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Secondly, I agree with what the Conservative spokesman said earlier about the ombudsman’s report. The Government’s response has been extremely disappointing. Even if the potential liabilities fall due a long time in the future, they are just the sort of unexpected contingency that ought to be met out of the contingency reserve. What is that reserve for, if not for dealing with precisely such matters? It has been possible to find the money needed for Iraq in the contingency reserve, so it must be possible—over 30, 40 or 50 years, and with the co-operation of the Chancellor of the Exchequer—to find in that
reserve the money necessary to offer some justice for those who have lost their pensions.
The Secretary of State also referred to the financial assistance scheme. I hope that the Minister for Pensions Reform will be more successful than his predecessor in getting the scheme’s administration to work effectively so that, over the next six months, people will not have to wait as long for the pay-outs as they have in the past year.
We welcome the debate for which the Government have given us scope today. I regret that it has been necessary to table some amendments to the Government’s motion, but it had the flavour that the Government expect us to sign up to their proposals in an unthinking way. We agree with the direction of travel and we concur most strongly with the philosophy behind the White Paper, but over the next couple of years the House of Commons must ensure that there is consensus about the proposals and that they will deliver in the future.
5.31 pm
Mr. Frank Field (Birkenhead) (Lab): I want to thank my right hon. Friend the Secretary of State on two counts. First, our life expectancy has risen by 30 minutes or more since the debate started. If his calculation is correct, it enables us to understand why there is such a crisis facing pensions funding.
Secondly, I thank my right hon. Friend for reminding the House of the success of the pension credit scheme. This Government have redistributed more resources to the poorest pensioners than any Government since 1948, and the only sadness is that he has had to remind some Labour Members of the Government’s success in that regard. However, we know that the pension credit scheme, as currently constituted, cannot last in the longer term. That is why we need to debate the proposed reforms, and I want to raise three matters that will break up the consensus that has held sway since my life expectancy was extended by 30 minutes a short time ago.
My first point has to do with the Government’s approach to consensus. A sort of Judy Garland approach has taken over the contributions to the debate so far. The feeling appears to be that, if we just hold hands, we can tiptoe more quickly to the end of the rainbow and the great prize that is a political consensus.
I do not want to knock the importance of the House of Commons, but we do not play much of a part in the formation of consensus. That is formed by the people of this country—our voters. The last time that we thought we were so clever as to create a consensus was in respect of SERPS. It lasted all of five years, and I wonder whether the Government’s tax-financed pension proposals, as opposed to an investment-led approach, will last even that long.
The choice being given to the electorate is to support the Government issuing some more IOUs for pension reform. They will not be paid now, but are to be redeemed by taxpayers in the future. However, Governments have issued such IOUs in the past, and we all know that they have not been so redeemed. The only consensus in this country since 1948 has been in
favour of a modest basic state pension. In the early days, it was not linked to anything, although the subsequent link to prices has remained in place. So there is a sombre note for us. It is fine for us to talk in wonderful glowing terms about what we shall create and the consensus that will enforce it, but if we rely on a tax-financed model that consensus will not last long.
My first disappointment in the Government is that given the success of pension credit, and that for the first time they have managed to buy time when they have not also had to deal with reforms to help today’s poor pensioners, we chose the old tax-financed approach instead of building up rafts of investments. If we had adopted the investment-led approach, no politician would advocate changing the consensus. If one of us did, our colleagues would quickly drag us to the political knacker’s yard where we could safely be put out of our misery and our constituents’ pension investments would be left intact. That is my first note of caution.
Secondly, although the phrase “auto-enrolment” flows easily off the tongue, the Government are really introducing a toxic element in our occupational pension provision. There are already major changes because employers want to cut the costs of their pension commitments, and in the auto-enrolment proposals the Government’s natural wish to establish a floor will quickly become the ceiling. Employers who are paying between 15 and 40 per cent. of wages costs to occupational pension schemes could quickly decide to embrace the Government’s approach to auto-enrolment to reduce significantly their contributions to such schemes.
Sir John Butterfill: I entirely agree with the right hon. Gentleman. Does he agree that we need to establish an incentive for employers to go beyond the basic level if we are to avoid the scheme becoming both the ceiling and the floor?
