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Kali
Mountford: My hon. Friend is making a valid point about
health inequalities. When pensions were first introduced, life
expectancy for working people was
only 48, yet they could not receive a pension until they were in their
70s. Does she therefore accept that we have at least seen some
improvement?
Ms Johnson: My hon. Friend is right. However, my concern is that to achieve consensus in the country we must ensure that people accept that the White Paper is fair. At the moment, people in certain constituencies may miss out on the options on pensions that we are putting forward.
It has been suggested that a new body should oversee the pensions decisions that we make to ensure that they fit in with what happens in the next 10 or 20 years. Certain organisations are pushing hard for a permanent pensions commission to ensure that our proposals on treating people fairly in future are realised.
A few issues remain to be addressed, but on the whole I welcome the White Paper. I am particularly delighted that women and carers are at the heart of it.
9.22 pm
Mr. Nigel Waterson (Eastbourne) (Con): This has been an excellent debate. I particularly enjoyed all the talk about longevity and the amount by which it will have increased during the course of the debate—although there have been one or two speeches during which my whole life has flashed before me. I will not say which ones they were.
According to my arithmetic, there have been some18 Back-Bench speeches, so I apologise to hon. Members if I do not go through them all but pick out one or two that deserve particular mention. My hon. Friend the Member for Hemel Hempstead (Mike Penning) made a powerful speech on behalf of his constituents whoare scheme members of the Dexion company andhave suffered a great deal. His comments on the ombudsman’s report were extremely just and valid. The hon. Member for Belfast, North (Mr. Dodds) also spoke about the ombudsman’s report and about the failings of the financial assistance scheme.
The Chairman of the Select Committee on Work and Pensions, the hon. Member for Bradford, North (Mr. Rooney), had some valuable thoughts on the White Paper to share with us. As always, the right hon. Member for Birkenhead (Mr. Field) had something distinctive to say. Apparently, he is not signed up to the concept of consensus; in fact, he delivered a substantial broadside against the whole idea. He talked about his concerns over what he called the Chancellor’s IOU and whether it would ever be redeemed for pensioners.
My hon. Friend the Member for Weston-super-Mare (John Penrose) made a fluent speech about the need for durability in the system and the reforms, the problems of complexity and the need for stability. Although the hon. Member for Yeovil (Mr. Laws), the Liberal Democrat spokesman, made some sensible points, I was not quite sure at the end of his speech where his party stands on the consensus-building adventure on which we are all now embarked.
I had the
dubious pleasure, as shadow Pensions Minister, of being involved in
every Commons stage of what became the Pensions Act 2004. If ever a
measure cried out for pre-legislative scrutiny, that was it. But no,
the Government drafted the Bill with the minimum of
consultation, drove it through with a timetable motion and ignored our
regular predictions about the law of unintended consequences. We
therefore welcome the fact that the White Paper talks about revisiting
the provisions of that Act. I warned at the time that any good that the
Government sought to do through the Bill would be overshadowed by the
plight of those who had lost pension rights through no fault of their
own. My prediction turned out to be true. Nothing has done more to
undermine public confidence in the pensions system than the losses felt
by those honest, decent people.
In May 2004, facing defeat in the House, the Government cobbled together their financial assistance scheme. We said from the outset that it would be inadequate. None the less, the Government forged ahead, setting up a wholly separate structure in York to administer it. I even recall proposing amendments in Committee that would have set up a parallel mini-pension protection fund, funded by unclaimed assets but administered by the same people as the main PPF. The Government would not have it, however, and one can now see why.
The FAS was to be kept quite separate, as it was always going to pay out much smaller benefits than the PPF. The differences are stark. That is true even with the latest review of eligibility. In a recent Westminster Hall debate, the Minister for Pensions Reform made it clear that only about a third of the 125,000 people affected will benefit from the scheme, even with the extended coverage. At that stage—although the figures may have improved in the intervening few days—a grand total of 93 payments had been made, which, according to my arithmetic, leaves only 39,907 to go. He made the position clear:
“Given the limited amount of money that we had available, it was correct to target it at those closest to retirement”.—[ Official Report, Westminster Hall, 20 June 2006; Vol. 447, c. 415WH.]
Several hon. Members on both sides of the House have explained the unfairnesses that result from those decisions.
