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Lord Goodhart: My Lords, nobody in this House can speak on the subject of pensions with authority equal to that of the noble Baroness, Lady Castle of Blackburn. She was the author of the 1975 legislation which has been the basis of our system of occupational and personal pensions ever since. Anything she says, therefore, has to be listened to with great attention.
We, on these Benches, have considerable sympathy for the amendment tabled by the noble Baroness, though for somewhat different reasons from those which she expressed. It would, perhaps, be unwise for her to assume that our sympathy would go as far as supporting her in the Division Lobby should she seek to divide the House.
The noble Baroness based her amendment on her objection to the abolition of SERPS and the failure of the Government to go back to the earnings-link for the basic state pension. On those issues, we support the Government rather than the noble Baroness. I do not think that it is appropriate for me to go into those reasons now. No doubt they will be raised when we reach Amendments Nos. 53 and 55 tabled in the names of the noble Baronesses, Lady Castle of Blackburn and Lady Turner of Camden. However, perhaps for reasons more similar to those raised by the noble Lord, Lord Higgins, we too regret that the opportunity was not taken up to introduce legislation to set out in more detail the Government's proposals for the second state pension.
It is clear that this is a three-legged stool. We already have a minimum income guarantee, which does not require primary legislation; the stakeholder pension and, in between the two is a second state pension. We have the first and third legs but we do not know what the legislation is to be regarding the second state pension. We believe that the interface between that and the stakeholder pension will be essential to the proper working of the new pension system which the Government propose to introduce, and with which we have a considerable measure of sympathy. We therefore regret that the Government did not feel able to introduce the legislation for the second state pension at the same time as that introduced for the stakeholder pension.
If the stakeholder pension is to go ahead before the second state pension is introduced, it will have some value. It will operate as what might be called a cheap and cheerful" alternative to the more elaborate rules which now govern occupational and personal pensions. To that extent it is all to the good and we would not object to its introduction even before the second state pension is introduced.
However, I take the opportunity to say that we regret the failure to deal now with the second state pension. We shall listen with care to what the Minister says as to why it has been impossible to do that now.
Lord Clarke of Hampstead: My Lords, like the previous speaker, I have listened intently to the expertise of my noble friend Lady Castle, not only in this debate, but over many years. I therefore make my comments with some trepidation.
Amendment No. 2 is clear. It says that we should do nothing to improve the law on pensions until we can do everything. But in my view, to delay progress would be wrong. It is one thing to say that we must assess the Government's pensions proposals as a whole--that is what the Government asked us to do when they published their proposals last December in Partnership in Pensions. It is another thing entirely to say that we should not act on any of those proposals until we can act on them all.
It is surely right that we should make progress as and when we can. Some of the Government's proposals do not need primary legislation. In relation to the minimum income guarantee for pensioners, for example, it must be right that the Government act immediately to help those pensioners who depend on income support. Is it not right that the poorest pensioners should receive priority treatment? What advantage could there be in delaying helping them until the whole of the Government's pensions programme can be implemented?
Similarly, I believe that the Government are right to press ahead with laying down the legal foundations for stakeholder pensions. We should remember that stakeholder pensions are aimed at the many people who do not at present receive a sufficient wage to enable them to save for their retirement. Occupational pensions are a good option for those whose employer provides one. Personal pensions are fine for those who earn enough to make them financially worth while. But what of those whose employer does not provide an occupational scheme or those on moderate earnings who find the cost of personal pensions prohibitively high? Surely we should be looking to help them as soon as we reasonably can.
Stakeholder pensions are a new idea and will require an innovative response from the pensions industry. The Government need to make it clear to the pensions industry that they are committed to the success of the
Baroness Turner of Camden: My Lords, I support my noble friend's amendment. I attached my name to it. Partnership in Pensions, the document to which it makes reference, sets out an entirely new framework for pensions provision. It is a pensions framework quite different from anything that we have seen before. Chapter 6 covers reform of SERPS and refers to the second state pension. Chapter 7 introduces the framework for the stakeholder pensions.
