- '—(1) In this section—
- a "SERPS year" is any financial year from 1978–79 to the year before the first appointed year; and
- a "State Second Pension year" is any financial year from the first appointed year onwards.
- (2) This section shall apply to any person reaching pensionable age after the end of the first appointed year.
- (3) In each State Second Pension year in which a person accrues state second pension entitlement, that person may elect to accrue an additional year's entitlement in respect of that year in substitution for their additional pension entitlement in respect of one SERPS year.
- (4) Such substitution may only take place in respect of SERPS years in which that person either paid National Insurance Contributions or was entitled to credits in lieu of National Insurance Contributions.
- (5) The Benefits Agency shall be required to notify any person to whom this section applies of their rights, and shall explain how those rights may be exercised to produce the maximum total entitlement to additional pension.'.—[Mr. Webb.]
§ Brought up, and read the First time.
Mr. Deputy SpeakerWith this, it will be convenient to discuss the following: New clause 14—Enhancement of the state personal pension—
- '.—(1) A person shall be entitled to one extra year's accrual of State Second Pension—
- (a) for every four years in which that person paid National Insurance Contributions; or
- (b) for every four years in which that person was eligible for Home Responsibilities Protection.
- (2) The accrual to which a person is entitled under subsection (1) above shall be at the Stage 2 flat rate of the State Second Pension.'.
§ Amendment No. 67, in clause 30, page 26, leave out lines 30 and 31.
§ Amendment No. 64, in page 27, line 33, at end insert—
- '(4A) an employee who is of pensionable age within subsections (2), (3) or (4) above shall be entitled—
- (a) to have secondary contributions paid by an employer on his salary which shall contribute to his pension entitlement; and
- (b) to make primary contributions which shall accrue towards the state second pension.'.
§ Amendment No. 69, in schedule 4, page 94, leave out lines 23 to 27.
§
Amendment No. 6, in page 94, line 38, at end insert—
'(9) If the application of the above percentages should produce an entitlement to additional pension such that a person entitled to a full basic pension and a full additional pension on reaching pensionable age would be expected to have recourse to Income Support within 15 years of pensionable age, there shall be inserted instead of '40' in Table 1 and Table 2 the lowest such percentage as would be required to ensure that he did not become entitled to Income Support within 15 years of reaching pensionable age.'.
Amendment No. 91, in page 95, line 5, after second "tax", insert "quarter".
Amendment No. 94, in page 95, line 7, leave out "tax week" and insert "quarter".
Amendment No. 92, in page 95, line 10, after second "tax", insert "quarter".
Amendment No. 93, in page 95, line 11, after "the", insert "quarter".
Amendment No. 96, in clause 34, page 31, line 9, after "appointed;", insert—
'and the first appointed year shall not precede the publication and distribution of guidance from the Financial Services Authority concerning those income groups for whom in its opinion, stakeholder pensions are likely to be suitable, and those for whom State Second Pension is likely to be suitable.'.
§ Mr. WebbThe purpose behind new clause 10 is to introduce the state second pension more quickly, and amendment No. 6 deals with the level of that pension. The new clause recognises that many people at a late stage in their working life will, potentially, have had many years under SERPS and relatively few years under the state second pension scheme. Under the Government's proposals, those people will see virtually no improvement in their eventual second pension from the state.
If the new clause were accepted, for each year that such people were members of the state second pension scheme they could substitute an additional year's membership of that scheme in lieu of a year's membership of SERPS. Given that the Minister has said that the state second pension is more generous for the low paid and for carers, the new clause would in effect say to those people, "We are concerned about your inadequate second pension provision not only in 2047 but for the next few years, and we shall bring in the new scheme more quickly."
How quickly can a new pension scheme be introduced? The Minister's response generally is that these schemes take a long time to mature and cannot be hurried. Schemes like SERPS allow 20 years to take effect; the danger is that, by the time 15 or 10 years have elapsed, they will have been hacked by successive Governments. The state second pension scheme will take about 45 years to come in and will probably never see maturity. The graduated pension scheme lasted for about 15 years. SERPS, 711 before it was modified, lasted for about 10 years; the state second pension scheme will never get there if it is not allowed to establish itself quickly in the public's perception. It is much harder to cut something that people are starting to get than something that they might get in some distant decade.
We believe that the needs of pensioners in poverty are much more urgent than the leisurely pace at which the state second pension will be introduced. The Minister tells us that it will double the figures for people on certain income levels and quadruple them for those on others, but none of these statements will be true until 2047, when the whole scheme takes effect. That is beyond a realistic time scale.
The Government have set out their strategy for doing something this year if there is a problem of pensioner poverty. They have also set out their strategy for doing something in 2047, but there must surely be something between now and then. If the Government believe that second state pensions are a key part of that process, as the Minister has said he does, it will be a mistake to allow decades to pass before any real benefit is felt. In a written answer to me, the Minister indicated that by 2025, which is surely a reasonable time for Government policy to begin to have an impact, the poorest 20 per cent. of pensioners will on average be only £1.30 a week better off. The richest 20 per cent. will be better off by a similar amount. The scheme will not be redistributing effectively in 25 years' time.
The thinking behind the new clause is sympathetic to what the Government are trying to do through the state second pension. It is not how we would have done things, but if they are to go ahead with the second pension, we are saying that it should take effect more quickly, and new clause 10 would have that effect. The clause would especially favour women, who could forgo their entitlement under SERPS for a given year and substitute a state second pension year of entitlement. That would favour parents with young children and the lower paid, who predominantly would be women. Given that we know that pensioner poverty of the future, as of the past, is predominantly a female phenomenon, the new clause would target that poverty without means testing.
