Westminster Hall Sitting of 23 March 2000

Preamble
[MR. MICHAEL LORD in the Chair]

Pensions Reform
Motion made, and Question proposed, That the sitting be now adjourned.—[Mr. Dowd.]
2.30 pm
The Minister of State, Department of Social Security (Mr. Jeff Rooker): This is the first Thursday afternoon debate in Westminster Hall in which I have participated. The Government are pleased to have initiated a debate on pensions reform. The date is fortuitous: such matters are arranged through the usual channels, but we could now be in the Chamber, perhaps making similar points on the Budget or pre-empting speeches on the Child Support, Pensions and Social Security Bill, which will be debated on Report on the Floor of the House next week and the week after.
This debate provides an opportunity for the House to evaluate the changes that the Government have initiated, some of which have already been dealt with in legislation, and to consider the future. I shall not cover too much of the background, but hon. Members will realise that many of our proposals stem from the pensions Green Paper of December 1998, in which we set out a long-term reform programme to meet the needs of the next 50 years. We cannot snap our fingers on pensions reform and make meaningful changes instantaneously or, indeed, in a decade; we must consider the long term, but doing so can make the figures seem large and the changes distant. I accept that it is not easy for hon. Members to grapple with those matters and explain them to their constituents. It is not easy for the Government to explain delays, but they are the inevitable consequence of dealing with pensions. Pensions are generally paid at the end of people's working lives, which can cover the best part of 40 to 50 years, so changes take time to come into effect.
I was a Member of Parliament when the legislation that implemented the state earnings-related pension scheme was debated in the late 1970s. I remember saying and listening to other hon. Members say, "All this will take too long; 20 years is a long time." SERPS was intended to cover the best 20 years of people's working lives. SERPS has been changed. Nevertheless, it provides decent pensions for those who retire now after working for the past 20 years. On average, men retiring today receive in excess of £50 a week under SERPS. That has taken 20 years, but it is now happening.
Our objective, which I think everyone shares, is to ensure that people look forward to a decent income in retirement and are not apprehensive about that period of their lives. The reforms must produce a fair balance between the responsibilities of the state and the individual and of the public and private sectors. We have made no secret of the fact that we wish to shift the balance of pension provision from 60 per cent. public, 40 per cent. private to 40 per cent. public, 60 per cent. private. The changes that we intend to make fit that overall framework.
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Our starting point is that too many older people are poor. That is one of the serious issues, together with child poverty, that the Government are tackling, but we can do so only if we are prepared to be honest and target our resources. Without action, inequality will grow.
I wish to deal with today's pensioners and tomorrow's pensioners—our twin-track policy. The needs and aspirations of today's older people are on the Government's agenda. We entitled today's debate "Pensions Reform", but the wider agenda for dealing with older people goes beyond income. Income is important, but the Government have to deal with many broader issues—hence the establishment of the inter-ministerial group for older people. One of its purposes is to ensure that as Departments across Whitehall create and initiate policy changes, they think about the needs and aspirations of older people. Whether in health, housing, transport or Home Office matters, we want the agenda for older people to be taken into account. Much research has been commissioned. Ministers have been listening to what older people have to say around the country and a national event in May will pull together some of the issues that emerged at regional meetings. Our commitment to the basic retirement pension as a fundamental building block remains, although there is scope for arguing about its level and operation. All other pension provision will be made in relation to it.
I wish to speak about the minimum income guarantee—a new higher threshold, means-tested provision for older people. It is age-related and paid at three levels. It changes at the age of 73 and again at 80. According to the general household survey, at least 500,000 pensioners fail to claim it. In a few moments, I shall return to how we intend to address that problem. The current level is £75 a week for a single pensioner and £116.60 for a couple. This April, the rates will change to £78.45 and £121.95, which could mean an increase of £280 a year for a single person compared with the pre-April 1999 position. Those are the basic figures at the ages of 60 and 65. As I said, at 75 and 80 the mean figures are higher.
Our policy of increasing MIG in line with earnings each year will continue for the rest of this Parliament— I cannot go beyond that. The Chancellor of the Exchequer has made that abundantly clear on more than one occasion. We also delivered—or, at least, with our announcements, started to deliver—on the Green Paper pledge to reward savers on low incomes. A saver on a low income can be trapped and unable to access available benefits.
One of the problems with MIG is capital limits, particularly the lower one for income support, which has remained at £3,000 since 1988. I regret that it will take a year for it to change, but an increase will come into effect in April 2001. It is the nature of the beast: many parliamentary and administrative procedures have to be undertaken and it takes time for the changes to come through. Nevertheless, the increase will take the limit way above any indexation. If it had been indexed, it would be between £4,600 and £4,800. The increase to £6,000 is substantial.
The upper limit at which MIG if phased out will increase from £8,000 to £12,000, although that has not been frozen so long. There is a discriminatory element in that the upper limit was changed in the early 1990s. The

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upper limit is more useful to people with more savings. We have concentrated the biggest change—a doubling—on those with the lowest amount of savings.
One can get only a flavour of the changes from the Chancellor's Budget speech because much of the detail is in the documentation that follows. The Chancellor announced that a review into the new pensioner credit would investigate ways of building on MIG to provide further help for those who have worked hard to provide for themselves. Such people have no savings, so are not cornered by the capital limit, but have a low income that is just above MIG limit. They might have an occupational pension that is worth tuppence ha'penny, perhaps £7 or £8 a week, but which is enough to take them above MIG limit. I know from my constituents that the greatest bitterness about the working of means-tested limits comes from those who are just above the limit. They also miss out on the other passported benefits, some of which can have a greater value than the little bit of extra income that stops them receiving the benefit in the first place.
Mr. David Drew: I should be interested to hear whether the review will look at housing benefit and how it affects that group. I have constituents with very small private or occupational pensions and for every pound that they receive they seem to lose much more in housing benefit.
Mr. Rooker: We have only just announced the review. Our target is to publish its findings before the Chancellor's autumn statement, which is generally made in November. My hon. Friend is basically right. The tapers on housing benefit are great and can operate extremely harshly. The matter should be considered. A housing Green Paper is also due to be published, certainly before the summer, and a substantial element of that will deal with housing benefit. It may get subsumed in the publication of the Department of the Environment, Transport and the Regions.
Mr. Paul Burstow: On the point about the changes to the thresholds, can the Minister shed more light on what it says in the Red Book? The Red Book refers to a cost for such a change of £145 million. Can we take it from that figure that the Government will also look at the tariffs underlying the thresholds? At present, it is assumed that one earns 20p on every £1 of capital. I would love to find the bank that could do that for us. That is clearly an absurd figure and should be reduced.
Mr. Rooker: Without the benefit of a note, I can tell the hon. Gentleman that the decision that has been announced is on the capital limit itself, not on that tariff income. The tariff income implies an interest rate of 20 per cent. and if we consider the question of pensioner credit, we would have to look at that. It has been set deliberately high, in effect to force people to use part of their capital to get to the limit. The calculations in the Red Book imply not a change in the tariff income—if they do, I shall come back to the hon. Gentleman later—but only a change to the basic capital limit. The tariffs
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will be looked at in the larger term review. It clearly should be an item on the agenda if one is considering pensioner credits.
We also know that, for various reasons, people who do not claim MIG are unaware of it. I have not yet met anyone who is embarrassed to claim it. I am not saying that no one is, but research shows that 500,000 to 600,000 people have missed out. That information comes from the general household survey of real people, although the grossed-up figure is a statistical exercise to give us an idea of the extent of the problem.
MIG take-up campaign has been a long time in coming, but I should be embarrassed if I had to say at the next Department of Social Security questions that it is due imminently shortly or shortly imminently, as was the case on the previous two occasions. To the best of my knowledge, the multi-million pound, Government-driven, MIG take-up campaign will be announced before the next Social Security questions on Monday week.
Miss Julie Kirkbride: I do not wish to encourage the Minister's blushes, but will he explain why there has been such a terrible delay?
Mr. Rooker: One embarrassing reason is that it has been a bigger exercise than we contemplated, simply because—this is not a criticism—the Government have not conducted a take-up campaign like this before, so we have no example to follow. When the disability living allowance was introduced, the problem was its success. There was such a great response to that brand new benefit and so much free advertising for it, that sacks of mail remained unopened and Members of Parliament were issued with about 10 dedicated telephone lines because correspondence could not be answered quickly enough.
Some research was carried out into why people were not claiming the benefit. Hon. Members may say that that beggars belief, but we know why people do not claim: they are ignorant about it, they will not go to a benefits office, they are embarrassed and they do not want to know about a means test. However, a proper take-up campaign cannot be based on such evidence. It is clear from the statistical information that some people who do not claim MIG are content to claim housing and council tax benefits. The argument that they do not want to take the means test does not apply. It may be because access to housing and council tax benefits is via the local authority, although it is Government money. There is a different avenue into the system and that may be a factor.
We have considered a range of issues and it has taken a while to assemble the finance. I can tell the hon. Member for Bromsgrove (Miss Kirkbride), that the Benefits Agency has identified 2 million people from its records who might be eligible for MIG, based on criteria such as age and what has been paid. We do not know everything about their circumstances or their capital and that is a problem. It has not been a five-minute job to find 2 million people from our computer records, but we will write to all of them, although not on the same day as we could not cope with the response. There will also be newspaper and television advertisements and a free help line, which will take applications on the

