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Mr. Philip Dunne (Ludlow) (Con): I remind the House of my entry in the Register of Members' Interests. I have a personal pension, and I am also the director of an investment management fund that manages several small pension funds.
I shall talk about specific aspects of the proposals in the White Paper for most of my contribution, but I would first like to touch on an issue that has resonated around the Chamber from many hon. Members' speeches: trust and consensus, and the need to rebuild confidence through the Bill that emerges from the White Paper. The issue was put forward most succinctly by my hon. Friend the Member for Weston-super-Mare (John Penrose), and I pay tribute to him for his persuasive and forceful contribution. It is important that there is a broad political consensus on whatever emerges from the proposals.
When I first arrived in the House a year ago, I took the view that the question of pensions was one of the two or three biggest issues that parliamentarians needed to address in this Parliament, not least because pensions had been left woefully adrift for the previous 10 years or so. We cannot allow that situation to continue, for all the reasons that have been cited in the debate. The demographic changes are so important that we cannot continue to ignore the pension system that we set up for future generations. I congratulate the hon. Member for Hartlepool (Mr. Wright) on his positive contribution. He made useful remarks about the need for consensus.
We need to remind ourselves that the Government are not immune from responsibility for several factors behind the difficult situation in which many pensioners find themselves. Hon. Members on both sides of the House have talked about problems that are beyond the Government's control, but at least some responsibility for the significant erosion of confidence in our pension system and the savings culture lies at the Government's door. Although I want to maintain the spirit of consensus, I cannot resist reminding hon. Members of some of the problems. They are relevant because it is important that we overcome the drawbacks as we look forward.
My hon. Friend the Member for Poole (Mr. Syms) referred to the Chancellor's tax grab on savings. The abolition of dividend tax credits played a significant part in undermining defined benefit pension schemes in particular, and occupational schemes in general.
The 2001 initiative of introducing stakeholders was announced with a fanfare as the great white hope for introducing people on lower and middle incomes to the savings culture, but it would be fair to say that it has not been a great success. Take-up has been poor. The latest available figures show that there are about 1.5 million stakeholder pensions in operation, and the number has been broadly flat for the past three years. The schemes have suffered from high lapse rates, for reasons that are well documented.
The Government must take responsibility for the consequences of introducing so much means-testing. I, like hon. Members on both sides of the House, acknowledge that means-testing has led to a benefit in the form of reducing pensioner poverty, but it is also perhaps the matter for which the Government are accountable that is most responsible for the collapse of savings over the past nine years. Until a couple of years ago, when the Government introduced some changes to the rules and the system became less regressive, many people had no incentive whatever to save, because each pound that they saved would lead to their losing pension benefits. We need to reverse a situation in which it is in individuals' financial interests not tosave, as the hon. Member for Dumfries and Galloway (Mr. Brown) said.
Several hon. Members have referred to the survey that was published today by Scottish Widows. It shows graphically that the percentage of people saving adequately for retirement has fallen from 55 per cent. last year to 46 per cent. this year. There has thus been a significant reduction in just one year. The problem is especially acute among those who rely on defined benefit schemes for their pension savings. This morning, I spoke to Ian Naismith, the head of pensions market development at Scottish Widows. He said today:
"4 in every 5 people who aren't relying on a final-salary pension are failing to save adequately for their retirement, and ...2 in 5 are saving nothing at all."
That, in part, comes down to means-testing.
The final issue that needs to be borne in mind is the consequences of the delay until 2012-and potentially longer, as we heard earlier-of the introduction of the earnings link. As the hon. Member for Bradford, North (Mr. Rooney)-the Chairman of the Work and Pensions Committee, which I am proud to serve on-said earlier, a six-year delay is very significant for existing pensioners, or people who are about to become pensioners. Such a long period before implementing the proposals does not help to build confidence. Of course the proposals have got to be got right; I would not deny that for a moment. But steps could be taken earlier that would have a much more immediate impact-for example, introducing the earnings link. I know that that has been the subject of great debate between the Prime Minister and the Chancellor, but Ministers need to look at that issue when they turn the White Paper into a Bill.
