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Earl Russell: It is a delight to listen to the noble Baroness, Lady Castle of Blackburn. When she tells us that we are all so much more intelligent than she, she says exactly what Einstein said to the postgraduate--and she deserves to be believed just about as much. I first listened to the noble Baroness 41 years ago, I think, and her ability as a speaker has done nothing but improve since then.
I must admit that, when I begin to think about SERPS, I start feeling like Laocoon. I will not make a speech about SERPS now because I think that the Minister is about to do that. It is possible that we might agree with some of the Minister's comments; I will listen to him and find out.
I will take up just one thing that the noble Baroness said. She gave us a very ruthless either/or about the earnings-related principle: either it is a good thing or it is not. I do not think that it is quite that simple. The earnings-related principle is a bit like driving at 70 miles an hour: it is perfectly all right on an open road, but in a dense crowd it carries risks. I think that such a distinction is legitimate.
Lord Higgins: Listening to the persuasive speech of the noble Baroness, I begin to wonder how I have disagreed with her so much for so long. As the noble Earl pointed out, the noble Baroness's eloquence has, if anything, improved over the years. Certainly what we have heard this afternoon could reasonably be described as vintage Castle.
The noble Baroness made the point about keeping options open. In their document Partnership in Pensions, the Government spend a considerable amount of time spelling out the many advantages of SERPS--which were recapitulated by the noble Baroness in her opening remarks. For example, the Government point out the low administrative costs involved--and that is an important issue. The noble Baroness rightly pointed to the issues of portability and inflation proofing.
In their paper Partnership in Pensions the Government go to considerable lengths to say that they will substitute for SERPS a state second pension--although the extent to which that state second pension will have the advantages that the noble Baroness outlined for SERPS remains extremely uncertain. In particular, the Government do not propose to introduce the state second pension in one step; they propose to delay it for some considerable time. In the meantime, SERPS will presumably continue as it is.
The noble Baroness made the crucial point that, if the Government intend to introduce a state second pension--which may, in its own right, be desirable--and if they intend to introduce stakeholder pensions, they have not explained why the option of SERPS should not remain open to those who wish to continue with that arrangement. I do not know that we have really had an explanation, but no doubt the Minister will give us one this evening.
Another important point made in the opening speech is that it is crucial that people are able to evaluate one pension option against another. If one were to do that, SERPS is clearly more advantageous in a number of areas. The argument that this is an earnings-related pension is, as has already been pointed out, not a reasonable argument for its abandonment--not least because the stakeholder pension will clearly be in the same position.
The Committee requires a reasoned argument as to why SERPS should not be advanced as a continuing option for those who wish to make the kind of provision with the advantages that SERPS offers--which were outlined clearly by the noble Baroness, Lady Castle of Blackburn.
Lord McIntosh of Haringey: My noble friend Lady Castle is notoriously resistant to flattery--indeed, she is scornful of it, as television interviewers have found to their cost on many occasions. However, she is entitled to recognition, and she must be recognised for
The then Conservative government changed the scheme from an entitlement based on the best 20 years of working life to an average over the whole of working life--from 25 per cent to 20 per cent. of reckonable earnings. That was immensely damaging. To the extent that my noble friend defends what she introduced originally, I agree entirely with her comments.
However, what we propose is better than returning to the 1978 version of SERPS. My noble friend's amendment would give individuals the choice of contributing to the state earnings-related pension scheme as originally enacted in 1975. This would be an additional choice available alongside the Government's proposal for the state second pension and existing contracting-out arrangements. It seems to me that my noble friend is suggesting another form of concurrent pension scheme membership--an issue on which we had much debate when we considered the proposal for stakeholder pensions.
As to what I think are the secondary issues of the complexity of the scheme and choice, I must stress that such a system would be extremely complex for the state and for pension providers to operate. It would also be difficult for individuals to understand. It would be costly both to the state and to individual contributors. It would mean double provision by the state: the state would provide two separate second-tier pension arrangements--SERPS and the state second pension--and the facility to contract out would remain so that rebates would be payable. That is not the best way to encourage saving for old age, and the cost implications for the state would be enormous. It will come as no surprise that individuals opting for this choice would have to pay a much higher level of contribution than that proposed under the new state second pension arrangements. SERPS was significantly more costly than the state second pension will be.
