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Mr. Smith: On the issue of the ability to work part-time and draw down a pension, the bulk of the legislative change required will be for the Finance Bill. It is a tax legislation issue and I envisage that it will be covered by other measures that we will introduce to bring pensions legislation in line with the provisions in the forthcoming Finance Bill.

Mr. Willetts: I welcome the Secretary of State's clarification and his assurance that the matter will be included in the forthcoming Finance Bill.

Behind the omissions and the subjects added to the Bill lies a theme. What began as a measure to simplify matters and ease the burdens on pension schemes will instead add to them. Alan Pickering's inquiry was set up in September 2001, and when the Secretary of State reported on its publication to the House, he said:

"Pension simplification has to be at the heart of any strategy to encourage greater pension provision. We need to deal with the complexities built up over the years by successive Governments."—[Official Report, 11 July 2002; Vol. 388, c. 1053.]

That was right, but his agenda of simplification and cutting the burden of regulation has disappeared from view. The problems began on the day that he made that statement. The Conservatives made it clear that we were willing to support deregulation, but the Liberal Democrats—typically opportunistically and immediately—said that they would oppose any tactical proposals that might be made.

The Bill fails to implement Pickering. Instead, it will add new burdens to business. The National Association of Pension Funds has said:

"The Bill makes life more complex, not simpler, for those running Defined Benefit pensions in the UK. It fails to deliver on many of the positive proposals recommended by Alan Pickering in July 2002."

The Association of Consulting Actuaries has said:

"Much of the simplification agenda designed to ease burdens on employers and schemes—the original reason why legislation was planned—has failed to reach the Bill at this stage."

Instead of easing the burdens on companies running pension schemes, the Bill will place an even greater burden on them. Nowhere is that more starkly demonstrated than in the provisions on the obligations

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of trustees. The extra obligations and duties on trustees run the risk of detaching pension funds from their members, and we do not want to see that happen. The provisions will professionalise the trustee function and make it even more difficult for representatives of employees, or other people with a legitimate interest in a company pension scheme, to serve as trustees because the task will be professionalised. The ACA also said:

"there are real concerns that this proposal could lead to many trustees 'walking away' from the role due to the onerous obligations being placed upon them."

One of our biggest concerns about the Bill is that the whole trust model on which British pension funds have been based for so long is under threat because of the burdens that will be placed on people who continue to try to run pension funds on a trustee basis.

Sir John Butterfill: Does my hon. Friend agree that leading firms of pensions lawyers now take the view that the responsibilities that would be imposed by clause 200 would make it impossible for anybody other than a firm of professional trustees to serve as trustees, with all the cost that that involves?

Mr. Willetts: My hon. Friend makes a powerful point. Labour Members wish to encourage employees to become involved in company pension schemes, and many trade unions try to get their members to serve as trustees of pension schemes, but the view of many experts is that these proposals will make it less likely that employees of companies will be willing to serve as trustees. Members on both sides of the House agree that that would be undesirable.

Tony Lloyd (Manchester, Central) (Lab): I chair the trade union group for Labour Members. The hon. Gentleman makes an interesting point, but in fact the trust model is under threat and that is why we have the Bill. It is the failure of the trust model to do anything other than replicate the establishment view of the pensions experts that has led to the crisis in many areas of pension activity. He asks about the right balance between imposing duties on trustees and recognising that they must have such duties imposed on them. Part of the answer must be that trustees should receive adequate training. What proposals does he have in that area?

Mr. Willetts: One can always agree that training will help, but how much training, would people be willing to undergo it, how onerous would it be and what time commitment would be involved? As my hon. Friend the Member for Bournemouth, West (Sir John Butterfill) put it, we will soon reach the stage at which the function will need to be contracted out to professional advisers, but that is the last thing that any of us want. Trust funding of pensions is under threat.

There is an alternative approach, which is for the Secretary of State to sort out the mess in his own backyard. It is no good him telling everyone else involved in pension provision what they have to do if the

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Government will not do their bit by sorting out the complexity of the state benefit system. I ask the Secretary of State to recognise that there is a problem with the state benefit system. He is almost alone in believing that the spread of means-testing to more and more pensioners is a desirable or sustainable long-term approach for state benefits for pensioners. Let me quote from Alan Pickering, whom the Government invited to produce the report on which the Bill was supposed to be based. He said:

"I hope that the government will realise that it is in the minority of one that thinks means testing is sustainable. It is not a firm foundation for building a pension . . . Before we can modernise the world of private pensions we need to modernise the state pension."

That was what Mr. Pickering said, and he is right. It is no good for the Government to impose more and more obligations on the funded pension sector when they do not reform benefits.

As so many Labour Members are in their places, I should tell them that although this is not the occasion for a full exposition of our policy, I shall none the less make two simple points. First, if they are concerned that increasing the value of the state pension to roll back the spread of means-tested benefits will be badly targeted because the money would go to large numbers of affluent pensioners, I invite them to look at the figures for income distribution among pensioners.

I shall give the gross incomes for pensioner couples in fifths. The income for the poorest fifth is £165 a week; for the next fifth, it is £221; for the middle fifth, £276; for the next fifth, £373; and for the top fifth, £889. The average income of pensioner couples—£385—is higher than the income of the poorest four quintiles; in other words, most pensioners have modest incomes and there is only a relatively small number of pensioners on high incomes on whom such a policy would be "wasted", although they have paid their national insurance contributions. I should rather tax them at 40 per cent. than have means-tested benefits withdrawn, a minimum rate of 40 per cent. and rates that go up to 90 per cent.

Mr. Watts: Can I be clear about what the hon. Gentleman is proposing? As I understand it, he is not proposing an overall increase in pensions but a flat rate rather than a means-tested system. Would not that mean a dramatic cut in the income of the poorest pensioners in Britain?

Mr. Willetts: There will be no reduction in anyone's income. I shall tell the hon. Gentleman about the poorest pensioners—it was the second point that I wanted to make. Last week, we received the latest figures on the take-up of means-tested benefits. I have to tell the House that there is an increasing problem among the poorest pensioners—those who do not claim the means-tested benefits to which they are entitled. A higher and higher proportion of the eligible non-recipients, the pensioners entitled to means-tested benefits but who do not claim them, are in the lowest sector of income distribution. The most devastating statistic in the report was that we have reached the stage where, even before disability benefits, 65 per cent. of the

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pensioners entitled to means-tested benefits, but who do not claim them, are in the bottom quintile of income distribution—they are among the poorest 20 per cent. of pensioners. They are the people who are not helped at present. Either the Secretary of State will have to bring us to a fantasy world where everyone claims the means-tested benefits to which they are entitled or he will have to accept that a large number of the poorest pensioners are not being reached by his means-tested benefits.

Mr. Andrew Smith: Having quoted those statistics, the hon. Gentleman referred to the fact that people were not being reached at present. He should accept that the statistics are outdated and precede the introduction of the pension credit.

Mr. Willetts: The Secretary of State finally got round to publishing the figures last week, so I can only tell him that I would be very happy to use more up-to-date statistics; all he has to do is provide them. Meanwhile, I shall work on the basis of the best statistics that he can offer—the take-up statistics that he produced last week.

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