Savings (Government Contributions) Bill

David Morris Excerpts

2nd reading: House of Commons & Money resolution: House of Commons & Programme motion: House of Commons & Ways and Means resolution: House of Commons
Monday 17th October 2016 Commons Chamber

[David Morris (Morecambe and Lunesdale) (Con)]

Does the hon. Gentleman not agree that what Gordon Brown did when he was Prime Minister—taxing pension schemes—was catastrophic? I know that, because I had a pension scheme and stopped paying into it.

[Ian Blackford]

I absolutely agree with the hon. Gentleman that that was the beginning of the end for defined benefit pension schemes in this country. At the time, just about every company in the FTSE 100 had a defined benefit pension scheme. There are hardly any today. My criticism of what the Government are doing with the Bill is that they are once again undermining pension saving. I will come on to the facts of the matter. We cannot get away from this: anybody saving into a pension does so out of pre-tax income. Anybody investing in the LISA will be doing so out of taxed income. That is unfair and unjust. As I mentioned earlier, this is more about a wheeze for the Government to generate taxation income. It is wrong and they should not be doing it without proper incentives for the young people they are targeting.

We would resist any further attempts to undermine pension saving and, specifically, to change the tax status of pension savings. That would be little more than an underhand way of driving up tax receipts—sweet talking workers to invest after-tax income in LISAs when their interests are best served by investing in pensions. We have considerable challenges in ensuring that we take appropriate action and provide the right kind of leadership to encourage pension savings above all else. That is not happening under this Conservative Government. Pension savings are the most tax-efficient arrangement for savers and that is what we ought to prioritise

We also need to revisit the issue of pension tax relief to make it fairer to pension savers. Many commentators and providers, such as Zurich, have suggested that a flat rate of pension tax relief could increase saving among low earners. While ensuring pensions remain an attractive investment for higher earners, it would be inherently fairer. Coupled with auto-enrolment, it would give a powerful boost to the pensions of millions of workers and help the vast majority of people to save more for retirement. It would also end the complexity of the current regime and set tax relief at a sustainable level for the longer term. That kind of approach rather flies in the face of what the Minister has signed off in the impact assessment, which states:

“The government could have done nothing more, relying on existing tax incentives to promote saving among younger people and working families on low income. However, this would have failed to provide the necessary level of support for those who are unable to use existing support to plan and save for their future.”

This is bunkum. Tax relief can be addressed, as I have said, but we must also take into account the fact that a review of auto-enrolment is due in 2017. We can strengthen auto-enrolment to deliver inclusion and encourage pension saving. We want to work with the Government to strengthen auto-enrolment and pension savings, which are the most efficient way for young people to save.

Just today, as we debate the Bill, the Financial Times has published an article highlighting new analysis on pension savings conducted by Aon. The analysis concluded that UK pension savings have a massive deficit of £11 billion a year. A poll of 2,000 pension savers indicates that only 16% of workers are saving enough to maintain their standard of living when they stop work. Why on earth do we want to take attention away, through the Bill the Government are bringing forward, from pension savings? Why are we not focusing on what we should be doing: fixing the problems in the pension industry? That is the priority of those of us on the SNP Benches.

The Aon analysis suggests that members of defined contribution schemes on average need to pay an extra £1,400 a year to achieve a decent retirement income. That is what we should be addressing in this Chamber here tonight. My message to the Government is this: let us all work together to tackle the under-investment in pension savings, to deal with the many challenges we face, and to enhance the attractions of pension savings. That is the priority. Today, too many people are excluded from workplace pensions.

I commend the introduction of auto-enrolment, but recognise that more needs to be done to enhance auto-enrolment and seek to offer affordable solutions to the low-paid, women and the self-employed who, to use the Prime Minister’s term, have been left behind. We need to tackle the issue of those who are currently excluded, such as the 20% of workers who earn less than £10,000 a year. We need to make sure we have an inclusive approach to pension savings that works for all workers.

The average value of conventional ISAs held by those aged between 25 and 34 is £5,186. The annual allowance for the lifetime ISA as proposed is £4,000, so from experience of ISAs this question needs to be addressed: who exactly will benefit? It looks like yet another policy to benefit the rich who can afford to save at such a level and therefore get the full benefits of the Government bonus. So much for the sermon from the Prime Minister about delivering policies for those left behind. It looks to us more like the same old policies for the benefit of the wealthy. When we look at the news today we see that the UK is looking to spend billions of pounds for the City to access the single market—and we should not be surprised. It is yet another case of the poor subsidising the rich.

