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“between 4 million and 6 million households eligible for pension credit”.
This is precisely why we urged the Government to agree to an evidence session under the new procedures during the Committee stage of the Bill, in order to hammer out these differences and the reasons for them. The Government’s own projections show means-testing at about one third, post-reform. I can see that that represents progress from the current levels, but it still remains historically high. Apart from anything else, how will people near the beginning of their careers know whether they will be one of the third, or one of the two thirds? Will not the knowledge that they have a one-in-three chance of being means-tested in retirement have an effect on their behaviour?
We learned with great sadness, however, that the Minister had declined our invitation to hold an evidence session. Instead, he invited us to a seminar on the subject, which is his default position at the moment. There is a real danger of those of us who follow the Bill becoming seminar junkies. Anyway, we all duly turned up and listened to the views of the DWP and the PPI. By the end of the seminar, I was—as F. E. Smith might have put it—none the wiser but much better informed. It was clear that different methodologies were being used by the two contenders. For example, the PPI included the effects of housing benefit, but the DWP did not. Where the PPI failed to score was that, unlike the DWP, it did not have an amazing machine whirring away in the basement to produce its projections.
The nearest that we came to consensus on means-testing levels was the conclusion that there was
“a range of plausible outcomes”,
which I hardly think was worth the trouble and expense of laying on the seminar in the first place. But there we are; I do not want to seem churlish—how would I fill my days otherwise? But there remains a big gap, and little prospect of closing it. In fairness, apart from the obvious difficulty of projecting figures so far ahead, one of the imponderables is how successful personal accounts will turn out to be.
On the face of it, new clause 29 looks somewhat draconian, as the Minister said earlier. It proposes that if more than 29 per cent. of pensioners are subject to means testing by the time of the introduction of personal accounts, the delivery authority should be wound up. The 29 per cent. figure is a Government figure; they project that the proportion of means-testing will fall from about 45 per cent. to about 29 per cent. by 2050, following the reforms. We take the view—I would be interested to hear whether the Minister agrees—that any higher level than that would seriously jeopardise the future of personal accounts.
As I have said, however, this is a probing new clause—unlike the previous one—designed to draw out the Government’s thinking. Does the Minister share our concerns and those of the industry about means-testing? How committed are the Government to
rolling back means-testing? How has their thinking developed since the Committee stage and the seminar? I ask those questions not just as a member of the official Opposition and not just in a spirit of consensus on long-term pension reform, although that is important. I ask them also because we do not wish to inherit a system that has clearly been set up to fail. These are issues that need to be addressed now.
4.30 pm
Ms Sally Keeble (Northampton, North) (Lab): What would the hon. Gentleman count as means-tested benefits? If the aim of the Opposition—who obviously want to be the Government—is to phase them out, I think people would like to know whether they include housing benefit, council tax benefit and the various disability and carers’ top-ups.
Mr. Waterson: The hon. Lady, whose contribution to the Committee was greatly valued, has more or less summarised the benefits that I would include. Council tax benefit, which she mentioned, has a lower take-up than any other means-tested benefit. We should recognise, as a matter of practical politics, that there will always be some means-testing in the system, because there will always be people who are sufficiently poor to need help from means-tested benefits. As I have said, the problem with mass means-testing of benefits such as pension credit is that many people who are entitled to those benefits do not claim them, for whatever reason. I am sure that in our constituencies we all do our best to encourage home visits by the Pension Service, and encourage people to make the telephone call that enables them to fill up the form.
The good news, as the Minister will no doubt tell us, is that after some wobbling on the issue, the Government have confirmed that pension credit will continue to rise in line with earnings for the foreseeable future. We think that both Front Benches, in a spirit of consensus, should aspire to reduce means-testing in the medium term, which may mean committing funds to increasing the state pension even further than is envisaged in the reforms. Those, however, are aspirations rather than current spending commitments.
Broadly speaking, the more means-tested benefits there are and the more people are likely to fall within their ambit, the less the take-up is likely to be and the more people who really need help are likely to receive it.
My amendment No. 3 mirrors an amendment tabled in Committee. It suggests that before the Secretary of State issues guidance under clause 19, he should consult various groups—the delivery authority, obviously, but also bodies representing consumers, employees, employers and so on. What happened in Committee is what is always happening in Committee: a Minister says that the Government are going to take the action anyway and does not see why it should be specified in the Bill, and we say, “If you are going to do it anyway, why not include it in the Bill?” I can tell the Minister now that I do not intend to go to the stake on the amendment today, but I think it was worth bringing it here from Committee.
Amendment No. 7—unusually for a Liberal Democrat amendment—is quite sensible and modest. It would certainly be useful to have such information in
the public domain. The amendment touches on the vexed question of “ generic financial advice”. I am still unconvinced that “generic advice” is not a classic oxymoron, but fortunately the Thoresen review is under way and no doubt it will find a way of squaring the circle. I do not know whether the amendment will be pressed to a vote, but if it is, we may well support it.
I hope that what I have said, particularly about the two new clauses in my name, gives some flavour of what we are trying to achieve. I look forward to hearing the Minister’s comments in due course.
