Previous SectionIndexHome Page

John Penrose (Weston-super-Mare) (Con): Does the hon. Gentleman agree that there is something unexpected about the Government's apparent commitment to final salary schemes in the public sector, given that Lord Turner has said that the people who end up on high final salaries—typically the few most senior people in a final salary scheme—will have paid the smallest percentage of their lifetime earnings to achieve their final pension payment? That does not seem entirely fair and I am surprised that more Labour Members have not picked that up.

Mr. Laws: I agree with the hon. Gentleman. The Government have obviously tried to address that to some extent by looking at career averaging. However, in
31 Jan 2006 : Column 262
some public sector schemes—not all, in fairness; the local government scheme is clearly not comparable with some of the others—the effective contribution rates, which after all involve the taxpayer, are many multiples of what we see in defined contribution schemes, and even double some of the defined benefit schemes in the private sector. I would have thought that many people, even in the public sector, understood that unfairness. Of course they want to see decent pensions in the public sector, but they understand that we cannot rely solely on the taxpayer to pick up the bill. People in the public sector, including Members of Parliament, might have to decide whether they want to receive a less generous pension or to make larger contributions to their pension to ensure that it can be delivered.

Mr. Jim McGovern (Dundee, West) (Lab): Does the hon. Gentleman agree that pensions, particularly occupational pensions, are in effect deferred wages, and that any proposed changes to pension schemes should be introduced only after negotiation with the appropriate trade unions and with the full agreement of the scheme's members?

Mr. Laws: I agree with the hon. Gentleman that there are major issues involved and that remuneration needs to be looked at as a package. Often, however, the better pension benefits in the public sector do not look as though they are simply compensating for lower pay, although that seems to be what most economic evidence suggests today. Of course the hon. Gentleman is right to say that there should be negotiation on these matters.

Whenever I have discussed these issues with people in my constituency who work in the public sector, I have found that they are far more grown up than we assume. They understand that there are no blank cheques to be signed in this regard. Many of them, including people in the local government scheme, have suggested that they should be paying higher employee contributions. They ask why employee contributions have not risen over time, even though people are living longer. One of the mistakes that we make in politics is to treat people as though they are children who cannot understand these basic issues, but most people understand that there is no such thing as a free lunch, and that Governments of all parties have to grapple with these difficult issues.

Another issue that needs to be looked at if we are to afford a better basic state pension architecture is the state pension age. The Government appear to have made a significant change in their policy in this area; I think I heard the Secretary of State say today that he thought an increase in the state pension age was inevitable. That is quite a striking change in Government policy from that of the Secretary of State's predecessor but one, the right hon. Member for Oxford, East (Mr. Smith)—

The Parliamentary Under-Secretary of State for Work and Pensions (Mr. James Plaskitt): Predecessor but two.

Mr. Laws: I am most grateful to the Minister for updating me; it is difficult to keep up. I hope that I have not missed anything new today.

The right hon. Member for Oxford, East had previously put it clearly on record that the Government opposed any increase in the state pension age. Some of
31 Jan 2006 : Column 263
the concerns about that came from the Treasury. I do not know whether, when the Secretary of State spoke today about the increase in the state pension age being inevitable, he was speaking on behalf of the Government with the support of the Treasury, or whether he was simply speaking on his own behalf.

The right hon. Member for Birkenhead spent some time talking about the difficult issue of what any additional pension should be, if one were available in addition to the basic state pension or citizens pension. It is clear that no one would want simply to rely on a basic state pension in future, even if it were considerably higher and better than the state pension that people rely on today. We are still talking about a pension that would seek to protect people from poverty rather than to give them a life of luxury in retirement. We want most people not only to have access to the state pension but to have a second pension into which they put savings and to which their employer contributes. It would be right, particularly if we are to address the unfairnesses of the public sector scheme, to ensure that employees, employers and the state contribute to those second-tier pensions, although clearly that highlights particular issues for small businesses and others to which the Government will have to be sensitive. A partnership between those three seems to me to be sensible and the only way to get enough money in the pension pots of workers on low incomes to make a real difference.