Chapter 7 is extremely detailed and it is clear that a number of alternatives have been under consideration. We know also that the Government engaged on a comprehensive consultation exercise. I am in favour of that, but we still do not know what the results will be and how the proposed framework will be affected, particularly (as some previous speakers said) in relation to the whole question of the second state pension.
As was stated by the noble Lord, Lord Higgins, we must also consider the uncertainty created in the minds of those who might otherwise be involved with occupational pension provision. I recently visited a conference arranged by the National Association of Pension Funds. It is concerned about the possibility that stakeholder provision, as presently formulated, could have a deleterious effect on occupational pension schemes in the future. Of course, we do not know whether or not that will be the case; we have not seen the whole framework of pensions provision and do not know what the complete picture will be.
It makes sense, therefore, that we should have the opportunity of looking at pensions provision as a whole before segments of it are put into operation. On those grounds, I support my noble friend's amendment.
Baroness Hollis of Heigham: My Lords, Amendment No. 2 would insert a condition that Part I of the Bill shall not take effect until comprehensive legislation has been introduced on our wider proposals for pensions reform. We discussed a similar amendment in Committee.
The proposals we outlined in detail in the Green Paper, Partnership in Pensions, published in December 1998, set out a new insurance contract for pensions. As my noble friend said, it was brought forward in a Statement; a Green Paper--not a glossy" as my noble friend described (there is nothing glossy" about it, except the colour on the front)--consisting of over 105 pages, together with appendices. Questions were asked on that paper following the delivery of the Statement. Since then, as my noble friend will be aware, if there was any ambiguity in the House as to what the Government intended, there has been ample opportunity to table an Unstarred Question or to seek a Wednesday debate on the subject. No Peer has done so. We had the Statement on the Green Paper, and we have had the occasional Starred Question on the
As the noble Lord, Lord Goodhart, said, it is a three-step approach. The first step is for those, mostly elderly, people who have not had the opportunity to build up a pension and who want to make sure that they receive adequate protection in their old age; the second is the state second pension for low earners. The scheme will reform SERPS. It will be a pay-as-you-go" scheme for those who would otherwise have little access to a decent pension in their old age. Thirdly, there will be the stakeholder pension, which is what we are discussing today.
Those contours have been clear for almost 12 months. If any noble Lords were uncertain about the Government's proposals, it was open to them at any stage to table an Unstarred Question or to seek a debate. They have not chosen to do so. That is why it is puzzling that this matter should arise at this late stage.
Our approach in the Green Paper was to build a modern and affordable pensions system which ensures that everyone has the opportunity to achieve a decent income in retirement. The pensions system we inherited does not do that. We recognise the strengths of the current system, but it leaves several gaps. First, it does nothing to encourage those who could, but do not, save for their retirement, to begin making provision. Secondly, it does nothing to help those who cannot afford to save to achieve security when they retire. Thirdly, those on low earnings or outside the labour market, those most in need of help, particularly women in part-time and low paid jobs, do not benefit from SERPS. Finally, many people do not have access to high quality, second-tier pensions.
Occupational pension schemes are one of the great welfare success stories, but they are not available to everyone. Personal pensions can be a useful substitute where people change jobs frequently, but again are not suitable for everyone, particularly those with moderate or low earnings. My noble friend Lady Turner has been in the forefront--rightly so--of criticising some of the misselling activity that has lain behind their growth.
Our integrated strategy for the future of pensions aims to meet the needs of those different groups. First, we are committed to ensuring security in retirement--that is, security for current pensioners. We have moved quickly to put policies into place. As the noble Lord, Lord Goodhart, acknowledged, we introduced the new minimum income guarantee in April to provide immediate help to today's poorest pensioners, increasing their income support by three times the rate of inflation. Single pensioners now receive £75, couples receive £116.
So that all pensioners can share in rising national prosperity, our long-term aim, as resources permit, is for the minimum income guarantee to be increased in line with earnings, not prices. As a first step towards that, the increase next April will be based on earnings. That will ensure that the value of the extra help is maintained next year.
