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Mr. Hollobone: A number of Labour Members have pointed out the importance of waiting for the Turner report and the need to establish an all-party consensus on pensions. Why therefore have the Government already made an announcement about pensions in the public sector?
The Turner report will address pension saving across the economy. Separate negotiations needed to be held on public sector pension schemes, and an announcement was made about some of those schemes the other week. The Turner commission is addressing the whole question of pension saving for the work force and people of working age, and, as the hon. Member for Kettering (Mr. Hollobone) has reminded us, it is important to wait for the outcome of that work because everybody who has been in touch with the members of the commission has been impressed by the
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thoroughness with which it has set about its task. I am confident that the commission will make a valuable contribution to the debate, and hon. Members will understand that my response on some of the detail of the Bill will be somewhat circumspect ahead of receiving the results of its work.
Mr. Ellwood: We have waited eight years for something substantial from the Government, and now we must wait for the Turner report, too. Will the Minister let us know how long we must wait after the conclusion of the Turner report for the Government to introduce a White Paper?
Mr. Timms: I am sorry that the hon. Gentleman has chosen to make that kind of contribution. The overriding priority for Labour Membershaving listened to the more thoughtful contributions from Conservative Members this morning, they understand this point, toowas to address the scandal of pensioner poverty in 1997. As I have said, hundreds of thousands of single pensioners had a total income through means-tested benefit of less than £69 a week, which was not an acceptable state of affairs. Over the past eight years, we have been very effective in addressing that issue. A former director of the Institute for Fiscal Studies recently pointed out that arguably the ending of abject pensioner poverty has been the most dramatic of all the major social advances since 1997. It is not true that we have not made progress, because we have made dramatic progress.
We set up the Turner commission recognising that we need to made progress. If we look 15 or 20 years into the future, we must make changes now in order to avoid problems in the future and make sure that the progress of the past eight years does not go into reverse.
Mr. Waterson: Before the Minister leaves pension credit, will he confirm that for the first time ever this month's figures show no increase in the take-up of pension credit? The Treasury is still budgeting for some 1.4 million people who are entitled to pension credit never getting round to claiming it.
Mr. Timms: The latest figures on pension credit take-up show a small increase. It is becoming increasingly clear that the number of people who are eligible for pension credit is somewhat less than the initial estimate. It is also clear that the overwhelming majority of those who stand to benefit most from pension creditin particular, elderly, single womenhave taken it up, which is why we have seen a dramatic reduction in pensioner poverty over the past few years.
At this stage, all options remain on the table, and we will not rule anything in or out until we have had an opportunity to reflect on the commission's recommendations and what people say as we take the national pensions debate around the country.
The Minister knows that I am a member of a county council, and he also knows about the problems that pensions create for local authorities in terms of council tax rises for all of our pensioners. Will he give me the real reasons behind the announcement on pensions for the public sector, because his earlier explanation did not help? The announcement seemed to
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have a great impact and the Minister has argued that we should examine it, but it has already been put to one side.
Mr. Timms: I am grateful to the hon. Gentleman for reminding me that he is a local authority member. The outcome of the negotiations for local authority pensions has not yet been announced. The Deputy Prime Minister is taking forward those negotiations at the moment, and the conclusions will be announced in due course.
Let me draw the House's attention to some genuine concerns about the proposals. The Bill covers a range of technical issues, and it would have been useful to be able to study it for somewhat longer than was possible. As the right hon. and learned Gentleman said, it was only published earlier this week. I recognise, of course, that until very recently he had his mind on other matters which no doubt took up all his time.
My hon. Friend the Member for Stockton, South (Ms Taylor) was right to highlight the need to discuss such proposals very widely. I am sure that that will now take place, particularly as regards the effects on small businesses of potential additional burdens. My hon. Friend the Member for Kingston upon Hull, North (Ms Johnson) made some thoughtful contributions to the debate and was right to mention that.
Let me start with the proposals for the savings and retirement account, or SaRA. SaRA is related to LiSa, or the lifetime savings account, which featured in the Conservative party's election manifesto, and is possibly related to RIFthe retirement income fundas well. On the basis of what the right hon. and learned Gentleman said, I characterise the SaRA as a stakeholder pension with additional flexibility. He made a good case for the additional flexibility that he advocates. The drafting makes me feel quite nostalgic because it borrows heavily from the framework for stakeholder pensions set out in the Welfare Reform and Pensions Act 1999, with which I was closely involved. Indeed, it copies much of that legislation word for word; it is good to see it again.
