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3.11 pm
Lynne Jones (Birmingham, Selly Oak): There is no doubt that the Government have substantially increased the incomes of many of our poorest pensioners. Many are better off than they have ever been in their lives. Certainly that is what my mother told me; she is looking forward to receiving about £10 a week pension credit because she receives a small occupational pension as a result of 25 years of working and paying into a scheme.
My problem is that even at £102 a week the pension credit still does not provide a high standard of living. Age Concern says that a modest but adequate income
for today's pensioners would be about £130 a week. The other concern is the disincentives built into the system as a result of the universal benefit—the basic state pension—being set at nearly £25 a week below the means-tested benefit. Under Labour's proposals, the pension credit would be set to increase over the next four years to about £122 a week—making various assumptions about rises in earnings—whereas the basic state pension would be expected to rise from £77.45 to £85.55 a week. The gap between those two pensioner benefits would continue to increase.The Tories have proclaimed that they have suddenly seen the light and decided that they want to restore the link to earnings. That is not what they are proposing. Their concern, and I agree, is that there is too big a gap—I do not think there should be a gap at all—between the basic state pension and the means-tested benefit, and they want to reduce the gap. Over four years, they would do that by restoring the link to earnings; that is a four-year commitment.
Under the Tory proposals, according to the Institute for Fiscal Studies, the basic state pension, instead of being £85.55 as under Labour's proposals, would be £92.40. In order to bridge the gap between the pension and the means-tested benefit, about which the Tories are rightly concerned, they would thus slightly boost the level of the basic state pension but hold down increases in the means-tested benefit. Under the Tory proposals, if the means-tested benefit were linked only to earnings, it would be £10 a week below Labour's proposals. In other words, the Tory proposals reduce the maximum help that would be available to the poorest pensioners. It will not be acceptable in 2009 if the means-tested pension is a mere £112.70 a week, in today's figures.
It is dishonest of the Tories to suggest that they would restore the link. They want, rightly, to reduce means testing; in that, I agree with them entirely. But we must also ensure that we tackle pensioner poverty, and the Tories have not come up with proposals to deal with that.
A person in their twenties planning for retirement will have to bear it in mind that when they retire in 40 years' time, there will be 40 per cent. more pensioners. The Government's plan is that we should spend no more than 5 per cent. of GDP on state pensions—the current level. Clearly, if there are to be 40 per cent. more pensioners, that is an unrealistically low and socially unacceptable level at which to aim.
It might be possible to have a massive increase in private saving, but under the current arrangements with means-testing, that seems unlikely to be the case. My concern is about younger people who are trying to make an informed choice about saving for retirement, something the Government say they should be able to do. Unfortunately, the complexity of the current system makes it impossible for them to work out what they can expect from the state when they retire in up to 40 years' time. People doubt that the state will commit to paying a decent basic pension, particularly those who, unlike Members of Parliament, are not fortunate in having reasonably high salaries and good pension schemes. People on low incomes cannot see the point of saving for pensions, hence we see the crisis in the private pensions system, fuelled by an inadequate state system.
If we want to alleviate pensioner poverty, we have to save more for our pensions. The question is how that should be done and what the combination of state and private contribution should be. For the last 20 years, the financial services industry has tried to persuade opinion formers that state provision is failing and that the Government should privatise the process. Clearly that is what the right hon. Member for Hitchin and Harpenden (Mr. Lilley) believes.
The financial services scandals have proved that markets cannot provide the level of security needed by people on low incomes if they are to be persuaded to put their money into retirement savings. We must decide what gives us the best value for money; whether it is putting money into a state pension through national insurance or taxation, or whether it is through private investment. The only way in which there will be a better return if money is put through private investment is if that increases growth in GDP above that which would have been the case had the state invested the money. There is nothing to indicate that that is the case. People now realise that the stock market is not a secure place for people on low incomes to invest their savings. In talking about compulsion, we need to guard against potential future accusations that the state forced people to contribute to a pension that did not give a decent return on their investment. If they are not careful, those who advocate compulsion could be accused in future of mis-selling.
If we are to have a sustainable pensions policy, people of all political persuasions must come together to create it. I welcome the Conservatives' commitment to the establishment of the means-tested benefit at the same level, hopefully, as the basic state pension. That would surely provide a foundation for people to plan for the future. I do not believe, however, that in being committed to that, they are also committed to ensuring that pensioners are kept out of poverty. If that really is their aspiration, they would have to ensure that the basic pension is set at a decent level. There are plenty of arguments for spending more, in terms of contributing to a state pension. The Pensions Policy Institute said that bringing the basic state pension up to the same level as the means-tested benefit would cost 0.5 per cent. of gross domestic product. This Government should aim for that over time, because it would then be possible to phase out the pension credit. That would also provide a real incentive for younger people, in that they could keep for themselves everything that they saved above the state provision.
I am an unreconstructed believer in universal benefits, coupled with a progressive taxation system through which people such as me—who benefit from child benefit or, eventually, a basic state pension—pay higher taxes if they have a sufficiently high income. That is a simple, affordable system that people can understand. Organisations such as the Institute for Public Policy Research and an increasing number of people in the pensions industry are saying that, to encourage private saving and to save taxpayers' money and spending on future means-tested benefits, we must set the basic state pension at a decent level.