It was obvious at the time, and has become ever more obvious since, that the FAS was designed primarily to get the Government over a temporary problem and to assist some Labour Members in marginal seats, with greater or lesser success, of which my hon. Friend the Member for Hemel Hempstead is living proof. Throughout its short life, the emphasis of the FAS seems to have been on limiting eligibility and excluding claims. The novel concept has been introduced of a core pension, with which the hon. Member for Belfast, North dealt in detail. We have heard that FAS payments are not inflation-linked, that they only start at 65 and when wind-up has been concluded, that they are capped at £12,000, and that the entire payment is subject to tax, despite the expected pensions including a tax-free lump sum.
That leads us on to the ombudsman’s report. She made three findings of maladministration against the Government. It is clear that the Government took steps on two separate occasions to weaken the minimum funding requirement. The report quotes the then Secretary of State saying in March 2000:
“As a matter of principle, we believe that when someone loses out because they were given the wrong information by a Department, they are entitled to redress.”—[ Official Report, 15 March 2000; Vol. 346, c. 308.]
Ministers have peddled a figure for the cost of compliance with the ombudsman’s recommendations that is grotesquely misleading. No wonder Lord Turner appeared to back compensation when he gave evidence recently to the Public Administration Committee. We believe that the Government’s position on the report is wholly indefensible.
We have heard much about consensus today. We in the official Opposition have said for a long time that we need political and social consensus if we are to have sustainable long-term pensions reform. Recently, Ministers have been saying the same; even more recently, they have been putting their money where their mouth is, and we welcome that. Why is consensus so important? Because Governments come and go. I do not mean to be gratuitously offensive to the Government Front Bench when I say that Ministers are here today and gone tomorrow. It is good to see the Minister’s distinguished predecessor, the Chief Secretary to the Treasury, the hon. Member for East Ham (Mr. Timms), sitting beside him.
Nothing would be worse for confidence in the system and for long-term saving than an Opposition with the stated intention of unpicking any reforms when they took office. No doubt the Government have taken a hard-headed view and concluded that consensus is a vital underpinning for their reforms—or, as the Secretary of State put it to the Select Committee, something to make pensions reform “stick”. All credit to him for that.
What, then, does consensus mean? It means that we can seek to reach agreement with the Government on the basis of full information about the various aspects of their proposals. It means supporting the Government when we think they are doing the right thing. How could we do other than that when they are implementing policies from our last manifesto? It means opposing them when they are doing the wrong thing, or doing the right thing in the wrong way.
However, it is also important to understand what consensus does not mean. It does not mean writing any blank cheques, or abdicating our duties as the Opposition to scrutinise the detail and hold the Government to account. That is not least because we expect and hope to be the Government one day, and that day may not be far off. We want to inherit a pensions system that works, or is on the way to being mended. That means that any reforms must pass our six tests.
Mr. Hutton: Six?
Mr. Waterson: It is test inflation.
These are the six tests. Do the reforms deliver pensioner dignity, rolling back means-testing? Are they fair as between different groups in society, between generations, between the sexes and between public and private sectors? A number of Members, including my hon. Friend the Member for Runnymede and Weybridge (Mr. Hammond), dwelt on the issue of public sector pensions. Are the reforms affordable? Are they transparent? Do they encourage personal responsibility? Are they simple and easy to understand? If they pass those tests, they will have our support.
Let it be clear, however, that we do have concerns. The Government accept that a third of all pensioners will still be subject to means-testing, with all that that implies for the discouraging of saving. The Pensions Policy Institute puts the figure at 45 per cent. The Government are also working on the basis that between 20 and 50 per cent. of workers will opt out of the NPSS. A recent workplace attitude survey by AXA showed that nearly a fifth of employers would encourage staff to opt out, a point made by several Members today. According to the PPI, the pensions system will hardly be any less complex after the reforms than it is now. As we have heard, the proposals create a cliff edge that will generate unfairness for some women.
Raising the state pension age is all very well, but where will the jobs come from for the notional increase in the work force? What retraining opportunities will be available? What about the millions of people who are below even the current state pension age and who want to work but cannot get a job? That point was made by the hon. Member for Bradford, North.
Organisations such as the Association of British Insurers and the National Association of Pension Funds have expressed concern about employers’ levelling down their pension provision in line with the contribution levels of the NPSS. As the NAPF put it:
“The danger is that, while reducing the number of people not saving at all, the White Paper could turn some adequate savers into under-savers.”