For those, I admit, secondary reasons, we are not attracted to the idea of opening up another choice or of going back to the original SERPS before it was diminished by the Conservative amendments to it.
However, there is a much more important reason. It is that what we are proposing is a better solution particularly for those most in need. The Government's approach is to build a modern and affordable pensions system which will ensure that everyone has the opportunity to achieve a decent income in retirement. We are committed to helping those in most need, which is why we are reforming SERPS and introducing a state second pension which targets help at those on low incomes in a way that SERPS never did. My noble friend Lady Castle acknowledged that under our proposals any employee with earnings below £9,000 will receive a pension as though he or she were earning £9,000, provided that he first earned over the lower earnings limit.
The provision relates not only to those who are earning in the ordinary sense. Carers and long-term disabled people with broken work records will also receive flat rate credits to the state second pension, which for many will be worth far more than the original best 20 years provision in SERPS; not just better than SERPS is now, but better than SERPS even as it was when my noble friend introduced it.
Those earning up to £9,000 and who have contributed for a full working life will be about £50 a week better off under the state second pension. Those earning between £9,000 and £18,000 a year will receive a more modest increase. Those earning more than £18,000 will not receive an increase.
That is targeting with a vengeance. It is using the available resources far more for those in need than would ever be provided under the SERPS scheme. My answer to those who ask why we do not provide the extra choice is not only technical in that it would be confusing and unnecessary to have an extra choice, but that the choice would not be real or valuable to those most in need about whom those of us on this side of the committee are most concerned.
Together with our proposal for stakeholder pensions, this more accurately reflects the current labour market conditions and can therefore go much further in achieving security and decency of provision in old age in a way that SERPS--even 1998 SERPS--can no longer do.
My noble friend made a number of points which I want to answer. She said that our pensions are not inflation-proof. All occupational and personal pensions accrued since April 1997 are inflation proof in line with prices up to a cap of 5 per cent, which is well above the current inflation rates. All contracted-out pensions are inflation-proof. As regards choice, the Government never tried to tell individuals which form of pensions vehicle was best for them. We believed that they should be given the right advice so that they can make the right choices. But the decision is a matter for individuals and their independent financial advisers. We are committed to offering choice, but not a choice which would be too complex in the way she suggested.
My noble friend said that our policy is to phase out SERPS. On the contrary, SERPS will be improved by giving more help to the low paid, to carers and to the long-term disabled with broken work records. In stage two of the state second pension, benefits will be flat rate, but no one will be forced to join a privately funded pension. In other words, there is a place for flat-rate pensions and there is a place for earnings-related pensions. That choice will be different for different people.
My noble friend asked about the rules for the state second pension on revaluation and indexation. Earnings on pensions which have accrued will be revalued in line with average earnings up to the point of retirement. When state second pensions are awarded and in payment they will be indexed in line with prices.
The second part of my noble friend's amendment deals with the suggestion that the Secretary of State should publish tables to help individuals choose if they want to make contributions to the state scheme. I acknowledge that that sounds sensible, but in fact it is riddled with difficulties. We would have to collect the information. We would have to establish from every pension administrator or provider the specific level of contribution required to produce a certain level of benefit, which would be a huge burden on business. The information would quickly become out of date, and it would be unreliable in money purchase arrangements because the level of the fund depends crucially on market performance. In salary-related schemes, it would be more difficult because of the redistributive nature of the provision and the fact that pension levels depend of the level of salary and not on the level of contribution.
I as much as anyone in the Chamber appreciate and sympathise with the motivation behind the amendment. I hope that I have been able to convince my noble friend that what we are producing builds on the original SERPS and produces something which is better for those most in need. To go back to SERPS as an alternative at this time would be regressive rather than progressive in taxation terms.
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