Select Committee on Work and Pensions Minutes of Evidence

Examination of Witnesses (Questions 184 - 199)




  184. Good morning, ladies and gentlemen. Can I call the Committee to order in the formal proceedings this morning. We are delighted to welcome the Secretary of State for Work and Pensions this morning. The first thing I would want to say is that I hope, Secretary of State, you will be able to give our best wishes to the Minister of State, who was originally scheduled to do this. You have very kindly agreed to fill his slot and I trust that it will not be long before he is back, fit and well, and able to get back to his ministerial duties. In that regard, we are particularly grateful to you for picking up the Report which is actually technically quite complicated and these are difficult matters. We have had some very good evidence from the pressure groups and some of the experts. The intention that the Committee is really seeking to achieve is to try and inform the process of the Standing Committee and the legislative stages when the Bill comes back from the House of Lords as it will probably, according to the business managers, some time after Easter. It might help if you could perhaps start by saying a few words, maybe describing the work that Paul Gray does within the Department, and whether there have been any changes, or any changes that you perceive, as a result perhaps of proceedings in the House of Lords, if any, and make a short opening statement and then we can start with some of the questions that we would like to address to you this morning.

  (Mr Darling) Well, thank you very much, Chairman. Firstly, thank you for your good wishes. I am quite sure Ian will come bouncing back very shortly. All of us know Ian very well and know that he will be only too keen to get stuck into this Bill when it comes to the Commons, which, as you say, is not too far away, so thank you for your good wishes. I have Paul Gray with me. Paul, as I think the Committee is aware, is in charge of overall pensions policy and strategy and has overall responsibility for that part of the Department. As I have told your Committee before, from the beginning of April the Department will be effectively run along client focus groups. There is the working age side, which we have discussed in the past, the pensions side, which exists alongside the Child Support Agency, and Paul is in charge of pensions. At some stage during the course of today's hearing, you may well want to ask me about the Pensions Service, which is fairly critical to take-up and making sure that people actually get their entitlement, and I will be happy to do that. I would perhaps also indicate, though it is possibly self-evident to everybody, that if the Committee Members want to ask me anything else about pension policy, then I will be more than happy to do that since you have got to look at pension policy in the round and cannot just look at one bit on its own. On the Pension Credit, perhaps it would be helpful if I just remind the Committee where we have come from on all this. In 1998 we published a Green Paper which set out our proposals for reforming the basic pension system in this country. The first priority that we had was to tackle pensioner poverty and that is why we introduced the Minimum Income Guarantee, which of course is absorbed into the Pension Credit. The second thing that we wanted to do was to reform the basic structure of the pension system in this country, reinforcing the State Second Pension, with SERPS becoming the State Second Pension which becomes operational in April, and I may say on that that I do think it is very important that the partnership between what the state does and what individuals do is absolutely essential to the future of the pension system. I believe you need both and you need S2P. We have also made saving possible for people for whom it was not possible in the funded sector with the introduction of Stakeholder Pensions; we should always remind ourselves that whilst occupational pensions are a very important part of pensions, a lot of people have never had access to them and the Stakeholder Pensions have given them access. The third stage is of course to make saving pay and that is what the Pension Credit does. It is worth reminding ourselves that one of the fundamental flaws of the social security system since 1948 and probably actually in the days before that is that if you actually did what successive governments asked you to do, and that is to make provision for yourself, very often you could find that the state, far from rewarding you for your effort, actually penalised you because of it. The Credit changes that system round and it is done to make sure that if you go that extra mile and you save a pound, we give you something rather than saying: "Hard luck, you're not getting any help at all". For the sake of completeness, the next stage, which we have already embarked upon, is that this autumn we shall be publishing proposals which I think will represent quite a radical assault on the complexity of the system with regard to the funded sector. I said before that I think the system is over-complex and for all the reasons I understand successive governments have perhaps tried to regulate themselves out of problems, to the extent where it has become counterproductive. So what we will be doing is publishing proposals which will build on the Pickering Report and the Sandler Report, both of which we will have by June of this year, and then we shall publish proposals this autumn, which I think we will re-consult on because we will need to take people with us. What you have got are reforms which started in 1998, which reinforce and reform the partnership between state and individual, we have made saving for people by extending options like Stakeholder Pensions, the third stage is the Pension Credit and the next stage will be that simplification. The last thing that I would say to you is that I regard the Pension Credit as absolutely essential to underpin all pension policy. Not only does it tackle pensioner poverty by introducing the guaranteed minimum, but I really want to emphasise that to go back to a system that actually almost builds disincentives into the system seems to be fundamentally wrong. It will benefit nearly half the pensioner households in this country by topping them up by £400 a year, but actually I think it is a major step forward in our social security reforms. So that is really what I want to say at this stage by way of introduction. I have not the slightest doubt that you and your colleagues will want to question me further on that and other aspects of pension policy.

