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John Penrose:
I should like to press the Secretary of State on the point about generic financial advice. The Government have sought to use generic financial advice as a way of helping people to decide whether they will be better off and therefore whether they should exercise their right to opt out; obviously we hope that relatively few of them will. Is he saying that because everything is 25 years in the future, particularly for people who are under 21 or 24 years old, the decision is all too hard and that it does not really matter? If not, can he please tell us what he plans to do if the pilots of generic financial advice—I presume that there will be pilots—prove not to give people satisfactory levels of information and not to improve the generally terrible levels of financial
literacy in this country, and if people therefore start taking the wrong decisions? Will he ignore that or does he have a plan B?
Mr. Hain: It is not a question of ignoring the issue. The hon. Gentleman makes some fair points about financial illiteracy about pensions and other things. These are complex matters. Indeed, Otto Thoresen is looking at precisely how we can offer generic financial advice, in co-operation with the industry generally, including with the Association of British Insurers, the National Association of Pension Funds and others. If the hon. Gentleman wants to make any points about that, I would be happy to consider them.
Miss Kirkbride: I am grateful to the Secretary of State for giving way again. We on the Conservative Benches take the issue seriously, for the reasons that have been eloquently set out. It is also fair to our position to say that some difficult questions arise as a result of the Government’s plans with regard to benefits. Can the Secretary of State explain to the House how the Government’s promises on the minimum income guarantee, which rises in line with earnings, are consistent with encouraging people on very low earnings to save today for a pension scheme in 10, 20, 30 or 40 years’ time?
Mr. Hain: It is because people who contribute to the personal accounts will be better off. The position that the hon. Member for Epsom and Ewell has adopted represents a breach with that of his predecessor, the hon. Member for Runnymede and Weybridge, who I think understood the impact of the savings credit—the hon. Lady needs to look that up—to reward pensioners on low incomes who have saved for their retirement, which contrasts with the situation that we inherited. I still do not understand, first, why the hon. Member for Epsom and Ewell has changed his party’s position from that adopted by his predecessor, who supported the Bill—he has provided no explanation for changing it, except opposition for opposition’s sake—and, secondly, what the alternative policy is. Logic suggests that the alternative policy is to say, “Well, it’s up to people just to take their chances. They’ll have the safety net of pension credit, but they won’t contribute to their own pensions and they won’t have the chance of getting a much better pension outcome,” which also answers the hon. Lady’s question.
Harry Cohen: The Secretary of State made an interesting point about trivial commutation, whereby people could collect up to £16,000 as a lump sum, rather than losing it in a means-testing arrangement. That is worth knowing, but I am concerned that a lot of that money could be eaten up when housing benefit or council tax benefit is taken into account. Would my right hon. Friend be prepared to consider tabling an amendment in Committee, so that that lump sum could not be taken into account when assessing housing benefit and council tax benefit?
Mr. Hain: As my hon. Friend knows, there is already a £6,000 disregard to help in that respect. Clearly there are some individual circumstances—the situation with regard to housing benefit is an important dimension to all this—that need to be considered carefully.
I was just reflecting on the intervention that the hon. Member for Bromsgrove (Miss Kirkbride) made and on her apparent attack on the minimum income guarantee. It is not clear to me whether it is the Opposition’s position to stop uprating the minimum income guarantee in line with earnings, which would plunge pensioners into even more poverty.
Chris Grayling: This issue can be best distilled in one simple question: will it be possible for an individual on low pay to put aside £25,000 for retirement and end up no better off for having done so?
Mr. Hain: Is it possible for anybody to save for their retirement through a pension scheme of one kind or another—a workplace scheme, an occupational scheme and so on—and end up not being as well off as they expected? Of course it is. Is it a consequence of the Bill that people will automatically not be as well off? No. [Hon. Members: “Yes!”] Ah! I see, there we have it. So, the hon. Gentleman is objecting to the principle of automatic enrolment, is he? [ Interruption. ] Well, what is he objecting to, then? He is not objecting to the principle of automatic enrolment, but why did he jump up and down and shout about it? Is he suggesting, then, that taxpayers should simply foot the bill? Having previously supported the Bill on a completely consensual basis—his predecessor expressly said on 19 November 2006 that his party would not vote against it—the Conservatives are now abandoning that position.
Chris Grayling: This is a serious issue.
Mr. Hain: The serious issue is the one to be explored in detail in Committee. The serious issue is not to create a froth of indignation that provides a pretext for voting against the Bill, as the hon. Gentleman has threatened to do, or for seeking to derail its progress. This is historic, landmark legislation, but the Opposition have not come up with one practical alternative to the broad perspective laid out in the Bill.
Mrs. Humble: Will my right hon. Friend give way?
Mr. Hain: I think that this had better be the last occasion on which I do so, because I have taken up a great deal of time.
Mrs. Humble: I thank my right hon. Friend. I speak as one who fully supports the legislation.
