Conservative Policy Forum Lecture
"Good afternoon ladies and gentlemen, and thank you for attending today's event. You'll hear speeches and discussion on a wide range of subjects this afternoon, but for the next 15 minutes I'll be focussing on one particular topic. A topic which has been the subject of much deliberation by the two main political parties in recent months. And a topic which is hugely important to so many of our fellow Scots.
Pensions. The Blair Government has made an almighty mess of Britain's pension system. Now whilst Conservatives are sometimes guilty of harking back to the past with blue tinted spectacles, in the case of pensions, we're entirely justified in doing so. Because, any independent observer would agree that Britain's pension system was extremely highly regarded before Labour stopped it working.
Private saving was at a reasonable level, and it was rising. The incentive to save was strong. And means testing was not the affliction it is now. Tony Blair said he would take care of our pensioners if the country sent him to Downing Street, but it was all talk. The last 8 years have been a living nightmare for many of our older people.
Now I'm not an advocate of living in the past - we need to move on. However, in order to understand how to rebuild our pensions system in the future, we need to understand what Labour has done to destroy it. In order to get out of the mire, we have to understand how we got into it.
The Last Eight Years
I'm sure all of you have heard talk of the Blair Government's 5 billion pounds a year stealth tax on pensions. If you closed your ears whenever you heard it, do not fear. If you ran upstairs and stashed some money under the bed, I understand! It's a frightening figure. I wish I could tell you it wasn't a fair or accurate figure. That you and your friends and families, your neighbours and colleagues who have invested money in pensions needn't be overly concerned. But I'm afraid I can't offer any such reassurance, because everyone in this country has a right to be concerned.
The 5 billion pounds a year pension tax, which by now has accumulated to 35 or 40 billion pounds, is a classic Labour stealth tax. It came about as a result of Labour's removal of the tax credit on dividend income for pension funds. Effectively, with the removal of the ability to claim this tax back, pensions revenue fell, pensions growth fell, and, as you would expect, peoples' pensions became smaller. A lot smaller.
All this from a man who said he would not raise tax, and who said he would not consider his mission completed whilst there was a single pensioner in Britain living in poverty. All talk.
However, ladies and gentlemen, as we know, the 5 billion a year stealth tax is only a small part of Scotland's pensions crisis. If you think pensioners have a mountain to climb to recover from the damage cause by the removal of the tax credit, you can rest assured that it is barely a molehill compared to the other Labour pensions catastrophe. I refer, of course, to the means test - and the continued expansion of the means test. For it is at the heart of Scotland's pension problems.
The means test is complicated, it is intrusive, it is degrading, and it has been used as a tool by the Blair Government to entrench dependency on the State. Instead of further increasing the basic state pension, which they should have done, Labour has increased the means test, which has dragged more and more people into its tangled web.
Most people accept that, for the moment, the means test is a fairly inescapable fact of life. But there are now around 50% more pensioners falling into that net than when we left office. Five million pensioners now have to endure means testing thanks to Labour. Socialists think this is a good thing. They believe that the more people who are dependent on the State, the better.
They will have you believe that means testing protects the poorest pensioners. However, the reality makes a mockery of the assertion. The fact is that the take-up rate of the means test is notoriously low. 1.7 million of the 5 million pensioners subject to the means test do not even take it up. And the take-up is lowest amongst the poorest pensioners. Figures show that 65 per cent of those who do not take up the means test are in the bottom fifth of the income distribution.
It is low for the reasons I have already given. Complicated. Intrusive. Degrading. And what makes it so much worse is that the Blair Government knew this would happen, yet carried on regardless. Targeted aid which does not reach the people it is supposed to target should not be considered a success. The Blair Government may feel morally cleansed by their belief that they are helping the poorest, but they have absolutely no right to feel that way whatsoever.
Let me give you a couple of examples of the ridiculousness of the Pension Credit - the current name for means testing. One pensioner received an official letter saying that his Pension Credit would be backdated to February 28th…….. 1852! That's not all. The Government printed the wrong telephone helpline number on one letter. The result? Stunned pensioners found themselves chatting to the Gay and Lesbian Directory!
Problems with the means test run deeper than this though. In many ways, it is a double edged sword. Because as people save more, the government reduces the availability of the means test. For every pound a person saves privately, they lose means tested benefits. In some cases, it has been found that for every pound a person saves privately, they lose a pound from the means test. Now, can anybody tell me, on that basis, what is the point in saving your own money, when it is effectively being taken right back out of your hand by the Blair Government?
And so we have the disincentive to save. There is no shortage of evidence to back up this assertion. Under the Blair Government, the proportion of household income saved in this country has fallen from 10 per cent in '97 to only 6 per cent today. In other words, saving has almost halved. It is estimated that a 20 year old in Scotland will now have to save 280 pounds a month for the rest of their lives simply to fill the gap created by this disincentive to save.
The most worrying aspect is that there is no end in sight. Labour might say they don't want to drag more Scottish pensioners kicking and screaming into the means test, but that is precisely what they have done.
Ladies and gentlemen, nobody should make the mistake of thinking that we Conservatives are on our own in our criticism of Labour. The Blair Government went to the lengths of setting up a Pensions Commission under the Chairmanship of Adair Turner, a well respected economist, to look into the pensions crisis. Locking the stable door after the horse has bolted it may have been, but it was an admission of their failure.