The minimum income guarantee--pensioners can have access to that through home visits, the post or the telephone; they do not need to step inside a benefit office--is an entitlement which will make a real difference to the poorest pensioners as quickly as possible. It is the most effective way to help those most in need.
But we are doing much more than that. In our first Budget we allocated £200 million, introducing winter fuel payments for pensioners. The last Budget increased winter fuel payments to £100 each, which will benefit around 10 million pensioners and over 7 million households. We also gave a guarantee on tax--a package worth £1 billion overall. As well as that, we reduced VAT on fuel and scrapped eye-test charges for the over-60s. But that is only the first step in a strategy designed to extend the benefits of secure retirement to all our pensioners.
My noble friend Lady Castle asked about the Government's proposals. Our plans are to reform both state and private pensions so that all those who spend a lifetime in work or in caring will build up rights to a pension sufficient to take them above the minimum income guarantee. If they are low earners, they will probably go into the reformed SERPS, but because the state second pension is SERPS without the ER"--the earnings related aspect--it will redistribute to the poorest, as SERPS never did.
Secondly, with the state second pension, those earning under £9,000 a year and those who cannot work because they are caring, ill or disabled will see a dramatic improvement in their state pension provision. For example, someone on £6,000 a year in 20/50 terms will be getting £45 on SERPS but on the state second pension he or she would be getting nearly double that sum with £80. So the state second pension will reform SERPS for the better as regards those who are the least well-off.
In this Bill we are introducing reforms to make it easier for those future pensioners who can save in a funded scheme to do so. Our new low-cost and flexible stakeholder pension schemes will provide a better return for the hard-earned savings of moderate earners. We want to give these people the opportunity to boost their retirement income by providing access to a good value pension scheme--stakeholder pensions--to which they can contribute extra when their earnings and other circumstances allow.
As I said before, personal pensions can provide a reasonable option for many. This Bill sets out the legislative framework for stakeholder pension schemes to provide the value for money and flexibility which is missing from so many existing arrangements. We think that it is vital that stakeholder pension schemes are available for people to join as soon as possible. Even a short delay in starting a pension arrangement can have a considerable impact on the level of pension which is available at retirement; for example, someone aged 25 who delays starting a pension for five years could lose 16 per cent of his potential pension, while someone aged 45 could lose one quarter of his pension if he waited for five years.
That is why we have brought forward this legislation at the earliest opportunity, following the publication of the Green Paper. Potential scheme providers need time to plan and make preparations, so they need to know what we will be asking them to do. The industry needs to know where it stands and not have the detailed proposals, in terms of the regulations upon which we have been consulting with it over the summer, thrown up into the air by an amendment moved at the Report stage of this Bill. That would be unfair to the industry and unfair to those who will benefit from the new arrangements that will be put into place.
The Government need to ensure that the necessary administrative and regulatory arrangements are put in place so that we can ensure that schemes are efficient and secure. We need to act with some urgency, but we are also conscious of the need to get the details right.
I believe that the noble Lord, Lord Higgins, asked me two specific questions. First, he asked me about the state second pension and the accrual rates. He asked me to explain what we intend to achieve by introducing a 40 per cent accrual rate up to £9,000. The noble Lord thought that that would be paid for by a 10 per cent accrual rate for the band £9,000 to £20,000. Perhaps I may correct that misunderstanding. All contributors will get a 40 per cent accrual rate on the band of earnings from the LEL to £9,000. In addition, there will be 10 per cent on earnings of £9,000 to £20,000. Therefore, moderate earners will gain, although not by as much as low earners. We are unapologetic about this because we think that the pension policy of previous governments of all colours has not done enough for those low-paid earners. There are no losers at any level of earnings above LEL.
Secondly, if I understood him correctly, the noble Lord, Lord Higgins, raised the point that no new occupational pension schemes have been set up under the present Government. We understand that 30,000 new schemes were set up in 1997-98; 24,000 schemes have been set up so far this financial year--
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