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Mr. John Greenway (Ryedale) (Con): My right hon. and learned Friend is making an excellent speech without notes.
Mr. Greenway: My right hon. and learned Friend's point about pension credit is one of the reasons why saving has reduced. Means-tested benefits are undermining the reason why people will save, which we, as a party, must address as well as the Government, because when we are in office we must alter that situation.
Sir Malcolm Rifkind:
My hon. Friend is right. When the Government took office, they said that one of their objectives was to reduce means-testing. Thanks to the benevolent supervision of the Chancellor, however, means-testing has increased dramatically in all areas in the past eight years. That is a huge problem, and the
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Pensions Commission under Adair Turner has already said that on current form it will lead to more than half the population being on means-tested benefits in not too many years.
Vera Baird (Redcar) (Lab): The right hon. and learned Gentleman knows that pension credit has brought more than 1 million people, three quarters of whom are women, out of the poverty in which the previous Conservative Government left them. Will he set out how his proposals will advantage women?
Sir Malcolm Rifkind: The position of women is of huge importance. I wanted to include such a provision, but the powers that be would not permit it, because it would have contradicted the long title of the Bill. The hon. and learned Lady is right that women's entitlement to pensions will be a crucial consideration when Adair Turner reports and the Government decide their policy, because that blot must be addressed.
I was dealing with the principled objections to compulsion, and the fourth one is that it does not work. The one country that has tried it, Australia, introduced it about 10 years ago through a collective bargaining deal between the Government and the trade unions, whereby in exchange for restraint on pay claims, employers were required to make further contributions to pension funds. Over the past 10 years, the single biggest consequence of the change in Australia has been the diversion of savings held in other products into the compulsory scheme. Overall, Australia has the same problems as other countries.
Sir John Butterfill (Bournemouth, West) (Con): I am sure that my right hon. and learned Friend would not intentionally mislead the House, but Australia is by no means the only country that has introduced compulsion. Compulsion was first introduced in Singapore, where the scheme encountered problems because the money in the pooled pot was lent to commercial interests, sometimes with undesirable consequences. To name but two others, Chile and Argentina have successfully introduced such schemes.
Sir Malcolm Rifkind: I have deliberately tried to compare the United Kingdom with countries that have comparable economies, and the Australian experience is especially relevant to our situation.
Two further points are important. First, some may point out that our system already contains an element of compulsion, because we have no choice but to make national insurance contributions. I have no objection to people being compelled to make savings when the alternative to their making such contributions is falling into poverty and therefore depending on benefits paid for by other taxpayers. It is entirely reasonable to compel people to provide for themselves through contributions such as national insurance that are designed to prevent them from falling into poverty, because otherwise other taxpayers have to perform that function. The current debate is not about using compulsion to avoid poverty; it is about allowing people to have a higher standard of living in their retirement than they would otherwise enjoy, which is where compulsion cannot be justified.
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Secondly, it is sometimes suggested that the alternative to compulsion is laissez-faire—sitting back and hoping that things will improve—but that is not true. The alternative to compulsion is incentive, which can come from the state in two forms. It can come in the form of fiscal incentives, which I cannot cover because tax matters may only be dealt with by the Government of the day, and not by a private Member's Bill. My Bill concentrates on the second option, which is making structural improvements to the system in order to make saving more attractive, and there is a range of ways in which that can be done.
Savings and pensions issues are incredibly complex, so I hope that the House will forgive me if I go into detail.
Vera Baird: Before the right hon. and learned Gentleman turns to the detail of the Bill, may I return to my earlier point? He was cruelly deprived of the opportunity to include provisions to help women in the Bill. Will he take a minute to set out what they were going to be?
Sir Malcolm Rifkind: I can tell the hon. and learned Lady only that I hoped to be able to make some improvements on protection for carers, because the way in which those rules apply is unduly restrictive. I personally take the view that the whole position of women, as of other carers, can be best improved by a more generous provision with regard to national insurance contributions as part of their overall pension entitlements. It is a very complex issue. I hope that the hon. and learned Lady will allow me to move on to what is in the Bill rather than what I should have liked to include had the rules permitted it.
The Bill covers four main areas. Part 1 provides for a major new savings scheme designed to offer the simplicity and flexibility of individual savings accounts but with the security normally available to pension products.
Part 2 is based on a successful Canadian initiative. It would expand the current options on retirement and permit an end to the compulsion that has existed for many years to purchase annuities from a retirement fund. It would also remove the unfair prohibition on return of unused capital from an annuity on death after the age of 75.
The final part of the Bill aims to address the worrying trend of pension proliferation whereby many savers have large numbers of often small private pensions caused by changes of circumstances such as new jobs.
Justine Greening (Putney) (Con): Does my right hon. and learned Friend agree that, given that the average life expectancy of a woman is now well over 75, changing the age limit of 75 in respect of the flexibility of annuities would help women even more than it would help men?
Sir Malcolm Rifkind:
My hon. Friend is correct. The age of 75 is an arbitrary age that was introduced by the then Government a good number of years ago. It has less and less relevance, and, as my hon. Friend says, women would benefit more than men if that arbitrariness could be removed from the system.
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At this stage, I remind the House that I have an indirect interest as non-executive director of an asset management company.
I now turn in detail to part 1. Savings in this country are in crisis. We are increasingly a nation of consumers, not savers, and it is clear that the products that are currently available, successful though some have been, are failing fully to address the problem. It is now widely accepted that stakeholder pensions have failed in their attempt to stimulate long-term saving at the bottom end of the market. Utilisation is low and sales figures are actually falling. The supply side has also suffered due to a paucity of providers willing to promote these low-margin products. Indeed, the TUC said in a report published last year that stakeholder schemes are not helping low-income workers; instead, they are largely being used as a source of tax relief on savings by the better off instead of by the lower and middle-income earners whom they were originally designed to target.
At the time of the introduction of stakeholder pensions, it was estimated that approximately 5 million people earning between £10,000 and £20,000 per annum were not in an occupational pension scheme. The Association of British Insurers has suggested that although there are about 1.5 million stakeholder members, much of the money now in stakeholders has merely been transferred from other pension arrangements. Stakeholders are not doing much to stimulate additional pension savings; they are merely displacing other pension vehicles.
By contrast, sales of individual savings accounts have fared incredibly well. According to the PEP and ISA Managers Association—PIMA—more than £170 billion is invested in ISAs compared with £79 billion only five years ago. They have proved to be a useful savings vehicle for those on lower to middle incomes, but these products, although allowing greater flexibility in drawdown facilities, do not have the opportunity or ability to function effectively as a vehicle for retirement. We desperately need to combine the flexibility of ISAs with the security required for a pension product, which should be particularly directed towards the lower and middle-income earners who are not benefiting from stakeholder pensions.
That is the crucial objective of part 1. We need to target the people whom the Government have failed to attract with their own savings scheme, stakeholder pensions. I propose a savings and retirement account, otherwise known as a SaRA—I have unfortunately had to conclude that all these things need acronyms. The product would be based on the already proven ISA model while operating under pension tax rules and regulations and regulated by the pensions regulator. It would combine the management ease of the ISA with the tax advantages of pensions, thereby simplifying and promoting investment while enabling longer-term financial planning.
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