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We have to put the pension beyond the realm of means testing. The critical point is that no one will save if means testing is the reward for saving. If we can increase the pension particularly for older pensioners to the level of the means test, every pound that they save thereafter will be pure gainnot 40 per cent. or 60 per cent. gain, but 100 per cent. gain. When we reach that point, we shall have decent levels of funded pensions. Until we have a decent basic state pension, neither the Government's nor the official Opposition's proposals will succeed.
Mr. Frank Field (Birkenhead): I should like first to emphasise the aspects of the Government's policy that I welcome, and then to draw some different conclusions from the figures that were presented by the hon. Member for Havant (Mr. Willetts). Although I am relieved that so few of the target group have bought a stakeholder pension, the already significant number of those who have bought one should give the Government a very important lessonthat the stakeholder is a real success if one has an adequate first-tier pension. Although one would not
I welcome two huge successes in the Government's pension policy. The first is that the stakeholder has reduced significantly, and will continue to reduce significantly, the charges faced by pension savers. We need only consult Pensions Weekly to see how much further there is to go. This week's issue gives the example of someone beginning late in the day to save substantial sums towards retirement, and ending up paying contributions of nearly a quarter of a million pounds to the provider, although the pension is marketed as a stakeholder pension. Real progress has been made in reducing charges, and the Government should be congratulated on that. They also deserve our thanks for the efforts significantly to increase workers' access to low-cost pensions. That, too, was part of the stakeholder pension reform. I doubt that any Member will deny that we should applaud the Government's moves on both fronts.
The difficulty arises when we look at the target group, and at the figures presented by both the hon. Member for Havant and the hon. Member for Northavon (Mr. Webb). If we think about stakeholder pensions in terms of the target group, some disappointment must be expressed in the target group's take-upalthough I would say that its refusal to touch the product shows a lot of common sense. Let me explain why many in the target group should not touch the product, and why I am pleased that there are so few take-ups. If we continue our efforts to achieve a high take-up among the lower half of the target group, weas a Governmentmay open ourselves to the mis-selling of pensions. That would be more serious than our having to say that our reforms had helped groups other than the one that we had targeted, that we were pleased about that, and that we would proceed to further pensions reform to help the original target group.
The problem arises from the fact that, in their entirely proper desire to help poorer pensioners now, the Government have holed below the water line their long-term reform of stakeholder pensions if they are targeting those with between £10,000 and £20,000 a year. We know already that about half of them cannot save to make themselves better off than they would be if they spent all their money and took advantage of the minimum income guarantee. Some of our constituents complain that, having saved, they are not as well off as they thought they would be, given what people are picking up on the MIG. The error may be compounded when the pension credit is introduced.
My worry is that one or two of the big companies that are making a big song and dance about stakeholder pensions are selling them on the basis that the two reforms will be with us for the long term. I wonder whether that is true. Let us consider the cost of linking the MIG to earnings and continuing to link the state pension to prices. Not only do more and more pensioners become eligible for the MIG over the years; because they do, and because one benefit increases so much more quickly than the other, the cost will escalate. Indeed, it is already escalating.
In fact, I wonder whether the two reforms will be in place at the end of the day. I congratulate my constituents who have not bought stakeholder pensions on the basis that they will be in place; the chances are that they will not. As if that were not difficult enough for the Government, the Chancellor has introduced two other savings products making it even more difficult for anyone who might want to take up a stakeholder pension to decide to do so. Would someone with modest to low earnings, seeing what the Chancellor is offering on individual savings accounts, lock up his or her savings in a long-term pensions product, or go for an ISA? Clearly, most people would go for the ISA.
We are now told that there will be a savings gateway. All who go through the gateway will have a pound added to every pound that they save. Which of our constituents in the target group will sign up to a stakeholder pension when, by going through the savings gateway, they can double their savings immediately for three years? Moreover, as with all schemes that encourage savinggood to start, more difficult to stopthere will presumably be an extension of the scheme.
Given that we do not yet know the details of the pension credit, and that half of the target group can make themselves better off by not saving and relying on the minimum income guarantee than they can by saving, should we be surprised at the figures produced by the hon. Members for Havant and for Northavon? I am not surprised at themin fact, I am relieved, and I hope that this debate helps to spread the message about the stakeholder pension.
The stakeholder pension is a useful new product. The lesson for politicians is that all those who receive or will receive an adequate first-tier pension are plumping for the stakeholder pension. They are pleased with what the Government have done, and about the significant reduction in costs. They can see those costs falling still further, and they are putting their money where the Government's mouth has been. They are wise to do so.
Although we should naturally celebrate the successes achieved by the Government's pensions reform programme, my third theme is that at some stage we will have to examine how we propose to ensure that everyonerather than merely some peoplein the country has an adequate first-tier pension. If that pension were to be aimed above means-tested levels, many of the problems identified in the debate would fall by the wayside. There would not be a problem with the mis-selling of stakeholder pensions, as everyone would know that they would keep every penny that they saved if they had an adequate first-tier pension.
Moreover, an adequate first-tier pension would mean that there would be no problem with annuities. Annuities exist only because we taxpayers pay substantial sums to encourage people to save towards their retirement. It is reasonable, therefore, to expect that people do not spend those savings foolishly, as that would allow them to draw on taxpayer's money for a second time by claiming means-tested assistance. However, people with adequate first-tier pensions will be free, if they wish, to buy annuities with their other pension products. Some will do so, and othersespecially in the current climatemight consider that rather a poor deal.
Hardly any of us can buy such a guarantee in the private market. People as rich as Mr. Branson might be able to, but they do not need to. For almost all of us, therefore, such a guarantee would be very valuable.
The proposed scheme is quite open about the element of redistribution that it contains, which would ensure that people who cannot pay but who are decent citizens would have their contributions paid up front. In that respect, I disagree with my right hon. Friend the Secretary of State. I consider that, in schemes that contain an element of redistribution, it is better for people on lower pay to be funded than it is for them to rely on credits and promises that future taxpayers may not meet.
The pensions reform group does not try to duck the fact that such a scheme would come at a price. It accepts that we will have to pay more if we want adequate pensions. Clearly, the way in which those new contributions are introduced is a matter of importance.
A number of hon. Members have expressed interest in the idea. The pensions reform group is an all-party group, and its members include the hon. Members for Northavon and for Arundel and South Downs (Mr. Flight). Many financial institutions outside the House have played their part in working up the proposals. We have six months in which to examine the aspects that need further work, to ascertain whether the scheme is a starter.
I hope that at the end of our debate we shall record in the Lobby our pleasure at the real movement that the Government have made in beginning to change how pensions are sold and in ensuring that those pensions offer a good deal for people who save. However, I stress that the Government's keenness to help the poorest pensioners through means testing stores up real problems for modest income groups. Such people feel that the system has now turned against them and that what they thought of doing as decent citizens is not rewarded but penalised.
We shall always have the dilemma of how to help the poorest, unless we get down to debating, at some stage during this Parliament, how we ensure an adequate first provision for everybody in the country. The hon. Member for Havant helped that debate along this evening by giving us figures showing that all those who currently have basic pension cover have been the biggest takers of stakeholder pensions. They have sent a clear message to Members on the Treasury Bench.