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Danny Alexander: I am grateful to the hon. Gentleman for his interest, but we need to aim for what is defined as the poverty linethe minimum income guarantee in the current pension credit. My maths is not quick enough to work out whether that would be 25 per cent. but it probably does not quite reach that amount. The hon. Gentlemans proposal is a further degree of ambition, from a policy and financial point of view, to which I cannot agree at this stage. However, the citizens pension would certainly be one way of providing a firm foundation whereby anyone saving in a personal account would know that they would receive full value and full return on their savings.
The most frustrating thing about the Governments attitude to means-testing is that, in effect, they throw up their hands in horror saying, Its someone elses problemthink of an answer. If both sides of the House accept that there is a problem and that it will not be worth while for some of the peopleprobably hundreds of thousandswho will be encouraged to save in a personal account to do so [ Interruption. ] The number may be higher; it may be millions, as the right hon. Member for Birkenhead suggests. I am not sure whether that is right, but in the absence of the proper research and information that the Government could provide, it is hard to know. Even if the number is only hundreds of thousands
Mr. Frank Field: The Governments new estimate of the number of people who will be on means-tests after the reforms is about 40 per cent., so the figure will not be a few hundred thousand; millions will be in that category.
Danny Alexander: The right hon. Gentleman is right about the figures, although to be fair to the Government, if we are talking about people who get back less than they put in, some of them will have built up a big enough pension pot to ensure that they receive some return on their savings even if it is not the full return we hope everyone will get, especially if the compulsory employer contribution is set up correctly.
The Government seem to be saying that it is up to other people, such as Opposition parties or think tanks, to find a way out of the problem. To reinforce the point made by the hon. Member for Epsom and Ewell (Chris Grayling), the Government have the resources, as well as the civil servants and policy wonks, to work through a range of options. They have not done so, and given the importance that many of the lobby groups, who broadly support the Governments proposals, and the House attach to the issue it is astonishing that the Government have not done more work. If the consensus is to be maintained I appeal to them to do that work as a matter of extreme urgency.
Advice will be needed. A wide range of factors will affect peoples decision about whether it is worth their while to save: age, future earnings, whether they plan to take time off work, the sort of work they do and their level of personal indebtedness. Advice will be required on all those factors. It may be relatively straightforward to reflect some of them in a generic advice system, but it will be much harder to do so for others, such as the affordability of contributions, indebtedness or likely future earnings. The Pensions Policy Institute concludes:
People will need very clear information to help them make informed decisions about whether they should stay in or opt out of personal accounts. Any system of generic advice will need to be able to cope with providing advice to a wide range of individuals with different characteristics and financial circumstances.
generic advice arrangements on a one to one basis, probably through a telephone advice line but possibly supplemented by face-to-face provision must be included.
Unfortunately, the Bill leaves all aspects of the advice system to be determined by regulation at a later date. Presumably the Government will say that is because the Thoresen review is still under way and they are waiting for its recommendations.
That is not good enough. We need a well worked-out advice system, which will not impose extra costs on personal account holders, if the risk of mis-selling to some groups is to be avoided. In another contextpersonal debt, which is a huge problemmy hon. Friend the Member for Twickenham (Dr. Cable) proposed the establishment of a national network of financial advice centres. The Government should actively work with the financial services industry to achieve a national roll-out of independent advice centres, providing financial health checks and advice.
At present, following the new polarisation rules, it is difficult for many consumers to obtain independent financial advice. The CAB provides advice, but usually only for people who are already in debt difficulty. A network providing genuinely independent advice would be in the best interests of the financial industry, the pensions industry and particularly the Government in relation to personal accounts. It would help to restore confidence. Clients could be offered advice on a wide range of issues, including personal accounts. Setting up such a network, with proper resources from the taxpayers, not from personal account holders or through the personal accounts delivery authority, would enable us to offer the range of advice people need.
The Bill offers us a chance to address the issue of womens pensions, to which the Secretary of State referred. He was talking about the Governments disgraceful decision, sneaked out on 17 December in the House of Lords, that they had decided to make no change in the current rules to allow individuals to buy additional national insurance contributionsto top up their contributions to take advantage of the new rules that are coming in. There have been reports of a trade-off with the Treasurythe financial assistance scheme or Baroness Holliss proposal.
The Government have done the right thing on the FAS, but I give the Minister for Pensions Reform notice that we shall return to their pensions decision during the passage of the Bill. Members on both sides of the other place may want to do so, too. At present, there could be the absurd situation that female twins born on either side of midnight on 5 April 1950 have different pension entitlements, despite a work record as identical as their physiology. That cannot be right.
