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6.56 pm
Mr. Frank Field (Birkenhead) (Lab): I want to make just two points, and in doing so to come back to the praise that has rightly been given to the Secretary of State, the Minister and the many people in the Department who must have worked with them to achieve the successful settlement for people who thought that they were paying into an occupational pension, and were cruelly robbed. Through the actions of the Secretary of State and his team, the lives of those people and their families, although not put back together exactly as they were, have been massively changed. Many people will now go into retirement without having heart attacks and various other terrible illnesses brought down upon them through the feeling of injustice that they were suffering in not getting the due deserts of their pension savings.
In no way do I want to divert attention from that achievement, but in fact the achievement is even greater than the House has said so far, in that it ricocheted into
the wider debate on pensions. Although we might say that only 140,000 families were affected, every one of those families were affected 100 per cent. All those families had children, grandchildren, neighbours and friends, and they all went about their business cursing the day that they saved, either voluntarily or because they were told to, for their retirement pension. Newspapers were putting forward the message throughout the country that it is not sensible to save for old age through any pension scheme. We could not have had a serious debate on pension reform until we brought justice and closure to that group of people. Although those wounds will take some time to heal, those people are not now instructing their children and grandchildren not to behave like their parents and grandparents, who foolishly saved for their retirement income. They now know that although they had to wait—as we, in a lesser sense, had to wait—for justice to be done, it has been done. Not only has justice been done for the individual; a different atmosphere has been established for people who are thinking about planning long-term savings for their retirement.
Although, in turning to my second point, I am critical of the Government, I do not in any way want to withdraw my endorsement of the positive comments made by others in the House. However, I do want to sound a genuine note of caution about the consensus that even the Opposition share on this measure, because I do not share even their sense that the Bill is going in the right direction. Whenever we discuss pensions, we wind ourselves up into a moral fervour because we are desperately anxious to get them right, and to do well by our constituents and our country. Not that long ago, we were debating stakeholder schemes and being told that they were the great solution that would solve everything. I disagreed with my party on that, because I did not think that they would do anything like the claims that were being made for them. I did not think them dangerous; I just did not think that people would buy the damn silly schemes, and, to a large extent, they have not done so.
The Bill moves us into new territory by establishing a body to run the scheme and providing for automatic enrolment. If we are to be responsible to our constituents, we must address two dangers. First, we do not know where we will be in the business cycle when the new scheme comes into force. The Government have been extraordinarily well judged in running the economy. The 10 years of growth, which follow growth from 1992, are a remarkable achievement of governance and the benefits to our constituents have been enormous, but we might be foolish to think that we have abolished what used to be called the trade cycle and has more recently been called recession.
If this measure is introduced when the economy is in a much more difficult situation than it is today, employers will look around to find ways by which they can cut costs, not because they are evil people, although some of them may be, but because they will want to keep their firms going and to keep people in employment. An official Government-sponsored scheme that lays down a modest contribution from employers towards the pension coverage of their employees will be coming on stream, and I fear that many employers, who at the moment would not think of cutting their contribution to their occupational pension scheme, or even to personal
pensions, may think that they need to do so in order for their firms to survive. They would, in a sense, feel justified, in that this is the new state scheme and they would still be fulfilling what is required. What the Government rightly judge to be a minimum floor on which to build may become a horrendous ceiling over which contributions do not rise. Thus, the big issue that the Government are genuinely grappling with and have put a huge effort into—I admire the way that they have gone about their task—might result in even less saving being undertaken than happens now.
My second point is that I want the House to consider what would happen if instead of establishing our own delivery authority, we gave those powers to the private sector—to Legal and General and the Pru—and they, with minimum advice, could automatically enrol employees into a scheme that might not leave them a penny better off. Labour Members would all be jumping up and down saying that this is the beginning of the next horrendous mis-selling scandal. It will be different from the previous one in that it will be Government inspired, and our poor constituents will not be able to take the Government to court in the way that they have tried to do over previous mis-selling.
