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There is a remarkable consensus about the broad thrust of pensions policy in that all the major parties have agreed that there should be a firmer foundation for the state pension and an end to the increase in means-testing. All parties, if not all hon. Members, have agreed that the state should get out of second pension provision in favour of some sort of personal accounts that are not controlled by the state. All have also accepted what seemed unlikely to gain consensus only a year ago—namely, the need for an increase in the state pension age. The Secretary of State and his colleagues deserve some credit for moving the debate in that way and gathering consensus, as do Lord Turner and his colleagues.

Our concerns are about the detail of the reforms. The greatest threat is not disagreement between the parties on the philosophy of pension reform, or even that the existing agreement will not be sustained in future. There is broad philosophical agreement, not just agreement about detailed aspects of pension reform, between the parties. Our biggest concern is whether the pensions reforms will deliver the outcomes to which the Secretary of State and others aspire. The biggest risk is that when we review the proposals in 10, 20 or 30 years—given the Secretary of State’s earlier predictions about longevity, we will all be alive then—we may find that the most important part of the Secretary of State’s reforms, the personal savings accounts and the national pension savings scheme, have not delivered the intended results.

In his valuable contribution, the hon. Member for Bradford, North (Mr. Rooney), who is Chairman of the Work and Pensions Select Committee, identified a number of areas in which the personal savings accounts and the NPSS may fall down. As was the case with stakeholder pensions and other accounts, the fear is that we will not get the additional degree of individual commitment to pensions, which we have not had in recent years, and that we will still be building on a basic state pension system that even Lord Turner has described as mean by international standards.

We hope that there will be a further consensus-building process over the next few months. We know that the Secretary of State has had to forge his own consensus with the Chancellor and other Ministers on pensions reform, and we hope that in doing so he is not borrowing from the Chancellor’s traditional view of consensus building and consultation. In my experience, consultation la Brown consists of an announcement by the Chancellor of a new policy and the simultaneous announcement of a great national debate and consultation, which is followed by a decision to rule out all the alternatives on the basis that they are ludicrous or unaffordable. Although the Secretary of State and the Minister for Pensions Reform are more constructive and more approachable than the Chancellor, an element of that Brownite approach is apparent. In his press release earlier today, the Secretary of State made it clear that one cannot pick and choose from within the package and avoid the tough choices.

When I asked the Secretary of State which provisions he is prepared to amend, the answer was the personal pension, the only part of the package about which he has not made up his mind. In other words, the Government are unwilling to discuss with the Opposition parties
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those aspects of the package on which the Secretary of State has already made up his mind, but where they do not have a clue about the detail they will look elsewhere for good ideas. I welcome the fact that the Government have not set in stone their views about personal pensions and the NPSS, which involve some extremely complex issues that, as the Select Committee Chairman has said, would benefit from extensive debate.

The Liberal Democrats do not have fixed views about all the aspects of personal pensions, and I hope that we can debate and consult on those issues. I hope that the Secretary of State understands the angle from which we are coming. Although there is agreement about the direction of travel, we want to test whether his proposals are likely to deliver the outcomes to which he aspires.

Before I discuss the aspects of the pensions debate mentioned by the right hon. Gentleman in his contribution, he and the Minister for Pensions Reform have said that the Opposition parties have been avoiding tough choices. If the Government are looking for sources of additional finance to help to improve the pensions package over the next few decades, perhaps they will return to the one tough choice on pensions policy that they have failed to take, which, as the Conservative spokesman, the hon. Member for Runnymede and Weybridge (Mr. Hammond), has said, is the reform of public sector pensions.

Despite the proposals agreed by the previous Secretary of State for Trade and Industry at the end of last year, expenditure on the state pensions system will be broadly static for the next 15 years at a time when expenditure on public sector pensions will increase by 50 per cent. as a share of GDP. We still have the rather ludicrous deal that the previous Secretary of State for Trade and Industry struck with a number of unions, under which people who have not even joined the public sector yet will be able to retire at 60, while the Secretary of State for Work and Pensions is trying to raise the state pension age to 68. We still have the injustice for many women who begin employment in the public sector and work for a similar period to their male colleagues, but find that because they have to give up employment for child care responsibilities they lose the entitlement to the grandfathering of their pension age and may end up retiring five years later than people with a very similar work history.