Danny Alexander (Inverness, Nairn, Badenoch and Strathspey) (LD): It is a pleasure to have become involved at this late stage in such an important Bill. I have observed its progress closely, although my hon. Friend the Member for Yeovil (Mr. Laws) has been very much in the driving seat.
Let me say a little about amendment No. 7. It dwells in detail on points that the hon. Member for Eastbourne (Mr. Waterson) made in his speech. It seeks to provide a mechanism for clarifying some of the issues he described about the likely extent of continued means-testing under the new arrangements proposed in the Bill and to offer objective analysis of that issue. It also seeks to offer analysis of the likely returns that different groups of people who will be auto-enrolled into personal accounts might expect to receive.
The hon. Member for Eastbourne referred to a seminar that I and many other Members attended. It sought to clarify the difference between various assessments—principally the Government’s assessment and that of the Pensions Policy Institute—of the proportion of people who will be subject to means-testing under the Government’s proposed pension arrangements. It forecast that the proportion will probably be about 29 per cent.—that is still its central estimate—but the PPI has suggested that about 45 per cent. of pensioners are likely to be subject to means-testing. The seminar clarified the reasoning behind those different estimates. As someone who is not a pensions expert, the evidence seemed to me to leave a wide range of possibilities about the proportion of people who will be auto-enrolled into personal accounts and who will continue to be in receipt of means-tested pension benefits.
That will have a substantial impact on how worth while it is for someone to save in a personal account and on other aspects of their personal circumstances. In particular, it will have a significant impact on the likely returns that people who are auto-enrolled into personal accounts can expect to receive. That is the subject of proposed new subsection (2A)(b), which requires the delivery authority to publish estimates of the proportion of people
“auto-enrolled into personal accounts who can be expected to secure returns of—
(i) £2 or more for every £1 saved,
(ii) £1 or more for every £1 saved,
(iii) less than £1 for every £1 saved”.
Clearly, the range of possibilities is wide. My hon. Friend the Member for Yeovil made it clear in
Committee that there seems to have been a degree of uncertainty and confusion from the Government about the proportion of people likely to expect those differing levels of returns. On Second Reading, the Secretary of State said in response to a question from my hon. Friend that
“the vast majority of people will be able to look forward with some confidence to receiving £2 back for every £1 put in.”—[ Official Report, 16 January 2007; Vol. 455, c. 665.]
Subsequently, the Department for Work and Pensions issued a paper entitled “Financial incentives to save for retirement”, which stated that
“the system that we propose, in combination with the introduction of personal accounts, will see the large majority of people...expecting a payback well in excess of £1...for every £1”.
There is a substantial difference between a payback of £1 for £1 and of £2 for £1. Looking forward, it might be difficult for Ministers and their officials to work out with any degree of certainty what the returns are likely to be. The purpose of amendment No. 7 is to require the delivery authority to do so.
The timing suggested in our amendment is important. We want the estimates to be brought forward by the authority no later than 1 December 2007. That would ensure that the figures, analysis and information that the personal accounts delivery authority was able to provide through its expert analysis would be available to the House, before it completed its consideration of the Bill that will no doubt be introduced in relation to personal accounts, to inform its judgments about the proportion of those auto-enrolled who will be on means-tested benefits, and the likely returns that they can expect. That information should be in the public domain and before the House so that it can form a big part of the debate.
If 45 per cent. of people are to be in receipt of means-tested benefits, they face some serious risks to saving in the personal accounts into which they will be auto-enrolled. It would be wrong for the House to consider a Bill that would set up such personal accounts without having that important information to hand. We also need to have information about the likely returns of such accounts. Such information is also critical to the marketing and promotion of personal accounts. The hon. Member for Eastbourne mentioned generic advice, but there are big questions about whether saving in personal accounts would be worth while for some people in that category, depending on the outcome in relation to means testing and the returns that they can expect.
When the Minister responds, I hope that he will be able to reassure us about how he intends to ensure that accurate information, which is as near to definitive as possible—or at least based on as wide a consensus as possible—about those two aspects will be made available to the House. That is what we seek to achieve, and I look forward to the Minister’s response.
Ms Keeble:
I am pleased to have a chance to speak briefly in this debate. I understand that the intention of this group of amendments is to probe, but it is important to get away from the loose discussion of means testing, because that could undermine the establishment of the new pensions regime and, more importantly, its role for many of my constituents for
whom it will work very well indeed. It will be important in encouraging them to think about saving and making provision for themselves.
I challenge the hon. Member for Eastbourne (Mr. Waterson) about the benefits he was including in the general category of means testing. We have all heard that term endlessly and we have all heard our constituents say that they do not particularly like means-tested benefits. When they say that, they mean particular aspects of the pension credit. By and large, the people who most dislike the means-testing of pension credit are those who are not entitled to receive it. I have never yet heard someone who is entitled to pension credit actually complain about the process for getting it. If we included all the other benefits to which old people might be entitled in the first place, we would strangle the personal accounts at birth, which would be a great shame. That would say to people that either they should rely on personal accounts and self-provision, or that they should be dependent on the state. The reality for many people is that it will be a combination of both.