I ask the Government to try to separate out what they think are the petty party points that the Conservatives might be making, and address the genuine issue for many of our low-paid constituents. They may have high hopes that they will one day climb the occupational ladder and make returns for their labour that ensure that they get a fantastic pension in retirement, but we know that many who start out at the bottom sadly too often end there. Tonight, we might be beginning to introduce legislation that will require compulsory savings by groups of people who would not see things in such terms. They want to look after themselves, to save and to be independent—they have all those noble aspirations—but at the end of the day they will not be able to save anything like enough to take them free of means tests and make themselves one penny better off. Before the Bill passes this House and receives its Third Reading, we owe it to those people, the most vulnerable in our community, to address that issue and that group of workers seriously.
7.5 pm
Danny Alexander (Inverness, Nairn, Badenoch and Strathspey) (LD): As often happens on these occasions, I have the pleasure of following the right hon. Member for Birkenhead (Mr. Field), who made perspicacious comments on the Bill. I start by echoing what he and hon. Members from all parties have said about the Government’s announcements on the financial assistance scheme. After a good deal of campaigning—the Secretary of State and the Minister for Pensions Reform attended demonstrations in Downing street and so on to hear directly from the pensioners concerned—an issue that had been a running sore for far too long was resolved. Those Ministers deserve a good degree of credit for what they have achieved in that respect, and have rightly been given that from both sides of the House.
As has been said, there is now a need for speed in implementing these reforms, and I agree with the Secretary of State about the Bill being a way to achieve that. I should draw his attention to one other thing in that respect. The Pension Protection Fund is an organisation
and administration that is already trying to run schemes that have many of the features of the new version of the financial assistance scheme. The PPF could be given the role of speeding up the administration of the FAS and its new characteristics. I press the Secretary of State, if he has not already done so, to consider that option urgently as a way of ensuring that those pensioners get the money that they are now due to receive as quickly and as happily as possible.
I start by giving a general welcome to some of the proposals in the Bill on the personal account scheme. Some of the features embodied in the Bill are welcome—for example, the principle of automatic enrolment, the principle of compulsory employer contributions and the principle of low charges, although I have concerns about how we can be sure that that will continue once the personal accounts board takes over from the personal accounts delivery authority—based as they are, in part, on the only relevant international example, the New Zealand KiwiSaver scheme, which is delivering some benefits in that country. The Liberal Democrats have proposed such a scheme with such characteristics for a number of years, so it would be churlish not to recognise that the Government have come forward with a proposal that has many welcome features.
It is important to try to move on from some of the slightly shrill exchanges that have taken place. We want the Bill to work, but for that to happen some big, serious and important problems need to be debated and resolved. We believe that the important two related issues are the interaction of means-testing and how advice will be dispensed and dispersed.
We want consensus, but all sides need to enter into that. Developing a consensus means that all sides must listen, must give way and must work to maintain it. It is not good enough for the Government to say, “Here we stand. This is the consensus. Come and join us or be vilified for failing to adopt the policies that we have put forward in this Bill.” A consensus needs to be built, and that means give and take on all sides.
Mr. Hain: I cannot disagree with what the hon. Gentleman is saying, but I remind him that the Government have not said, “Here is our consensus, take it or leave it.” The consensus was built up through the Pensions Commission headed by Lord Turner. It took some effort to find a way forward for a problem that we all acknowledge to be serious and that is where the consensus comes from. In the course of the Bill, if the hon. Gentleman makes some practical suggestions—I will certainly look at what he has said so far—we will see what we can do.
