|
JOHN HUMPHRYS: Alistair Darling, stakeholder
pensions, a step in the right direction many people say - but - and this
is a serious problem isn't it, it isn't going to attract enough people
who are on modest incomes, ten thousand to twenty thousand pounds a year.
It's not going to do it, is it?
ALISTAIR DARLING: Stakeholder pensions were designed
to be one part of a number of measures the government is introducing to
make sure that people have a decent income in retirement. Now at the moment
if..there are many people who don't have access to an occupational pension
through their employer, people for whom a personal private pension are
inappropriate because they tend to have higher charges and it was that
gap in the market that stakeholder pensions are designed to meet. Now I
believe that the signs so far are encouraging, two years' ago when we announced
stakeholder pensions some people said 'oh you won't get anyone to sell
them'. In fact there are now forty-four pension providers in the field
and I believe that over the years, more and more people on moderate and
higher earnings will get into funded pensions, of which stakeholder pensions
are an important part, but of course they are not the whole story but they
are an important part of it.
HUMPHRYS: It's one thing to get
people to sell them it's another thing to get people to buy them and you
don't really think that people like that youngish woman we saw in the
film there - Ruth - she said my income is completely taken up - I quote
"with everyday expenses". So you can't expect people like her to buy into
it can you.
DARLING: Let me set out our strategy.
The first thing that we did when we came into power was to sort out the
problems that we inherited with a growing amount of pensioner poverty.
That's why we introduced the Minimum Income Guarantee, that's why we have
increased pensions for everyone to make sure that all pensioners shared
in the rising prosperity. The second stage of our reform was to make sure
that long-term pension provision was improved. Now we've done two things
here. Firstly, as I said we have introduced stakeholder pensions to give
millions of people access to a funded pension who at the moment don't have
access to them. Remember one of the advantages of stakeholder pensions
is that because of their very low charging, then people will actually get
more pension for the amount of money that they put in. But, part of our
long-term reform also as your report makes clear, is to introduce the state
second pension which is specifically designed for people on low earnings,
who don't have money to put by, to put into a funded pension and that state
second pension actually doubles the amount of money people would have got
under the Serps scheme. So we are helping people on low pay, we are helping
people on moderate pay. The third stage, which we may come onto in this
discussion of course, is the Pension Credit which will mean for the first
time in the Social Security system, if you do actually do what governments
have asked you to do over the years and you save for your retirement, you
will get a credit, a reward for having done so rather than being penalised
for that thrift which is the system that we took over.
HUMPHRYS: But let me stay with
the thought of stakeholder pensions for the moment and I am dealing here
as you know, with people on what you would describe I think as modest incomes,
that's to say ten to twenty thousand pounds a year. Your ambition if I
may remind you was to ensure that everybody earning more than ten thousand
pounds a year..twenty thousand pounds a year, should be and I quote "in
a secure funded private pension". Now you are not talking about that as
being a very clear ambition that they should all be in some sort of pension
such as that. You are talking about it as an option. So you have in effect,
scaled down your ambition haven't you.
DARLING: No, let me be very clear
about this. The government believes that if someone is on moderate or higher
earnings then they ought to be in a funded pension. That's always been
the position, set out clearly in the Green Paper we published in 1998,
it was the position then, it is the position now. What I was saying to
you was, stakeholder is one funded pension option, along with occupational
pensions or personal private pensions and the way in which we have changed
the rebate scheme, the amount of money that you get out of your National
Insurance Contributions to go into your funded pension, means that there..you
get a very good deal from the state as long..as well as with the tax relief
you can get because you can contribute up to three thousand six hundred
pounds a year. There are a lot of incentives there to encourage people
to get into funded pensions...
HUMPHRYS: ..but I mean - sorry
- that idea of contributing three thousand six hundred pounds a year to
people like Ruth is of course laughable. I mean as I've said to you, she
told us she couldn't afford anything. So what do you say to people like
her who is on a modest income and can't afford to pay into this scheme.
DARLING: What I say, at the moment,
assuming that that lady Ruth who you interviewed is employed, she is paying
National Insurance Contributions. Now I have no idea what her earnings
are and I certainly wouldn't seek to advise her from this distance on that
basis, but if you get somebody who is employed, they are paying National
Insurance, what I am saying to you is because of the way the system operates,
somebody on modest earnings, between about ten thousand and twenty-two
thousand pounds a year, would get an enhanced contribution from their National
Insurance into a funded scheme were she to go into a stakeholder pension
scheme.