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telephone. People will be contacted in three tranches of 600,000 or so, but they will not have to have a letter to be able to claim or to use the telephone help line, and they will be informed of that fact. Electronic claim forms will be used; people will not be sent a 40-page form to sign, because the size of the document puts them off.
Something else that puts people off MIG is that although we may talk about it, until now not a single Government publication, leaflet or application form has that name on it, as it is delivered through the income support system. Our constituents do not know about it. This is a new and fairly complex way of putting the information across. It has taken all this time to put together a genuinely open and effective take-up campaign. My right hon. Friend the Secretary of State will write to all hon. Members at the time of the launch to tell them about it. We did some pilot research in about 15 local authority areas. I will ensure that hon. Members from those areas also receive the research report. They may find it useful to know what was said about their constituencies. An announcement will be made prior to the next Social Security Question Time. If it is not, my head will be on the block. I cannot give the precise date, but I am assured that it will be before Monday week.
Winter fuel payments are not means-tested. This is part of our effort to share the extra wealth in the country among the pensioner population as a whole, which was not the least of our manifesto commitments. The payments are well timed. It is true that they are based on households, not on people, and of course there is still the backlog because of last year's judgment of the European Court of Justice that men over 60 have to be eligible. The court ruled that the payment should be age-related, not simply for pensioners. We hope to announce shortly how we will make retrospective payments for the past three winters, and get the payments for the coming winter to the right people in November and December. As hon. Members know, the amount is to be raised to £150 per household. The increase resulting from the European Court judgment will benefit 1.5 million people. By and large, by definition they will be men because we assume that we have included all women over 60: if we have not, I want to know about it.
Mrs. Jacqui Lait: On a technical point, given that the retirement age for women will go up in the next few years, what arrangements, if any, will the Government put in place for winter fuel payments, or do they intend it to remain at 60 whatever the retirement age?
Mr. Rooker: I do not think that we shall need to make arrangements because by and large the payment will be tied to retirement age and as that equalises, the payment will move up. I hope that by 2020, when the retirement age for both men and women will be 65—there is to be a transfer between 2010 and 2020, at which the retirement age for women will go from 60 to 65—winter fuel payments will be tied to that equalised age. That is my assumption, because payment is tied to age. We must pay at the same age to both sexes as a consequence of the European Court's judgment that discrimination between genders on the basis of age is wrong.
I will speak briefly on aspects relating to tomorrow's pensioners. Although MIG is good and will, we hope, be made more successful, I do not want to be in the position
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of selling MIG to today's 20, 30 and 40-year-olds because I do not want them to retire on to the means test. I want them to do better than that. MIG is there essentially for today's pensioners and those who will become pensioners in the very near future—those who either did not have an opportunity for a second pension, have not had a full work record for various reasons such as unemployment, caring or disability, or have been unable to make provision that others were able to make.
Mr. Edward Leigh: On the unemployment point, I am sure that the Minister agrees that it is vital that people who may become unemployed while making provision for a stakeholder pension have some sort of safety net to ensure that that unemployment does not cause real grief later. Will he explain what he intends to do about the wave of contribution insurance policies, because at present they cover only accident and sickness, although from 2001 they will cover unemployment? Will that create an unlevel playing field? Will the new policies apply to existing friendly or stakeholder policies? As people will be able to put lump sums or irregular payments into stakeholder pensions, will it be permissible for them to phase in their premiums to insure against unemployment?
Mr. Rooker: Those are legitimate questions, to which I do not have all the answers. The rules for stakeholder pensions have been made flexible to corral the maximum number of people into the scheme, irrespective of whether they are part of the target group. I hope that the nature of the payments will allow people who experience periods of unemployment to make up shortfalls. I am not sure about private sector insurance policies. Some are time-limited for unemployment benefits, perhaps covering only a few years. That will probably be a matter for the stakeholder providers. It is possible that the same private sector companies will provide stakeholder pensions and insurance policies, but that is a separate issue. The hon. Gentleman's point is wholly valid and must be addressed.
Mr. Leigh rose—
Mr. Rooker: I should be happy to develop this case and correspond with the hon. Gentleman.
Mr. Leigh: That is the assurance that I wanted. Although the points are technical, I want to know what will be permissible.
Mr. Rooker: I would be more than happy to reply to the hon. Gentleman later. His questions are legitimate and require answers. Indeed, we do not want to cause a negative effect on the take-up of stakeholder pensions.
During the past few months, I have repeatedly said that it has been known, but not always said, that for the past 50 years, the basic state pension has not been enough to provide a decent retirement income. There never was a golden day. I would dispute the contention that since 1948 the basic pension, on its own, has provided a comfortable and decent quality of life in retirement. The problem is that Ministers with responsibility for pensions of both parties have never admitted that, so there has been no impetus to act. There

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were attempts to improve matters, including those made by Keith Joseph and in the 1960s by Richard Grossman, but there has been no impetus to tell people that if they do not do something about their pension arrangements, such as providing for a second pension, they will experience some poverty and be stuck on the means test when they retire. We must be open and spell out the problem.
On the state second pension proposals, the Committee stage of the Child Support, Pensions and Social Security Bill, which reforms SERPS, has been completed. Hopefully, its Report stage will be finished before Easter. It is, however, possible for changes to occur as it proceeds. SERPS is good at delivering pensions, notwithstanding the changes that were made to it in 1986 and 1995. However, it is useless for the low paid, and inadquate for people who spend a lot of their time as carers or who are disabled but have some work experience. We need to redress the balance. We want to raise earners above MIG. The state second pension will triple the amount that many low-paid people would have received under SERPS.
When the state second pension is introduced—our target date is 2002-ish; certainly not before then—18 million people will immediately begin to accrue bigger pension entitlements. It is important that hon. Members take that point on board. On this year's figures, 4.5 million of those pensioners will be low earners with an income of less than £9,500 a year, and 9.5 million will be moderate earners with an income of between £9,500 and £21,000. Also included will be 2 million carers and 2 million disabled people with broken work records. It will unarguably take time before their pensions are paid, but they will begin to accrue bigger pensions from the start.
Many people will gain under the new system compared with SERPS. Hon. Members who sat on the Committee will have seen the charts and graphs produced by the Government Actuary to show that that. The state second pension is good for low earners, but moderate earners with an income of between about £9,000 and £20,000 a year without access to a good occupational pension scheme and for whom personal pensions are unsuitable should enter a funded stakeholder scheme. We have published draft regulations and hope to have them on the statute book soon—probably just after Easter.
As we have said, we are working to a tight timetable. We want to get the details right because the private sector will be providing the pensions, not the Government. That does not mean that new personal pensions cannot be sold. I shall comment on potential mis-selling. The Financial Services Authority has made it clear that advice should take proper account of the introduction of stakeholder pension schemes. We are still on target for registering stakeholder providers from October and for starting the schemes from April 2001. The schemes are designed to be simple to compare. The proposed maximum charge of 1 per cent. will mean that people will know exactly what they are paying—there will be no hidden extras.
People in the industry have complained that they cannot meet the requirements. However, some companies have managed and have said that they will be
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happy to provide the pensions, when the regulations come through, within the maximum figure of 1 per cent. It is not the Government's business to be bowled over by others in the industry when there appear to be providers willing to offer products within these challenging but realistic parameters.
We want access to stakeholder pensions to be via the workplace so far as possible, but it will be possible to purchase them as a retail product in the high street. We want to encourage potential members. Take-up is voluntary—there is no requirement for an employer contribution. Employers will be required only to allow employees to have access to a stakeholder provider and to have a stakeholder pension; they will also have to make deductions from earnings. That method is by far the best way to pay for a pension—much better than one-off payments and direct debit—as our reseach shows that what is not received is not missed.
We have made the situation extremely flexible. It is so flexible that we are open to sniping criticism from hot shots in the financial press who say that people can buy a stakeholder pension for a child on the day that it is born or for a millionaire's wife as a tax device. That is part of the price that we pay for making the scheme so flexible, and there is nothing wrong with buying a pension for a child because, being a pension, no one can get to the money. It is not a savings scheme—the money is locked into a pension once it has been paid in. It is not a false device for gaining a pot before retirement.
A couple of weeks ago Money Marketing conducted a survey of pensions that are being advertised as stakeholder friendly. I have seen advertisements from companies that state that their pensions are stakeholder friendly and that they will convert when the Government regulations are up and running. We do not want any mis-selling, either before or after stakeholder pensions are introduced. The regulatory authorities, whether that is the pensions ombudsman, the occupational pensions regulatory authority or the Financial Services Authority, will take a dim view of people who deliberately mis-sell pensions and who put a stakeholder badge on products that do not conform to the regulations. We have already published the draft regulations, so there is no excuse. However, last week's survey showed that of about 60 pensions that were claimed to be stakeholder friendly, only six met all the criteria for a stakeholder pension.
The Financial Services Authority will examine the Money Marketing survey. I was set to name the bad guys this afternoon, but then I thought that perhaps it might be better if I named the good guys. I do not want a company to be able to quote Hansard and say, "The Minister says that our product is the best." However, if there is evidence of continued mis-selling, I will name names. This new provision is designed to target millions of moderate earners who have no access to a second pension. We will not allow them to be sold a pup in advance of the scheme as a result of companies using the term "stakeholder friendly" despite the fact that there are hidden charges and exit charges. We will not stand for that. The regulatory authorities will come down like a tonne of bricks on companies that do that. It is right that I should put that warning on the record.
I want to make one further point and that is about the future. Pensions are not a politically sexy issue, unless one is a poorer pensioner for whom the Government of

