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Lord Hoyle: My Lords, before we move to the Statement on the Pensions Green Paper, I remind the House that the Companion indicates that discussion on a Statement should be confined to brief comments and questions for clarification. Peers who speak at length do so at the expense of other noble Lords.
The Parliamentary Under-Secretary of State, Department of Social Security (Baroness Hollis of Heigham): My Lords, with the leave of the House, I shall now repeat a Statement given in another place by my right honourable friend the Secretary of State for Social Security. The Statement is as follows:
"Over the past few months I have set out proposals for wide-ranging reforms to disability benefits, along with reforms to modernise bereavement benefits. And, today, I set out far-reaching reform to ensure that the pensions system meets the needs of the next 50 years.
"A pension is the most important asset people have, more important even than buying a house. That is why we want to put pensions on a sound footing, where every individual is guaranteed a decent income in retirement, where people can rely once again on secure and effective private pensions. We are delivering security for today's pensioners--and peace of mind for tomorrow's.
"We are already providing security for today's pensioners: VAT on heating cut to its lowest possible level; a winter fuel bonus; help with bus fares; free eye tests; and higher pensions. With this new Labour Government Britain's pensioners are £140 a year or more better off. Real security for today's pensioners.
"And, for future pensioners I am publishing our proposals in a Green Paper, which sets out a new insurance contract between the state and individuals. It is a new public-private partnership for better pensions. Copies are available in the Vote Office and a summary of these proposals is being sent to every Member of this House.
"Why do we need to change? There are three overwhelming reasons for reforming pensions. First, if we do nothing, one person in three could, by 2050, be retiring on income support. Under the current system, you can work hard all your working life and still retire on an income so low that you will depend on benefits for the rest of your life. Secondly, many middle and higher earners want to save more, and should save more, but have lost faith in the pensions system because of the scandal of pension mis-selling. Up to 2.5 million people, including nurses and teachers, may have been sold the wrong pension and have had their peace of mind in retirement shattered. This Government, unlike the previous government, have not turned a blind eye to their plight. We have already toughened up the regulation of personal pensions and taken firm actions to ensure that those who lost out get proper compensation. And for those who do not have an occupational scheme, too often there is not a good place for them to put their savings. Thirdly, the current system gives a poor deal to the millions of mothers and carers who have career breaks and find that they are penalised.
"I turn, first, to the minimum income guarantee. Today I can announce that we are building a new insurance contract between state and individuals. In the past the basic state pension has been the sole focus of the Government's deal with pensioners. The basic state pension will remain a universal, contributory non-means-tested benefit. But the basic state pension alone cannot provide, and has never provided, everyone with a decent income in retirement. This Government will do better. In future, there will be a new contract. The state will guarantee that anyone who retires in poverty will receive a minimum income guarantee well above the current level of income support--beginning at £75 for a single pensioner and £116 for a pensioner couple. We expect that minimum income guarantee to rise in line with earnings.
"The complaint I hear more than any other from the pensioners I meet is that the country gets wealthier but they do not share the gains. That is something this Government will remedy. Today I can announce that our intention is to give the poorest pensioners the chance to share in the rising wealth of the country. Consistent with proper management of the country's finances, our aim is that over the long term the minimum income guarantee should rise in line with earnings. We are also consulting on the best ways of changing the rules so that we reward savings even more.
"I turn now to second-tier provision. People, after a lifetime in work, should not have to rely on the minimum income guarantee in retirement. We want to ensure that they can do better than that guarantee. We want to ensure that low earners in work on less than £9,000 a year and people whose work is interrupted to look after children or sick relatives, as well as moderate and higher earners, have a higher income than the guarantee. So we need to do more. Low earners in work currently depend on SERPS for a decent pension. But SERPS is income or earnings related. If you earn little, you get little. SERPS does not give sufficient help to low earners.
