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Mr. Jonathan Djanogly (Huntingdon) (Con): Is it not the case that many young people are dissuaded from taking up pensions because of the lack of incentives? Are we not putting ourselves in a position that will lead to our having a disaster on our hands in 20 years time?
Mr. Willetts:
Indeed, which is why I should like to turn to our policies for tackling the crisis. We have two central propositions. First, we must reverse the spread of means-tested benefits. We are heading for a situation in which more than half of pensioners will be dependent on means-tested benefits. There is widespread consensus among people who have thought seriously about the subject that we need to reverse the spread of means-testing. I could cite to the Minister for Pensions
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comments by the charities, the National Association of Pension Funds and the savings industry, but I shall not do so. I shall simply refer him to what he once said:
"No one of sound mind could advocate wholesale means-testing".
Is not the pension credit, which is supposed to go to almost half of pensioners, an example of mass means-testing? Or is the Minister saying that the Chancellor is not of sound mind? Does he still stand by that view? If so, he can join the mainstream consensus, which favours reforming the mess of means-tested benefits for pensioners.
We are committed to increasing the value of the basic state pension by linking it to earnings, not prices, thus reversing the spread of means-testing. We will not, contrary to what the Prime Minister said again in Prime Minister's questions today, abolish the pension credit. However, as the value of the basic state pension rises, fewer pensioners will need to claim the pension credit. That is the right way to implement reform, and that is what we will do.
Mr. Steve Webb (Northavon) (LD): As the hon. Gentleman knows, to some extent I support his analysis of the problem, but could he clarify something? His policy would link the pension credit to prices, not earnings. When challenged, he argued that the Government have not promised anything beyond this Parliament. However, if they promised to earnings-link the pension credit, would he do so as well, or would he price-link it?
Mr. Willetts: If the Government said that they would increase the pension credit in the next Parliament by linking it to earnings, not prices—we are still waiting for a statement of their policy—once we had seen the figures and their modelling we would consider what we would do to the pension credit. We are certainly not obliged, however, to commit ourselves on the pension credit when we have not heard from Ministers. However, it would be interesting to hear the intentions of the Minister for Pensions on the pension credit in the next Parliament.
The first thing that we must do is reverse the spread of means-tested benefits and reform benefits for pensioners. My hon. Friend the Member for Huntingdon (Mr. Djanogly), however, is right that that is only half the story. We must also restore incentives to save and offer people new incentives, so that if they put money into a reliable savings product there will be a clear reward. We therefore propose the introduction of a new lifetime savings account—there will be a contribution from the Government alongside the money that the individuals put in—with the aim of achieving a clear and vivid reward for saving.
I do not know whether the Minister—who knows, he may become the Secretary of State—can signal in his speech that the Government will join the consensus, but I hope that he can. If he agrees that there is too much
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means-testing and that the Government are going to do something about it, that would be welcomed by hon. Members from many parties.
Ms Sally Keeble (Northampton, North) (Lab) rose—
Mr. Willetts: I hope that the Minister can say something about encouraging people to save more for their retirement, as that would also be welcome, but even if he cannot take those big strategic steps—after all, he does not even have a Secretary of State to consult—I hope that he can answer two specific questions about problems facing pension funds. First, however, I shall give way to the hon. Member for Northampton, North (Ms Keeble)
Ms Keeble: What are the hon. Gentleman' proposals for the 86 per cent. of women who work but who do not make sufficient national insurance contributions to receive the state pension? As their earnings are low they are unlikely to be able to save enough to receive a funded pension of the type that he described.
Mr. Willetts: Those women would benefit from the greater uprating in the basic state pension. At present, they do not benefit from the pension credit, as it is assumed that they have a full contribution record and receive the full state pension, even though many of them, as the hon. Lady rightly said, do not do so.
Mr. Willetts: I will give way to the hon. Lady again—let us continue the pensions policy seminar.
Ms Keeble: I want to press the hon. Gentleman on a point that I would make to the Minister for Pensions, but unfortunately I have to attend Committee. Eighty-six per cent. of women who work do not make sufficient contributions to qualify for a pension, so they do not benefit from the earnings link. Women's earnings are lower, so they do not make enough money to save. What will happen to those women pensioners?
Mr. Willetts: I accept the hon. Lady's concern about women whose earnings are so low that do not receive any contributory state pension at all, but the proportion of such women is less than 80 per cent. Most women who work are earning enough to make contributions, so even though we would increase the basic state pension by linking it to earnings, we would not raise the lower earnings limit as we do not want to take away from women the opportunity to contribute to the basic state pension. I continue to study with great interest research by the TUC and the Fawcett Society on the problem, as I accept that there is a genuine grievance among women pensioners, many of whom were let down when they were not properly informed by the Inland Revenue in the past few years about the opportunity to contribute to the state pension through higher national insurance contributions.
I wish to press the Minister for Pensions on two specific points. First, I am sure that many Members have constituents affected by the winding-up of pension schemes. Sadly, over the summer, we have followed the
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problems at Turner and Newall, which could lead to a pension winding-up that would dwarf any previous winding-up.
Mr. Adrian Flook (Taunton) (Con): Dozens of Turner and Newall employees living in Taunton are affected by the collapse of the fund and appear to be trapped in a less well-off retirement. They have heard about a pot of money—I accept that it is only about £6,000 a pensioner—which is meant to help people like them, but I have been told that it will not. Is my hon. Friend as disappointed as my constituents and me by the Government's failure to act?
Mr. Willetts: My hon. Friend is right to raise that issue, which I hope the Minister will address. I have a flimsy document, published a couple of weeks ago by the official Occupational Pensions Regulatory Authority, entitled "The Financial Assistance Scheme and completing scheme wind-ups". It is OPRA's first attempt to make sense of the Government's hurried announcement following pressure from us and their own Back Benchers for a financial assistance scheme. That flimsy document has an even thinner appendix entitled "Current information about the Financial Assistance Scheme", which includes a paragraph that states:
"The Minister of State for Pensions, Malcolm Wicks"—
"has explained that the Financial Assistance Scheme . . . is for those who have lost out because they worked for companies that have become insolvent and wound up their pension scheme underfunded before the Pension Protection Fund . . . is set up."
The pension protection fund is due to be set up in May 2005, so the financial assistance scheme would cover everyone up to that date. However, at the bottom of the page another paragraph says:
'"The current expectation is that the FAS will provide help for members of schemes which started to wind up between April 1997 and May 2004".
If that statement, which contradicts the earlier paragraph, is true and the FAS only runs until May 2004, it is not OPRA's fault as it does not have the faintest idea of what Ministers are up to or what the Government are doing. Many people, perhaps including Turner and Newall employees, could suffer as there is a gap between the deadline for the FAS and the establishment of the pension protection fund.
We cannot allow our constituents to live with such uncertainty any longer. The Minister ought to take the opportunity of this debate to give clear assurances that the financial assistance scheme will cover everybody affected by wind-ups until the pension protection fund comes into force.
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