Mr. Field: As the hon. Gentleman knows, I favour a single scheme for everybody, whereby we continue the basic state pension, building up investment funds alongside it, and deliver a pension that takes people off means-testing. Beyond that, it is not the duty of the House to interfere with how people save; they have a very good idea about how to save and we should not try to bribe them one way or the other.
The third aspect on which I want to suggest caution is the establishment of the national pension savings scheme. The Government will call it by a different name—I do not blame them—but there are real dangers. The Government have had to listen to Front and Back Benchers remind them about the ombudsman’s report on Government liability for giving wrong advice about the safety of occupational pension schemes. I am amazed by the toughness of the ombudsman’s report about the issuing of a form that most of us never saw—I certainly did not see it and I take a particular interest in pensions. If the House establishes, and encourages people to join, a national pension savings scheme that has different funds with different rates of return, we can imagine the outcry when considerable numbers of our constituents express disquiet that they joined the wrong fund. Imagine the liability for future taxpayers if we go down that path.
If the private sector wants to establish such a scheme, I am all in favour of letting it do so, but it is not the role of the Government to decide to set up that sort of framework, by whatever name. It is not right to expose future taxpayers to the mis-selling and disappointment that will inevitably arise from such a scheme. However, I welcome those in the private sector who wish to prove me wrong and think that they would be able to do a job along the lines that the Chairman of the Treasury Committee spoke about earlier.
Sandra Osborne: I am interested in what my right hon. Friend has to say and I will certainly reflect on it. I am sure that he recognises that many people currently do not have any occupational scheme whatsoever or any personal savings scheme. What is his solution to that?
Mr. Field: It is the solution that I mentioned a moment ago. We should have a simple scheme, whereby we continue the basic state pension and have an investment-led scheme that builds alongside it, so that at the end of the day it delivers a pension that takes us all off means-testing. It would be compulsory and simple. There would be one scheme and no mis-selling. If other people wish to save on top of that, fine. It is not our job to try to persuade them to do so and we should not use huge sums of taxpayers’ money to try to bribe them to save beyond that. However, it is the House’s duty to deliver a scheme that, at end of the day, takes all our constituents off means-tested benefits. That will not be offered by those on the Labour Benches or on the Conservative Benches.
I am sorry that I am rather like Job this afternoon and am introducing a note of cynicism into the mood of self-congratulation that was embracing us all up until the point at which I spoke. Consensus is not made in this House; it is made outside by our voters, who will discipline us for destroying a scheme that they wish to keep. At the end of the day, they will not support the reforms that the Government are bringing forward. I end on a note of sadness. We have a Secretary of State of real quality who is selling proposals that will not last. Imagine what the enthusiasm in the country would be if we had managed to match the Secretary of State with a scheme that worked with the grain of human nature, rather than against it.
5.42 pm
Sir John Butterfill (Bournemouth, West) (Con): I do not often disagree fundamentally with the right hon. Member for Birkenhead (Mr. Field), but I do on this issue, because I think that the Government are fundamentally right in what they are putting forward in response to Turner. Although it has lots of things that need tidying up and clarifying, the proposed scheme will be for the benefit of the nation as a whole. However, he was right to point out the damage that has been done by the Government’s refusal to acknowledge the findings of the ombudsman’s report, which is sad. Perhaps that is one of the reasons why Scottish Widows announced today that voluntary pension saving for personal pensions has fallen in the past 12 months by no less than 10 per cent. That flags up the urgency of doing something about the issue. It also emphasises that the Government cannot have it both ways: they cannot appoint an ombudsman and then completely disregard the ombudsman’s recommendations.
There are ways in which the Government’s proposals can be improved. What the Government propose— particularly delaying the link with earnings until 2012—is pretty unsatisfactory. At the moment, we have a group of people in this country who are the main recipients of pension credit. I am talking about the very elderly—the people born before 1930, who are already in their late 70s and will be in their late 80s by the time the Government’s proposals come into effect. They represent—probably predominately—the very poorest in our society. Not all of them are very poor, but I am talking about the majority. We should do something now for those people. We should say that those born before 1930 should have a higher pension than the rest of us, although that should not roll on to people born before 1931 and people born before 1932. We should recognise that that generation grew up in a war period or an immediate post-war austerity period and were not able to make the same pension savings that most of us have been able to make. By recognising those people’s needs with a special pension, we could reduce considerably the bill for pension credit and help the whole process to go forward.
