Vera Baird (Redcar): We cannot address the issue of future pensionersthe subject of today's debatewithout considering current women pensioners. As the Green Paper, "Simplicity, Security and Choice: Working and Saving for Retirement" says, women pensioners have far less income on average than male pensioners. The average is £153 for a single woman, compared with £194 for a man.
Sadlybut, it appears, soundlythe Green Paper concludes that much of the improvement in the position of future female pensioners will come from labour market improvements, higher employment rates and better pay. It records rightly that there has been progress in both the latter elements. About 70 per cent. of women between 25 and 34 are working, compared with 52 per cent. in 1979. The proportion of women returning to work after having children has risen to almost 70 per cent., and thanks to better child care options and better maternity and paternity provision, the impact of having children on a woman's working life can be less overall.
Since the Labour Party came to power, the employment rate among lone parents, who are predominantly women, has risen above 50 per cent. for the first timea great achievement for such a hard-to-reach group. That has not only taken many children out of poverty and encouraged a phalanx of women who might well have not done anything at all until much later in life; it has started to make the point for much of the working population that having a child need not be a bar to outside work or learning.
The minimum wage has increased the pay of about 700,000 women, and working tax credit makes work pay for about the same number of women who are main earners. That is progress indeed. However, there is a high rate of female part-time employmentabout 45 per cent. according to the Green Paperand that is at ages that reflect the fact that women still take primary caring responsibilities, which is bound to have an impact on their future pensions. There are other differentials in gender working patterns; there is segregation into poorer paid work, and there is still some sex discrimination.
About 40 per cent. of women have a weekly income of £100 or less. Full-time male earnings are on average twice those of women, and when part timers are included, women's average wages are £200 a week less than those of men. Given the Green Paper's thesis that much improvement in pensions will come from improving the labour market position of women, it accepts, on that clear evidence, that
I do not feel very sanguine about that, and I doubt that this progressive Government truly do, either. The Green Paper says "some years to come"; how many years? How much further can rates of participation in employment be increased by better paternity pay and more child care? One may guess that that would, at least for the next few years, be the faster rising curve than pay.
The Fawcett Society, to which I am indebted for much of the information that I will use this morning, has calculated that, at current rates of pay change, it will be another 80 years before there is equal pay for women and men. That means that we should tell our daughters who are coming up to working age that, although they are sugar and spice and all things nice, they are also doomed to poverty in old age. It means also that we should tell them to tell their daughters, who will start work in about 2025the year that I predict Brooklyn Beckham will sign for Real Madridthat they, too, will retire poor. Our great-granddaughters will start work in 2045, the year that weor rather they, by thencelebrate the centenary of Paul McCartney's birth. We should tell them that in retirement they, too, will be poorer than their brothers.
There will be yet another generation after that where women will be poorish, because only women who start work after 2083 will do so on equal pay for the whole of their lives; and they will still have to participate in the labour market for 50 unbroken years on the Beveridge model to get a pension equal to that of men. My great, great-granddaughter might then get what my mother thought she had got in 1970equal pay, according to the Green Paper. Some 50 years later, women might get an equal pension. That is the miserable prognosis, unless further special measures are taken to improve women's interests.
I want to consider a few possible measures. I make no bones about the importance in my thinking of the campaign, "Make Pensions Work for Women", that is being conducted by the Fawcett Society and Age Concern. I make no apology for the fact that many of my proposals are familiar to the Minister. I want to know whether she can cost them, and make it clear whether they are being favourably received in Government, as they are increasingly supported far and wide as the campaign grows. If they are being received well, what action can we expect? If they are not, what alternatives do the Government have in mind? I do not want my great, great-granddaughtershe might be called Vera the Fifth in a more dynastic familyto be the first Baird after me, with my adequate parliamentary pension, to benefit from a good pension. We cannot leave it to higher employment rates, better pay and labour market factors.
I acknowledge that the entitlement of the younger generation to the basic state pension is set to increase, albeit at a time when the value of that entitlement is falling relative to general living standards. Government projections suggest that by 2025, 99 per cent. of women will have some entitlement with an average amount of about 89 per cent., although the Department for Work and Pensions has made slightly less positive predictions.