HUMPHRYS: She'll still have to
pay.
DARLING: I also said to you John
that if she is earning less than that or you know she is on the sort of
cusp if you like between lower and moderate earnings, then she might be
better advised to stay in the state second pension, that's the reformed
Serps system where she would actually be getting double the benefit than
under the original Serps scheme. So what I am saying to you is, for someone
on low earnings, or someone there or there abouts, she might be better
off in the state scheme, but someone..generally speaking somebody as their
earnings rise above that, then they would probably be better off in a funded
scheme. Now what we have done is to ensure that the National Insurance
rebate system and the tax system is designed to reward people if they actually
do go into a stakeholder pension scheme. But whether or not it is appropriate
for her, clearly I don't know because I don't know how much she earns.
HUMPHRYS: Well we were assuming
that she earns between ten and twenty, I think it's something like fifteen
but of course I may be wrong about that, my apologies to her if I am wrong.
But there are five million people who have no pension, apart from the
basic state pension of course, no other pension apart from that. What
do you want that figure...
DARLING: If she is earning fifteen
thousand pounds a year, if she goes into a stakeholder pension then the
amount of money that she presently pays through her National Insurance
scheme into the state system because I assume that's what her arrangements
are at the moment, that would go in - if she went into a stakeholder scheme,
into a funded pot and all the evidence is that somebody going into a funded
pension, on that sort of earnings would do better than if they'd have stayed
in the state scheme. Now, clearly I can't give her personal advice for
obvious reasons but the way in which the National Insurance system works,
which she pays anyway, is that if it went into a funded pension, then she
might be better off as a result of that. And of course in years to come
if her earnings increase, then it would almost certainly be the case that
she can put additional money into a pension as she moves towards retirement.
HUMPHRYS: But you know that there
are many people like her who won't do that for whatever reason, it may
simply be because they feel they can't afford to, so ultimately, you have
to bit the bullet and say, it must be compulsory, mustn't you?
DARLING: No, you see, if you are
employed in this country at the moment, you have to contribute, there's
no question, it's not voluntary, you have to pay National Insurance. So
compulsion is already in the system and that lady Ruth, she's already obliged
to pay National Insurance Contributions which goes into a state pension
and about five per cent of it into her state second pension or Serps.
What I'm saying to you is, that for moderate earners, someone earning more
than about ten-thousand pounds a year, generally speaking, they will be
better off in a funded pension. Ideally an occupational pension but clearly
her employer doesn't have one of those, so from last Friday, stakeholder
pensions are being set up, where these investments are all pooled, they're
invested and generally speaking, all the evidence is that they get a better
return.
So compulsion isn't the
issue because there's already compulsion in the system. What is at issue
is the objective of making sure that more people on moderate and higher
earnings are in funded pensions because they would be better off and to
come back to the point you made right at your start to your programme,
you are right in saying the government strategy is to make sure through
a combination of state and funded provision, people have a much better
income in retirement. The stakeholder is one part of achieving that objective.
HUMPHRYS: And if they choose not,
let me return to the question of compulsion, I take your point about the
National Insurance pay-off, as it were, but if they choose not to do it,
would you consider, at some stage, compulsion? If you discovered after
a year or two years, or whatever it is, the thing simply isn't working,
people aren't going for this, would you then consider compulsion?
DARLING: As I said to you, people
like Ruth have no option. If you are employed in this country, your employer
takes your tax and your National Insurance Contributions away from you.
Your National Insurance Contributions go into the National Insurance fund,
which amongst other things pays for your basic state pension and the state
second pension. So compulsion is there anyway. But I mean, the key point
to focus on here is what we're doing is, as I say firstly we are making
sure that for lower earners the state system is much much better than it
ever was in the past because these people could never earn enough on their
own, that's why we've increased the amount of benefit they get through
the state second pension, it's almost doubled, trebled in some cases actually.
