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That brings me to my first point about the White Paper. I represent a part of the country that is recognised as having a low wage economy. I believe that, had it not been for the introduction of the national minimum wage, we would still have wages of about £4 an hour in my area. The minimum wage has made a difference, but it is still very much a low wage economy. I applaud the concept of a national pension savings scheme—or personal accounts, as they are called in the White Paper—but we must not forget
those on low incomes. We really need to deal with the issue of how to get over some of the problems of low earners. The most obvious barrier to saving for many people is poverty and low income, as they have to think about the necessities and essential spending. Saving for retirement is not an option for those people.
More than half of all the households identified by the National Association of Citizens Advice Bureaux as having serious debts have incomes of less than £7,500 a year. More than 12 million people—about 43 per cent. of the working population—are not saving enough in a private pension for their retirement. That figure is on the rise; it was only 36 per cent. in 2003. Currently, an estimated 7.5 million people are not saving at all and just under 5 million save only small amounts. Those on the lowest incomes—less than £15,000 a year—account for 3 million of those who are not saving at all. If personal accounts are to succeed for all employees, they will have to provide the guarantee of a state-backed pension scheme, so employers must contribute. Lord Turner’s report set out a model, but it would have been preferable if the Government had come out in its favour.
I have been a trade unionist for more than 30 years, so the Minister will not be surprised to hear that I greatly agree with the position of the TUC, which emphasises that a good scheme definitely needs to meet a number of criteria. Costs must be kept to a minimum, which can be done only through a simple system that minimises regulatory advice and marketing costs. There must be a simple default option available to all and it must make sense for the vast majority of NPSS savers. There must be other choices, but it is important to have a straightforward lifestyle option. Savers should have their own pot and should feel that it belongs to them. They should have representation in scheme administration and stewardship, as with trustee stakeholders. Employers should not choose NPSS suppliers for their staff as there are too many opportunities for mis-selling and it is a burden that employers do not want, although employers are free to do better with their own schemes.
Mr. Jim McGovern (Dundee, West) (Lab): Does my hon. Friend share my concern that if employers are given an opportunity to contribute just 3p in the pound to a pension scheme, that is exactly what they will do? In some cases, employers might end up contributing less in the future than they do now.
Mr. Brown: Yes, that will go on the record and I hope that any employers taking an interest in today’s debate will hear what my hon. Friend says. Any system must be able to cope with workers who frequently change their jobs and, of course, with disorganised, short-lived employers, as they are often called.
I have already briefly mentioned the issue of demographic shift, as it impacts on my own area. The figures show that when the state pension was introduced, there was one pensioner for every 14 employees. Today, there is one pensioner for only four employees. I therefore understand the reasoning behind raising the retirement age over time. However, we must acknowledge that longevity is not equal throughout the country. My hon. Friend the Member for Aberdeen, South (Miss Begg) referred to that.
Extended life expectancy, which is good news in some parts of the country, is not experienced in many others. I know from conversations with colleagues from Glasgow and other industrial heartlands that three score years and 10 is not an option for many of their constituents. Admittedly, lifestyle has something to do with not only early retirement on the ground of ill health, but early departure from this world.
My hon. Friend the Member for Bradford, North (Mr. Rooney), the Chairman of the Select Committee, was right to discuss what people would do in their mid to late 50s and beyond. There needs to be a general change in attitude and understanding of how those in the latter years of their working lives will be best employed. That will mean retraining and ensuring that opportunities exist for people.
The White Paper contained announcements for carers and women. The Department has carried out research that demonstrates that pensions are not high among women’s priorities, but that, thankfully, will change. Women tend to be more concerned about their families’ short to medium-term needs than saving for their future, and feel that their partner should or will provide for their retirement. They rarely think of pensions when making child-related employment choices, and few would have made different life choices if they had considered their future financial position. I worry even now when I watch programmes and witness young people, especially women—some are in their mid to late 30s and are professional people—who openly admit that they have made no attempt to provide for their retirement. It worries me when people of that age group who work in the City and who, one would think, know better, have made no provision.
The word “consensus” is bandied about the Chamber too often. When I came into the Chamber earlier, one of my colleagues said that I had a weakness in that I made rash judgments about the Opposition. If that is my only weakness, I am delighted. However, I worry that “consensus” trips off the tongue nicely, and has done so more often since the main Opposition party appointed a new leader towards the end of last year. For me, the jury is still out on whether we will reach consensus in the Chamber on the issue that we are considering, or any other.
When we discussed the recent ombudsman’s report, the hon. Member for Runnymede and Weybridge (Mr. Hammond), when pressed by the Secretary of State about what he would do about it, refused to give a commitment and merely said that he would look to the future. Yet the hon. Member for Eastbourne (Mr. Waterson) said in response to my hon. Friend the Member for Ayr, Carrick and Cumnock (Sandra Osborne) that the Conservative party would consider unclaimed assets to deal with the matter. I believed that two Front Benchers would have given the same answer to the same question.