§ Mr. BurstowI am grateful to my hon. Friend for giving way. Can he confirm that, even when the state second pension reaches maturity in 2047, those who start to draw it will rapidly—within five, 10 or 15 years—fall back on to means-tested benefits?
§ Mr. WebbMy hon. Friend gives me an unscripted but neat link into the second part of my remarks, focusing on the level of the state second pension. Amendment No. 6 would ensure that the combined value of the basic state pension, which is gradually ebbing away, and the state second pension would not be such that when a person reaches state pension age and lives an average life expectancy, he would be back on means-tested benefits before he dies. That is the nub of amendment No. 6.
We have used the figure of 15 years in the amendment as the typical life expectancy for a man aged 65. The accrual rate of the state second pension should be such 712 that someone who lives an average life span from the state pension age should not have to claim the means-tested benefit before he dies.
Clearly, we can argue about the detail of the amendment, but we are trying to highlight the principle—the adequacy of provision. The hon. Member for Birmingham, Selly Oak (Dr. Jones) pointed out that the combined value of the basic and second state pension as a fraction of average earnings will be below the level of the basic state pension at the end of the 1970s as a fraction of average earnings. A Government who seek to tackle pensioner poverty, but who leave many people who will reach pension age in 40 or 50 years expecting to draw a means-tested benefit before they die, are not being brave enough.
We can argue about the adequacy of present provision, but with 50 years to sort the system out, surely the Government could at least ensure that our oldest pensioners do not have to rely on means-tested benefit, especially if they are getting the full basic and the full state second pension.
That is the Government's answer to pensioner poverty—the basic pension combined with the state second pension. If that is not enough to keep pensioners out of poverty—not just the year that they retire, but into old age, which is likely to be increasingly old age as the years go by—it is an inadequate response.
Two issues are raised in our amendments. New clause 10 deals with the rate at which the state second pension comes in; 50 years is too long. Amendment No. 6 deals with the level; letting people end up on means-tested benefit is not adequate.
§ Dr. Lynne JonesI shall speak to amendments No. 67 and 69. I had hoped that today I would be in Washington with the Select Committee on Science and Technology to conduct our inquiry into cancer treatments. However, I feel so strongly about the issue of pensions policy that I am here today instead.
The Government are not getting it right on pensions. I offer these and other amendments later as suggestions for improving the Bill. I offered to participate in the Standing Committee that considered the Bill, and I thought from the Minister's comments in his winding-up speech on Second Reading that there might be an opportunity for me to contribute, but unfortunately the Whips seemed to think otherwise.
It is no secret that I believe that the framework of the Bill is far from perfect. I hope that the Government will use opportunities elsewhere to bring about some improvement.
During Question Time, the Minister did not dispute my assertion that the combination of the basic state pension and the state second pension, when they are fully mature in about 50 years, will pay out a lower proportion of average earnings than did the basic state pension in 1980.
The Green Paper on welfare reform was subtitled "New ambitions for our country". I hardly think that in the middle of the 21st century, in one of the richest countries in the world, to be paying out to a large proportion of pensioners a level of income that is scarcely above the means-tested benefit is much of an ambition.
"Opportunities for All", which the Government published, showed that after a lifetime of working, pensioners would be between £9 and £16 better off on the 713 state second pension and, as Liberal Democrat Members pointed out, that sum would be eroded in a few years and pensioners would be back on means-tested benefit.
The state second pension is a substitute for properly uprating the basic state pension, against which the Government have set their face. However, I cling to the Minister's words that the manifesto commitment was to uprate the basic state pension at least in line with prices. I hope that there will be an improvement in future uprating.
The state second pension replaces the proper basic state pension. Amendment No. 67 would therefore extend the category of people who will be credited into the state second pension to include those who are unemployed or whose earnings are below the lower earnings threshold, which is currently £67 a week.
Even someone on the minimum wage who works for 16 hours a week—for example, many women who cannot work full-time because of family responsibilities—will not be passported into the state second pension. That also applies to the unemployed. At the moment, unemployed people are credited with national insurance contributions for the basic state pension. If the state second pension really replaces the basic state pension, it would be logical to credit unemployed people into the state second pension.
The Government may argue that that is a disincentive to work. However, we are considering a deferred benefit from which people derive no immediate gain. When people who have been out of work have a period of employment, the disincentive to save that the prospective loss of means-tested benefit represents will be greater than for other groups. Their basic state pension will be further from the minimum income guarantee than the state pension is now.
Crediting the unemployed into the state second pension will not discourage them from working but will encourage them to save for retirement when they are in work. We should not forget that, for the better off, breaking the link between employment and tax relief for the stakeholder pension means that a substantial tax benefit per pension is available to those who do not work. However, making pension contributions is out of the question for most unemployed people. I hope that the Government will consider granting entitlement to the state second pension to those who are unemployed or whose earnings mean that they do not qualify under the proposed arrangements.
The Government intend to change the state second pension from an earnings-related pension to a flat-rate scheme. Amendment No. 69 would delete the power to make that change. The first stage of the state second pension will be earnings related. The Government state that, at that stage, people who earn less than £21,600 will receive more than they would have received under SERPS, while those earning £21,600 and more will receive the same amount. However, in time the Government want to encourage everyone earning more than £9,500 to contract out to a non-state-funded scheme.