Having got that off my chest, I endorse the view that we need to achieve a consensus through this proposal in order to rebuild trust among the population at large in the idea that saving is worth while. I am not absolutely convinced that the Secretary of State's claim that for every hour that we sit in this Chamber we add an extra quarter of an hour to our own longevity helps to build confidence in the system-although I am sure that he will be able to produce the evidence that supports that claim. I again endorse what the Select Committee Chairman said: this is a fine example of how pre-legislative scrutiny could be undertaken to ensure as broad a consensus as possible in all parts of the Chamber on the resulting Act. I urge the Minister to address that issue in his wind-up. Is he prepared to consider a draft Bill for when we return in the autumn?
I turn to a few specific points. When the Select Committee took evidence, one issue that arose-it has not been raised so far this evening-was that employers might regard auto-enrolment as a tax on jobs. Much has been made, particularly by Labour Members, of rogue employers seeking to force people to opt out of auto-enrolment. But the valid point that was made to us, and which needs to be borne in mind, is that once we are through the phasing in period, the contributions by employers of 3 per cent.-and by employees of5 per cent., when tax relief is included-will add a total of 8 per cent. to the employee wage bill of employers who do not provide an existing occupational scheme. That is a significant addition to the cost base of some employers, and we cannot just dismiss them as rogues because they encourage people to opt out.
We need to look very carefully at the transitional arrangements referred to in the White Paper to ensure that they assist such employers. They may not be rogues; they could be going through difficult trading periods or a rapid growth phase, during which they need to invest as much as possible in their own business, rather than paying inflationary wage demands. We all recognise that the employee contribution is likely to be reflected in wage bargaining negotiations, and that some inflationary pressures will therefore emerge as a result of these proposals.
For those with existing occupational schemes, there is also the risk of the levelling down of contributions from employers who may currently provide more for their employees. As defined benefit schemes decline, there has been a shift towards occupational defined contribution schemes-the real comparator to the proposed national pension savings scheme, which will be the ultimate defined contribution scheme-so that benefits get reduced for existing occupational schemes as they move on to a defined contribution basis.
Because the NPSS is unprecedented, it is not easy for us to foresee its impact on existing schemes. We can make some glib remarks in this Chamber, but none of us really knows how it is going to work. Some comparisons can be drawn with schemes in other countries, but none of them are of the magnitude of this one. There is a real risk that existing defined contribution schemes will trend toward the state scheme, particularly with small and medium-sized employers who, for example, are experiencing trading difficulties. If that happens, savings might decline as a result of the scheme's introduction, and the Government's objectives will fail. This is another area in which I urge the Government to consider transitional measures to limit the impetus for companies to level down.
The Government seem a bit complacent about that risk. A survey by Capita Hartshead last month indicated that 58 per cent. of providers of large schemes who are not using auto-enrolment thought that employers would level down when required to implement auto-enrolment within their existing scheme.
The next issue on which I shall touch is fairness, which has been mentioned by several of my hon. Friends in relation to the perception that the Government are taking different approaches towards private sector schemes and public sector occupational schemes. My hon. Friend the Member for Runnymede and Weybridge (Mr. Hammond), who is just leaving the Chamber, spoke clearly and well about the lack of balance and fairness in the Government's approach to the retirement age of members of occupational schemes in the public sector and in the private sector.
It is extremely important for rebuilding trust in the whole pensions arena that the Government face up to the clear public perception, right or wrong-Labour Members have said that they believe that it is a false impression-that the Government think that it is okay to push up retirement ages for those in the private sector, but when the Government themselves are the employer, they are not willing to raise retirement ages for their own occupational schemes, which are, in effect, defined benefit final salary schemes, which are rapidly disappearing from the private sector.
That brings me to what the Government's role should be in the new savings scheme. As others have said, there is little confidence in their ability to manage complex IT administrative schemes. There is little confidence in the Government as an investor: without wanting to get too political, we need look no further than the Chancellor's so-called prudent stewardship of the value of the country's gold reserves. There is little confidence in the Government's statements on the security of occupational schemes, as many have said in relation to the ombudsman's criticisms of maladministration. For all those reasons, it is vital that the Government acknowledge that they are not the best placed people to run the national pension savings scheme.
I endorse the view expressed many times by the right hon. Member for Birkenhead (Mr. Field) that the Government should take a leaf out of the Monetary Policy Committee's book. They should appoint a board of trustees independent of Government, and that board should be responsible for appointing an administrator for the scheme, as well as investment managers to undertake its management. Competition between the investment managers will improve performance and drive down costs. In addition, an independent body should regularly review longevity and the retirement age. When he appeared before the Select Committee, the Secretary of State agreed that that review should take place according to a predetermined timetable, which is important to building confidence in the scheme.
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