Consensus is needed, but perhaps not political consensus in the Chamber and the other place. Consensus is needed in the country because what we determine will affect everyone’s future and we therefore need to carry people with us. We do not need some sort of consensus that is discussed here, but does nothing more than blur the edges and allow people to say that we are all the same in any case. We are not all the same, and the White Paper is a genuine starting point for the future of the pensioners of tomorrow.
7.4 pm
Mr. Mike Weir (Angus) (SNP): As the hon. Member for Dumfries and Galloway (Mr. Brown) said, the word “consensus” has floated around the Chamber today. However, the Government’s view appears to be, “There will be consensus about our proposals or nothing.” That is the wrong place to start because there are differing views about the future of pensions.
We in the Scottish National party and Plaid Cymru believe that the Government have flunked a golden opportunity to tackle the perceived problems of the state pension system. Although we talk about consensus, the right hon. Member for Birkenhead (Mr. Field) was correct to say that there had to be consensus outwith the House. The consensus there, certainly among the people to whom I speak, emerged around the idea of a citizens pension, although views vary about the form that it should take.
As has been said, the White Paper does nothing for current pensioners. Earlier, the Minister for Pensions Reform argued that the proposals are about the future, not the present. The hon. Member for Aberdeen, South (Miss Begg) also referred to that. I take that on board to some extent but, unless we tackle the genuine concerns of today’s pensioners, we are unlikely to achieve consensus. As the hon. Member for Runnymede and Weybridge (Mr. Hammond) said when he spoke about the problems with occupational pensions, the genuine grievances of some people and the fact that we continue to hear stories about the matter means that we will never get past that issue. The same applies to the state pension. If today’s pensioners feel strongly that their problems are not being taken on board, the same process will happen. Indeed, the National Pensioners Convention has already made the point that the White Paper does nothing for today’s pensioners and I understand that it will publish an alternative White Paper next week.
As I said, we greatly support a citizens pension, which we were the first to advocate, although others subsequently took up the idea. I suspect that we may be the last ones standing who continue to talk about it, given that the hon. Member for Yeovil (Mr. Laws) did not mention it. When the Turner report was published, initial reaction was that it advocated moves towards a citizens pension. However, on closer reading, it became clear that it did not take us very far down that road. Turner’s gradual approach meant that many years would pass before most people received a citizens pension.
Inadequate though those proposals are, the Government’s proposals do not even go that far. As I said in an intervention on the hon. Member for Aberdeen, South, the White Paper contains proposals that we greatly support and I shall enumerate some later if I have time. However, I want to consider the point that has been made repeatedly about the restoration of the link between pensions and earnings in 2012. That has been the spin on the White Paper since its publication, but I ask hon. Members to read its contents carefully.
The executive summary on page 17 states:
“During the next Parliament, we will re-link the uprating of the basic State Pension to average earnings. Our objective, subject to affordability and the fiscal position, is to do this in 2012, but in any event by the end of the Parliament at the latest. We will make a statement on the precise date at the beginning of the next Parliament.”
That could have been framed on Sir Humphrey Appleby’s office wall. It is not even jam tomorrow, but a statement that, if we have a good raspberry harvest and sugar remains at a low price, we might perhaps just find it possible to have some jam, but we will not say when. Hon. Members should note that the date on which the Government will make an announcement is nicely past the next general election. That does not give much succour to pensioners. Even if the Government implement that statement—I shall not dignify it by calling it a promise—it could be as late as 2015, not 2012. That is presuming that they win the next general election—they will not in Scotland, but I cannot speak for England.
Even if the Government were to re-establish the link, it would do nothing to address the fact that pensions have fallen behind earnings since the Tories broke the link or to make up for the past 25 years, which is why a true citizens pensions is the correct way to deal with the matter.
Miss Begg: If by some strange miracle pigs were suddenly to fly and the Scottish National party were to obtain control of the Scottish Parliament next year and were to begin the process of disengaging Scotland from England, how long would it take to set up an independent Scotland, and how long would it take for the SNP to introduce its citizens pension? I suspect that those events would be much further in the future than 2015, even with a fair wind.
Mr. Weir: The hon. Lady will find out soon enough.
Two years ago, we published our own paper, “A secure retirement for all”, in which we set out our proposals for a citizens pension and the reasons why we believed that it was the correct way forward. Those reasons have not changed, and our solution remains the best way forward.
Despite what has been said about all that has been done for pensioners, far too many of our pensioners continue to live in poverty. The hon. Member for Aberdeen, South has mentioned many things that the Government have done for pensioners, and she specifically referred to the winter fuel allowance, but to put it into perspective, last week Scottish Power put up its charges by between 10 to 17 per cent., depending on the package, which is the third increase in a year. That one increase put up the average bill for a Scottish Power consumer to £131, which puts the £200 winter fuel allowance into perspective. The Scottish Executive have made good strides forward with their central heating scheme, but a central heating scheme is not much good if people are frightened to turn on the gas to use their central heating. Furthermore, many rural areas of Scotland are not connected to the gas main, so the central heating scheme does not do a great deal for people who live in those areas.
