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Amendment made: No. 34, page 31, line 9, leave out
‘, but only in respect of reasonable expenses’.— [Mr. Mike O'Brien.]
Amendment made: No. 35, page 39, line 40, leave out Clause 79.— [Mr. Mike O'Brien.]
Amendment made: No. 36, page 40, line 31, leave out Clause 82.— [Mr. Mike O'Brien.]
Order for Third Reading read. —[Queen’s Consent, on behalf of the Crown, signified.]
9.29 pm
The Secretary of State for Work and Pensions (James Purnell): I beg to move, That the Bill be now read the Third time.
I say that with a certain amount of déjà vu, because I said exactly those words almost a year ago. I also said then that we were implementing the most ambitious reform of our pension system in modern times, and with the Bill then—now the Pensions Act 2007—and the Bill that we are debating tonight, that is exactly what we are doing. That déjà vu also applies to the many hon. Members in the Chamber who have followed the Bill right the way through and given such great service on the Committee. No one has as much a sense of déjà vu as the hon. Member for Eastbourne (Mr. Waterson). I believe that this is his fourth Pensions Bill. I do not know what he did in a previous life to deserve this fate, but I am sure that serving on four Pensions Bills is enough to have expunged whatever was wrong with his karma.
I also want to pay tribute to my colleague, the Under-Secretary of State for Work and Pensions, my hon. Friend the Member for Warwick and Leamington (Mr. Plaskitt), who has taken through many of the clauses of the Bill. In particular, I want to pay tribute to the Minister for Pensions Reform, my hon. and learned Friend the Member for North Warwickshire (Mr. O'Brien), who has a wide range of admirers and who has commanded support and compliments for the effective and consensual way in which he has taken the Bill forward, building on the achievements of his predecessor but two—my right hon. Friend the Member for East Ham (Mr. Timms)—and correcting the many mistakes of his immediate predecessor, whose advice he has been wise to avoid all the way through.
So, why is this reform needed? It is needed because of the changes to pensions over the last 20 or 30 years, and it has been built on the recommendations of the Turner commission. I am sure that everyone in the House would like to pay tribute to the commission for its work. It has laid the foundations for the Bill that is reaching completion in this House this evening. Many commissions see their work languish on a shelf. Indeed, some people predicted that that might happen in this case. Tonight, however, we are now putting in place the second stage of the legislation for these reforms. Last year’s Pensions Act was the first side of that coin. It made pensions
simpler, fairer and more generous, and it built a more solid platform on which people could save. This Bill will make it easier for people to save on the basis of that platform. It also puts in place what I believe will be seen as a genuinely historic change: the right for everyone to have an occupational pension scheme.
Why did the Pensions Commission make its recommendations? It did so for two reasons. It recognised the progress that had been made since 1997, stating that
“average pension income today compares well with that of previous generations”.
And so it does. The National Audit Office has also recognised the “real and substantial progress” that has been made towards helping the poorest pensioners. We are proud of having taken more than 2 million pensioners out of absolute poverty and 1 million out of relative poverty, and to have achieved a situation in which pensioners are now no more likely to be poor than anyone else in the population. That is a remarkable achievement, when we consider that everyone else can rely on their wages going up.
The Pensions Commission also said that there was a compelling case for further reform, for two clear reasons. The first was what it called the fool’s paradise of “irrational exuberance”, in which the exceptional equity returns of the 1980s and 1990s—when people saw their investments increasing at a very great rate—allowed many schemes to
“ignore the rapid rise in the underlying cost of their pensions promises”.
People were making promises, but they were not putting away enough money to fund them. The Pensions Commission said:
“When the fool’s paradise came to an end...companies adjusted rapidly...A reduction in the generosity of the DB pensions promises which existed in the mid-1990s was inevitable.”
That is the first reason why change was necessary. We needed to address that fool’s paradise.
The second reason, which has not received so much comment, is that final salary schemes, even at their best, only ever benefited a minority. It was always the case that the majority of people did not benefit from them, and tonight’s historic change corrects that.
Mike Penning: One group of people who were not living in a fool’s paradise consisted of the 125,000 pensioners who had their pensions stolen from their occupational pension schemes. Seven hundred of them are from my own constituency. I am pleased that after five years, the Government eventually came forward and gave them 90 per cent. of the pension to which they were entitled, but I have two questions for the Minister about part 4 of the Bill. First, can he confirm that the pensioners who were without their pension for nearly five years will not be taxed on the lump sum? Some of my constituents, such as Mr. Peter Humphries, will be charged 40 per cent. of their lump sum, although he had to go to work to pay for his family’s upkeep when his pension failed to come through for five years. Secondly, have the Government seen sense enough to wrap the financial assistance scheme up with the Pension Protection Fund? It seems ludicrous to have the two; what plans does the Secretary of State have for the FAS?
