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Mr. Chris Mullin (Sunderland, South) (Lab): Does my right hon. Friend have any plans to address the difficulty faced by the other 25 per cent., or whatever it will be? If his answer is that that is too costly to address at the moment, can he tell us what the cost and the likely difficulties are?
Mr. Hain: I am grateful for my hon. Friends question. As I indicated, we will move towards the 90 per cent. figure. We looked sympatheticallyand I know that he takes a close interest in thisat Baroness Holliss proposal, but when we considered the details, it proved costly and poorly targeted. The poorest women would be unlikely to benefit, first, because they would lose means-tested benefits such as pension credit and, secondly, because they could not afford the several thousand pounds needed to buy back their contributions. In addition, many of those who would benefitwe estimate 67,000would be either expatriates or foreign nationals who worked in the UK, but retired abroad, including many wealthy men and women. We prefer to find a better-targeted way to help low-income pensioners in the UK, and I know that my hon. Friend shares that concern, especially regarding women pensioners.
Steve Webb (Northavon) (LD): The Secretary of State made the valid point that expecting women to find thousands of pounds up front to pay for missing years and receive some pension would be prejudicial to poorer pensioners. In the past, however, his Department has allowed people to offset such contributions. If someone had to pay £2,000 to get £3,000 back, they would simply be paid the difference. The Government currently do so in a different scheme, so could that principle not be applied in this case?
Mr. Hain: We have only done that in limited cases, but we are looking at it all the time. If we could find a waywe are open to suggestions, and we looked carefully and sympathetically, as I said, at Baroness Holliss proposalof targeting such a provision at women on low incomes, preferably living in this country, although that does not exclude others, that would be our priority. It is costly, however, to implement the proposal introduced in the summer by Baroness Hollis, who has long expertise in the area, to which I pay tribute.
Ms Gisela Stuart (Birmingham, Edgbaston) (Lab): The Labour Government can be proud of what they have done for women, but the group of 30,000 to 40,000 women should be allowed to purchase their national insurance contributions retrospectively. We could limit access to people who do not live in this country by requiring residency of 20 years or so. I very much hope that the Secretary of State will look at the proposal sympathetically, because it is not as expensive as the Treasury fears.
Mr. Hain: My hon. and learned Friend the Minister for Pensions Reform will continue to look at it. There are circumstances in which up to 12 years of contributions can be purchased in the current period. Within a few years, the new regime for which we have legislated will deal with the historical but anachronistic discrimination against women in our state pension system. As my hon. Friend suggested, I am proud that we are addressing that.
Kelvin Hopkins (Luton, North) (Lab): My right hon. Friend touched on the problem, as he put it, of affordability, but in a rich society I doubt that that is the case. Will he look at the tax breaks on savings given to the rich, which amount to at least £20 billionsome people think the figure is even higher? If we took some of that money we could overcome all the problems of affordability without much difficulty.
Kali Mountford (Colne Valley) (Lab): Before my right hon. Friend moves on from the subject of women in low-paid work or without work at all, may I ask him whether he has had the chance to consider women who have more than one low-paid job? Each job might pay less than the national insurance level, but collectively the jobs might pay enough for the national insurance stamp. If such women had the opportunity, they might pay the national insurance contribution. I have raised the issue in the House before. Has the Secretary of State had an opportunity to consider whether we could change the regulations so that such women could pay their contribution?
Mr. Hain: My hon. and learned Friend and I are aware of my hon. Friends point; I know that she has championed the interests of that group. We will keep the issue under review and continue to consider it. We are not unwilling to do anything about it, but finding a way to target the issue appropriately is the problem. We shall certainly keep it under review and will be happy to continue to discuss it with her.
A guaranteed basic standard of living for pensioners forms the platform of our side of the renewed contract between the state and the individual, but we need to go further. We will restore the link to earnings, abandoned by a previous Conservative Government, by 2012. By 2050, the basic state pension will be worth more than twice as much as it would otherwise. That, in addition to the reforms to the state second pension, will ensure that people retiring in 2050 who have worked or cared for about 40 years will receive about £145 per week of state pension in todays earnings terms.
