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Baroness Hollis of Heigham: My Lords, I made that reference in connection with the state second pension, not the stakeholder pension.
Lord Higgins: My Lords, as I say, as regards the stakeholder pension, we appear to be talking about simply an enhancement, with greater regulation--that, of course, is welcome--with regard to the private provision of pensions. The Statement makes a number of assertions with regard to the fact that people will receive double what they would have received under
SERPS. Are we to understand that there will be a greater subvention, and, if so, how will that work? Will it work by way of rebate or in some other way?The most important point is that all of this concerns the future. We are told that it will be some time before the stakeholder pension is up and running, or indeed that the provision for those on incomes below £9,000, or between £9,000 and £18,500, will come into operation. Can the Minister give us some undertaking as to when that is likely to come into operation? In particular, can we be sure that the extra amount which people will pay in will ensure that they receive a pension--having made the sacrifice of paying in--which will be higher than the level of a means-tested benefit at the relevant time? That is a crucial point because the indications are that one would have to have a high pension indeed before that is likely to be the case. We have debated on many other occasions the problems as regards prudence and the ability to save.
This is a highly complicated Statement which we shall want to pursue in much greater detail. I hope that it will be possible for your Lordships to debate the matter when we have had more time to assimilate precisely what is involved in the Statement.
4.31 p.m.
Lord Goodhart: My Lords, we on these Benches can give the Statement a rather less grudging welcome than it was given by the noble Lord, Lord Higgins. Indeed, there is much in it that we welcome warmly. However, there are certain respects in which it does not go far enough. We would have liked a somewhat more ambitious scheme.
I start by mentioning the proposals in the Statement that we particularly welcome. We strongly welcome the minimum income guarantee as a way of ensuring, without excessive expense, that everyone will have an acceptable basic pension on which to live in retirement and will not have to rely on income support as at present. We believe that, certainly at first sight, the replacement of SERPS by the state second pension is an ingenious idea and a good one which will get over some of the previous problems of the interface between those on basic pension and those earning just a little over the lower earnings limit who would have had difficulty in building up anything adequate in SERPS or through a stakeholder pension. We therefore believe that that measure is to be welcomed.
We again warmly welcome the idea of improved provision for those who are unable to take paid work because of their caring responsibilities. We also warmly welcome the introduction of the stakeholder pension. It is clearly desirable that the Government should use their muscle to negotiate acceptable terms with the providers of stakeholder pensions which will enable the contributors to obtain much better terms for their pensions than would be possible if they were to take out individual pensions, with all the charges that they involve. Clearly, the Government can ensure that the terms on which stakeholder pensions are granted involve the minimum necessary level of costs. We also welcome the idea of accreditation for occupational pensions.
I now mention some criticisms. First, we think that the Government should have gone fully, rather than partially, back to the pre-1988 system under which an employer can require an employee to belong to a scheme if it is accredited. We believe that the mis-selling disaster of the late 80s and early 90s was almost entirely due to the deeply mistaken action of the Thatcher government in allowing unrestricted opt-outs. Where there is an accredited scheme, because of the contribution which the employer makes it is frankly almost impossible for an employee to be better off outside that scheme. We therefore think that in general there should be a right for an employer to insist, in the employee's own interests, that the latter be a member of the occupational scheme.
Secondly, we think that the availability of stakeholder pension rebates should go up to the upper earnings limit and not stop at £18,500. This is intended to be a benefit for middle earners and what is called the "upper earnings limit" is really fixed at a level which certainly could not be said to be anywhere remotely near the "fat cat" level. We think such a measure would be an improvement as it would give people better rebates to invest in stakeholder schemes if the availability of the rebates went right the way up to the upper earnings limit and did not stop, as now, at £18,500.
We believe that the Government have "chickened out" of the essential element in stakeholder pensions, which is a compulsion to take one out. One can see problems in the marginal area; namely, that people who are earning a little over £9,000 should not be compelled to switch into stakeholder pensions, particularly when their incomes are variable and they sometimes earn less than £9,000. But for anyone above, say, £12,000, it would clearly be very much in their interests to switch into a stakeholder pension. We believe they should be compelled to do so because--this is a vital element--we think that employers should be required to contribute to stakeholder schemes, along with employees. Unless there is compulsion on employees to contribute, that simply is not possible. Clearly, enormous pressure would be exerted not to take out stakeholder pensions by employers on employees if that meant that an extra burden would be placed on the employer. However, we believe that all employers should either have their own occupational pension scheme or be required to contribute to an employee's pension scheme, whether a stakeholder pension or a personal pension. We believe that that could be phased in over a period of, say, five years without there being an unacceptable burden on employers who find that their non-wage costs increase.