My right hon. Friend will recall the Work and Pensions Committee’s suggestion that the Government examine the system in Sweden, where people receive an orange envelope every year containing details of their entitlement in relation to a variety of pensions. Six or seven years ago, the Government legislated for an annual report on pension projections. Will he consider adopting the Committee’s recommendation in order to reassure people about the benefits of investing in personal accounts and pensions, and to proceed with his reforms?
Mr. Hain: That is an attractive proposition and I will consider it, although I am not sure what the pension providers would make of it. I understand that Sweden has only one state pension scheme, and does not have the variety of pension provision that we have in this country.
I shall now bring my speech to a close. I have responded to a good many interventions, but I have spoken for quite a long time as well. I said at the outset that we were renewing the contract between the Government and the individual on the basis of shared responsibilities in the most fundamental reform of the pensions system since the state pension was inaugurated in 1948. Looking back further, I note that 2008 marks 100 years since Lloyd George’s Old Age Pensions Act, which resulted in a non-contributory pension of five shillings a week payable to those aged over 70—subject to a means test.
The Parliamentary Under-Secretary of State for Work and Pensions (Mr. James Plaskitt): If anyone lived that long.
This Bill, alongside its predecessor, will be considered equally historic. It is a blueprint for a new understanding between individuals, employers and the state, which will give all workers the chance to take control of their own retirement, providing for themselves and their dependants. These radical reforms are necessary to the establishment of a sustainable, affordable and trusted pensions system, which will meet the needs of the country and future generations by delivering security and dignity to all in retirement on the basis of new responsibilities: employer responsibility through contributions to a pension scheme, employee responsibility through employee contributions to the scheme, and Government responsibility through an improved state pension linked to earnings.
I commend the Bill to the House.
6.22 pm
Chris Grayling (Epsom and Ewell) (Con): It was disappointing to hear the Secretary of State demonstrate so little understanding of what are serious issues. Later, I shall explain in detail why we are so concerned about the aspects of the Bill that we have been discussing.
Yesterday, the Secretary of State issued a press release warning of the danger of a future pensions crisis. Has he not noticed that, under this Government, we have experienced a pretty significant pensions crisis for the past 10 years? When the history of the Government is written, their stewardship of our pensions system will be remembered as one of their greatest failures. Indeed, the word “pensions” should be chiselled in large letters on the Prime Minister’s eventual political tombstone.
In 1997, the Prime Minister took over what was widely regarded as one of the strongest pensions systems in Europe. Although the right hon. Member for Birkenhead (Mr. Field) and I regularly engage in discussions about what took place before that, the reality is that in 1997 we had a strong pensions system. The then Chancellor, now the Prime Minister, made grandiose promises about how it would transform the lives of our pensioners, and—just for a change—the opposite happened. Millions fewer people are saving for retirement, the latest Government figures show that the poorest pensioners are getting poorer, and we have a system of means-testing so complex that many elderly people do not know how to gain access to the money that they need. We have seen that once strong pensions system damaged beyond repair, and we have seen the Government’s great response—their first response—to the pensions crisis, stakeholder pensions, fail before even taking off.
Although today’s debate concerns an important set of reforms and although the principle underlying those reforms should and does command support throughout the House, when the Secretary of State boasts about his plans we should remember that the debate is all about recovering 10 lost years, and about reviving a culture of saving that has been systematically destroyed since 1997. The Government’s track record on pensions contains nothing that they can be proud of.
Hugh Bayley: If the 1997 pension scheme was so good, why were millions of pensioners in poverty, and why are fewer in poverty now?
Chris Grayling: Is the hon. Gentleman proud of the fact that the Government’s most recent figures show that the poorest pensioners are getting poorer?
Let me be fair to the Secretary of State, and give praise where it is due.
Hugh Bayley rose—[Interruption.]
Chris Grayling: No, I will not sit down.
Madam Deputy Speaker (Sylvia Heal): Order.
Chris Grayling: I want to praise the Secretary of State. I want to echo the words of the right hon. Member for Birkenhead. We can engage in debates and exchange banter across the Chamber and we can discuss points of disagreement, but I genuinely congratulate the Secretary of State. He deserves the House’s praise for the way in which he faced down the opposition of both the Prime Minister and the Treasury to support a rescue package for the 125,000 people who lost out when their schemes collapsed. We know that it was not an easy job. We know that the Secretary of State had difficult internal hurdles to overcome. Clearly he cannot talk about those, but both he and the Minister for Pensions Reform deserve enormous credit for what they have done. They have made a real difference to the lives of a large number of people, many of whom we know because we have worked with them over the last few months.
Ms Gisela Stuart: I am grateful to the hon. Gentleman for finally seeing the light and congratulating the Government on something good that they have done, but will he also acknowledge that this is essentially a sweeping-up exercise to deal with the failures involving occupational pension schemes and pensions mis-selling over which the Conservative Government presided? We have merely tidied up their mess.
Chris Grayling: I am afraid that the hon. Lady clearly does not understand the pensions system. Issues involving defined contribution pensions have nothing whatever to do with the collapse of direct benefit occupational pension schemes.