We also want to strengthen provision to support existing occupational schemes by simplifying the rules governing them through a rolling deregulatory review. The decline in private sector occupational pension provision since the late 1960s is serious, and in the face of increasing costs employers have been abandoning their defined benefitthat is, final salaryschemes, whose active membership numbers have fallen from 8 million in 1967, to 5 million in the 1980s and 1990s, to fewer than 3.5 million today.
We want to reduce the burden on current pension schemes by reducing the revaluation cap on deferred pensions to 2.5 per cent. from 5 per cent., saving the industry, over time, an estimated average of £250 million a year, to encourage as many final salary pension schemes as possible to remain in existence. Importantly, that would apply only to rights accrued after the change; anyone who has already deferred a pension would be unaffected. Any rights built up by
existing members until the point of any change would also be subject to revaluation under the current regime. That is a reasonable step to take. At the very least, it sends a strong signal of our intention to reduce burdens on current schemes, encouraging employers to keep existing defined benefit schemes open while protecting the needs of employees.
The deregulatory review will not, of course, end there. We will also work further with the industry on some of the more complex issues and continue to seek out and cut unnecessary burdens, encouraging employers to keep schemes open while balancing the needs of the employee.
Mrs. Joan Humble (Blackpool, North and Fleetwood) (Lab): Although the legislation proposed today will enormously benefit the millions of workers who do not currently have pensions, there is a concern for the people about whom the Secretary of State has just been talkingthose who have a pension scheme from their employers. Those employers may use the opportunity of the new personal accounts to level down employees pensions and reduce their contributions to the 3 per cent. proposed. What measures will my right hon. Friend take to ensure that that does not happen and that those employees are protected?
Mr. Hain: I am glad that my hon. Friend has raised that matter because it allows me to put on the record reassurances that I hope she and others, including Opposition Members who have raised the issue too, will welcome.
Importantly, there will be a ban on transfers between existing pension schemes and personal accounts; people will not be able to move in and out according to their whims. The personal account scheme will have an annual contribution limit. Employers with good existing schemes will be encouraged to continue to offer them via a simple and straightforward qualification test, and we are helping them to adjust to the new minimum employer contribution requirement by phasing that requirement in over three years.
We have done some survey work on this question on behalf of the Department, and that suggests that any danger of levelling down will be very limited. Among employers who are already making contributions of 3 per cent. or more, the overwhelming majority86 per cent.plan to maintain or even increase contributions for current employees, and half intend to maintain or increase contributions for new employees. Employers will not suddenly go down-market, as it were, and discount their contributions if they have been substantially larger than the personal accounts 3 per cent. minimumit is a minimum, by the way, not a maximumbecause they will then quickly find that they cannot recruit and retain their employees. Having a good pension is a valuable recruitment mechanism, especially in todays world.
Hugh Bayley (City of York) (Lab):
As a former social security Minister, I am extremely pleased that the Government are moving towards a situation whereby it becomes the norm that employers pay pension contributions, but I worry whether 3 per cent. is enough to provide the sort of security that many people will require in retirement. What percentage of
final income would a person on an average income have if the employer made a 3 per cent. contribution and an 8 per cent. contribution was made in total throughout that persons employment?
Mr. Hain: I am grateful for my hon. Friends general support. This is a defined contribution scheme, not a defined benefit scheme, so I am not in a position to say what the final income would be. As regards the 3 per cent. figure, with tax relief and the individuals contributions, their minimum contributions would effectively double. That is a considerable boost to retirement income. The 3 per cent. figure was a consensus that came out of Lord Adair Turners review and the wide consultations that were carried out on behalf of the Government, including with the Pensions Commission. This is an essential floor on pensions for the future without which we face dire straits indeed.
Mr. Oliver Heald (North-East Hertfordshire) (Con): Does the right hon. Gentleman accept that the average payment that employers make into final salary schemes is 14 per cent., and the average for defined contribution schemes is 6 per cent., yet only 3 per cent. is being proposed for the personal account? Does not that raise the concern that everything needs to be done to make it easy for employers to enrol people automatically into those better schemes? What is he doing about the European rules that are creating such a problem for group personal pensions?