There are some massive issues here, which the right hon. Member for Birkenhead highlighted very clearly. He was concerned about the impact on defined benefit schemes. Frankly, my view is that defined benefit schemes, in the private sector at least, seem to be on the way out anyway because of the economics of such schemes. How will we manage the risk transfers involved? We are talking, potentially, about an enormous transfer of risk from the Government—as we have seen many times, there is a risk in relying on them—and from employers, who have not been able to handle this risk recently, towards individuals, many of whom are completely unprepared to handle risk of this type. Indeed, I dare say that most people are completely unprepared to handle it.

I do not see many alternatives to transferring those risks to individuals and I think we will end up going in that direction whoever is in government, but I am under no illusion about people's preparedness to take on that responsibility. An enormous extension of financial literacy, starting from school, and of financial advice to people on low incomes is required. As the right hon. Gentleman correctly said, careful thought from the Government on maximising choice for those who want to be able to choose their second pension and structure it in a way that they, rather than the Government, think desirable is also required.

Careful consideration is required to deal with the issue that the right hon. Gentleman raised about risk and not ending up with people thinking that they have two Government-guaranteed pensions. The ingenious scheme proposed by Lord Turner must not be considered a Government-guaranteed second pension, because it is not that. No future Government could provide such a guarantee.

Those are the major challenges that the Government have to address on pensions policy. I genuinely hope that we can find a consensus across parties that lasts
31 Jan 2006 : Column 264
rather longer than consensuses have in the past. The experience of the 1970s is not encouraging in looking at the period for which a consensus can be held together. This is a big challenge for the Government, as is seeking consensus internally first. I look forward to the time—in the promised couple of months I hope, although such periods tend to expand, as we see with the Child Support Agency—when we have the opportunity to hear the Government's proposals and to know that they are agreed across the Government. Then we can engage in a serious debate, knowing that something will come out of it.

9.37 pm

Mr. Terry Rooney (Bradford, North) (Lab): We on the Select Committee had the pleasure of the company of Lord Turner and John Hills at our hearing on 14 December. I want to give a word of warning to any Members who intend to invite Lord Turner to a meeting: they will find a man who is sincere, passionate and knowledgeable—he can recite reams of his report without notes—but extremely loquacious. If the meeting is for one hour, allow two.

The key thing with Turner is that the analysis is superb, but the problems come with the solutions he offers. I do not think I am breaking any secrets when I say that I chaired a parliamentary Labour party meeting about a month ago where 31 people were present and 28 different solutions were on offer. That is the situation we are going to be in.

There is such a wide range of ways out in terms of how Turner analyses things and I am intrigued, but also concerned, by the use of the word "consensus". Who are we aiming to get consensus with and between? Is it with and between men and women, because that has never been there before? Is it between young and old? Is it between contributors and beneficiaries? Is it between the public and private sectors? Is it between professionals and manual workers? Let us not forget that if we move at some time to a retirement age of 69, a less than academically gifted child who leaves school at 16 will have to work for 53 years. A professional person, however, will have a working life of around 40 years. That is a huge difference in terms of retirement age.

Consensus between the various parties in the House is the most dangerous consensus of all. In 1975, we had that consensus across all parties in the House including the Scottish National party, and it lasted five years. With the best will in the world towards Opposition Members, it is an absolute betrayal to pretend that they agree with something and will stand by it should there be a change of Government. That is a pretence and a sham. The consensus needs to be among the public, consumers and those most affected by the issue, not between the Government and Opposition Benches.

There is no doubt that there is a crisis of confidence among consumers about the pensions and savings industry. Often, that crisis of confidence is used by individuals to justify not doing something that they had no intention of doing in the first place. We must recognise, however, that there have been successive broken promises, mainly by Governments but also by
31 Jan 2006 : Column 265
financial institutions—changes to the state earnings-related pension scheme, pensions mis-selling, low-cost endowment policies—

Next Section IndexHome Page