There is also the important issue of levelling down to address. It is of course hard to predict how employers will respond to the increase in costs that some may face as a result of auto-enrolment, but there is some evidence. Department for Work and Pensions research, quoted in the National Association of Pension Funds briefing for the debate and in the response to the Work and Pensions
Committee, shows that 30 per cent. of employers contributing 3 per cent. or more say that they will level down to 3 per cent., with a further 19 per cent. saying that they have not yet decided how they will respond. The Minister may well have new evidence, but the Secretary of State said in his speech that half of employers would maintain or improve the conditions for new entrants to their pension schemes. That prompts the question: what will the other half do? The serious issue of levelling down therefore needs to be addressed.
Under the Bill, the resolution on the issue of workplace personal pensions is highly unsatisfactory. We are talking about an argument that the Government could win in Europe. It is simply not good enough for the Minister to put his hands up and say, We cannot persuade other European Governments. There is very little evidence to suggest that the Government have really tried. I suspect that if a proper effort were made to persuade other European Governments, it could be done quite simply, given the common-sense argument being advocated on automatic enrolment. The situation is perhaps evocative of the Governments attitude to matters European. Their attitude is to turn up to meetings with exceedingly bad grace, if they bother to turn up at all, not to contribute in the way that they could at the European level, and not to put forward the arguments for what they want. The argument is one that we could win.
One suspects that if the Government of France, Germany or another European country faced the same problem, they would be busy winning the argument well before the 2012 date, not putting their hands up and saying, Weve got to try to find another way round the issue, although it may impose substantial additional costs on the employers concerned. I urge the Minister to go to the European Union and to win the argument. I suspect that with the proper effort and commitment, the argument could be won straight out.
There has been a lot of talk about consensus in the debate, but in future, and particularly in Committee, that consensus has to be based on proper debate and a proper resolution of the genuine concerns and worries about the Bill and the personal accounts scheme. However welcome, well thought through and well constructed they are, they have to benefit as large a section as possible of the target audience, which is people who do not currently save. That is why the arguments on means-testing and advice are so important. The Minister will have to do better in his reply than the Secretary of State did, and will have to do better throughout Committee to ensure that the issue is resolved, so that we can ensure a scheme that can genuinely be recommended to everyone in the target audience.
Madam Deputy Speaker: Order. A number of right hon. and hon. Members are hoping to contribute. The time left for Back-Bencher contributions is limited. I ask Members to make shorter speeches, so that as many as possible can make their contribution heard.
Alan Simpson (Nottingham, South) (Lab):
I hope that it does not damage the standing or career of the Secretary of State or the Minister for Pensions Reform if I, too, congratulate them on making tonights debate
worth having. If they had not intervened effectively to restore the stolen pensions of the 125,000 pensioners affected, the House would have had to understand what my right hon. Friend the Member for Birkenhead (Mr. Field) said, which is that huge numbers of walking newspapers across the country would have been saying to their families, friends and communities, Youve got to be a mug to save. If the pensions guarantee was not a guarantee, it would have been worthless. The changes that the Secretary of State has been able to make really transform the context in which the debate takes place.
Between them, the Secretary of State and the Minister have done what none of their predecessors were willing to do. Predecessors did the House, and the Labour party, a disservice by requiring Labour Members to parade through the Division Lobby making fools of themselves by claiming to support a financial assistance scheme that never did, and never would, work. We all owe both the Minister of State and the Secretary of State a huge debt of gratitude for getting us out of a hole. However, let us try to put that in the context of where the Bill takes us. I have no doubt that as a society we need to save more and spend less. In a society that increasingly expects to live longer, the issue is more a biological than a political one. The question is how we make good provision for the increasing length of the part of our life that we expect to spend in old age, and in receipt of a pension. The question is how we get there.
My worries about the Bill concern what it does not address, rather than what it tries to address. In a sense, it does not address the failuresthe legacy of successive Governments who have messed about with pensions provision and retreated from a policy that would genuinely be fit for the 21st century. We are still not addressing our collective failure to restore the value of the state pension, as well as its link with earnings. We are not addressing our failure to halt the retreat from defined benefit schemes, and the drift into defined contribution schemes. We are not addressing questions about the ability of the poor to pay into schemesa concern that a number of Members have legitimately raisedand we are not addressing the failure to challenge our naive presumption that the market is a mechanism that will get us out of the pensions crisis, rather than take us into another one. I want to concentrate on those two final points.
The question of who will save is inextricably linked to the issue of means-testing. We need to understand where we are, as a society and as an economy. The Institute for Public Policy Research has reported that 51 per cent. of those in low-income families have working parents. Some 2.5 million households need tax credits to give them a living wage. In addition, Britain is in the midst of our own credit and debt crisis. Last year, personal credit debt rose to £1.35 trillion. UK gross domestic product stands at £1.33 trillion. For the first time in our financial history, personal debt exceeds personal created wealth. That will present us with huge challenges in the yearand yearsahead.
Grant Thornton accountants predict that in 2008 there will be an increase in insolvencies, with 120,000 in the coming year. That is 20 per cent. more than in 2006. They also say that excess spending on credit in the Christmas period will account for a third of the 28,000 personal insolvencies that they expect us to face in the next three months. Repossessions are currently running at 77 a day, and there were 14,000 in the first six
months of last year, which is the highest rate since 1999. That was before Northern Rock and the global credit crunch kicked in.