The second stage, which is to be introduced once stakeholder pensions have become established, will change the state second pension into a flat-rate scheme for those with a significant part of their working life ahead of them—for example, those under 45 at the point of 714 change. Once the scheme becomes flat rate, the intention is that everyone will be better off contracted out to a stakeholder pension or another non-state-funded scheme. To encourage the better off to opt out, the Government are prepared to put up a lot of money in generous rebates, which they say are likely to cost about £12 billion to £15 billion. That will be all very well if people contract out to good, defined benefit pension schemes, but it will be another matter if they make money purchase pension arrangements with no guaranteed level of benefits.
The Government can do and are doing a lot to provide better value for money from private pension arrangements by driving down charges. Even so, a 1 per cent. charging regime will eat up 25 per cent. of any pension fund and there is no guarantee that stakeholder pensions will give a good return. Are people on modest earnings keen to have their pension on a risk basis? Do we approve of people on low incomes gambling with them? Many may do no more than put the minimum national insurance rebates into their scheme, as many did for personal pensions.
The position of those with earnings that vary above and below the £9,500 threshold ought to be considered by the Government. Women in particular are in that category and their incomes often fluctuate when they take time out for their caring responsibilities. Would it make sense for them to switch between the state second pension and stakeholder pensions, as each at times apparently offers better value? Will they stay in the state second pension and lose in their good years what they had gained in their bad? Despite all its shortcomings after Tory cuts, SERPS still enjoys considerable public support, which can be interpreted sensibly only as support for a concept. That concept is a decent, good-value, earnings-related defined benefit scheme that offers a natural home for all those on moderate earnings who are not fortunate enough to be in a good employer scheme.
Under the Government's proposals, the state second pension scheme will become a pension for the low paid. Encouraging everyone earning more than £9,500 to opt out means that it will become solely for people with no or very low earnings—a pension for the relatively poor. That could mean that voters will have less interest in maintaining it, particularly if it takes a long time to build up, which seems to be the case. It will also limit choice. I see no reason why those with higher earnings should not have the choice to continue to join the scheme, with benefits reflecting the contributions made. The Government should consider being as generous to those who want to stay in the state second pension as those who want to opt out.
In opposing stage 2—making the state second pension flat rate—we could at least argue that we are honouring our manifesto commitment to retain a state earnings-related pension, even if it is not exactly SERPS. It is appropriate to remind my right hon. Friend the Minister of that commitment and I hope that the Government will reconsider their decision to move the state second pension to a flat-rate scheme.
It is important to put those arguments on the record, but I shall not press the amendments to a vote. The pensions officer of the Manufacturing, Science and Finance Union helped me with the drafting and 1 hope that the Government will consider these suggestions, which are supported by Age Concern, as a positive contribution to improving the Bill.
§ 9 pm
§ Mrs. LaitI shall speak to new clause 14 and amendments Nos. 64 and 96, but not to amendments Nos. 91 to 94, as we want to move on. May I say how sad I was that the hon. Member for Birmingham, Selly Oak (Dr. Jones) did not join us on the Committee? We noticed the offer that was made to her, and were looking forward to some entertaining debates.
§ Mr. Rookerindicated assent.
§ Mrs. LaitI see that the Minister agrees. Unfortunately, the iron hand got in the way.
It is obvious from what the hon. Members for Northavon (Mr. Webb) and for Selly Oak said, and from new clause 14, that there is serious concern in the House about the state second pension's ability to keep people off means-tested benefits. All of us would agree that that is what we want to achieve. We had endless debates in Committee on this subject, and we received many reassurances that the state second pension would achieve that.
Last week, in Westminster Hall, we had an exchange on this subject, when the right hon. Gentleman pointed out that, if a couple were both on at least the state second pension, they would be above the minimum income guarantee level. We acknowledge that, but the problem is that not everyone will be in that situation. Often, only one of a couple is left at retirement age. I regularly argue that, when people are earning a moderate income and the children are at their expensive stage, if it is a question whether to spend money on a pension or on the kids' trainers, the trainers usually win. However flexible we make the state second pension or the stakeholder pension, those people will unfortunately find it difficult to save.
The hon. Member for Northavon referred to the attraction of the state second pension or the stakeholder pension in 2025 or 2050. There is much doubt about how much extra pension people will get, and whether, being rational economic beings, they will decide on the balance of probability that they are better off with a pension than relying on a minimum income guarantee related to earnings. There are problems with trying to make the state second pension in particular sufficiently attractive for people to want to save for their retirement under such a scheme.
I wish the campaign on the minimum income guarantee well. We shall keep an eye on its success, and will monitor it to see how effective it is, because we can always learn good techniques to encourage people to do the right thing. If we truly believe that people should have a pension and not benefits, we should address the issue of the interaction between the MIG and the state second pension.
I believe the Minister of State because he is a most determined and clear-thinking person. I believe that he is seriously committed to the success of the state second pension, but I have a feeling that there is a lack of understanding and that the Government are not prepared to admit that there is a flip-side to this argument, which is that people may opt for income support in retirement.
Our suggestion is another version of the variations proposed by the Liberal Democrats and the hon. Member for Selly Oak. We have come up with yet another way of making the state second pension more attractive to people. 716 We suggest that, if someone is deemed to have had four years' credits towards a state second pension and/or four years of working entitling them to credits towards the state second pension, they should get an extra year's accrual. The objective is to lift those people out of the area in which income support is more attractive.
A knee-jerk reaction is that this must cost money but, set against the cost of income support, the cost of the extra year's accrual would be modest, and would moreover be worth while in giving people the self-respect that having their own pension would confer. It would also give people an incentive to save for that pension.