Mr. Hain: I am not sure about the hon. Gentlemans 14 per cent. figure, but I will certainly have a look at that. Let me deal with his final point on workplace personal pensions and the European directives. We are not satisfied that the European consumer protection legislation permits automatic enrolment into workplace personal pensions, and we are seeking clarification on that or, if need be, amendment of the directives to permit such enrolment. In the meantime, we are exploring a practical solution with the industry. However, in any such solution that my hon. and learned Friend and I seek to agree with the industry, I do not want in any way to undermine personal accounts. That is Lord Turners view and the view of the chairman and chief executive of the personal accounts delivery authority. Working with the whole industry and all stakeholders, we are seeking to ensure that we get the best possible outcome. First, nobody has said that the Bill does not propose the consensus solution, because it does, and secondly, nobody has come up with a better, more affordable option. We have to work together with stakeholders to ensure that this works.
Mr. John Greenway (Ryedale) (Con):
The Secretary of State is reassuring on the levelling down of contribution amounts. However, for many of us, the more critical question concerns the continuing drift of the level of contributions paid by employers out of defined benefit schemes into defined contribution schemes. Is his mind still open to the suggestion from the Association of Consulting Actuaries that there should be new indexation arrangements that would allow more defined benefit schemes to continue, not only for existing members but for future members?
Many young people will not enjoy the same pensions as our generationwhich he mentionedunless something is done.
Mr. Hain: I agree with the hon. Gentleman that the slippageit seemed at one point that it might be a haemorrhagefrom defined benefit and final salary schemes to defined contribution schemes needs to be arrested. I hope that with the deregulatory reviewthis is the industrys view, and I expect it to deliver on it, given that we are making life easier and providing an extra £250 million in funds for pension schemeswe will see a stop put to that and will keep final salary schemes and defined benefit schemes as much as possible.
On the ACAs proposals, we obviously continue to consider all those things. The matter was raised with me at a dinner with representatives of the pensions industry, when one representative asked whether I was strongly in favour of the risk-sharing alternative. The rest of the representatives, who were reasonably representative of the industry, turned on the man who asked me the question and said, No, we dont want to have anything to do with it. I believe someone is looking into that. Obviously, we will continue to consider everything.
Harry Cohen (Leyton and Wanstead) (Lab): The Secretary of State has acknowledged that he does not know what the outcome rate will bethat is, the pension that an individual who contributes will receive at the end of the day. It may well be that 3 per cent. is insufficient as an employers contribution. There certainly was not consensus on whether that was the right amount. There was not enough information. Why is the figure of 3 per cent. set in stone in the primary legislation? Why was it not introduced as a regulation, which can be more easily altered if the circumstances demand it? Did the Secretary of State cave in to the CBI?
Mr. Hain: I understand my hon. Friends point, which he made in an appropriately vigorous manner. He has been a champion of pensioners for a long time. As I said, the figure was a consensus figure. The industry was concerned that it should be in the primary legislation. To move forward in a fashion that enabled a serious prospect of getting some 7 million people without an occupational pension scheme into personal accounts, we needed to take the industry with us. That is where we are. That is the nature of delivering our proposals. Of course, we will keep the position under review. My hon. Friend should continue to make his points with his customary vigour, and I look forward to that experience.
Mr. Adrian Bailey (West Bromwich, West) (Lab/Co-op): Does the Secretary of State agree that one of the best ways to ensure the maximum pension entitlement is ultimately to try to drive down the administration costs of the pension schemes? The potential economies of scale involved in the proposals offer that opportunity. Will the Secretary of State outline what progress he is making in that area to maximise the potential benefit for millions of people in the future?
Mr. Hain: My hon. Friend makes a fair point. That is why the scheme is designed to reduce the administrative costs and to provide a simple scheme so that the benefits go to the people who need them. I am sure that he will see that as the debate on the Bill unfolds.
Mr. Graham Stuart (Beverley and Holderness) (Con): Does the Secretary of State agree that over time the salary levels of employees will be adjusted to accommodate the 3 per cent. contribution from employers? That will mean that employers will not make the contribution in reality, even though they might technically do soit will come out of the remuneration that would otherwise have gone to an employee.
Mr. Hain: Obviouslyin the sense that any enterprises bottom line includes all the costs, such as employer contributions. However, it does not follow that the money would have gone on extra salaries. The 3 per cent. figure becomes 8 per cent. in the context of the total contributions to funding the scheme.
