Pensions Bill

The hon. Lady misunderstands my logic and what I am trying to say. She certainly misunderstood what I said when I first made the point about eight years ago. I am comparing like with like—I am comparing comparables. For the purposes of my calculation, I am assuming that someone has a full contribution record and thus receives the state retirement pension. The question is whether that person will get anything more than that pension. The figures have changed a bit since I first made my calculation, although not by much. At that time, the minimum income guarantee would have provided £20 a week more than the state retirement pension. Housing benefit typically would have provided about £50 a week, although now the figure would be £60 or £70. On top of that, council tax relief would have provided perhaps £10 a week, although the amount would now be £20 a week because of the dramatic rise in council tax since then. People at that time would thus have been entitled to some £5,000 a year by way of means-tested benefits on top of their state retirement pension, because, as I am sure that the hon. Member for Aberdeen, South (Miss Begg) knows, if people have only their state retirement pension to live on, they automatically get council tax relief, housing benefit and the minimum income guarantee—now the pension credit. All that benefit would be foregone by people who had some £5,000 of retirement annuity on top of their state retirement pension. If one does the calculation today, the figure is rather higher, given that the value of the benefits has increased, so the capital sum needed from which to purchase an annuity on retirement would now be more than £100,000. If, after cashing in a capital sum of £100,000, a person had £6,000 from a retirement annuity as their only income in retirement, apart from the state retirement pension, they would find that they had wasted the whole £100,000, because the £6,000 that would be received would disqualify them from the means-tested benefits that they would otherwise get. There is thus a break-even point, which is now slightly more than £100,000, at which savings give absolutely no return. I ask the hon. Member for Aberdeen, South not only to follow that logic, but to bear with me and go to the next stage. A person who had saved £200,000 would receive a return from that by way of an annuity that would be exactly half what the market return would be. In other words, that person would receive half what the market would regard as a reasonable return for deferring consumption throughout a lifetime and undergoing an investment risk by saving money. It is not unless a person expects to be able to accumulate an amount considerably in excess of £200,000 in a retirement fund with which to purchase an annuity on retirement that it becomes worth while to think about making personal pension contributions. I am afraid that that is the overshadowing reality, and it means that someone who does not expect to be able to save that kind of money would almost certainly be much better off consuming their income—spending it on enjoying their life and doing what they want to do—rather than saving it, because they will know that when they reach 65 they will get not only a full state retirement pension, but the full pension credit, in addition to housing benefit, council tax relief and the other means-tested benefits to which they may be entitled. Such an uncomfortable reality means that anyone giving honest advice to a person in such circumstances would have to say, ““How much do you expect to be able to save in your lifetime? If you can’t save beyond £200,000, it really isn’t worth it.”” Just imagine the effort required for someone with an income of under £20,000 a year, or even £25,000 a year, to save a sum that would, on reasonable rates of return, amount to £200,000, £250,000 or more on retirement. It would be an heroic effort, and that heroic effort would almost certainly yield a derisory return. People who earn much more substantial amounts of money might be able to put aside £5,000, £10,000 or £15,000 a year, and for them it is very worth while to save that money, but unfortunately it is not worth while for others to do so in present circumstances, and the Government have hardly changed that at all. We must all be concerned about that. The Liberal Democrats identified that problem and have come up with a solution that everybody else regards as simply not financially viable, and I share that view. Their solution is not realistic; it is funny money, and it is not a sensible way of moving forward. We must be able to afford what we propose for the British public. An alternative used elsewhere is compulsion. The hon. Member for Northampton, North (Ms Keeble) mentioned the Australian superannuation system, which I have considered, and it is an attractive system that runs extremely well. Compulsion means the state telling everybody that they will have to pay for what they receive in retirement. No doubt there is a means-tested safety net, so that people do not die in the gutter if, for one reason or another, they manage to avoid saving any money through the compulsory scheme. Nevertheless, in such a system, what people receive on retirement is seen to be the direct result of the compulsory saving. That, of course, was the original basis of the Lloyd George proposal introduced in the House exactly 98 years ago. Compulsion has not been mentioned at all in today’s debate, although just about every other aspect of the subject has been. It is something to which we will almost certainly have to return. There are great problems with compulsion. People will say, ““I’m compelled by the state to save; the state is forcibly extracting a certain amount of money from my salary. Even though it is supposedly being saved for my benefit, I regard it as a tax. It is an imposition and it is not voluntary.”” I quite understand the political sensitivity of the matter. It would be a brave Government who decided to introduce compulsion, but I do not think that we should exclude the idea. I am not urging my hon. Friends to include the proposal in our next manifesto, but we should not exclude the idea from the debate, just as it has been excluded, slightly artificially, from our otherwise detailed and multifaceted discussion this evening.