We need to start talking about how we can simplify the system. If the Government really want people to make informed choices, they must tackle the interrelationship between basic state provision and
private provision. I urge my hon. Friends to extend the remit of the pension commission, so that it can examine this important issue.I shall examine the proposals of the right hon. Member for Hitchin and Harpenden, but it appears that they have nothing additional to offer today's pensioners or future pensioners, when compared with the Government's state second pension. Of course, if we were to do away with contracting-out provision and examine how we spend tax relief for private provision, we could release some £17 billion. That money would be much better spent on ensuring that the basic state pension is set at a decent level, and on giving greater incentives to people on lower incomes to save privately, or in other ways. For example, Richard Murphy, Colin Hines and my hon. Friend the Member for Nottingham, South (Alan Simpson) have come up with an interesting proposal in a pamphlet entitled "People's Pensions", which is about investing in Government bonds. I remind Members that in the 1960s, 50 per cent. of pension fund assets were invested in Government bonds; now, only 6 or 7 per cent. are so invested. So there are ways other than equities—investing in equities is a highly risky business—in which people can invest money, over and above what the state provides. I encourage people to look at such provisions.
We have to do more to ensure that people on low incomes can rely on the state, and on the fact that anything that they save will be available to them when they retire, rather than being clawed back through means-tested benefit. That is the real flaw in the Government's policy, even more so than the question of stigma. The Government are not making clear to younger people what the state will provide for them when they retire. That is a crucial flaw, and I urge the Government to rectify it.
3.26 pm
Hywel Williams (Caernarfon): I shall be brief as I appreciate that time is rather short. I must confess that this debate has a slight feeling of unreality, given the free transfer of policies that we have witnessed between Government and Opposition Front Benchers. As that great philosopher Yogi Bear might have said, "It looks like yet another case of déjà vu, Boo Boo." The party that broke the link between pensions and benefits and earnings—albeit under different circumstances—is now advocating the re-establishment of that link and a return to universalism. And the party that condemned the breaking of that link—to its credit, it established it when in government, between 1974 and 1979—is now arguing contrariwise.
Many good people in the Labour party who are my friends—some of them are even in the Labour party in Wales—despair at the Government's determination to extend income testing even further. These are the people alongside whom I worked to ensure that child benefit was retained and, indeed, improved as a universal flat-rate benefit. They are the same Labour people who argue, rightly, that applying the income test guarantees that some people—often the poorest, who should be receiving additional benefits—will not claim, for a variety of reasons. Those people are guaranteed to lose out in the very long term.
They are also the Labour party people who realise that applying the income test on an ever-increasing scale will inevitably lead to ever-increasing complexity, which
has been a theme of today's debate. The Government might say that their new income test is not like previous tests, and I am sure that there is an element of truth in that assertion. But in the end, we cannot buck the fundamentals. If the payment of benefit is contingent on an individual assessment, that assessment has to be carried out. Even the simplest and most infrequent of individual assessments will inevitably lead to more complexity and more scope for mistakes, and to disincentive effects on claiming and saving. We know that, in reality, those assessments will not apply for five years, because people will have to report changes much more often. I wish that I shared the confidence of the hon. Member for Northampton, North (Ms Keeble), who said that reporting the changes would be straightforward and unproblematic. It might be unproblematic for Members, but not to older people in my constituency and throughout Wales.I want briefly to draw attention to some of the problems experienced at the Swansea pension centre—the only pension centre in Wales. It is our national pension centre and its problems are a national issue in Wales. It has proved a problem to get through to workers dedicated to particular cases, rather than to a different person every time that people phone. Indeed, people certainly experience a problem in accessing the telephone lines. I look to the Minister for an assurance—perhaps in a letter—that the workers who staff the telephone lines, and particularly the Welsh language telephone line, will be suitably trained and qualified. They should be directly employed by the pensions centre and not, as people suspect, agency workers.
I have to say that the experience of my constituents is not good, certainly in respect of the computer system. Members will be interested to know that this morning I phoned the new directory inquiries companies to ask for the pension line number. One company had no idea what I was talking about, so I phoned a competitor company, which was equally baffled. So much for the privatisation of the old 192 system. Pensioners in my constituency who are looking for the number will be equally baffled.
Reference has been made to home visits. Local pension clinics are certainly held in my constituency and their work is valuable, but they are run fortnightly and there is a question about what counts as local. I shall provide one example for people who are familiar with the geography of north-west Wales. A clinic is held in Porthmadog, which my constituents might be able to attend, but, unfortunately, it is about 30 miles away and public transport is not what one would like.
We know that pensioner poverty is not evenly spread; it is much worse in northern England, Scotland and Wales. Such regional problems are real. Will the Minister give an assurance, again by a letter, that the Government have targets for take-up in the appropriate regions of England, Scotland and Wales? What are those targets and what is the time scale for their achievement?
The pension protection plan, which has already been discussed, is welcome. However, Plaid Cymru Members, particularly my hon. Friend the Member for East Carmarthen and Dinefwr (Adam Price),
highlighted the scandal at ASW months ago. The Secretary of State for Wales said that the then proposed protection was a gimmick. I am glad to see that that gimmick has now crossed the Floor from these Benches to the Government Front Bench.Another issue is the extension of the right to work up to the age of 70. Members on both sides of the House are concerned about extending employment protection to those working longer into their lifespan. The right to sue for unfair dismissal is essential and should be in place now rather than in 2006, if it comes at all.
I should like to finish with a couple of points that apply particularly to Wales and to some of the ways of solving the conundrum posed earlier by the hon. Member for Birmingham, Selly Oak (Lynne Jones)—how to pay for it all. My party's policies on regional economic matters and national Welsh economic matters come into play. The inactivity of large parts of the work force over the age of 50 is an important factor, and such economic inactivity is much worse in Wales, Scotland and some English regions than in the south-east of England. On some calculations, if the rate of economic activity were raised in those regions, it would provide sufficient tax take and national insurance contribution to pay for a much better pension. I am no mathematician and I am not sure that that income would be enough, but I certainly commend that way of dealing with the problem. Finally, my party believes that greater means-testing will play badly in Wales, particularly among poorer people. It is not the way to proceed.
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