§ The Secretary of State for Work and Pensions (Mr. Andrew Smith)
With permission, Mr. Speaker, I should like to make a statement on the Pickering report that was published this morning.
The report is the culmination of nine months of hard work by Alan Pickering and his team. I should like to thank him and also everyone who took the time and effort to submit their views—some of whom are here today.
In his report, Alan Pickering acknowledges the encouragement that he received not only from my right hon. Friends the Secretary of State for Transport and the Minister for Pensions, but also from the right hon. Member for Hitchin and Harpenden (Mr. Lilley) and the hon. Members for Havant (Mr. Willetts) and for Northavon (Mr. Webb).
Pensions simplification has to be at the heart of any strategy to encourage greater pension provision. We need to deal with the complexities built up over the years by successive Governments.
Alan's report makes 52 recommendations. The key ones include: a new pensions Act to consolidate all existing pensions legislation; a new more proactive regulator; a better, more targeted approach for communicating with pension scheme members; more flexibility to modify schemes; allowing employers to make membership of their occupational pension scheme a condition of employment; and the ending of compulsory indexation for defined benefit pensions, and compulsory survivors benefits.
The report, together with Ron Sandler's proposals, announced by my hon. Friend the Financial Secretary on Tuesday, represents the first stage of a comprehensive review of occupational and personal pension provision.
The Government will take a radical look at the issues, together with the results of the Inland Revenue review of tax simplification, when that is completed. In the autumn we will come forward with our proposals in a Green Paper.
That will initiate a wide-ranging consultation. It will look at private pensions policy in the round, including the opportunities open to people around retirement, and will set out the Government's proposals to enable people to build up more pension savings.
Alan Pickering's report covers complex issues and includes some tough choices—the inevitable dilemmas faced by all simplifiers. The report presents challenges to us all: employees and their unions, employers and commercial pension providers, the Government and the Opposition. I believe that we will need to be guided by the following principles and objectives, grounded in a long-term approach: fairness; security in retirement; informed choice for consumers; simple and proportionate regulation; ensuring that incentives are effective and well understood; promoting employment among older workers; and flexibility to give individuals more choice about the pace at which they retire from the labour market. I hope that we can secure all-party agreement on those matters.
The Government believe that pension provision should be based on partnership, which can secure lasting buy-in from all key players. We must strike the right balances between sometimes competing goals. We want the 1054 simplicity that enables people to make informed choices without stifling product innovation and competition. We want a proportionate regulatory framework that provides sufficient security for savers while making it worth while for employers and commercial providers to make available good pension products. We need to ensure that we remove unnecessary barriers to employer provision and employer contributions. We also need to make it easier for people to save and make it easier to sell pension products, as Ron Sandler's report proposed on Tuesday. We need to achieve all that and more against the remorseless arithmetic that tells us that, because we are living longer and want to maintain a good standard of living in retirement, we need to save more or work longer, or a combination of both.
We wanted Alan Pickering to present a strong challenge to the degree of regulation around private pensions. He has done that—he has made some valuable proposals for simplifying pensions legislation and reducing administrative burdens on both schemes and employers, cutting costs and simplifying choices for individuals. His recommendations also present some tough choices. Take, for example, his recommendation that employers should have the choice to make joining a company pension a condition of employment. Some 16 per cent. of people who could benefit from a company pension scheme currently choose not to do so. Compelling people to join would restrict their choice, but against that consideration, we need to balance the beneficial effects for schemes and the overall effect on extending pension coverage.
Alan has also made a number of specific recommendations on easements of legislation—in particular, repeal of section 67 of the Pensions Act 1995. Again, that throws up a tough choice. The recommendation would mean that, if employers faced funding constraints on their scheme, they could have an option to reduce future funding costs rather than close the scheme. Of course, that would remove an absolute guarantee against the consequences of change, but might well secure a better outcome for members and the future of the scheme, set against the alternative of its closure.
Alan also recommends an end to compulsory indexation of pensions and removal of compulsory survivors' benefits as a condition of contracting out. On first reading, those proposals are not attractive. They go against the drive of the past 30 years to price protect pensions and to enhance survivors' benefits, but again, in the light of the report, we will need to look carefully at all the consequences.
