Pensions Bill

I congratulate my hon. Friend the Member for Runnymede and Weybridge (Mr. Hammond) on an excellent and thoughtful speech. It showed, not surprisingly, that he has a considerable grasp of the subject. He showed good sense in accepting formally on behalf of my party the Government’s pension credit system, which I think we should accept. However, in all frankness there was one matter on which he did not convince me and I want to touch on it briefly. It is quite useful for these matters to be discussed in public in time to influence the second Bill—the personal accounts Bill. The matter is that of the limit on contributions to personal accounts when they come in. My hon. Friend said that the Government were wrong to have a limit of £5,000 and that we should have a limit of £3,000—if I caught what he said correctly. I cannot see why we need a limit at all. The object of the operation is to encourage people to save and to maximise general savings and particularly long-term savings—savings designed to produce an income in retirement. It therefore seems to me that if anybody, whatever their circumstances or level of income, finds that when personal accounts come in they are the right vehicle for them and are a better deal all things considered—including the lower fees that we have been promised, which are an important aspect of the return available on any investment—I see no reason why that person should not come in with any amount of money, whether it is £3,000, £5,000 or £10,000 a year, if they want to and can afford that. We do not have running Revenue limits any longer; we have one global lifetime limit from the Revenue. That means that there is no reason on those grounds to have a running limit. No doubt we shall have to come back to that matter when the second Bill is introduced. I hope that we have some debate in advance of that Bill being drafted, because I am not sure that either my hon. Friend or the Government are on the right lines in thinking in terms of limits. I feel strongly that when we are designing a national public service such as a pensions system for the future, the House should not be in the business of taking into account the interests of a particular industry. We are not in the business of designing a pensions system for the future to suit the pensions industry. The pensions industry does a tremendous job and I have no reason to say anything against it as a whole. It is a large industry and includes independent financial advisers, pension funds, actuaries and so on and so forth. However, I do not accept that a limit should be imposed on the maximum contributions that can be made to a personal account simply because of the danger that, if there were no limit, undue competition would be created for other parts of the pensions sector. The creation of competition is a benign and good thing and should not be artificially restricted. There are many welcome things in the Bill and I agree with much of what has already been said on the subject. There is one thing that I regret, although it may be a bit late to alter it. There are a couple of things that could be, and should be, changed, and I trust that that will happen in Committee. There is also one overshadowing problem that the Bill does not recognise and I want to dwell on that at slightly greater length. I regret that we are taking so long to restore the earnings link. It was rightly said by a Scottish nationalist earlier that we are not actually restoring the earnings link—we are not restoring anything, because the system that prevailed until 1981 was a link to earnings or prices, whichever was the higher rate of increase. There was no choice about it. We are not restoring that; we are creating a new system, which for the first time is an earnings-linked system. That point aside, it seems a great pity, largely for reasons that have already been mentioned, that we cannot bring forward the introduction of that new system. The people whose interests the House ought to be most attached to—the oldest people of all; the world war two generation—are most unlikely to benefit if the earnings links does not come in until 2012 or even 2015. I recognise that we must maintain the fiscal viability of any measure that we pass through the House. I would be in favour of bringing forward the increase in the retirement age. I am in favour of bringing forward a rise from 65 to 66 perhaps in the next year or two, and then bringing forward a rise to 67 much more rapidly than the Government envisage. As several people have said, there are other countries—I would add Germany to the list already mentioned by my hon. Friend the Member for Bournemouth, West (Sir John Butterfill)—that already have a pension age of 67. I see nothing shocking about that. The Government have missed an opportunity—they could have done both things in a way that would be acceptable to the Chancellor, who I know is an overbearing presence on the Department for Work and Pensions. They seem to have missed that trick. There are two more minor matters that I hope can be addressed in Committee. This is an obvious case of where we should just polish the existing text. There have been calls for that already from both sides of the House. I am sure that the Government, who are in a reasonable, consensus-seeking mode, will have taken account of them. However, one issue is the moment of introduction of the earnings link and, later on, the moments of introduction of the new retirement age, which will increase from 65 to 66 and 66 to 67 and so forth. As things stand, appalling unfairness will be created. The other issue, which is important, is the introduction of a new system under which 30 years of contributions will qualify for a full pension, rather than 44 and 39 years, which is the rule at present. The Government propose to go in one jump, on one day—6 April 2010—from requiring 44 years, or 39 years in the case of women, to 30 years. As has already been said, somebody who is 65 on 5 April 2010 will find that he or she has a pension that is considerably less than somebody who happens to have been born a day later and becomes 65 on 6 April 2010. If someone loses out on roughly a third—that would be the gap between 30 years and 44 years—of his total pension entitlement, which is about £84 at present, that would mean that he was losing about £27 or £28 a week simply by virtue of being born on one day rather than another. That cannot be right. Similar unfairness and anomalies will be created when the new retirement ages come in if the whole of the disbenefit is suffered on one particular day. The Government seem to have forgotten entirely about the concept of a taper. Whenever we make changes to the tax or benefit systems that have a significant, long-term effect on people’s earnings, they should be phased in or tapered, simply out of sheer humanity. That would be the way to pre-empt the great sense of injustice that will otherwise pollute the new regime from the very moment of its introduction, which would be a great pity. I do not know whether I will be lucky enough to be selected to serve on the Public Bill Committee. If I am, and if no one else proposes an amendment along the lines that I have suggested, I will do so myself. However, I trust that the Government will propose such an amendment to deal with the problem. My main worry is the overarching problem with which the Bill does not deal, namely, means-testing. There is no question at all that in the present circumstances, and in the circumstances that can be foreseen when the Bill reaches the statute book, there will be a large number of people who will have no motivation to make a voluntary pension contribution by way of a personal account or any other means. Way back in the 1997 Parliament, when the Government first introduced the minimum income guarantee, which was the predecessor of the pension credit system, I happened to be my party’s spokesman on pensions. At that time, I made the calculation—I think that that was the first time that it had ever been made, and it appeared in the following day or two in not just the specialised press, but the general press—that a person would need to save for a capital sum on retirement of £80,000, on the values of that day, to gain even one penny’s benefit from those savings from a modest income. At the time, £80,000 would have yielded an income of £5,000 a year on a 6 per cent. annuity, and £5,000, on the assumptions that I set out to the House—no one quarrelled with them—was the average value of the benefits that could be received in addition to the maximum state retirement pension, particularly housing benefit, council tax relief and the minimum income guarantee supplement. On the assumption that the person concerned had a full contributions record, I calculated that all the £5,000-a-year annuity benefit would be completely foregone because it would equal the amount of means-tested benefit available to that person. Things have moved on since I made my calculation. The pension credit is worth more than the minimum income guarantee was at that time, and rents, and thus housing benefit, are somewhat higher. The relevant figure in the calculation is now certainly more than £100,000. A person would have to save more than £100,000 for there to be any benefit on retirement from those savings, if he or she was on a low income and otherwise eligible for means-tested benefits. That is a horrifying thought because to save an amount yielding a capital sum of £100,000 at the age of 65 would represent a pretty heroic savings effort for someone on a small income.