§ The Secretary of State for Work and Pensions (Mr. Alistair Darling)
Approximately 200,000 households receive income from pension annuities and are entitled to the minimum income guarantee, housing benefit or council tax benefit. Nearly all those households will, of course, gain from the pension credit, which is designed to reward their saving.
§ Mr. Jack
I am grateful to the Secretary of State for his answer, but nobody wants anyone with an annuity to have to fall back on income-related benefits. Does the right hon. Gentleman not realise that the review of annuities that the Government recently carried out only scratched the surface of the problem? At a time when final salary pension schemes are going down like ninepins, there is real fear abroad that hard-saving people will not get enough money from their current annuity to enable them to maintain a decent standard of living in their retirement. Will the Secretary of State work with my right hon. Friend the Member for Skipton and Ripon (Mr. Curry) on the Bill he has introduced, and will he try to be more constructive in addressing the problem?
§ Mr. Darling
The Bill proposed by the right hon. Member for Skipton and Ripon would do nothing to improve the incomes of the vast majority of people in this country. It is designed to help a minority of people who have retired; the vast majority would not benefit from its provisions.
The right hon. Member for Fylde (Mr. Jack) raised two matters. On the first, the Government are consulting on the annuities consultation paper, the period for which still has some time to run. On his second point, he is quite right: we need to ensure that more people save more towards their retirement. One of the reasons that we are introducing annual pension statements is that people will be able clearly to focus on how much they are likely to have to retire on. One of the reasons that we introduced new measures such as stakeholder pensions is that they are designed to ensure that more people can accumulate greater savings for their retirement. The right hon. Member for Fylde is quite right; our objective should be to make sure that as many people as possible retire on good incomes. The proposals to which he refers in his right hon. Friend's Bill would not address the problem at all.
§ Mr. John McFall (Dumbarton)
I congratulate the Secretary of State on the consultation paper, which will, I hope, promote wider debate on flexibility and choice in annuities. Does he agree that the issue is how to convert pension savings into retirement incomes? Will not the CAT standards introduced in April 1999—reasonable charges, easy access and decent terms—be as important for the new annuities as they are for ISAs and mortgages?
§ Mr. Darling
My hon. Friend is right. One of the objectives of our policy has been to ensure that as much money as possible that people have saved goes into their pension. We found in the past that too many pension contributions were being eroded by high charges, which 8 is one of the reasons that stakeholder pensions introduced a 1 per cent. cap on charging. I am glad to tell the House that the latest figures show that just under 700,000 stakeholder pensions were sold in the first nine months of this year. There is no doubt that the reduced charges introduced by stakeholder pensions are having an effect right across the pensions industry, resulting in more people seeing more of their money going into their savings rather than being eaten up by red tape.
I am determined that we should do even more to reduce regulatory costs—compliance costs—in the pensions industry. I believe that we can do much to reduce the complexity of the present system, which was introduced for the best of reasons by successive Governments. The time has now come to reduce that complexity so that more money goes into pensions, which is why I asked Alan Pickering of the National Association of Pension Funds to look at this matter last year.
§ Mr. Steve Webb (Northavon)
Given that annuities are becoming more important, with the closure of final salary pension schemes and what the Government hope will be the growth in stakeholder pensions, will there not be a problem for women because annuity rates are lower for them than for men? Will it not put women at a disadvantage if the Government rely more on private provision? What are the Government going to do for women, specifically with regard to private provision?
§ Mr. Darling
The hon. Gentleman, being a professor and a clever man, will know that one of the reasons why annuity rates for women are different from those for men is that women live longer, and annuity rates are calculated, among other things, by reference to the likely age to which someone will live. The state second pension, which will be introduced from April, will benefit a further 18 million people, many of whom will be women. Indeed, half the beneficiaries of the pension credit, when it is introduced, will be women, too. The pension credit benefits people who have annuities, precisely because it is designed to reward saving. I should have thought that, when he has thought a little further on these matters, he will welcome the pension credit and the state second pension, which probably do more than any other reform of the pension system for man) years to help women.
§ Mr. James Plaskitt (Warwick and Leamington)
May I, too, welcome the consultation document on reforming annuities, which is a useful contribution to the debate? Does my right hon. Friend agree that, when considering changes to the rules and increasing flexibility, we should do nothing to undermine the tax terms under which contributions are made, and nothing to undermine fairness to other taxpayers?