Given the Government’s inauspicious record when it comes to large IT projects, we have concerns about the architecture of the NPSS. What advice should be available to employees and what regulatory framework should apply?
We do not want to run the risk that, when the dust has settled and the smoke has cleared, we are no better off and still have a high level of opting-out, low persistency, a levelling down by employers and existing savings simply moved from one part of the system to another. However, we intend at all times to be constructive, pragmatic and sensible. If we disagree with Ministers, we will try not to be disagreeable. Those are the ground rules under which we intend to operate as the official Opposition. On that basis, we look forward to working closely with Ministers, officials, other political parties and all other interested organisations. We owe no less to future generations of pensioners.
9.35 pm
The Minister for Pensions Reform (James Purnell): This has indeed been a good and important debate. Here we are, six hours after the start, with another hour of life expectancy, as my right hon. Friend the Secretary of State informed us. I read the other day that the best way to improve one’s life expectancy is to semi-starve oneself and be exposed to small but regular doses of radiation. I am not sure whether that does increase life expectancy, but it would probably make life seem a lot longer . [ Laughter. ]
We are serious about creating a
consensus on the future of pension policy and this debate has genuinely
helped to set that in train. We do not want to create consensus for its
own sake or to agree with the Opposition just for the sake of it.
Indeed, where there are differences, we will continue to explore them.
However, pension policy is different. Workers put away their money for
20, 30, 40 or 50 years and it is therefore right that they should
expect politicians to try to create a stable framework within which
they can make their decisions.
Over the past 30 or 40 years, the political class has not achieved that stability. The system has changed frequently and has left savers with what the Pensions Commission found to be the most complex pension system in the world. Our task now is to address that issue and to seek to take the political instability out of the system. Just as Bank of England independence has made it easier for companies to invest, so a consensus on the future of pension policy will make it easier for workers to save. That is why the Government called today’s debate and tabled a substantive motion. It gives the House a chance to signal to the public that we will work together where appropriate to seek to create that consensus.
I welcome the spirit in which Opposition Front Benchers have responded to the motion. Both main Opposition parties have tabled constructive amendments that start from the basis that the White Paper can be the building block for a consensus on the future of pensions. Indeed, the Conservatives’ amendment identifies some key concerns and we want to work with them to explore those. We have no objection to their amendment to our motion.
As the hon. Member for Weston-super-Mare (John Penrose) said in an impressive speech—I do not say that just because I will appear before his Select Committee tomorrow morning—it is important not only to think that we have a consensus, but genuinely to explore whether we do have a consensus. Occasions such as this mean that we can have proper scrutiny of the policies in advance, which is surely far better than finding out later that we did not have the consensus that we thought we did.
To start with today’s pensioners, as several hon. Members did—in particular, my hon. Friend the Member for Ayr, Carrick and Cumnock (Sandra Osborne)—we believe that we have done a significant amount for them. I shall not repeat everything that my right hon. Friend the Secretary of State said, but we are spending 1 per cent. more of GDP than if we had just continued with the policies of 1997. The White Paper promises to increase pension credit in line with earnings—a major change.
The second point concerns raising the state pension age. The hon. Member for Angus (Mr. Weir) made it clear that his party would oppose that, and the issue was also addressed by my hon. Friends the Members for Aberdeen, South (Miss Begg), for Dumfries and Galloway (Mr. Brown) and for West Bromwich, West (Mr. Bailey). However, they made the point in a slightly different way. They knew that there were concerns about the state pension age, and wanted them to be addressed. That is the right way to think about the matter.
The Government accept that questions remain about how the state pension age should rise, and that we must keep open the option of paying pension credit at 65. We also accept that we must continue to look at the extending working ages agenda, and at health inequalities. We recognise that we have to deal with all of that, but those who oppose raising the state pension age must be clear about whether they believe that any such change should play no part in the proposals.
The Pensions Commission has created a consensus around the fact that people are living longer and that raising the state pension age has to be part of the solution if we really want to tackle the challenges that that raises. Those hon. Members who oppose a rise in the state pension age must explain how they will cope with the fact that in the future people could work less and less yet still expect to have the money to pay for an ever longer retirement. The difficulty is either that far more will have to be levied in taxes, or that people will have to save at a level far higher than has ever before been expected of them.