Mortgage bills have risen by 20 per cent. in the last two years, and in the coming year there will be 1.4 million households whose preferential periods of access to low-interest mortgage repayment starter periods will come to an end. They will almost certainly not get preferential treatment in the deal that follows. In addition, up to 4 million households are being forced back into fuel poverty as a result of ever-increasing fuel prices.
This is one of the most difficult years for the world economy.
If it will be difficult for the wealthy, it will be even harder for the poor. We will have to take a long, hard look at how we expect those who cannot afford to live to be in a position to afford to save. That is a practical, day-to-day issue, precisely as fuel poverty is: as we have expressed it, people are faced with a choice between heating and eating. The question is: how will those whom we wish to include in the new Pensions Bill schemes be able to afford it? We need to look at new mechanisms that address the question of affordability, and the most sensible starting point may well be tackling the current provision of £20 billion a year or more that we give in pension credits to the wealthiest in the land. If we have to dip into that money to provide access for the poor, that would be a genuinely progressive and relevant measure.
The question of who pays is likely to be dwarfed, however, by the question of where the money goes. How short a set of memories we seem to have. In 2002, there was a pensions and investment crisis. In that year alone, £250 billion was wiped off the value of UK pension funds, because the deregulation of world financial markets resulted in pensions being increasingly drawn into short-term, speculative markets. When the bubble of those markets burst, inevitably what people thought were secure savings disappeared. We have not learned from that that there is an increasing incompatibility between short-term speculative markets and long-term, secure pension aspirations.
If we doubled the amount of money that went into UK pension funds in 2002, we would simply have doubled our losses. To double them today using the same mechanisms would throw petrol on the fire. We cannot pretend that by introducing a new mechanism while shovelling the money in the same direction would do anything other than accelerate the drift into the next crisis. The global credit crunch has been driven by precisely the same mechanisms that took us into the crisis in 2002. Sadly, creative accounting is used extensively in the banking and investment world, and Northern Rock is just the tip of the iceberg. Commentators in the United States have tried to analyse what happened in the off-balance sheet accounting world, which has transformed international banking. They have calculated the impact of what is referred to as toxic waste in the banking industryloans made upon insecure loans upon insecure loans. Using a mechanism outside accounting rules, the banks have created their own credit default swap clubs, in which they swap bad debts and spin them round the table to allow themselves to create more debt.
The scale of that activity is estimated to be £45 trillion, or three times the size of the US economy.
It is no wonder that while central banks, whether in the US, the UK or Europe, have intervened to create credit for the banking world, banks will still not lend to one another, because they know how shaky the foundations are. Throwing more money into that crazy pot will simply accelerate the drive into the next crisis. We have to move the rules about where money goes in a different direction. In 2003, I helped to write a pamphlet on peoples pensions that looked at the ways in which the allocation of pension savings had changed in the past 50 or 60 years. I shall give the House just one set of figures. In 1962, 51 per cent. of the total pension fund assets in the UK were invested in UK Government bonds. Today, that figure stands at 9 per cent. Some 80 per cent. of pension fund contribution goes into private equities or corporate bonds, both of which have become increasingly short-term, speculative, mythical and, in some cases, illegal. The danger of throwing money in that direction is that it would simply accelerate the next crisis, which would be a repeat of the last one.
We do not have to go down that path, and I should like to offer some suggestions to the Minister and the Secretary of State. Some 99 per cent. of share transactions trade in second-hand shares, and are decades away from the principal investment that built anything. They are just swap clubs for second-hand financial entities. If we genuinely want mechanisms that invite people to save, and if we want that saving to be a productive investment in their future security, we must direct those savings into investments in infrastructure, health, education, housing and environmental improvements and security. We could do so extremely easily. We contribute about £50 billion a year to personal pension schemes. If the Bill delivers the Secretary of States expectations, it will add another £10 billion a year. If we used that money for infrastructure investments, we would not need a single private finance initiative scheme in the land. Last year, the Government received £3.6 billion in capital receipts for the privatisation of public services. Across the piece, we pay an average of 16.6 per cent. interest on PFI schemes, which is an absurd charge on the taxpayer for the next 30 to 50 years.
If we paid half that rate of interest to bond holders, we could halve the rate of tax for taxpayers, and we would all be better off. Do we have the courage not only to include the poor in a comprehensive, 21st century pension package but to redirect how and where our savings are deployed? The Bill does not do so. It does not address the question of how the poor will participate, and it does not address the question of how those resources will be deployed productively, creatively and constructively to deliver long-term security for pensioners and society as a whole. If we fail to do so, we will end up passing a Bill that favours the City but not savers, which would be a tragedy for which the present generation and those who follow it would not forgive us.
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