  185. Well, I am grateful that you are willing to discuss things in the wider canvass. I want to come later on to the role that the Pension Credit will play in the strategy, and that is an important part of this inquiry, but we are all very aware that the Government's overall pension policy is under almost daily assault from press reports, like today in the Financial Times talking about the rebate levels of the S2P and whether that will achieve the Government's targets of getting people to make more private provision. People are allegedly being advised to go back into the state sector. Surely this demonstrates that there is, at least in some of the professionals' minds in the industry, some incoherence in the Government's plans. A lot has changed since 1998 and I just wonder if you think that the long-term plan, and there has got to be a long-term plan to succeed, is actually coherent.
  (Mr Darling) It sounds like a conversation I had with Mr Humphreys a couple of hours ago. Let me just go through what is happening at the moment and then if somebody does need some technical explanation, but I think it is a relatively easy concept. As you know, at the moment if you do not do anything, you are in the state system. You pay your contributions, you build up an entitlement to the Basic State Pension and, if you do not contract out, you build up your entitlement to SERPS and, from the beginning of April, what becomes the State Second Pension. That is the starting point. If you have an occupational scheme or if you choose to go into a contracted-out private pension, then what you do is, in crude terms, get your National Insurance out of the state system and you pay it into your private pension. What you see in the Financial Times today affects people in private pensions more than company pensions because they are operated differently, but every year people who operate private pensions are dutybound to ask themselves whether or not it is right for that individual to stay in the private pension or whether or not they might be better coming back into the State Second Pension. What is driving all this, and indeed separately and for different reasons from what you read about company pension schemes, is largely because of the fact that the Stock Market has fallen in value very substantially, for reasons of which we are all aware. That brings me to the first point, that you should never make pension policy in response to day-to-day headlines because pensions are a long-term business and we will not make policy on that basis; we set out a course in 1998, which we have consulted on, that I believe is right and which we will stick to for the avoidance of doubt for anyone listening to these remarks but, secondly, you do not reach a decision because of what the Stock Market is doing on any one particular day and somehow you need to start weaving here and there, but what is happening at the moment is that companies are, for understandable reasons and they do this from time to time, saying to you that some people ought to consider whether or not they should stay in their private pension or go into the State Second Pension. Some of them will actually be better staying where they are and some of them might be better coming into the State Second Pension. There are two points to be made here: firstly, everything they have saved in their private pension is still there and will be there with them when they retire; but, secondly, when they come back into the State Second Pension, they will be able to continue to build up entitlements under that. I do think it is an opportunity for me to re-emphasise the importance of the State Second Pension. If it was not there or if we removed it, as some people have urged us to do, then the people we are talking about would be in the uncomfortable position of being stuck in this funded pension whether or not it was good for them and that is why I think the S2P is important. Now, it is worth also bearing in mind that every five years the government actuary advises the Government as to what the rebate level ought to be and it is also fair to say that every time he does it, the cry goes up that it is not enough. We did increase it this year on his recommendation and something like an extra £11 billion will go into the system in the next five years or so. I referred earlier to the review that we are conducting and the recommendations that we will publish later this year. One of the things that I think will come out of that is that the simplification which I think we are likely to be proposing is that an awful lot more money is available to go into the pension pot rather than to the bureaucracy of running the thing, which I think will be a help. What I would say as far as today's Financial Times story is concerned is that we knew some time ago that this was likely to happen mainly because the Stock Market has been falling and it does happen in any event, and it happens in a number of years, but I do think it is perhaps a justification for us having a State Second Pension into which people can go to continue to build up their pension entitlement towards retirement. The last point on this is that you said I make no bones about the fact that I want, over the long period, to move more people into funded pensions because I think in the long term they will be better off, but you will find over the next 50 years that the Stock Market will go up and it will go down, but we do not change our pension policy simply because of today's headlines, even in such an august paper as the Financial Times.

