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4.49 pm
Mr.
Terry Rooney (Bradford, North) (Lab): In
recent weeks, the Work and Pensions Committee has taken evidence on the
Pensions Commission report and the White Paper. I have attended far too
many breakfasts, lunches and evening events. I have stopped eating, but
the phrases keep going round in my head. We seemed to hear the same
arguments time and again. Nevertheless, we were very grateful for the
enormous number of submissions that we received. Not surprisingly,
there
were some very, very vested interests. Generally speaking, the
employers’ side was anti-compulsion and the TUC was anti any
increase in the retirement age. One can understand the position that
they are coming from, but the Secretary of State has made the case
positively that this is a package of measures, and if one starts to
unpick one bit, everything else unravels, and we need to be resilient
in our arguments for the total
package.
I want to concentrate for a minute on the issue of the state retirement age, because at the moment, once one goes beyond 55, the economic activity rate plummets. It has been increasing in the last couple of years, which is partly down to the new deal for the over-50s, but at age 60, about 50 per cent. of the population are in economic activity. There must be a strengthening of training provision for the over-55s and of healthy workplace initiatives, and careers advice must be available. The general architecture must change—we need to start doing that now in preparation, because there is already a problem—to ensure that not only is the retirement age 68, but that people can work to that age and beyond if they wish. We need to ensure that they are physically capable and trained to take those employment opportunities. That participation rate must be a key indicator of the progress that we are making.
Among all the submissions, most gratifying was the general agreement on the principles in the Pensions Commission report. The argument is around the architecture and the implementation. There was fairly unanimous support for the proposals around the state scheme, and I do not propose to dwell on them. The difficulties are around whether we call it a national pension savings scheme or personal account. This is a classic case—I am not looking for work—for a draft Bill. There are many areas of debate and discussion to be had on that, and that would help the case.
The overwhelming message that comes through from all organisations is that there has to be simplicity and transparency in the scheme; primarily simplicity to reduce the cost. We had lots of argument over whether there should be 30 basis points or 50 basis points. We would settle for five. But if it is 50 basis points, as against 1.25 per cent. for stakeholders, that increases a person’s pension pot by 20 per cent. That is what we should be looking at—the individual’s pension pot at the end of the day. That should be the driving factor, not any submissions from vested interests. That is a key indicator that we should be looking at.
In this initial round we must also consider key groups such as the low paid, those in multiple jobs, each of which may be paying less than £5,000, which would exclude them from the NPSS, but which cumulatively takes them over, and those with continuing health problems. There is a laudable target to get 1 million people who are currently receiving incapacity benefit into work, but how will their broken work records affect contributions into the scheme?
There is also a huge issue, which I do not think that the White Paper addresses, around the self-employed. I am not blaming anybody, but they seem to have been left out of the debate by both sides of the House and by outside organisations. Around 7 million people are self-employed. They are probably the most under-pensioned group of all and I dare to suggest that they are probably a group with greater means for pensions than others, but I take it no further than that.
David Taylor: My hon. Friend is right to focus on the two categories of fragmented employment and self-employment, but does he acknowledge that there is also a problem with fragmented, short-lived and disorganised employers and that when there are large numbers of them on the scene, it places difficulties in the way of many people who are trying to accumulate a pensions pot from them?
Mr. Rooney: My hon. Friend is right, and as he speaks with the voice of the accountancy profession, I would expect nothing less. I will come on to the issue of manipulation by employers in few moments, if he will bear with me.
The low paid, people with health problems and those with multiple employers all desperately need generic financial advice—not investment advice, but generic financial advice, particularly relating to their current debts and how best to manage them. It cannot be left to the bandit advertisements on television, which encourage people to roll up all their debts into one as a means of sorting out their problems and having money to spare. By and large, those are not good deals. Sadly, decisions have been taken recently about the funding of advice from citizens advice bureaux and similar organisations, which mean that it is no longer available. I suggest that that is not a good deal. We really need a network of generic financial advice made available to the low paid and underpaid to allow them to make wise choices. As I said, I do not mean investment advice, but generic financial advice.
