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Mr. Hurd: How does the hon. Gentleman justify his enthusiasm for the Government's track record in this area when the Association of British Insurers' report on the state of the nation's savings tells us that only 12 per cent. of the population think that the Government are doing enough to encourage them to start saving or to save more in a pension?
Andrew Gwynne: Of course, statistics can be quoted either way, and I am fairly certain that there are numerous opinion polls and surveys that would suggest that the opposite was the case.
The right hon. and learned Member for Kensington and Chelsea has put forward some interesting proposals on the retirement income fund, but I have concerns about them, which have been echoed by some of my hon. Friends. My first is that funds built up with the tax privileges should be used to ensure security in terms of sufficient retirement income, and for no other purpose. My fear is that, given that most people's pension pots
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aggregate at £30,000 or less, some of the proposed changes would benefit only a small proportion of people who are relatively well off.
Mr. Charles Walker (Broxbourne) (Con): Will the hon. Gentleman give way?
Andrew Gwynne: No, I am nearly at the end of my speech.
It is crucial that any changes to the pension rules should ensure that all pensioners benefit and prosper from them. How well we treat all our pensioners—particularly those at the bottom of the scale, not just the privileged few—is a sign of a decent society. That is all that I wish to say about the two schemes set out in the right hon. and learned Gentleman's Bill. This is an interesting debate, and I thank him for enabling us to discuss these important matters. I look forward to extending the debate once the Pensions Commission has produced its report.
12.11 pm
Mr. Nick Hurd (Ruislip-Northwood) (Con): Several Labour Members have spoken with great passion on behalf of those members of society who do not have the resources to save, and that is entirely respectable. However, in their passion, they have been deaf to the purpose of the Bill, which is to address the important issue of how to arrest the collapse of the culture of savings.
I congratulate my right hon. and learned Friend the Member for Kensington and Chelsea (Sir Malcolm Rifkind) on introducing a set of proposals that will address some of the structural barriers to saving, including the complexity and rigidity of pension products, and the inflexibility and poor value of annuities. I also congratulate him on recognising that the savings industry and the Government have to move with the times, and to respond to a new generation of workers who have much greater job mobility and who ask different things of their savings across their life cycle. I represent a London constituency in which the first rung of the housing ladder is looking increasingly out of reach for first-time buyers. To my eyes, the proposals benefit from drawing on the experience of what appears to work in other countries, notably Canada. They are underpinned by a set of principles that I understand, namely choice, flexibility, a desire for simplicity, and a desire to give people more control over their lives rather than increasing their dependency on the state. In doing that, the proposals go with the grain of human nature and aspiration.
The proposals are a persuasive response to a problem, the scale of which is astonishing. The Pensions Commission has warned us that 12 million people are drifting towards inadequate retirement income. In its own words:
The Government's own statistics tell us that only 44 per cent. of 16 to 65-year-olds have a private pension. That is 300,000 fewer people than only four years ago. The hon. Member for Denton and Reddish (Andrew Gwynne) echoed the astonishing remarks of the Chief Secretary to the Treasury at Treasury questions last year, when he seemed to suggest that a collapse in the
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savings ratio was a symptom of economic success. There is no room for complacency when the Association of British Insurers' report on the state of the nation's savings tells us, as I said earlier, that half the population feel that they do not understand pensions, and that only 12 per cent. think that the Government are doing enough to encourage them to start saving or to save more in a pension.
All this is hugely important for public finances, because if this trend continues, the taxpayer will have to spend more on means-tested benefits or on raising the state pension. It is also important for our sense of social justice, because we are heading in the direction of much greater inequalities in retirement provision. It is also hugely important for the competitiveness of our economy and for our quality of life. When we consider what the country is going to have to spend on upgrading its transport and energy infrastructures, and when we consider the implications of longer life expectancy and medical advances on our expenditure on health provision, it is increasingly obvious that this country will need to look to private capital and private savings to bridge the investment gap. However, the trend is going in completely the wrong direction.
