Pensions Reform

I congratulate the Secretary of State on the safe delivery of his White Paper to the House. Frankly, there have been times over the past couple of months when we were not sure that it would see the light of day. We welcome the key elements of the package that he has just announced. The Conservative party fought the last election on a platform of a restoration of the earnings link to curb the growth of means-testing—[Hon. Members: ““Oh!””] We fought the last election on a platform of a restoration of the earnings link to curb the growth of means-testing—something that the Chancellor said at the time was unaffordable. We also welcome the package of measures that will address the unfairness suffered by women in the present system, but let us just take a moment to set the statement in context:"““when Labour came to power we had one of the strongest pension provisions in Europe and now probably we have some of the weakest.””" Of course, those are not my words but those of the right hon. Member for Birkenhead (Mr. Field)—Labour’s first Minister for Welfare Reform. Since 1997 the savings ratio has halved, and 9 million people in this country are not saving enough for their retirement. Some 60,000 occupational pension schemes, with more than 1 million members between them, have wound up or begun the process of winding up on Labour’s watch. At least 125,000 people have lost some or all of their accrued pensions rights. Not all of that is the Government’s fault—[Hon. Members: ““Oh?””]—but the Chancellor’s £5 billion a year tax raid on pension funds, the two reductions in the minimum funding requirement, the ever more complex regulatory regime and the pernicious affect of widespread means-testing on the savings culture are matters for which this Government are responsible, and that is the context of the statement today. I should like to join the Secretary of State’s tribute to the work that the Pensions Commission has done. We do not agree with every detail of the commission’s proposals, but the key recommendations of its report clearly point the way forward. Cross-party consensus is essential to a lasting pensions settlement. Long-term savers want long-term stability, which needs a guarantee that the pension regime will not change every time there is a general election. So it is bad news for Britain that the consensus building that the Government promised us on the back of the Turner report has been a victim of the internecine warfare between the neighbours in Downing street. It is bad news, too, that a degree of uncertainty has now been inserted into the equation by the Chancellor’s insistence on the caveat that the restoration of the earnings link in 2012 is subject to some subjective tests of affordability. The start date for the restoration of the earnings link is pushed back into the next but one spending review—the fiscal equivalent of the long grass—and is subject to a get-out clause that reduces the very certainty about state benefits that was the cornerstone of the reform package that the White Paper was supposed to deliver. The Prime Minister’s legacy is left to a decision that will not even be taken until the next Parliament. No wonder the Government are now so keen to build that cross-party consensus to which they have devoted no time over the past few months. We have set out our own five criteria by which we will judge the White Paper; they largely reflect the criteria that the Secretary of State has set out. Does it deliver pensioner dignity? Does it deliver fairness, not just between the generations and the sexes, but between different groups in society? Is it affordable? [Interruption.] Is it simple enough for people to understand? Perhaps most importantly of all, does it underpin self-reliance through the promotion of saving? [Interruption.] I am glad that the Chancellor is having such a good time this afternoon. On the basis of what the Secretary of State said and an initial trawl through the White Paper, we have a number of detailed concerns, which I will address—but first I want to say something about affordability. We share the Government’s determination that the proposed settlement must be affordable and sustainable. No party that seriously aspires to be in government when these changes take effect can take any risk with the public finances or the stability of the economy. Conservative Members will certainly not make promises that we cannot deliver, but if there is to be an affordability test, there must be transparency about the cost and the financing of the package of measures in the White Paper. Without transparency, affordability will remain a matter for the Chancellor’s subjective judgment. Given the challenge of longevity, change is essential, and I believe that the British people will be willing to shoulder the burden of change, provided that it is fairly distributed—but if change is not seen to be fair, it will not be durable. This package will improve the situation of women with broken contribution records and those who have committed time to caring responsibilities—we very much welcome that—but is it fair that a women who retires one day before the changes take effect should spend the rest of her life living on a partial basic state pension, while her neighbour who retires a month later with the same contribution record will have a full basic state pension? Is it fair that tucked away in the small print is a provision that will freeze the maximum state second pension at today’s level, but will not freeze the contributions that people pay towards that pension? That issue has been neither properly understood nor properly debated. The Secretary of State has said nothing at all about public sector pensions. Can the Government really look the British public in the eye and tell them they have to work until they are 68 to gain their basic state pension rights, when the Government have cravenly surrendered to pressure from public sector unions and agreed to their demands for retirement at the age of 60 on a full final salary indexed pension for the next40 years? Public sector workers deserve fair treatment, just as everybody else does, but median public sector pay is now higher than private sector pay and growing faster, and public sector workers are benefiting from the increase in life expectancy. They, too, must share in shouldering the burden of adjustment. In the interests of fairness, the Government must reopen the public sector pensions debate. We cannot be bound by a deal based on favours, not fairness. The acid test of this package is the extent to which it promotes saving. The proposals that we have heard about today will halt the growth of means-testing, but only after another six years of expansion. It is far from clear to us that, with 30 to 45 per cent. of the pensioner population remaining within means-tested benefits, savings behaviour will change, as is required to deliver the Government’s objectives. There is also a huge concern that the introduction of the auto-enrolled state-sponsored scheme along the lines of the national pension savings scheme, together with the abolition of contracted-out rebates, will be the death knell of many more generous occupational pension schemes. I hope that the Secretary of State can confirm that the Government are committed to a review of the regulations around occupational schemes that will support them and make them less onerous for employers to develop. We will support the NPSS proposal, including the proposed compulsory employer contributions, because we believe that that will help to ensure that saving pays, but we need to hear the Secretary of State say very clearly that that cannot be at the expense of Britain’s economic competitiveness, and that as employers pay those contributions on behalf of their employees over time, that will be reflected in slightly lower pay increases, as remuneration is transferred from cash wages to pension contributions. That is essential to ensuring the affordability of those proposals. Finally, I want to refer to the Secretary of State’s announcement on the financial assistance scheme. We welcome the broadening of the eligibility criteria, although there is no indication of the cost of that or of how it will be funded. Will the Secretary of State also tell the House what he will do to ensure that the financial assistance scheme works more effectively? In its first year, it has managed to pay out less than £127,000 to fewer than 50 beneficiaries while spending more than £5 million on administration. This is a question not just of broadening the criteria or of pouring extra money in, but of reforming the system to make it work more effectively. The White Paper has been long awaited and will be widely welcomed. Whatever our separate party political motivations, it is now our duty as elected representatives—all of us here—to do what is right for the long-term interests of Britain. In this case, that involves building that cross-party consensus, however late in the day it is to start that process. We are willing to engage in that process, if the Government are now, at last, willing to do so with us.