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“in excess of 29 per cent. of the population over state pension age will, at the time of the introduction of personal accounts, be entitled to claim pension credit or another means-tested benefit”,
but it does not say which means-tested benefits. The hon. Gentleman says it would include council tax benefit and housing benefit, as well as other benefits, but we need some clear indication of what the Opposition are talking about. Is the aim of proposal to probe exactly what the Government and the Opposition mean by means-tested benefits?
On a similar point, the hon. Gentleman that his party got things terribly wrong over the winter fuel allowance. They said, “This is something extra, but we actually want just one payment.” In fact, pensioners said, “No, we want things that are appropriate to our needs”, which is why they like the winter fuel allowance. It would be wrong to say that because many people need top-up benefits in one form of another we should not have personal accounts. The accounts are important because they will give people a personal entitlement. However, if people need top-up payments to give them a decent standard of living in retirement, with particular forms of support related to their personal circumstances—be they carers, disabled or non-home owners—it is important that they can obtain that support.
I am sure that my hon. Friend the Minister will say that we should not vote for the new clause—indeed, the hon. Member for Eastbourne may withdraw it. However, it is wrong for the Opposition to try to muddy the water and, in the process, make people worried about claiming the benefits they need to
maintain their standard of living and to which they are fully entitled and the state is absolutely right to provide.
James Purnell: This has been an important debate, with good speeches from Members on both sides of the House. People will be watching it from outside this place, even if Members are not thronging to the Opposition Benches.
James Purnell: Well, there are infinitely more Members on the Labour Benches.
The amendments deal with the role and operation of the delivery authority and have allowed us to discuss important issues to which I will turn later in my speech. In their substance, however, they treat the delivery authority as though it would take decisions on personal accounts, whereas all that we are setting up under the Bill is an authority that can advise the Government so that the Government can take those decisions. Although I realise that these are probing amendments, on the issue of whether we should set objectives for such an advisory authority, it is quite clear that those objectives should be for Government—exactly as the hon. Member for Eastbourne (Mr. Waterson) said in his introductory remarks.
I want to turn to the points that the hon. Gentleman made. First, on amendment No. 3, he has slightly misunderstood the kind of guidance that we are talking about. As I said, the delivery authority is going to be advisory. It will support the Government in understanding the operational and commercial implications of policy options. It is therefore right that the Secretary of State is able to issue appropriate guidance from time to time, but a lot of that guidance is going to be fairly trivial. It will be on the format and presentation of the advice, and who should be consulted within the Department for Work and Pensions or other parts of Government. To specify that such ad hoc guidance must be subject to a length parliamentary process would impede the ability of the authority and the Secretary of State to move flexibly and quickly. Indeed, to suggest that for this initial short phase we should have a 40-day delay every time we want to issue guidance would be verging on the sclerotic and would be quite disproportionate. It is quite right that that advice should be given on a basis that people can look at. We want to make sure that we continue on the basis of the open and consultative process that we have had to date. But it would be a mistake for a formal relationship and formal commitments in relation to publication and consultation with Parliament to be included in the Bill.
With respect to new clause 7, we agree with the spirit of what the hon. Gentleman is trying to do. As he was kind enough to say, he has, one might say, plagiarised—
James Purnell:
Pillaged, even. He has paid homage to the objectives that we set out in the White Paper. In formulating our policy, we are of course conscious of
those long-term objectives, but I repeat that we are not setting up the personal accounts scheme through the Bill.
Mr. Waterson: If all that is true, why does the job description of the chief executive of the personal accounts delivery authority, which the Minister kindly sent to me, say that part of the chief executive’s role is to
“Turn a strategic vision into a successful initiative”
“Help evolve the business to meet its strategic objectives.”
Where is he to find that strategy?