As well as the big themes and recommendations to which I have referred, a number of more modest issues are addressed to my Department and others. For example, they include improving the way in which contracting out is administered; streamlining procedures and reducing general administrative burdens; looking at ways better to provide advice through the workplace; and improving information going to pension scheme members. Those recommendations have considerable merit, and subject to the responses that we receive to the report, I intend to take them forward.
In conclusion, I believe that Alan Pickering's report offers clear options for simplification and makes a valuable contribution to the debate that we need to have on the next stage of pension reform. We need to face up to the tough choices that he sets out. In seeking to simplify 1055 the future we must also face up to the—in many ways harder—challenge of simplifying the past, in that we need to simplify the different regulations that have built up over the years. Otherwise, we will end up adding yet another layer to the existing layer cake of regulation and complexity.
Alan Pickering's proposals are radical, ambitious and pragmatic. I urge hon. Members, the public, employers, trade unions and pension providers—all those whose partnership is essential for effective pension reform—to give them full and constructive consideration. The Government certainly will. The acid tests for the Green Paper must be increasing the level of savings for retirement and making a secure occupational pension accessible to as many people as possible
§ Mr. David Willetts (Havant)
I declare my interests that appear in the Register of Members' Interests and thank the Secretary of State for an advance copy of this very important report
Let me make it clear that we welcome the report, just as we welcomed Alan Pickering's review when it was established. I join the Secretary of State in expressing our respect for the expertise and wisdom that Alan Pickering brought to the exercise. He has produced a valuable report.
Conservative Members respond to the Secretary of State's comments by saying that we understand that the regulatory regime for pensions must be stable to ensure long-term planning, and we will contribute constructively to the debate about the best ways of cutting the burden of regulations on pension funds. That is an obligation on all hon. Members on both sides of the House.
The starting point of the debate has to be a frank recognition of the scale of the problem that faces funded pensions. For years, Ministers have been shockingly complacent, saying that everything was all right when it clearly was not, and citing statistics that they have since admitted were seriously misleading. The Secretary of State should accept the stark warning in Alan Pickering's report thatwithout change, the current trajectory suggests less private pension provision in the future.That warning lies at the heart of his report.
We shall obviously want to study the proposals in the Pickering report very carefully, but I can tell the Secretary of State that we welcome the themes that are expounded in it. For example, we support the call for a proportionate regulatory environment, and we welcome Alan Pickering's vivid expression that a pension is a pension is a pension. There are too many different forms of pension, and it is right to try to simplify them. It is also true that too much pension provision has become a form of archaeology, with pension providers delving deep into the past to identify the date on which a pension was first set up in order to understand the tax and regulatory regime around it. That needs to be tackled
Can I press the Secretary of State for more information about the timetable to which he is working? The 1056 recommendations will be pointless unless the Government act quickly. As Alan Pickering said in his reportTime is not on our side.Yet the Secretary of State offered us a second Green Paper on pensions. I have here the Government's previous pensions Green Paper, which was published nearly four years ago. That contained the Prime Minister's promise that his Government would increase the proportion of pensioners' incomes that comes from private savings from 40 to 60 per cent. Since then, the Government have made no progress whatsoever towards achieving that objective. Instead, they introduced stakeholder pensions that were supposed to go to the 5 million people in their target group, although they reached only about 100,000, and scheme after scheme has closed. Why should the second Green Paper make any progress, given the comprehensive failure of the first?
If we do not get legislation until 2004, as has been suggested, the changes will not be implemented until 2005 at the earliest. Yet, if pension scheme closures carry on at their current rate, there will not be any pension schemes open to new members by the time that the Government finally get round to implementing the proposals in Alan Pickering's report. Will the Secretary of State take this opportunity to inform the House of the likely timetable of any legislation to implement proposals for reform?
