Pensions Reform

The point is to consider taxation on private pensions. The system will change, whether we use our proposal or the proposal in the White Paper. I am sure that the hon. Lady attended the meeting this morning, where the hon. Member for Edmonton (Mr. Love) specifically asked the representative from the Pensions Commission about that matter. The representative from the commission talked about the complexity of the matter and the fact that many people have already received fairly substantial benefit from tax relief on private pensions. Labour Members often say that we must tackle the hard issues, and the hard issue in this case is the amount of relief on private pensions. This morning, Professor Hills from the Pension Commission explained why both Turner and the Government have rejected changes to relief on private pensions, which was the first thing that the Secretary of State did when the Turner report was published. We believe that that is short-sighted and that the correct way forward is to deal with the blatant inequalities in the present system. There is absolutely no evidence that the present system of pension tax relief encourages private savings, which is the object of the system. We agree with the Government that we must do more to encourage private saving over and above what the state provides. That is why we are interested in the NPSS, which has a lot of merit and which I shall discuss in a moment, if I have time. The current system of tax relief on private savings costs a fortune and is massively geared towards the better-off. When we compiled our proposals in 2003-04, the economic cost to the Treasury in terms of tax forgone with this subsidy was an estimated £11.4 billion. In his report, Lord Turner points out that the cost of that tax relief is about £12 billion and that there is a further £8 billion in national insurance, which takes the total cost to £20 billion a year. In effect, that is a massive subsidy to private pensions, rather than using taxpayers’ money to provide a proper state pension. Worse still, more than half of the total cost of tax relief on private pension contributions is received by the richest 10 per cent. of the population. Unlike spending on state pensions, which is being restricted, there are no restrictions on the total amount of private pension savings. It is high time that tax relief was reformed to become much more progressive and transparent. In particular, it should be aimed at encouraging and rewarding low and moderate income earners to save for retirement. By reforming that relief, those billions could be released now to fund a citizens pension. Instead, the Government propose to raise the retirement age for the state pension, and Sir Humphrey Appleby would be proud of how this is described in the document:"““We will support and encourage extended working lives””." That is a cuddly and innocuous way of telling everyone that they will have to work for longer, which is unnecessary. The hon. Member for Dumfries and Galloway (Mr. Brown) has hinted at a specific problem caused by the disparity between various socio-economic groups and various areas of the country in terms of life expectancy, which can have a dramatic effect. Let me take just one example. A man in Glasgow has a life expectancy of 69.3 years, while a man in Kensington has one of 80.8 years. At present, Kensington man can expect pension payments of £65,728, which is nearly four times that of Glasgow man, who can expect £17,888. That becomes even worse once the age is raised to 68, when Glasgow man would receive £5,408 while Kensington man would receive nearly 10 times more, at £53,248. That is manifestly unfair. At least Lord Turner recognised that there was a problem in this regard and recommended that eligibility to pension credit should remain at age 65, but even that has been rejected in the White Paper. It seems that Sir Humphrey has been busy again, as paragraph 39 states:"““We think that this is an issue that must be considered nearer the relevant time in the light of the available evidence about inequalities and life expectancy and trends in working among older people.””" The evidence on lower life expectancy among various groups in various areas is already available. When is the relevant time to decide on this issue? Although it may be many years before the retirement age rises, the decision to raise it will be taken shortly. If the Minister is serious about persuading people of the necessity and desirability of doing so, he must deal with the problem of the differentials in life expectancy; otherwise, he will get none of the consensus he so desperately seeks. One cannot work in averages across the spectrum. In our proposals, we put forward ideas relating to private savings and enrolment in schemes, including a Government-backed scheme called the state pension fund, or Scotsaver account, which would provide individuals with a more secure alternative to occupational and private pensions. That is not too far away from the idea of the national pension savings scheme, which we welcome, because such a scheme is necessary. However, we urge the Government to accept that any scheme must be state-backed. We are concerned about what the White Paper says about allowing private providers. There is plenty of evidence that people do not necessarily want choice, but safety, in their pension provision, which means that however the money is invested, it must be a safe investment. That should not be confused by having too many providers and too much choice. Many of the problems in the pensions industry were caused by the breakdown in confidence following the mis-selling and company pension scandals, whereby some people’s pensions were frankly stolen by unscrupulous employers. We can support some aspects of the proposals, and the citizens pension should still be on the agenda.