James Purnell: I am happy to give the hon. Gentleman both the assurances that he seeks. The first was given at oral questions recently. On the second, he will be glad to know that we are consulting on allowing the PPF to be more closely involved in developing the new FAS operations. Subject to the outcomes of that consultation, we are hopeful that the PPF will be able to take a formal operational role in the extended FAS scheme. I hope that that addresses the hon. Gentleman’s concern.
Mr. Drew: The Secretary of State will not be surprised to hear that I am going to raise a point about new clause 23, which we were unable to debate today. It relates to the remaining group of pensioners who have lost their pension but are covered neither by the FAS nor by the PPF. It is known as the “Desmond problem”, which my hon. Friend the Member for Foyle (Mark Durkan) has regularly explained. Will my right hon. Friend give us an assurance that the issue will be looked into again in the other place? I understand that there are difficulties, but if we could get an assurance that that will be further considered there, we would be happy with the rest of the Bill.
James Purnell: I can assure my hon. Friend that we are looking into that, and I believe it was mentioned earlier in the debate. We would be happy to meet him, or indeed any other Member interested in the issue, if that would be helpful.
James Purnell: I will give way one final time, but I want to make some progress.
Mike Penning: I have been in my place since Prayers to ask this question, so I hope that the Secretary of State will bear with me if I press him again. I asked whether my constituents and other FAS members would be taxed on the lump sum. The Secretary of State alluded to the fact that the matter had been addressed at oral questions. Since then, however, we have discovered that some are going to be taxed on the lump sum because it is coming through in the form of a lump sum, and because they had to work to keep going during the five-year wait for compensation. Will the Secretary of State confirm that my constituents will not be taxed on the lump sum for which they have waited for five years, and which is the pension that they were entitled to in the first place?
James Purnell: I believe that we have addressed that issue: those people will be taxed in exactly the same way as if the situation had not occurred and they had been paid regularly—but we shall be happy to write to the hon. Gentleman to set that out.
Tonight’s changes address the two key problems—that only a minority had access to a private pension, and that even those were unaffordable, so radical reforms were needed. In addition to paying tribute to the Pensions Commission, we should pay tribute to the stakeholders who have carried the Bill all the way through, and have been prepared to make trade-offs to ensure that that happens. The consumer representatives and the unions have accepted that the state pension age will be higher; the employers and the Association of British Insurers have accepted that there will be compulsory contributions
from employers and the new low-cost personal accounts scheme. Because people have been prepared to make those trade-offs, the consensus has been solid throughout the Bill’s passage. It means that, tonight, the combination of giving everyone access to personal accounts or to a private pension, combined with automatic involvement, will enable us to turn on its head the inertia that currently stops so many people from saving.
In conclusion—we have little time, and I want to ensure that everyone who wants to speak can do so—we need to keep the word “consensus” at the forefront of our minds. Consensus is important not just as a political device, but in order to help people to save. If people are thinking about putting money away for 20, 30 or 40 years, they will be more likely to do it if they are confident that there is a consensus between political parties, which will ensure stability in the framework.
In thinking about that, it is interesting to look back to a previous debate on the Social Security Pensions Bill 1975, which I read about this afternoon. I do not think that the hon. Member for Eastbourne had much to do with that particular Bill, although I am sure he will know how Barbara Castle felt when she said in opening her speech that it was the third time in just over five years that the Secretary of State for Health and Social Security, as she was then, had brought a pensions Bill before the House. If she is looking down on the hon. Member for Eastbourne now, I am sure that she will feel much sympathy for him.
The interesting thing about that debate is that Barbara Castle said very clearly that she wanted to build her reforms on the basis of consensus. She said that she intended them to command general acceptance, and hoped they had succeeded in that regard. Later the Conservative spokesman—Lord Fowler, as he is now—said that his party believed consensus was possible. I think that on Third Reading there was no Division. Both sides hoped that the Bill would command a consensus that would continue, yet within years that consensus had fallen apart.
The key thing that we should tell ourselves tonight is that by legislating we are not completing the reforms, but merely establishing the start of the process. If we believe, as I think Members in all parts of the House believe, that this is an important reform which is in the interests of millions of people—particularly low and moderate earners—I think we should say tonight that we are not satisfied for the consensus to be merely legislative, and that we will work together over the next few years to ensure that the hopes we have for the Bill will be realised in practice. We need to continue to make trade-offs, and to work together to improve the chance of millions of people to have decent incomes in retirement.
9.41 pm
Chris Grayling (Epsom and Ewell) (Con):
I echo the thanks and congratulations that have been extended to all who have been involved in the Bill’s passage. I congratulate the Minister of State, for it is always a challenging task to steer these measures through; my hon. Friend the Member for Eastbourne (Mr. Waterson), who is a seasoned performer, but no less effective as a result of the number of occasions on which he has dealt with pensions matters from the Dispatch Box; the hon.
Member for Rochdale (Paul Rowen); and all those who served on the Committee, who have dealt with the detail of the debate in a good and constructive manner.