Danny Alexander:
The Secretary of State is of course right to point out the history of the debate, which goes back—as he mentioned in his speech—to the days of Lloyd George. The more recent history shows that this consensus has taken some development, although the proposal in the Bill is different in some respects from that made by Adair Turner—and rightly so, because the position has evolved with arguments from industry, political parties and so on. However, the Secretary of State also effectively accused those Liberal Democrats and Conservatives who are highlighting the genuine
concerns about means-testing of scare tactics. That suggests an attitude that is not especially open to new ideas. It does not suggest that the Government are willing to put their shoulder to the wheel to find new ideas to resolve the problem. It is not a question of scare tactics, but of a debate between people who want to try to find a way to make the scheme work.
I warn the Secretary of State that the slightly shrill tone that he adopted in parts of his speech was unfortunate, because it will give some people outside the House the impression that the Government are trying to hide something. We should avoid that impression.
The key question is whether the scheme will work for the target audience. As the Secretary of State outlined in his speech, the benefits are potentially huge. Estimates vary, but between 6 million and 9 million—even up to 10 million—people could benefit from a properly constructed personal account scheme. So the prize is significant. I draw the Secretary of State’s attention to some groups that will not be able to take part in personal accounts, such as the very low paid, for perhaps obvious reasons, as well as those who may have several jobs that are paid below the minimum threshold. In my constituency, for example, many people work in the tourist industry on a seasonal basis, with one job in the summer and another in the winter in the ski industry—for as long as climate change allows that to continue. Each job may pay less than £5,000, but the total earnings over the year may take them well above the threshold. The way in which the scheme is set up—I understand the reasons behind that, such as cost minimisation—means that such people would not be able to benefit from a personal account. The tourism sector might be one in which the benefits will not be as widely felt as perhaps they should.
The key issue is means-testing. Since 1997, means-testing for pensioners has substantially increased. The Pensions Policy Institute estimates that overall levels of eligibility for any means-tested benefit are likely to be 50 per cent. in 2050, although they could be as high as 65 per cent. Its estimate suggests that 40 per cent. will be in receipt of pension credit, but other means-tested benefits at stake include council tax benefit and housing benefit. I realise that making predictions about the benefit system in 2050 is hard, but we have to base our approach on where we are at the moment.
In addition to the potential problems for personal accounts, the means-testing strategy has wider problems. Many people do not claim means-tested benefits because of their complexity. For example, more than 1.5 million pensioners eligible for pension credit do not claim it. In recent years, council tax bills have gone up substantially, but only 53 per cent. of pensioners claim the council tax benefit to which they are entitled. Means-testing also erodes the returns from saving and reduces incentives to save.
Dr. Palmer: Does the hon. Gentleman agree that that is an argument in favour of the scheme? Although there are people who, for one reason or another, do not claim council tax benefit or housing benefit, it is likely that almost no one will fail to claim the pension for which they have saved.
Danny Alexander:
I am not sure that that is an argument in favour of the scheme. Presumably all Members would want people to claim the benefits to which they
are entitled, and using the fact that some do not as an argument in favour of the scheme seems wrong. It does however reinforce the importance of a basic state pension that raises people above the poverty line and forms the firm foundation that is needed to make the personal accounts workable for everybody.
The Pensions Policy Institute analysis shows that the people who run a high risk of personal accounts being unsuitable are likely to receive back less than the value of their contributions. The institute has highlighted several groups, including single people who are likely to rent in retirement and have no additional savings. Those people are likely to qualify for less means-tested housing benefit as a consequence of saving in a personal account. In 2005, 20 per cent. of pensioner households were eligible for housing benefit, which is likely—according to the PPI—to place them in the high-risk group. The latest projection suggests that that figure could fall to 15 per cent. if current home ownership trends continue, but the interaction between personal accounts and housing benefit is a critically important part of the argument that must not be lost in the debate.
Mr. Nigel Waterson (Eastbourne) (Con): Is the hon. Gentleman aware that one of the difficulties is that the Department’s model does not take account of housing benefit, whereas the PPI’s does?
Danny Alexander: That is an important point which we would all be more able to understand if we were given access to the Government’s model. That would be a start to a more open approach to building a consensus. The hon. Gentleman is right.