The first proposal that would help would be to replace home responsibilities protection with a system of carers credit. HRP is little known about and fairly difficult to understand. It supports women who are off work caring for their children. However, it works to reduce eligibility
In place of that confusing system, surely there could be a single system, perhaps called the carers credit, although, to distinguish it from our successful tax credits, perhaps it should be called a carers national insurance premium. That would actively recognise and support all forms of caring by providing credits. It would operate in a consistent way across the basic state pension and the second state pension, and reflect today's reality of changing status throughout the year, allowing individuals to combine entitlement based on earnings and caring. Such a system is crazily long overdue. We talk about motherhood and apple pie, as if that defines everything that is desirable and good, and I am not advocating credits for baking, but it is long overdue that we stop penalising women who are off work caring for their children. The rigidity of HRP penalises people for motherhood.
As long ago as 1989, I worked on a case in the judicial side of the House of Lords, which, hon. Members might find hard to believe, is even more conservative than the legislative side. Their lordships accepted the importance to the economy of having proper provisions in labour and benefits law for motherhood and supporting women when they are off work. Even though those depths of conservatism have been penetrated for more than two decades, we do not have a proper way of supporting women while they fulfil that important role.
I cannot imagine that such support would be expensive, because it would be a rationalisation rather than fresh provision, and it would ensure better accrual of pension rights. I would be interested to know what the costs might be. A poll conducted by the Fawcett Society showed that 78 per cent. of people of both sexes thought that those caring for children should qualify as carers for the full pension, which shows clear support from both men and women for such a step change. A further advantage of recognising all forms of caring through a credit is that it would become possible to consider whether a state credit could be used in a non-state pension scheme. I will return to that.
The second potential help to accelerate the process of increasing fairness in pensions would be to reconsider the level of the lower earnings limit and ensure that women fully understand its impact. In 200203, about 1.4 million women and 500,000 men
Research published by the Equal Opportunities Commission in 1998 found that 63 per cent. of people with earnings below the lower earnings limit have dependent children. If the position is similar now, that means that about two thirds of those with earnings under the LEL are building up entitlements to basic pension, but they will qualify for the second state pension only if they have children under the age of six. Further EOC research concluded, worryingly, that both employees and employers colluded to keep earnings below the LEL. Presumably, employers want cheap labour while those on such poor pay do not want to pay out the national insurance contribution. However, it is clear that they are seriously damaging their future rights by colluding in that way. It is obvious that more information is needed, but structural change would probably be advantageous and, again, not very expensive. At an absolute minimum, those working 16 hours on the minimum wage could and should be building up pension and benefit rights.
We also need to consider those who earn more than the LEL through a combination of part-time jobs. The most practical way of doing that could be a system that gives individual employees the option of declaring earnings from a number of jobs to contribute to their benefits.
I have never truly understood the 25 per cent. or its point. It means that to get any state pension, someone has to qualify for at least 25 per cent. of the full pension. Women with fewer than 10 years of full contributions receive no pension at all. That seems unfair and unnecessary, and there can be little argument against the abolition of the rule as soon as possible.
I have already mentioned the state second pension. It is clearly difficult for many people with low or no earnings to build up a privately funded second pension, so the S2P provides a valuable role in second pension provision. The Government should be congratulated on that good move. However, eligibility criteria mean that S2P does not provide sufficient coverage for those on lowish earnings and those with caring responsibilities or disabilities. The range of options that I have mentioned improves coverage, but additional issues include the rate of accrual of S2P.
S2P was introduced in April 2002, and it seems that it will take about 40 years for someone to build up a full S2P entitlement. It provides income of about £1 a week pension for one year of contribution. Again, I am indebted to the Fawcett Society for that calculation. It will be many years before in its current state S2P has any real impact on women's income levels. Can the date at which S2P would be fully in place be brought forward by introducing greater rates of accrual for those currently contributing?
