§ The Secretary of State for Social Security (Mr. Alistair Darling)
With permission, Madam Speaker, I should like to make a statement on pensions, changes to which are a part of our modernisation of the welfare state.
All our reforms are driven by the central principle—work for those who can and security for those who cannot. Welfare reform is well under way. We have launched the new deal and announced the single gateway to the benefits system. We are modernising the tax and benefit system to make work pay with a new working families tax credit, underpinned by the national minimum wage.
We have begun to tackle child poverty, with the biggest ever rise in child benefit. We are reforming the Child Support Agency and we have introduced a national child care strategy. We are also reforming the legal aid system and student finance. Over the past few months, I have set out proposals for wide-ranging reforms to disability benefits, along with reforms to modernise bereavement benefits. Today, I set out far-reaching reform to ensure that the pension system meets the needs of the next 50 years.
A pension is the most important asset that people have, more important even than buying a house. That is why we want to put pensions on a sound footing, where every individual is guaranteed a decent income in retirement and where people can rely again on secure and effective private pensions, delivering security for today's pensioners and peace of mind for tomorrow's.
We are already providing security for today's pensioners with value added tax on heating cut to its lowest possible level, a winter fuel bonus, help with bus fares, free eye tests and higher pensions. Under the new Labour Government, Britain's pensioners are £140 a year or more better off, providing real security for today's pensioners. For future pensioners, I am publishing our proposals in a Green Paper, which sets out a new insurance contract between the state and individuals, a new public-private partnership for better pensions. Copies of the Green Paper are available in the Vote Office and a summary of the proposals is being sent to every right hon. and hon. Member this afternoon.
There are three overwhelming reasons to reform pensions. First, if we do nothing, one in three people could, by 2050, retire on income support. Under the current system, people can work hard all their working life and still retire on an income so low that they will depend on benefits for the rest of their life.
Secondly, many middle and higher earners want to save more and should save more, but have lost faith in the pension system because of the scandal of pension, mis-selling. Up to 2.5 million people, including nurses and teachers, may have been sold the wrong pension and have had their peace of mind in retirement shattered. This Government, unlike the previous Government, have not turned a blind eye to their plight. We have already toughened the regulation of personal pensions and taken firm action to ensure that those who lost out receive proper compensation. For those who do not have an occupational scheme, too often there is not a good place for them to put their savings.
762 Thirdly, the current system gives a poor deal to the millions of mothers and carers who have career breaks and find that they are penalised because of that.
The principles driving our reforms are clear. Everyone who can save for their retirement has a responsibility to do so. In turn, the Government have a responsibility to provide security in retirement for those who cannot save enough. Today, I am announcing a radical new pensions policy. It is radical because it guarantees a decent income for all pensioners. For the first time ever, a lifetime's work will not lead to dependency on means-tested benefits in retirement.
Our reforms create a new insurance contract combining the price-linked basic state pension with a minimum income guarantee that we will aim, in the long run, to increase in line with earnings. It will be a contract that rewards thrift and savings instead of penalising them. It is radical because, for the first time, it helps mothers get a decent pension despite career breaks and because it will, for the first time, give carers a right to a decent pension. It is radical because it replaces SERPS with the new support and a new state second pension to help those on low and middle incomes, and because it builds a completely new private funded pension that is simpler to understand and has lower charges. These proposals will put the trust back into pensions.
We are building a new insurance contract between state and individuals. In the past, the basic state pension has been the sole focus of the Government's deal with pensioners. The basic state pension will remain a universal, contributory, non-means-tested benefit, but the basic state pension alone cannot provide, and has never provided, everyone with a decent income in retirement. This Government will do better.
In future, there will be a new contract. The state will guarantee that everyone who retires in poverty will receive a minimum income guarantee well above the current level of income support—beginning at £75 a week for a single pensioner and £116 a week for a pensioner couple.
The complaint I hear more than any other from the pensioners I meet is that, as the country gets wealthier, they do not share in the gains. That is something that the Government want to remedy. Today, I can announce that it is our intention to give poorest pensioners the chance to share in the rising wealth of the country. Consistent with the proper management of the country's finances, our aim is that, over the long term, the minimum income guarantee should rise in line with earnings. We are also consulting on the best ways of changing the rules so that we reward savings even more.
However, after a lifetime of work, people should not have to rely on the guarantee in retirement. We want to ensure that they can do better than that guarantee. We want to ensure that low earners in work on less than £9,000 and people whose work is interrupted to look after children or sick relatives, as well as moderate and higher earners, have a higher income than the guarantee. So we need to do more.
Low earners in work depend on SERPS for a decent pension, but SERPS is income related. If one earns little, one gets little. The state earnings-related pension scheme does not give sufficient help to low earners. So today I can announce that we will replace SERPS with a new scheme—the new state second pension. It will deliver a 763 dramatic increase in the value of pensions. The new state second pension will be worth at least double what SERPS currently pays for people earning less than £9,000. Up to 5 million people stand to benefit. Under the current system, a person earning £6,000 a year would get £13 a week from SERPS, but will get £46 a week from the new scheme—£33 a week extra, providing real security for today's low paid.
We also promised in our manifesto that we would do more for people caring for children, or sick or disabled relatives, and for people who have worked, but cannot work now because of disability. So today I can also announce that we will end that unfairness where someone who gives up work to care does not have the chance to build up a second pension. That means that a mother who takes a couple of years off work to look after her two young children will no longer lose out on her pension.
Our reforms will, for the first time, provide security for 2.5 million carers, by helping them with pension contributions—enabling them to build up a second pension as of right. They will be credited into the new state second pension. Parents of nearly 200,000 disabled children, and some 1.5 million people with a long-term disability and interrupted work record, will also gain from that proposal.
