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Mr. Philip Hollobone (Kettering) (Con): In looking at groups that are not taking up pension entitlements as all of us would wish, may I urge the Secretary of State to focus on married women who stay at home to bring up their children? [Interruption.]
Mr. Hollobone: Thank you, Mr. Deputy Speaker. That may have been a married woman listening to the debate and wanting to urge me to make this point. There are demonstrable benefits to society from women staying at home and bringing up their children, but many of those women lose out later in life because they do not have adequate pension savings.
David Taylor (North-West Leicestershire) (Lab/Co-op): A moment ago, the Secretary of State said that it was important that people take responsibility for their pensions, and the public increasingly accept that. However, does he agree that contributions to the state system should be made on a fair and progressive basis? The cap means that a person earning just over the average income of £30,000 pays 9.2 per cent. in national insurance, whereas someone earning £100,000 pays 3.7 per cent. and someone earning £1 million pays 1.3 per cent. That cannot be fair. Surely there must be some scope to make the contribution system fairer?
Finding the right approach to achieve the objective of a personalised, flexible tool that can enable people to save at low cost is a key part of any long-term pension reform. We start with a clear view about our objectives, but we have an open mind about how they can best be achieved.
However, one thing is clear, and it is that employers have an important responsibility to fulfil. Many employers already contribute much more than the 3 per cent. proposed by the Pensions Commission. For those who do not, the question is whether some form of compulsion is necessary and appropriate.
In 2004, nearly 80 per cent. of funded pension contributions came from employers. An employer contribution adds value to the pensions saving of an individual, as the figures make clear, and it can also act as an important catalyst for employee participation in the first place. However, the Government must be aware of the economic burden that adding costs to employers through any form of compulsion would impose.
That is especially true for smaller businesses. Clearly, a compulsion on small employers to contribute to pension schemes could have a disproportionate impact. We must be mindful of all such considerations before we proceed along this path.
The second test is that any proposals for reform must be fair, as the hon. Member for Kettering (Mr. Hollobone) said. Any reform package must continue to protect the poorest people, so that the poverty that blighted the lives of millions of pensioners at the end of the last century will never recur. The package must be fair to those who have saved, reward those who have contributed and incentivise those who can save to do so. Crucially, it must be fair to women and carers, correcting past inequalities and reflecting those people's changing role in today's society.
Mr. Andrew Love (Edmonton) (Lab/Co-op): May I press my right hon. Friend on the issue of fairness? The Turner commission had very little to say about the massive inequality that exists between those who receive very significant tax relief on pension pots of up to £1.5 million and those at the bottom of the income scale who receive very little in the way of support. Will he put that disparity at the centre of his considerations of fairness when he comes to decide the shape of any future system?
Mr. Hutton: Obviously, we will look at all such matters in our White Paper proposals. It is not true that Lord Turner was not concerned about correcting inequalities in the pension system, especially as they affect women. He proposed a number of solutions, to which I shall come in a moment. Moreover, the tax simplifications introduced by my right hon. Friend the Chancellor will come into effect this April. They will offer significant improvements and advances in the current tax arrangements. We are making progress, and my hon. Friend may have an opportunity to explore his own proposals later in the debate.
We have already introduced a range of measures to improve the position of women pensioners in particular, both in the labour market and in terms of income in retirement. The minimum wage and the pension credit regime have been especially beneficial to women. Two
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thirds of the pensioners lifted out of absolute poverty since 1997 are women. The introduction of the state second pension means that the proportion of women now accruing significant state pension rights is similar to that of men, while almost all of the 1.9 million carers, and two thirds of the 5.8 million low earners, who have been helped have been women.
Vera Baird (Redcar) (Lab): My right hon. Friend makes a powerful point, as there is no doubt that this Government have helped women pensioners hugely, especially through the pension credit. However, if a women does not have a full basic state pension she will not, by virtue of the state second pension, come out of the pension credit limit. Is not the real difficulty, therefore, the fact that only 17 per cent. of women have a full basic state pension when they retire?
Mr. Hutton: Yes, those figures are broadly right. It is worth bearing in mind that we estimate that over the next 20 years men and women will accrue an equal entitlement to state pensions. That is progress, and it is progress that some people thought would not happen. I agree with my hon. and learned Friend that the current system does not treat women fairly, and we will address those issues in the White Paper to be published in the spring. I wish to pay tribute, quickly but sincerely, to my hon. and learned Friend for the work that she has done, together with colleagues from both sides of the House, in campaigning for more equitable treatment for women.