In the wake of what has happened, I urge the Secretary of State to ensure that payments to the pensioners who lost out begin as soon as possible. He and I have talked
about the practical difficulties of the way in which the financial assistance scheme is run. I think that we should give the claimants the benefit of the doubt, and start paying them as quickly as possible. I assure the Secretary of State that he will have our support if he can find a way of ensuring that that is done.
Mr. Hain: I am grateful to the hon. Gentleman for his offer of support on this issue, at least. We will clearly need to change the regulations and, of course, enable the Bill to deliver what is necessary. The Bill will therefore need to be passed quickly, which means that the answer to the hon. Gentleman’s question lies partly in his own hands.
Chris Grayling: We have not yet seen any of the details of the proposals, but we want to support the Bill, and we want it to be right. I hope that, in the spirit of consensus for which the Secretary of State argues, the problems can be resolved and the Bill can receive Royal Assent in a form that we can all applaud. That is certainly our objective.
The Secretary of State has, of course, inherited a troubled pensions legacy for which he is in no way responsible, and I applaud him again for his work in sorting out some of the problems. The real culprit is sitting in No. 10 Downing street. The Secretary of State was not responsible for all the pressures on pension funds over the past 10 years, and indeed the Prime Minister was not responsible for all of them. Some developments, such as the fact that people are living longer, are outside the control of any politician or pension fund trustee. But—this is relevant to the point made by the hon. Member for Birmingham, Edgbaston (Ms Stuart)—there are two areas in which the Government have clearly had an impact on the fortunes of pension funds: taxation and regulation. In both those areas, the decisions made by the Prime Minister since 1997 have been the equivalent of a series of logs placed on the camel’s back. No wonder the camel’s back broke.
The Bill represents the Government’s second major attempt to sort out the mess that they have made of our pensions system. The last one, the stakeholder pension, proved to be a complete white elephant. The Bill consists of the final part of a set of reforms initiated after the Government called in Lord Turner to help them to find a way out of the mess.
The House has already approved the changes to state pension arrangements. The establishment of new pension arrangements designed to persuade more people on lower incomes to put money aside for their retirement is clearly the right thing to do, so we support the establishment of personal accounts. However, the Government have built a long track record of grand announcements followed by failure to deliver, and these reforms are in danger of continuing that tradition. There are real issues in the detail of what the Government are establishing, and we—along with, I hope, Members in all parts of the House—will subject them to intense pressure so that we can put matters right as the Bill is debated in the coming weeks.
Before I deal with the weaknesses, I want to make one thing clear to the Government. There is broad consensus about the direction of these reforms, but Ministers have used that consensus as a shield from
serious debate, which is unacceptable and undermines the very concept of consensus. Anyone who challenges the Government over the detail is accused of undermining the consensus. That is true not just of debates in this House. People involved in the stakeholder briefings held by Ministers have told me that when they expressed concerns, they were warned about the risk of undermining the consensus. That is not good enough. Consensus has to be earned.
If Ministers want the consensus to continue—I assume they do—they need to engage in constructive dialogue with, and listen to, everyone involved: maintaining the consensus is not just about insisting that everyone has to agree with Ministers. It is absolutely right and proper that Parliament and outside bodies debate these measures vigorously in the coming weeks. There are things about this Bill that are not right and more information needs to be published. Ministers need to respond constructively to suggestions and questions from both sides of this House. If they fail to do so, it is they and no one else who will be undermining the consensus.
The Government could start by engaging in a proper and constructive debate about means-testing: everyone agrees that the problem has to be addressed. I have already quoted the National Association of Pension Funds’ most recent document, which states that
“without addressing the means-testing issue and its interaction with automatic enrolment the Government could undermine the whole reform process.”
The Association of Independent Financial Advisers has a letter in today’s Financial Times that says that
“it is unacceptable that people who conscientiously save for their future could receive no benefit from being prudent. Because of means-testing, up to one in five future pensioners could effectively be worse off than those who opt out of personal accounts and choose to rely on state benefits.”
“The interaction with means-tested benefits is not a reason to delay or reconsider the policy of auto-enrolment. However the Government should set up a review to look at the options and trade-offs.”
It is a matter of concern to all the organisations involved that, as yet, the Government are not engaging in constructive debate.
Dr. Palmer: Is not the hon. Gentleman using the Government’s progressive introduction of help for low-paid people as a weapon to criticise the further improvement of pensions? Is not it more reasonable to support means-tested benefits for those who are genuinely suffering hard times while supporting the Pensions Bill proposals for the broad scope of people who need to save for their retirement?
Chris Grayling: I do not think that many Labour Members understand the issue. Let us consider two people in identical circumstances. It is possible for one to save for retirement and put aside £25,000 and for one to do nothing at all and for them both to have an identical income in retirement. If Labour Members think that that is a good thing, I am afraid that I do not agree with them. This issue has to be addressed.
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