The problems of the current system do not affect only those who earn less than £9,000. Too many people earning more than £9,000 get a raw deal, and our plans will change that. Middle earners will get more help, and they and higher earners will have decent products in which they can invest. That is why it is our long-term ambition that everyone earning more than about £9,000 should be in a secure, funded private pension. Stakeholder pensions will be attractive to them because they will be more secure, with independent trustees ensuring that the rights and interests of scheme members are put first.
Stakeholder pensions will be cheaper. On average, personal pension charges can eat up 25 per cent. of savings, whereas we expect stakeholder pensions, with simpler regulation, to result in a substantial reduction in charges. They will be more flexible. If a member—for example, a mother who is at home bringing up children—does not contribute for a period, no charges, which could eat up savings, will be levied. Similarly, those who change jobs will not lose out.
Stakeholder pensions will be higher quality. We shall protect consumers by building quality into the system. We shall also require all stakeholder pension schemes to meet specified standards. They will also be simpler to understand. Pensions are complicated, and private pensions are often a nightmare to understand. We intend that stakeholder pensions will be simpler and more transparent.
Our proposals for stakeholder pension schemes will give up to 5 million people who today are without a second funded pension the chance to build a secure, decent income for their retirement. Everyone earning between £9000 and £18,500 will receive better pension rights.
The Government expect to spend about £500 million annually on increased payments for those who join funded schemes. For many people, that will make joining a new stakeholder pension scheme more attractive. Someone earning £12,000 a year could increase their stakeholder 764 private pension in retirement by almost £1,000 a year. Moreover, once stakeholder pensions are up and running, we shall reshape the system to make private funded pensions the only sensible option for those earning above £9,000
I strongly believe that those incentives are fairer and more effective than increasing compulsion. I do not think that it is the Government's job to make life harder for people on £12,000, for example, with two children and a mortgage to pay. I want to help middle earners, not penalise them. However, I want them to know exactly where they stand.
I want to provide another type of incentive for people to save. Today, I am able to announce that, for the first time, we shall provide an annual pensions statement for every working person in the United Kingdom. The statements will set out how much private and state pension people are likely to receive on retirement. Everyone will therefore know exactly where they stand. People will also see, in black and white, the consequences of not saving more. We shall work with employers and the pensions industry to make the statement as effective as possible.
Other reform options have been urged on us. Some people have suggested that we introduce compulsion for all now. Some people have suggested privatising the entire system. We closely examined those proposals, and I should like to tell the House why they would not work.
We already compel more than 20 million employees to save. Therefore, the question is whether we should compel them to save even more. The fact is that, for low earners, no amount of extra compulsion will help, because they simply cannot afford the amounts that they would have to save. Therefore, anyone who backs compulsion for all will have to justify such a burden on low earners. I am not willing to do that.
Some groups, such as the self-employed, could afford to save more and are not saving enough, because they are not compelled to do so. We are consulting on letting the self-employed join the new state second pension in return for their contributions. However, we believe that it would not be right to compel them to do so before stakeholder pensions are properly established. Nevertheless, we shall keep under review the case for compulsion once stakeholder schemes have a proven track record, if people fail to save what they need to.
Other people have urged us to privatise the entire system. However, that would be no help for millions of low earners who could not afford to save enough. Privatising the system would cost £150 billion, even after the costs of disruptive changes to the tax system. The previous Government's plans would have meant massive up-front costs, loss of tax relief and abolition of the basic state pension.
Alternatively, some people have urged us to use private schemes that would take money from the private pensions of middle and high earners to give money to the low paid. That is not practical. I also do not believe that it would be acceptable. Our proposals are, by contrast, manageable, affordable and workable.
By extending individual pensions, and by a better combination of the state pension and the minimum income guarantee, we shall provide better pensions and also reduce significantly the share of state spending on pensions in the long run. The overall amount spent on 765 pensions will go up, but private personal pensions will take an increasing share of spending. The current percentages of 60 per cent. state and 40 per cent. personal provision will, over time, become 40 per cent. state and 60 per cent. personal private provision. The reason that is important is that, as people live longer—often for 30 years after they retire—they create new demands on the welfare state, such as long-term care. We will ensure that our plans mean that we can afford to tackle those charges.
Our radical new contract for pensions will ensure security for those who cannot provide for themselves and encourage those who can save for their retirement to do so. It will lift many more working people, mothers and carers off means-tested benefits. Our plans will help low earners to find security in retirement for the first time. They will give a boost to middle earners with a new, secure private pension and money to invest in it. They will help everyone—no matter what one earns—by providing a better regulated and more secure private personal pension system.
That is good news for today's pensioners, and it is peace of mind for tomorrow's. I commend the proposals to the House.
§ Mr. Iain Duncan Smith (Chingford and Woodford Green)
The proposals are complex, and it is not possible to go into all of them. However, it is worth dealing with some of the key issues.
The Secretary of State made much of what the Government are doing, but, despite having promised a huge amount over the past 18 months, today he had nothing to say about the myriad and various schemes that already exist—money purchase, final salary, defined contributions, defined benefit, additional voluntary contributions, free-standing AVCs, and so on. That complexity of arrangements continues, but he had nothing to say about it.
I listened to the Secretary of State as he went around the studios over the past four or five days. He was keen to encourage everyone in the belief that occupational pensions were the right thing, if people worked for companies that provided them, but he did not appear to realise the irony of making such a statement when the first thing this Government did on coming to office was to take £5 billion per year out of the schemes through tax.
The Green Paper referred to the state earnings-related pension scheme. There is a great deal that needs some serious explanation from the right hon. Gentleman. In the Green Paper, he refers to a cost of £5 billion, in due course, for his proposals. Perhaps he would clarify that. If he intends to increase the level paid to those on lower incomes, where exactly will he get the money? Will it come from increases in contributions for some, or will it be linked to an increase in tax?
The right hon. Gentleman is vague about the timings. Exactly when will the proposals come through? What does he propose? How does such an increase square with his general pledge, which he has made endlessly—as has the Prime Minister—to reduce the overall cost of welfare?