James Purnell: The chief executive is to advise the Secretary of State on the decisions to make around that strategy. The objectives that the Secretary of State is following will bind the chair and chief executive of the delivery authority. That is quite clear. It is right in this phase for the objectives to bind the Government. When, subject to the will of Parliament, we have the opportunity to debate this matter in a further instance, we will be able to see exactly what those objectives are. I am sure that the hon. Gentleman and I will delight in talking about this matter in Committee, yet again, in what will be a sort of franchised version of “Groundhog Day” by then.
We have finished our consultation on the White Paper, and it is important that we feed the responses into the development of the policy and that we respond appropriately to the people who have responded to our consultation. We are looking at the consultation responses and it would not be right to pre-empt that by setting objectives for the scheme before we have responded formally to the White Paper consultation.
The hon. Gentleman will be glad to know that we are working with the Pensions Policy Institute—his favourite think-tank—on a consultation event. I will be announcing another seminar to keep his diary occupied. He and Members on the Liberal Democrat Front Bench have been assiduous in attending these seminars. [ Interruption. ] Yes, sometimes even more assiduous that the Government. We thank them yet again for the spirit in which they have engaged in this policy, as well as their indefatigability. As I said, we are creating another seminar for their delectation. The PPI will help us to debate the objectives for the scheme and how members’ interests can be made central to it. We would be happy for hon. Members to take part in the discussion. Other hon. Members can come along too. I agree that it has been valuable to discuss whether we should have objectives, but I hope that the House will agree that actually setting objectives in this Bill would be getting ahead of ourselves.
5 pm
The hon. Member for Eastbourne mentioned the issue of levelling down and I would like to repeat my previous assurances that personal accounts will complement rather than compete with existing pension provision. There is no intention—the hon. Gentleman asked for reassurance on this—to nationalise the pensions industry by the back door. Parts of the pensions industry work extremely well and we want to build on that. We also want to ensure that we can
extend the benefits of those parts of the industry that are working well to the rest of the population in order to ensure, for example, that everyone has the chance to get a matching employer contribution.
We believe that we have developed a package of proposals that will help us to achieve precisely that. They include a prohibition on transfers, a limit on contributions and a simple scheme exemption test. We hope that that will keep the scheme focused on our target market of low to moderate earners. We will continue to work with stakeholders on additional ways of achieving that.
Mr. Waterson: Is the Minister in a position to tell us—in the light of our and other representations and the original recommendations of Lord Turner and his colleagues—whether he and the Secretary of State have reached a conclusion on the amount of the contribution cap?
James Purnell: The hon. Gentleman and I have spent so much time in each other’s company that he can read my speech even from his sedentary position: that was precisely the issue to which I was about to come. As he knows, the level of the annual contribution is something on which we are consulting. As my right hon. Friend the Secretary of State has made clear, we are reconsidering the matter in the light of the responses. However, we want to look at those responses in the round.
The hon. Gentleman will have received representations about the issue from his new-found friends, the Association of British Insurers, but representations have been made from a range of directions. The Engineering Employers Federation said that there should be no cap at all; the TUC, the Equal Opportunities Commission, Age Concern and other organisations backed the £5,000 limit; while others said that it should be £3,600 or £3,000. For once, I stayed rather longer than the hon. Gentleman at the seminar at the Scottish Widows event on Monday, so he will have missed hearing Jeannie Drake say that the Turner commission would be perfectly happy with the £5,000 figure.
It is not a question, as some have claimed, of the Government being at odds with the Pensions Commission. The question is really how to achieve the twin goals of focusing the scheme on the target market while also allowing people to make extra contributions if they want. The Pensions Commission has always been very clear that the level of automatic enrolment is a minimum for people to contribute. We want to give enough headroom for people to be able to contribute above that and achieve a higher pension in retirement. We want to balance that with the aim that we have stuck to of targeting the scheme at the market. We will look in great detail at the responses to the White Paper and come back with proposals, which we will be happy to discuss with Opposition Front Benchers, to achieve that balance.
