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Pensions Bill

I shall start with the Opposition, because we had a truly characteristic and classic performance from their Front Bench this afternoon. We heard a lot of vituperation and aggressive epithets, but no policies, no ideas, no commitment and no sense of conviction. I shall give some concrete examples. We all know that means-testing is a problem and poses potential difficulties, but should we have it or not? We heard a litany of complaints about means-testing, but no indication of whether the Conservatives would abolish means-testing or increase its use. We all know that generic advice is not ideal and it would be splendid if we could pay for everybody to have customised advice. The Opposition complained about the generic advice proposals in the Bill, but they did not say whether they thought that the taxpayer should pay—[Interruption.] They do not like being criticised, but they must understand that they will be. I see that the Opposition Chief Whip is now to be my audience on behalf of the Opposition. We never heard what their view is on generic advice. Would they prefer the Bill to provide for customised advice? In that case, who would pay for it? We did not hear that. Or do they want no advice at all? I presume that that is not the case. Another example is automatic enrolment, about which we heard much from the Opposition spokesman. He mentioned it over and over again and appeared to be totally against it, but he never said that he would table an amendment to remove it from the Bill. There was a complete abdication and a void where we should have heard some solid and concrete proposals from the Opposition if they want to be taken seriously. It is no use just complaining about things or saying that life is not perfect. We all know that life is not perfect. Compromises have to be made and decisions taken. If one wants to be in government, one has to be prepared to face decisions and come down on one side or the other. We had none of that. By contrast, the Government deserve to be congratulated on the Bill. It is a historic Bill. It is the first time in our history that we will have a contributory pension scheme that covers the whole work force, every man and woman who is working, unless they specifically opt out. That is a special moment in the history of pensions in this country. It means that everybody who is working will have a stake through the contributory pension system and the equity market in the prosperity of this country. Indeed, through the international equity market and diversification, they will have a stake in the future wealth of the world, and that is enormously important. In another important achievement, the Government have succeeded in doing something that no other Government have even attempted, which is to provide for compulsory employer contributions. What is more, the Government have managed to do so through negotiation, and that is a fine achievement. Many people would not have put the Government's chances of success very high, but they have succeeded. It is against that background that I wish to make one or two points on issues that are left open by the Bill. We all agree that there is a problem with means-testing. Some people should not contribute under the scheme because they would be better off relying on means-tested benefits. But the important point is that they are in the minority. It would not be sensible to throw the baby out with the bathwater and say that because that minority will not benefit we should deprive the majority of these new, positive measures. It is however right that some flexibility should be provided, and the Government have done so in allowing people to opt out and through the provision, which the House has so far rather missed in the Bill, for trivial commutation. However, the amount is not actually trivial; it is £16,000. To take a concrete example: at 8 per cent. the total contribution of someone on £20,000 will be £1,600 a year, so it would take 10 years of cash contributions to reach £16,000. Making a reasonable assumption about the normal market return of those contributions, and as compound interest is rather low at the beginning of a contributory scheme, it would be about eight years before there was any danger of someone losing contributions at all now that the Government have provided for a so-called trivial commutation level of £16,000. That gives people a long time to think again in the light of changing personal circumstances or different rules about means-testing or pension contributions. Finally, I should like to express something that the Government may not be able to say so easily. I have no idea what is in their mind on the matter and no idea of the substance of their discussions with the CBI and employers organisations, but it seems to me highly desirable, and natural over time, that the 3 per cent. compulsory contribution by employers should increase. The Australian superannuation system is interesting. It started at less than 3 per cent.—it may have been only 2 per cent.—but has risen to 9 per cent. over many years; there has been only a slight increase in the burden each year so that it could be absorbed. The House will see immediately that in so far as the compulsory and global contributions increase from a total of 8 per cent. at present to 10, 12 or 15 per cent., we will reach a point when not only will the proceeds of the sums invested through the contributory scheme in terms of an annuity available on retirement be much more significant than at present, which is highly desirable from all obvious points of view, but also the means-tested problem will have been relatively eroded over time. Fewer people will find themselves in the perverse situation of having no incentive to contribute to the scheme. It would of course be highly desirable if the Government could make sure that in future there will be no increase in means-testing, as that would go against the whole logic of the scheme. I congratulate them on a major move forward in that regard, for which they received little credit in the debate—deciding to restore the link between earnings and the contributory national insurance pension. That is an anti-means-testing measure and will enable people to improve their pension income globally without it being negated by the loss of pensions elsewhere through the means-tested system.