On the issue of stakeholder pensions, the right hon. Gentleman proposed a new second-tier scheme, latched on to the back of the other schemes. In this particular case, it will carry the stamp of Government approval. Do 766 the Government intend, in return, to guarantee the outturns of the stakeholder pensions? After all, many people on lower incomes will want to join such a scheme because they have been encouraged to do so by the Government. What will the Government say to them if the scheme falls short when they come to retire?
The right hon. Gentleman had nothing to say about that in his speech. Will he guarantee that the scheme will be better, or as good as, existing schemes, which people might otherwise have joined? If he cannot answer that, will he at least say whether he will guarantee that the pension fund will be no less than the contributions made? The right hon. Gentleman must answer those questions if he intends to encourage people to join such schemes.
I come now to the proposals for carers. Over the past 18 months, we have been keen to raise the problems of carers and to deal not just with their pensions, but with their incomes. Will the right hon. Gentleman clarify what he means by those who have taken some time off work? Is it not the case that about 53 per cent. of carers are full-time carers and have no alternative or part-time income? Does he expect the scheme to extend to them if they have no record of earning? Single-earner couples would be affected, so what does he intend to do about them?
If the right hon. Gentleman does not have clear proposals when it comes to paying for the other parts of the scheme, he should remember that one of our criticisms—and one of our proposals for change at the last election—was that single-earner couples bear a much higher proportion of the tax burden than other taxpayers. If the Secretary of State is not going to deal with that, presumably he will make a statement explaining how he intends to reduce the burden. Otherwise, single-earner couples will be hit disproportionately.
The Secretary of State left out an important point about the basic state pension. He now has an opportunity to clarify the position. Why does he not deal directly with the question of uprating the state pension in line with prices? He has an opportunity to tell us at the Dispatch Box and, after the next general election, that Labour will not do other than uprate the pension in line with prices, which is what used to happen. [Interruption.] Labour Back Benchers are making a noise. What they do not realise is that the Secretary of State talked about linking earnings to income support, not the basic state pension. The minimum guarantee concerns income support.
Is it not a fact that the right hon. Gentleman's proposals to link income support with earnings will mean a massive increase in means-testing at the bottom end? He disguised the fact by pretending otherwise, but that is what will happen.
The Government have asked the public today to trust them on a range of pension issues. They do not, however, bear the public's trust, for a number of reasons. First, they take £5 billion a year from pension funds and pensioners generally, attacking those who have worked and those who have saved. Secondly, they are the Government who, during the last general election and before, allowed Back Benchers to travel around the country raising expectations that they would establish, across the board, a link between earnings and the basic state pension. What they have now done is sneak in a minimum income guarantee that is concerned only with the means-tested system, and will do nothing for existing basic state pensioners.
767 Today, the Government have missed much of the plot. They have spent 18 months fiddling around, and have produced an expensive partial system that does not deal with the issues. I condemn them for that.
§ Mr. Darling
If anyone has missed the plot, I do not think that it is me. Having listened to the hon. Member for Chingford and Woodford Green (Mr. Duncan Smith), I am not entirely clear whether he is for or against what we propose.
If I were the hon. Gentleman, I would not go on about trust too much. He should remember that 2.5 million people were mis-sold pensions because of what the last Government did. It was the new Labour Government who began to clear up the mess caused by that mis-selling, not only through the action taken by my right hon. Friend the Member for Airdrie and Shotts (Mrs. Liddell), but through our overhaul of the regulatory system.
The hon. Gentleman referred to means testing. He ought to understand that we are heading for a time when a third of people now working will be on income support, under the policies with which his party left us. It is this Government who, through the proposals that I have set out today, will ensure that people can work for a lifetime, can retire on an income above the level of income support and therefore will not have to rely on means-tested benefits. This Government will ensure that fewer people will have to rely on such benefits. As a result of the last Government's policies, if we did not change the system, many pensioners today and in the future would depend on means-tested benefits—so that was not a very good point, either.
No doubt others will wish to return to the subject of the basic state pension. Let us be clear: in our manifesto, we said that we would increase the basic pension in line with prices. We have kept that promise, and we will keep it. It would, however, cost about £30 billion to increase the pension in line with earnings over the next few years. [Interruption.] If the hon. Member for Chingford and Woodford Green would listen for a moment, he might learn something.
We could raise the basic state pension in line with earnings, but that would not do enough to help the poorest people's incomes to rise above income support levels. At the same time, it would give money to better-off people who do not need it. What I am doing—this brings me to my next point—is using state support to help those on lower earnings to take their incomes above the income support level in the first place.
The hon. Gentleman asked about costs. The amount that the state will spend on pensions over the next 50 years will fall from about 5.4 per cent. of gross domestic product to 4.5 per cent. over that long period. We are using the money available to help those on low earnings far more than in the past because of the changes to the state second pension. The Government have a responsibility to help those who cannot afford to save to have a decent income in retirement without relying on social security benefits. We need to do more to help people get into funded pensions, where, generally speaking, they will be far better off than if they depend on the state alone.
The hon. Member for Chingford and Woodford Green asked me about SERPS. The cost is about £500 million, not £5 billion. [Interruption.] I can help the hon. Member 768 for Grantham and Stamford (Mr. Davies) by telling him that the £5 billion relates to the next 50 years, so there is something of a difference there.
On the hon. Gentleman's first point—which was a not terribly good one about occupational pensions—if he reads the entire Green Paper, he will see that the Government believe that people should have options and choices, including stakeholder pensions, which fill a gap in current provision; occupational pensions, which some 20 million people already have; and personal private pensions.
Finally, the hon. Gentleman repeatedly asked about a guarantee. Let me make one thing clear. Through strengthened regulation, better options and more help to the low-paid, we are doing far more to ensure that future pensioners can have a secure and decent retirement—something that the previous Government did nothing about in all their 18 years.