It is important to note that the 15 per cent. is not a ceiling for the number of people at risk of losing out if they save in a personal account, but a floor, because other people fall into what the PPI describe as medium-risk groups, such as low earners who are in their 40s or 50s in 2012 and who have not yet started saving. Those people could lose entitlement to pension credit, council tax benefit or housing benefit as a consequence of saving, depending on their circumstances.
The Secretary of State implied that almost everybody would be better off saving, and the first thing that we must do is to acknowledge that, given the current structure of the benefit system and pension credit, some people—we can debate how many, and it would be nice to have some information from the Government on that—will find that the personal account is simply not suitable in its current proposed construction. Therefore, to argue that everybody, no matter what their personal circumstances, should save risks the sort of mis-selling scandal that the right hon. Member for Birkenhead predicted. The question is what can be done about that problem, and several ideas have been floated, such as increasing the trivial commutation limit. The PPI has suggested a disregard. Both ideas have been knocked down by the Secretary of State on the basis of what he calls affordability, but it is inconceivable, in circumstances in which the number of people of pension age rises significantly in the next 30 to 40 years, that the proportion of our national income that we spend on pensions should not also rise.
The Secretary of State’s remarks about affordability are based on the idea that spending on state pension will remain broadly constant as a share of GDP for the
next 20 to 25 years, but the number of people claiming pensions will rise. That suggests that the cake is being divided in such a way that pensioners will receive ever smaller crumbs. That is not the way to provide a firm foundation so that people can save for themselves. That is why the Liberal Democrats propose a citizen’s pension, so that the basic state pension raises people above the poverty line, whereas at the moment people have to rely on pension credit for that in most cases.
Ms Keeble: Does the hon. Gentleman accept that the point about the citizen’s pension is not how much it is but that everybody receives it? One of the fundamental issues on which his party is wrong is that people have a sense that they should contribute towards their pension. Initially I was attracted to the idea of the citizen’s pension, but the contributory principle is important. People think it is important to work and save for retirement; they seem to appreciate that fundamental principle.
Danny Alexander: Given the fact that over recent years Governments have dramatically eroded the contributory principle in a range of ways, the idea that it should be treated as a shibboleth in the pensions world is wrong. The proposal is that the citizen’s pension should be based on residency. One of its benefits would be for women. The hon. Lady has expressed concern about women’s pensions, because a huge number of women do not have access to a full state pension.
Steve Webb: I apologise for interrupting my hon. Friend, but the difference between him and the hon. Member for Northampton, North (Ms Keeble) is 10 per cent. The Secretary of State said that 90 per cent. of people, through a complicated mechanism, would receive a full pension. Under our proposal it would be 100 per cent. The state spends billions of pounds keeping decades of records to exclude 10 per cent.—almost all women—from pensions. That cannot be a sensible use of taxpayers’ money. Does my hon. Friend agree?
Danny Alexander: I agree wholeheartedly. There is lasting consensus between my hon. Friend and me. He makes a serious and important point. The UK pensions system is hugely complicated—the most complex in the western world—with all its ifs, buts, caveats, contributory principles, means tests and so on, to exclude a relatively small number of people from a pension that would keep them from poverty in retirement.
The first step should be uprating the basic state pension in line with earnings. The Government say they might do that in 2012, but perhaps not until 2015. It would be nice to know, but as we said at the time of the last Pensions Bill, uprating in line with earnings should be introduced now. Why should the basic state pension, which is lower in real terms than it was in the 1950s, continue to fall in real terms until 2012 or 2015? That uprating should be the first building block of our citizen’s pension.
Kelvin Hopkins: I am interested in the hon. Gentleman’s citizen’s pension idea. Does he think that a reasonable target to aim for would be the 25 per cent. of average earnings that the basic state pension was when the Tories broke the link 27 years ago?
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