I wonder whether the Government are dealing with different public sector employees in a fair and rational way. One of the most affordable and rational public sector pension schemes is the local government employees scheme—a funded scheme in which the level of employer contribution is relatively low compared with other public sector schemes, including our own. Yet the Government’s proposals on that scheme are considerably tougher than some of those that apply to other public sector schemes.

Mr. Russell Brown (Dumfries and Galloway) (Lab): The hon. Gentleman paints a picture of local government pension schemes. I remind him that some of the lowest paid workers work in local government. He should not try to portray a situation whereby everyone is on magnificent salaries, which is clearly not the case.

Mr. Laws: I thank the hon. Gentleman, but perhaps he misunderstood my argument. I am arguing that the
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way in which the Government are approaching public sector reform is incoherent and that some public sector schemes, such as the local government scheme, are being treated completely differently from others. The hon. Gentleman says that many local government employees are on low incomes, and he may well be right. Nevertheless, the Government can find the money to increase the share of GDP in public sector pensions by 50 per cent. but cannot find the money to increase the share of GDP in the state pension, which is relied on not only by people in the public sector, but by people on low incomes throughout the entire economy.

Kali Mountford: The hon. Gentleman points to the apparent disparity between different people in similar-seeming jobs getting different pensions. As an ex-civil servant, I know that the issue of pensions is a key part of the national pay negotiations for civil servants. The unions would rightly demand on behalf of their pensioners, who have foregone wages for all those years to have a pension, the wages that they would have had.

Mr. Laws: The hon. Lady is right to say that all aspects of remuneration are considered together, but wrong to say that there is clear evidence that better pensions for public sector workers are a compensation for lower pay. In many parts of the country, that is not the case at all.

Mr. Rooney: The Government are not the employer in the local government pension scheme, but the regulator.

Mr. Laws: The Chairman of the Select Committee makes a technically accurate point, but one that ignores the fact that the Department for Communities and Local Government not only helps to fund that scheme, but may be pulling many of the strings.

Our exchanges highlight the fact that there are very different views about public sector pensions and about what needs to happen in future to make them sustainable. Surely the lesson is that the Secretary of State and the Government should borrow from the model that has served them so well in relation to the rest of pension reform, whereby they established an independent body chaired by somebody who is highly respected—[ Interruption.] I am most grateful to the Pensions Reform Minister, but I am not offering myself, or any other Liberal Democrat Member, for the job, as I am sure that somebody of even greater independence would be needed.

The Government have a perfect model for flushing out the substance of the debate and securing a consensus. They should learn from the experience of Turner and consider establishing an independent commission to look into public sector pensions to give us a shared understanding of the economics of those schemes, which often rely on employer contributions—that basically means taxpayer contributions—and which are way in excess of anything in the private sector. Were the Government to establish such a commission, we could understand, on the basis of evidence—not prejudice from either the left or the right of the political spectrum—whether such pension schemes are sustainable. We could then bring forward proposals for rational reform. If we
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do not reform public sector pensions in that way, I fear that some future Government, of some party, will, in a very short period, have to make the reforms that should have been made with the sort of long lead times that the Secretary of State has provided today in respect of the change in the state pension age. If he is looking for a typically new Labour tough choice, establishing an independent commission to consider public sector pensions is precisely what he ought to do.

To return to some of the other detail dealt with by the Secretary of State today, another issue about which people were concerned when he made his previous statement, and one that is a big concern among constituents throughout the country, is the amount of time that we will have to wait for the earnings link to be restored to the basic state pension. The initial Turner proposal was for 2010, and the Secretary of State has not only moved back the earnings link and moved forward the increase in the state pension age, but he and the Chancellor have added another element of uncertainty about when the earnings link will be restored. It is unclear why that element of uncertainty has been added.