  Chairman: I am sure the Committee will want to pay careful attention to your consultations on simplification and indeed return to the wider picture, and that has been very helpful as an overarching statement, but let's just concentrate on the details of the evidence we have received on the Pension Credit at the moment.

Miss Begg

  186. If I may look at the issue of saving, you will be pleased to know that much of the evidence that we have received broadly welcomes the Pension Credit, especially for the way it rewards small-scale saving. However, there is one issue that has been repeatedly raised with us and that is the treatment of those without a full Basic State Pension. Your own Department estimates that there are a quarter of a million pensioners who will be affected by the ruling, which says that if you do not have a full Basic State Pension, your savings are not rewarded by the Credit. Can you explain the reasoning behind this aspect of the proposed calculation method?
  (Mr Darling) Yes, it actually goes back to discussions I have had with, I think, you and your predecessor Committee, on the social security side, and that is that one of the features of the contributory scheme is that if you do not contribute, you do not get anything out of it. What the Pension Credit is doing is rewarding thrift, saving over and above what people put into the Basic State Pension. There are people who do not have an entitlement to a Basic State Pension because they did not make the necessary contributions. Now, if we got ourselves into the situation where we rewarded people, who had not put enough contributions in to get their full Basic State Pension, but they had other savings, then we would be rewarding them for that, whereas what we really want to encourage people to do is to make their contributions into the Basic State Pension in the first place, so that is the rationale behind it. My guess, Anne, is that over the years it is likely to be less of a problem because of course since 1978 it has not been possible for people to opt out and the people we are talking about to a large extent are people who have paid the married woman's stamp, as it was known in the old days. Now, people do pay their full stamp, but of course people in that position do benefit in other ways because the Credit does two things in that it tops your income up as well as rewarding savings, so somebody in that position, if they qualified for the guarantee, would have their income topped up, so they do get something out of it. The rationale and the answer to your question is that we wanted to make sure that we rewarded thrift rather than go back to the situation where we were rewarding someone who had not actually done what they were supposed to do and that is to pay their contributions towards the Basic State Pension.

  187. But does that not undermine the other stated policy, which you mentioned in your opening, that the aim of the Government is to reduce pensioner poverty, because the very people who are poor are the ones who do not qualify for the full state benefit and the ones with perhaps a low work record or have been carers and are often women, so does that not undermine that basic principle?
  (Mr Darling) No. If you take a woman who has not got the full Basic State Pension and, say, she was getting £60 a week, she would qualify and probably someone in that position will not have millions of pounds in the bank or anything like that. If she qualified for the guaranteed elements, it would bring her basic income up to £100. So the Pension Credit works in two ways: there is the measure that is designed to tackle poverty with the guarantee element because it says, "Here is the floor which you should not drop beneath"; and then the second part of it is the savings element. But we wanted to avoid a situation where if somebody had not paid their full contributions, but for some reason or another they had got savings and they said, "Why don't we get some credit for that?", so what we wanted to do was to make sure that the assumption is that if people do pay their full contributions, we top them up as necessary and then we credit the savings over and above that. That is the rationale behind it, but there are two ways in which we deal with pensioner poverty. One is the Pension Credit, but you also mentioned people taking time off for caring and I come back to the S2P coming in from April where 18 million people gain from that, including carers, so that for the first time ever from April somebody who takes four years out to look after their child or a parent or an ageing relative or something like that, we assume that they are earning £10,800 a year. Now, that never happened in the past and obviously that takes time to build up as the S2P is just coming in. I think we are doing a lot to deal with the underlying causes of poverty as well as dealing with people who over the years did not have the right contributions, but we will top them up, but the credit element, the reward element, if you like, is applied to savings over and above that.