I hope that I have answered the points raised in the debate about personal accounts and the scheme. The remainder of the debate has focused particularly on means-testing, so I would like to spend a few minutes on that subject. The argument about means-testing often sets up what I believe to be a false choice between
whether we should or should not have means-testing. The truth is that all parties know that, whichever Government are in power and whatever scheme they come up with, there will always be a certain amount of means-testing. The question is therefore not whether there should or should not be means-testing, but what the right balance between universal benefits and means-tested benefits is and how fast we should taper away those means-tested benefits.
I believe that the argument about means-testing is very simple. The argument that I shall seek to develop in the rest of my speech is that we are trying to give people the ability to provide for themselves in retirement and to be well above the level for means-tested benefit. The poverty prevention level or safety net will be there for people if their life does not work out as they hoped and they are not able to make sufficient provision for themselves in retirement.
I also want to bust a couple of myths about means-testing, because the Opposition sometimes talk as though means-testing has exploded in the past few years. The truth is that the proportion of pensioners who claim means-tested benefits is far lower than in the past. Today, about a third of pensioner families claim means-tested benefits; in 1979, nearly two thirds did so. If our pension system has been affected by the level of means-testing, it should have been affected positively by the trends that have occurred. Indeed, the proportion of pensioner families who claim means-tested benefits has fallen since 1997. The question is not what that has done to saving today, but what we can do to encourage saving in the future. That is exactly what the Pensions Commission considered.
It was never our intention to continue the current policy framework indefinitely. It was introduced to deal with a problem that we inherited—the level of pensioner poverty—but we recognise that, if it had continued indefinitely, as the hon. Member for Eastbourne said, almost 80 per cent. of pensioners would have been entitled to pension credit in 2050. That is exactly why we never intended to continue it for that length of time.
Mr. Waterson: The figure is going up.
James Purnell: No, the figure is not going up, exactly because of the Bill, but if that happened the vast majority of the generation starting work today, who would retire in 2050, would expect to be affected by means-testing once they reach retirement. The reforms recommended by the Pensions Commission and implemented by the Bill address that situation. They make the basic state pension and the state second pension more generous, so that individuals with a good contribution record will be able to retire on £135 a week from their basic state pension and state second pension—well above the level of the pension credit—and their private savings will come on top of that.
Mr. Laws: If the PPI’s higher estimates for means-testing were to prove correct and the Minister were to conclude that they were correct, would he be unhappy with that?
James Purnell: When the hon. Gentleman is Pensions Minister in 2050, or even in 2040 or 2030, he will be able to deal with that. We have clearly set out a set of policies that we want to make work. The reason why I am slightly reluctant to answer his question—something that he may have spotted—is that it is a question of what the right balance to reduce poverty is. It is not about picking an abstract number out of thin air. For example, as was persuasively pointed out by my hon. Friend the Member for Northampton, North (Ms Keeble), the Front-Bench team could just say, “We will get rid of council tax benefit and housing benefit.” That would reduce means-testing in retirement by a huge proportion, but they would not want to do that because it would push people into poverty unjustifiably. Therefore, we should all aim to create a policy that delivers the right balance between universal benefits and means-tested benefits to ensure that people do not fall into unacceptable levels of poverty.
People will be able to work or care for their whole lives to get to £135 a week, and the Bill will introduce that important change. People can get to that £135 through a full life of caring, and caring contributions will be put on the same footing as working contributions—something that is extremely welcome—but their private savings will come on top of that. Many long-term savers in personal accounts can expect to get returns of at least £2 for every £1 initially invested by the individual.
The hon. Member for Inverness, Nairn, Badenoch and Strathspey (Danny Alexander) asked whether we could give more definitive projections than that. We will publish further research on the issue, but we will not be able to give definitive projections to people because we cannot tell someone at the age of 22 what their working life will be, any more than we can tell them whether they will be disabled in retirement, whether they will be renting in retirement or, indeed, whether Government policy will have changed when they retire.