What we're saying for
moderate and higher earners is that you really ought to be in a funded
pension and that's why stakeholder pensions have been introduced because
at the moment, or up until Friday, people didn't have any choice in the
matter, there was nowhere for them to invest their money. Now there are
stakeholder pensions, they are low charges, one per cent, and that's already,
you can see the effect of that across the whole industry now. They are
portable, you can put money in, there are not penalties if you stop for
a while and then contribute. So that it benefits low paid people, it benefits
women who take time off to care for her children or for other relatives.
These stakeholder pensions will be of immense benefit to the pensions system
and as I say, they're giving options that were never never there in the
past.
HUMPHRYS: Let's look at the basic
state pension then. You'd accept that secondary pensions can be a fairly
complicated issue. The problem with the basic state pension now is that
that too is very complicated because of all the means testing that is involved
at various stages in the process. You were supposed, New Labour was supposed
to move away from means testing, we have more now than we ever had before.
DARLING: We don't actually, it's
almost exactly the same as it was when we came into office because of course,
what's happening is this - if you look at pensioner incomes today, the
average pensioner income is a hundred-and-forty-one pounds a week. Now
the reason it is that is because a lot of people are now retiring with
very good occupational pensions. You know one in six pensioner couples
are retiring on over twenty-one thousand pounds a year. The problem is,
there's a lot of pensioners at the other end of the income scale, who only
have the basic state pension, or in fact there's a million pensioners who
don't even have that. Now a one-size fits all approach doesn't work.
So what we've done is this. Firstly, you've got the Minimum Income Guarantee,
which actually you can now complete a form that's only ten pages long,
well from October, ten pages long, or you can apply for it over the phone,
you've got...
HUMPHRYS: ...and of which half
a million people don't get still.
DARLING: I'll come onto that point
because I think that....those figures are misleading. We've got the Minimum
Income Guarantee which from tomorrow goes up to ninety-two pounds fifteen
a week. So what we're saying is no pensioner should be living on less
than that. Now that ninety-two pounds fifteen a week compares to only
about sixty-eight pounds that the Tories left us when they left office
four years ago. So there is the Minimum Income Guarantee. That is the
only way of getting money to the pensioners on low incomes. If you don't
have the Minimum Income Guarantee, if you're opposed to it as the Tories
are, then you will find that pensioner poverty will grow and I don't believe
that pensioner poverty has any part in a civilised society...
HUMPHRYS: ...yes but it...
DARLING: ...the second thing you've
got to do John, is to make sure that for those millions of pensioners and
there's about five million of them, who've saved a little bit of money,
they've got maybe a modest occupational pension, or they've got a little
bit of money in the bank, that they're actually rewarded for their thrift.
Under the present system, under the system we inherited from the Tories,
they are punished because of it. When the pension credit comes in from
2003, then those pensioners will get an additional cash top-up. So the
system is quite simple, Minimum Income Guarantee that ill rise to a hundred
pounds in two years' time, the pension credit, which is designed to make
sure that where people have saved modest sums, they get a cash top-up for
having done it and the longer term reforms to make sure that everybody
who can save has the opportunity to do so.
HUMPHRYS: But the Minimum Income
Guarantee is fine if you apply for it and if you get it but as you've acknowledged,
many people don't do that, either because they think it's terribly complicated,
or because they think, wrongly certainly, but nonetheless because they
think it is in some way demeaning, so they don't do it. Let me remind
you what Rodney Bickerstaffe said in that film, what most people want is
a decent income so they don't have to rely on means tested benefits. The
stigma of means testing that I call, he said, I call parading poverty.
DARLING: Yes, but as Rodney well
knows because I've had many hours of discussions with them, that the only
way to help the generation of pensioners we now have who only had the state
pension, or in some cases, not even that, including, you know, some of
his own members, is to have the Minimum Income Guarantee. But you know
let's deal with this point since you raised it. We wrote to two and a half
million pensioners who we thought might be eligible for the Minimum Income
Guarantee. Now just under a million responded. So the old argument that
somehow it was stigma, or that people you know, didn't want to get in touch,
you know, seems to me to have fallen away, because a million people got
in touch with us. Now when we looked at the circumstances of those million
people, what do we find. We find that most of them don't qualify because
they've either got a modest occupational pension, or alternatively, they've
got, you know, they've got some modest savings in the bank.
Now when the pension credit
comes in in two years' time, these people will be rewarded for their thrift.