The current pensions system is based on labour market participation, the effect of which is to translate poverty during working lives into poverty in old age. We all know that many women and carers do not receive the full basic state pension because of their broken employment histories. The Government proposals will begin to tackle
that problem, but they will still leave far too many people in poverty. We should have the courage to take the bold step of true reform and provide a state pension that delivers for all our pensioners. The state must provide all pensioners with a decent minimum income in retirement and take real steps to ameliorate the regressive effects of private pensions for those on lower incomes.
Whenever the matter is debated, the Government talk about the pension credit, as they have done again today, but why should our pensioners rely on means-tested benefits, which is the effect of the pension credit, for a decent retirement pension? The Government accept that the basic state pension is insufficient, which is why they have introduced the pension credit to increase pensioners’ incomes to a decent level. Under our proposal for a citizens pension, every pensioner would have a decent pension, which would be set at the current level of basic state pension together with the maximum level of pension credit. We would link the citizens pension to rises in average earnings from the start, rather than basing it on future uncertainties.
By introducing a citizens pension, we would ensure that all our pensioners are lifted out of poverty, that they have a decent basic pension on which to build and that they do not have to rely on means-tested benefits, which many of them will not claim. According to the National Pensioners Convention, 2 million UK pensioners, of whom about 200,000 live in Scotland, do not claim pension credit although they are entitled to do so. The citizens pension also has the distinct advantage that the current system is a disincentive to save because, in effect, those with savings lose out on pension credit, and unless one can afford to save a substantial amount towards a private pension, there is a disincentive to do so. The White Paper mentions research that shows that there should be an incentive to save under the current system, but if there is, it does not seem to be working. Many have seen much of their savings wiped out in the recent past, which has created a great deal of wariness and resentment among pensioners and those approaching retirement.
It is legitimate to ask—I am sure that someone will—how the citizens pension can be paid for. It can be paid for by utilising the amounts currently paid in basic state pension and pension credit and, crucially, reforming the current system of tax relief on private pensions. I cannot understand why the Government will not examine that proposal.
Miss Begg: I have heard the hon. Gentleman make that argument on a number of occasions. What would he say to the constituent to whom I spoke on Saturday, who complained about having to pay tax on her pension? I explained that the money was tax free when it was paid into her pension, but under the SNP proposal, that money would be taxed when it goes in and, presumably, taxed when it goes out.
Mr. Weir:
The point is to consider taxation on private pensions. The system will change, whether we use our proposal or the proposal in the White Paper. I am sure that the hon. Lady attended the meeting this morning, where the hon. Member for Edmonton (Mr. Love) specifically asked the representative from the Pensions Commission about that matter. The
representative from the commission talked about the complexity of the matter and the fact that many people have already received fairly substantial benefit from tax relief on private pensions. Labour Members often say that we must tackle the hard issues, and the hard issue in this case is the amount of relief on private pensions.
This morning, Professor Hills from the Pensions Commission explained why both Turner and the Government have rejected changes to relief on private pensions, which was the first thing that the Secretary of State did when the Turner report was published. We believe that that is short-sighted and that the correct way forward is to deal with the blatant inequalities in the present system. There is absolutely no evidence that the present system of pension tax relief encourages private savings, which is the object of the system.
We agree with the Government that we must do more to encourage private saving over and above what the state provides. That is why we are interested in the NPSS, which has a lot of merit and which I shall discuss in a moment, if I have time. The current system of tax relief on private savings costs a fortune and is massively geared towards the better-off. When we compiled our proposals in 2003-04, the economic cost to the Treasury in terms of tax forgone with this subsidy was an estimated £11.4 billion. In his report, Lord Turner points out that the cost of that tax relief is about £12 billion and that there is a further £8 billion in national insurance, which takes the total cost to £20 billion a year. In effect, that is a massive subsidy to private pensions, rather than using taxpayers’ money to provide a proper state pension.
Worse still, more than half of the total cost of tax relief on private pension contributions is received by the richest 10 per cent. of the population. Unlike spending on state pensions, which is being restricted, there are no restrictions on the total amount of private pension savings. It is high time that tax relief was reformed to become much more progressive and transparent. In particular, it should be aimed at encouraging and rewarding low and moderate income earners to save for retirement. By reforming that relief, those billions could be released now to fund a citizens pension.
Instead, the Government propose to raise the retirement age for the state pension, and Sir Humphrey Appleby would be proud of how this is described in the document:
“We will support and encourage extended working lives”.
That is a cuddly and innocuous way of telling everyone that they will have to work for longer, which is unnecessary.
The hon. Member for Dumfries and Galloway (Mr. Brown) has hinted at a specific problem caused by the disparity between various socio-economic groups and various areas of the country in terms of life expectancy, which can have a dramatic effect.
Let me take just one example. A man in Glasgow has a life expectancy of 69.3 years, while a man in Kensington has one of 80.8 years. At present, Kensington man can expect pension payments of £65,728, which is nearly four times that of Glasgow man, who can expect £17,888. That becomes even worse once the age is raised to 68, when Glasgow man would receive £5,408 while Kensington man would receive nearly 10 times more, at £53,248. That is
manifestly unfair. At least Lord Turner recognised that there was a problem in this regard and recommended that eligibility to pension credit should remain at age 65, but even that has been rejected in the White Paper. It seems that Sir Humphrey has been busy again, as paragraph 39 states:
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