In Committee, I presented a proposal which, I freely admit, may not have been drafted as well as it might have been. I am equally prepared to admit that amendment No. 64 may not have been drafted as well as it might have been, but, as we are not going to press it to a vote, it may be useful to have an exchange about it.
Amendment No. 64 suggests that those who are over the inflexible age of 65 for the purposes of the state pension—for women, 60, moving up to 65—should, if they wish to continue working, be able to contribute further, through national insurance, to enhance their state second pension. Obviously, we want to encourage people to have a better second pension, but we also want the state to recognise, as it does not, that there will almost inevitably be a need for people to retire flexibly as demography changes.
Fewer and fewer younger people will enter working-age groups. Meanwhile, those whom we have historically regarded as being of an age to retire will want to work, will be well enough to work, and will present great value to employers because of their knowledge, experience and steadiness. They will also play a key role in charitable and voluntary work, for which more and more people are being paid. It would seem sensible to allow people over the state pension age to contribute if they wish to.
As for amendment No. 96, let me pick up some of the points made by the hon. Member for Selly Oak about the success of the stakeholder pension before the target group moves from the state second pension. We have received many assurances from the Minister—I believe him—that, before stage 2 of the state second pension is reached, when everyone goes on to a flat rate, there will be a debate in the House, and the success of the stakeholder pension will be assessed. What we have not heard from the Minister is a description of the target market.
No one puts a new product such as this into the market without having a clear idea of what the market is. In simplistic terms, we are talking about people earning between £9,500 and £21,000 a year, but subsequent clauses and amendments suggest that not just that group is involved. Excluded from it are people who could potentially take advantage of a tax break. There are people who may be earning a small amount, but whose husbands or wives are earning a reasonable income. Are they part of the target market? How many people are in the target market? From what circumstances are they meant to be able to benefit in the target market?
We are asking the Financial Services Authority—which, because of its wide experience of different financial products, will understand markets—to help the Government to define the target market, and to say whether it represents a good deal. We have a serious concern about whether the stakeholder pension and the 717 state second pension will be a good deal, and about whether, rationally, people should not go on to the minimum income guarantee.
Before people make those decisions, they should go through the process illustrated in a decision tree, and the Government have rightly included types of decision trees in some of their consultation documents. However, the purpose of any decision tree is to guide people through a series of yes/no questions, whereas the decision tree in the Government's document regularly states, "Seek help," "Always seek help," "Ask your employers for details," "Should seek help," "Probably will be a better choice for you—seek help." The Government's decision tree regularly admonishes people to seek help, but it does not assist them in making a decision.
Unless the Government are careful, they are in grave danger of setting themselves up for another mis-selling scandal. There is a danger not only because the Government are encouraging people to make a decision that would perhaps not be in their best interests, but because they are not encouraging people to make a more fundamental decision. There is a presumption that a pension is best for everyone. Although I would not disagree with that, there are those whose best interests may be served by being on income support.
I suggest most humbly that, if the Government wish to encourage people to choose a state second pension or stakeholder pension, people should first be clear in their own minds about whether that is the best choice for them. The decision tree that the Government are encouraging people to use should deal with those basic issues.
I hope that the right hon. Gentleman will be able to deal with the points that I have made on those three amendments. I look forward to hearing what he has to say.
§ Mr. Jim Cousins (Newcastle upon Tyne, Central)I support amendments Nos. 67 and 69, with which I have identified myself. I do not intend to detain the House for very long.
I have a slightly different view on the issues that we are debating from some of my hon. Friends who have spoken in the debate, broadly speaking, from below the Gangway. The opinion that I expressed in the debate on Second Reading—I hold it even more strongly now—was that the state second pension proposal is a fundamental and significant innovation for two reasons. The first is that it will extend the network of the state pension to spheres that the current contributory system simply does not reach. The proposal is therefore extremely radical. It will affect those who live in social conditions that are not reached at all by the state pension system. I give great credit to my right hon. Friend the Minister of State for his part in developing the proposal, which is a powerful mechanism for the future.
I tell the hon. Member for Northavon (Mr. Webb) that many people will accrue entitlements to the state second pension when they are experiencing particular responsibilities or obligations that they do not have in other times of their lives. Therefore, the state second pension will continue to top up a pension entitlement that, in other times of those people's lives, was generated by quite different mechanisms. It is an extremely important aspect of the proposal.
The accrual rate of the benefits generated by the state second pension is the second significant feature of the proposal. For those earning £10,000 or £11,000 annually, 718 the state second pension will be the best pension product ever offered to the British people. The Government should be given considerable credit for that.
The point of amendments Nos. 67 and 69, however, is to make it clear that it would be very good indeed if the benefits of the state second pension could be extended even further to those who are not reached by the contributory system.
9.15 pm
It is also important that the state second pension is not later switched back to a flat-rate benefit. My right hon. Friend the Minister said during Question Time today that there were 18 million potential beneficiaries of the state second pension. He will correct me if I am wrong. More than half of those have earnings above the target level of £9,500 a year. The bulk of the benefit of the state second pension will go to people who, at some point in the future, may be excluded from it.
Part of the purpose of the amendments is to put off and change that exclusion. If people are to be excluded from the non-flat-rate parts of the state second pension, the stakeholder pension—a voluntary, defined contribution scheme in which the pattern of contributions is determined by the contributor—will bear an unreasonable weight of responsibility throughout the income ranges. The stakeholder scheme will be rescued if a non-flat-rate state second pension is able to continue to provide earnings-related benefits on the favourable basis on which the scheme has been designed. I hope that my right hon. Friend will find that my simple points are sympathetic to his scheme.