  188. But obviously the majority of people who fall into that category are already retired and are probably women; it has been said that the Pension Credit will be of considerable help to women, but for retired women it will not really help them.
  (Mr Darling) Well, over half the people who benefit are women and my recollection is that half of those are over the age of 75, so if you look at who gets the lion's share of the gain of the Pension Credit, they tend to be older women who are precisely in the position that you refer to.

  189. What do you say to pensioner groups who actually say that the reduction of pensioner poverty is not the main aim of the Credit?
  (Mr Darling) Well, there are two aims. One is to continue to provide a means of tackling pensioner poverty because many of these same groups for years campaigned unsuccessfully, I may say, to get governments to do more for people on low incomes. The Minimum Income Guarantee started that and that is subsumed into the Pension Credit, so they get the guarantee. The second purpose of the Pension Credit is to reward thrift, and half the pensioner households in this country who are in this position. Everyone of us representatives have been in the position where you meet somebody who has got a small works pension or they have inherited something from their husband and they are really fed up with the fact that they get nothing and the Pension Credit will change that. It is always the case that groups will say that you ought to do more, and I will be surprised if we ever get to the situation where that will not happen, but I do think that the Pension Credit is a major step forward in terms of poverty and rewarding thrift. Both are reforms that are long overdue and I am glad that many people who have supported us, particularly in the Lords, were Members who were not of our Party, but who could see the merit of it.

  190. So basically you are saying that the whole point of the Pension Credit is that you can say to someone, "It will always pay to save". But if you take the evidence that the Association of British Insurers raised with us, it is also to do with those who are not on the full Basic State Pension where they felt that it would be much easier for them in trying to sell the idea of the Pension Credit if they could always say in every case, "It will always be better if you save". Adrian Boulding of the Legal and General told us that Stakeholder Pensions, in particular, were sold to `generic' groups, such as one firm's employees gathered in a room for a presentation, and the individual advice in these circumstances cannot be given. Do the regulations that we have been discussing not make it impossible for him to say to everyone in that room, "If you save money, you will be better off in retirement"?
  (Mr Darling) Well, I think that what you are saying there is a slightly different one. There is always going to be a matter of judgment and a matter of advice as to whether or not an individual earning about £11,000 a year would be better off staying in the State Second Pension or perhaps buying a stakeholder pension, even someone just on the margins, because you have to take a view as to whether or not you will always be on that salary or whether you are simply travelling through and upwards, if you like, and that has always been a matter of advice. There is no system in the world that can get away with that unless you say that there is no choice in the matter, ie, it is all state or it is all private, and certainly I think that would be fundamentally flawed if you went down either one of those two extremes. On the Pension Credit, the position is, though, that if you qualify for Pension Credit and if you have a pound of saved income, then you get a credit for it. What I wanted to do was to get a system whereby I could say to somebody, "Even if you save a small amount through your Stakeholder Pension, through your works pension, whatever, your earnings, we will give you some reward, some credit for having done that". That is what the Pension Credit seeks to do. The Legal and General have been one of a number of companies who have said it has made all the difference. If we had not had it, then a lot of people could legitimately have said, "Well, I'm not sure. Is it worth saving into a pension?" The Legal and General have made it very clear that it has made a big difference, but the point you raise now I think relates to whether or not you should advise somebody on a low income, particularly somebody who has been on a low income throughout their working life, as to whether you advise them to go into a funded pension. I have said time and time again that I do not think people on low incomes will, generally speaking, do well in a funded pension, but that is a judgment that they have to reach as individuals.

  191. Can I just be clear that you are actually saying that when you are saying, "It is better to save", it is actually better to save through pensions, not just save if you have not paid your National Insurance contributions?
  (Mr Darling) It is better to save and I want people to save through pensions, I want people to save through ISAs, for example, and 12 million people are saving something like £60 billion now through ISAs, a lot of them low-paid people, or if they work into retirement, I want them to be rewarded for that as well, but the philosophy of the Pension Credit is that for the first time in the social security system to make sure that where people make the effort, where they have been thrifty, they actually get something for it. Now, that is a fundamental break from the past and that is what it does.