Many of my constituents will need both forms of provision, because many of them work part time. Others may work all the hours God sends, but they are not on very high wages. The personal accounts will work well for them, but in some instances they will need top-ups. Some of my constituents bought their council houses, and they will not need to worry about housing benefit, but those in rented accommodation will still need housing benefit. I think that they would regard that not as a means-tested benefit, but as part of the income package that they need to get by each month. The same applies to council tax credit and the various disability benefits and carer allowances that some people need to increase their income.
Mr. Waterson: I am following very closely what the hon. Lady is saying, but has she seen the figures produced by the Pensions Policy Institute? Unlike the DWP, it takes account of housing benefit in its projections of those who will benefit from personal accounts. The forecast shows that men with full national insurance records who rent in retirement will be in the high-risk category. Housing benefit will make a crucial difference for some people, and we cannot just ignore that by saying that personal accounts will be a jolly good thing for most. Factors such as that really must be taken into account.
4.45 pm
Ms Keeble: I have not seen the PPI figures, although I shall certainly look at them. I asked the hon. Gentleman to tell me what he considered to be means-tested benefits, because I wanted to clarify his party’s approach to them. The Opposition have more serious aspirations to government now, so they—and the Liberal Democrats—must say what they understand by the term “means testing”.
Old people do not respond well to being told, “This is good, but that is bad. You can have your personal accounts, but not the other benefits.” Some of them will say, “Well, I might be auto-enrolled into the scheme, but I am going to opt out. To get by, I need X, Y and Z, and this, that and the other. Thanks very much, but this savings stuff is not for me.”
It is important that we encourage people to make good self-provision, but we must also recognise that some people will need top-ups of various kinds. There is nothing shameful about that, as that is not means-testing: rather, it shows that the state is doing what it should do—that is, supporting people who make self-provision and making sure that people receive help according to their needs, with dignity and proper services in retirement.
Lynne Jones (Birmingham, Selly Oak) (Lab): I cannot agree that what my hon. Friend has described is not means-testing, although I accept that means-testing is very important and I would not want the incomes that very poor people receive to be reduced. I appreciate her opposition to the Conservative amendment, which is supposed to be a probing one, but what is her opinion of the Liberal Democrat proposal, which I think is very reasonable? It would merely ensure that information is provided to people so that they can decide whether personal provision through an auto-enrolment scheme is worth while.
Ms Keeble: I agree that the Liberal Democrats should also tell us what they mean by the phrase “means-tested benefits”, but the existing advice systems are supposed to be able to provide the information to which my hon. Friend refers. Independent financial advisers are supposed to give people advice on benefits—goodness knows how!—but, equally, advice is also supposed to be given to them by the agencies dispensing the benefits. Those arrangements are designed to ensure that people make decisions based on what is in their best financial interest. We should not label as “means testing” all state support that takes into account someone’s personal finances. For instance, the carers allowance, or the carers or disability supplements to pension credit, are not examples of means testing: instead, they offer—in a dignified and proper way—substantial support so that people in retirement can have a decent standard of living.
Mr. Waterson: I am grateful to the hon. Lady for giving away again. She is being very generous, but does she agree that a proportion of people will always be better advised, for a variety of reasons, to opt out of personal accounts because their circumstances mean that they will not be any better off, in the long run? Does she also agree that that raises the conundrum, which has still to be sorted out, about the sort of advice people will get under what Lord Turner has called an “advice-free” model?
Ms Keeble: What the hon. Gentleman suggests is a bit like telling people on the welfare to work scheme that it is better for some of them to remain unemployed and simply live on benefits. We want a system that encourages people to provide for themselves, which means that we must show robust support for self-provision. However, we must also recognise that this is not an either/or choice, as people who make private provision will also need top-ups. We must not suggest that it is some kind of disgrace to apply for the other benefits, or that it is degrading to do so because of the implied element of means testing. What we have to do is provide support that is appropriate to need.
Danny Alexander: Will the hon. Lady give way?
Ms Keeble: I will, but then I must make progress, as I am not sure when this section of the debate is due to finish.
Mr. Deputy Speaker: Order. The knife falls at 5.22 pm. Although I am loth to intervene at this stage, this is not a general debate about means testing and its wider ramifications; it is specifically about the Pensions Bill. I mention that so that it might concentrate Members’ minds a little.
Danny Alexander: Thank you, Mr. Deputy Speaker.
As the hon. Member for Northampton, North (Ms Keeble) knows, in the context of the Welfare Reform Bill, the Government have been considering how to make sure that it is worth people’s while to go to work. The point of our amendment to the Pensions Bill is to ensure that objective information is provided both about the proportion of people in means testing, which includes pension credit, council tax benefit and housing benefit, and about the returns they are likely to receive, so that people can decide whether it is worth their while to save. Some people could be worse off if they chose a personal account, so it would be irresponsible to advise them to pay into one.
Ms Keeble: New clause 29 is specific, which is why I pursued the point about what a means-tested benefit is. Although I realise that it is a probing proposal, it states that the delivery authority would be wound up if
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