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the day are not doing enough or a Maxwell pensioner—I raise that issue before anyone else does—whose pension was stolen by that crook. Those people have a direct interest in pensions, but we need to get other people, in their 20s and 30s, interested in pension provision. There is no mechanism by which to do that, except through the exhortations of Ministers, but I would not even begin to try to do that because no one would listen. If we could find a way of giving every employee, once a year, not just a P60 but a piece of paper that sets out their pension forecast at that time, including the state retirement pension, the state second pension, SERPS and any occupational stakeholder or personal pension, and add the statement, "If you think these figures are not enough and want to do something about it, you must put in another 5 per cent., which would have this effect," a lot more people would say, "Hang on a minute, I do not understand this. It is not enough. What can I do about it? Why am I being short-changed? Why am I not getting a bigger pension?" People would clamour for more information, which would have a big effect on the education of the population.
It is not easy to provide a universal pension forecast but we shall try to do that, hopefully to start in 2002. We are currently conducting a pilot scheme through the pension schemes of Prudential and Sainsbury, and we hope to have the initial results of the pilot before the end of the month. Later this year, in about September, we shall pilot another seven companies, as well as the civil service pension scheme. That will be a big exercise, but it is important to get the design of the forms right and the scheme must be computer-generated. The scheme will not be compulsory, but I would hope that, within a few years, it would be able to embrace every employee in the country. That will put in the past all the problems about people not being prepared for their old age.
We have included a provision in the Child Support, Pensions and Social Security Bill to make the pension forecast exercise easier by enabling people to opt out rather than requiring them to opt in, as they currently have to do in the pilots. For example, Sainsbury had to write to 60,000 of its employees who are in the company pension scheme asking them to approve the inclusion of the Department of Social Security information in their pension forecast. Data protection is extremely important, so it would be much better to give people the right to opt out.
Improvement of people's knowledge will probably be the biggest single policy that the Government can carry through with the support of all parties. All hon. Members would agree that such improvement is a good thing if we can get the practicalities right, which is why the Government initiated the pilots. It is the one single change that will have the maximum effect.
Mr. Drew: Is there a significant problem with the number of people who are working in a succession of part-time jobs? Such employees often have the most deficient knowledge about pensions entitlements and provision.
Mr. Rooker: Not only that, there are also millions of self-employed people, many of whom do not have any provision. We must find a way to corral those people in as well.
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We have made a modest but good and positive start. MIG is in place, and we are about to publish literature on it and to deal seriously with pension issues in the take-up campaign, which, as I said, is a multi-million pound national campaign. The stakeholder legislation is on the statute book, the draft regulations have been published and are being consulted on as I speak. We are on course to start in April of next year. The state second pension legislation is currently passing through the House and we have promised to develop ideas for a pensioner credit, whose introduction we hope to announce later this year, although it will obviously be for the next Parliament.
There is much to do, but I am confident that we have made a good start. Although not everything is perfect, many statistics show that most of today's pensioners are in good health and are extremely active. I have tried to avoid using too many figures, but I shall detail them if it is necessary to do so. We want pensioners to continue to be mentally and physically active and to have a good quality of life. Most have a decent income, although a substantial number are still living in poverty. We must address that group and target our resources on it.
Mr. Deputy Speaker (Mr. Nicholas Winterton): I advise the Chamber that I intend to call the Opposition spokesman next and then the Liberal Democrat spokesman. I shall then return to the usual procedure for calling speakers in such debates, but I feel that it is helpful to hon. Members to hear the leading parties' views early in the discussion.
3.12 pm
Mrs. Jacqui Lait: I welcome this debate on pensions reform, although I find its timing somewhat peculiar, as Parliament is in the process of considering legislation that adds to the Government's reform programme.
I welcome the Minister of State to the debate. I was not entirely sure who would turn up from the Department of Social Security. I was also not sure whether the Minister would still be the pensions Minister, whether he might be Secretary of State for pensions or whether he would be heading up a new Pensions Ministry. That thought resonated with me, as the Wilson Government abolished the Pensions Ministry in the 1960s, and my godmother was a Minister of Pensions in 1959. I thought it ironic that new Labour should go back 40 years and become old Labour. Even if we have a Minister of Pensions in the long run, with most benefits going to the hydra-headed monster led by the Department for Education and Employment and—in respect of in-work benefits—the Secretary of State for Social Security, and with the Treasury removing all of the tax elements of pensions, we must wonder what is left for the right hon. Gentleman. He has announced his retirement, and I hope that he enjoys being the Minister for pensions until the next election, which may take place some 12 to 15 months from now. As ever, it is a pleasure to debate with him, and we look forward to the next stages of the Child Support, Pensions and Social Security Bill in the coming week.
The Government came to power promising to think the unthinkable on pensions and appointed the right hon. Member for Birkenhead (Mr. Field) to do so—

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which he did. He is not here, which is a shame as I had hoped he would contribute to the debate. However, he is no longer in the Government and, as we have heard, the unthinkable has become the modest proposals that we have been considering during this Parliament. It is a shame that the Government, who came to office promising to look after everyone and give them a decent retirement, have in effect added two new products to an already overcrowded pension market. Is that the unthinkable? Should we not take a more radical look at pensions reform?
In addressing the broad matter of pensions reform it is helpful to consider where we started. It is acknowledged that there has been a huge increase in pensioner wealth in the past 20 to 30 years. Indeed, some of the older legislation brought many people into occupational and other pension schemes well before 1979. However, in that year, 47 per cent. of pensioners had incomes in the lowest fifth of the national income distribution. By 1995–96, that figure had nearly halved, to 24 per cent. and the proportion of pensioners reliant on means-tested benefit had reduced from 57 to 40 per cent. The main reasons were the 162 per cent. increase in real income from occupational pensions and a rise of 110 per cent. in investment income.
I am sure that it is in the minds of several hon. Members to say that the figures I have given are from Conservative central office. I hate to disappoint them. They come from Professor Robert Walker, director of the centre for research in social policy at Loughborough university, in an article in The Times in September.
It is obvious that provision has already expanded hugely. A consequence has been the development of very complex tax regimes. I understand that at least 12 different tax regimes apply to the pensions system. Constituents' faces glaze over when one talks to them about this. The complexity puts people off. The Government acknowledged that in their document "Road to the Manifesto—Security in Retirement", which stated that they would
place a high priority on ensuring that schemes are simple to understand and operate for both members and employers.
I have given the entire quotation, because I should hate to be accused of choosing only those parts that would fit my argument.
The Minister concluded his speech with the wholly admirable idea that everyone should be given an indication of what his or her pension would be. The Committee welcomed that initiative, however, it is both necessary and difficult to achieve partly because of the sheer complexity of the pension system. If the Government want to think the unthinkable, that should include simplifying the system. I acknowledge that there have been some straightforward proposals to do away with carry forward and carry back. However, it is no exaggeration to say that that is nibbling around the edges. We need a much more over-arching review of how the interaction of the tax system and pensions produces such a complicated and difficult regime and, dare I say it, how that adds to pension charges. If the Government had a real desire to reduce charges, the best that they could do would be to reduce complexity.
However, the two products delivered by the Government have resulted in more complexity. You were in the Chair, Mr. Deputy Speaker, when the Child
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Support, Pensions and Social Security Bill was discussed in Committee and we were trying to elucidate the complexities of the state second pension. It was full of initials and the eyes of my hon. Friends glazed over when we were debating it. I did not blame them for a minute, because the debate was full of terms such as qualified earnings factor and low earnings threshold. The Bill states, for example, that
the value of N is 0.5 for each tax year by which the tax year in which the pensioner attained pensionable age precedes 2009–10,
yet it is meant to be reducing the complexity of the pension system.
The Minister alluded to the simple concept of the state second pension. We agree that it is a simple concept, but the problem is that people who enter into such arrangements will not be faced with a simple statement. They must decide whether it is worth while to claim a state second pension. They must analyse what is in it for them, which leads to matters such as the qualified earnings factor. It is horrendously difficult for people to understand the state second pension, when it applies to them and moves on from simply being a concept.
Mr. Leigh: To reduce the complexity, it may be worth our considering the Australian model under which all employers and employees are required to put aside money for a state-regulated, but privately operated, pensions system. If a real reform were undertaken, it would be possible to do away with such complicated differentiations between the state second pension, the stakeholder pension, personal pensions and occupational pensions and ensure that our society was based on provision for the future.
Mrs. Lait: My hon. Friend makes a good point. It is not only in Australia where such attractive schemes are in place. The difficulty is how to move from where we are now to that position. By trying to simplify matters by introducing the state second pension and the stakeholder pension, the Government have made the system more complicated because they have delivered yet another product rather than a fundamental reform. Our criticism of the Government's pensions reform policy is that it is more complex; they have not grappled with the need for simplification.
I shall return briefly to the state second pension, Mr. Deputy Chairman.
Mr. Deputy Speaker: Order. May I assist the hon. Lady? I hold few titles, but the one that I do hold and immensely honour is that of an additional Mr. Deputy Speaker for sittings in Westminster Hall.
Mrs. Lait: My most abject apoloigies, Mr. Deputy Speaker. I shall try to remember to address you by your correct title.
The state second pension has a curious hump-back structure. It is designed to ensure that people move out of the state sector and into stakeholder pensions. That happens at the break point of £9,500. The Minister said in Committee that he expects the figure of £9,500 to change from time to time—to take account of inflation, growth in the economy or whatever criteria he has in mind. I have not found from the papers that accompanied the Budget statement and the Red Book—