§ Mr. Frank Field (Birkenhead)
I congratulate the Secretary of State on safely delivering the Green Paper, and on the nature of his statement. I extend those congratulations to his colleagues in the Department. His proposals for carers pensions will also be welcomed in the country. I have two questions. Will the state second pension be funded or unfunded? If it is unfunded, does he recall that the previous Labour Government introduced a non-funded scheme which the Conservative butchered not once but twice? Given those circumstances, what guarantee can we give our constituents that, in 40, 50 or 60 years' time, the pension commitment that he has made today will be delivered?
My second point concerns the numbers on means testing. He said that, without his announcement today, in future about a third of pensioners would end their days on means-tested assistance. What reduction in that proportion will occur because of the Government' s announcement?
§ Mr. Darling
First, I am grateful to my right hon. Friend for his welcome. I should also like to thank the Minister of State, my hon. Friend the Member for Southampton, Itchen (Mr. Denham) for all his work on pension development, which is much appreciated. I am also grateful for what my right hon. Friend said about carers.
My right hon. Friend asked two questions. First, the state second pension is an unfunded, pay-as-you-go scheme. He raised the general prospect of a future Government dismantling it. As I understand it, the present Conservative policy is to move completely to a funded scheme—that is, if the Tories have not abandoned the basic pension-plus that they announced before the election. The state second pension is sensible and workable as well as affordable, and recognises that a funded scheme is not an appropriate option for people on low earnings, because they can never put in enough to get a decent income in retirement. Therefore, the state has to give them money to put into a funded scheme or, alternatively, as my right hon. Friend proposed, the better-off must subsidise the less well-off within a particular pension fund.
We must recognise that a funded scheme is not appropriate for people on low incomes, and that the state has a role to redistribute wealth to ensure that such people get a decent pension in retirement. That is affordable and 769 workable. If any party proposed as a central manifesto commitment to privatise the system at massive cost—at a time when there will be the most pensioners and the fewest workers to support them—its proposal would be rejected at a general election, just as the Conservative party's proposal was rejected at the previous general election.
My right hon. Friend asked about means-tested benefits. My objective is to ensure that people who work throughout their lives do not retire on means-tested benefits. One can never exclude the possibility that, for one reason or another, people will not hit that target; that is the reason for the minimum income guarantee. However, I believe that lifting as many people as possible off means-tested benefits should be a central objective of Government policy. [Interruption.] I thought that Conservative Members were against means testing, but now they are saying that they are not. I believe that our policies will ensure that we lift people who work throughout their lives off means-tested benefits. That approach should be supported, not criticised.
§ Mr. Steve Webb (Northavon)
I thank the Secretary of State for his courtesy in making available a copy of the statement to the Opposition earlier this afternoon.
A detailed document such as this Green Paper requires close scrutiny, but Liberal Democrats' initial impression is that it is a small step in the right direction down a very long road. I suppose one could best describe it as the most radical package since the previous one. At the end of the 1970s, we had the state earnings-related pension scheme; at the end of the 1980s, we had personal pensions; and at the end of the 1990s, we have stakeholder pensions. To guarantee that another Secretary of State does not produce another radical package in 10 years, the right hon. Gentleman should secure a cross-party consensus on pensions. Will he work with us and other people of good will to construct such a consensus?
The Secretary of State shied away from making pension contributions compulsory for people on £10,000 to £20,000 a year. He will recall that the Conservatives also tried using incentives, albeit for personal pensions. Of the 5 million people who took out personal pensions, 2 million are no longer putting in a penny of their own money—there is no additional private saving. Why does he think that his proposals will be better? Surely requiring people who can save to save is more effective than crossing one's fingers and hoping that they will.
The right hon. Member for Birkenhead (Mr. Field) put his finger on the problem when he mentioned today's working poor. The Secretary of State has said, "Lots of people will get bigger pensions, but no one will get a smaller pension." If the poor are to have more and the rich are to have the same, the money will have to come from tomorrow's taxpayers.
Successive Governments have ripped up pensions promises. The Conservative Government ripped up SERPS, but they were none the less re-elected, so the Secretary of State's belief that such actions will not be electorally popular does not wash—parties do not announce such plans in their manifestos, but carry them out anyway. Promising today's poor money from 770 tomorrow's taxpayers will not provide a secure basis for pensions policy. I would not want my income in old age to depend on the generosity of tomorrow's taxpayers; I wonder whether the Secretary of State would.
The proposal to link the so-called guarantee to earnings is welcome. The Secretary of State has promised to do that in the long term, but will he do it in the short term? The people who enjoy the guarantee are already 75 or 80, so how long will they have to wait? Will he pledge to implement the proposal immediately? We welcome the guarantee, but he knows that it does not apply to those hundreds of thousands of people who do not claim their entitlement and to those hundreds of thousands of thrifty savers who, with only £8,000 of life savings, are told that they are not entitled to the money. Finally, will the Secretary of State reassure the House that he will not rest on his laurels, but will find more money for today's pensioners, particularly the oldest pensioners?
§ Mr. Darling
I am grateful to the hon. Gentleman. He mentioned today's pensioners, but I made it clear that the statement and the Green Paper were about pensions in the future. We have always made it clear that the significant increase in help for today's pensioners, which we announced in the comprehensive spending review, was never meant to be the last word on the matter. Today's statement deals with pensions structure and the options that will be open to people in the future.
Having lectured us on the need to be prudent with our money, the hon. Gentleman demanded that we uprate the minimum income guarantee immediately. He cannot have it both ways. We have made it clear that our long-term objective is—consistent with the prudent management of public finances—to uprate the guarantee in line with earnings.
The hon. Gentleman asked about affordability. Being a professor, he is no doubt a clever man. When he gets to the appropriate part of the Green Paper, he will see that the amount of money that the state will spend over the next 50 years as a proportion of gross domestic product will go from 5.4 to 4.5 per cent. of a larger GDP. The amount that we are proposing to spend is affordable, as he will see from the Green Paper. We are ensuring that more help goes to the lower paid, who need it.
