Pensions Reform

Like the majority of hon. Members who have spoken in the debate, I welcome the work of the Pensions Commission, which provides the basis of the consensus that we all know is required if we are to achieve a long-term settlement in pensions. At one point this evening, qualifications to a consensus were expressed that suggested to me that it might not be as easy to obtain as we had hoped, but I hope that after we have had the political debate, which clearly we must have, we do achieve it. We all know that the price of not reaching consensus will be not achieving the long-term settlement that we know is needed, and future generations will not thank us if we do not produce such a settlement. I shall concentrate on some of the areas in which we have not reached consensus or in which the Government have not given detailed indications of their direction of travel. Before doing that, I wish to echo the comments made by my hon. Friend the Member for Colne Valley (Kali Mountford) during her eloquent defence of the Government’s strategy of making its initial priority tackling poverty among those pensioners with the lowest incomes through the income guarantee and the pension credit. I have frequently had the same experience as she has had of pensioners coming up to me after sometimes rather stormy meetings and saying quietly that they welcome the pension credit and recognise its benefits. I hope that, whatever proposals the Government eventually make on the future of the pensions system, they build on the success of the pension credit and ensure that we continue to use it to tackle pensioner poverty as one of our priorities. I agree strongly with the general drift of the White Paper. Having initially prioritised steps to give more money to pensioners on the lowest incomes, it is right now to take measures to ensure that we do not end up with more and more pensioners relying to a greater and greater extent on means-tested elements of their pension. I say that for all the reasons that have been advanced this evening and that will be reinforced during the continuing debate on this issue. That is why I strongly welcome the proposal to reintroduce the link between pensions and earnings. I would like to see that happening as soon as possible, and ideally even before 2012. I understand that there are many resources reasons why that may be unlikely to happen. However, I believe that it would be wrong to delay the reintroduction of that link to any later date. Earlier, we had a somewhat convoluted excursion into jam- making, appropriately enough by the hon. Member for Angus (Mr. Weir). I will not pursue him down that avenue. In my view, the position set out in the White Paper on the date for the reintroduction of the link with earnings is one of its weakest points. Apart from anything else, it is politically unsustainable. I ask my hon. Friend the Minister for Pensions Reform to consider the position that the Labour party would be in come the next general election if we were to say, ““We will reintroduce the earnings link but, then again, we might not.”” That does not sound to me to be a particularly attractive position in which to enter the next general election. I do not think that it would stand up to the scrutiny of an election campaign. I think that the Government would ultimately be forced to come forward with a date. It would be better to take the initiative rather than to leave the matter to the vagaries of a political debate prior to a general election. I shall concentrate my remarks on auto-enrolment, which is at the heart of the reform proposals. There is clearly a tension in auto-enrolment. The more that we make opt-out harder, the less we have crafted a system where workers are genuinely making their own choices about future pensions and the more that we are turning the process into a quasi-compulsory system. If, perhaps by the awkwardness of opting out, we move towards something that is becoming almost quasi-compulsory, we will lose the advantages of having a system that is not increasing tax or national insurance contributions. We will be reducing the incentive of workers to take decisions about their financial futures into their own hands. If we make opt-out too difficult, people will not be in a position to make decisions about their own future with full financial responsibility. If we go along that road, we will almost be introducing SERPS by another name. Clearly that would cause problems. Assuming that we want to allow some meaning to the concept of opt-out—I think that that is implicit in the proposals from the commission and from the White Paper—it seems to me that a positive encouragement for opting in and discouraging opting out is to be achieved, above all, by a change in the culture of personal finance and a change in the culture of saving, so we bring about a situation where making a contribution to personal pensions of 8 per cent. across the relevant band is not the ceiling of the contributions made but is more often than not the floor of such a contribution. People and employers will be encouraged and will want to top up contributions through the NPSS or whatever scheme is eventually introduced to operate personal allowances. If we do not achieve that cultural shift, we will run a real risk of some occupational schemes, in which contributions are currently above the levels proposed in the White Paper, being levelled down so that pension provision is worse than at present. If the Minister has time when he replies, I shall be interested to know how he might respond to the difficulty that is presented by a possible levelling down in some existing occupational pension schemes. There is also the risk, to which some hon. Members have referred, of a large-scale opt-out by individual workers. If we do not get the package right, there may be cases where it might be economically rational for an individual to opt out of the scheme. We must ensure that we get the package right and that we do not see such opting out. I accept the point made by many Labour Members that there is a danger that some employers, having made an unscrupulous analysis of their short-term interests, will encourage employees to opt out. We cannot ignore that risk, and the Minister must address it carefully. We could restrict the period for which employees opt out, so that opting-out is not a process that lasts for ever but can be reviewed after a few years. In any event, we need a cultural shift in attitudes both to saving and to saving for retirement. It is essential that we conduct a major UK-wide exercise before a scheme is brought into effect, whether or not it is the national pension savings scheme, so that we can make the case for the new auto-enrolment scheme to employees in the workplace and, indeed, encourage workers and employers to contribute more to the personal pension. If we are to achieve that objective, employees must have access to financial advice services that they can trust, and in which they are right to place their trust. They must be able to obtain advice that, bluntly, they do not have to pay for up front, otherwise many people who most need it will be unable obtain it. I will not go into detail about the way in which that advice and wider financial education can be provided, but we must build on existing networks and agencies, including Citizens Advice, local money advice services, and independent advice centres. Trade unions, too, can play an important role. We must be very wary of setting up a plethora of new organisations that seek to offer advice, as that would increase the risk that individual workers would be put off by the complexity of choice. Moreover, some organisations that purport to offer independent and impartial financial advice but, in fact do nothing of the sort, may take advantage of people who are not as informed as they might be. If employees make bad investment choices when they decide how to direct the savings accumulated in their personal allowances, it likely that confidence in auto-enrolment will take a tumble, and a future Government will face a choice between a fall in pensioner incomes and the need to make auto-enrolment compulsory with no opt-out. The Government must look at the way in which they provide pensions information and advice. There has been a strong emphasis on encouraging the take-up of pension credit, which is all to the good, as the scheme has been a great success, but take-up could be further improved. It is sometimes difficult for people who most need financial advice and information about financial services to obtain it. The Pension Service relies heavily on the telephone and its website to provide information. In the early years after the adoption of a new pensions settlement, we must provide face-to-face advice so that people do not have to rely on call centres and websites for information and advice. Finally, as the Pensions Commission and many commentators have pointed out, the implications of pensions reform extend far beyond pensions policy. If we are to develop a policy based on the reasonable expectation that people will live and work longer, there is a huge agenda to address. We must encourage and facilitate the employment of older workers, and introduce more flexible working, to cite just a couple of issues. As has already been mentioned in the debate, it is workers on low incomes, because of illness or disability, or sometimes because of their employees’ policies, who will be in danger of suffering badly, so there have to be measures to protect the least well-off, and of course to tackle the underlying health inequalities. I know that the Minister realises that, as do many other hon. Members here today on both sides of the House, but it is worth emphasising how those wider issues have to be kept in mind as we decide how to draw up a new settlement for pensions. If we do not do that, we will end up with a settlement that makes the real winners in retirement those who have already been the financial winners in their working life.