We need to address the unintended consequences of quantitative easing, which has driven down yields, moderating expectations of future growth for pension funds and substantially increasing the deficit for many defined pension schemes, as the hon. Member for Salford and Eccles (Rebecca Long Bailey) mentioned. If we add to that the decline in annuity rates, which is cutting expectations of pensioner income, it means that savers have to increase their contributions to defined contribution schemes. This makes for a challenging environment for pension savers, which needs to be addressed.

On 11 July, the former Secretary of State for Work and Pensions, the right hon. Member for Preseli Pembrokeshire (Stephen Crabb), said that

“there is a very real systemic issue with DB pension schemes that we need to look at, and my Department will be discussing it further in the months ahead.”—[Official Report, 11 July 2016; Vol. 613, c. 10.]

Since that statement, there has been silence from the Government. Where is the response to the fundamental challenges for today’s pensions and, as some might argue, the crisis in both defined benefit and defined contribution schemes?

We know of the significant factors affecting the BHS and British Steel schemes, and we know that hundreds of other schemes are facing significant deficits. Rather than seeing the Government face up to these challenges and the threat to the many beneficiaries of the schemes, we see a missed opportunity to tackle what ought to be the priorities. When will the Government respond in detail to what the former Secretary of State for Work and Pensions admitted, which we all know to be the case? I give the Minister the opportunity to intervene and tell us what the Government have done since the announcement of the previous Secretary of State. Where is the Government’s response? What do they have to say about the deficit on defined pension schemes? I see Government Members on the Front Bench looking down, but we need answers. What we get from this Government is no action.

--- Later in debate ---

[David Morris (Morecambe and Lunesdale) (Con)]

It is a pleasure to follow my hon. Friend the Member for Gloucester (Richard Graham). I am sure the Bill covers the self-employed, but that has not been brought up today. When I was self-employed 20 years ago, the then Government made a change to taxation which basically meant that a substantial amount of every pound that I put into my pension pot was taken out in cash, so I stopped paying into a private pension. The policy in front of us today proposes a break in that sort of behaviour, particularly for the self-employed. The self-employed have always been worried about the harmonisation of national insurance contributions. When I was the Prime Minister’s ambassador for the self-employed, I worked closely with my right hon. Friends the Members for Bromsgrove (Sajid Javid) and for Chingford and Woodford Green (Mr Duncan Smith) on trying to harmonise national insurance contributions so that self-employed people would eventually have the same state pension.

However, I want to talk about the lifetime ISA proposal, because it should not be confused with an extra pension top-up, about which every speaker in the debate before me has talked. It should instead be seen as a savings guarantee for the future. It was a tidy move by the Treasury and the Department for Work and Pensions in reaching the point of harmonising NICs. This proposal takes us a little further into the realms of the self-employed being able to look after themselves in future.

I do not want the LISA to be confused with a pension supplement. It is not that. It is something that helps to save for the future. To put it in perspective, we hear a lot of doom and gloom, but let us look where we were seven years ago. The then Prime Minister, the former Member for Kirkcaldy and Cowdenbeath, used to say quite often that he had put an end to boom and bust, but we then went bust in the biggest possible way. Near enough 10 years down the line from that, we have to address how we are going to save for our future. As someone who took the decision 15 or 20 years not to pay into a pension plan, I wholeheartedly welcome what the Government are doing.

I want to provide some perspective. Unemployment is dropping in my constituency—so much so that a Labour councillor was boasting about his business and saying that he cannot get enough employees to fill the positions. The workplace pension has its place, but the LISA has a separate place. I hope that it will carry on and enable people to save for their old age.

[Dr Lisa Cameron (East Kilbride, Strathaven and Lesmahagow) (SNP)]

I do not want to start by correcting the hon. Gentleman, but I am pleased to have a savings account named after me, and the LISA is most definitely a “Lee-sa” and not a “Lye-sa”. Does he agree that financial education in schools is the crux of the matter? Children must learn how to budget in order to learn how to save and have a secure relationship with their finances.

[David Morris]

That is part and parcel of the mix. However, this Bill is about where we are going in the future. I take on board what the hon. Lady says and I am sure that everyone else in the Chamber and in the country more widely will have done, too.

Thank you for allocating this time to me, Madam Deputy Speaker. I wholeheartedly endorse what the Government are doing.