May I also press the Secretary of State for more information about the burden of regulation, which is still increasing? Since the Pickering review was established in September 2001, we have had 251 pages of new regulations. We are still waiting for the final results of the Myners review. It is good to see a Treasury Minister on the Front Bench because the Treasury, in its commitment to implementing Myners, has been threatening pension schemes with yet more regulation. There is a useful warning in Mr. Pickering's report: he hopes that the people taking forward Myners—he might be thinking of the Financial Secretary—willkeep in mind our arguments for simplification.Can we have an assurance from the Secretary of State, as the minimum to show his good will on this exercise, that more regulation will not be imposed on pension schemes while we wait for his supposedly deregulatory legislation? Without such an assurance, it will be difficult to take the Government's commitment to deregulation seriously.
The terms of reference for Alan Pickering's report were very narrow and excluded some of the main factors that have been driving the crisis in funded pension provision. Why was Alan Pickering unable to comment on the structure of state pensions, including the state second pension, which left-wing think tanks such as the IPPR are now saying should be abolished before it has even begun?
What about the burden of ever more means-testing of pensioners? Why could not Pickering comment on the spread of means-testing, which will soon result in more than 50 per cent. of all pensioners finding themselves on a means test? If so many pensioners are to face means tests, which will mean that they are not fully rewarded for their saving, does the Secretary of State recognise the serious danger that the main beneficiaries of the review could be the richer half of the population? They will not be trapped by the means test that he is imposing on the less affluent 50 per cent. of pensioners.
1057 What about the financial burdens that the Government have placed on pension funds which are their direct responsibility? What about the £5 billion a year tax on pension funds, and the £1.5 billion a year cost of the insufficient value for the contracted-out rebate? Does the Secretary of State recognise that that adds up to £6.5 billion a year being taken from our pension funds? That is the real reason why our pension funds are closing, and nothing that he said today showed any willingness to recognise the scale of that problem and what needs to be done to tackle it.
§ Mr. Smith
I thank the hon. Gentleman for his comments. He was considerably more constructive at the beginning than at the end. Indeed, his tone at the beginning is the one more likely to lead to a productive outcome for this House, the country and pensioners at large. I appreciate his welcome for the report and echo his praise for Alan Pickering's expertise and everything that he and his team have brought to the recommendations.
I welcome the hon. Gentleman's commitment to constructive engagement on these matters because pension policy is by definition for the long term. As Alan Pickering points out in his report, it does not coincide with the electoral cycle. All of us in this House have an interest in doing—indeed we have a duty to do—our very best to pull together to lay some foundations for occupational and private pensions that can stand the test of time. Therefore, as far as possible, constructive all party engagement on these issues is very much to be welcomed.
The hon. Gentleman raised the issue of complacency. We are certainly not complacent on these matters. Indeed, the very reason that my predecessor, my right hon. Friend the Member for Edinburgh, Central (Mr. Darling), and the Chancellor commissioned not only the Pickering report but the Sandler review as well as the Inland Revenue tax simplification report before the recent events that have caused additional concern is that we were seized of the importance of getting the framework for occupational and personal pensions right.
There is a tendency for the debate to oscillate between hysteria at one extreme and complacency at the other. As a recent Financial Times editorial pointed out, the right thing to do is to take a hard-headed, realistic look at the challenge that we face—the challenge is certainly there, which is why we are producing a Green Paper—and not to be distracted from the seriousness of that purpose.
On the timetable, of course we want to move as quickly as is sensible on a matter such as this, but, to get a considered reaction to these complex and, in some areas, contentious, proposals, it would not be right to proceed without hearing what the public, the other parties in the House, and the providers—the essential partners to successful future pension provision—have to say about them. We also have to await the tax simplification review, and any tax implications from these proposals would, in any event, be considered on a Budget timetable.
The hon. Gentleman referred to the burden of regulations, which we are countering here. As I said in my statement, we are tackling regulations that have been put in place by successive Governments. I do not want to turn this into a partisan ding-dong—
§ Mr. Smith
Tempting though my hon. Friend's suggestion is, the truth is that we have only to read the Pickering report to see the number of measures that he suggests need to be tackled that were actually the product of legislation passed by the previous Conservative Administration, albeit often with the best of intentions. One of our problems is that layer upon layer of complexity and regulation has been built up in response to short-term events, and that has left us all with a huge long-term problem.