Mr. Hutton: It is important to correct what the hon. Gentleman has said about us not accepting Turner’s recommendations on increasing the state pension age— [Interruption.] No, we have not brought it forward. If he reads the report carefully, he will see that Lord Turner mentions 2030 for modelling purposes. He did not recommend that the state pension age should rise in 2030. The hon. Gentleman is therefore wrong to say that we have brought that forward by five years. He needs to read the report more carefully.

Mr. Laws: I note the Secretary of State’s comments and the difference between modelling assumptions and recommendations. All that I say is that, compared with the modelling assumptions or recommendations in the Turner report, he happens to have moved back the good news and moved forward the bad news.

Kate Hoey (Vauxhall) (Lab): The hon. Gentleman is right that there is huge concern in our constituencies about when the earnings link will be restored. Is he aware that the National Pensioners Convention has worked out that even if the link were to be restored by 2012, that would merely mean an extra £1.40 compared with the current provision? Should we not unite in the House to do something to help current pensioners who cannot afford to wait until 2012 or 2015?

Mr. Laws: The hon. Lady is right. She will have found, as many Members will have done, that although there was broad consensus in the House about pensions reform on the day of the Secretary of State’s statement, pensioners throughout the country were much less enthusiastic when they heard about the proposals because many of them, longevity notwithstanding, may be gone by the time that some of the benefits of the proposals accrue.

The Government maintained in the White Paper, on page 110, that the increase in the state pension age and
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the earnings link should be “inextricably linked”, and yet it seems that we will legislate for higher state pension ages even without a firm date for the restoration of the earnings link. To many people, the reason for the uncertainty about the earnings link is unclear. The Chancellor and the Secretary of State have said that it is a fiscal and affordability issue. However, the point about the earnings link, which has been a matter of political debate for years in this country, is its cost in the future—in five, 10, 15 or 20 years.

The Minister for Pensions Reform, who is in the Chamber today, was kind enough to answer a parliamentary question on the cost of restoring the link a few days ago. He indicated that that cost was £0.4 billion in the first year and £0.7 billion in the second year, so the amount of money that we will save through a delay in the pension age of one or two years is, in the context of the national accounts, peanuts. That is the amount of money that the Chancellor uses, in one of his great wheezes, in every Budget and pre-Budget report. If this is supposed to be a great reform, why is £0.4 billion or £0.7 billion now so vital? Why does that make it affordable or unaffordable? It makes no sense to us.

What about the significance of the earnings link—and not just for the pensioners who are waiting for it be restored? When the Secretary of State responded to the hon. Member for Newcastle upon Tyne, Central (Jim Cousins) in the House on the day of the statement, he seemed to me to be saying that the earnings link and the new personal pension accounts, along with the national pensions saving scheme, would be contingent: that they would be introduced at the same time. That is confirmed in the House of Commons briefing paper, so if it is wrong, perhaps the Secretary of State will correct it. The clear implication was that if the earnings link were delayed, the NPSS could be delayed as well. As the Select Committee Chairman pointed out, we must wait six years in any event. I hope that if I am wrong the Secretary of State and the Minister for Pensions Reform will feel free to intervene. Otherwise, however, the delay has a double significance.

The Minister for Pensions Reform (James Purnell): I am happy to make it clear that all that we are saying is that the two fit well together in terms of their introduction in 2012. There is no direct link between them.

Mr. Laws: I am fascinated to hear that. If the Minister looks at the Hansard report, he will see that a clear commitment was given to the hon. Member for Newcastle upon Tyne, Central that the NPSS would not be introduced until the earnings link was restored. I hope that we have been given some reassurance today, although I fear that the hon. Member for Newcastle upon Tyne, Central will not be very pleased to hear what has been said. The Government have not made the case for a delay in the earnings link and I hope that we shall return to that when we consider the legislation. As the Minister can read in Hansard, the hon. Member for Newcastle upon Tyne, Central said on the day of the statement

The Secretary of State’s answer was simply “Yes.”