  192. Perhaps I can bring up the issue of the notional rate of income on the savings. Many of the witnesses welcome the halving of the notional rate of income in the Credit proposals compared to what was under the MIG, but we have received representations that 5 per cent would be a fairer estimate of the actual return on savings at present. Would you consider a lower notional rate for the Credit's calculations?
  (Mr Darling) Well, as I said, you will always get people coming up with strategies for more, but can I just perhaps make one point here which I think is important. What we are doing is we are disregarding the first £6,000 worth of savings and that covers 84½ per cent of pensioners. Now, 84½ per cent of pensioners today do not have £6,000. If you look at the people who have, say, under £10,000-£11,000, that is something like 93 per cent, and what we have done is we have halved the rate, the notional rate. Some of you may recall that when we started off on this, when I made my statement to the Commons, I actually was attracted to dealing with the actual rates, but I was persuaded by Age Concern and by others that this would be over-complicated for people to work out, so that is why we have gone for a reduced and far more realistic notional rate. If you take somebody with £8,000, bearing in mind that you are ignoring the first £6,000, the actual rate, the equivalent rate is something like 2.6 per cent, so I think when you take into account the disregard, the rates for the vast bulk, I think probably under 95 per cent of people, the equivalent rate will be less than 5 per cent, so I think we have gone a long way, and I have to review these things every year anyway, but I think we have made a significant improvement there.

  193. As long as there are low interest rates, then obviously the pensioner with savings will seem to be clobbered particularly hard because 10 per cent is not—
  (Mr Darling) No, but, Anne, remember that you leave the first £6,000 out of it, that is disregarded, so if you take the equivalent rate on your savings of, say, £10,000, then that equivalent rate is 4.2 per cent because you have taken out £6,000. Now, under the original scheme of our proposal, you would take all of those savings into account, so I know these things are complicated and, if it is any help, I would be very happy to let you have a table which shows what the equivalent rate is. I have got one here, and I have scribbled all over it, nothing offensive, but—

  194. So that would give the equivalent rates including the disregard?
  (Mr Darling) What it does is it shows you a level of savings, an assumed level of savings, before and after, if you like, but it shows how, by ignoring the first £6,000, your equivalent interest rate is actually less than 5 per cent for, I think it is, something like 95 per cent, or it may be 94 per cent of people. Now, I would be happy to let you have that. It is also worth bearing in mind that if you are a single person and all your income was from capital, you would have to have more than £35,000 in the bank before you would exhaust your entitlement to Pension Credit. I think when you look at this and when you come on to it and perhaps other questions that your colleagues might put to me, this is a huge benefit to something like half the pensioner households in this country. It is worth reflecting on that, so that when people start criticising the thing, it is a big, big social reform here. I would like to say a lot for the future, but you would not expect me to be making promises that I could not identify at this stage, though I do look at these things every year, but I do think that if you look at the actual equivalent interest rate, it is a lot less than people who are campaigning for the 5 per cent figure will settle for, I suspect.

James Purnell

  195. I have a quick supplementary on the entitlement to the Basic State Pension. As you know, one of the groups that do not build up an entitlement so easily are foster carers who do not get home responsibilities protection and there are those people who are taking time off work to look after their own children who obtain Child Benefit and, therefore, automatically get home responsibilities protection. Ian McCartney has written to a number of us saying that he is in discussion with the local authorities and others about whether the situation for foster carers can be looked at so that they can have extended to them the same protection. Is that something which you can look at through this Bill or is that something which you are progressing on in another way?
  (Mr Darling) That will not be in this Bill. Indeed your predecessor Committee, I seem to remember, conducted an extremely long inquiry and you arrived at the conclusion which was the same which I think most of us felt that probably a blend of all these things, contributory, means-tested, and the rest of it, is the right way to go. One of the contributory purposes is that if you do not contribute, you do not get anything out, other than a means-tested entitlement at the end, so yes, we will look at it, but I do not think it will be in this Bill.