My argument today is that we can and must do more. Doing so will, however, require making some difficult choices. One approach favoured by Lord Turner is the introduction of a new universal basic state pension for those aged over 75. Another would be to remain true to the contributory principle, but to make adjustments to the number of qualifying yearsfor example, removing the 25 per cent. de minimis limit and turning home responsibilities protection into a system of national insurance credits. In every case, there is more than one way to achieve the objectives that Lord Turner set out. Lord Turner himself judged, for example, that an evolutionary approach to state pension reform was preferable to adopting a more immediate citizen's pension. The citizen's pension would involve spending large amounts of extra money on helping better off pensioners rather than poorer pensioners, so while it offers greater simplicity more quicklyand a route to greater equality for womenit does so at the cost of helping better off pensioners. It also destroys completely the contributory principle and carries significant implications for the crucial third test of affordability.
Clearly any system needs to be affordable for taxpayers and the economy as a whole. We have an obligation, especially on the Government side of the House, to continue to manage public expenditure prudently and responsibly. Several of the commission's proposals raised the prospect of significant additional Government spendingin particular, the proposed re-linking of the basic state pension to earnings, which was of course scrapped by the last Conservative Government. Ministers have made it clear that there will be no relaxation in our fiscal discipline and we will not
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put the public finances at risk. So the affordability test is central. If we are to fund a more generous state pension, such as the one Lord Turner has proposed, the critical question will be how we pay for it.
Mr. David Laws (Yeovil) (LD): The Secretary of State says that he is concerned about affordability in relation to the basic state pension, but is he also concerned about the affordability of public sector pensions? As a share of the national economy, the cost of public sector pensions is going up by 50 per cent. at a time when the basic state pension is static.
Mr. Hutton: We have entered into arrangements that are sustainable. The new arrangements for public sector pensions that we have reached with the trade unions open up the prospect of significant savings for the taxpayer in the next few years. It is not clear to me that the hon. Gentleman is proposing what he suggests he is proposing in relation to public sector pensions. I suspect that we will hear more from him in due course, as we will from the hon. Member for Runnymede and Weybridge (Mr. Hammond). If I may get my defence in before the attack has been delivered, I would point out that we have spent the past few weeks looking at what the hon. Gentleman and his colleagues said about public sector pensions during the election campaign. I tentatively suggest to the hon. Gentleman that he treads warily down the path of suggesting that the deal is not a good one for the taxpayer, becauseas he will know he made no proposals during the election campaign to make any changes to public sector pensions.
Lord Turner has suggested that the state pension age should rise broadly in proportion to the increase in life expectancy. While that raises questions under the fairness test, it is not possible to have the debate about affordability without seriously considering an increase in the state pension age. My view is that some increase from 2020 is inevitable, but we should consider very carefully all the options for how that can best be delivered.
The fourth test is simplicity. Any credible package of reform must represent a clear deal between citizens and the state, so that people know what the Government will do for them and what is expected of them in return. The state must be clear about its priorities: a decent pension for both men and women, which can act as a platform on which individuals can be encouraged to save even more themselves, with continued extra help for the poorest pensioners.
Simplicity also means clarity for individuals about the value of their savings pot. It means clear, credible financial education and advice and an important role for pension information and pension forecasts to show people how much they need to save to achieve the income they want in retirement. Of course, it means people understanding the nature of the risks entailed in any type of savings product. Pensions are never a risk-free business and they should never be presented as such.
Finally, simplicity means having a system that allows people to plan and which is sustainable for future generations and that is my fifth and final test. If we are to lay the foundations for a lasting pension settlement, it is crucial that any reform package must be underpinned by an enduring national consensusa system that will stand the test of time and not be pulled apart by successive Governments.
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At the beginning of my remarks, I said that securing consensus on the right way forward is our objective, which is why I shall welcome contributions from Members on both sides of the House in the debate. Let us all try to demonstrate a common purpose: to make proper provision for this and future generations of pensioners; to continue to reduce pensioner poverty and to take the long-term decisions on pensions that need to be taken now, building on the progress that has been made, and which are right for both our constituents and our country.
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