The hon. Gentleman made an important point about incentives. I am not sure whether the Liberal Democrats are in favour of compulsion right across the board.
§ Mr. Darling
The hon. Gentleman nods, so let us assume that he is. He has thought a lot about those things, and he must face up to the fact that the very poor can be compelled to save every last bean and they will still not have enough for a decent pension. On the other hand, a lot of people are now saving far more than the minimum—especially people at the top end of the income scale—and compelling them to save even more seems perverse.
§ Mr. Darling
The Liberals do not think that that is perverse. I bet they do not say that at by-elections in some parts of the country.
771 We propose to give people an annual statement in which they can see where they stand. Most people have no idea what awaits them when they reach pensionable age, and the statement will help. The incentives and additional rebates that people can take into a funded pension will help also.
I made it clear in my statement that, once stakeholder pensions are established, it is my intention to ensure that we amend the system further, so that, if people stay in the state system, they will lose money, and they would be far better off in a funded scheme. That is very important, because I firmly believe that people who can afford to save should save more, and funded schemes will always be better than unfunded schemes. People will be better off as a result.
I believe that the combination of the minimum income guarantee, the new state second pension, the stakeholder pension and the annual statement will do far more than has been the case for the past 25 years to set pensions on a proper footing for the future.
Lastly, I am delighted to work with anyone to form a cross-party consensus. I very much look forward to working with the hon. Member for Northavon (Mr. Webb) and his colleagues. If they have a constructive suggestion to help us to get a better policy, I will be pleased to receive it from him.
§ Mr. Malcolm Wicks (Croydon, North)
I very much welcome that part of my right hon. Friend's statement that dealt with carers. For too long, carers have been patted on the back and then neglected, and it cannot be right that those who provide care for elderly relatives and children with disabilities pay a penalty of poverty in their own old age. Will the Secretary of State say more about the carers pension, which we welcome?
Will the Secretary of State say something about the future of the means test? Am I right in thinking that, if we raise means-tested income support in line with earnings, but the basic pension only in line with prices, the numbers of our elders eligible for the means test will grow in the short term? How will the new SERPS impact on means-testing in future? Does the Secretary of State have a projection of how many people in 20, 30 or 50 years will still be subject to the means test?
I very much welcome the stakeholder pension for those on middle incomes. However, if a funded stakeholder pension is good enough for middle Britain, why is it not good enough for the poor? Should not the taxpayer enable poorer people, through subsidies if necessary, to be included in the new second pension scheme, given that our forefathers and foremothers—Beveridge, Attlee, Castle and Crossman—wanted inclusive and comprehensive pension schemes that helped to integrate society, rather than divisive schemes for special classes of people?
§ Mr. Darling
I will try to deal with my hon. Friend's complicated questions as quickly as I can. He asked about carers. The carers covered will be those who receive invalid care allowance, those carers of people receiving attendance allowance or disability living allowance who qualify for home responsibilities protection, and child benefit recipients where the youngest child is aged five or under. In addition, there will be help for long-term disabled people with broken work records. Further details are in the Green Paper.
772 My hon. Friend asked about the state second pension and about means testing. The object of the state second pension is to ensure that, if someone has a lifetime's work, they do not rely on means-tested benefits when they retire. My whole objective is to avoid the situation that currently exists, in which a third of people now working—never mind those who are not working—are heading for a life on income support in retirement. That is not right, and I want to lift those people above that.
That is part of the rationale of replacing SERPS with a state second pension, which, let us remember, gives great help to those on low incomes. It doubles the amount that they will get, because it breaks the tie to earnings whereby someone with low earnings gets low benefits. It is of real help to low earners, many of whom looked to us for help when we were elected. We are providing that help.
I understand where my hon. Friend is coming from on means-tested benefits. There has been an academic debate on the subject for the past 50 years or so. At present, we have a combination of contributory and means-tested benefits, as well as benefits on the basis of need, such as disability allowance. If someone, for whatever reason, has not had the opportunity to build up a contributory right to a pension, means-tested benefits are one way of getting money into the hands of a person who needs it. For the life of me, I cannot see what is wrong with that.
I would rather that people did not have to depend on benefits, and I am taking steps to try to make that less likely, but, if there are poor people, we ought to help them. I have a great deal of difficulty with the idea that it is somehow bad to increase the threshold. If we are helping more poor people—I was under the impression that that was one of the things that we were elected to do—that is no bad thing; but I believe that we should do our best to avoid a situation in which we know that people will end up on means-tested benefits. For that reason, I believe that our proposals are absolutely right and justifiable.
§ Mr. John Butterfill (Bournemouth, West)
It would be churlish not to welcome much of what the Secretary of State announced today—there is considerable consensus on what needs to be done, as is clear in the all-party group on occupational pensions, which I chair—but I am afraid that the scheme is something of a mouse, whereas we were expecting a lion. We thought that he would produce a radical reform, encompassing the whole range of pensions provision, whereas in fact he has only tinkered at the edges once again.
It is clear that not very much thought has gone into how the changes affect the whole population. The Secretary of State said that he would hold consultations about including the self-employed. He has had an awfully long time to consider the matter, so why does he need to consult further? Why cannot he produce a scheme that encompasses the self-employed?
Does the Secretary of State propose to do anything about the problem of annuities? That is the biggest problem confronting people who are retiring now. The value of annuities has dropped by about 30 per cent. in the past 12 months, partly—even considerably—due to the Government's action on advance corporation tax. We can allow people to defer, and some are permitted—
§ Madam Speaker
Order. Hon. Members are now making speeches and explaining their own policies.
773 We must have questions to the Minister. I have the next business to safeguard, and that finishes at 7 o'clock, so, unless hon. Members put questions briskly, there will be very few asked, because I shall close down this period in a couple of minutes. Now, Mr. Butterfill, let us have a question, so that the Minister can answer.