"So today I can announce that we will replace SERPS with a new scheme, a SERPS Mark II--the new state second pension. This will deliver a dramatic increase in the value of pensions. The new state second pension will be worth at least double what SERPS currently pays for people earning less than £9,000. Up to 5 million people stand to benefit. Under the current system, a person earning £6,000 a year would get £13 a week from SERPS, but will get £46 per week from the new scheme--£33 a week extra. That is real security for today's low paid.
"We also promised in our manifesto that we would do more for people caring for children, or for sick or disabled relatives, and for people who have worked but now cannot because of disability. So today I can also announce that we will end the unfairness where someone who gives up waged work to care does not have the chance to build up a second pension. This means that a mother, who takes two years off work to look after her two young children, will no longer lose out on her pension. Our reforms will for the first time provide security for 2.5 million carers, by helping them with pension contributions, enabling them to build up a second pension as of right. They will be credited into the new state second pension. Parents of nearly 200,000 disabled children and some 1.5 million people with a long-term disability and interrupted work record will also gain from this proposal.
"The problems of the current system do not just affect those who earn less than £9,000 a year. Too many people earning more than £9,000 get a raw deal. Our plans will change that. Middle earners will get more help. And they and higher earners will have decent products in which they can invest. That is why our long-term ambition is that everyone earning more than £9,000 should be in a secure funded private pension.
"Stakeholder pensions will be attractive because they will be more secure. Independent trustees will ensure that the rights and interests of scheme members are put first. They will be cheap. On average personal pension charges can eat up to 25 per cent. of your savings. Under stakeholder pensions we expect a substantial reduction in charges as a result of simpler regulation. They will be flexible. If a member does not contribute for a period--for example, a mother who is at home bringing up children--no charges will be levied that eat up savings. Similarly, if you change jobs, you will not lose out. Stakeholder pensions will also be of higher quality. We will protect consumers by building quality into the system. We will require all stakeholder pension schemes to meet specified benchmark standards. They will be simpler to understand. Pensions are complicated. Private pensions are often a nightmare to understand. We intend stakeholder pensions to be simpler and more transparent.
"Our proposals for stakeholder pension schemes will give up to 5 million people who today are without a funded second pension the chance to build up a secure, decent income for their retirement. Everyone earning between £9,000 and £18,500 will
"I strongly believe that those incentives are fairer and more effective than increasing compulsion. I do not think it is the Government's job to make life harder for the person on £12,000 with two children and a mortgage to pay. I want to help middle earners, not penalise them. But I do want them to know where they stand. So I also want to provide another kind of incentive for people to save.
"Today, I can announce that, for the first time, we will provide an annual pensions statement for every working person in the country. It will set out how much private and state pension people are likely to get on retirement. Everyone will know where they stand. And they will know in black and white the consequences of them not saving more. We will work with employers and the pensions industry to make the statement as effective as possible.
"Other options for reform have been urged on us. Some have suggested that we introduce compulsion for all. Some have suggested privatising the whole system. We have looked closely at those proposals. Today I want to tell the House why those options would not work. We already compel more than 20 million employees to save now. So the question is, should we compel them to save even more?
"For low earners, no amount of extra compulsion will help. They simply cannot afford the amounts they would need to save. So anyone who backs compulsion for all has to justify that kind of burden on low earners. I am not willing to do so.
"There are some groups, however, such as the self-employed, who could afford to save more and are currently not saving enough. We are consulting on letting the self-employed join the new state second pension in return for their contribution. We believe it is not right to compel them before stakeholder pensions are properly established. But we will keep under review the case for compulsion once stakeholder schemes have a proven track record, if people fail to save what they need.
"Others have urged us to privatise the whole system. That would be no help for millions of low earners who could not afford to save enough. It would cost £150 billion, even after the costs of disruptive changes to the tax system. The last government's plans would have meant massive up-front costs, the loss of tax relief and the abolition of the state pension. Alternatively, some have suggested using private schemes that would take money from the private pensions of middle and high earners to give money to the low paid. That is not practical. Nor do I think that would be acceptable. Our proposals are, by contrast, manageable, affordable, and workable.
