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Mr. Deputy Speaker : Order. The eight minutes are up.
Mr. Frank Field: On a point of order, Mr. Deputy Speaker. Will you advise us as to whether, if we all speak for four minutes, we will all get into the debate?
Mr. Deputy Speaker: That is a matter for hon. Members to work out among themselves.
6.16 pm
Mr. Paul Goodman (Wycombe): I shall try to please the right hon. Member for Birkenhead (Mr. Field) by being as brief as possible, but I hope that he will forgive me if I begin my speech by congratulating the hon. Member for Northavon (Mr. Webb) on his entertaining and incisive speech. It reminded me of the happy occasion on Second Reading of the State Pension Credit Bill when my party, his party and the right hon. Member for Birkenhead voted together to raise the basic state pension for over-75s. That would have aided older pensioners, who tend to be poorer, and among whom there are very many women. The hon. Gentleman was right to point out that targeted help does not always mean means-tested help—a point that I wish to refer to later if I have time.
Obviously, the Government cannot possibly take all the blame—I hope to strike a note of consensus here—
Mr. Andrew Mitchell (Sutton Coldfield): Most of it.
Mr. Goodman: Indeed, but they cannot take all the blame for what the Select Committee on Work and Pensions described in its latest report as the crisis of confidence in the pension system, and what my hon. Friend and I would describe as the crisis in the pension system. Surely, the Government cannot take all the blame for the fall in the stock markets, the switch from good, defined benefit schemes to less good defined contribution schemes or the challenges posed by an ageing population.
However, I believe that the Government have made two major blunders—one tactical and one strategic—and I hope to have time to refer to both. I shall pass over the tactical blunder briefly—the removal of tax relief on dividends in the Chancellor's first Budget in 1997, which has taken £5 billion a year after pension funds. Like many measures, it seemed a good idea at the time. The Government wished to tax by stealth, rather than doing so openly, but in the recent inquiry of the Work and Pensions Committee, we heard evidence suggesting that that move has been very damaging indeed. I believe that the Minister should apologise for that in his winding-up speech.
The strategic error is perhaps even more serious, and the hon. Member for Northavon referred to it—the rise in means testing with the consequences for take-up, which has led to a fall in incentives to save. I wish to begin exploring that theme with a quote from the Chancellor:
- "I want the next Labour Government to achieve what in 50 years of the welfare state has never been achieved. The end of the means test for our elderly people."
The right hon. Member for Birkenhead would doubtless remind us that means-testing has pernicious effects on incentives to save, but I want for the moment to concentrate on take-up. According to the Government's own figures, between 1999 and 2000, between 22 per cent. and 36 per cent. of pensioners did not take up the minimum income guarantee.
When the Select Committee on Work and Pensions, on which I have the good fortune to sit, carried out its inquiry into pension credit, the Government made it clear that their expectation of the take up of pension credit—not a target, but an expectation, which they themselves described as ambitious—was some 67 per cent. In other words, the Government expect the non-take-up rate of pension credit in 2004 to be 33 per cent.—a third of pensioners. Despite the Minister's good intentions and the phone service that she mentioned, the Government do not expect the take-up rate to rise. In future, because pensioners will have to apply for the pension credit less frequently, which understandably is a noble aspiration of the Government, it will be even more difficult to assess whether take-up rates are rising or falling. By 2050, some 65 per cent. of pensioners could be on pension credit. In short, an even larger number of pensioners will be on means-tested benefits, with take-up rates possibly as low as 65 per cent. or 67 per cent.
Another problem is that of incentives to save. In any pensions system, there will always be a trade-off between security and the incentive to save, but the problem, which the Work and Pensions Committee touched on in its pension credit inquiry and in its most recent inquiry, is that different elements of Government policy appear to be trying to do completely different things. The Government have added to the basic state pension, as the hon. Member for Northavon said, the state second pension—to replace SERPS, or the state earnings-related pension scheme—the MIG, or minimum income guarantee, and now pension credit and stakeholder pensions, which, when I last looked, were hitting about 2 per cent. of their target group. The state second pension aims to prevent people who have worked all their lives from relying on means-tested benefits in retirement, but the MIG, if the Government continue on this course, will draw more and more pensioners into means-tested benefits when they retire. Government policy is trying to do two completely different things at once.