This brief debate has been interesting. When the state second pension scheme was first proposed, there were all manner of doubts about it. Interestingly, many of the Opposition amendments tonight would extend its benefits. The power of the state second pension scheme is now acknowledged by all. It does not seem unreasonable to extend its benefits to wider categories of people and embed it firmly as an essential building block of the pensions system of the future.
§ Mr. RookerThe hon. Member for Beckenham (Mrs. Lait) said that there were certain issues that she would not raise, so I junked most of my notes in the interests of brevity. The hon. Member for Northavon (Mr. Webb) was very brief and stuck to the point. If I do not cover something that I should, hon. Members should come back to me on it. I am trying to truncate my speech.
It bears repeating that the state second pension is a reform of SERPS that refocuses help on those who need it most. Some 4.5 million low earners will get more than double what they would have got under SERPS. Two million carers and a similar number of long-term disabled people will also build up a second tier pension for the first time. In addition, 9.5 million moderate earners—earning between £10,000 and £20,000 a year—will gain.
It is probably better for me to respond to the points that have been made than to whip through my notes. Commentators often suggest that people would be better off on the minimum income guarantee. Some highly paid so-called journalists have given unprofessional advice. It is compulsory for people to pay into a second pension—either SERPS, which will become the new state second pension, or an occupational or personal pension scheme. Employees 719 cannot choose to clear off out of all the provision and go into the MIG, because if they are working they will be paying national insurance, and if they are not contracted out they will be paying it at the full rate.
I am grateful to my hon. Friend the Member for Newcastle upon Tyne, Central (Mr. Cousins) for what he said about the fundamentals of the scheme. It is true that it is our intention that in stage 2 the state second pension should be a flat rate, but we will not do that until we are satisfied that the stakeholder system is established. We have not yet defined what we mean by its being established, but we will certainly have to in due course. It would not mean a short time, and I would generally take the lifetime of a Parliament—certainly not less than three to five years—to be a suitable period.
The hon. Member for Beckenham referred to the target group. There is not a moving target, although it might look that way. The target group consists of those with moderate incomes of between £10,000 and £20,000 a year, with no second pension provision, whose jobs may be peripatetic and who may move in and out of different scales.
There are 5 million people with earnings between £10,000 and £20,000 a year, 3 million of whom have no second pension provision. I am not denying that, in order to encourage those people and make pensions politically sexy for them, we have made the system user-friendly and flexible, so—it is true—it can be used to purchase a pension for a non-earning spouse or a child. People may call that tax avoidance, but I say that it is still a pension at the end of the day. It is not a tax fiddle, because it is not like putting the money into an individual savings account, which can be cashed in. Money in a pension stays there until it is drawn as a pension.
The price that we pay for flexibility and user-friendliness is that many people other than the target group will have a stakeholder pension, and some will no doubt move from personal to stakeholder pensions. That is not how we will measure our success; we will measure it by the results in the target group.
My hon. Friend the Member for Birmingham, Selly Oak (Dr. Jones) rightly raised the question of those with earnings fluctuating around the limit. I deeply regret the fact that she could not join us in Committee. Of course, I do not organise these matters, but I certainly cast a vote for her. The new arrangements for people who are contracted out were designed specifically to deal with fluctuating earnings.
The state second pension top-up payments will be payable for earnings under £9,500. If people's earnings go above that amount, the national insurance rebate will be sufficient to give them an amount of pension broadly equivalent to what they would have received had they remained in the state scheme. The top-up system means that people will not have to face what I recognise would be extremely difficult decisions.
My hon. Friend the Member for Selly Oak asked me about another matter at Question Time. I now have some more information and I certainly want to give her the best answer that I can. The state second pension and the basic pension in 2050 for low earners will be about 25 per cent. of average earnings—roughly the same proportion as the basic pension was in 1980—but that level of average 720 earnings will be more than double today's level in real terms. If she is not satisfied with that answer, I will be happy to answer further parliamentary questions.
Amendment No. 96 would require the introduction of stage 1 of the state second pension to be postponed until the Financial Services Authority had published guidance setting out for which income groups stakeholder and state second pensions were suitable. We do not think that it is necessary to put everyone through that hoop.
Stakeholder pensions are not compulsory—people can remain in the state second pension—and we have no plans for them to become compulsory. A judgment will have to be made in due course as to whether enough of the target group have been persuaded to join the stakeholder pension and, if not, why not. We need to get everyone who is working into a good second pension. If they are not, they will be in real trouble when they retire. The policy has not been ruled out, but there are no plans—let us be realistic about that.
We have worked closely with the FSA to develop the policies on the stakeholder pension. I have not seen the latest versions of the decision trees. As I said in Committee, just before Christmas, I went to one presentation of the FSA's work, which is highly sophisticated. There is a good understanding among those involved in the industry, among those in my Department and among the regulators that we must get people into such schemes, without mis-selling, making it simple and easy to do that and to understand the scheme. The decision trees are part of that. They are not the only answer, however.
§ Mrs. LaitDoes the work on decision trees go back to the basic balance between income support and pensions?
§ Mr. RookerI am coming to income support. I will not dodge that issue, but the hon. Lady is right to raise it.
Amendment No. 69 would remove the provision to introduce the second stage of state second pension, making it a flat rate. As I have explained, our proposal to move to the second stage when conditions are right is designed to give the Government flexibility to give a strong incentive to moderate and to higher earners to move to funded schemes.
