Minimum Pension Guarantee

HC Deb 08 March 1999 vol 327 cc9-12

6. Mr. Bill Rammell (Harlow)

If he will make a statement on the review of the savings allowance in relation to the minimum pension guarantee. [73043]

11. Sir Sydney Chapman (Chipping Barnet)

What assessment he has made of the effect of the introduction of a minimum pension guarantee on low earners' savings. [73048]

The Secretary of State for Social Security (Mr. Alistair Darling)

We made clear in the pensions Green Paper that we want to look at options for changing the rules on the treatment of voluntary saving better to reward those who have saved for their retirement.

Mr. Rammell

I thank my right hon. Friend for his reply. I fully support the Government's policy of aiming support at the poorest pensioners in the initial stages of the current Parliament, and decry the selective amnesia of the Opposition. A huge expansion of means-tested benefits took place when they were in power; now, they have suddenly discovered that they have problems with that.

Does my right hon. Friend agree that there is a problem for pensioners with relatively few savings who feel that they have played by the rules, but who are now finding that those relatively small sums disbar them from additional state support? May I strongly urge the Government to take that factor into account in the review?

Mr. Darling

My hon. Friend has made two good points. First, I think that we all take with a pinch of salt some of what is now being said by the Conservative party, and what will be said in the "kitchen table" talks that it is introducing. Secondly, I have made it clear on a number of occasions that we need to ensure that someone who has saved, and has a modest amount of capital or income, will not be penalised on that account. As we made clear in the pensions Green Paper, we are determined to act.

Sir Sydney Chapman

Given the Secretary of State's acceptance that the introduction of a minimum pension guarantee will lead to a distinct disincentive for those earning below the average to save, and given that it will lead to a massive increase in means-testing and more dependency on the state, will the right hon. Gentleman have a quiet word with the Chancellor in the next 24 hours, to ensure that he addresses those very real problems?

Mr. Darling

I think that the hon. Gentleman was a Whip during much of the last Government, and he did nothing about the problems about which he now complains.

We recognise that there is a problem for pensioners with income and capital, and we are therefore determined to do something about it. In regard to the minimum income guarantee, we—unlike the Conservative party— recognise that there are many pensioners who are poor, and who need immediate help. The guarantee means that we are giving to the poorest pensioners real help, which many of them greatly appreciate and which, sadly, many of them greatly need.

Mr. Steve Webb (Northavon)

I restate my support for the Government's decision to link the minimum income guarantee to earnings. However, does the Secretary of State accept that an anomaly is being created? The overall aim of the policy is to ensure that people reach retirement age with an income above the minimum income guarantee level, but, in written answers to me, he has suggested that they will be below that level within five years of retirement. As the guarantee rises in line with earnings, and all other pension incomes rise in line with prices, people could slip back down later in their retirement. Is the right hon. Gentleman concerned about that, and does he plan to do something about it?

Mr. Darling

I appreciate the fact that the hon. Gentleman—I assume that he speaks for the whole Liberal Democrat party on the issue—[Interruption.] Obviously not. I appreciate what he said. Most sensible commentators, and he is clearly one, recognise the value of linking the minimum income guarantee to earnings.

On the hon. Gentleman's substantive point, our object is to ensure that, during their lifetime, people save as much as they possibly can, so that they do not have to rely on income-related benefit. With people living longer— sometimes for 20 or 30 years after retirement—that means that there has to be substantial saving. One of the things that we are doing that will help people who can save but do not, is to ensure that they receive an annual pension statement, which will concentrate some people's minds in a way that has not happened.

Mr. Malcolm Wicks (Croydon, North)

Only this morning, before coming to the House, I met a group of pensioners in Croydon. The main issue that they raised was the perceived unfairness of the position of those people who, for either income or capital reasons, were just above the means-tested income support level.

One elderly woman, a widow, said that she had put aside savings so that she could do repairs to her home, if those were necessary. Because of those savings, she was debarred from income support. I welcome what my right hon. Friend has said about the savings trap and our need to spring it. It cannot be right that those who are the most responsible and thrifty among the elderly population are penalised, rather than supported.

Mr. Darling

I appreciate my hon. Friend's point. Without wishing to labour the point, let me say that the Government are considering how best to deal with that matter. The problem of people who are nearly poor is one that has concerned many of us for some considerable time, but I emphasise that, given the situation that we inherited, where there were many extremely poor pensioners, to do something quickly to help those most in need, it was necessary to introduce the minimum income guarantee, as well as the other measures that we have taken: free eye tests for pensioners, concessionary travel, winter fuel payments and so on. Taken together, those measures are a significant boost for pensioners, but I take the point that my hon. Friend makes.

Mr. Iain Duncan Smith (Chingford and Woodford Green)

Is it not a fact that the Secretary of State has put pensioners in an expensive mess? The very fact that he has to look at the savings trap shows that the Government blundered into the whole business of the minimum income guarantee without thinking through the effects of what they were about to do. It will lead to increasing dependency.

Let the Secretary of State ask himself what the Government have done for pensioners. When they first came in, they taxed £5 billion a year off pension holders, which means that pensioners will be up to 15 per cent. worse off on their incomes after retirement. Not only is the budget rising by £37 billion a year, but the Government's response to that is to increase dependency through the minimum income guarantee, increase the cost further and so increase the overall cost of welfare.

The Prime Minister promised to cut the cost and the Secretary of State is raising it. We have heard of dumbing down, but surely that is dumb government.

Mr. Darling

Discussion over the breakfast table in the household must be absolutely fascinating.

The Conservatives have to face up to two points. First, the income and capital rules have been there for some considerable time. In fact, they were there during the whole time that the Conservatives were in office, and they did nothing about them.

Secondly, if we had not changed the way in which pension provision is made for the future, one person in three who is now working would rely on income-related benefits—in other words, the means test that the hon. Gentleman complains about. What we have done is to ensure that, where people work throughout their life, they are rewarded by not having to rely on income-related benefits when they retire.

The minimum income guarantee was introduced to tackle a real problem: there are far too many poor pensioners.[Interruption.] One would think that the Conservative party—I know that Conservative Members have been told this in their new presentation—had arrived on the planet only last week. They were not only on the planet; they were in government for 18 years, during which time they did nothing for poorer pensioners.

I am more than happy to be judged on the fact that I am part of a Government who introduced the minimum income guarantee, reduced VAT on fuel, introduced free eye tests for pensioners and extended concessionary travel. The present Government are determined to do far more for pensioners—for whom the Conservative party did absolutely nothing.