On Myners, I am sure that we and the Treasury will bear in mind the need for simplification that Alan Pickering points to. On the hon. Gentleman's reference to means-testing, I have to say that the Conservatives seem deliberately and consistently to overlook the enormous benefit that the pension credit brings. It cannot be stated too often that, for those saving above the basic pension, the pension credit will, for the first time, reward that saving rather than penalising it as the Conservatives did.
I welcome the hon. Gentleman's constructive response to the report, and I look forward to our working with colleagues on both sides of the House to carry this forward in an all-party spirit.
§ Mr. Steve Webb (Northavon)
I thank the Secretary of State for advance sight of this detailed report. I welcome the fact that Alan Pickering is seeking to create an all-party consensus on pensions structures, and I can confirm to the Secretary of State that, if he decides to approach prospective legislation in that way, the Liberal Democrats will certainly play a full and constructive part.
I want to raise two areas of concern, however. One involves issues that were in the report, the other matters that should have been in it. It terms of what was in it, I disagree with Alan Pickering in that I do not believe that benefits for widows, or the post-retirement raising of pensions, are bells and whistles. In our view—and, I sense, in the Secretary of State's view—they are an integral part of what pensions should be. Given that many old pensioners—the poorest pensioners in the land—are often elderly widows, can it be right to undermine provision for widows or to have more pensions frozen for 20 years of retirement? I do not believe so, and I hope that the Secretary of State will confirm his intention to look very sceptically at that proposal.
In terms of what the report perhaps should have said, will the Secretary of State accept that, given the tens of billions of pounds shortfall—whatever the figure is—in the amount of saving that should be going on, these proposals, although many are welcome, are not up to tackling that scale of problem? With the best will in the world, the Green Paper, and subsequent legislation a few years down the line that will probably take effect decades down the line, will not tackle the crisis now, though they are part of the overall strategy. Is it not time to require all employers to put money into their employees' pensions, and to give good employers and their employees the incentive to go further and to build on that? Without such provisions, we shall see a continued haemorrhaging of money from pension funds.
§ Mr. Smith
I thank the hon. Gentleman for his constructive response, and for his commitment to resolving the matter with as much cross-party agreement as possible.
1059 The hon. Gentleman mentioned a description of survivors' benefits as bells and whistles. It is certainly not a description that I would use—such benefits are valued features of current schemes—but we cannot escape the tough choice, and the tough question, posed by Alan Pickering. He says that, in the event of a choice between maintaining those benefits and the closure of schemes—resulting in lower contribution rates—people might end up substantially worse off. I do not find that proposition attractive, but at this stage I am not ruling anything in or out. I want to examine all the proposals and all the responses.
As for the scale of the problem and the extent to which the report addresses it, the terms of reference can be found in the appendix. They refer specifically to simplification of regulation, and Alan Pickering rightly focused on that. Of course this report will have to be judged alongside our response to the Sandler report and the Inland Revenue's work on tax simplification. As I have said, the Green Paper will be a substantial and wide-ranging document that will meet what is a considerable challenge.
We must think carefully about the implications of compulsory employers' contributions. Again, I am ruling nothing in or out at this stage; but if employers withheld wage increases or even cut wages to pay for those contributions, as some might be tempted to do, the cost would be effectively transferred from employer to employee. Furthermore, if employers were tempted or indeed forced to cut jobs, people might lose not just their occupational pensions but their wages.
Those attracted by the Australian example would do well to remember not just the differences in basic state provision in that country, but the fact that compulsion was introduced there as part of an historic compromise with the trade unions. There was a deliberate drive to hold down wages to help pay for pensions. We need to think carefully before embarking on such action.
§ Mr. Frank Field (Birkenhead)
The Secretary of State told us more about what he hopes to do in six minutes than most of his colleagues tell us in five times as long. I thank him for his statement, and join him in thanking Alan Pickering for producing a report on how best we might protect the one obvious welfare success of the last 100 years—and, in so doing, serving up to the Secretary of State not just the soft options but some of the hard options that we may have to take in preserving that great welfare success.