The right hon. and learned Gentleman argued that the introduction of SaRAs would reduce the proliferation of small pension pots and increase persistency in long-term saving. I agree about the benefits of doing that, as have other Members. He said that SaRAs would do that through reforming and simplifying the stakeholder system, so that more employers offer payroll deductions in a wider range of pensions. He also said that they would be similar in structure to ISAsI am grateful to him for underlining, rightly, the importance of the success of ISAs over the past few yearsbut operate under pension rules and regulations.
I want to return to a point that I made earlier. The Bill provides that, as with stakeholder pensions, employers would have to offer their employees access to a designated SaRA, facilitate deduction of the employee's contributions from the payroll, and then pass them on into the scheme. It is proposed that regulations will provide that employees would take their SaRAs with them when they change employer. I think that the intention would be that when someone moves to a
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different employer, that new employer would be required to hand over contributions to the SaRA of which the employee was a member. That would be a significant additional burden on small businesses, in particular. I do not know whether the right hon. and learned Gentleman envisages the SaRA obligations being imposed. I noticed that there is some divergence among Conservative Members on that point. If they were imposed on the smallest employers, who were excluded from the obligations on stakeholder pensions, that would be another, very considerable, additional burden on them. That would certainly need a great deal of exploration before one could support the proposals.
The hon. Member for Yeovil (Mr. Laws) helpfully drew our attention to a brief from the Investment Management Associationwhich I have not yet seenand I am glad that that concern has been picked up elsewhere. The hon. Gentleman made some thoughtful and helpful points, but I was disappointed that he took the opportunity to remind the House of his party's opposition to the child trust fund. The fund is finding increasing support across the country as a very effective mechanism for renewing the savings habit. I would remind the hon. Gentleman that Conservative Members supported our proposals for the fund, as did Labour Members; the Liberal Democrats are in a shrinking minority.
Mr. Laws: The people who are in a shrinking minority are those who have actually cashed their child trust fund vouchers. Will the Minister confirm that only about 40 per cent. of the vouchers sent out this year have been cashed? Does that suggest that there is a problem with the Government's flagship scheme?
Mr. Timms: No. It has always been made absolutely clear that, if the voucher is not cashed, an account will be set up by the Revenue. For the first time, every child will have an account that has been set up in their interest. They will understand the nature of the account and the nature of saving, and they will have familiarity with a financial institution. The overwhelming majority of hon. Members recognise what a big contribution that will make to renewing the savings culture in the UK, which will be of inestimable value in building pension saving in the future. The hon. Member for Wantage (Mr. Vaizey) made an interesting point about rolling over a child trust fund into whatever form of pension vehicle is available when the first child trust fund holders reach the age of 18. That is an option that we should encourage. The child trust fund is certainly a welcome and important innovation.
The hon. Member for Tunbridge Wells (Greg Clark) made some interesting points about the benefits of matching savings contributions. I am sure that he will be aware of the savings gateway pilots that have been conducted, with the Treasury's support, working with Halifax and other institutions. They are starting to show good evidence of the efficacy of matching as a means of encouraging saving among those for whom tax incentives are not very effective.
Part 2 of the Bill aims to establish a framework for retirement income funds. We have of course debated the rules on annuities in the House on a number of occasions, including during debates on at least two private Members' Bills and during the passage of the
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Pensions Act 2004. We heard some of the arguments again today from Conservative Members, who proposed the abolition of the rule that requires people to convert their pension fund into an annuity by the age of 75 at the latest. My right hon. and hon. Friends in the Department for Work and Pensions, as well as those in the Treasury, have argued for retaining that obligation on the ground of cost, or on the ground that that proposal goes fundamentally against what a pension is.
The Bill could well have the effect of reducing annuity rates for those who will always be dependent on annuities. However, I would say to the right hon. and learned Member for Kensington and Chelsea that his interesting proposal is clearly different from those that have been made in the past, and it deserves a considered response. A maximum annual withdrawal limit would be set based on life expectancy, involving the minimum income requirement that the Bill envisages. Each year an individual would have to withdraw income at a level that would ensure that their total income was at least at the level of the prevailing rate of the pension credit guarantee. That is currently £109.45 a week, and is being uprated in line with earnings until 2008.
Where this gets difficult is in trying to guarantee that that will continue to be possible for the remainder of an individual's lifetime. The RIF would need to generate more each year, as the guarantee element was uprated, when often one would expect a fund to shrink over time. That is the background to my concern, which I raised with the right hon. and learned Member for Kensington and Chelsea in an intervention, about a real danger of people running out of money when they reach their 80s or 90s.
This option might look quite attractive to people aged 70, but if they live to their late 80s or their 90sor even to 100, as increasing numbers arethe money will run out. The danger is of huge anxiety for such people.
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