Ms Buck

  196. I am a big enthusiast for the Pension Credit for today's pensioners, but I think one of the issues that we need to be convinced about is the impact that it is going to have on incentives for today's working population to save. You will know of the criticisms of the Bill and of the Credit and they tend to concentrate on the complexity of it and the difficulty people might have in working out calculations, and of course whether the amount itself is going to be sufficient to act as an incentive to save. Age Concern's MORI poll supports some of these concerns, saying that 70 per cent of people "had little or no confidence about their income in retirement". In the memorandum, you were a little bit less than robust in talking about the confidence that people have in planning for their own retirement, saying, "With the introduction of Pension Credit it will be possible to make a reasonably positive statement that for most. . .people, most of the time, they would be better off saving for retirement. . ." I just wonder if that is going to be sufficient to get a 36-year-old working at The Gap to think, "Blow me, this Pension Credit fund is going to reward me for savings, so I had better get myself down to start sorting out a pension"?
  (Mr Darling) Well, you raise an important matter. One of the big challenges for any government is how to persuade a 26-year-old or a 36-year-old that they ought to part with their money today for something they are going to get some time in the future because if it comes to a choice between a Friday night at the club or the pleasure of contributing to their pension fund, most people will choose the evening in the club. Indeed if you start to engage many people on pensions, it is one of the best ways of clearing a room. When Beveridge talked about slaying the five giants, with pensions you could add a sixth and that is sheer boredom. Now, it is quite clearly in every government's interest to encourage people to save. I am very robust on the Pension Credit, as on everything else about pensions, and do not read too much into it when these submissions are couched in more legalistic terms and so on, but I am very robust about it because I think that it makes a big difference. We can say to people, "Look, if you save something, even if you save a small amount, then it is worth your while to save". You actually raise quite a fundamental point which I would like to address. There is around a school of thought which says, "Because you have got the Basic State Pension, because you have got the State Second Pension, because you have got the Pension Credit, you have got company schemes, you have got group personal pensions, you have got private pensions, you have got Stakeholder Pensions, this is all terribly complex, so would it not be much easier if you just had a very simple system, which was the Basic State Pension and then you are on your own after that?" Well, I think you need to be aware of people who say that there is a simple solution to these things. If someone tells you that, with pensions there is a simple solution to these things, then you should start watching them very carefully indeed. I do not subscribe to the view that the only way to get people to save is essentially, in crude terms, to almost starve them out, to say, as in Victorian times, "There is absolutely nothing for you here, except the workhouse, so with that in mind, that is the real driver to get you to save to improve yourself". No government since the Second World War has accepted that; Conservative governments and Labour governments have always had a floor, whether it is called Income Support or whether it is now the Minimum Income Guarantee, but they have always had a floor and the Government has reached the view that that is the floor, beneath which pensioners should not drop. Now, there is an argument to say that the minute you do that, you have taken away the incentive to save. Now, I do not accept that and I do not think any government actually would accept that, no matter what political colour that government happened to be. I do think though, having installed the floor which the £100 Minimum Income Guarantee does, you need on top of that to have something like the Pension Credit, which is why we have introduced it, to say: "When you do save a pound over that, you are not running the risk of disqualifying yourself from all state help", which is how the current social security system works, but instead: "you save a pound and we will give you 60 pence", and that incentive is then built into the system. So I do not subscribe to the view that if you have stripped away everything else and you had a simplistic approach with your basic minimum amount and everybody defends themselves, I do not think that would work and I do not think it would be fair. I think there is a broader question of how you get people to save, full stop, and my view has always been that a one-size-fits-all approach would never work and you have to take people as they are. We should build on what does work in this country, which is the funded system and the State Second Pension as well, but I think over-simplistic approaches to these things, they may be fine for an academic paper, but they do not make much sense for people in this country or for pension policy, for that matter.