In the course of the recent Select Committee inquiry, one problem become very clear—namely, that the Government cannot hope to address the difficulties with
private pensions unless there is a stable, simple system of public sector pensions that can be relied upon, but because the two completely different major elements of the pension system try to do two completely different things, that certainty is not in place. I refer to the final paragraph of our report on pension credit, which was signed by all members of the Labour-dominated Committee. It said that
- "the Pension Credit unquestionably adds further complexity to an already byzantine system of retirement provision, which is causing confusion for pensioners, pension providers and those saving for their old age."
6.23 pm
Mr. Frank Field (Birkenhead): The House is clearly very unobservant. We have had a pensions Minister since the election in 1997—he goes by the title of Chancellor of the Exchequer. While it would be engaging for one of us Back Benchers to hold that position after the reshuffle, they would be the wrong candidate if they thought that they would have a real and effective role to play, although they may show the skills to advance further in the Government.
I welcome the debate and wish briefly to make three points. I hope very much that the Government are reviewing with the utmost seriousness what their next step should be on pensions policy.
If we look back to the position when we were elected in 1997, I doubt whether anyone would have thought that we would be having a pensions debate like this one today, or that so many of our constituents would be facing the worry and anxiety that they now face. Of course it is easy and cheap to lay the blame on various individuals and Governments, but I wish to be as constructive as possible in making three points about the fundamental review that I hope the Government are undertaking.
First, the starting point must be what we thought about pensions, pension security and pension promises in 1997. In those days, we would boast that Britain had the largest, most secure form of funded pension provision not only in Europe but weighed against the whole of Europe put together. We underplayed the importance of the poverty of the state retirement pension because we thought that the strain could be taken up by occupational pensions. For various reasons, we now face a very different situation from that pertaining in 1997, and we can no longer rest on our laurels by saying that the occupational system will somehow take us through.
The second issue about which I hope the Government will be honest in their review is that their emphasis on means tests now seems misplaced. It is quite clear that the message has gone out to all too many of our constituents that savings can damage their retirement income. We cannot explain the collapse in savings in this country in any other way than by saying that people are
being very rational and that about 40 per cent. of working people cannot now save to make themselves a penny better off—let alone substantially better off—through forgoing income now and trying to push it into their retirement.Worse still, the means-testing strategy on which the Government embarked—with the best intentions in the world—is not sustainable. The consultation document published by the Government to ensure that we cheered the announcement of the pension credit shows that, by 2050, if only 65 per cent. of those who are eligible take up the pension credit, it will cost an additional 11p on the standard rate of tax. We are now living in an age of cuts in income tax, not of pushing them or any other taxes up. We know, therefore, that in the longer run, the pension credit cannot survive in its current form. That is the second reason why we need a fundamental review of pension strategy, and I hope that such a review is already well under way in government.
My third point is about occupational pensions. It is a plea to the Government. When they come forward with their review, I ask them please not to insult our intelligence by trying once again to make out that occupational pensions can take the strain. It is possible that, if we are lucky, a few employers will set up new schemes, but no amount of whizz ways of encouraging employers to get their employees into schemes will surmount the pension crisis that we face. The task of introducing the fundamental reforms, which have now been six years in the waiting, will, if anything, help to underpin what remains of occupational pension schemes. Sadly, however, we are not in the game of seeing occupational schemes expand. As my hon. Friend the Member for Cardiff, West (Kevin Brennan) knows, we are in the game of pension wind-up. I hope that the Government will introduce proposals for an insurance scheme, so that those who find themselves having their pension promise snatched away will be secure.
When we were elected, 60 per cent. of those who voted were aged over 45. It is quite possible that when we go to the polls in 10 years' time, the majority of those who vote will not be interested in what the Tories did, because we will have been in power for more than 10 years. Furthermore, probably for the first time, the majority of those casting their votes will be pensioners. If that does not concentrate the mind of the Government wonderfully on the Green Paper, I do not think anything will.
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