When the Secretary of State drafts his Green Paper in the autumn, taking a radical look at what needs to be done, will he take account of the economic cost to taxpayers of past failures to ensure that everyone has an adequate, decent minimum pension in the first place? The current cost of those welfare failures to each standard-rate taxpayer is 5p in the pound, and according to the Government's own calculations it is expected to rise to 13p. Are there not better ways of spending taxpayers' money than paying the cost of a failure to guarantee adequate pensions for all in the first place?>
§ Mr. Smith
I thank my right hon. Friend for his kind remarks. The whole House greatly admires and respects his expertise, even if we do not always agree with every detail of his proposals.
1060 My right hon. Friend makes a fair point about the importance of fully assessing economic costs, and I shall examine them closely. When considering the proper use of taxpayers' money, however, we must recognise the need for decisions about how thinly to spread resources for pension enhancement across the pensioner population, and about how much sense it makes to concentrate at least some additional state resources on the poorest pensioners. I make no apology for the fact that an important strand of the Government's policy has been concentrating a proportion of the available resources on the poorest pensioners, thus helping many out of poverty.
§ Mr. Archy Kirkwood (Roxburgh and Berwickshire)
Does the Secretary of State agree that Alan Pickering is a wise man and that the report will repay careful study? First, may I tempt the Financial Secretary to whisper in the Minister's ear the possible outcome of the Inland Revenue negotiations. Those in the industry to whom I have spoken are encouraged by the discussions so far and have been led to expect a fruitful outcome. However, it must be an early outcome, so can he say a word about that? Secondly, if he is being sceptical about some of these things—and I hope that he is—may I refer him to some of the advice that he may have been getting from the Government Actuary Department about the loss of cover to ill-health retirement as that would merely increase the number of people who would be passported straight on to incapacity benefit, which is already a huge problem for the Government?
§ Mr. Smith
I thank the hon. Gentleman for his constructive remarks. He tempts me to say what the outcome of the Inland Revenue tax simplification review will be before it is completed. Sadly, I am not in a position to do that. However, it is important that every dimension of the review is approached in a radical spirit and that we entertain the bold action that is necessary as a consequence properly to secure the future for occupational and personal pensions. I also take his point about incapacity benefit.
§ Mr. James Arbuthnot (North-East Hampshire)
Is the Secretary of State aware that I am one of the culprits in introducing some of the previous legislation? As he rightly says, it was for good reason at the time, whether it was Robert Maxwell or pensions mis-selling or whatever. I thank the Secretary of State not only for what he said but for the tone in which he said it. In the interests of increasing the cross-party support that I am sure that this report will garner over the months, will he consider referring the pensions Bill which the Pickering report mentions to a Special Standing Committee rather than to an ordinary Standing Committee, so that evidence can be taken from pensions experts during the Bill's passage through the House and we can get the detail right on difficult issues such as pensions on divorce?
§ Mr. Smith
I thank the right hon. Gentleman for his kind remarks on tone and reciprocate by thanking him for the way in which he made his remarks. I have noticed the spirit in which he has contributed to previous debates on this matter. It is good of him to own up as a culprit, having introduced some of the legislation that we are dealing with. I hope that I do not have to do the same at some point in future. He invites me to consider referring a 1061 future pensions Bill to a Special Standing Committee. I shall certainly consider it, but as he will understand, I cannot commit to that at this stage.
§ Mr. Peter Pike (Burnley)
Is it not important that all of us interested in occupational pensions, not only in the House, but in the country, study carefully the proposals in the Pickering report? It is also important that we do not allow a knee-jerk reaction because of the two headline-grabbing proposals that we may not like on index linking and pensions for surviving spouses.
My right hon. Friend referred to important matters to be included in the Green Paper that will be published later in the year. I remind him that pension security is crucial. In my constituency, so many pensioners in different schemes have lost out over the years, including those affected by the Bellings pension fraud, that we should make sure that all workers get what they expect from their pensions when they retire.
§ Mr. Smith
Yes, indeed. My hon. Friend makes some wise comments. On his second point on security, it is worth highlighting what Alan Pickering says in the foreword to the report:Our proposals will lift the regulatory burden on employers, but it remains incumbent on those employers to keep their side of the bargain with employees and meet their pension promises.It is timely to have a reminder that rights and responsibilities in these matters cut both ways. My hon. Friend was wise to rule out knee-jerk reactions to the report.
