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Mr. Geoffrey Clifton-Brown (Cotswold): I am grateful to my right hon. Friend for giving way just before the end of his speech. Does he agree that the people who will benefit most from opting out of the state system and perhaps from being compelled to opt out of the state second pension are the youngest members of our work force? If in getting people to opt out of the state second pension we started with the youngest people—who by a

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compounding effect have the most to gain from having a private pension—it would be the beginnings of establishing the second, private pension as a norm.

Mr. Lilley: My hon. Friend is correct. His suggestion bears a startling similarity to the proposal I made before the 1997 general election—the basic pension plus—which I acknowledge bore a similarity to proposals in a paper that was published by my hon. Friend, which I subsequently saw. I hope that Ministers will learn as much from him and me as we have learned from each other.

Several hon. Members rose

Madam Deputy Speaker: Order. The debate is a short one and little time remains. If hon. Members keep their remarks brief, all may be able to catch my eye.

9.8 pm

Mr. David Kidney (Stafford): I shall be brief, Madam Deputy Speaker.

Stakeholder pensions began in April. On 8 October, about a third of a million employers were required to designate a stakeholder scheme. Some more relevant changes, such as the new pensions service and SERPS becoming the state second pension, are due to be introduced in April 2002. It strikes me as unreasonable of people to leap to judgment as they have tonight, and to use words like "flop" and "failure" so soon. However great the desire to carry out assessment and evaluation, it is reasonable to allow more than six months and to complete the development of the policy first. That is my answer to the criticisms that have been made so far.

On a more constructive note, my message is that, other than the defence of the nation, it is difficult to think of a public policy area where long-term consensus among political parties would be more useful than pensions provision. I think of the young workers of today, considering whether to make an investment in a pension for their retirement decades hence. They will be thinking of the number of general elections between now and when they retire and the changes in the law on pensions that could take place within that time. They will be thinking of historical events that might put people off having a pension.

Being as neutral as I can and not seeking to attribute blame to any political party, I could list many events such as pensions mis-selling, the attack on SERPS and more recently the problems of Equitable Life, not to mention the changes in our economy, with times of high interest rates and inflation and today's low interest rate environment and the effect that that has had on rates for annuities. People will bear all those things in mind when they decide whether to make that investment in a pension.

To put the stakeholder pension in its place in present public policy, the Government want the basic state pension as the foundation—with all the criticisms that the Liberal Democrats would heap on the sturdiness of that foundation—and they want to build on that with the second tier of pensions and provide sufficient diversity of choice for people to have no excuse that they cannot find a pension that suits them. As many hon. Members have said, the stakeholder pension is one choice that might suit some people. That is a sensible policy.

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Stakeholder pensions are designed in particular for people on modest incomes, although no one is excluded from the entitlement to take out such a pension. Many hon. Members have commented on the desirability of the standard features of stakeholder pensions and the limits on management charges. Those pensions make an important contribution to the second tier.

Surely it is in the interests of all hon. Members and of the entire population that people be encouraged to save for their retirement and that they save enough to build up sufficient funds and receive an adequate income in retirement. Surely those are the goals that we all want to achieve. The best way to achieve those goals is through stability—stability of public policy, which is where the requirement for consensus among politicians comes in. I also believe that it means the stability of public-private partnership. Labour has accepted, although it has been painful, that there is a role for private provision. I appeal to Conservative Members to accept the painful truth that there is also a role for public provision and that the two must go together to make a successful whole pension policy.

Stability of regulation is also required. The critics of regulation should bear in mind the fact that the Financial Services Authority will not have all its statutory powers until the end of this month. We also need stability in the economy. Most rational politicians think that an independent Bank of England and inflation target are useful contributors to a stable economy.

We need stability of pension rules. It is vital when we try to persuade people to take out pensions that they are confident that as much as possible of their investment will accrue to their pension fund throughout their working life, and that they will not be robbed of great chunks of their investment every time they change from one scheme or one job to another.

The public policy tools that politicians have are the basic state pension, the pension credit, regulation and partnership with the private sector. Importantly, the new second state pension allows credits for carers. That is a vital feature that must be retained whatever changes are made. A strong and diverse second pension provision market is also a tool.

There ought to be a concordat between political parties individually—never mind just the one party in government—and the providers; there is also an important role for employers. Research by the Association of British Insurers shows that the proportion of the target work force for stakeholder pensions who would be willing to take out a pension would rise from one third to one half if employers contributed. We need willing employers to be partners in that enterprise.

There must be a willingness to confront the obstacles to public policy that will crop up from time to time. The present problem with annuities is one such obstacle and we should all find a solution to it. We need less of the party political bickering and more of a unified message from politicians and providers, so that from now on we put the welfare of pensioners at the centre of pensions policy.

9.14 pm

Mr. John Butterfill (Bournemouth, West): I shall be as brief as possible in dealing with this important subject. I am afraid that the Government missed a tremendous

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opportunity when they first reviewed pensions by not building on the work of the pensions reform group, the all-party group that I chair and the retirement income working party, and completely restructuring pensions in a way suggested by hon. Members on both sides of the House. An element of compulsion is necessary. My right hon. Friend the Member for Hitchin and Harpenden (Mr. Lilley) suggested that there could not be compulsion on employers. Of course there could, just as one could hypothecate part of the employer's national insurance contribution. One could do something similar with the self-employed, who would be compelled via an increased contribution or, to avoid that, by showing that they were making private provision.

The stakeholder pension has only one merit—to drive down costs—which I accept is vital, as costs were far too high. However, looking at the target group, I believe there is a grave danger of mis-selling. In previous debates in the House, I have said that it is difficult to envisage how any independent financial adviser could recommend a stakeholder pension to someone in the target group without being at risk of mis-selling. The Secretary of State said that that problem would be overcome by the pensions credit. He should read the full response of the pension provision group, which states in a summary:

That problem is compounded by annuities. The fact that annuities are low makes it difficult for people in lower income groups to benefit. If annuities were abolished, as recommended by the retirement income working party, and a limited platform equal to the minimum income guarantee were introduced, people would be free to do what they liked with the rest of their money, subject to certain constraints, and much of the problem would be overcome.

We are faced, however, with a dichotomy within Government. The Inland Revenue is resisting annuity reform. A press release issued after a meeting with a Treasury only yesterday said that reform could

In other words, part of the Government is saying that a disincentive is needed for people to buy pensions. It believes that the annuity is a disincentive, hence it must be kept so that excessive tax relief does not have to be given. What nonsense; I thought that it was Government policy to increase the incentives for people to buy personal pensions.

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The press release also says that pensions schemes could lead to the very rich having

At the moment, if the very rich put everything in a trust, they have to arrange to die before 75. Inconveniently, that does not always happen so, once the 75-year rule is removed, they could use that as an inheritance mechanism. There is a simple way of dealing with that; all the Government have to do is legislate to cap contributions from the rich, and the whole problem disappears. Yet the Government retain that antique device, and one must ask why. Perhaps one of the reasons is that by forcing people to buy annuities, they force them to buy Government bonds at ever reducing rates. The Government are therefore forcing retiring pensioners to fund Government debt.

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