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I hope that I have read them throughly—any change to the £9,500 projected figure. It was announced a year ago and there has been an increase in inflation, albeit a small one.
I am sure that the Minister knows what I am coming to now: the interaction with stakeholders, the state second pension and the minimum income guarantee. He talked at great length about the minimum income guarantee and, understandably, he wishes it to be restricted to people who are retired or approaching retirement imminently. He is hoping that the stakeholder and state second pensions will be so successful that people will not need to apply for the minimum income guarantee or, indeed, the new pensioner credit. I was grateful to him for referring to that because the Red Book was slightly disingenuous about the pensioner credit in that it did not mention it. However, it talked about introducing a taper to the minimum income guarantee.
I am sure that the Minister is bored with me saying that the existence of the minimum income guarantee has an effect on whether people take up stakeholder and state second pensions. The increase in the minimum income guarantee will make stakeholder pensions even less attractive to people who we would hope might be saving for their pension. Generally, people who start making contributions early in a stakeholder pension and earn up to the target of £20,000 will, with luck, accumulate a pension pot of £100,000 in today's terms. The annuity rates on £100,000 are low at the moment, because of low interest rates and the fact that the Government do not need to issue gilts upon which annuities are based. Should the economy continue as it is doing— and there are big questions about that—and annuity rates remain low, in 20 or 30 years' time, those retiring on stakeholder pensions will make a clear calculation that it was not worth their while taking out a stakeholder pension. I should like the right hon. Gentleman and others in the Government to address that.
The interaction of the minimum income guarantee and the new pension product would not encourage any rational economic person, looking after his family on relatively low earnings, to forgo expenditure on his family to save for his pension. We may deplore it, and we probably all do, but a rational person would say, "It is not worth my while." Unfortunately, the flaw in the stakeholder pension is in its strategy.
I return briefly to the state second pension. The key is that, because of the hump-back structure and the £9,500, the structure of the state second pension will—and I acknowledge that the Minister said this—quite deliberately push people earning more than £9,500 into stakeholder pensions. If it is not worth people's while to go into stakeholder pensions, they will choose the minimum income guarantee.
The Minister said that he would introduce stage 2 only when he or whatever was left of the Department was satisfied that the Government were reaching their target audience. He knows that we have tabled and continue to table amendments to get him to define the target audience. He rightly referred to people earning up to £20,000. Such people cover a wide range of different family circumstances and structures. How the Minister conducts the excerise to define whether his target market has been reached is of great interest to us all. Unless he
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defines the target audience and how it will be reached, it will be impossible to judge the success of the stakeholder scheme. Merely saying, "Of course we shall consult and report to Parliament, and of course we shall debate the matter" is not good enough. Unless he defines precisely to whom he is trying to sell stakeholder pensions, he and his successors will have an out in determining the success of the scheme.
Mr. John MacGregor: Perhaps I should declare an interest as a non-executive director of one of the six companies that the Minister mentioned that offered schemes run in accordance with stakeholder pensions—not one of the ones that he identified as doing the reverse.
I am sorry that I was not in the Standing Committee that considered the Child Support, Pensions and Social Security Bill to follow the important point that my hon. Friend made. Although I recognise that it might last only for one Parliament, indexing the MIG to earnings will provide no real incentive for a financial adviser to advise people who earn between about £9,500 and £15,000 to take out a stakeholder pension. There is a genuine dilemma, as many financial advisers will probably say, "I am not sure that it is worth your doing it, because the minimum income guarantee is likely to continue well beyond this Parliament." There is a genuine difficulty for the Government, but unless they deal with it, in due course they may well be accused of the biggest ever mis-selling of pensions. It is a genuine problem, and they must find an answer.
Mrs. Lait: I could not agree more with my right hon. Friend, and I am glad that he made that point. I suppose that I was trying to skirt around it by referring to the target audience. Although many stakeholder providers believe that the costs involved might be as low as 1 per cent. of the cost of producing the policy, many will argue that the people for whom stakeholder is intended are precisely those who, because of M1G and the state second pension, need advice, and no advice comes for free. Some companies may regard stakeholder as a loss leader, and subsidise it; others may not. My right hon. Friend is absolutely right to say that the Government must tackle that.
If the Government respond to all those points, the stakeholder pension might become a good vehicle. We look forward to examining the regulations on stakeholder in detail in Committee. Hopefully, that will be after Easter, as the Minister said. We are glad that matters are proceeding. So many measures seem to be being introduced shortly or imminently, but we have a date, and that is good.
I was also glad that the Minister clarified his remarks at the Pensions Management Institute conference yesterday. Although, unfortunately, I could not attend because I was debating a different subject in this Chamber, I heard reports that led me to believe that the Minsiter may have taken an attitude towards companies that are trying to develop new products to meet stakeholder requirements that might put them off rather than encourage them. He needs to deal with the apprehension that has arisen as a result of his remarks yesterday, which were reported to me as more confrontational than those this afternoon.

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If the Minister and his advisers believe that some products are not compliant, every argument and justification can be advanced for ensuring that they are. Unfortunately, he put that in a much more threatening way. It would he helpful if he discussed that. I am sure that he does not want anyone to withdraw from the market, but would prefer them to increase the number of products that comply with the new requirements.
The right hon. Gentleman briefly mentioned the self-employed. We return to the words "shortly" and "imminently", because, when we talk about encouraging the self-employed to make more provision for themselves, the answer is always, "We are consulting." Self-employed people should not be put off by delays in addressing their concerns. Two years out of a pension pot is a long time, and there has already been a fall in the number of products being taken out. Although the right hon. Gentleman should not proceed precipitately, he ought to address the issues relating to self-employed people more directly, so that the Government do not have to deal with self-employed people who say, "I couldn't purchase a stakeholder pension, because I was waiting for the Government. It's now not worth my while, and therefore I'm going on to MIG." I am sure that the Government do not want that. We certainly want more self-employed people to be in a position to make their own pension provision. As the labour market changes, there will be more self-employed people who do not have a business to sell, because they operate in the knowledge-based industries.
We are also concerned about the take-up campaign. I am glad that the Minister was clearer about the time scale; he said that action would be taken before the next Social Security questions. However, unless he makes a major announcement about the take-up campaign tomorrow, he will have only seven days to do something. I hope that we get that announcement in the next seven or eight days, but it is a tight time scale. We look forward to seeing the details of the campaign.
The Minister said that the Benefits Agency has identified 2 million people who are potentially eligible for the minimum income guarantee. He went on to say that the agency would write to everyone. I am glad that it will take that approach to the matter. However, as I understand it, people are eligible for most benefits only from the date of application. If it is a roll-out campaign, and if the 500,000 people identified by the general household survey submit applications in the coming months, from what date will they be able to claim benefits?
Mr. Rooker: It will be the date on which they claim the benefit—the date on which they sign the form. People do not have to wait for the letters; they can make inquiries. As with other benefits, the key date will be the date on which they claim. The benefit is there to be claimed today, without the need for the take-up campaign.
Mrs. Lait: I am grateful for that information, but I foresee difficulties if the system works alphabetically. Someone whose surname begins with Z would get the letter 26 weeks later. There will be some very unhappy people whose names begin with Z. I wonder whether it
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would be worth while for the Minister to consider whether some flexibility might help to avert potential rows, especially given the effect on the United Kingdom of decisions by the European Court. There may be challenges. I do not know, but I can see it happening. Perhaps more thought should be given to that campaign. Many hon. Members were swamped, as the right hon. Gentleman said that he was, by problems from constituents applying for disability living allowance. Will he consider setting up an MPs' telephone line? I know that there are special lines for applicants, but one would also be useful for us.
Mr. Chairman—I am sorry, I mean Mr. Additional Deputy Speaker. That reminds me of The Mikado.
Mr. Deputy Speaker: Order. I am not sure whether the hon. Lady will catch my eye in future when I am in the Chair.
Mrs. Lait: I do not want to dig myself into an even deeper hole, Mr. Additional Deputy Speaker, but one must admit that The Mikado was one of Gilbert And Sullivan's most successful operettas. I am sure that you are one of our most successful additional Deputy Speakers.
I am sure that everyone is absolutely delighted that I am drawing my remarks to a close. First, however, I must acknowledge that the right hon. Gentleman announced in a written answer yesterday that the Government plan to relax some of the rules on annuities. That is welcome, especially because of the present value of annuities. However, I do not know whether the Government are going as far as people demand. I support the pensions reform working party's suggestion of a basic annuity for everybody, which would provide an income just above the minimum income guarantee. That is an astute and clever way to avoid the stakeholder pension difficulty that we discussed, although it does not deal with the rest of people's pension pot and their desire to look after that more effectively and efficiently themselves. The Government should consider that and the issue of income draw down at 75 more creatively.
Miss Kirkbride: I am grateful to my hon. Friend, because I missed the Government's answer to that parliamentary question. This morning, I received a letter from an extremely concerned constituent. He is 73, about to turn 74, and he is unhappy about having to make a decision quickly. I now have the chance to ask the Minister to please get on with it. Some people desperately need the system to be changed.
Mrs. Lait: I could not agree more. We shall return to that when we consider the Child Support, Pensions and Social Security Bill on Report. The pressure will continue to build up. Given the flexible working market and the improving health of our pensioners, providing for income draw down at 75 smacks of ageism. I heartily recommend that the Government take a more lenient view. We must address annuities, their value, and the income draw down, and the issues around them—I hate the word "around", and I must stop using it.
I also hate people who always say that they are making one last point, but that is what I am about to do. It is based on the Red Book. The subject is not