§ Mr. Darling
My hon. Friend is right that one of the problems with the Bill proposed by the right hon. Member for Skipton and Ripon (Mr. Curry) is that it is primarily designed to help those who have very large pension savings. It would do nothing to help the vast majority of people. I am concerned that if that measure were to be passed, it might have an adverse effect on annuity rates for most people, which would not be desirable. We have therefore made it clear that, in our reforms, we want to make sure that we do the best that we can to improve annuity rates, to prevent abuse of the system—which 9 would always be a risk of the right hon. Gentleman's proposals—and to do more to encourage people to save more so that they have more money when they retire.
§ Mr. David Curry (Skipton and Ripon)
First, is the right hon. Gentleman aware that the criticism that a Bill might help minorities is relevant to most of the legislation that the House passes? Secondly, is he aware that the Government have approved a scheme for which the entry fee is £250,000 and which is based offshore in Gibraltar? Will he therefore not persist in saying that there is something wrong with helping only people who are rich, as that will be precisely the effect of the Government's proposals? Furthermore, will he agree that the minority to whom he refers will get bigger as companies cease to provide pension schemes and people have to make private provision? A much larger number of people will therefore be funnelled into the straitjacket of annuities. Does it therefore make sense not only to improve the existing rules but to look for a way of breaking out of the straitjacket of annuities and amending the structures more imaginatively?
§ Mr. Darling
I agree that the annuity rules need to be improved, and the Government are consulting on precisely that. However, I am glad that the right hon. Gentleman admits that his proposals are designed to look after the interests of a minority of people. The main thrust of this Government's policy has been to make sure that all pensioners gain, that we tackle pensioner poverty and that the vast majority of pensioners, who have modest means and savings, are helped. The pension credit enables us to achieve that.
It is worth reminding the House again that the average amount of money used to buy an annuity in this country is not £250,000 but £25,000. The House will therefore appreciate that the measures on which we ought to concentrate are those that are designed to ensure that the vast majority of people in this country have a decent retirement income, whether they are in a final salary scheme—which we want to support—or a money purchase scheme through stakeholder pensions or other measures. Across the piece, our efforts should be directed towards helping the majority of people, as they must surely be the first call on our resources.
§ Mr. David Willetts (Havant)
Reform of annuities is an important measure to encourage people to contribute more to their pensions, and we need reliable figures on how much people are contributing to their pensions in total. Does the Secretary of State endorse the figures given to the House by the Minister for Pensions last week when he claimed that contributions to non-state pensions had gone up by £19 billion—from £50 billion to £69 billion a year? Does the Secretary of State accept those figures, or does he think that they should be reviewed by the Office for National Statistics alongside the reviews of its appalling mistakes on the assets of pension funds?
§ Mr. Darling
My right hon. Friend gave the latest figures that the Government have, which was the right thing to do. The hon. Gentleman acknowledges that savings have increased since 1997. It is also worth bearing in mind the fact that pension sales increased by about 50 per cent. last year. Almost 700,000 stakeholder pensions have now been sold, which represents £1 billion 10 of new savings. There is evidence across the piece that many people are saving more, but the problem that we face is ensuring that people save more generally and that we build on our reforms to strip away some of the unnecessary regulatory burdens on companies and individuals. We must also ensure that we and companies do more to support people who save and that incentives in the system are working as intended, because they are all designed to increase people's incomes.
§ Mr. Willetts
I have to tell the Secretary of State that I do not believe that the figure for the supposed increase from £50 billion to £69 billion is any more reliable than the figures he quoted on the value of pension fund assets that got him into such trouble the other week. I suggest that he is so complacent about the state of our funded pensions because he believes his propaganda that pension contributions have increased from £50 billion to £69 billion, when they have not. The figures are wrong, the Government's policies are wrong and the first thing he needs to do is to review the figures so that he has an accurate sense of the scale of the crisis facing our funded pensions industry.
§ Mr. Darling
It was not me who used those figures in the debate two or three weeks ago: the hon. Gentleman issued a press release, but the figures on which it was based turned out to be utterly wrong, so he had to shift his ground. It is no wonder that he spoke in the debate for only about seven minutes, as his entire argument had been shot away.
On the funded sector, the hon. Gentleman will know—I assume he watched the programme yesterday on which he and I appeared, even though it was recorded at different times—that I have made it clear that the Government need to do more on final salary schemes and to build on our reforms. Once we have the recommendations from Alan Pickering and Ron Sandler, which we hope to receive in June, the Government will publish proposals that will encourage more people to save, reduce the regulatory burden, simplify some of the complexity in the present system, and help companies to support people who save towards their pensions. We must ensure that we are doing the right things in the right way to get more people to save.
We are taking action. The problem for final salary schemes has been building up over the years: they have been in decline since the 1960s. We saw the problem arising, which is why we took action and why we shall continue to do everything we can to ensure that we have a pension system that encourages and rewards saving. That never happened in the 18 years in which the Tories were in power.