If the current pension model continues so that the minimum income guarantee and the pension credit remain linked to earnings while S2P and the basic state pension remain, broadly speaking, linked to the retail
I have already indirectly alluded to an anomaly that would not be very expensive to change. Again, I should be interested to hear how the Minister sees that. HRP for the basic pension covers caring until a child's 16th or 18th birthday but S2P rules recognise only time spent caring for a child under the age of five.
I return briefly to the possibility of any carers credit or carers national insurance premium being portable. If carers credit were introduced, it would allow for an actuarial calculation of its value and, along the lines of a national insurance rebate, could allow for the possibility of payment of that value into alternative pension vehicles.
Although many women are best advised to remain within the state system, caring has an impact on earnings for all women regardless of the pension system they join. It is particularly important to consider this as recent reforms in maternity leave mean that, while employers will be obliged to continue making pension contributions through the six months of ordinary maternity leave, coverage will be discretionary for the six months of additional maternity leave. Consideration should therefore be given to adopting a carers credit that is portable across schemes and takes the form of a rebate calculated on an actuarially fair basis.
As I understand it, and again I look to the Minister to help me with this, the Government's policy is to try to encourage people to move from S2P into a privately provided pension. The Government as a whole are keen to shift the current financing of pension provisions from 60 per cent. public and 40 per cent. private to the other way round. In that policy context it seems particularly important to look for a way for credit carers to move into a private pension scheme, or they will remain perpetually disadvantaged.
There is much to be said about the lack of "well-funded" defined contribution schemes, particularly in the sorts of jobs that many women have. Many women do not have the career progression that enables them to gain most from final salary schemes. More information about the advantages and disadvantages of different types of types of scheme for women with different working patterns would be helpful. How would schemes based on career average revalued earnings compare with the more common type of defined benefit or defined contribution scheme?
The Government have said that they intend to introduce a reform to the current vesting rules. More women than men leave work before two years because of family pressures, and they are then entitled only to what they have paid in and no more. That could and should be changed relatively quickly. Because of different overall
of pension providers. If more people take out stakeholder pensions, and the move from defined benefit to defined contribution occupational schemes continues, more women will rely on annuities. Will the Minister consider re-examining annuities? Distinctions can be drawn about life expectancy across socio-economic classes and geography, but those factors do not feature; only gender is taken account of in annuities, and that is a major problem.
The Government must try to address the problem, primarily because we must encourage women to provide for themselves. They are much less likely to do that unless the pension system enables them to receive a fair return for their money. It is difficult to make women consider paying into their own pension schemes. The Fawcett Society polling found that women do not invest in pensions, and that, even if they were given an extra £100 a month, only about 10 per cent. of young women would put that into a pension. One in four of them would spend the money on children, or already existing debts, so little is the importance of provision for the future appreciated. That is also testament to how hard up a large number of women who have to consider future provision are.
I have made a raft of requests, with which I hope the Minister will help, at least in terms of information, but perhaps also in terms of movement or progress. However, I could not end without saying that it is clear that, since being in office, the Government have done a great deal for pensioners generally, and female pensioners in particular, and I exhort them to realise that there is still a great deal to do.
Mr. Steve Webb (Northavon): I congratulate the hon. and learned Member for Redcar (Vera Baird) on securing the debate and on the diligence with which she has pursued women's pensions issues. This is not the first debate that she has initiated on the subject, and we all note the authority and rigour with which she puts her case. I hope that the Minister will respond with factual answers on the costs of some of the proposals.
Like the hon. and learned Lady, I congratulate the Fawcett Society, Age Concern, the Equal Opportunities Commission and others on trying to bring women's pensions to the fore. The Liberal Democrats have been involved in that effort, and, until we read the Green Paper, we regarded it as a success that the Government had included a chapter on women's pensions. Then we realised that it was a list of the problems, with no solutions offered. The hon. and learned Lady proposed some detailed responses, and I will discuss those before stepping back and examining the big picture of women's pensions, in particular younger women's pensions.