Mr. Weir: My point, which I raised with the Minister both in this debate and earlier in the day, has to do specifically with inequalities in different parts of the country and in different socio-economic groups. Does he agree that that problem must be addressed if the retirement age is to be raised?
James Purnell: That is what our health inequalities agenda is about. My constituency suffers from exactly those problems that the hon. Gentleman described, with people dying 10 years earlier than elsewhere, but it is impossible to deal with such problems without raising the state pension age. I assume that he is not proposing differential state pensions for people in different socio-economic classes, and I am sure that he will accept that life expectancy has risen in all socio-economic groups. Although it is right that we must look at how a rise in the state pension age might be implemented, it is clear that it will have to be introduced.
The second major issue in the debate had to do with personal accounts. My hon. Friend the Member for Bradford, North (Mr. Rooney) made some very good points about that, as did the hon. Member for Bournemouth, West (Sir John Butterfill). Questions were raised about employer contributions, governance, charges, generic advice and compliance, and we want to discuss those matters with all parties in the House. We have said already that we want to invite Opposition Front-Bench Members to our pensions summit, when the details of our policy will be explored.
My hon. Friend the Member for Edinburgh, North and Leith (Mark Lazarowicz) spoke eloquently about a matter that worried a number of hon. Members—the interaction between means-testing and automatic enrolment. How can we automatically enrol people if we are not certain that they will be better off in retirement? Our response is that that is not the test that should be applied. No saving is certain, and people never know for sure what their careers will hold. They do not have 20-20 foresight about when they will work, how much they will earn or when they will be unemployed.
Instead, the real test of automatic enrolment is whether it will give people a reasonable expectation that they will be better off on retirement for having stayed in the scheme. We believe that we can provide some very good answers to that. In response to the specific request from the Conservative spokesman,the hon. Member for Runnymede and Weybridge(Mr. Hammond), we assure the House that we will be happy to publish the research that we used to make our decision, so that people will be able to look at it and make up their own minds.
There are two reasons why we believe that people will have a reasonable expectation of being better off under our proposals. First, those who leave their money in a personal account will immediately have it doubled by the employer contribution and the state contribution. Secondly, the charges on personal accounts will be much better, so people will be able to keep much more of their pension pot in retirement—we think about25 per cent. more—than is the case with other forms of saving. The return on personal accounts should compare favourably with other forms of saving, and we believe that that, interacting with our reforms to state pensions, will help us to convince the vast majority of people that they will be better off.
The key point is that although, under our proposals, as a base case, a third of people would be means-tested, only 6 per cent. of them would be on the guarantee credit alone and thus facing 100 per cent. withdrawal rates. Those people may not have known that they would end up in that situation, so they will be better off due to the existence of the guarantee credit. The alternative would be to tell them, “We know that you do not have a good state pension but we will not provide a safety net for you”.
We shall be able to publish evidence to show that we can give people a reasonable expectation that they will be better off, but the scheme will not involve compulsion. People will be able to make their own decisions, so it is right on the one hand to enrol them automatically—to use inertia for the saver culture—but on the other to leave them with a choice about whether they continue to save.
Mr. Laws: But due to the impact of means-testing, the individuals whom it is most difficult to encourage to make additional provision will have the least incentive to save because their employer contribution will be wiped out. Does not that concern the Minister?
James Purnell: We want to work with the hon. Gentleman on developing those issues, but to respond to his point, if I understand it correctly, people at the guarantee credit level will often have made no contributions because they are low earners, and in any case may not have known in advance that they would end up in that situation. As I said, people do not have 20-20 foresight.
I shall address the remaining issues as quickly as I can—[ Interruption.] I accept the injunction of the hon. Member for Runnymede and Weybridge and shall take a few more minutes to answer the points that he made. We want to look at the issue raised about levelling down in relation to personal accounts and to work with the Opposition on that. We recognise that there are concerns, but we talked to a large number of employers before we produced the White Paper and they made it clear that where they contribute more than the minimum 3 per cent. to which we have been referring, they do so as a way of retaining and attracting employees. Typically, they contribute far more than3 per cent. The hon. Gentleman was right to say that the other side of the coin of compulsory contributions will be the cost of regulating the schemes. We want to look seriously at where we can deregulate the costs.
