The hon. Gentleman makes an excellent point. My chief concern in this debate on principles is for the long-term bargain to be put on a secure footing. It would be wrong to lead the self-employed up the proverbial garden path by offering a great deal, clapping everyone on the back and voting it through only to see it collapse because it is literally too good to be true.
The final point on which we will press the Secretary of State during the passage of the Bill is probably the most important issue that our constituents will put to us: will the new flat rate pension offer them a comfortable retirement after they have worked so hard for so long? We are concerned that parts of the Bill fail that basic comfort test. Let us be clear that the hard wind-up of the state second pension will create a notional loss for many people under the age of 59. For example, 190,000 people in their 50s could lose between £30 and £35 a week, compared with what they would have got if S2P stayed in place. Someone who has been contracted-in for all of their working life and is aged 55 when the pension is introduced, would in theory have been able to accrue additional state pension for the remaining 11 years of their working life, amounting to £24 a week in additional state pension. That will no longer be possible under the single tier. They will continue to contribute 12% NICs for the rest of their working life, but there will not be an additional S2P entitlement.
The situation is even more grave for those who are just starting work: those in their 20s who will not retire until after 2060. By the Department for Work and Pensions’ own calculations, the majority of them will have lower pensions under the single-tier system, as the income replacement rate will fall from 38% to just 30%—a big drop that points us to the gaping hole where reform of the private pension system should be.
The Government have been clear, as they rehearsed the arguments in the past year, that they want personal accounts to pick up some of the slack for the fall in income replacement rate. There was a degree of consensus on the auto-enrolment system that the Government are now taking forward. We are concerned that the measures to link membership of auto-enrolment to the personal allowance mean that too few people will be involved in the new personal accounts, and that not enough people will be saving for the future.
We are also concerned that the effective shut down of S2P means that workers now lack a state-backed, low-risk option in which to save, which is why we think that now is the time to remove many of the fetters and constraints that were initially constructed for National Employment Savings Trust, the national pensions mutual created under the Pensions Act 2007. We need to allow transfers in from other schemes, end the upper ceilings on contributions—this is what employers are telling us—and legislate harder for transparency on costs and charges, which is why we have called for an investigation by the Office of Fair Trading into workplace pensions. We want to see a simple and comprehensive declaration of
the costs of saving in a pension, so that savers can see precisely what is being taken away from them and the long-term impact on the size of their pension pot.
We are concerned that there is a structural problem that needs to be grasped: the fractured and small-scale nature of the offer for many pension savers. Too few funds have the scale to offer savers the best investment decisions or the lowest charges. The Government must look much harder at how to foster an industry of bigger, simpler and cheaper funds.
We can learn many lessons from countries such as Australia, particularly on the establishment of a low-cost default pension fund; trustee directors for every pension scheme with statutory duties to work in the interests of savers; and requirements to publish a detailed charging structure and past performance to ensure transparency. To deliver this kind of industry for the future, we should be considering a legal requirement that all pension schemes prioritise the interests of savers over those of shareholders. We should also be considering obligations on trustees to assess whether schemes have sufficient scale to deliver low costs, and if the assessment is that a scheme is too small to deliver this, trustees should be empowered to investigate merging with other schemes. Finally, we should consider whether regulators should be empowered to mandate small schemes to merge, as is done in Australia.
In conclusion, the Opposition have always believed that matters as serious as those in the Bill should be approached in a spirit of national consensus, and I say again that I am grateful to the Secretary of State for how he has approached the debate, but the House must ask whether the new pensions provision is sustainable, comfortable and genuinely universal. I am afraid that we believe the answers are no, no and no again. We agree on some of the principles, but now is not the time for a failure of nerve; this is half a Bill, half a reform, and as the Bill goes through the House, I urge him to be more radical, to build on his inheritance and to give us a long-term scheme that will deliver a better standard of living for pensioners who have worked so hard for so long.
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