Of the detailed proposals that could make a difference in the short term, replacing home responsibilities protection with positive credit is an attractive idea. Home responsibilities protection reduces the number of years in which one has to have contributed, but does not put a year's contribution on the books. A carers credit would have that effect. It seems odd that we reward motherhood by giving a year off of the "sentence"a year in which it is not necessary to contributebut we do not think it is good enough to count as a year's worth of work. A year spent stacking shelves in Tesco, for example, would lead to a year's pension entitlement, but a year spent bringing up a young child would not. Those are not the values that we should espouse, so I think that a carers credit is a good proposal.
The hon. and learned Lady pointed out the problem of the lower earnings limit. Sixteen hours work a week on the minimum wage should entitle someone to a year's pension right, although 16 lots of £4 something is not far short of £75, or whatever the lower earnings limit is. Conceptually that has to be right. However, 16 hours' work a week is the definition of full-time work used in various parts of the system. If 16 hours' work at the minimum wage does not get a person pension rights, something somewhere is wrong. I absolutely accept that. The cost of addressing that must be pretty minimal, but it would be interesting to hear that from the Minister.
The hon. and learned Lady makes a good point about multiple part-time jobs that do not reach the lower earnings limit individually, but reach it collectively. If somebody earning enough over the week to reach the lower earnings limit is doing enough hours to be deemed to be working, it is arbitrary that the system does not give that person pension rights because they work in two places instead of one.
What the contributory system tries to determine is whether a person is a worker. As I shall remark more fully in a moment, the arbitrariness is born of the fact that the national insurance system is focused on the model of the male full-time breadwinner; it still has not recovered from that model. The 25 per cent. rule is also arbitrary, as the hon. and learned Lady says. I guess that that is supposed to be a proxy for whether a person was a worker or not. However, why should a person get pension rights for having paid contributions in 26 per cent. of years, but not for having paid contributions in 24 per cent. of years? That seems a pretty arbitrary cut-off.
I agree with the hon. and learned Lady that there are a lot of arbitrary features in the national insurance system in relation to the basic state pension that are hugely detrimental to women relative to men. Many of those features could be addressed relatively straightforwardly, to the benefit of women in particular.
The hon. and learned Lady started to get to the core of the problem when she pointed out that the accrual rate of the state second pension is so excruciatingly slow that it will take 40 years to build up and that, even when it has built up, a full basic pension and a full state second pension will not be enough to lift a womanor a manabove the pension credit level. She asked
The critical point is that even if we could make all those tweaks, those desirable small changes, and get women full entitlement to the basic pension and to the state second pension, that would still be rubbish. A full basic pension and a full state second pension are not worth having if a person still ends up on pension credit. In that case the pension credit, not how much basic pension or state second pension a person has, determines a person's income in retirement. The value of the basic pension and the second state pension entitlement becomes irrelevantcertainly for most womenin a world where two thirds of pensioners are means-tested or income-tested.
The fundamental point that must be addressed is that the state system will always be critical to women, particularly if women continue to take career breaks and have lower post-career break salaries. As the hon. and learned Lady says, regrettably, that may continue to be the case for a long time to come unless effective action is taken. Yet the Government's strategy is to link the basic pension and the state second pension to the prices index and to move to a world in which the contribution of the state to income in retirement falls from 60 per cent. to 40 per cent. So the two bedrocks of income and old agethe state pension and the second state pensionare being devalued every year relative to average earnings, and the state contribution to income in retirement is falling from 60 per cent. to 40 per cent. at a time when the pensioner population is rising.
The tweaks to the system that have been outlined might result in marginal improvements, but unless the big picture is sorted out, women will get gradually better percentage entitlements to pensions that are not worth having. That does not seem a good long-term solution to the problem. The hon. and learned Lady illustrated effectively and cleverly the long-term nature of the problem. Pensions and pension reform have a huge legacy problem. Peoplewomen, in particularare reaching pension age with pathetic pension entitlements of pennies a week because of a system that was designed in the 1940s and the fact that they earned most of their entitlements in the 1970s under rules that treated women as dependants of their husbands. Even though such attitudes no longer prevail, they will probably take two generations to work their way out of the pension system. There are women todaygranted, not manywho pay the married woman's stamp. According to the Government Actuary, more than a million women in their fifties have at some point paid the married women's stamp and are heading for inadequate pensions.