§ Mr. Butterfill
Does the Secretary of State propose to consult further on allowing people to defer the purchase of annuities or to purchase an alternative investment, when annuity yields are low, and will he reconsider the position of section 226 policyholders?
§ Mr. Darling
The hon. Gentleman will read our detailed proposals in the Green Paper. I accept that he has not yet had a chance to look at it. Annuities are low because we are entering a new era of a stable economic environment. We now have low inflation—which is the best news that pensioners could ever have—rather than the rising inflation of the past.
The hon. Gentleman criticises us for holding consultations on whether the self-employed should be allowed to have a state second pension. I believe that people should have the opportunity to be consulted, and I cannot see what is wrong with that. Indeed, I made my position abundantly clear on the matter.
On the hon. Gentleman's general point, I was anxious to build on what we have at present. It is perfectly possible to have a convention of pension rocket scientists and come up with all sorts of exciting and exotic schemes, but I ask myself whether a scheme will work and be manageable and deliver good pensions to people in the future. My proposals will do that; I do not know about his.
§ Mr. Chris Pond (Gravesham)
Is my right hon. Friend aware that the commitment that he has just underlined to seek to provide security in retirement for a majority of future pensioners, without the indignity and stigma of a means test, will be welcomed in my constituency of Gravesham and throughout the country? The policies of the Conservative party would have left millions of people subject to that stigma in retirement. Is he also aware, however, that many pensioners feel that the current system contains a certain unfairness and that, if they have saved a little for their retirement, over time, they are somehow penalised? Will he consider ways in which that unfairness might be addressed in the future?
§ Mr. Darling
Yes. I have made it clear in my statement and in the Green Paper that the Government want to consider that. It is one of the main, justifiable grouses from pensioners, and we are all aware of it.
§ Mr. Archy Kirkwood (Roxburgh and Berwickshire)
What is the Secretary of State's working assumption of the number of new stakeholder pensions that will be taken out after the scheme is implemented? In 2050, what proportion of people will still be on means-tested support?
§ Mr. Darling
Some 5 million people could potentially benefit from stakeholder schemes. They are people who can save and do not have the option at the present time. We have made a conservative estimate that, in the first 774 two or three years, 1 million to 2 million people will join the scheme, but we want to build it up as quickly as possible.
§ Mr. Dennis Skinner (Bolsover)
Is my right hon. Friend aware that there is a simpler method? It is a bit old-fashioned, but it would mean that people such as Members of Parliament and those paid more would pay more in taxation so that pensioners could get increases in line with earnings. Notwithstanding that, I appreciate that my right hon. Friend is trying to prevent casualties in the future. Will he remember the casualties of the past? Several hundred sacked miners were prevented from getting their pension entitlements as a result of the 1984–85 strike. We now have a recommendation in a Government report by the coalfield task force. Will my right hon. Friend work with others from the Treasury Bench to try to get the matter resolved as soon as possible?
§ Mr. Darling
I am grateful to my hon. Friend, who highlights an appalling case in which many former miners were the victims of mis-selling as a direct result of the previous Government's actions in the late 1980s. On the subject of the basic state pension—I repeat the point, because it is important—we had a choice. We could have uprated the basic state pension for future pensioners and that would have cost about £30 billion over the period in question. That would not help the poorest pensioners, but would give money to the better off who do not need it.
Instead, we decided that it would be better to use the money that we have at our disposal to benefit low earners to ensure that they retire on a decent income above income support. As a result of the new state second pension, someone earning about £6,000 a year will get £46 a week, instead of £13. That is a big increase. The proposals are a radical departure from what was done in the past, but they are right for the future.
§ Mr. Edward Leigh (Gainsborough)
Is not the main problem with the present system that, if one is on a low income, it is not worth one's while to take out a pension, because one loses income support? How will the situation be eased by linking the minimum earnings guarantee to earnings but not the pension? Are not the questions posed by the right hon. Member for Birkenhead (Mr. Field) and the hon. Member for Croydon, North (Mr. Wicks) unanswerable? Because the Secretary of State has ducked compulsion for political reasons, the numbers of people on means-tested benefits will increase, not decline, in the years to come.
§ Mr. Darling
Oh, they are not. Is that another split in the Tory ranks? The argument against compulsion is a practical one. If people are on low earnings, it does not matter how much of their disposable income one takes away from them, because they can never earn enough to get a proper pension. Most of those at the other end of the income scale are already saving enough. The self-employed are another matter, but the compulsion argument falls when we consider who would be asked to 775 pay more. The main problem that low earners face is that they cannot earn enough now to get a pension that would lift them above means testing. The reforms that I am making to the second state pension will enable people to work for their whole lives and get pensions above the minimum income guarantee.
I still believe that, despite those changes, having a minimum income guarantee is wholly justifiable. The logic of the hon. Gentleman's position is that there should be no safety net at all, on the grounds that that would compel people to do more. What I am proposing is practical and workable, and I am more than happy to rest my case on both those assertions.
§ Mr. Paul Flynn (Newport, West)
Does my right hon. Friend recognise the argument that compulsion must be necessary for young people, as it is impossible to convince 20-year-olds that they will ever grow old and need a pension? Although the Government deserve credit for giving £140 a year to people on a basic pension, that amount goes only a small way towards compensating them for the £1,040 that they have lost—that they were cheated out of—when the link between pensions and earnings was broken in 1980.
Does my right hon. Friend accept that the Government's targeting of poor pensioners is wide of the mark, and that 1 million pensioners will miss out on the guaranteed minimum pension because they regard income support as a handout, or charity? They would accept it if it were added to the basic pension as a right, as for 50 working years they have paid contributions that have increased at the rate of inflation. Why should we continue to cheat them by increasing the basic pension at a rate that is below that of inflation?