All the progress that we have made in cutting unnecessary burdens and encouraging, as I was pressed to do, people to keep final salary schemes open, while balancing the needs of the employer, is important and will help, but will not provide the full answer to the issues that Lord Turner and his commission raised.
There is a serious problem of undersaving, with perhaps as many as 7 million people not saving enough to fulfil their aspirations in retirement. Unless that is tackled, a chasm will grow between the income that they want and that which they receive in retirement. There are many reasons for people not saving. Many on low incomes or with broken working patterns do not have access to a workplace scheme. Some will be put off by the complexity of pensions while others will simply live for today. Some will lack confidence in pensions. That is why the Government set up the Pension Protection Fund, which safeguards more than 10 million memberships of eligible defined benefit occupational pension schemes throughout the UK. It is why we established a more powerful pensions regulator and delivered, through the financial assistance scheme, a fair and just settlement for 140,000 people who were robbed of their pensions.
Miss Julie Kirkbride (Bromsgrove) (Con): The Secretary of State knows that many of us were disappointed that there was no statement on the new deal for the financial assistance scheme category of people. Those who have written to memany in UEF and other companies such as Kalamazoowho lost their pension would still like greater clarification of the 90 per cent. and of how much of the pension that they would have received will be covered by the Secretary of States scheme. I would be grateful if the right hon. Gentleman clarified that on the Floor of the House now.
I shall happily remind the hon. Lady of the key points. A written ministerial statement was made to the House, and she is free to send it to her constituents. However, let me highlight the points that may help her. All scheme members will be guaranteed 90 per cent. of their accrued pension. There will be increasing payment of assistance based on the post-1997 service, in line with inflation. Assistance from the
schemes normal retirement age provision will be paid, subject to a lower limit of 60. Members will be allowed to take part of their pension as a lump sum. Assistance will be extended to members of schemes that wound up underfunded and, of course, dependants will benefit in the way that was intended. That is a good package in the circumstances. As I said, the hon. Lady can send the details from the written ministerial statement, which was tabled just before Christmas.
Mr. David Drew (Stroud) (Lab/Co-op): My hon. and learned Friend the Minister for Pensions Reform, who is sitting next to my right hon. Friend, will not be surprised if I mention the continuing problem of the small group of pensioners, such as those from Desmonds, who fall between the FAS and the Pension Protection Fund. Is there any clarity, following Andrew Youngs observations, on whether there is a need to try to remove that gap? Will we have to formulate primary legislation on the matter or can action be taken through regulation so that the group does not remain disadvantaged?
Mr. Hain: Obviously, we are still considering the matter. I know that the points have been made to my hon. and learned Friend. We will examine them and my hon. and learned Friend has offered to discuss them with my hon. Friend to take his concerns forward.
Kelvin Hopkins: My right hon. Friend mentioned the millions who are not saving for their retirement. He made a public statement today about the importance of personal responsibility. Is not the reality that millions of people will not be induced or exhorted to save and that, in time, we will have to establish a state compulsory savings scheme, which guarantees that people not only save but know what they will get when they retire?
Mr. Hain: Automatic enrolment is the radical change that we are introducing. We do not need to be patted on the back, but the proposal deserves applause. Automatic enrolment will take place for the first time, and it will be difficult not to enrol. People will have to be crystal clear that they would be better off not enrollingfor example, if they are coming up to retirement, enrolment might affect their pension credit. This is a major change, and my hon. Friend should recognise it.
Julie Morgan (Cardiff, North) (Lab): I want to take this opportunity to congratulate my right hon. Friend on the written statement before the recess. It is regrettable that there was not an opportunity to make a verbal statement, which would have allowed me to say how pleased I am that that long-running saga has ended. Is he aware that during the holidays I received many telephone calls from ex-Allied Steel and Wire employees in Cardiff, who said how pleased they are that we have finally secured that achievement?
Mr. Hain: My hon. Friend has been a ferocious champion on behalf of the Cardiff ASW workers, as have many of my hon. Friends. It would have been nice to make an oral statementmy hon. and learned Friend the Minister for Pensions Reform and I would have been delighted, if it had been possibleand we were deprived of the opportunity of being congratulated by my hon. Friend and other hon. Members.
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