We make no bones about that. We make no apology. It is not a secret policy. It is part of the overall big picture—the plan to shift pension provision from 60 per cent. state and 40 per cent. private to 40 per cent. private and 60 per cent. state. [Interruption.] I shall do it the other way around. It is part of our overall plan to move from 60 per cent. public and 40 per cent. private to the other way around. Everything fits into that. I have said that so many times it is ridiculous to get it wrong.
New clauses 10 and 14 would both boost entitlement. The ideas behind them are wholly laudable; I make no criticism of that. They would do it through retrospection and by allowing contributors to accrue more years' entitlement than they actually pay for. It is novel and innovative. It is one extra year for every four. It has some seductiveness.
There are two arguments in respect of those new clauses: first, whether we should provide additional help to specific groups; and, secondly, the need to maintain a balance between providing help to those who need it most 721 and managing the overall cost. We do not believe that it is fair to provide additional boosts to certain groups, rather than to all state second pension beneficiaries.
It is no secret that retrospection is an issue that we have considered. We discussed it Upstairs in Committee, but to allow retrospection for everyone would be prohibitively expensive and operational difficulties mean that it is not possible—I am sorry; it is those computers again—to allow retrospection in many cases. It is not just computers but lack of records. As a result, it is not a viable proposition.
Our proposals for the state second pension strike a balance. The amendments would change that balance. For example, new clause 14 alone would add £8 billion a year to the long-run cost—the cost by 2050. New clause 10 would add £3 billion to the long-run cost. That gives hon. Members some idea of the scale. I shall not repeat the points that we have made: without the changes, many more people would retire on the MIG.
Amendment No. 67 seeks to exclude the requirement for low earners to have earnings at or above the annual lower earnings limit to benefit from the low earner's boost. However, the state second pension is a contributory benefit based on earnings factors. There is no doubt about that. It is not a free ride. To have an earnings factor, a person must have had earnings on which national insurance contributions have been paid, or treated as paid.
The amendment would give the low earner's boost to anyone who had as little as one week's earnings in a year over the weekly lower earnings limit, which, from this April, will be £67. However, it would not include people with earnings of less than £67 for every week of the year. That would lead to some pretty perverse outcomes. There would be an incentive for the economically inactive to find part-time work for a single week to qualify for the state second pension. We do not think that that is fair.
9.30 pm
Finally, I turn to the minimum income guarantee, which is generally quoted in relation to individual citizens. I accept that not everyone is part of a couple, even at retirement, but that is the norm for most of the population. However, the key point is that the MIG is not an individual benefit. The means test is applied to the couple, not the single person. Therefore, although the relevant figures, assessments and advice for single people are necessary, it is right and proper to consider the circumstances as they apply to couples.
The minimum income guarantee for a couple is not twice the rate for a single person, but about one and a half times that rate. I shall give one example of that. In 2025, a husband has had a full working life, and his wife has had 20 years of caring for children, 10 of those years being devoted to children under six years of age. The man has earned £180 a week, at today's value, throughout his working life, and his wife, when she has worked, has earned £120, again in today's terms.
Under SERPS, the couple's pension would be £121.40 a week, nearly £5 more than the MIG. Under the state second pension, the couple's pension would be £150—15 years before they fall back on the MIG. Such factors must be taken into account. I have recently complained to the financial experts on The Guardian and The Observer, and will do so again to the experts on 722 The Sunday Telegraph, who have all advised that it is better not to be involved and to let the state have a ride on the MIG. That advice can give people the false impression that they do not need to provide for themselves.
What is the price of being on the MIG? First, people are limited with regard to the amount of savings that they can have. Those capital limits are being raised, and it is important to ask how many times they will change in the future, because otherwise people might take a risk that is not worth the candle. If a couple can be in SERPS or the second state pension, or a combination of the second state pension and a stakeholder pension, their income, generally speaking, will be way over the MIG. There will be no pressure on their savings, or any of the other factors that go with the MIG.
When journalists write on this subject and give examples about MIG, I wish that they would give the relevant figures for couples as well as for individuals. We shall do that when we compile the leaflets for stakeholder pensions, and the picture that is painted as a result will be entirely different simply because the MIG for a couple is nowhere near twice the rate for a single person.
§ Mr. WebbI thank the Minister for responding seriously to the points raised in this section of the debate. It is extraordinary that the Conservative amendment outspends the Liberal Democrat one—it would cost the Government £8 billion, as opposed to our amendment's £3 billion. That must make the hon. Member for Havant (Mr. Willetts) feel a bit uncomfortable.
The Minister ended on an important point. It is true that a couple in which both partners are on full state second pension and basic pension, for example, will be clear of the MIG. In terms of pension planning, however, individuals cannot assume that they will be part of a couple when the time comes. Far too many women's pensions in the past have been built on the assumption that their husbands would provide, only for that relationship to break up. A lot of people are single at pension age, many of them never having thought that that would happen. That has to be taken into account.
The Minister said that new clause 10 contains an element of retrospection, and that the computers were not up to the task. When the decision is made about how much someone will get on retirement, the computers will have to know, in each year of SERPS, how much SERPS that person would be entitled to. We suggest that they disregard one of those historic pieces of information and use a current piece of information. A current year's entitlement should be substituted for an old year's entitlement. As, presumably, the data and the computers are better now, and given that the figures will have to be worked out anyway, I do not understand why the computers should be a barrier.
In the scheme of 50 years of pension reform, the scale of the improvement to the state second pension that we propose is reasonable and modest. We have sought to divide the House on a number of occasions, but we believe that the state second pension is a key aspect of the Bill. We believe that the state second pension is flawed because it will take so long to come in, and new clause 10 would address that in a measured and reasonable way.
