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7 Mar 2003 : Column 1076—continued
Mr. Pound: I apologise for interrupting the grand, glorious stream of my hon. Friend's argument, but I felt summoned to speak on the subject of overweight Members of Parliament and appalling ill-health. Has my hon. Friend studied the December 2002 working paper by the magnificently named Continuous Mortality Investigation Bureau of the Faculty and Institute of Actuaries, which concluded that life expectancy is changing so rapidly that what was once a science is becoming extremely difficult to map? We get into dangerous waters on this subject, because life expectancy is varying so quickly that even the Continuous Mortality Investigation Bureau has had to recast its figures—the last time in 1999, and again as recently as 2002.
Mr. Dismore: My hon. Friend makes a telling point. Should he catch your eye later, Mr. Deputy Speaker, he will no doubt be able to develop his argument at length. There are so many factors in play that it is very difficult for insurers to set annuity rates. To add one more complication would make the job more difficult and
potentially threaten their solvency or put even greater pressure on the net annuity product, which in the end is what we should all be concerned about.Another factor that is taken into account is where people live. The hon. and learned Member for Harborough mentioned that people in Devon live longer than people in Manchester. That might have something to do with the fact that people often retire to the coast. The Country Life survey shows that Devon was the most popular county for retired people to go and live in, as opposed to Staffordshire—
Mr. Garnier: I hesitate to interrupt the hon. Gentleman, as I know that he is enjoying himself. I mentioned Somerset and Dorset, not Devon.
Mr. Dismore: We can check that tomorrow, but Devon definitely came first, and Somerset came second. I remember, because I was surprised to see that Yorkshire, my home county, was fifth or sixth. I always thought that everything was bigger and better in Yorkshire, and that Yorkshire would undoubtedly be No. 1—after London, of course.
Mr. Love: It was interesting that in the introduction to the debate, no mention was made of social class as a determinant of life expectancy. Perhaps my hon. Friend could tell us how important social class is in that regard.
Mr. Dismore: My hon. Friend is right. Socio-economic indicators are extremely important. Occupation is probably the principal determining factor. A miner who suffers from emphysema has a very short life expectancy, whereas a lawyer, or better still a judge, seems to go on forever.
Mr. Dismore: Indeed. Occupation is relevant not only to life expectancy for the calculation of annuities, but to the size of the pot that people are likely to have to invest. I shall come to that later.
Caroline Flint: Does my hon. Friend recognise that pensioners are the largest group of national health service recipients? It is interesting that the Bill not only seeks to reward the few against the many, but is being promoted by an hon. and learned Member who wants 20 per cent. cuts in public services. Undoubtedly, that would affect the NHS—
Mr. Deputy Speaker: Order. The hon. Member for Hendon (Mr. Dismore) will not deal with that matter.
Mr. Dismore: You are right, Mr. Deputy Speaker; my hon. Friend was entirely out of order and I certainly do not want to take that route, which might throw me off my stride and shorten my speech.
Mr. Bryant: My hon. Friend was addressing health inequalities according to class and their clear effect on mortality rates in particular areas. He also referred to miners. Mining constituencies have some of the worst mortality rates not only because men had to work in the mines, but because of all the other social and economic
factors that affect those areas. Does my hon. Friend think that more could be done to ensure that those people get a decent retirement?
Mr. Dismore: My hon. Friend is right. All I say to the hon. and learned Member for Harborough is that his Bill does nothing to help people such as my hon. Friend's constituents. Indeed, I suspect that most miners were in the miners' pension fund, which raises all sorts of arguments about surpluses. I also suspect that any who opted out and bought their own private pensions would be significantly worse off as a result of the hon. and learned Gentleman's proposals.
Lawrie Quinn: Has my hon. Friend had an opportunity to study some of the mortality figures from the recent census? I was horrified to see that mortality rates among women who live in coalfield communities are significantly higher than the national average. Does my hon. Friend agree that the workplace eventually shortens the lives not only of the men but of the women? They often had to clean the men's backs, and they also inhaled coal dust and had the same industrial disease visited upon them, which means that they have lost out in terms of life expectancy. Is that not a national scandal?
Mr. Dismore: My hon. Friend makes his point eloquently and I do not think there is anything that I can add. As I mentioned, when an insurance company sets an annuity, it takes into account variations in respect of where people live. My hon. Friend refers to precisely the sort of factors that are relevant. It is a question not only of whether people live somewhere nice beside the sea now, but of where they lived all their working-age lives and the stresses and strains relating to that area, their diet and so on.
I do not think that the action that the hon. and learned Member for Harborough proposes in trying to interfere with such arrangements will create a more favourable environment for insurance companies. He proposes stringent regulation of an industry that can currently offer diversity of service to its customers. If an insurance company wished to pursue his proposals, and thought it commercially viable to do so, it would be free to adopt such a policy. However, not a single company wishes to take that course of action. As a good free marketeer, I should have thought that the hon. and learned Gentleman would agree that that is one reason why his proposal is wrong. There is a good reason why a company would not adopt such an approach—it would go out of business extremely quickly, as it would not be meeting the needs of its customers, whether they were men or women.