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necessarily the right hon. Gentleman's responsibility, but it is worth throwing into the pot, because pensions are crucial to it. The royal commission on long-term care made some radical suggestions on care for the elderly, but the Government have not necessarily acted on them. The issue has not gone away, but the Government have undertaken no significant policy developments. However, I spotted a reference in the Red Book to the fact that people can buy annuities against their houses, as they did with the old home income plans, and receive tax relief at 23 per cent. up to £30,000. It struck me immediately that tax relief at 23 per cent. gives an annuity of up to £36,900. A footnote in the Red Book says that the total is not expected to exceed £3 million.
The sum of £36,000 would pay for two years' long-term residential care. The statistics suggest that, because of other changes that have been made to support independent living at home, most people are in residential care for between 18 months and two years. If that was the purpose of the annuity, it is a mean measure. This matter is part of the portfolio of the Minister responsible for pensions. If we divide £3 million by the £9,600 tax relief, we realise that only a few hundred people will benefit from that relief for long-term care purposes. If that is the direction that the Government wish to take on long-term care for the elderly, they should come out and say so, instead of hiding it in the last two lines of a page in the Red Book. Only 400 people will benefit from that measure, at a cost of £6,900 each to the Treasury, when thousands could benefit. The grief caused to families who have to sell their houses could be reduced, too. There is a need to develop better strategies for the elderly to pay for long-term care, and I would like the Minister to comment on that.
The Minister talked about big ideas, while admitting that they are actually fairly modest. We have asked whether those ideas will help retired people. The Government did their biggest damage to pensions provision when they withdrew advance corporation tax; that stealth tax is beginning to hit people's pockets. We see local authorities report, week after week, on how much damage it is doing to their pension funds. The Minister probably thinks that that does not matter because the poor council tax payers will not notice that particular increase amid the other increases to their council tax, and the local authority pensions funds will be topped up.
As my hon. Friend the Member for Bromsgrove (Miss Kirkbride) said, that measure is now hitting the people with Tesco pensions. From April, people who have been paying 3.75 per cent. of their salary into the Tesco pension plan will pay 4.25 per cent. Not only Tesco, but company after company will be affected. The withdrawal of ACT will have such an effect on our economy that what the Government really intend, and what they are about, will at long last hit home to people. It will also have a fundamental effect on pension funds; the more politicians meddle in pension funds, the less people want to get involved in them.
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Mr. Additional Deputy Speaker—
Mr. Deputy Speaker: Just Mr. Deputy Speaker will do.
Mrs. Lait: Government stealth taxes are working their way through the pensions system. The Minister has admitted that the pension reforms are modest. We have an increasing number of pensioners, and at the next election the Government will have to answer to them.
3.48 pm
Mr. Paul Burstow: I want to address several aspects of the Minister's speech, and to develop some thoughts about how we could reform the pensions system. In such a debate, it is right that we focus both on today's pensioners and on tomorrow's. It is a good time to debate these matters; it is a couple of days after the Budget, and few days before the Report stage of the Child Support, Pensions and Social Security Bill. We have already heard the Minister and the hon. Member for Beckenham (Mrs. Lait) discuss some of the points that I will raise.
There are 10.5 million pensioners in this country, and there is no such thing as an average pensioner. There is a wide range, from the very poor to the extremely wealthy. No single figure can tell the truth about pensioners' incomes and life experiences. The poorest two fifths of single pensioners live on incomes of less than £93 per week, while the richest one fifth of pensioners live on incomes of more than £205 a week. Comparing those figures to the mean—£129—gives us some idea of how the distribution works out in practice. Averages are useful, but they are all too often misleading about the reality of pensioners' incomes.
There are equivalent figures for couples. The poorest two fifths of pensioners receive about £158 a week per couple, and the top fifth's income is £436 per couple. The mean is about £248. Again, the distribution works very much against the poorest pensioners. Clearly, there is a significant gulf between the wealth of a few and the poverty and straitened circumstances of many. As contributors to this debate have said, pensioners' incomes have increased. Between 1979 and 1997, the increase was 62 per cent. However, that figure hides an awful lot of differences. While the richest saw their incomes go up by 85 per cent.—£87 a week—the poorest fifth of pensioners saw theirs go up by just 22 per cent., or £10 a week. In other words, the poorest pensioners were only £10 better off after 18 years of Conservative rule.
Seven out of 10 pensioners rely on state benefits for half their income, and almost two in 10 depend wholly on state benefits. Undoubtedly, the wide coverage of occupational pensions, and their increasing use, has done much to boost pensioner incomes. However, as the figures reveal, many people who retire today face a bleak prospect on very low incomes. What is the Government's response? Let us deal with their immediate response, which is made principally through the basic state pension; I will deal with the minimum income guarantee shortly. From 1 April, the basic state pension will go up by 75p a week—at least in theory, as I will explain in a moment. Many people outside this Chamber will consider that increase an insult, and

