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Mr. Dorrell: Especially at the peak of the market.

Sir John Butterfill: Yes, when bonds are at the peak of their price and shares are at the bottom. Could anything be madder? Do we normally sell things that are on the floor and buy others to replace them that are on the ceiling? Not if we have any common sense—but that is what the regulators have been urging pension funds and the insurance companies that provide them to do. They have all had to restructure their portfolios in a way that is contrary to common sense if we look at the market as a whole.

Mr. Purchase: Is not this a perfect example of why our pensions are far too precious to leave to the vagaries of fluctuating prices and markets? The stock market mechanism may allocate funds to deserving companies very successfully, but when it comes to our pensions, we should really consider what we could do in a safer, perhaps state-funded way.

Sir John Butterfill: I shall come to that in a moment, if I may.

Our system of regulation has of itself been pernicious. With a falling stock market, the regulators told people to get rid of their shares and buy bonds. What happens in that situation? The price of the bonds goes up, the yield from them goes down and the regulator then says that we have to buy even more bonds and sell more equities, and money is sucked into a black hole with ever decreasing returns and an ever increasing price for bonds. The cost of this is to aggravate the situation in the stock market, as people are selling equities that are already falling, forcing their price down still further and causing regulators to urge that more bonds be bought. It is the policy of the insane—clinically insane.

Mr. Nick Hawkins (Surrey Heath) (Con): Will my hon. Friend give way?

Sir John Butterfill: I am conscious that I am now beginning to intrude on other Members' time, so I hope that my hon. Friend will forgive me if I do not.

We need a far more sensible, broad spread of investment. Although they go up and down, the graph over 50, 60 or 100 years shows that equities continue to go up and are the best form of long-term investment. The difficulty has been that people have taken a short-term, snapshot view. When things are good they think them too good, and when they are bad they think them too bad. What we need is a sensible system of regulation. Sadly, we have not had that from previous Governments or from this one.

We must now encourage more people to save, and I will return to how, in my view, we should structure such tax relief as the hon. Member for Wolverhampton, South-West might be prepared to accept—or not. The problem—he correctly identified it, in a way—is that most of the tax relief goes to the richest. That happens because of the way it is structured. If tax relief went instead to everyone, but principally to those at the
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bottom of the pile, that would be a much better bet. Some people will never be able to afford to save; others will, but modest amounts. The big problem is persuading people who do not have a lot of money to save something. We can go either for compulsion or for giving them an incentive to save.

Although I applaud some of the well-thought-out initiatives of my hon. Friend the Member for Havant (Mr. Willetts), they do not deal with those people who make very modest savings, find themselves locked into buying an annuity and then pay tax on the small amount of additional income that they managed to save. Concentrating tax relief on the lowest portion of income—for example, by making the first £4,000 tax-free—would be of significant benefit to poorer savers and would give them an incentive to save. By applying the relief that way around, we would make a difference and provide a real incentive for poorer people to save. At the same time, we would remove quite a lot of people from means-tested benefits—if they are retained—so instead of having to come cap in hand to the state for their money, they would have their own. That would give much greater dignity to poorer pensioners and provide a real incentive for those poorer workers who have had the courage to save for their old age.

4.52 pm

Kali Mountford (Colne Valley) (Lab): It is a privilege and pleasure, as always, to follow the hon. Member for Bournemouth, West (Sir John Butterfill). He made a thoughtful and interesting speech that has given us real food for thought. His suggestions on taxation and saving incentives were perhaps more progressive than even Labour Members sometimes dare contemplate, and I congratulate him in that regard.

I first heard about what has become known as the demographic time bomb in the mid-1980s, when I was examining high unemployment and the effects of unemployment. I did not do very much about it then, other than to attend a few conferences here and there and moan a lot. In 1995, I wrote a paper on unemployment and its effects. I also developed my thinking on the relationship between work and people's ability to save for their pensions, and the relationship between the age at which one might become unemployed, and what might happen during the rest of one's life. I considered such issues from the point of view of people in their mid-30s and 40s—in other words, those who were in work, or who could be in work. At that time, unemployment was very high.

