, we are consulting on options either for a full or partial buy-out of accumulated pension rights, and for insolvent employers, we are considering the opportunity of using a clearing house to get them better value and annuities that protect their future income. As the TUC has urged, we are also consulting on opportunities for mutual insurance, including the possibility of a central discontinuance fund.
Mrs. Angela Browning (Tiverton and Honiton): The more the Secretary of State encourages flexibility for people to work beyond the state retirement age, with which I have no problem, the more important it will be for him to introduce flexibility in the requirement to take an annuity at the age of 75 for all those products that are money-purchase based. Why has he not reconsidered that issue? At the moment, he needs as much flexibility in the pensions market as he can get.
Mr. Smith: The problem is that what the hon. Lady advocates could be done only at a cost of hundreds of millions of pounds. She and her party have to decide how much of a priority her proposal is. It is important to underline that annuities remain the only means of guaranteeing an income for as long as people live. It is one of the quirks of human nature that people are inclined to underestimate how long they will live. The Green Paper and tax simplification document contain very important proposals that will help prospective annuitants with the introduction of value-protected and limited-period annuities.
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