These proposals chime with my own sense of priority, my own personal experiences, and the voices that I hear in my constituency. I particularly welcome the proposals to allow employers' pension contributions to be paid directly into a pension scheme of the employee's choice.
Like my hon. Friend the Member for Weston-super-Mare (John Penrose), I can confess that I, too, am guilty of high proliferation and low persistence. At the tender age of 43, I have four of those very modest pots, so I welcome the prospect of people being able to keep all their accumulated pension funds in one simple, accessible vehicle, particularly with the introduction of a flexible pension-regulated product such as SaRA, whose very name should at least endear itself to the Chancellor.
I also welcome what appears to be fresh thinking on the old chestnut of annuities. I, too, hear persistent messages from my constituency. The first is, what is the point of saving when the person who does not save receives the same amount from the taxpayer via means-tested credits? The second is resentment at having to buy a life annuity by the age of 75.
That resentment involves not having freedom of choice and it is fuelled by the fact that people consider annuities a bad deal—illiquid and inflexible, they provide a low return and are undermined by the inability to pass on a pension pot if the person dies after what looks like an arbitrary cut-off age of 75. I therefore recognise the retirement income fund—RIF—as a product that moves the debate on in the face of a long-term problem. I sincerely believe that only a bipartisan approach will solve it.
I hope that the Government are big enough to recognise that these proposals add enormous value to the debate.
12.16 pm
Barbara Keeley (Worsley) (Lab):
Like many of us here this morning, I do not claim to be any sort of expert on pensions but, as a fairly new MP, I understand the need to get the future of pensions right. There are factors that
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we have to balance. The first, which has been referred to, is increased life expectancy. The second is an ageing population. The burden of paying for services for that ageing population will be borne by a smaller group of those of working age. For me, the politics of pension reform is just as important as the policy itself.
As we can see from the attendance this morning, there is an increasing interest in the national pensions debate, especially the issues involving women and carers. Developments in pensions must address those groups in particular. My party's manifesto for the May 2005 election stated:
to a pensions system that is right for tomorrow's pension problems.
What is the pensions situation now? I contend that it is not one of crisis, as some Conservative Members have said this morning, but it is recognised that there are problems. There are concerns about overall pension provision and future pensioner incomes. Our concern is to lift more pensioners out of poverty. A great deal has been done to achieve that, but more needs to be done.
Our pensions environment is complex, as many Members have said—particularly for those who have four, or even eight, pensions to juggle. Over the coming decades, it is clear that there will be a sustained increase in the proportion of older people in the population. If we seek to maintain or increase pensioners' income, the share of national income going to them will rise. That rise will clearly have to be paid for by the shrinking population who are of working age. Such a settlement between the generations means that there must be a consensus on how to go forward on pensions reform.
The Finance Act 2004 made changes to the resulting system for pensions, which is due to come into force in April next year. It relaxed the rule concerning taking an annuity at 75. The Act allows people to take an alternatively secured pension. At the heart of the debate on compulsory annuities or whether to allow income drawdown after the age of 75 seems to be the issue of whether a pension scheme provides an income stream for a pensioner or whether it is designed to allow build-up of capital, which can be passed on to heirs.
When that matter was debated in 2004, my right hon. Friend the Secretary of State for Education and Skills said on behalf of the Government that offering
"additional incentive for higher rate taxpayers to pass their pension funds down through the generations could have significant behavioural effects".
With more being saved in pensions than is currently the case, she said:
She concluded that removing the requirement to take an annuity at 75 and allowing pension funds to pass on through the generations
"cost the Exchequer hundreds of millions of pounds."—[Official Report, Standing Committee A, 8 June 2004; c. 489–90.]
I do not think that that is the right to choice to make on pensions reform, and nor do I think that it would command a consensus nationally. Clearly, this Bill would help the top 5 per cent. or so of the population.
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