My concern, which to an extent echoes the hon. and learned Lady's, is that we must recognise the urgency of addressing the issue. We cannot say that we will let it work its way through the system gradually. When I criticise the state second pension for its poor value and the fact that it takes 40 years to build up, the ministerial reply is always, "Well, new pension schemes take 40 years to bed in. We cannot bring in a pension scheme overnight." However, as the hon. and learned Lady pointed out, we could introduce a pension scheme in less than 40 years, by accelerating the accrual
I cannot help wondering why, rather than make the detailed, complex tweaks that we have debated so far, we do not simply say that national insurance in its present form has had its day and that national insurance is now about exclusion, not inclusion. The panoply of national insurance contribution rules is about how we can keep people out of pension entitlements. Those rules say, "If you're a man on a decent salary or a woman on a decent salary, you're in; if you're a mother, you're half in or half out; but if you're low paid or you do irregular work, you're out."
I understand that national insurance includes 90 per cent. of the work force and excludes 10 per cent., most of whom are women. Why do we have a complex system of rules and regulations, accounting for pages and pages of legislation and billions of pounds in administrative costs, that are all about excluding a small number of people, predominantly women? Why do we not change to a citizenship-based entitlement to pensions? We could not do that overnight, because we would suddenly end up paying every married woman over pension age a full pension, which would be extremely expensive. However, rather than plugging this gap and that gap, trying to spot one group and changing the rules for another, why not say that from D-day, or from tomorrow, people will build up a year's pension rights each year that they are a citizen? There would be issues about immigration and what we meant by "citizen", but we could sweep away all the questions about how many hours someone worked, how many jobs they had, whether they were above or below a particular earnings limit and whether they had home responsibilities for part of the year. That would constitute a huge simplification. If people accrued a year's pension rights as citizens, that would benefit women hugely. That is the direction in which we should go.
The hon. and learned Lady mentioned annuities, and properly so. I am intrigued by that point. I have been somewhat sceptical about unisex annuities, simply because they involve an actuarial calculation in a market. If the Government want to achieve redistribution, they should do it through the state system, rather than by trying to tweak a market, which only reflects the fact that the same pot of money has to last longer. However, the hon. and learned Lady made the valid point that we allow annuities to discriminate on the basis of gender, when other, arguably much more powerful, differentials affect what should be actuarially fair annuity rates for male manual workers in Glasgow and male executives in the home counties or whoever. Annuities tend not to discriminate much on those grounds, yet we allow them to do so on the ground of gender, which is perhaps on average a smaller distinction. I may return to that issue, and I am grateful to the hon. and learned Lady for making that point.
The Government could tackle another issue about the way in which annuities act to the detriment of women. Many women in defined contribution schemes end up with small pots of money, but pension providers are not interested in small pots of money,
The Government could offer a sort of National Savings annuity product that is not necessarily a best buy in the league tables, but that offers the guarantee that however small someone's pot of money, they will be sold an annuity, perhaps at a market average rate. The state would not be in unfair competition with the private market. The state would simply say to anyone, but typically a woman, who came along with a £5,000, £15,000 or perhaps £10,000, "We will guarantee that you can buy a pension at a decent rate of return." The rate would not be chart-topping, but it would probably encourage women to feel that it was worth saving, because they would get better value for money for their annuity. The Government could probably deliver that with economies of scale, whereas private providers think that it is not worth the bother to provide such products and do not have to do so anyway. That would be a small change, and the Government could discuss whether National Savings could offer such a product, which would be beneficial to women.
Divorce is another big issue for younger women when it comes to pensions. The historical model was that women did not need pensions because they would rely on their husbands'. That attitude is changing, but it still exists in the system in many respects. A woman who brings up children and separates from their father may have trashed her own pension rights and have no other rights because of divorce.