The hon. Gentleman asked whether anything had been ruled out of the regulatory review. I am happy to make it clear that nothing has been ruled out. We have made it clear that we want to balance employer costs against protection for employees, and I am sure that he will agree with that. There will be a stakeholder scheme, but we will look at all the issues and come back to him in due course.
A number of points were raised about the ombudsman. We have great sympathy for people who lost their pensions, which is why we extended the financial assistance scheme. Members asked whether people could receive an interim payment before the age of 65. They can indeed apply for that.
We have been clear about the core pension definition; it is in the leaflet and there is nothing underhand about it. People who do not qualify under the 15-year rule may qualify for deemed buy-back into their state second pension rights. I will be happy to write to Members whose constituents are in that situation.
To reiterate our argument: we do not accept that we caused the downfall of those pension schemes and we do not accept that we are liable for them. We think that the ombudsman made a leap of logic that is not justified by the evidence. There were never guarantees from the Government for those schemes, and although we have huge sympathy for people, which is why we set up the financial assistance scheme, it would be an unjustified step to make the further argument that we were liable for those losses.
My final point is about public sector pensions, which were raised by several Members. At the last election, the Conservatives said that they would not implement changes to public sector pensions. They said:
“We have no current plans to alter the terms of public sector schemes...We know there is some concern over extending the public sector retirement age and we will listen to any practical concerns people have.”
That is a significant difference from the position they appeared to adopt today. However, in the spirit of consensus, I do not want to push that point too hard; nor the point made earlier that they have made spending commitments of £15 billion by 2050. Nor shall I add up all the spending commitments that the Liberal Democrat spokesman has made today. According to my calculations, on top of his £10 billion for the citizens pension, there was another £3.4 billion on the basic state pension, £400 million on uprating pensions for people overseas and another £3 billion to implement the ombudsman’s report. He has made a fairly significant number of spending commitments.
Several hon. Members rose—
James Purnell: I must finish. We will be happy to continue to update the House on the costs that the hon. Member for Runnymede and Weybridge and the hon. Member for Yeovil (Mr. Laws) are generating.
Mr.
Philip Hammond: The Minister must not go on repeating
those things. He knows very well, and he has heard me say clearly
today, that our purpose in putting these issues into the public domain
was to get them aired and to have a debate about them. I said clearly
earlier that just because we were drawing attention to certain aspects
of the package did not imply that we thought that they were wrong. It
merely implied that
we thought that they had not been given sufficient attention, they had
not been discussed properly and they had not been understood by the
public.
James Purnell: We welcome that clarification. We will certainly bear it in mind next time there is a Daily Mail piece on the latest stealth tax that has been uncovered in the detail of the White Paper. We recognise the spirit in which Opposition Front-Bench Members have approached the debate.
Kali Mountford: I know that it is late in the day, but some important points were raised about carers and women. Will the Government give an assurance that those points will be looked at closely before the end of this process?
James Purnell: I can give that assurance. I welcome the welcome that was given by Members on both sides of the House to the provisions for women and carers. The pensions proposals will address a long-standing injustice. We will work—
Mr. Laws: Will the Minister give way?
James Purnell: I must wind up. We are serious about consensus. We welcome the spirit in which people have approached the debate. It is quite right to say that Opposition Front-Bench Members do not have to sign up to all the proposals. If they want to, they can decide to come forward with alternative proposals, and we recognise their right to scrutinise what we have put forward. However, Lord Turner’s injunction on cherry-picking was about saying that people could not just sign up to the benefits without also saying how they would pay for them. We will apply that test. When people come forward with proposals, we will ask whether they will be costed, because that is the only way in which we will generate a genuine consensus around these policies that will last for the future.
Main Question, as amended, agreed to.
That this House welcomes the White Paper ‘Security in retirement: towards a new pensions system’ [Cm 6841] as the basis for a consensus on the future of pensions policy; recognises the importance of consensus in ensuring long-term, affordable and sustainable pension reform; and therefore welcomes the commitment of all major parties in the House to engage in the process of consensus building, while acknowledging that a number of concerns remain to be addressed in the course of that process, including the impact of the projected future level of means-testing on savings behaviour, the design of an auto-enrolled savings scheme, the need to strengthen existing occupational pension provision to reduce the risk of “levelling down” on the introduction of personal accounts and the need to restore public confidence in the fairness and security of the pensions system.
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