Will the Minister clarify another issue relating to the earnings link? Although it may seem to affect only a small number of pensioners, it is hugely important to a growing proportion of the pensioner population. As the Minister will know, about 1 million pensioners out of a total of about 11 million live abroad. At present, the pensions of half of those people are linked to prices, while half receive no uplift each year even in relation to prices. Does the Minister intend to uprate in relation to earnings the pensions of those who currently receive the prices uplift? If so, the current unjust difference between the pensions of those living in different countries will widen significantly in the future. If the Minister already has a clear view, we should be grateful to hear it.

In his helpful speech, the hon. Member for Bradford, North identified many concerns about the NPSS and the personal accounts. I have already said that I hope that there will be close co-operation between all the parties in the framing of the scheme. There are numerous risks. There is, indeed, a risk the people will perceive the risk itself as Government-backed, and against the thrust of the proposal for personal pensions that do not rely on the Government.

There is also the fundamental issue—mentioned by the hon. Member for Runnymede and Weybridge—of means-testing. On page 105 of the White Paper, the Government say:

We know that that was very carefully written, and we know that the Government now aspire to cap the extent of means-testing at 50 per cent. at the highest, and think that they can push that down to below 30 per cent. However, there is also much doubt about the nature of those figures, notwithstanding the changes that have been made to savings credit.

I repeat the request by the Conservative spokesman that the Government should look closely at the modelling on the number of pensioners in means-testing and that if people come up with other, perhaps more realistic assumptions, the Government will run them through their model. Surely the point is that even if the Minister is successful in reducing the number being means-tested to below 50 or 40 per cent., many of those individuals are those least likely to save. In other words, the 30 or 40 per cent. of people we are talking about will be those who will have to make difficult decisions about whether to save. We do not care about the top 10, 20 or 30 per cent. because we know that they will save anyway and, indeed—as several hon. Members have pointed out—there are already generous incentives for them to do so.

The 30 or 40 per cent. we are talking about will have to make a difficult choice, but they are the very people who are already struggling financially, as Labour Members well know. Those people may be borrowing money at very high rates of interest from mortgage companies or on credit cards in the struggle to purchase a home. They have many other things to do with their scarce earnings. Some will not receive any
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employer contributions, as the Select Committee Chairman mentioned. Others will see all the employer contributions wiped out by means-testing. I seriously doubt whether many of those people will choose to save in a scheme of this type, especially as I do not think that they will easily understand the risks. Therefore, the auto-enrolment aspect—also mentioned by the Chairman of the Select Committee, in what was a very interesting contribution—is crucial to ensuring that huge numbers do not simply opt out.

The issue of means-testing is not just how high we can get the basic state pension, or its affordability or its simplicity—it is also fundamental to the whole thrust of what the Government are trying to achieve.

Mr. Philip Hammond: I am slightly confused by something that the hon. Gentleman has just said. He expressed the concern that high levels of means-testing would make it inappropriate for some people to save and then he said that auto-enrolment would be very important. Does he share my concern that if we are to have a system of auto-enrolment, we must be highly confident that saving will be in the best interest of the overwhelming majority of people?

Mr. Laws: I entirely agree. The point that I was seeking to make was that if we have a significant element of means-testing, those people who are means-tested may see any employer contribution wiped out as a result. If we are talking about people saving only their own money, when they could be using it to pay off debt or save through some other instrument, it is unlikely that they would choose this particular instrument unless the effect of the auto-enrolment inertia is so great as to keep them in the scheme. However, as the hon. Gentleman suggests, we would not want to keep them in the scheme if they were effectively being mis-sold these pensions, and that is a critical point.

One point has been implicit throughout our debate and was touched on by the Chairman of the Select Committee; however, it is worth spelling out in a little more detail. The proposals entail an enormous transfer of risk away from the state in relation to second-tier pension provision, and away from employers, who have not been able easily to manage the risks in recent years. Employers will welcome that and, as a politician, I welcome the move away from political involvement in second pensions, but we must consider whether individuals are ready for the risk to be transferred to them. I fear that the level of financial illiteracy is very high, so the Government will need to address the challenge of trying to ensure that we have some prospect of people understanding the risks that they will take before the NPSS starts.


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