The antidote to that problem is individualised pension rightsa system based on the individual rather than on inherited rightsbut it will take a long time to introduce, as we cannot do away with survivors' benefits in the short to medium term. The system must be structured so that each individual builds up good rights, which is another reason why mothers with caring and other responsibilities should build up a substantial pension in their own right and not have to rely on the pension contributions of their husband, who may become their ex-husband.
The Government have legislated for pension splitting on divorce, but few cases have gone through, although that is not a criticism of the legislation, which had all-party support. In practice, I know what most women with children who split up from their husbands would choose when given the option of taking the house, the car or the pension. It is difficult to rely on derived pension rights from a male partner. More must be done to ensure that women have their own pension rights.
We must act in the short term. Age-related additions to the state pension would be hugely pro-women, because most poor and elderly pensioners are women, and because age additions to the state pension are not contributions-tested. Whereas the level of state pension depends on one's contribution record, and women in
Joined-up government is needed to tackle the matter of young women's pension rights. While we are having this debate about what women might put into their pensions, another arm of Government is about to introduce top-up tuition fees. That is absolutely central to the discussions about how much women can afford to save. A typical woman student will graduate with a debt of £20,000 and she will not have much disposable cash, if any, to put into a pension. It will take her a generation, until she is well into her 40s, to pay off that debt, especially if she has children, and she might fancy moving out of the parental home before then. However, she will be told that the state will do less and she is expected to do more to provide a pension.
How are those factors to be reconciled? It is beyond the scope of this debate, but in my judgment tuition fees must be tackled. Young people, especially young women, who graduate with huge debts will have no spare cash to save for a pension in a future in which the state provides less40 not 50 per cent. Who will fill that gap? I am heartened to think that the Minister will tell the Department for Education and Skills that it is undermining her Department's goal of persuading more people to save for a pension, and that the Government will change their thinking on the matter.
The Liberal Democrat approach to these matters is to argue for a simple and substantial state pension system, which will gradually free people from the contributions rules and benefit women, and which will be supplemented by compulsory contributions from those who are in a position to make them. As I said, that will be difficult if people have huge debts, but if that problem can be dealt with, compulsory contributions would pick up women in particular, because many men are already members of occupational schemes by dint of their employment. I am talking not about women on the lowest incomes who have not got the spare cash for pension saving, but about women on higher incomes. If compulsory pension saving was phased in, so that people could get used to the idea, such women would build up pension rights in their own name, so that they were neither dependent on their husband or potential ex-husband, nor wholly dependent on the state. Instead, they would have a foot in both camps, which would bring them greater security.
The big picture is that if the state pulls back from universal pension provision, that will be a problem for women, because private pension provision is, almost by definition, earnings related. It reproduces and carries into retirement the inequalities in earnings that are present in the work force. The heavier our reliance on the private sector, the more detrimental it is to womenfor as long as women are at a disadvantage in the labour market. Rather than just plugging the
Mr. Nigel Waterson (Eastbourne): I am delighted to have an opportunity to take part in this debate. I normally declare an interest on these occasions, because I have some private pension provision but, given the title of the debate, perhaps I do not need to do so.
I congratulate the hon. and learned Member for Redcar (Vera Baird) on initiating the debate. It is the second such debate that she has secured this year. I assume that that is because she feels that last time the Government's response was inadequate. As the same Minister is responding today, we might hear a bit more.
Vera Baird : The earlier debate was about women and pensions generally, and principally covered current pension recipients. Nothing was inadequate about the Minister's response on that occasion, and neither will there be today.
I join the hon. and learned Member and the hon. Member for Northavon (Mr. Webb) in commending Age Concern and the Fawcett Society on their campaign. The problems of women pensioners are familiar to me not only as a constituency MP, but as a Front Bencher and co-chairmanwith you, Mr. Deputy Speakerof the all-party group on ageing and older people.