Many Labour Members are surprised by the faith that my right hon. Friend has shown in the private pension market after years of mis-selling. He said that the charges on the private stakeholder scheme would be below 25 per cent. Will they fall to the level of the national insurance charges on the basic pension, which at present is 2 per cent?
§ Mr. Darling
I shall deal with the various points raised by my hon. Friend. I think that I am right in saying that he has a hostility towards private funded schemes, which, frankly, I do not share. Over the next 25 years, pensioners as a whole—although not the poorest—are likely to retire on higher incomes, in part because of the growth in occupational pensions, which essentially are private pensions.
It is true that there have been problems with mis-selling, but the industry as a whole sells products that are very good for very many people. However, I believe that people are far better off if they can save through a funded pension than they ever would be if they relied on the state.
My hon. Friend returned to the question of the basic state pension. I shall not labour the point, other than to say yet again that I and my colleagues took the decision that it is far better to use the money at our disposal to help those on lower incomes—some might think disproportionately—to ensure that they have a proper pension on retirement.
My hon. Friend asked what can be done about the 19-year-olds who would rather go out and enjoy themselves than pay money into a pension. If those 776 19-year-olds earn less than £9,000 a year, compelling them to save quite a lot of money from that income will not make much difference. By the age of 25, those young people may be earning more money and therefore be more amenable to facing up to the future.
However, for the avoidance of doubt, I repeat that hon. Members who believe in blanket compulsion should think about what would happen if such compulsion were applied. It would not help the lowest paid, but would penalise those very well-off people who do not need to save more. It would increase the burden on people who already have enough pressure from children, mortgages and so on and who are not in a position to meet the requirement for extra compulsory help. What I am proposing is workable, affordable and acceptable, and therefore I believe that it will be durable.
§ Mr. Nicholas Winterton (Macclesfield)
I warmly welcome the Government's recognition of the circumstances of carers and of the contribution that they make to society, but is not the hon. Member for Newport, West (Mr. Flynn) right to say that people must begin to contribute to pensions virtually as they start work? If that is not to be achieved through compulsion—I sympathise with both sides of the debate on that matter—could not the Secretary of State offer people more flagrant, blatant and obvious fiscal encouragement to save for pensions rather than for, say, a car?
§ Mr. Darling
I appreciate that hon. Members suffer from a disadvantage in responding to Government statements, and that they are not always able read 100 pages of the relevant Green Paper beforehand. However, if the hon. Gentleman does get the chance to look at it, he will find that it contains incentives to encourage those earning moderate and higher incomes to go into funded pensions. I think that he will welcome the quite substantial rebates that are available.
I shall certainly not hold out the hope of more handouts of money, and it is unusual for Conservatives—or, at least, it used to be—to call for that. It cannot be justified, but increased incentives are available. People who say, "Let's compel 19-year-olds," should first ask themselves how much a 19-year-old has got, how much we could compel them and what difference it would make. A combination of all the measures that we are proposing, not least the annual pension statement, will concentrate minds as has not happened before.
§ Mr. Michael Clapham (Barnsley, West and Penistone)
My right hon. Friend will be aware that, at present, about 1 million people are in work and have access to an occupational pension scheme but do not join it. He will also be aware that, in 1988, the Tory Government changed the rules, which was a disaster for occupational pension schemes, as employees were allowed to move away from salary-based to money-purchase schemes, which do not provide a minimum pension. As the hon. Member for Bournemouth, West (Mr. Butterfill) said, such schemes are linked to an annuity, and go up and down with shares. Therefore, will my right hon. Friend consider how he might encourage those 1 million people back into occupational schemes, perhaps by encouraging employees to return to salary-based schemes?
§ Mr. Darling
My hon. Friend makes a good point, and the Green Paper covers it. He is right to say that the 777 previous Government allowed people to opt out of pensions and many people have made no provision. In the Green Paper, we are saying that that situation is clearly unsatisfactory. For some people, an occupational scheme may be a bad deal, especially if they will be with a firm for only two or three years, but we are saying that, if they are not in the occupational scheme, they have to have a good reason—in other words, some other pension provision. We do not agree with the idea that people can simply bail out, enjoy themselves and expect others to pick up the pieces. That was one of the many things that the Conservative party did in the 1980s that is deeply regretted.
§ Mrs. Margaret Ewing (Moray)
Clearly, the Green Paper must be read carefully, scrutinised and responded to—hopefully, constructively. I must pursue one matter with the Secretary of State. One concern that has been brought to my attention is that carers who reach pensionable age find that the state pension impacts on other benefits, such as attendance allowance. Will they be considered as special cases? The plans are long-term, but that group of carers has been cruelly treated under the old system.
§ Mr. Darling
I understand the hon. Lady's point. For carers who were in receipt of invalid care allowance, or who qualified for home responsibilities protection by caring for people on attendance allowance or disability living allowance, there will be qualifying credits back to 1978.
§ Mr. Jeremy Corbyn (Islington, North)
Would the Secretary of State explain why he has linked not the state pension but the minimum income guarantee with average earnings? Is that why he is proposing a reduction in the public contribution—as opposed to individual contributions—to pensions over a 50-year period? Will he estimate how much more money people on low incomes will be paying towards their pensions compared with the amount that they are paying now through national insurance?
§ Mr. Darling
If my hon. Friend looks at the Green Paper—I appreciate that he has not yet had the opportunity to do so—he will find that we are spending more on pensions, even though the share of national income declines. We have embarked on that course of action rather than restoring the earnings link because I want to ensure that the most help goes to people on lower incomes, rather than spreading the money thinly among everyone, as some people do not need it. I am ready to defend, for as long as it takes, the idea that the Government ought to be in the business of helping those at the lower end of the income scale. That ought to be, and will be, our priority.
§ Mr. Roy Beggs (East Antrim)
I welcome the proposals outlined by the Secretary of State, in that they will encourage those who can help themselves to help themselves further and that help is offered to those who cannot help themselves. I particularly welcome the 778 support that will be provided for mothers and carers. However, will the Secretary of State comment on what the future holds for widows?