§ Question put, That the clause be read a Second time:—
§ The House divided: Ayes 36, Noes 282
725| Division No. 137] | [9.36 pm |
| AYES | |
| Allan, Richard | Heath, David (Somerton & Frome) |
| Ashdown, Rt Hon Paddy | Hughes, Simon (Southwark N) |
| Ballard, Jackie | Jones, Dr Lynne (Selly Oak) |
| Benn, Rt Hon Tony (Chesterfield) | Keetch, Paul |
| Brake, Tom | Kirkwood, Archy |
| Brand, Dr Peter | Llwyd, Elfyn |
| Breed, Colin | McDonnell, John |
| Maclennan, Rt Hon Robert | |
| Burnett, John | Moore, Michael |
| Burstow, Paul | Öpik, Lembit |
| Campbell, Rt Hon Menzies (NE Fife) | Rendel, David |
| Sanders, Adrian | |
| Chidgey, David | Stunell, Andrew |
| Corbyn, Jeremy | Thomas, Simon (Ceredigion) |
| Cotter, Brian | Tonge, Dr Jenny |
| Davey, Edward (Kingston) | Tyler, Paul |
| Fearn, Ronnie | Webb, Steve |
| Foster, Don (Bath) | |
| George, Andrew (St Ives) | Tellers for the Ayes: |
| Harris, Dr Evan | Mr. Bob Russell and |
| Harvey, Nick | Sir Robert Smith. |
| NOES | |
| Abbott, Ms Diane | Clark, Dr Lynda (Edinburgh Pentlands) |
| Ainger, Nick | |
| Ainsworth, Robert (Cov'try NE) | Clark, Paul (Gillingham) |
| Alexander, Douglas | Clarke, Charles (Norwich S) |
| Allen, Graham | Clarke, Eric (Midlothian) |
| Anderson, Donald (Swansea E) | Clarke, Tony (Northampton S) |
| Anderson, Janet (Rossendale) | Clelland, David |
| Armstrong, Rt Hon Ms Hilary | Clwyd, Ann |
| Ashton, Joe | Coaker, Vernon |
| Atherton, Ms Candy | Coffey, Ms Ann |
| Atkins, Charlotte | Cohen, Harry |
| Austin, John | Coleman, Iain |
| Banks, Tony | Colman, Tony |
| Barnes, Harry | Connarty, Michael |
| Barron, Kevin | Cook, Frank (Stockton N) |
| Bayley, Hugh | Cooper, Yvette |
| Beard, Nigel | Corbett, Robin |
| Beckett, Rt Hon Mrs Margaret | Cousins, Jim |
| Begg, Miss Anne | Crausby, David |
| Bell, Martin (Tatton) | Cryer, John (Hornchurch) |
| Benton, Joe | Cunningham, Rt Hon Dr Jack (Copeland) |
| Bermingham, Gerald | |
| Berry, Roger | Cunningham, Jim (Cov'try S) |
| Betts, Clive | Dalyell, Tam |
| Blears, Ms Hazel | Darling, Rt Hon Alistair |
| Blizzard, Bob | Darvill, Keith |
| Boateng, Rt Hon Paul | Davey, Valerie (Bristol W) |
| Bradley, Keith (Withington) | Davidson, Ian |
| Bradley, Peter (The Wrekin) | Davies, Geraint (Croydon C) |
| Bradshaw, Ben | Dean, Mrs Janet |
| Brinton, Mrs Helen | Dismore, Andrew |
| Brown, Rt Hon Nick (Newcastle E) | Dobbin, Jim |
| Browne, Desmond | Donohoe, Brian H |
| Buck, Ms Karen | Doran, Frank |
| Burden, Richard | Dowd, Jim |
| Caborn, Rt Hon Richard | Eagle, Angela (Wallasey) |
| Campbell, Alan (Tynemouth) | Eagle, Maria (L'pool Garston) |
| Campbell, Ronnie (Blyth V) | Edwards, Huw |
| Campbell-Savours, Dale | Ennis, Jeff |
| Caplin, Ivor | Field, Rt Hon Frank |
| Casale, Roger | Fisher, Mark |
| Caton, Martin | Fitzsimons, Lorna |
| Cawsey, Ian | Flint, Caroline |
| Chapman, Ben (Wirral S) | Follett, Barbara |
| Clapham, Michael | Foster, Rt Hon Derek |
| Clark, Rt Hon Dr David (S Shields) | Foster, Michael Jabez (Hastings) |
| Foster, Michael J (Worcester) | McWilliam, John |
| Foulkes, George | Mahon, Mrs Alice |
| Galloway, George | Marsden, Gordon (Blackpool S) |
| Gardiner, Barry | Marsden, Paul (Shrewsbury) |
| Gerrard, Neil | Marshall, Jim (Leicester S) |
| Gilroy, Mrs Linda | Marshall-Andrews, Robert |
| Godman, Dr Norman A | Maxton, John |
| Goggins, Paul | Meacher, Rt Hon Michael |
| Golding, Mrs Llin | Michie, Bill (Shef'ld Heeley) |
| Gordon, Mrs Eileen | Miller, Andrew |
| Griffiths, Jane (Reading E) | Moffatt, Laura |
| Griffiths, Nigel (Edinburgh S) | Moonie, Dr Lewis |
| Grocott, Bruce | Morgan, Ms Julie (Cardiff N) |
| Grogan, John | Morley, Elliot |
| Hall, Mike (Weaver Vale) | Morris, Rt Hon Ms Estelle (B'ham Yardley) |
| Hamilton, Fabian (Leeds NE) | |