Equally, we could introduce measures that would enable us to reintroduce the earnings link sooner than the Government propose. The Government were right to go a little further than Turner and bring forward the age extension that he proposed, so I congratulate them. The scale of change to the pension age that was suggested by Lord Turner was rather conservative, although he was largely motivated by the need to integrate the retirement ages of men and women. However, there is scope to make the change more rapidly still. We will wait too long if everything is ultimately left until 2050, so we could compress the process further and thus bring in more money to allow the earlier establishment of the earnings link.
We must also persuade the rest of the public sector to follow the example of the House. On 3 November 2004, the House voted to end Members’ right to retire at 60 without any reduction in pension. That will apply from 2009, rather than 2013, which is the date proposed for the rest of the public sector. I know that such a change will be painful, but the House has already voted for it. We thought that by setting an example, we might strengthen the Government’s hand when trying to convince the remainder of the public sector that such a change was necessary. It would not mean that people would have to work much longer. However, if people choose to retire earlier, there is inevitably a cost. If people live longer, the cost to taxpayers is much higher.
Such measures would enable us to do more—and do so earlier—for those who are most needy. They would create a greater prospect of not needing to move endlessly towards putting more and more people on means-tested benefits. As the right hon. Member for Birkenhead said, that has to end eventually because we cannot continue on that road indefinitely.
I agreed with some of what the right hon. Gentleman said about the scheme that the Government are proposing. If we have a complex scheme with many investment choices, there might be a danger of mis-selling. The scheme is aimed predominantly at those who are not very high earners. Those high earners can afford to take the gamble of going for risky investments because if
everything falls down, they will still have enough to live on. However, ordinary working people do not have that luxury, so they need a guarantee that they will be saving in a safe vehicle. I thus respectfully suggest to the Government that there should be a single investment pot from which everyone in the national pension savings scheme would draw their pension.
We could have a large number of investment advisers. The Government should use expertise in the private sector and encourage bids for the right to be an investment adviser. Such a process would be competitive. It would keep people on their toes, and those who did not perform well would get the sack, which might allow others to get a job. That would maximise the return to the NPSS and its beneficiaries.
I do not think that the Government have quite decided whether there will be a single scheme or multiple schemes. I hope that they do not envisage having multiple schemes because the examples from countries that have done so are not especially edifying. Anyone who worries about such matters should consider the experience in Australia, where there was massive mis-selling and an awful lot of suspect activity. No one wants that, so we should have a single provider with multiple advisers.
The resources of the private sector could be used in the administration of the scheme. There is massive expertise in the pensions and insurance sector, and that sector also has existing computer systems that work. No one wants the Government to set up yet another major public sector computer scheme because they have not yet found one system that works properly. One only has to look at the Child Support Agency to find real evidence of what can happen.
We would be mad to try to set up a new scheme when there is plenty of expertise outside the public sector, but given what can be done, there is a genuine prospect of us being able to create something very worth while. However, I reiterate that, as the right hon. Member for Birkenhead said, there is a danger that the floor will also become the ceiling. We therefore need to encourage the private sector to continue to offer pension saving for its employees. The only way we can do that is by giving it some incentive, and I hope that the Government will see that to do so would be an act of enlightened self-interest.
5.50 pm
Sandra Osborne (Ayr, Carrick and Cumnock) (Lab): In view of the number of Members who wish to speak, I will be as brief as possible. I wish to comment on the proposals as they affect women, and to inform the House of a number of matters that were raised with me and with my hon. Friend the Member for Central Ayrshire (Mr. Donohoe) in a consultation that we held with the five seniors forums in South Ayrshire. A number of strong views were expressed, which I shall put forward on behalf of those who aired them. Finally, I shall refer to the situation of people who have lost their pensions; I have been involved in that issue for a considerable time.
There is a great deal of public interest in the whole issue of pensions, and strong views are held. Contrary to what my right hon. Friend the Member for Birkenhead (Mr. Field) said, we have a once in a lifetime opportunity to reach a consensus that can take us forward. But, unlike what happened in the past, that consensus should not be built on the back of women’s unpaid work, nor on their assumed dependence and reliance on men regardless of what their personal circumstances happen to be. That has not served women well in the past, and as we know from all the statistics, it is totally irrelevant in the modern age and for the future.