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inadequate to meet the costs that pensioners face. It will be largely—for many pensioners completely—consumed by council tax rises alone.
The increase in the basic state pension masks an even greater scandal: 25 per cent. of pensioners will not receive even the 75p increase in their basic state pension this year. They will not receive even 50p extra a week. One million married women with poor pension contributions records rely on their husbands to establish their record for the purposes of receiving pensions, and thus receive category B pensions of £39.95 a week. A further 1.5 million people—mostly women, mostly single women and widows—are in the same boat. For them, 1.1 per cent. is just 45p. What a bonanza for those pensioners.
The Government's response to the poorest pensioners is more means testing and the minimum income guarantee. However, between 400,000 and 700,000 people—about 37 per cent. of those entitled to the minimum income guarantee—do not claim it. We have heard a little about the Government's take-up campaign and we look forward to events over the next few days to see whether it will start before 3 April. The campaign must be welcomed, because it is essential that everyone who is entitled takes up his or her entitlement. Claiming the minimum income guarantee is not a cause for stigma or something that should be resisted. However, we must acknowledge that it is not being taken up.
Last year, the Department of Social Security commissioned a report called "Helping Pensioners: Contextual Survey of the Income Support Pilots". It is based on 10 pilots in various local authorities and makes interesting reading. It found that only four out of 10 pensioners said that they would definitely make a claim, and that 36 per cent. said that they would not make a claim. The reasons that they gave were stigma, uncertainty and an unwillingness to deal with the Benefits Agency. The report concluded:
Given the existing eligibility criteria for IS, the stock of IS ENRs—
what a piece of jargon—
is continually refreshing itself. Encouraging all pensioners entitled to IS to take up their entitlement will be difficult. Previous research has shown, for various reasons, that there is a group of pensioner IS ENRs who will resist such encouragement.
The report also concludes that a far more strategic approach will be needed than those adopted in previous take-up campaigns. We look forward to the Minister's outlining the strategic elements of the campaign to the House before 3 April.
I hope that the exchange about incentives to take-up that took place between the Minister and the hon. Member for Beckenham can be considered further. Is there any scope for recognising that an entitlement, once established, should attract some backdating of income support? Is it possible to use a device of that sort to provide an additional incentive to people who have not hitherto claimed, despite years of entitlement?
As the pension population grows and the gap between the minimum income guarantee and the basic state pension widens—the former being earnings indexed and the latter price indexed—more people will be caught in
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the means-testing trap. That may present a disincentive for people to take out stakeholder pensions, or to make other provision.
Government research shows that women—especially older women—constitute the largest group of pensioners missing out on the minimum income guarantee. Furthermore, it is clear that the oldest pensioners are also the poorest. Liberal Democrats believe that there is a much more effective way of getting cash help to those most in need of it. We want the Government seriously to consider the reform and uprating of age additions to the basic state pension. That would remove the stigma, and avoid the bureaucracy and paraphernalia of a massive take-up campaign.
At present, the basic state pension pays an extra 25p a week at the age of 80. That has not been uprated since 1971. That would have been worth £3.70 today if it had been linked to earnings. The Liberal Democrats propose that it should be uprated to £5 a week, and that there should be a further age addition of £3 a week at the age of 75. If those proposals are taken together with our proposal for a general uprating of £2 for the basic state pension this year—rather than the £2 proposed for next year by the Chancellor in his Budget statement—the oldest pensioners would receive an increase this year at double the rate of earnings.
Such an increase could be afforded. For the purposes of the Budget, the Chancellor raided the budget of the Department of Social Security to the tune of £2 billion. That would be more than enough to meet the cost of our proposals. However, the Government prefer a tax cut to the payment of a decent pension. Consequently, the old will, in many ways, be paying for the sick in future.
I turn briefly to the pensioners of tomorrow. SERPS will affect future pensioners as well as those already drawing pensions. It is a scandal that the plans to halve widows' inheritance rights, introduced by the Conservatives in 1986, went unpublicised until 1996. The reports of the National Audit Office and the parliamentary ombudsman make depressing and disturbing reading. They tell of a systemic failure by the Department of Social Security to translate policy into practice, or to recognise trouble when the alarm bells began to ring. The NAO report, published in 2000, found that there were still problems. It is interesting to note the results of its survey work. Paragraph 1.20 states:
In March 1999 the Benefits Agency reviewed what information a sample of 23 offices across the country had provided. This found that in 14 offices staff would have provided incorrect advice, and in one other, some, but not all, staff would have done so. In another office, staff provided incorrect information until early 1998, when a customer advised them of the change.
That is not the way in which this system should operate. Customers should not have to notify the staff of the Benefits Agency of changes to benefits. It is crucial that that does not happen again. I am pleased to see the Government's proposals to address that issue.
It is worth quoting what the Secretary of State said on 15 March about the inherited SERPS scheme, because it is an important part of the way in which the scheme will work. He said:
People will be required to give us information on how they were misled when they make a claim, and we shall, of course, ask them questions about that when we process the claim. However, if there

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is no documentary evidence, it will be for the Department to challenge or disprove the claim.—[Official Report, 15 March 2000; Vol. 346, c. 312.]
That is fine, and one can understand why the Government wish to approach the matter in that way, although we may wish to challenge them in debate in due course. The Secretary of State went on to tell the House that an advertisment setting out the plans would be placed in many of our reputable journals, but I fear that it will sow yet more confusion, because it says:
To put this right we are introducing a scheme that will protect the rights of those SERPS contributors who can show that they were given wrong information about their entitlement and who as a consequence may have made different choices about their finances if they had known about the change to SERPS.
At best, that is ambiguous, at worst misleading. Surely the Government want to maximise the number of people making inquiries, instead of compounding the Conservative Government's errors. I hope that all literature will be fully market-tested with those who will respond to it, to ensure that it is understandable to all of us, not just to some. The NAO report says that about 3 million misleading leaflets were issued between 1986 and 1996. There is no way of knowing how many people read those leaflets.
I was interested in what the Minister said about rolling out the take-up campaign. The Government will write to 2 million people to encourage them to apply for the minimum income guarantee. We welcome that proactive approach. Why can there not be a similar approach to SERPS mis-selling? Why cannot the Government write to those who may have been affected?
In Committee, the Minister, the hon. Member for Beckenham and I grappled with the detail of the state second pension for what seemed like months, but was in fact merely weeks. Its principles and objectives are welcome, particularly in respect of carers, because it is the first time that a pensions benefit values the role and unpaid work of carers. However, the important principle that carers' work will be recognised by ensuring that they will have a pension in later life is let down by some of the Bill's details and the practice that will flow from them.
If the new pension entitlement is targeted through the invalid care allowance, hundreds of thousands of carers will be excluded from the state second pension. Some 370,000 carers receive ICA, but 855,000 people provide more than 50 hours of care a week. Entitlement to the state second pension for carers should not hinge on another person's attendance allowance claim: it should be a clear and unambiguous entitlement for the carer.
Questions arise about pensions provision when I meet carers in my constituency—at our carer centre or the Sutton carers forum. Carers want to know about the state second pension, and are shocked and dismayed to learn that they will not all receive it because of the rules that will underpin it. People who have spent years caring will not have them counted for the scheme. More than 120,000 people have received ICA for five years or more, and 32,000 of them have received it for more than 10 years—10 years of care that will go unacknowledged in the new scheme. The Government should backdate national insurance credits in some way, to reduce the number of carers left in poverty in retirement.
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The Government talk about the entitlement to national insurance credits for state second pension where a person is in receipt of ICA throughout the year. I shall not go into that in detail today, because we explored it ad nauseam in Committee, but carers who, through no fault of their own, have broken ICA records will lose out. The Government rightly targeted respite care in the national carers strategy, to give carers a break from caring, but their plans run counter to that, and that must be avoided at all costs.
Because of the linking rules, carers become disentitled to ICA when someone has been in care for 28 days. That must be borne in mind when the new pension is rolled out. Similarly, if the ICA earnings limit rules remain as at present, ICA is reduced pound for pound when earnings exceed £50, so no contributions are made to national insurance for the state second pension. The Government cannot want that. A carer could lose a whole year's contributions to the state second pension. The proposals will not make a difference to many of my constituents who are carers.
Will the Government consider recognising and valuing carers through an increase in the ICA generally or, if that is not affordable, by extending it to pensioners, many of whom feel aggrieved when they do not qualify for ICA, despite having heavy caring duties? I hope that the Government will consider that idea seriously.
I had hoped to spend some time debating the Conservative party's emerging and evolving plans for pensions. Some hon. Members will have read with interest in The Daily Telegraph a few weeks ago the trailing of an important speech by the shadow Secretary of State for Social Security, and we wait with bated breath to hear the direction in which the Conservative party proposes to take us. The Daily Telegraph reported that the hon. Member for Havant (Mr. Willetts) seemed to be suggesting ways in which it might be possible for people voluntarily to opt out of the basic state pension, and it would have been interesting to hear more about that. Unfortunately, the hon. Gentleman did not deliver his speech in this country. He got on an aeroplane and flew to New York to deliver it. Following persistent attempts by my office to obtain it from the Library and from his office, I understand that the speech is still being typed, so we cannot test those emerging policy ideas.
I want to spend a few moments discussing tax—a matter that has an impact on the income of many pensioners and on which reform is necessary. The low income tax reform group of the Chartered Institute of Taxation has done much good work in promoting the cause of older people and the impact on them of the tax system. I want to refer to two issues: the age gap and the bureaucracy trap.
First, with the abolition of the married couple's allowance from 6 April this year, new anomalies will enter the tax system, particularly in its impact on older people. Let us consider two male twins, the older born on 5 April 1935 and the younger on 6 April 1935. Before the changes, both would have expected to receive the higher rate of married couple's allowance, but only the older will now receive it. Assuming that both twins live for many more years, their annual tax calculations will be different even if they have exactly the same income. How can the creation of such an anomaly help older people? The situation gets worse. Let us assume that the

