HL Deb 29 January 1990 vol 515 cc5-6

2.47 p.m.

Baroness Turner of Camden asked Her Majesty's Government:

What is the present deficit on the National Insurance Fund and how much of it is due to incentives paid to individuals opting for personal pensions instead of remaining in the state earnings-related pension scheme.

The Parliamentary Under-Secretary of State, Department of Social Security (Lord Henley)

My Lords, the fund's overall balance remains in surplus. The Government Actuary estimates this as £9.4 billion; that is 34 per cent. of annual expenditure on benefits and twice his recommended minimum. There is though a declining balance in the fund. Incentives paid to individuals to encourage take up of personal pensions amount to approximately 1.7 per cent. of fund income.

Baroness Turner of Camden

My Lords, I thank the Minister for that Answer. Is he aware that according to a report in the Financial Times of 19th January a large deficit of £1.7 billion is forecast by the Government actuary for the coming financial year? Moreover, it would appear that the Government are expected to pay out £804 million this year and £615 million next year to persons opting out of the state earnings-related pension scheme. Does he not agree that there is something rather immoral about the Government using public funds in this way to encourage people to take out personal pensions which may not meet their proper expectations and may result in their having to opt back into SERPS at some time in the future?

Lord Henley

My Lords, I take it from the noble Baroness's remarks that she does not accept the fact that our personal pensions initiative has been a huge success. On this side of the House we are delighted that so many people are taking the opportunity of making alternative provision for their retirement. In the longer term that will dramatically reduce the cost of SERPS.

Lord Stoddart of Swindon

My Lords, if the National Insurance Fund is now in surplus to the extent of £9.4 billion, is it not time that state retirement pensions were granted a substantial increase in order to make up the leeway which people have lost over the past 10 years through not having their pensions related to average earnings?

Lord Henley

My Lords, as the noble Lord says, the fund is in surplus at present. However, as I have said, that surplus is declining and will shortly —that is, by about 1991–92—fall below the recommended minimum of 16 per cent. which the Government Actuary sets.

Lord Jay

My Lords, if there is a declining balance and an expected deficit in the fund, why have the Government abolished altogether the Treasury contribution to the fund which has been a fundamental support for the system ever since it was set up?

Lord Henley

My Lords, the Treasury supplement was abolished in line with the principle that contributory benefits should be funded from contribution income and not general taxation. That is the case.

Lord Williams of Elvel

My Lords, will the Minister kindly answer the question put by my noble friend Lady Turner of Camden? Where does the money come from to persuade people to contract out of SERPS? Is it from the Consolidated Fund or is it from the National Insurance Fund?

Lord Henley

My Lords, as the noble Lord knows perfectly well, there is a 2 per cent. incentive which is derived from the National Insurance Fund. Indeed, it has been coming from there since 1987 and will continue until 1993.