The more one reads the report and sees its careful structure and inbuilt balances, the more one realises that it pays to reflect carefully on it before reaching conclusions.
§ Mr. Tam Dalyell (Linlithgow)
The sobering if joyous fact is that, in the year that I was elected to this House, the Queen sent 200 telegrams to those who had reached their 100th birthday, but last year, she sent 3,900 such telegrams. Does that not reflect the size of the problem? Will my right hon. Friend consider the difficult issue of whether equivalent pension benefits are to be commuted at the discretion of trustees, unless a member objects? That is an urgent problem.
§ Mr. Smith
On the first point, which my hon. Friend puts characteristically graphically, greater longevity is of course one of the challenges that we are addressing. It is great news that so many people are living much longer, and that many are receiving telegrams from Her Majesty, but as I said in my statement, that presents us with some remorseless arithmetic. Given that we are living longer, and that we want to maintain a high standard of living in retirement, we must either work more, save more, or a combination of both. I have noted my hon. Friend's concern about equivalence, and I shall certainly reflect further on it.
§ Mrs. Cheryl Gillan (Chesham and Amersham)
The Secretary of State is doubtless fully aware of the problems with which my local Buckinghamshire authority must deal in respect of pension funds, and of the fact that local council tax payers face the prospect of having to make up the shortfalls out of their diminishing pension income. Does he plan to review local authority pensions, will the 1062 forthcoming Green Paper deal with that issue, and does he consider that the Pickering report has any implications for such pensions?
§ Mr. Smith
As the hon. Lady should be aware, the system of allocation to local authorities through standard spending assessments is under review, and where relevant, the pensions aspect will doubtless be factored in. However, we are talking about a matter for which public authorities have to pay from their allocated budgets. As with other public bodies, it behoves local authorities properly to meet their responsibilities in this regard.
§ Mr. Andrew Dismore (Hendon)
So far, we have heard nothing about the self-employed, 54 per cent. of whom have no additional pension provision. Does my right hon. Friend see anything in the Pickering report to encourage the self-employed to take out pension policies? Can he confirm that the consultation will address this issue in particular, and will perhaps consider the question of compulsion?
§ Mr. Smith
My hon. Friend points to an aspect of the current pattern of provision that warrants re-examination. In the past, the general assumption has been that the self-employed are responsible for making their own provision. However, as he says, many do not—at least, not through pension products—although they might be building up other assets. As we draw up the Green Paper, I shall look closely at the position of the self-employed, along with other categories of workers.
§ Mr. David Ruffley (Bury St. Edmunds)
Has the Secretary of State ruled out making a second pension compulsory for everybody?
§ Mr. Andrew Miller (Ellesmere Port and Neston)
As someone who, in a previous life, negotiated with large companies on pension matters, I know that many people will welcome simplification and better information in the workplace; indeed, that is mission critical to the success of future schemes. However, like my hon. Friend the Member for Burnley (Mr. Pike), I have had to deal with the sad case of a scheme that was abused by an employer, H. H. Robertson. [Interruption.] The Minister for Pensions, my right hon. Friend the Member for Makerfield (Mr. McCartney) nods—he is obviously familiar with the background. When my right hon. Friend removes the parts of the legislation that he proposes to remove, may I caution him to ensure that he does not diminish the protection provided to workers under the Pensions Act 1995? Does he recognise the need for greater transparency so that employees can see problems arising earlier than they can at present?
§ Mr. Smith
I am not proposing to remove any parts of anything, because we are at present considering the recommendations that Alan Pickering has made. However, my hon. Friend makes an important point. It is 1063 appalling when workers who have placed confidence in the conduct of their employers have that shattered by the sort of behaviour that he mentions. I agree that workers will welcome simplification and better information in the workplace, and that is one of Alan Pickering's recommendations that we will wish to take forward, in conjunction with the Financial Services Authority, in terms of education and information. I agree that more transparency is important and, as we prepare the Green Paper, we must also keep a close eye on the security dimension.