The hon. Member for Eastbourne quoted the example of someone in rented accommodation. Would he really advise people in 2012 not to save when they are 22, because they thought that they might be renting and relying on council tax benefit or housing benefit in retirement? We have no way of knowing what the policy will be in 40 years’ time. We can all seek together, through the Bill, to create a consensus, but I warn particularly Liberal Democrat Members about looking for a level of certainty that is so great that it makes the scheme impossible. If the Liberal Democrats want to sign up to automatic enrolment, as I believe that they do, they will have to accept that we will be giving people a reasonable understanding of their future, rather than a perfect 20:20 prediction—no one could aim to do that.
The large majority of people can expect a good return from personal accounts, but pension credit will provide a safety net of about £119 a week if things go wrong. The key aspect of the reforms is that someone starting off work after personal accounts come in will know that if they work or care for most of their working lives and pay into an account, they will retire on significantly more than the means-tested minimum.
The Pensions Commission did not suggest eliminating means-testing and nor does any commentator or party in the House. Instead, there is a consensus that we
should have a safety net to prevent unacceptable poverty in retirement, which is what pension credit becomes thanks to these reforms. The proportion of people entitled to pension credit will be reduced to less than 30 per cent. by 2050. There will thus be two main groups of people who will benefit from pension credit: those whose working lives did not turn out as they hoped and were not able to make contributions through working or caring to lift themselves above the means-tested level; and, just as importantly—and inconveniently for the policy of the Liberal Democrats—people who get more than £119 in retirement because they are disabled or caring for someone, or because they have other costs. We teased the hon. Member for Yeovil (Mr. Laws) in Committee to tell us whether he planned to take money away from that second group of people, but I assume that he will continue to duck the question, given that that issue is the fatal flaw in his proposal.
We believe that our proposals strike the right balance between universal benefits and means-tested benefits. We are happy to consider any suggestions that Opposition Front Benchers might make, but in truth there are only two ways in which we could reduce the proportion of people on means-testing. The first way would be to increase the basic state pension to the standard minimum guarantee level of £119 a week, which is somewhere near the policy of the hon. Member for Yeovil. However, without making offsetting changes, that would cost £20 billion, or 5p on income tax. If it were not enough that such a policy would be unaffordable, it is worth noting that it would not get rid of means-testing. It would reduce means-testing by only about a quarter, so while £20 billion would be spent, the hon. Gentleman would still have to decide whether to support automatic enrolment because of, for example, the question of housing benefit, or the situation for people who got more in retirement because they were disabled. Perhaps he will tell us whether he would take money off the people whom we have been discussing for so long.
Mr. Laws: Does the Minister agree that the more modest—and certainly more affordable—measure of bringing forward the timing of the introduction of the earnings link to next year from a vague date between 2012 and 2015 would, according to his figures, reduce means-testing by 5 per cent. by 2015?
James Purnell: My point is that whatever was done in the direction that the hon. Gentleman suggests, we would still have means-testing in the system. His proposal, which might end up being more modest than the one that I have read out, would cost £20 billion and increase income tax by 5p, but it would reduce the proportion of people on means-tested benefits in retirement by only a quarter. He knows very well that he would thus be in the same position on automatic enrolment. He wants to be able to say that he would increase the basic state pension, but he knows full well that that would not deal with the issue that he has identified.
Lynne Jones: My hon. Friend expresses the view that it would cost £20 billion—a year, I presume—to bring the basic state pension up to the level of pension credit. Will he place in the House of Commons Library the calculations that he has used to derive that figure?
James Purnell: I will do so happily, provided that the hon. Member for Yeovil also tells us what he would do about the 80 per cent. of people who, in 2050, would be getting more than £119. If the hon. Gentleman wants to tell us what he would do about people who got more than that amount because of disability or carers premiums or their state second pension—if he wants to tell the public that his plan is to take that money away from them—we will be happy to put that information in the Library. We are very happy to put it in the Library anyway, but I was trying yet again, rather pathetically, to get the hon. Gentleman to tell us what his policy is.
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