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Baroness Turner of Camden: My Lords, I thank my noble friend for giving way. If it is true, as of course it is, that we have a funded pension system in this country, that relieves the state of the enormous burden of supporting pensioners who are not looked after by the private sector. In those circumstances, surely we can afford to do better by those people.

Baroness Hollis of Heigham: My Lords, these are the figures. Those private occupational pensions, in turn, are heavily supported, and rightly so, by recycled rebates, as my noble friend will know. She will also know that around 60 per cent of personal pensions are funded only by recycled state rebates. So there is a question of whether one is talking about direct state funding or indirect state funding--by not requiring from employers and employees the contribution they would otherwise have made into SERPS. The package has to be seen in its totality. It is a partnership. I know that my noble friend believes in the rightness and propriety of private pensions. But, as a result, compared with most of Europe, we have a £60 billion private pension funded industry, which is therefore meeting the needs that elsewhere in continental Europe--unwisely, in my view--have to be met by the state and taxpayers in a pay-as-you-go system so that such countries are now having to contemplate raising their state pension age beyond ours, cutting back their pension levels and undoing the contract. They are having to contemplate doing that precisely because they do not enjoy the partnership that both we and the United States have had over many years.

We are already giving real help to all of today's pensioners. Winter fuel payments have been increased fivefold to £100 this year and for the first time will be paid before Christmas. We have cut VAT on fuel from 8 per cent to 5 per cent. There are free eye tests, concessionary travel and extra help with energy efficiency. Those are all measures that will have an impact on pensioners' lives. Above all, as the noble Lord, Lord Higgins, rightly said, we are introducing in this Bill the stakeholder pension and in the new Bill that I hope will come through, a state second pension which together will in future lift pensioners out of poverty.

My noble friend Lord Shore referred to stakeholder pensions failing to address the problem of the poorest and the lowest paid. He is absolutely right. But stakeholder pensions are not intended for them. Stakeholder pensions are intended for those earning

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between £9,000 or £10,000 and £20,000 upwards and can be run alongside personal pensions, occupational pensions and so on, up to Inland Revenue ceilings. The pension designed to help the poorest, which I hope to have the pleasure to bring before your Lordships later this year if the Queen's Speech so determines, will be the state second pension which is the reformed SERPS and is a funded pay-as-you-go scheme. It means that people earning between the lower earnings level of £3,500 and £9,000 will receive a pension as though they were earning £9,000. It is a redistribution to the poorest that was never contemplated in my noble friend's SERPS, under which those who earned the most received the highest pensions. On the contrary, under our proposals there will be a stakeholder pension for those who can afford a funded pension, which is cheap, fair, portable and transparent--in contrast to some of the personal pensions that have been mis-sold over the years--and for the poorest, about whom my noble friend is concerned, a state second pension which will redistribute heavily to the poorest, including women, the low paid and the chronically sick and disabled, who have not been able to build up a generous occupational pension record.

Lord Shore of Stepney: My Lords, I am most grateful to my noble friend for clarifying the situation. The difficulty, as I am sure she will recognise, is that that second state pension is not part of the Bill. We have great difficulty in envisaging quite what it contains. In order just to clear up one further point, can my noble friend tell me how many pensioners who are entitled to draw income supplements do not, for whatever reason, do so? That raises the question of human dignity and the natural reluctance of so many people to resort to that procedure.

5.45 p.m.

Baroness Hollis of Heigham: My Lords, that is a very pertinent question. Around 1 million pensioners have incomes below the income support level. Some of those cases, as the noble Lord, Lord Higgins, identified--it is a matter of concern to your Lordships--arise because their capital takes them over that ceiling. We think that between 400,000 and 700,000 pensioners may be entitled under present rules to income support but do not claim. That is precisely why, in answer to previous questions in your Lordships' House when pressed by my noble friends Lord Hughes and Lady Castle, we have been trying to explain how we are ensuring that extra take-up. We are becoming successful at it. We are seeking to do it automatically. Our research shows that between a quarter and a half of all pensioners are not claiming income support but want to claim it within two years. We are making in-roads into that problem. If we do not target, the alternative is to spread the same bundle of money thinly over everyone so that those of us in this House would enjoy a modest increase but the poorest would get very little, if anything at all.

My noble friend Lady Castle referred to pensioners as pauper pariahs. That is simply not the case any more. I want to quote from the research of Professor

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Robert Walker of Loughborough University which was quoted fairly extensively in The Times on 14th September 1999. As I said at col. 175 of Hansard on 11th October, Professor Walker said that the public misunderstanding of pensioner poverty was an obstacle for the Government in attempting to reform the pensions and benefits system. He stated that times have changed:

    "A generation ago, the stereotype of the poverty-stricken pensioner was grounded in truth. Not so today. Some pensioners are very poor but most are not".

Professor Walker added that the Government's political problem is that public opinion,

    "has not caught up with the mass of changes that have occurred".

He went on to say:

    "Raising the state pension"--

that is what the amendments would do--

    "would make richer pensioners richer and would not help the poorest",

because they would just lose out on their other benefits. That is the dilemma facing the House. Your Lordships can support my noble friend's amendment, but what you will do is ensure, as Professor Walker has said, that richer pensioners will become richer while poorer pensioners will not benefit at all.

The noble Lord, Lord Higgins, was right when he said that we have a long-term strategy--the state second pension and stakeholder pensions--to deal with long-term pensioner poverty by floating people off into good and decent occupational pensions. He is also right, as other noble Lords have identified, that in the mean time we have the problem of poorer pensioners. The noble Earl, Lord Russell, is right. They tend to be older, usually widowed or single women, who have not built up an occupational pension. We are seeking to ensure that such people take up automatically--through the postal system or by telephone, without ever having to go into a benefit office--the minimum income guarantee to which they are entitled. However, if you depart from the Government's strategy and go for my noble friend's strategy what you will do--I quote Professor Walker--is make "richer pensioners richer" while doing nothing to help the poorest. I cannot believe that my noble friends behind me would feel that such a policy was consistent with the philosophies by which they have lived their lives. I hope that the House will reject the amendments.

Baroness Castle of Blackburn: There is one fatal flaw in the Minister's argument about cost. As I expected, she pointed, as have others, to the enormous burden there would be--there would have to be increases in contributions and all the rest of it--if either of these two resolutions was put into effect. As the Minister has now admitted, a surplus does exist in the National Insurance Fund over and above the prudent basic level upon which the Government rightly insist.

The Minister fails to recognise two things that are happening. One is that national wealth is on a kind of escalator of affordability in terms of social wealth,

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simply because it will be financed through earnings-related contributions. In return, the Government are offering price-indexed flat rate pensions. So there will be an increasing surplus. If there is not going to be a surplus, why are the Government proposing to cut the contribution rate?

Baroness Hollis of Heigham: My Lords, the basic problem with my noble friend's argument, as I attempted to say earlier, is that the current surplus of some £5 billion or so over the balances proposed by the Government Actuary would pay for her proposal for two years only. She has failed to take into account the fact that across Europe, including the UK, there is a growth in the number of pensioners, and they are living longer. The ratio of pensioners to workers--particularly as young people now stay longer in education--is worsening across Europe. I agree that the position in the UK is probably better than that of many of our European contemporaries, but it is not good enough. The position will worsen and the National Insurance Fund will have to pay. We know that to be the case: pensioners are living longer; younger people are out of the labour market for longer; therefore, the workers have to support more people. That is why there is long-term pressure on the National Insurance Fund.

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