Getting rid of the Sex Discrimination Act 1975 in respect of the provisions raises another issue—retrospection. The hon. and learned Gentleman's proposals are entirely silent about that. As I mentioned, I was with Equitable Life for 20 years. Others have been in pension funds for longer. Mercifully, I transferred out at great expense, but that is another story. When I joined Equitable Life in the late 1970s or early 1980s—I forget exactly when—I entered into the arrangements on the basis of the projections at that time. Obviously, we have since found that they were wrong for reasons that were not envisaged. Are we now to say that all the people who
entered into contracts on that basis 20 or more years ago should accept that those numbers have to be unscrambled and rescrambled to meet the requirements of the proposed change in respect of the Sex Discrimination Act, or is the provision intended to apply only to new insurance contracts that take effect 40, 50 or 60 years into the future?The hon. and learned Gentleman may not have thought through the implications of his measure in that respect. If it would be retrospective and apply to annuities paid for over the past few decades but not taken out, it would have major implications for people's lifestyle projections. Most people approaching their late 40s will start to think about the age at which they can afford to retire and what their annuity will be. We know that, in practice, people now have to work longer and retire later, but they start to think about such things as their 50s approach. They will have been making their contributions throughout their working lives on the basis of where they want to be when they retire.
We know from problems in the pensions industry that many people have to think about topping up their policies, whether they are endowment policies, life policies or whatever, because of the falling value of the funds. On that basis alone, people have to think about topping up their policies. Are we now to say to people not only that they need to consider topping up their pensions for those reasons, but that they have to top them up because of the redistributive effect of the hon. and learned Gentleman's Bill? Is he telling me that I must now put in more money not for my benefit, but for that of a woman whom I have never met? That is what his Bill implies, because it does not deal with retrospection.
Ms Shipley: Does my hon. Friend agree that poorer women in our society get pitifully low pensions, that even those with a moderately good income may still receive a very low pension because of career breaks and that, far from helping women in that regard, the Bill harms them?
Mr. Dismore: My hon. Friend is right; the Bill does nothing about that. There are many other things that we should be doing and I hope that the forthcoming work and pensions report will address some of those issues. As things stand, the Bill does nothing except perhaps add to the pensions myth by telling people that they will be better off than they will be. The hon. and learned Gentleman has issued a press release saying how wonderful things would be if the Bill were passed. That raises expectations, which is one of the problems that we face in the pensions industry these days. We should be doing entirely the opposite. We should be bringing people down to earth with a bang and saying, "Unless you start to put more money into your pension scheme, you will be in trouble when you retire." The hon. and learned Gentleman's Bill is a con trick; my hon. Friend's intervention was entirely correct.
The problem extends further, as it also affects insurers. Does the hon. and learned Gentleman suggest that a person's insurance provider should have to recalculate the figures and share out the money to ensure equality between the sexes? Under such an arrangement,
men might find that the projections of future pension provision, on whose basis they have been living their lives, were drastically wrong, while women in a similar position might find themselves better off. The proposals do not deal with retrospection or sorting out decisions often taken decades ago.The disincentive to save is another important aspect of the Bill. The Select Committee on Work and Pensions has been carrying out a detailed study of pension reform and we have heard a lot of interesting arguments from experts and from the Minister. Professors have given us a detailed analysis of why some aspects of the pension credit might be an incentive and others a disincentive. The matter became extremely complicated. I am sure that the hon. and learned Gentleman would have been entirely lost, bearing in mind how little information he has given us about his Bill today. None the less, I can be sure of this: if we tell a man that he can put a pound into his pension fund but will get back only 80p when he retires, while the other 20p will go into the pension of a woman whom he may never have met to ensure that she receives the same provision, for much longer, that will be a disincentive to save.
The fact remains that the Bill would create a serious disincentive to men that would deter them from providing for their future. In the end, the breadwinner, who even in this day and age is generally the man of the family, must make such provision. If there is a disincentive to save, he simply will not do so. A terrible confidence gap already exists, for the reasons that we have discussed, and it is already difficult to convince people that they should not live on credit but put money aside for their retirement. It will be much more difficult to persuade them that they should be putting away far more money if this proposal is adopted. It would achieve entirely the opposite effect and incorporate a huge disincentive to save.
I have come to the end of my first point on the Bill and now move to my second, which concerns the Bill's effect on the size of the pot. I repeat that the Bill is a con trick. Today's pensioners face much lower nominal annuity rates than did earlier pensioners. The expectation of low and stable inflation, incorporated in the bond yields underlying annuity rates, means that they face less inflationary risk. Their income will retain its purchasing power much better than has been the case in the past. Nevertheless, the perception remains that it is unfair for people to retire with annuity income based on rates half those of 10 years ago.
Research by the Association of British Insurers stresses the extent to which the determination of income in retirement is a two-stage process, encompassing annuity rates and pre-retirement investment growth. People retiring today face low annuity rates, but their pension funds will have benefited from high growth in equities in the period before they retired. The net effect of those countervailing forces is that, for a given level of contributions relative to average earnings, an individual retiring at the end of the 1990s has a higher income in retirement than someone who retired at the start of the decade. The coincidence of high pre-retirement growth and low post-retirement returns may not continue. Life expectancy is important in that regard and I will return to the life expectancy tables from the Library to illustrate that point.
Earlier, we considered the tables on the differences between the sexes on page 13 of the research paper. I want to use the same tables to consider the differentiation over the decades for each sex. In 1901, a man's life expectancy was 10.6 years, but the projections for 2021 show a man's life expectancy to be 18.1 years. In other words, male life expectancy has gone up by 7.5 years.
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