"By extending individual pensions, and by a better combination of the state pension and the minimum income guarantee, we will provide better pensions and also reduce significantly the share of state spending on pensions in the long run.
"The overall amount spent on pensions will go up, but private pensions will take an increasing share. Instead of 60 per cent. state and 40 per cent. personal provision, that will become 40 per cent. state and 60 per cent private. The reason that this is important is that people live longer--often for 30 years after they retire--creating new demands on the welfare state, such as long term care. Our plans will mean we can afford to tackle those challenges.
"Our radical new contract for pensions will ensure security for those who cannot provide for themselves, and encourage those who can save for their retirement to do so. It will lift many more working people, mothers and carers off means tested benefits. Our plans will help low earners find security for the first time in retirement. They will give a boost to middle earners, with a new secure private pension and money to invest in it. And they will help everyone--no matter what they earn--by proving better regulated and more secure private pensions. Good news for today's pensioners, peace of mind for tomorrow's.
Lord Higgins: My Lords, the House would wish to thank the noble Baroness the Minister for repeating the Statement made in the other place. I must declare an interest, as I am chairman of a company pension fund.
The Statement and Green Paper have been long awaited. They were originally promised in the first part of 1998. The Government have at least managed to produce a Statement inside 1998. It is extremely complicated and important. Its process of gestation has involved the sacking of a Secretary of State and the resignation of a Minister of State. Quite extraordinarily, the latter part of the Statement largely consists of a rebuttal of their views. Indeed, that is something that in many respects was not expected or even leaked to the press in advance.
The theme that those of us on this side of the House have been following is that the Government have been consistently undermining the contributory principle and moving more towards means-testing. To a considerable extent, the Statement and Green Paper move in the same direction. In one respect, it is not so much a question of means-testing benefits; the contributions also will be very much income-related. At present, people who have not yet retired pay on a so-called pay-as-you-go system for those who have already retired. In addition, they make contributions to their own pensions. As I understand it, people who have not yet retired and who are above the income levels that the noble Baroness mentioned will in addition contribute one way or
It is not clear that the Statement or Green Paper do anything for existing pensioners. Will the noble Baroness make it clear that the basic national insurance pension will, as the Statement said, remain and be means-tested? So far, the Government's commitment extends only to the present Parliament. Will the noble Baroness make clear whether this is to be taken as a statement for all time as far as the basic national insurance pension is concerned?
It is noticeable that the Statement makes no mention of future uprating of the national insurance basic pension. Is it the Government's intention that uprating shall continue in future, as it has for many years past?
A number of aspects of the Statement are welcome. I may not have understood this correctly, but the position with regard to carers extends only to those who take up caring on a basis that interrupts their normal working lives. Am I correct in thinking that that arrangement does not extend to full-time carers in a single-earning family? The proposal does not apparently cover all carers. My understanding is that those who care part-time on a temporary basis, then resume work, account for only 16 per cent. of the total. Is it the case that all carers will benefit from the Government's scheme?
The Government refer to an annual pension statement. How will that work? We know only too well that pensioners who have recently retired under a defined contributions scheme have suffered badly because of the fall in the stock market and annuity rates. Some pensioners can expect barely half the amount they might have expected a year ago. If the Government are to make an annual pension statement, apparently telling people what they may expect in 20 years, given that such variations can occur in the space of one year, how will the Government produce a statement having any significant value? Will the Government guarantee in the far future they are forecasting that they will ensure in some way that people receive the pensions shown on their pension statement?
As to the so-called "stakeholder pension", it was generally supposed that that would be a government stakeholder pension. It now seems that it is a private system. In addition, it would replace SERPS. I am not entirely clear how that will work. The noble Baroness referred to it in an impromptu remark that does not appear in the Statement as "SERPS Mark II".
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