On pensions reform, the real priority is to address the pensions shortfall for carers and the pensions gap for women. As to the choices facing the UK with regard to pension provision, given that we want to improve the position of pensioners relative to the rest of society, we will need a mix of higher taxes, national insurance contributions, higher savings and a later average retirement age. To take pensions reform forward, any such option requires trade-off, for which we need a public consensus. Whatever the merits of the options in the Bill, I do not believe that they can gain that consensus, as they are really about prioritising the creation of better retirement choices for the wealthy. As the Secretary of State for Education and Skills said, such proposals would cost the Exchequer hundreds of millions of pounds. Our priority now should be women and carers. I want to refer briefly to why carers should be a priority consideration in relation to pensions reform and any extra funding from the Exchequer.
A key aspect of pension savings is length of working lives. While there is a national debate about the rise in retirement ages, carers are a group who curtail their pensions in retirement by voluntarily cutting the length of their working lives to take on a caring responsibility. The working lives of some carers, many of whom are women, are cut short in two ways: after losing years of their working lives in their 20s and 30s to have and care for children, they find their working lives curtailed again in their 50s when they take on caring for elderly relatives or spouses who become ill or disabled. Nationally, carers organisations find that that is increasingly a pattern. In taking on that caring role, carers are saving the health and social care economy a substantial amount, and they can also offer a more personal and flexible type of care than paid carers and nursing staff.
It is interesting that the right hon. and learned Member for Kensington and Chelsea (Sir Malcolm Rifkind) told us that he wanted to put provision for carers into his Bill. Perhaps the Bill could then have been called the rights of carers Bill. I am afraid that it will not impress carers that he did not do so, because there have been three private Member's Bills enhancing the rights of carers since 1997, all of which have been put forward by Labour Members. Addressing the issue of new and better pension provision for carers must be a key priority for pension reform, and would certainly command more of a consensus nationally than the provisions of this Bill. While, clearly, it is attractive to encourage saving through new savings vehicles, I support the Government's view that privileged pension saving must be used for retirement income for life, and not for other purposes. My priority would be to focus on the bigger issues of the pension shortfall for carers and the pensions gap for women, and not to prioritise pensions choices in retirement for the wealthiest strata of society.
Greg Clark (Tunbridge Wells) (Con):
I warmly welcome the Bill brought forward by my right hon. and learned Friend the Member for Kensington and Chelsea (Sir Malcolm Rifkind) and shall make some brief, spontaneous suggestions on how it might be taken forward in Committee.
28 Oct 2005 : Column 566
Both sides of the House agree that the key to solving the pensions and savings crisis is to make sure that those who need savings and income in retirement most make provision for that. The shocking state of affairs today is that the median level of financial assets across the country is just £750that is what the average person has in financial assets during their life. Moreover, 11 per cent. of the population have no financial assets whatever. Therefore, if we are debating saving, it is important that we focus our efforts on what we can do to make sure that those people have some kind of buffer to fall back on.
Two issues arise from that. The first is whether the use of tax relief is the best way of incentivising saving. Traditionally, we have fallen back on tax relief as the standard method to encourage people to do one thing rather than another. People who are on low incomes and in irregular employment do not pay much in tax, however, so encouraging them to save for their retirement through tax relief might not be as effective as some other ways.
Consistent with the Bill is an approach based on a cash incentive involving no discrimination relating to the level of earnings. Everyone can benefit from savings to the same extent. There are variants, such as a one-to-one match, which makes it clear that saving for retirementor indeed for a rainy daywill be rewarded by the Government. Paradoxically, we consider it necessary to reward high earners to the tune of 40p in the pound in tax relief to encourage them to save, while penalising those who do not pay tax, through the withdrawal of benefits, to a comparable degreeabout 40p in the pound. I hope that the Bill will give us a chance to remedy that gross anomaly, which is depriving many of our constituents of savings to fall back on.
Another innovation introduced in the Bill is flexibility in saving for retirement: the ability to withdraw funds. My right hon. and learned Friend explained the circumstances in which people would be able to withdraw from pension funds, but I urge him to go a little further. Members of my generationpeople in their thirties, or perhaps their twenties or fortiesare used to a degree of flexibility in their lives which the old pension savings arrangements do not recognise. People in their twenties and thirties may have a few pounds left at the end of the week, and may feel inclined to save it for their retirement. Saving it in a pension fund means locking it away for 30 or 40 years, never to see it again until then. In an age of flexibility, that is a considerable disincentive to saving in the first place.
There is a principle that I call the Marks and Spencer principle. In happier times, Marks and Spencer used to do quite well as a result of a sales tactic. People who bought items knew that they could return them and get their money back. That made them more likely to buy, say, a jumper in the first place. I think that that principle can be applied to savings. If we are flexible and allow people to save whatever extra pounds they have at the end of the week for their pension funds, and to withdraw the money in the circumstances described by my right hon. and learned Friend but also in any other circumstances, I believe that just as Marks and Spencer found that most people kept the jumper rather than returning it, most of our constituents would save the money and find it there when they retired. They would have the comfort of knowing, however, that they would not lose their ability to be flexible in years to come.
28 Oct 2005 : Column 567
I have made those two brief points in commendation of my right hon. and learned Friend's Bill. I wish it well in Committee, and I should be delighted if it could be taken a little further to deal with my points.
Ms Diana R. Johnson (Kingston upon Hull, North) (Lab): I, too, congratulate the right hon. and learned Member for Kensington and Chelsea (Sir Malcolm Rifkind). I had some fun trying to get to grips with the Bill, but I have a difficulty with it.
Like many of my hon. Friends, I look forward to reading the recommendations of the Turner commission at the end of November. I think that the commission has the most sensible approach to dealing with the complex issue of pensions and savings. As Members will know, it has already produced an interim report, identifying four areas that we should examine. The first option is to do nothing, but I think all Members will agree that that is not actually an option. The second is to increase tax and national insurance contributions, and will provoke a healthy debate among all parties. The third, which conforms with the Bill, is to increase individual and employer savings through pension schemes and other savings opportunities. The fourth option, which will also generate a great deal of debate, is for people to carry on working for longer. Members will want to discuss that in some depth, given that many are over the normal retirement age and will wish to continue serving their constituencies for many years beyond 60 or 65. That is an issue that we need to think about.
Norwich Union conducted research into why people do not want to carry on working beyond the normal retirement age. It found that many, particularly those in the 45 to 55 age group, felt that there were a number of barriers to carrying on in work that they enjoyed. That should give us all pause for thought. Next year, provision will be made for the outlawing of age discrimination. Many employees want to carry on working beyond the normal retirement age and that should be encouraged, but I am sure that we will return to this debate in due course.
I want to deal with certain of the Bill's clauses. It is not clear to me how the savings and retirement account will simplify provision for ordinary members of the public. As has already been said, pensions and savings provision is very complex. I found the SaRA difficult to understand, and I am not sure in what way it will simplify matters. We have heard how successful individual savings accounts have proved since 1999. Some 16 million people now have ISAs, and we must reflect on that success. Moreover, the SaRA has not been costed; how much will it cost to implement? We also need to bear in mind the costs that allowing people to contribute through the payroll will impose on small businesses in particular.