|Previous Section||Index||Home Page|
That lack of confidence is reinforced daily by various financial scandals in all sorts of spheres, not necessarily involving pensions and savings. Every time that someone sees a financial scandal, whether it is credit cards being ripped off on the internet or whatever, that loss of confidence is reinforced. Any measure brought forward by Governmentthis is where I take great exception to what the hon. Member for Yeovil (Mr. Laws) saidmust therefore carry some form of Government-backed guarantee to people that any scheme that they enter into will not take away their money, and that they will not find out at 59 or 64 that the pension that they thought they had saved for has disappeared. Should we finish up with a model along the lines of the national pension savings scheme, it needs to be managed by a body such as National Savings and Investments, which has credibility and is semi-autonomous but has the backing of Government.
We can contract out investment management. I have been heavily lobbied, as, I am sure, many other Members have been, by the Association of British Insurers, the National Association of Pension Funds and others who are just vested interests scared stiff that if NPSS or anything similar comes about, they will lose business. They have little concern for the individual and the consumer, and are much more concerned about what is happening to their business. Within the benchmarks and costings, however, they can bid against anyone else for the investment management programme.
We need to be honest with people, and I suspect that the only source of such cost-free advice is Government. We need to be honest with people in different income bands about what is definitely right for them, and what is definitely wrong for them.
Mr. Nigel Waterson (Eastbourne) (Con): Has the Chairman of the Work and Pensions Committee given any thought to what consumer protection and regulatory framework should apply to NPSS if it is set up in that sort of form?
Such advice would be along the lines of what is definitely in and definitely out for people in different income bands. For instance, anybody on less than about £13,000 should be in the state second pension and nothing else. People on more than £30,000 to £35,000 will always take care of themselves. My hon. Friend the Member for Luton, North (Kelvin Hopkins) referred earlier to the 55 per cent. of tax relief that goes to 10 per cent. of earners. People in that income band are mad not to invest in pensions.
The big gaps are between those who are below the lower earnings limitlargely womenwho are excluded, the self-employed, and those whose annual incomes are between £13,000 and £30,000. They are the people who have opted out. Ironically, they have reached the conclusionby whatever convoluted meansthat they need not be involved in the pensions system. That is silly. It is stupid and irrational. But would those people take any notice of a financial adviser who would charge them anything between £150 and £600? Under the current system, pensions are not bought; they are sold. No one wakes up in the morning and says "I will buy a pension today." Pensions are sold, through a friend, a contact or an advertisement. It is usually an accident, in that no one decides to buy a pension.
I hope that my colleagues in the Government will forgive me for saying that if the Government can give advice on animal welfare and how to look after cats, on how to wear slippers and on how to be safe going in and out of the shower, they can surely give some responsible advice on pension products.
I do not think we can ignore the fact that owing to changes made last year following the Pensions Act 2004 and the Finance Act 2005, we are giving higher-paid earners up to £600,000 in tax relief. That can never be part of the mantra "The many, not the few". The issue will keep coming back, as will the issue of contracted-out rebates, which time prevents me from exploring. Those are big issues, which the Government will have to address. We will certainly examine them during our Select Committee inquiry this summer.
Mr. Quentin Davies (Grantham and Stamford) (Con): In the new mode or fashion, my hon. Friend the Member for Runnymede and Weybridge (Mr. Hammond)who made an excellent and extremely well-informed speechwas very emollient and kind to the Government. I think I have a reputation in this place for calling a spade a spade, and I will live up to that. People must be remindedand I reminded my constituents at the last election, although I may have been the only Conservative to do sothat since 1997 the Government have presided over nothing less than a dramatic and systemic pensions disaster.
What has happened to the system since then? A third of the defined-benefit schemes that were operating in 1997 have closed altogether, and another third have
31 Jan 2006 : Column 267
closed to all new entrants. The same is true throughout the voluntary pensions sector. Let me quote from page 2 of the Turner report, no less. It states that
That is a terrible indictment of a Government who should have regarded the maintenance, indeed strengthening, of our pensions system as an elementary, fundamental responsibility when they came to power.
Far from being prudent, as he likes to say that he is, the Chancellor has behaved with reckless irresponsibility. In 1997, the stock market was doing very well. The Chancellor thought "Fine: the stock market will go on for ever doing so well that it will be able to absorb not just the costs of increasing longevitythe actuarial costs that will be borne by these schemesbut another £5 billion a year in gratuitous tax." Of course, he was completely wrong.
The Government have compounded that with further mistakes. My hon. Friend the Member for Runnymede and Weybridge mentioned the regulatory regime, and the perversity of forcing pension funds to move from equities to gilts
It is perverse to force pensions funds to move from equities to gilts. The only way that one can have a decent return on a pension fund, which is by definition a long-term investment, is by being substantially in equities.
The Government's attempts to do something about that have been completely mishandled and misconceived. As I predicted when I was pensions spokesman for my party in the 1997 Parliament, the stakeholder pension did not work because it was running against the enormous weight of the extension of means-testing. That meant that, for people on modest incomes, it made no sense to go into a voluntary pension scheme. That is the fatal flaw in so many of the Government's calculations and so much of what they have been saying tonight, although it is no doubt well-intentioned. It will not work in those circumstances.
I calculated when I was pensions spokesman that, if one saved £100,000 a year in one's pension fund, one would gain no benefit at all. The result would be an annuity of about £4,000 a year, about the amount that one would lose in means-tested benefits such as the minimum income guarantee system, including housing benefit and council tax relief.
Those amounts have greatly increased. One probably has to save £150,000 a year before one even starts to make a return. That means that, if one saves £300,000 a year, one will get half the market returnhalf what one should expect for the sacrifice of consumption and for the risk. If one saves £500,000 or more, it is worth it but, by definition, that can interest only a small minority of
31 Jan 2006 : Column 268
our population. That is a fatal flaw that is not recognised in Turner. That is why I want to emphasise the point this evening.
What is the solution? Again, we have too little time to get into the subject, but let me set out four points that will be essential in any solution. First, we must maintain the contributory principle. The Government's emphasis on responsibility means nothing if we get rid of the contributory principle. That is why I strongly disagree with Turner on such matters as making the state retirement pension residential by qualification, rather than contributory.
|Next Section||Index||Home Page|