Women are individuals in their own right, and they should be regarded as such in the pension system. The fact that they still bear the brunt of the nation’s caring responsibilities means that they should be rewarded, not penalised as they are at present. I greatly welcome the fact that that will be addressed as part of the reform process. Younger women will now be able to qualify for a full basic state pension and will have more income in retirement, as well as benefiting from other measures in the reforms, which will help them to plan ahead for their future—which many of them will spend on their own.
There is a general welcome for the core principles of the White Paper; we have heard that from Opposition Members today. However, there is also a need for much more discussion on the detail. Although the proposals will provide a better platform for pension provision in the future, there is a concern, which many Members have expressed in the debate, that the recommendations contain no immediate benefits for today’s pensioners. However, I have been impressed by the uptake of pension credit benefits among my constituents; it has greatly improved many lives, and many pensioners have told me that they have never been better off.
However, my right hon. Friend the Member for Birkenhead is right to say that we need a consensus on the current proposals. Older women—certainly the pensioners that my hon. Friend the Member for Central Ayrshire and I consulted—are concerned about how long it will take to implement some of these measures. They are impatient about the long time scale; they believe that the link with earnings should be restored more quickly, and that that needs to be done sooner rather than later. They cite the fact, as they have often done in my many discussions and consultations with them, that there is a substantial surplus in the national insurance fund that could be used for that purpose. I have never been able to substantiate that in any detail, and I shall be grateful if the Minister for Pensions Reform can make some comments on that this evening, which I can take back to my constituents. There is a frustration about the time scales, and there is a feeling on their part that they are being forgotten in the whole scheme of things.
My constituents recognise that there is a long time scale for raising the retirement age, but they are concerned that as people get older work opportunities become difficult to come by, and health could be affected, depending on the nature of the work involved. They also strongly feel that the rich will be able to retire early because they will have sufficient income, while the poor will be forced to continue working because they will not have sufficient income to retire early. They are
also concerned about the current level of pensioner incomes and benefits, particularly as the costs of fuel and council tax are rising. They feel that that is the case now, and that it needs to be addressed now.
The group of pensioners whom we consulted were very pleased with the measures on women and the national pension savings scheme; those were given a warm welcome. But it was thought important that the scheme should be administered at the national level, as employers’ and pension companies’ records in administering pensions are not good; in fact, they are thought to be “terrible”. That is a direct quote; I am putting forward that opinion on behalf of my constituents—although I am not saying that I particularly disagree with it. They feel that the industry and employers have a terrible record in administering pensions, and that that should be done at the national level, with Government involvement.
That brings me to my final and very important point: the position of those who have lost their pensions. In the case of the people whom I represent, that is substantially due to lack of efficiency on the part of the people administering their occupational pensions. As the Minister knows, I have campaigned with my constituents whose pension funds collapsed—and those former United Engineering Forgings workers have been at the forefront of the campaign on this issue, along with trade unions.
As a result, the Government brought in the financial assistance scheme and the Pension Protection Fund in the Pensions Act 2004. Then, on 25( )May, they announced in the White Paper that we are debating today that they will extend the FAS to those who were within 15 years of retirement on 14 May 2004. That will bring the actual pension paid to 80 per cent. for those who were up to seven years from retirement, 65 per cent. for those between seven and 11 years from retirement, and 50 per cent. for those between 11 and 15 years away. To achieve that, the Government are increasing the FAS funding from £400 million over 20 years to £2.3 billion. There is dispute about the actual percentages involved; I have quoted the Government figures. As my hon. Friend the Member for Sunderland, South (Mr. Mullin) said, one of the problems with this whole issue is that different figures are being bandied about by different parties. Some are disputing the Government figures, and we are not getting substantiation, which is leading to those involved becoming further disillusioned.
Mr. Nigel Waterson (Eastbourne) (Con): Does the hon. Lady agree that one of the problems is that the Government talk about percentages of what they call the core pension of those individuals—that is a new concept in the pensions world, so far as I am aware—and that in most cases the core pension in no way represents the pensions they could and would have expected if their schemes had not got into difficulties?
Sandra Osborne: I agree that it is alleged that the 80 per cent.—in common with the other percentages that I have quoted—is not 80 per cent. of 100 per cent. of what such people would have received. I am raising that matter to seek clarification from the Minister.
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