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Miss Begg: Does my hon. Friend agree that guaranteeing everyone a basic state pension would mean that the responsibility that she has described would consist of people providing extra income for themselves? She has said that people now expect a much higher standard of living in old age than a basic state pension could ever provide.
Kali Mountford: I have considered that proposition a lot, and my difficulty with it is that the present national insurance contribution system has become the consensus on which our pensions system is built. I dispute the earlier assertion that everyone has a fund on which they can draw, but people believe that the national insurance system is fair. They see a link between the amount contributed over a lifetime and the size of the pension received at the end of the process.
I have always felt that the national insurance contribution system was somewhat misnamed, as no fund actually exists under what is essentially a pay-as-you-go system. The present system has many flaws, and I have even toyed with the thought that it should be discarded, but its great value lies in the relationship between contribution and recipient. Over many years, people have grown attached to the perceived fairness of the system. We must be careful if we are going to play around with that connection.
I am very drawn to the proposal by my right hon. Friend the Member for Birkenhead (Mr. Field) that we should convert the present pay-as-you-go system into a funded scheme. That could offer a way forward that people would accept, as it takes with it the most important parts of the current system, on which the consensus has been built. Under my right hon. Friend's plan, each person would be responsible for contributing to the state pension, and for making any additional provision that he or she may choose.
I want to press the hon. Lady a little on this matter. Will she expand on the fate of the national insurance contribution? Does she expect that all of that contribution would be transferred into a funded scheme,
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or only a proportion? If the latterand we must remember that national insurance pays for employment and sickness benefits, among other thingswould a funded scheme such as she has described be sufficient to provide a comfortable retirement?
One problem with the proposal from the Liberal Democrats is that it would not be possible to devote funds to the NHS, for example, as we would not be able to see where the funding for a universal citizenship pension would come from. I therefore believe that only a proportion of the national insurance contributions could be used in the funded scheme that I have described, and that such a scheme would have to be carefully costed. It would take time for the funds in such a scheme to be built up to a sufficient level, and the scheme would not be able to provide sufficient funds for people to live on without additional income from some other source. I remind the House, however, that that is the case with the present state pension, which has only ever been the foundation stone for the rest of the pensions structure. It has never been enough for people to live on with no additional income, and anybody who did live in such a fashion would certainly be pension poor.
Nobody should be on that level of income, and no one needs to be. That is one of the messages that should emerge from this debate today. Although we must always make sure that people entitled to a benefit receive all of it, to deal with that argument simply by denigrating the benefit will not take us any further either. We need confidence in whatever system emerges from our lengthy considerations of both the state pension and the private pension system. The consensus that was built up lasted for many generations. It was built up before the second world war, and after the war a clear vision for the future emerged. Everybody knew where they stood and the system that was introduced stood the test of time. Whatever we do now must stand the same test of time as that system. I do not want to discard what was good in that system in one go. Instead, we should see how we can adapt and build on that system for a future pension scheme that is robust in the future.
Mr. George Mudie (Leeds, East) (Lab): Does my hon. Friend really believe that there has been a consensus? We have seen different pension Bills introduced by the parties after every election. Does my hon. Friend want to see a genuine consensus, instead of the posturing that is going on between the three parties before the general election? The eventual winner will make a decision that will be overturned before it reaches the end of its lifetime of some 30 years. There is a real need for a consensus, but we have not had one yet. Should we not use this debate to ask the three parties to agree on a consensus?
I stand suitably admonished and I shall clarify my point. The consensus is outside the Chamber. People agreed that the system was fair for decades. In the Chamber, we will always have political posturing, but we also have the possibility of a growing consensus. As we look forward to the next review and
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presentation by the Turner commission, we should reach some agreement on considering its findings together. The other parties claim that the Government are tossing the issue aside until after the general election in order to avoid making a decision, but this is far too important an issue for such an approach.
That approach has been possible in the past with other Government policies. I do not know if I dare mention Dearing, but the House came to a consensus view that Dearing would be considered after an election. Everyone signed up to that, but not everyone was happy with the interpretation after the event. In any event, it was possible for the House to consider a policy issue collectively. This is another issue that is important enough for the House to take that approach again. We should be able to take the next stage of Turner, together with the details that have been presented so farthey provide a good analysis of how we have arrived at where we areand look at some clear pointers for the future.
The right hon. Member for Charnwood (Mr. Dorrell), who is not at present in his place, simplified the conclusions in the report neatly and elegantly. The report does not go through all the various social changes that affect decision making for families, but it does point out the glaringly obvious about the way forward. We must look at the age of retirement, the contributions we make privately or the contributions we make publicly. All of those factors interact with each other to provide a conclusion about the way forward. At this stage, we will obviously have a variety of views about how the cake can be carved up sensibly, but at the end of this debate it would be useful if the House could come to the common conclusion that Turner is a way forward. It has provided a good analysis as a basis for our decisions, as well as some clear pointers for the way forward.
We should say not that one of those three factors will be the cornerstone for pensions for decades to come, but that all of them will. In my report in 1995, I considered an idea that was popular at the timeI did not think of it all by myselfthe flexible decade of retirement. We no longer need to talk about flexible decades, but we should look at flexible retirement. Why do we need a fixed date? Obviously, in respect of provision, we need a point at which entitlement should start, but it does not have to start on a fixed day. We could extend it a decade or so into the future so that people can make choices.
The crucial point, however, is that those choices must be informed, and the ability to make such choices has been severely limited for some time. The Government made an attempt to consider how we could provide people with information about their national insurance contributionshow much had been accrued and what that meant for their pensionsbut we need to go further. We need to be able to inform people early in their lives not only about their national insurance contributions but also about their contributions to private, personal pension schemes. They need to know what it would mean if they retired at the age of 50, 60, 70 or 80, if that is their choice.
People need to know what their decisions will mean, when they choose between taking a holiday in Spain or putting a little more in their pension fund. Do they really need the holiday, especially if it is their second one that year? At present, some young people decide to take that second holiday in Spain, and I urge them carefully to
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reconsider such decisions. A small extra contribution to their pension fund now could give them extra comfort for a year or so in their old age. As they sit on the beach, they might not realise that they could be doing the same thing at the age of 70, instead of sitting over a two-bar fire wondering why they took that extra holiday when they were 28.
People need to be making these real-life decisions. Some are doing so already, but they are making some mistakes and we need to give them advice. I congratulate the Government on starting to think about how we can put money into a fund. At this stage, the Government are looking to trade unions to give that advice. There is nothing wrong with that, but I am concerned that some employers do not yet have trade unions on their premises. I hope that the trade union movement will sell the idea of pensions advice as a means of recruiting more members.
Such advice is certainly necessary so that people can make choices. I hope that they can make sensible, reasonable choices to maintain themselves. If they do not, compulsion will have to be the way forward. We should then have to make decisions a decade from now, when a decade's fewer people would be in a proper pension scheme, with a decade's less contributions. That would be folly.
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