Pensions Bill

My right hon. Friend is right and I shall deal with affordability shortly. The second reason that the increase in means-testing matters is that, although its use has allowed poverty in retirement to be targeted at relatively low cost to the Exchequer in the short term, its expansion has a long-term cost—a reduction in the incentive to save. Since Labour came to office, the savings ratio in this country has almost halved. It is not difficult to understand why. An effective marginal 60 per cent. withdrawal rate acts as a major disincentive to saving for retirement for those who are either caught in that trap or believe that they might be caught in future. Now the Government propose to change tack and halt the erosion of the value of the basic state pension. The Secretary of State knows that the 2005 Conservative manifesto pledged to link the basic state pension to earnings. At the time, the Government condemned that pledge as unaffordable. We therefore welcome the conversion to a commitment to the earnings link from 2012 and the simplified contributions rules, which mean that men and women who have worked or cared for someone for 30 years will be entitled to a full basic state pension in their own right. We also accept the increase in state pension age that will partly finance the changes. The Government have taken major steps forward and the Secretary of State should be congratulated on his success in persuading the Chancellor to agree to the provisions, especially given the unconventional style of his charm offensive on No. 11.