§ Mr. Jonathan Sayeed (Mid-Bedfordshire)
I thank the Secretary of State for the balanced tone in which he presented his statement and for responding so positively to the attempt—often made from this side of the House—at a constructive engagement with the long-term problem of pensions. Does he accept that if company pension schemes are freed from some of the performance indicators, it is likely to mean that final pay-outs will be lower? I was pleased to hear that the Secretary of State did not sound too keen on the proposal to ditch the obligation to pay benefits to the widows of pensioners. That would be an anti-family proposal that would hit middle-aged women who have spent their life bringing up their family.
§ Mr. Smith
I welcome the tone in which the hon. Gentleman poses his question. He is right to say that if company schemes were given greater flexibility, that might result in lower final pay-outs, but the tough choice that the Pickering report invites us to consider—and which we would be wise to consider—is how far some modification, within certain limits, is preferable to the closure of schemes on the likely pretext of greatly reduced contributions, or is an essential element in making schemes simpler to administer so that we can overcome the layer cake of complexity to which I have already referred. Without ruling anything in or out, I have already given a clear signal of how I feel about the important question of survivors and widows. It is also important that when we prepare the Green Paper in the autumn—and I have already briefed my officials on this point—we have a comprehensive analysis of the implications for women of present private and occupational pension provision and the reforms we might entertain.
§ Miss Anne Begg (Aberdeen, South)
If the Government are to achieve their stated aim of a ratio of 60 per cent. private and 40 per cent. state provision of pensions, the issue of public confidence and trust is important. There is no doubt that the best way to provide for one's old age is through an occupational pension with employer contributions. However, does my right hon. Friend agree that at the end of this long process—and it will be long—if people of working age are to invest their hard-earned cash in occupational pensions, they will have to have a guarantee that the money will be there for them when they reach retirement age?
§ Miss Julie Kirkbride (Bromsgrove)
It is a sad fact that in my constituency, the issue of pensions is fast 1064 becoming the biggest in my postbag. People are concerned about the collapse of occupational schemes, as the Minister for Pensions will know, as well as their closure to new entrants, so speed is of the essence.
On a more specific point, can the Secretary of State promise my elderly constituents that the forthcoming Green Paper will contain plans from the Government about the reform of annuities?
§ Mr. Smith
Yes, that is our intention. The hon. Lady will be aware of the consultation that we have already undertaken on the future of annuities, and we are considering the responses. We shall be making a further statement on this as part of the Green Paper. However, I do not want to raise the hon. Lady's expectations as she might subsequently be disappointed, and we would do well to remember that an annuity is still the only way of guaranteeing an income throughout retirement. That said, there are important changes in terms of encouraging a better, more competitive and responsive market in the sorts of annuities that are available, so that they suit individual preference. We will respond to that matter in the Green Paper.
§ Mr. Tom Levitt (High Peak)
It has always struck me as odd that those people who are for ever telling us that they are so valuable to the economy—the entrepreneurs, the innovators, the movers and shakers—tend to retire early on very generous pension packages, whereas those who have not been so fortunate have to work right up until state retirement age to get a modest income from their pensions. When reviewing his response to the Pickering report, will my right hon. Friend consider not only the interests of those on low pay and those entering or re-entering the labour market late in life but the pension rights of people who, after a lifetime of employment, seek to go to a step-down employment position for a few years before they retire which can, at present, jeopardise their pension rights?
§ Mr. Smith
Yes, I referred in my statement to the importance of the Green Paper looking at the wider opportunities around retirement, and this is precisely the sort of thing I meant. Instead of facing a cliff edge, many people would like to move into retirement more gradually. My hon. Friend is quite right that their options are artificially constrained. Indeed, there are perverse incentives on far too many people to pack in work sooner than they would like. I want the outcome of our further work and the Green Paper to bring forward some truly radical proposals that will open up new choices and opportunities for these most valuable members of the population.
§ Hugh Robertson (Faversham and Mid-Kent)
May I draw the House's attention to my entry in the Register of Members' Interests?
I welcome the Secretary of State's commitment to take a radical look at this issue in the near future and, as part of that review, will he give an undertaking to look at the diversification of investment asset classes, particularly the cost of trading in and out of those alternative asset classes? For example, if people could have had greater exposure to the commercial property market in their pensions in recent years, the returns on them would have 1065 been significantly boosted. They are currently prevented from doing so by the level of stamp duty. Will the Secretary of State look at that?