We note that the Statement largely ignores the self-employed who are merely going to be the subject of consultation on further planning. We believe that every self-employed person should be required to have their own stakeholder pension, once he or she rises above a certain limit of earnings. Certainly, the position of the self-employed at the moment with regard to national insurance is highly anomalous. We believe that the position of the employed and the self-employed should be brought closer together. One element in that would
certainly be the requirement for the self-employed--again, those earning above a certain limit--to take out a stakeholder pension.We realise that this is a complex scheme. We shall have to consider it with considerable care and in much more detail than we have been able to do so far. We believe that it offers many improvements over the present scheme. To that extent, we give a warm welcome to it and congratulate the Government on coming up with some sensible and ingenious ideas in the scheme. However, it has not gone far enough and the various elements I mentioned are matters that we wish the Government had taken on board.
4.40 p.m.
Baroness Hollis of Heigham: My Lords, I thank the noble Lord, Lord Higgins, for his comments and accept the welcome given by the noble Lord, Lord Goodhart. First, I wish to apologise to the House in regard to the Green Paper. I asked my noble friends to check on the situation: apparently, the Stationery Office could not deliver it in time because a skip was parked in the way. Unfortunately no one managed to tell the Printed Paper Office. However, the Green Paper arrived at around 4 o'clock so I apologise to your Lordships. I realise how exasperating it must be, with a complicated and detailed Green Paper, if people do not have enough time to read it properly.
Although I wish to address the points raised by the noble Lord, Lord Higgins, I start with some wider remarks. We all accept that the partnership with the private sector has produced a pensions success story for those in secure and well paid jobs. That is undeniable and people have benefited from it. However, the lowest earners now cannot afford a pension because they do not have the income. Those in unwaged work are at the moment ineligible for pensions and those with a broken work record cannot have continuity of pensions provision. Of those who are self-employed, half are not covered by a second pension. Those who have moderate earnings and have taken out a personal pension have been hit by high charges. They have a well founded mistrust of the whole enterprise. So there is currently much that needs to be addressed, particularly for those who are low paid, self-employed, have intermittent earnings or are carers.
The noble Lord, Lord Goodhart, was generous in his recognition that the main thrust of the Green Paper seeks to provide security and opportunity for pensions provision for the low paid. For those who are well paid, there is no problem; they can afford to save and they do so. Perfectly proper tax privileges are associated with that.
The problem is that those who most need a decent pension to float them off poverty in old age are those who can least afford to pay for it. That is what we seek to do by a SERPS Mark II through the state second pension.
The noble Lord, Lord Higgins, asked whether we were moving to means-testing. No, on the contrary. The second state pension, SSP, will lift hundreds of
thousands of people off means-tested benefits in their old age. If we did nothing, between one in two and one in three of all people now in work would find that when they retire in 2025 they will be on a means-tested benefit. Hundreds of thousands of those will now be floated off that by a second state pension. Those who need to remain on a means-tested benefit with the minimum income guarantee will find that the safety net is far more generous than currently. It is a safety net that we expect and aim to raise in line with earnings.The noble Lord asked about funding costs. As noble Lords will see in the Financial Memorandum attached to the Green Paper, the initial cost is about £100 million a year. As he will know, with pension schemes the full cost builds up slowly over time. We expect there to be an additional cost of around £5 billion by the year 2050. To put that in its context, the noble Lord probably knows about the new inter-generational study comparing the US with the UK. What really matters is whether one is in a decent, adequately paid job, whether inflation is under control and whether productivity has been enhanced. If that happens and as a result the country's growth is secure, pensions can be well afforded. The inter-generational study estimated that deficits of that order could well be funded within modest expectations of economic growth.
The noble Lord asked whether we were committed to not means-testing the state old age pension. I can only repeat what was said in the Statement: it will remain a universal, non-means-tested benefit. It will therefore rise at least in line with prices, but if we add the income guarantee, we expect the total package to rise in line with earnings, as resources allow.
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