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twins had not married, but in 10 years marry wives younger than themselves. Only the older twin would receive the married couple's allowance. If they marry older women, both would receive the allowance. Treasury Ministers will have to answer constituency inquiries about that, and I hope that they have good explanations. I do not, and I think that the proposal is madness.
The second issue is the bureaucracy trap. Many pensioners who fall below the tax threshold are regularly pursued and worried by the taxman. The solution is simple—a tax exemption certificate. That would spare lower-income pensioners the need to communicate with the taxman and all the form filling that that entails. I hope that such a simple proposal could be embraced, even at this late stage, when the Finance Bill makes its way through the House.
For many of today's pensioners, reality is a life not of wealth and plenty, but of thrift and hardship. More can and should be done for them. The state pension is welcomed for tomorrow's pensioners, but we must question whether travelling 50 years into the future to realise a modest and temporary boost to pension income is a lost opportunity. The Liberal Democrats will try to put that right during the passage of the Child Support, Pensions and Social Security Bill over the next few weeks.
4.9 pm
Mr. Alan Hurst: I am grateful for the opportunity to speak in this debate, and to follow the hon. Member for Sutton and Cheam (Mr. Burstow). His speech could have been entitled "In Praise of Older Women", because he seemed to see a certain advantage in that direction. I agree that we must consider the distinction between pension provision for those who are in work and several years from pensionable age, and that for those who already receive, or will soon receive, state pensions or occupational pensions. The phrase "tomorrow's pensioners" is not quite right, because those who will soon be pensioners face the same problems as those who already are.
Before I go too far in that direction, I want to make some positive points—as would rightly be expected of me—about the Government's pensions policies thus far. The winter fuel payment, which is equivalent to a pension payment and will add £3 per week to the basic pension, has been handled very well. I suppose that a possible precursor was the £10 payment to which Sir Alec Douglas-Home referred as a donation. As a result of that condescending and charitable tone, he became embroiled in difficulties. I am pleased to say that the winter fuel payment, which will be a permanent entitlement, is in a different category. It is particularly astute because it is paid to the pensioner household in winter, when pensioners must spend money on heating and Christmas. Christmas is an expensive time for everyone, but particularly for those on limited fixed incomes.
More credit than has perhaps been given is also due to the Government for the introduction from this autumn of free television licences for those aged over 75. Television is often the main form of entertainment for
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many people, but particularly older people. Those who have difficulty getting out and about find it difficult to access alternative forms of entertainment, which in any case often do not exist. Perhaps we should be more positive in rebutting—to use a Millbank word—the criticism that the concession will not be made available to those aged, say, 65 or 60. As with all such matters, the first small step is the beginning of the longest journey. The Government have made a substantial stride, and I hope that younger pensioners will be granted the concession in the not too distant future.
My right hon. Friend the Minister dwelt at length on the minimum income guarantee. I hope he will not object to my saying that he makes a slight error in continually referring to it as MIG, which in most people's minds is a Russian fighter plane. If we want to encourage people to understand what is on offer, we should at least describe it as the minimum income guarantee. However, perhaps we should have chosen a name that relates directly to pensions, such as the minimum pension assurance. That is merely a suggestion, but what is on offer should be made abundantly clear. Notwithstanding that criticism, the minimum income guarantee will benefit today's pensioners greatly. In the period to which the Chancellor referred, it will rise from £75 to £78, and subsequently to £82.
I was a little concerned by a point made by the hon. Member for Beckenham (Mrs. Lait). She said that increasing the minimum income guarantee might deter others from taking out stakeholder pensions, the suggestion being that one need not do so if there are increases in the minimum income guarantee. That may be arithmetically correct, but there is a dangerous implication.
Mrs. Lait: Would the hon. Gentleman make the state second pension or stakeholder pension compulsory?
Mr. Hurst: There may well be a good case for doing so. The difficulty with the hon. Lady's argument is that it suggests that we should not increase the minimum income guarantee because that would have an adverse affect on tomorrow's pensions. However, I am not sure that she drew that conclusion. The logic of that argument is to suggest that today's pensioners should pay to encourage tomorrow's pensioners, but I am not convinced that that is the right approach.
The greatest cheer that my right hon. Friend the Chancellor received during last year's Budget came when he announced the minimum income guarantee and said that it would be linked to average earnings. I was not the only Government Back Bencher who fleetingly believed that there would be a restoration of the link between the basic pension and earnings. However, like a March mist, the proposal drifted away. Notwithstanding that, the link is useful. The minimum income guarantee is increasing in line with national prosperity. For many years, the pensions debate has focused on what is called the restoration of the earnings link.
I delved back to the time of Mr. Wilson's Governments during the 1970s—the Minister may have spoken in pensions debates at that time—and found that the formula was established in line with the phrase,

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"Wages or prices, whichever was more favourable to the recipient". We have concluded over the years that wages are always more favourable to the recipient than prices, but it was wise to involve an alternative. Unfortunately, Mrs. Thatcher's Government decided to remove the benefit, and it is always much harder to bring something back once it has gone.
Books on pensions estimate how much it would cost to reintroduce the benefit, but the figures vary enormously, depending on whether one listens to Baroness Castle. Enormous sums would be involved if one backdated the benefit—I am told that if it were backdated to 1980, it would cost in the region of £11 billion or £12 billion per annum.
We could consider a more modest proposal, namely to raise the basic state pension to £75 or £78 per week, and to continue the link thereafter using the formula set out in the 1970s. Pensioners often suggest that. Hon. Members who talk to older people's groups in their constituencies know that they want a basic state pension that preserves their dignity. They do not want endless means testing.
Stakeholder pensions and private pension schemes may be attractive to younger people, who can plan ahead for their future, but older people cannot rewrite their personal history. From our current position, it is easy to look back and say, "If only I had taken out a sensible pension when I was 23, and not spent my money on A, B or C." Many of today's pensioners did not have the opportunity to establish substantial pensions for themselves. They should not be expected to suffer until such time as the stakeholder private industrial pension system, which is currently being contemplated, catches up with the next generation.
I was encouraged when my right hon. Friend the Chancellor referred in the Budget to pensioner credit and mentioned the sums of £100 and £150. It is early days for such schemes. The consultation is welcome, and may yield considerable benefits.
In preparing for the debate, I looked back to the origins of old-age pensions in this country, specifically David Lloyd George's Old Age Pensions Act 1908. His most famous defence of that measure was his speech to thousands of cheering Cockneys at Limehouse. That was when the phrase "Limehousing" came into use, at least in the Conservative party, as a term of abuse for those who sought to promote social policies at the expense of the better-off.
Re-reading Lloyd George's speech, I realised how much more colourful—and MIG-free—was the enunciation of policies in those days. Describing the pension scheme, he said:
it is rather a shame for a rich country like ours—that it should allow those who toiled all their days to end in penury and possible starvation. It is rather hard that an old workman should have to find his way to the gates of the tomb bleeding and footsore, through the brambles and thorns of poverty. We have cut a new path through it, an easier one, a pleasanter one, through fields of waving corn.
There is no doubt that he had a way with words, but the proposal was more limited than his oration might suggest. A person had to reach the age of 70—one should bear in mind the lower life expectancy at that time—to have been a British citizen for 20 years and to be of good character, which would be a
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recommendation in the eyes of my right hon. Friend the Home Secretary. Provided that people met those qualifications, and that their income was no more than £21 per annum, they would be entitled to an old age pension of 5 shillings per week.
That sounds very modest, and it is beyond me why the Conservative party got so terribly worked up about it at the time. However, its importance lies in the fact that it set us on the route that led on through Beveridge, to the legislation of the 1970s and to where we are today. Proposals that appear modest may open up great opportunities for pension improvement, so that not only future pensioners, but those of today, can enjoy rising prosperity.
Although I have an open goal until 5.15 pm, I do not intend to take advantage of it. My final point is that the national minimum wage gives support to the pensioners' case for more substantial current pensions, because it recognises that there is a standard of living below which our citizens should not fall. Pensioners groups do not say that state pensions should be treated in the same way as the national minimum wage—clearly, different calculations are necessary, involving people in different circumstances and age groups.
The minimum wage recognises that there is a standard of living below which people should not fall. Although the Government are, to some extent, taking that approach with the minimum income guarantee, I have made no secret in my remarks of the fact that I would like to see a more substantial basic state pension. We should be more cautious about believing that the private sector can always make better provision than the state. I understand that the national insurance fund has a substantial surplus. Although that obviously cannot be spent all at once—there would not be many more tomorrows if it were—it gives room for manoeuvre. I wish the Government well in their consultations on the proposals announced by my right hon. Friend the Chancellor of the Exchequer earlier this week.
4.24 pm
The Minister of State, Department of Social Security (Mr. Jeff Rooker): I shall try to respond to all the points that have been raised, and shall be happy to write to hon. Members about any that I do not cover. I do not make that offer every time because hon. Members can always return to matters on other occasions. However, as I said to the hon. Member for Gainsborough (Mr. Leigh), these are important issues. One of the purposes of these debates is to help the Government. The greater the flow of information, the more likely it is that we will get it right in the future and avoid problems such as mis-selling and mis-advertising.
I am grateful to my hon. Friend the Member for Braintree (Mr. Hurst), especially for the Lloyd George quote. I would like to use that quote, as, I suspect, would some of our friends down at Millbank. Those were colourful days. My hon. Friend finished by mentioning the national insurance fund surplus, which is substantial and healthy. We must always remember that the surplus is not a pot of money—it is not cash—and only represents the difference between two extremely large figures. Therefore, a shift in the economy could wipe it out. Anything that we do on pensions lasts for ever—once the pension is changed, it must be transferred