Let me give you an example. At the moment, if you've got an occupational
pension of twenty pounds a week, going on top of your basic state pension,
you get nothing for your thrift. Under the new system, that same person
would get an extra twelve pounds a week to reward them for their thrift.
Now I think the Social Security system ought to be rewarding thrift, not
punishing it. Last point on this John, you talk about stigma, nobody has
any compunction whatsoever about claiming tax allowances to which they're
entitled. Nobody has any problem with that...
HUMPHRYS: ...oh, different area...
DARLING: ...well it's not because
what we're saying is, that where you've got somebody on a low income then
there is no reason whatsoever why they should not get that money then...
HUMPHRYS: Well, why then, why did
Tony Blair himself say three years ago - two-and-a-half years ago - there
are problems if you move to too much means testing, as you can see with
pensioners who do not take up Income Support. The Prime Minister thinks
it's difficult.
DARLING: It wouldn't surprise
you to know that the Prime Minister finds himself in complete agreement
with our pensions policy, but he won't .......
But the problem we inherited is that when we came into office there were
about two million pensioners who were living on - their incomes were so
low that they were on Income Support. Now, we've got to deal with that
problem. You can take the Tory view and say, well we don't believe in
giving these people any help, tough luck, we'll leave you to get on with
it. That's what they did for their eighteen years. I believe that there
should be a minimum, a guarantee for pensioners. Age Concern for example
last year, said that they - that pensioners shouldn't live on less than
ninety pounds a week. I agree. That's why from Monday, tomorrow the Minimum
Income Guarantee will rise to over ninety-two pounds,. It will go up to
a hundred pounds in two-thousand and three, but that on its own isn't enough.
You've got make sure that where that nearly half the pensioner population
has actually got modest savings or a modest occupational pension, you can't
just say to these people: well, tough luck. You should say to these people:
you've done what you were asked to do, now let's reward you for your thrift,
let's not punish you as the Tories seem to want to do.
HUMPHRYS: But many people believe
that the basic state pension is what it should be all about, and this increase
that we've now had, five pounds, is seen by many as a pre-election bribe.
The reality is, isn't it, that you are not committed, you are not committed
to increasing the basic state pension so that people won't have to worry
about money in future. What this is, is leaving open the possibility that
we might have another seventy-five per cent - a seventy-five pence increase
for the next year's pension or the pension after that?
DARLING: Well, despite what Willetts
and Webb had to say, no party in this country is going to restore the earnings
link. You know that's been the case for many years, and that's likely
to remain the case. But...
HUMPHRYS: So we won't have another
seventy-five pence increase?
DARLING: Let me directly answer
your question. The problem is that the gap between pensioner incomes in
this country, between the better off and the poorest is as wide, or was
as wide in nineteen-ninety- seven as it was forty years earlier. To give
the same amount to everyone the poorest and the richest alike doesn't make
any sense. What we have done, and I think it's the right policy to pursue,
is firstly to hugely increase the amount of money that the poorest pensioners
get, as I say, up from sixty-eight pounds four years ago, all the Tories
were prepared to allocate, up to ninety-two pounds-fifteen from tomorrow,
and rising to a hundred pounds in two years' time. The second thing that
we wanted to do was to make sure that those large number of pensioners
that you know, were pretty - not well off - on modest incomes - should
also see the fruits of their thrift, that's why we're doing the pension
credit, and of course we've also made tax changes. Remember that seventy
per cent of pensioners either pay no income tax or only at the ten pence
rate, so we're helping those modest pensioners, but to give exactly the
same to the poorest pensioner and to say, Margaret Thatcher, seems to me
to be an absurd policy.
HUMPHRYS: Okay.
DARLING: Now I don't believe that,
and it's not surprising actually that no major political party wants to
return to that system. What is crucial though is to make sure we maintain
and increase the Minimum Income Guarantee which the Tories oppose, to make
sure that you make the long term reforms, so that people can save for the
future, and at the same time make sure that saving and thrift and prudence
are rewarded, that's what the pensioner credit does, and the increases
in pension tomorrow, the five pounds for a single pensioner, the eight
pounds for a pensioner couple and the increases planned for the following
year are a step towards achieving a situation where all pensioners not
only share in the country's wealth, but at the same time they can look
forward to a decent income in retirement in the future.
HUMPHRYS: Alistair Darling, many
thanks.
DARLING: Thank you.
|