§ Mr. Barry Gardiner (Brent, North)
I welcome the report and the commitment to a Green Paper in the autumn. Does my right hon. Friend accept that there is a tension contained in the report? Pickering argues that in the workplace, the pension is part of the remuneration package, yet one of the recommendations in the report is that section 67 of the Pensions Act 1995 should be repealed, which would allow employers facing funding constraints to change their funding contribution to the scheme. It refers to an overall replacement of benefits, so although the overall benefits package from those employers may remain the same, unilateral change in the individual remuneration of workers might be possible. Will my right hon. Friend look extremely carefully at that recommendation before allowing it to go ahead?
§ Mr. Smith
My hon. Friend makes a very good point. I agree that it makes sense to consider that recommendation extremely carefully, not least because of its implications for the rights of individuals. One possible approach would be to put limits on any detriment that might be involved. We should not underestimate the importance of getting to grips with these issues if we are really to have the far-reaching simplification that we need. That is true not only for the ease of schemes' administration but to allow us to have some actuarial equivalence for all the different pots under different schemes for different periods that people have built up. There are great prizes in the efficiency and overall benefit of pension provision if we can crack that, which is why it would be unwise to rule out any change in this area.
§ Mr. Mark Hoban (Fareham)
What assessment has the Secretary of State made of the cost to the Treasury of ending compulsory indexation and compulsory survivor benefits? It strikes me that the proposals will end up transferring costs from pension schemes to the Exchequer, so it is right to be wary of them.
§ Mr. Jim Cousins (Newcastle upon Tyne, Central)
National insurance payers are a substantial collective investor in occupational pension schemes, so I urge my right hon. Friend not to accept the recommendations relating to survivor benefits and the provision of cost of living increases in pensions. Down that path lies not consensus but a great deal of hidden misery for people in occupational pension schemes and their relatives, when old. Many survivor benefits will go not to women but to men, and that should be borne in mind. Inevitably, following that hidden misery, there will be more means-testing and more cost to the Exchequer.
§ Mr. Smith
Those points are forcefully and well made and I shall certainly bear them closely in mind. 1066 I appreciate the arguments about the impact on individuals and families in the future, as well as the logic of the position concerning how far it is justified, when the national insurance system provides particular benefits, for schemes that are funded in part by contracting out from those benefits not to provide them in turn.
§ Sandra Osborne (Ayr)
I share the concerns of other hon. Members who have seen constituents paying into pension schemes all their lives only to find that they do not get the benefits when the time comes. I welcome the proposals for increasing scheme membership on the boards of trustees, but does my right hon. Friend agree that it is absolutely vital that such trustees have the proper training, so that they have the necessary skills and knowledge to make sound judgments about pension schemes?
§ Mr. Andrew Love (Edmonton)
Like my right hon. Friend, I used to work for the retail Co-operative movement, which had a very good final salary scheme. In 1988, it was not allowed to continue to include all employees in the scheme, so many lower-paid employees left. They did not take up any of the alternative pension provision that was available, so they are now retiring on inadequate pensions. I commend the recommendation that employers should be allowed to have all employees included in their scheme.
I also welcome the emphasis in the report on simplification, and especially on education and advice for consumers. Does my right hon. Friend agree that a system that people can fully understand will gain their trust and confidence, ensuring that we can fill the pensions gap?
§ Mr. Smith
I welcome my hon. Friend's comments. He is right about the importance of education, so that people can have a better understanding of the pensions situation. One of the tragedies is that it is an impenetrable maze for many people. Tragically, workers have lost out because they did not understand what was happening to them or the choices that were open to them.
I hear what my hon. Friend says, and we will think carefully about the question of compulsory membership of schemes, which may not be to some people's advantage. Instead, they should have a good, defined contribution alternative. That depends on the level of contributions, which is the acid test against which proposals should be judged. It is the end result that is important—the level of contributions and thereby the security and standard of living people will have in retirement. I shall bear all my hon. Friend's points closely in mind.