§ Mr. Darling
We set out our proposal on widows benefits and widows pensions two or three weeks ago, and I am sure that the Vote Office still has a copy. It would take me rather longer than you would allow, Madam Speaker, to run through that matter again. However, I welcome the fact that the hon. Gentleman, almost alone among Opposition Members, has grasped what the Government are doing.
§ Ms Gisela Stuart (Birmingham, Edgbaston)
I welcome the announcement that annual statements will be issued; it is a significant way of preventing the kind of robbery of SERPS that went on for 18 years under the previous Government and that reduced the value of SERPS without any particular outcry. I have two questions, the first of which relates to women and carers. How will my right hon. Friend's announcement affect the group of people who currently claim home care responsibility years? Secondly, are there are any provisions for people who do not have taxable incomes in current years to contribute towards their pensions?
§ Mr. Darling
The stakeholder pension gives greater flexibility: people will be able to contribute up to £3,600 to a stakeholder pension, and will be able to do so up to five years after stopping work, thus allowing for people who move occupations. For the first time, women carers will have access to a second pension, and I think that many people will welcome that.
My hon. Friend made a point about the annual statement that has not been mentioned this afternoon. My right hon. Friend the Member for Birkenhead (Mr. Field), who unfortunately has left the Chamber, spoke of his concerns that a future Government might take away the benefits that we are discussing. One advantage of giving everyone an annual statement is that, if the Conservatives were ever to be re-elected and were to pinch people's pensions, the statements would show a debit. There would be an entry "What the Tories took away", and people would notice that the money had gone. That is another reason for welcoming the statement.
§ Mr. Julian Brazier (Canterbury)
Will not the Secretary of State's decision to focus his resources on those at the bottom end of the spectrum have exactly the same effect on incentives as the mistaken changes made by the Conservative Government in 1988? Specifically, what would he say to those people on small, modest occupational pensions whose funds were raided by the taxman last year and who now find that those just a little below them in terms of income have the prospect of increased pensions?
§ Mr. Darling
The hon. Gentleman has missed the point. If he examines the proposals, he will see that the help that we are giving is not only to those on low incomes, but to those on moderate incomes. They will all get help in different ways, because of the way in which we are reforming SERPS and replacing it with the second state pension. He is quite wrong to say that help will go only to the poorest pensioners; that is not the case. The hon. Gentleman does have a point, if I understand him 779 correctly, when he says that people with modest savings or modest occupational pensions could find that they start to lose benefit. In the Green Paper, we stated that we wanted to address that problem.
On corporation tax, I remind the hon. Gentleman that the Labour Government have cut corporation tax by 2p in the pound, which will increase company profitability. Companies will actually gain from us; therefore, pensions will gain from what we have done.
§ Mr. John McAllion (Dundee, East)
My right hon. Friend will know that the guaranteed minimum income is set at a level that will require a pensioner couple to survive on a joint annual income that is significantly less than that of a single person earning the national minimum wage. It is set at an absolutely minimal level. Does he recall the Commission on Social Justice set up by the late John Smith, which recommended that the guaranteed minimum income should be set at a level above income support and that it should be linked to average earnings? Will he tell us why the guaranteed minimum income has not been set at that level; why the link with earnings has been postponed until the longer term; and exactly what he means by the longer term?
§ Mr. Darling
My hon. Friend should be aware that the increase given to the poorest pensioners through the minimum income guarantee is the largest that there has been. Furthermore, I think that he would accept that we inherited a situation in which, after 18 years, pensions, especially those of the poorest, had been fairly run down. Consistent with our overall responsibility to ensure that the public finances are properly run, we put the available money towards increasing the minimum income guarantee for the poorest pensioners. We took a deliberate decision to do that.
What I am saying—I choose my words carefully, as I do not want to hold out false promises—is that our objective in the long term, consistent with prudent economic management, is to increase the minimum income guarantee in line with earnings, so that we raise the benchmark. We want to beat that benchmark, but it will be raised in such a way that pensioners benefit.
I fully accept that, for today's pensioners, that will take time, but my announcement this afternoon is designed not to deal with the situation for the next five to 10 years, but 780 for the next 50 years. However, I hope that, by the end of this Parliament, my hon. Friend and everyone else will agree that the Labour Government have done a great deal to help today's pensioners, as well as providing security for tomorrow's pensioners.
§ Mr. Quentin Davies (Grantham and Stamford)
Why does the right hon. Gentleman keep evading the means-testing issue? Does he not realise that the great savings tragedy in this country today is that those on average earnings or lower—£15,000 or £18,000 a year—would be completely barmy to save, as they would deprive themselves of thousands of pounds a year in means-tested benefits upon their retirement? Does the right hon. Gentleman not realise that, by increasing income support for pensioners at a faster rate than the state retirement pension, he will make the problem worse? He will increase the potential loss for anybody on a modest income who saves, and the income threshold below which it makes no sense to save will continue to increase to higher and higher income levels.
§ Mr. Darling
I rather suspect that the hon. Gentleman thought up his question several hours ago—certainly before he read our proposals. I make it abundantly clear—the hon. Gentleman seemed to grasp this point earlier—that people who earn as much as £15,000 a year are heading for retirement on income support because of the policies left us by the Tories. For the hon. Gentleman to complain—
§ Mr. Darling
Of course we are, because we do not want that to happen. We are reforming the pensions system to ensure that people who have worked all their lives do not have to face retirement on means-tested benefits. That is abundantly clear to everyone. I am sorry that the Conservative party is now committed to abolishing not only the state pension but mean-tested benefits as well. It is only the Conservative party that has absolutely nothing to say about this matter. The Conservatives had 18 years in which to sort out the pensions problem, but they did nothing about it. They simply presided over massive mis-selling and gross irresponsibility. In contrast, our system is affordable, workable, deliverable—and, I believe, durable as well.