| Harman, Rt Hon Ms Harriet | Mountford, Kali |
| Heal, Mrs Sylvia | Mullin, Chris |
| Healey, John | Murphy, Denis (Wansbeck) |
| Henderson, Doug (Newcastle N) | Murphy, Jim (Eastwood) |
| Henderson, Ivan (Harwich) | Murphy, Rt Hon Paul (Torfaen) |
| Heppell, John | Naysmith, Dr Doug |
| Hill, Keith | Norris, Dan |
| Hinchliffe, David | O'Brien, Mike (N Warks) |
| Hoon, Rt Hon Geoffrey | Olner, Bill |
| Hope, Phil | O'Neill, Martin |
| Hopkins, Kelvin | Osborne, Ms Sandra |
| Howarth, Alan (Newport E) | Palmer, Dr Nick |
| Howarth, George (Knowsley N) | Pearson, Ian |
| Howells, Dr Kim | Pendry, Tom |
| Hoyle, Lindsay | Perham, Ms Linda |
| Hughes, Kevin (Doncaster N) | Pickthall, Colin |
| Humble, Mrs Joan | Pike, Peter L |
| Hurst, Alan | Plaskitt, James |
| Hutton, John | Pollard, Kerry |
| Iddon, Dr Brian | Pond, Chris |
| Illsley, Eric | Pound, Stephen |
| Jackson, Ms Glenda (Hampstead) | Powell, Sir Raymond |
| Jackson, Helen (Hillsborough) | Prentice, Ms Bridget (Lewisham E) |
| Jamieson, David | Prentice, Gordon (Pendle) |
| Jenkins, Brian | Prescott, Rt Hon John |
| Johnson, Alan (Hull W & Hessle) | Prosser, Gwyn |
| Johnson, Miss Melanie (Welwyn Hatfield) | Purchase, Ken |
| Quin, Rt Hon Ms Joyce | |
| Jones, Rt Hon Barry (Alyn) | Quinn, Lawrie |
| Jones, Helen (Warrington N) | Radice, Rt Hon Giles |
| Jones, Jon Owen (Cardiff C) | Raynsford, Nick |
| Jones, Martyn (Clwyd S) | Reed, Andrew (Loughborough) |
| Kaufman, Rt Hon Gerald | Reid, Rt Hon Dr John (Hamilton N) |
| Keeble, Ms Sally | Roche, Mrs Barbara |
| Keen, Alan (Feltham & Heston) | Rooker, Rt Hon Jeff |
| Kemp, Fraser | Rooney, Terry |
| Kennedy, Jane (Wavertree) | Ross, Ernie (Dundee W) |
| Khabra, Piara S | Rowlands, Ted |
| Kidney, David | Roy, Frank |
| Kilfoyle, Peter | Ruane, Chris |
| King, Andy (Rugby & Kenilworth) | Ruddock, Joan |
| King, Ms Oona (Bethnal Green) | Ryan, Ms Joan |
| Laxton, Bob | Salter, Martin |
| Lepper, David | Savidge, Malcolm |
| Leslie, Christopher | Sawford, Phil |
| Levitt, Tom | Sedgemore, Brian |
| Lewis, Terry (Worsley) | Sheerman, Barry |
| Liddell, Rt Hon Mrs Helen | Short, Rt Hon Clare |
| Linton, Martin | Simpson, Alan (Nottingham S) |
| Lock, David | Singh, Marsha |
| Love, Andrew | Skinner, Dennis |
| McAvoy, Thomas | Smith, Rt Hon Andrew (Oxford E) |
| McCabe, Steve | Smith, Angela (Basildon) |
| McDonagh, Siobhain | Smith, Jacqui (Redditch) |
| Macdonald, Calum | Smith, John (Glamorgan) |
| McFall, John | Smith, Llew (Blaenau Gwent) |
| McNulty, Tony | Snape, Peter |
| MacShane, Denis | Soley, Clive |
| Mactaggart, Fiona | Southworth, Ms Helen |
| McWalter, Tony | Spellar, John |
| Squire, Ms Rachel | Twigg, Derek (Halton) |
| Steinberg, Gerry | Twigg, Stephen (Enfield) |
| Stevenson, George | Walley, Ms Joan |
| Stewart, David (Inverness E) | Ward, Ms Claire |
| Stewart, Ian (Eccles) | Watts, David |
| Stinchcombe, Paul | White, Brian |
| Stoate, Dr Howard | Whitehead, Dr Alan |
| Stringer, Graham | Williams, Rt Hon Alan (Swansea W) |
| Stuart, Ms Gisela | |
| Sutcliffe, Gerry | Williams, Alan W (E Carmarthen) |
| Taylor, Rt Hon Mrs Ann (Dewsbury) | Williams, Mrs Betty (Conwy) |
| Wills, Michael | |
| Taylor, Ms Dari (Stockton S) | Winnick, David |
| Taylor, David (NW Leics) | Wood, Mike |
| Temple-Morris, Peter | Woodward, Shaun |
| Thomas, Gareth (Clwyd W) | Woolas, Phil |
| Thomas, Gareth R (Harrow W) | Worthington, Tony |
| Tipping, Paddy | Wright, Anthony D (Gt Yarmouth) |
| Touhig, Don | Wright, Dr Tony (Cannock) |
| Trickett, Jon | Wyatt, Derek |
| Truswell, Paul | |
| Turner, Dennis (Wolverh'ton SE) | Tellers for the Noes: |
| Turner, Dr George (NW Norfolk) | Mr. Greg Pope and |
| Turner, Neil (Wigan) | Mrs. Anne McGuire. |
§ Question accordingly negatived.