Mr Turner had some damning criticisms. On the increasing role of the state in the provision of pensions, he said, and I quote, "The future of British pension provision will ….. be far more state dominated than is often suggested." And on the means test in particular, Mr Turner said: "Means-testing within the state system both increase complexity and reduces, and in some cases reverses, the incentives to save."
Nine years ago, Tony Blair said that he would "remove the stigma of means testing forever". All talk. It is labour, not us, who are on their own. On their own in seeking to expand the means test further and further and further.
Action on Pensions
Ladies and gentlemen, Scotland's pensioners can't wait much longer. The time for talking is done. Conservatives will take action on pensions. Our action plan on pensions starts from the basic belief that everyone should be entitled to dignity and security in their later years. Like all of our policies for a better Scotland, our policy on pensions constitutes a specific written commitment with no small print. It is an eight point action plan.
You're probably sick to the back teeth of hearing about action plans after eight years of Labour. But a Conservative action plan differs from a Labour action plan in one crucial way - it involves, well, action. Perhaps Labour could have called theirs a talk plan, if it hadn't been patented by Vodafone! But I digress.
Point one of our action plan is designed to deal with the destructive dependence on means testing. We will restore the earnings link. Yes, it was a Conservative Government which moved away from the earnings link 25 years ago, linking pensions to prices instead. This does not mean we were wrong to do it then - we did it for good reasons at a time when Labour had set the country on the path to economic Armageddon.
But times have changed, and circumstances have changed. Change is a good thing, and good politicians adapt to it. That's why we've changed our approach to the earnings link, and that's why we're going to restore it. We're taking action because it's vital for Scotland and Britain. Means testing is like a supertanker speeding in the wrong direction. We have to turn it around. By linking the basic state pension to earnings rather than prices, we will take a million pensioners off the means test over the first four years of our government. This would provide an extra 7 pounds per week for a single pensioner, and 11 pounds a week for a couple, over and above the increases generated by inflation.
Not a bad start, I'm sure you'd agree! But we need to do more, and Conservatives will do more. Because while we're taking care of today's pensioners, we need to make sure we're taking care of tomorrow's as well. So the next three points on our action plan offer people better incentives to save.
At present, when a person with a private pension scheme reaches the age of 75, that person must buy an annuity. No choice, no discussion. They have to buy one, even if they don't get a good deal. This is illogical. So we'll abolish that requirement. As long as that person has an income high enough to avoid a means tested benefit, they will no longer be forced to buy an annuity. After all, if we can't start treating people like adults when they're 75, when on earth can we?!
Thirdly, we will look at introducing a Lifetime Savings Account. We realise that there are problems with existing incentives to save. They can be overly complicated, and people consider the prospect of their money being tied up for decades unattractive and inflexible. The Lifetime Savings Account would be simple, working on the basic principle of "buy one, get one free". As a person adds money to the account, the Government adds it too. And if a person needs to access that money, for home repairs or for starting a business or suchlike, they can, and as long as they do not take too long to replace it, the government contribution would largely remain intact for use on retirement. Its innovative and it would work.
Point four of the Conservative pensions action plan is the introduction of a longevity bond. One of the reasons why final salary pension schemes have become increasingly unattractive to employers is because people are living longer. The longer ex-employees live, the more expensive it becomes. This is the "longevity risk". With the aim of increasing participation in a pension scheme, we would look at a bond linked to longevity, thereby shouldering some of the risk which currently sits on employers.
The fifth point is a very simple, straight-forward way to increase participation in company pension schemes. At present, companies cannot promote their own pension schemes to employees as they are not registered to provide financial advice. So an employee working for a company with a great pension scheme may not even know it exists. This is ridiculous. And we'll ensure it changes.
Point 6 commits us to scrapping Labour's limit on pension savings, above which tax penalties are incurred. As long as all employees in a company are entitled to the same terms, from the Managing Director to the tea lady, then the government should not be setting an artificial limit on their savings.
Still on the subject of company pension schemes, we will encourage employers to assume that people want to be involved in their pension scheme. Many people simply haven't got round to joining a pension scheme, or don't realise they have to. So instead of having to opt in to the scheme, we believe they should have to opt out.
Finally, we would take action to help the tens of thousands of people who have lost their entire company pension savings because their company has become insolvent. There is an inherent unfairness in a system where people diligently save, yet are left with nothing. We will look at using the unclaimed assets in financial institutions to rebuild the funds of these wind-up victims. People need to be confident that it pays to save.
Ladies and gentlemen, times are changing. Pensioners are changing, and their needs are changing too. People are living longer, retirement is becoming longer, and it is a much more active time of life. Today's pensioners want to make the most of their lives - they want to travel, meet people, spend time with their grandchildren. We recognise this. And our 8 point action plan will restore the dignity and security which our pensioners deserve.
This is not a debate which should be taken lightly. This is about respect for our pensioners. It's about recognising the contribution they have made to our country. They have raised families. They have run businesses, provided jobs and created wealth. They have paid taxes all their lives to help others, in the belief that they too would be helped in their time of need. They have fought for, and won, the liberty of our island against the onslaught of the second world war. Thousands of their generation died for us. They have been the bedrock of our nation and our society through changing, and sometimes uncertain times.
It's time to take action to give them something back. To take action to reward them for a lifetime of service to their country. And take action to restore their security. And their dignity.
It is action which only the Conservatives will take.