The correlation between employment and people's ability to save for their retirement is pointed out in the Turner report. Unlike others, I have not scrutinised the report in detail. I congratulate those who have, as it involves quite a bit of reading. In fact, I have given it only a cursory glance, and it certainly deserves a great deal more attention than I have yet been able to give it. What I want to bring to today's debate is how my own thinking has developed over the years and how what is in the Turner report accords with my own experience. Something that we should consider—I have not so far found it in the report—is not just the relationship between work, retirement and our ability to save, but the other social changes that also impinge on people's life choices and what they decide to do.
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When I first became aware of the problem—and, still earlier, when I was a young woman having my own children—people tended to start families early in life, but the decision to start a family is now taken much later. Those decisions affect people's ongoing life choices, their ability to save and the subsequent decisions that they take. We also find that young people—I certainly include my own family—want to stay at home for considerably longer than they used to, so that their mothers can continue to do their ironing and washing and can save on their behalf while they go out and have a very good time, thank you! I make no complaint—honestly, son! It is a fact that young people stay at home considerably longer than my generation would have considered doing. I recently heard of a son saying that he was not yet ready to make a commitment—and he was only 28.

Those sorts of considerations and social changes will obviously impact on people's decisions about their future lives. Many younger people are not thinking about what they may be doing in the immediate future and they are certainly not thinking in the longer term about what to do for their retirement. That is the group of people who worry me most. I believe that we have spent much time, quite rightly, thinking about people who are pensioners today and how we should provide for them. Some people were left out of the pensions decisions. Before the hon. Member for Bournemouth, West leaves the Chamber—

Sir John Butterfill: Not yet.

Kali Mountford: I want to agree with the hon. Gentleman on another point—that decisions about pension holidays reduced the available funds and affected some of the people in the greatest need. He made a genuine and fair point that we should consider using a particular date or time rather than a particular age as the basis for pension payments. His points were well made. We will all be affected—even those 21 and 28-year-olds that I mentioned earlier. It is right to say that we owe the older generation a great deal and that they should be cared for.

I disagree with the hon. Member for Bournemouth, West on one point. Adopting a targeted approach to pension provision for those who were unable to provide for themselves was the right and proper thing to do. I recall encountering old age pensioners in my constituency who were blue with cold. That was always wrong, and I am pleased that I do not have the same experience now. Some of my pensioners—including those in the age group that the hon. Gentleman mentioned—now tell me that they have never been so well off. I am pleased about that, though it does not mean that they could not be better off or that there is nothing more to do. What I fear now is the expectation among young people that the old-style pension schemes will continue for ever and that everyone of pensionable age will somehow be all right.

That leads me to a completely different conclusion from that of my hon. Friend the Member for Wolverhampton, South-West (Rob Marris). I believe that his socialist analysis of pension contributions misses out half the equation. The analysis was always "from each according to his means, to each according to his needs", but my hon. Friend is dealing with the needs
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and not the means. Let me explain the main problem with his analysis. With all rights must come responsibilities, so where are people's responsibilities to contribute? We already have a generation of young people who have not yet realised the significance and importance of providing for their own old age. They should already be doing so.

Simply saying that we can tinker a bit more with the state system is not enough, though I want to be fair to the Liberal Democrats, who have given a lot of thought to their idea of a citizen's pension. Some members of my own party have done the same. I think that there is a problem with that approach, however, and it has to do with responsibility. It is a question of means: how do we draw all that money together? That flaw is present in all the ideas presented today. We could go through all of them with a fine-toothed comb to work out whether all the sums add up, but even then what I perceive to be the central question—each individual's responsibility to contribute to state or to private provision—would not be resolved.

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