Pension Schemes Bill

Debate between Guy Opperman and Mark Field

Tuesday 2nd September 2014 Commons Chamber

[Mark Field (Cities of London and Westminster) (Con)]

I paraphrase the Minister when I say that it is probably fair to say that like holy matrimony pensions reform is probably best entered into—or not entered into—advisedly, soberly and discreetly. For good reason the final year of a Parliament is often not the best time to embark on radical reform in the sector. It simply becomes all too easy for political adversaries wilfully to misrepresent some far-reaching proposals. Yet there is no disguising that the notion of pensioners being able to unlock their life savings during an uncertain retirement is a revolutionary change, and one I support.

As deficit reduction remains more straightforward to explain than achieve, these pension reforms also allow for some considerable fiscal loosening. Once implemented the proposals will release a vast dollop of cash for those over the age of 55 to pump into the economy, rather than being forced to buy an annuity at a woefully uncompetitive rate. Make no mistake—this is not an unintended consequence of the proposals. The Red Book to last spring’s Budget made it clear that the reforms anticipate a boost to aggregate pensioners’ spending to the tune of £320 million in 2015-16, rising to over £1 billion in 2018-19.

[Guy Opperman]

Is it not fundamental that, given the failures of annuities, the Government provide extra flexibility? Fundamentally, they are doing one thing: trusting people with their own money.

[Mark Field]

I confess that I wholeheartedly support the Treasury’s belief in the principle of freedom to which my hon. Friend refers. It is right that we as Conservatives trust those who have worked hard and saved throughout their adult life to make their own decisions on their savings. Nevertheless, we must accept that the generous tax relief that attaches to private pension savings has always been predicated on the basis that, by providing for their old age, pension savers will not be a drain on the state. It will become ever more difficult to justify reliefs at the generous levels we have all been used to over the past few decades if the compulsion that goes with annuities or restrictions on access to savings is consigned to history.

I am also pleased that the coalition has consulted a little more widely on these plans, albeit somewhat belatedly. One hopes that some technical issues will be ironed out, but I wanted at this stage to make some more general observations. The Government have been commendably vigorous in reforming the pensions system since 2010. As the Minister pointed out, we are already on the third pensions Bill and he already has another in his sights. Eligibility for a state pension will only kick in at a later age. That has to be the right move forward. The earnings-related element of the pension has been abolished. We now have a system of automatic enrolment for employees. Many of these reforms have been undertaken for one simple reason: we could not go on as we had. Our understanding of retirement has changed beyond all recognition and comprehension since the state pension was introduced in 1909. Life expectancy then was lower, so there was no point in continuing the pretence that the state could adequately sustain decent incomes for generations that will now live for 20 or 30 years after retirement.

If the emphasis is now firmly on self-reliance and the ever greater involvement of private providers, the most crucial ingredient will be trust. If the law is essentially to compel citizens via auto-enrolment to hand over an unspent surplus of their hard-earned cash to what they may regard as the unqualified or incompetent, there is little incentive for anyone to save. Central to addressing all this must be a pensions industry in which there is universal public confidence and which willingly recognises a collective responsibility. As we know, we are a hell of a long way from that point. The regulator, encouraged by the Government, now needs urgently to engender a culture among the major institutions in the sector akin to that prevailing among the leading banks during the 1970s.