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through the generations of a working life. That is one of the problems in terms of making calculations. The surplus is a seductive argument, but it does not work. Putting £1 on the pension today will cost £7 billion in 10 years' time. That indicates the scale of the Government Actuary's calculations.
Although my hon. Friend did not use the phrase himself, a couple of his examples brought to mind the phrase "thin end of the wedge". The door is open on certain issues, even though progress might be slow. The television licence is a good example. The Government's proposal for free television licences for those aged 75 plus applies to all households with someone over 75, which is a wide provision. There will be many households in which people under 75 live with someone over 75. The person over 75 must be the licence holder. It is the responsibility of the Department for Culture, Media and Sport to guide legislation through the House to deliver that policy, because a power will be necessary to request from my Department the names and addresses of everybody over 75. Data protection legislation does not allow us to provide such information willy-nilly. The 75-year old threshold will be dealt with in later regulations, but it will be easier to campaign for change once payment has started. That is the thin-end-of-the-wedge argument, although it has not worked in terms of the Christmas bonus or the additional 25p for those aged over 80, which have been frozen for years. I do not want to raise hopes, but my hon. Friend's point was that the first step is crucial.
As for the minimum income guarantee, its title was not invented by the Department of Social Security. My right hon. Friend the Chancellor of the Exchequer gave it that title, and we are sticking to it. It might be a good idea not to call it that, but that is what it will be marketed as. I accept my hon. Friend's point about the winter fuel payment. It is now a reasonable amount, which is paid in cash before Christmas. A date will be chosen in September, as was the case last year. It is done so far in advance because it takes 10 weeks to print the giros. I regret that, but the objective is to ensure that the money is in people's hands before Christmas. We also have to work on the basis of arranging back pay.
I shall run through some of the matters raised by hon. Members. My hon. Friend the Member for Braintree mentioned the cost of linking the basic state pension with average earnings, which would be £1 billion net in 2000, rising to £7.5 billion in 2010. An increase in the basic state pension and linked benefits to the minimum income guarantee level for April would cost £4 billion net in 2000–01. It would not help the poorest pensioners who are on MIG. Simply raising the basic state pension when the MIG exists would mean that the poorest were not well targeted.
In due course, the Government will introduce regulations for a protected rights scheme in respect of inherited SERPs. It would be impractical to write to all SERPs contributors since 1978, as there are more than 20 million of them—the National Audit Office does not recommend it. There will be initial press advertisements and a substantial programme of advertising to inform people who have lost out because of maladministration.
Mr. Burstow: I want to pursue the matter of the advertisements, which I understand are only the early
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stages of a wider campaign. Can the Minister say whether the initial advertisements were checked to ensure that they would be understood by potential readers? If not, will that be done before future advertising materials are drafted?
Mr. Booker: It will certainly be the case for future advertisements because we shall consult bodies such as Age Concern and Help the Aged. The Social Security Advisory Committee will advise on DSS leaflets and when possible they will be approved by the Plain English campaign.
It is early days; we have to put together a protected rights scheme, and broad-brush decisions were taken only last week. I do not accept that the advertisements are misleading; people will have to tell us if they have lost out. The hon. Member for Sutton and Cheam (Mr. Burstow) quoted the statement last week that the burden of proof will be on the Government. However, at the end of the day, people will have to sign a form claiming benefit and stating that the information that they give is truthful and correct.
Reports last week showed some of the worst maladministration since the war; they were devastating in revealing the lackadaisical machinery of government and how the errors came about. No person or section was to blame; the villain was a massive failure of the Government machine, and we must ensure that that does not occur again, in the Department or anywhere else.
The hon. Member for Beckenham (Mrs. Lait) referred to the setting up of a new, discrete pensions body outside the Benefits Agency but under the control of the DSS, to deal with everything relating to present and future pensioners, pensions policy, legislation, leaflets and information. It would include face-to-face contact with pensioners, to ensure that such mistakes cannot happen again.
Mrs. Lait: The right hon. Gentleman may know that I am keen that the pensions ombudsman and OPRA —the Occupational Pensions Regulatory Authority—should join the other financial products organisations under the Financial Services Authority. Could it work the other way? Could the personal pensions ombudsman come under the aegis of the new pensions body, so that one maladministration monitor deals with all the pensions?
Mr. Rooker: I shall put that off until Report. The hon. Lady has tabled amendments and new clauses, which I shall be required to respond to on Report. Clearly, she has plans for merging different parts of the machinery and we can debate that more fully on Report than we can today.
The hon. Member for Sutton and Cheam mentioned retrospection. It is a major problem and we debated it in Committee with respect to carers. I repeat the positive point that 2 million people will gain from the changes. I regret that it is impossible to fix a date for carers in the past; we do not have enough information. However, as I said, there will be a further opportunity to debate the matter on Report.
The hon. Gentleman also asked about people who become 65 after the cut-off date, potentially losing tax relief worth about £500. Nobody receiving age-related

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additions before April will lose them; they will continue into the next financial year for the foreseeable future. He made an interesting point about twins. Our computer systems can be pretty useless, but they are not too bad on dates of birth. I would be interested to know if there is a single example in the entire country of twins, one of whom was born on 5 April and the other on 6 April 1935. It would be most interesting if there were. If so, it would be a matter for my right hon. Friend the Chancellor of the Exchequer because it is a tax, not a pension matter. We may find out in due course.
The hon. Member for Beckenham referred to advance corporation tax changes and cited Tesco. As we have said before, the changes were intended to stop companies paying out dividends when it would be better to invest the money back into the industry. Notwithstanding the hon. Lady's example, by and large, the returns on pensions have been extremely good. The measure was part of a wider package of economic reforms and was intended to encourage companies to retain money for investment rather than pay out dividends. The hon. Lady knows what that was about. We need a strong economy. The basic state pension is the foundation of our system. Relying on the private sector could be problematic if the economic environment necessary for the private sector to provide the benefits of occupational pensions is not sustained.
Mrs. Lait: We agree on the need for a strong economy in order to grow. That is precisely my point. Taking £5 billion out of the pensions system was not a reflection of the Government's policy, but a product of the growth of the world economy, within which the UK is growing, but not as well as the American economy. The ACT change did not generate growth in the UK economy; growth happened because of trends in the world economy.
Mr. Rooker: I did not say or imply that; the hon. Lady takes us to another debate. Her point does not relate to pensions reform. That is the problem.
The hon. Lady asked a specific question about thresholds for the state second pension, but I thought that I had answered it previously. I always said that the £9,500 applied to the year 1999–2000. When the pension comes in, whenever that is, the figure will be revalued from the point at which we announced it. If it takes two or three years to come in, there will be two or three years' revaluation to make the figure correct. If I have not made that clear in the past, I do so now. If the pension started in April 2002, the low earnings threshold of £9,500 would have three years' worth of uprating from the date it was announced.
Mr. Burstow: The Minister is right. I recall him dealing with that in some detail in Committee. I have a related question concerning the roll-out of state second pension and his comments about MIG and the interplay between the two. Will he confirm that while most of the examples based on retirement at 2050 show that the basic state pension plus state second pension are equal to or greater than MIG, by the time most pensioners reach 80, they will back on MIG?
Mr. Rooker: No, I do not accept that.
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This is my final point and it relates to exchange between the hon. Member for Beckenham and one of her hon. Friends. As I have repeatedly said, MIG is part of the income support system. It is means-tested, not on a person, but in most respects on a couple. MIG and income support for a couple are not twice, but about one and a half times the rate for a single person. For example, a couple who have had work experience, possibly interrupted at some stage, one of them on a stakeholder pension and the other on state second pension, will be way over MIG when they retire. They would not then be subject to the means test on their savings and the other matters.
Financial journalists who insist on using the example of a single person, as opposed to a couple with a state second pension and a stakeholder pension, give a misleading picture. I know that not everyone is part of a couple, but the caveat must be entered that MIG is means-tested. The rate for a couple is not twice the rate for a single person and the figures are different in many respects. Couples could be way over MIG for a decade and a half or more after they retire. It depends on what they retired on, what their earnings have been and for how many years their contributions were interrupted. One cannot give a guarantee about this, but I gave the Committee some examples of people who would be well over MIG at the point they retired and would not fall back on it for 15 or 16 years. I accept that it would be less in other circumstances.
Mr. Burstow: The examples that the Minister referred to showed that, by the age of 80, many pensioners would need to turn to the Benefits Agency to seek MIG. Does that not underline the case for increasing the age addition to the basic state pension?
Mr. Rooker: I cannot accept that, although I also cannot write the scenarios for 50 years' time. The previous Administration's policy was to raise pensions only in line with prices. However, that did not happen during their 18-year term, because pensions increased by more than prices. The policy enunciation was prices for the one and earnings for the other. All our answers in future have to be formulated on that basis because there is no other way to project.
My final, final point is that I am unaware of anything that I said that could have caused anyone concern when I attended the Pensions Management Institute conference at the Hilton hotel in Park lane yesterday. I said virtually the same as I have said today about the mis-selling of stakeholder pensions—if that was what the hon. Lady was referring to—and about the survey that was done by Money Marketing, not by the Government. The firms are named in the survey. I have said today that the regulator, the Financial Services Authority, will, rightly, watch to make sure that there is no mis-selling of pensions, and, if it occurs, we shall clamp down on it at the first opportunity. Firms will no longer have any excuse for it because they have seen our draft regulations, which are in the public domain for consultation. I deplore the idea that firms might knowingly and wilfully be mis-selling. It is not good enough, and the FSA should do everything that it can to put a stop to it.
Question put and agreed to.
Adjourned accordingly at fifteen minutes to Five o'clock.