For the same reason and in line with keeping costs low, there needs to be a strong default option on the national pension savings scheme. As far as possible, we need to take the choice out of the equation. The greater the choice, the greater the need for advice, the greater the opportunity for mis-selling, the greater the complexity and the more costs increase. We also need to keep the scheme simple for employers. I have spoken to hundreds of employers over the last three or four months and they want no role at all in making any choices about the scheme for their employees. They want a simple scheme that allows them to deduct a certain amount of money every month, to send it off somewhere and to forget about it. Simplicity is important both for employer and employee.
There are dangers with this sort of enrolment scheme and we need to be honest about them. Certain less-than-honest employers will seek to induce people not to take part in the scheme. I do not want to traduce anyone, but by and large, the smaller the employer, the greater the likelihood of that happening. There is no better policed system than the national minimum wage, but there are still issues about it. There are still far too many employers who do not pay the national minimum wage. If they are not willing to pay a wage of £5.05 an hour, it is likely to be a problem for them to contribute to the national pension savings scheme. We really need a strong regulatory role— [Interruption.] The hon. Member for Runnymede and Weybridge (Mr. Hammond) is turning up his nose, but I wonder whether he will turn up his nose in 30 or 40 years’ time when people who have spent a lifetime working for an employer find themselves in poverty because they were forced out of the scheme.
Mr. Philip Hammond: I am wary of creating new regulators and having more regulation, but I entirely recognise his point. Surely the answer lies in the design of the scheme and the design of the opting-out system. That should help to deal with the few rogue and unscrupulous employers who encourage people not to participate in the scheme.
Mr. Rooney: Without naming names, when a multinational company is willing to break the law on trade union recognition, a small employer will be more than happy to break the law to deny people their rights under the scheme. We need to be mindful and wary of that. I would be delighted if there were no need for regulation and every employer played ball, but, frankly, that is cloud cuckoo land. We need to ensure, in the early days, that anyone who plays that game gets hammered hard, thus serving as a warning to everyone else. The regulatory programme could then hopefully be disbanded. However, experience tells us otherwise.
There is also a problem about the stage at which someone enters into a savings scheme. Some organisations say after six months whereas others say after one month. Nowadays, the standard is that someone starts a job on three months’ trial. The end of that trial period is the logical time for someone to join the scheme. However, there is a difficulty.
There is a connected problem. If individuals choose to opt out of the national pension savings scheme, they should receive standard generic advice on the consequences. Perhaps there should even be a cooling-off period for people to revise their decisions. The advantage of auto-enrolment is that it makes a decision for people. If they then exercise a different choice, it is fair and proper for the Government or somebody to point out the consequences and costs of their decision.
We are considering a period of further consultation, especially on personal accounts. We are therefore in danger of individuals facing six years of inertia. It is possible to consult to death. It is interesting that, in Sweden, where a similar scheme was set up, the contributions were collected for four years before it was established. That made sure of identification and allocation. We need to be wary. Another six years of people avoiding decisions that they did not want to make in the first place is quite a slice of someone’s working life, and of investment activity that is not happening.
One of the commission’s proposals, which the Government rightly rejected, was for an ongoing commission. I do not see the need for a continuing, fairly expensive quango that would have little to do for the next few years. It would be good if the Minister for Pensions Reform set out the review mechanisms that the Government anticipate in 10 or 15 years. I do not accept the need for a standing commission, but establishing the architecture of the review process would be helpful.
5.2 pm
Mr.
David Laws (Yeovil) (LD): The Liberal Democrats also
welcome the opportunity to debate the detail of the White Paper. As the
Secretary of State and his colleagues know, we made it clear when he
made his
statement to the House a month or so ago that we support the direction
of travel of pensions policy.
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 à 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
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
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
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
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
“I hope there will be no
attempt to cherry-pick Turner so that the personal savings scheme
starts in 2012 and the earnings link
does not. Will my right hon. Friend assure us that the two dates will be
coupled... ?”—[ Official Report, 25 May 2006;
Vol. 446,c. 1659-60.]
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:
“Problems with incentives could... develop if a pensions system evolved in which a significant majority of pensioners were entitled to Pension Credit in the long term.”
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
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.
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