  197. Sure, I understand, but you are really asking people to fire at a very small and moving target, are you not? On what evidence would you say that you bring about a behavioural change on the basis of the principle of a savings increment? What is the evidence for that?
  (Mr Darling) Well, it is not introduced, so you cannot point to it saying, "This will change people's behaviour". I think a lot of these things are intuitive. What I am very clear about is that if we maintain the present system, and it is fairly widely known how the social security system works in general terms and people understand that there is a floor and you qualify for that provided you have got less money than whatever the total happens to be at a particular time, that in itself is a disincentive if we did not do anything about it because people say, "Well, if I make an extra effort, I lose out on all that help". We have all met people like that who say, "I have worked hard all my life and I get nothing. The guy down the road was feckless and drank all the money and he is getting all this help", and so on. The Credit stops that from happening. Now, it takes time for people to become aware of these things, but just as with the Working Families Tax Credit, for example, which self-evidently no one could have heard about five years ago because it was not around then, it is starting to get around and the word on the street is that there is extra help and if you go to work, you are better off and you get help for doing it. These things take time to build up though, Karen, particularly in pensions where, as I said to you, engaging anyone on pensions is a difficult enough task as it is, but I think basically most people currently understand the contract. The state will do some things for you, but frankly most people would be better off making that extra effort and doing something for themselves as well.

  198. Of course you are right and it does take time to build up, but there is a very fundamental difference here and that is what the Government is thinking about doing, not what it will do. The Working Families Tax Credit is a take-up issue and somebody is going to ask questions about take-up later. There is a world of difference between promoting a benefit which people can ring a hot-line and get, and promoting a message which says, "In 20 years' time or 10 years' time, if you take this particular path, then something will be here to act as an incentive for you". That is an entirely different issue from take-up and, therefore, you have got to keep control, I think, as the Government, of how you educate people about taking steps which will lead them to a particular outcome in 20 years' time.
  (Mr Darling) Up to a point. Firstly, before you do anything else, before you approach the population you have to make sure that your basic structure is right, that the way in which you save, the stakeholder and privately funded pensions, are right to make sure that you have got the right incentives and rewards built into the system, so you have to get that right first of all and I think we are doing that. You then have to approach the population and say, "This is what we have got and this is what you ought to do". Now, you are right that somebody in their 20s will not be receiving a pension, let alone the Pension Credit, for many, many years. However, when the Pension Credit starts to come in, the present generation of pensioners, about half the pensioner householders in this country, will be affected by it and they will know about it, they will talk about it, not just amongst each other, but they will talk about it with the younger generation as well, but it takes time to build these things up. It is worth bearing in mind, and I am happy to give you this piece of paper as well, and a lot of people will tell you that the Basic State Pension is dead easy. Have you ever explained to somebody how it is calculated? Let me just read the first page of the manual which we give our staff: "You have to consider for each week of employment whether class one National Insurance contributions have been paid above the primary threshold of earnings or whether they received above the lower earnings limit but below the primary threshold or whether it did not exist because the ones available are actively seeking work and capable of work or caring for a child and in receipt of home responsibilities protection. . ." and this goes on like this. It is not simple at all. The wording behind the pension is quite complicated, but the basic principle of there being a Basic State Pension floor plus a Pension Credit, which is designed to reward people's savings, I think it is a fairly straightforward one. If you ask me the broader question, "How do we engage the 20-somethings and 30-somethings to think about their pension?" I think you have to get the structures right, so there are other things you need to do to make sure that your incentives are right and to make sure that the tax system works appropriately and you have got the right products. I mentioned earlier ISAs. There are lots of people around who were very critical when we introduced ISAs and said that we would never sell them, but 12 million people have got £60 billion worth of assets in ISAs and it is worth bearing in mind that quarter of the people who bought cash ISAs have earnings of about £11,000 a year. It takes time, but I think there is a growing financial literacy in this country for a variety of reasons. Clearly trying to engage anyone of relatively young years on the merits of pension planning is always going to be a daunting task.

  199. So we are going to harness an army of grandparent mentors in order to promote this and given how quickly the 75p got around, there is actually a lot to be said for engaging grandparents in that process.
  (Mr Darling) Well, I have very recent experience of people telling me that people do not notice these things. I think that they do notice these things and they do so very, very quickly, but engaging young people, and I am not that old myself, in how to save is a difficult task. Try explaining to your eleven-year-old daughter that to spend money, you have to earn it in the first place. It is a difficult concept.

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