We have just heard the Secretary of State describe the Government’s reform plans in glowing terms, but it is important for us to remember that we have been here before. Tonight I have been reading the report of a debate on the introduction of stakeholder pensions which took place in the House in 1999, led by the then Secretary of State, who is now the Chancellor of the Exchequer. The Government said that 4 million to 5 million people would benefit from stakeholder pensions, and described them as an appropriate vehicle for people on low earnings which had been almost universally welcomed. So we are not exactly at first base when it comes to major pension reforms, and this time it is important for us to get it right.
We are not without reservations about the detail of the Bill, and we feel that work remains to be done on the reforms, although it is true that few Bills generate such a general desire for them to succeed. We want this Bill to succeed, because it is in the interests of the nation to have a pensions system that works, but, as I have said, we have been here before. On 11 May 1999, the present Chancellor of the Exchequer said:
“I am confident that, by the end of this Parliament, pension provision and structure will be set on a firm footing that will serve this country well for generations to come.”
That did not actually happen. Now, the second time around, it really does need to work. Like the Secretary of State’s favourite football team, the Bill demonstrates plenty of promise, but in the end, lacks the depth to deliver the results. We have had widespread discussions with different stakeholder groups, and, as the right hon. Gentleman said, the Government have received plenty of helpful advice from within the House and elsewhere. However, there has been little change in the detail, and little in the way of actual response to the concerns that have been raised.
Means-testing has been a big issue—and again, we have been here before. In 1999, the present Chancellor of the Exchequer said:
“The Government are aware that, because of the present capital and income rules, many pensioners who have modest savings or a modest income stream are adversely affected by the benefits system. We said in the Green Paper that we are determined to tackle that”.—[ Official Report, 11 May 1999; Vol. 331, c. 132.]
Here we are, nine years later, discussing the same issues—in this of all weeks, when the Government are having problems in dealing with the issue of financial support for people on low incomes.
We have argued throughout that the issue of means-testing is potentially fatal to these reforms. I am grateful to the Secretary of State’s predecessor, the Minister of State, for initiating the debate on the subject, but I have to say that we expected more by now. We set out specific issues to be processed in Pensim2, but we have not yet received a detailed response. We have seen no detailed information about the sensitivities surrounding take-up if the means-testing issue is not addressed, but we have had private warnings from some of the groups involved that Ministers are not taking the issue as seriously as they expected. It is extremely important for this review to be more than just a way of postponing bad news
until a later date. It must not be a case of “What happens now?” We need a detailed document in the autumn, a debate in this House and an open and grown-up discussion about what can be done and when, and we need to accept that the cost of getting this right might not exceed the cost of getting it wrong; the cost of not getting this right in years to come might be a much bigger bill for the taxpayer and a much lower take-up of personal accounts, and it might undermine the reforms.
We are equally disappointed that the Government have not yet fully addressed other key issues, such as auto-enrolment into GPPs. We do not want that. We have heard in the debate about the dilution of existing provision. It is extremely important to preserve existing provision—the Bill must add to, rather than undermine, what is already there. As the Bill leaves this House, Ministers still have little answer to some of these basic questions. It is extremely important that they be addressed. I hope that they will be addressed as the Bill progresses through the other place, and that their lordships will have the opportunity to put these questions time and again, and if necessary to change the Bill to ensure that they are answered.
We have other key questions relating to the cost of the scheme. It will not work if the costs are too high. We talked earlier about rumours in circulation about what the costs are; it is extremely important that Ministers lay those to rest.
It is also important for us to hear more from the Government over the next few weeks about what they will do to address the concerns of small employers in particular. Ministers will be aware that a number of pressure groups are asking for more information about what the Government intend to do, and it is important that we hear from them about that.
I have said that we want to get things right—indeed, I said on Second Reading that we want this to work properly—and that is why we have attempted to engage in constructive debate. We want to get things right not least because there is now a good chance that it will fall to us to implement the reforms. Given Labour’s trials and tribulations, it appears ever more likely that that will be the case. Indeed, the Secretary of State is already positioning himself to become the next Leader of the Opposition. The Conservatives are making sure that we are ready to take over Government, should the circumstance arise in 2010. We are still not convinced that the Government have got everything about these reforms right. If they do not address the issues as the Bill continues its progress through Parliament, we are ready and prepared to make the necessary changes in 2010 after the next election, in order to ensure that when the reforms come through in 2012 they deliver a system that really will, as the Chancellor said nine years ago, last a generation and do us proud for the future.
9.47 pm
Paul Rowen: I join with the Secretary of State in thanking the Minister for Pensions Reform; I thank him for the courteous way in which he has dealt with our inquiries, and for writing to us on certain issues that we have raised. I also thank the hon. Member for Eastbourne (Mr. Waterson) for his comments—he is on his fourth Pensions Bill; it is my first, and we shall have to wait and see whether it is my last—and all the other Committee members and Committee staff.
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