This issue will not go away. As the hon. and learned Lady graphically pointed out in her excellent speech, single women are among the poorest pensioners in the land, and they make up the majority of the pensioner population. The reasons for that are fairly obvious and boil down to five basic causes. Women have a longer life expectancy than men, although that gap is rapidly closing; they are more likely than men to take on caring responsibilities, and therefore to take time out of the labour market; they are more likely to be low paid or working part time; the welfare system has historically been geared to men's patterns of lifetime earnings; and the welfare system has assumed that women would be able to rely on their husbands' pensions to support them in old age. We live in a fast-changing society, and a lot of those assumptions are no longer valid.
What are the Government doing to address the problem? I assume that one of the main features of the pension credit that is now in operation is that it tackles not only the problem of all poor pensioners, but of women pensioners whoas we have establishedare
Mr. Waterson : I was about to explain why it has got off to a shaky start. There are two major criticisms of the pension credit: it is complex and there is a problem with means-testing. We know that the poorest pensionerswomen are often to be found in that categoryare precisely those who tend not to apply for means-tested benefits. I do not think that anyone can gainsay that. Mervyn Kohler, the head of policy at Help the Aged, has described the byzantine complexity of the new system.
At departmental questions the other day, the Minister, perhaps in a slip of the tongue, described as a target the 1.4 million pensioners who it is assumed will not claim pension credit by 2006, albeit they are entitled to it. Her fellow Minister referred to that 1.4 million as a planning assumption. Either way, the Government are working on the basis that 1.4 million pensioners will not get around to applying for pension credit. A large number of poorer women pensioners must be included in that figure.
Let me deal with the Minister's assertion that pension credit has got off to a good start. The Department announced the other day in a great blaze of glory that 1.9 million pensioner householdsaround 2 million peopleare receiving pension credit. However, the reality is that a large percentage of those people were already on the minimum income guarantee. They have been transferred by a flick of a switch from one to the other. Only about 100,000 households have signed up as new claimants to the new pension credit. The Minister is not in a position to gainsay that. Nevertheless, if she wants to deal with that in her concluding remarks, it would be helpful. I stick by my earlier comment: the pension credit has got off to a shaky start.
Women outnumber men as members of occupational pension schemes and will be even more affected than men by the collapse in the occupational pension system. The Government have been too slow in tackling that problem. Their own measures are likely to be subject to the law of unintended consequences. Some hon. Members may already have seen "No Nest Egg", a recent publication by the National Consumer Council, which describes the chilling results of research into the attitudes of young consumers to pension provision. The high levels of distrust of the financial services industry and of the Government shown by young people, and their disenchantment with the subject of pensions, will come as no surprise to many of us. We are seeing a whole generation of young consumers and workers who are simply not interested in making their own pension provision. However, according to the conclusions in "No Nest Egg", they might be receptive to new saving mechanisms that appear more relevant to their needs and situations.
Mr. Webb : I have always been slightly hazy about how that lifetime savings account would work in one fundamental respect. The hon. Gentleman said that people would be able to take money out if they wish. Could he clarify the position of someone who takes their money out and who ends their lifetime with a lifetime savings account with nothing in it? Would that person be able to claim the full range of benefits because they have no income?
Mr. Waterson : The hon. Gentleman rightly refers to one of the practical questions. That is why we are consulting widelyin the industry and elsewhereon the proposals. However, the basic concept will form part of our next election manifesto and will have particular relevance to women, whose provision is, after all, the subject of the debate.
The hon. and learned Member for Redcar made the point very well that at present there is an unfairness in the value of annuities for women, although perhaps that is balanced by the fairness of them living longer. We would like to encourage the use of unisex annuities, which would certainly be of benefit to women. We have also said that we would legislate so that there would be no absolute requirement to purchase an annuity, whereas the Government have set their face against that.
Maria Eagle : The hon. Gentleman referred to the law of unintended consequences. Has he thought whether such a law might apply to making annuities unisex? If so, how does he intend to deal with some of the unintended consequences that might follow from unisex annuities?
Mr. Waterson : The pensions world is one of unintended consequences. The Minister is not in a position to quiz us on our proposal unless the Government start to take seriously the genuine unfairness to many peopleincluding a number of my constituentswho feel cheated because, having worked and saved all their lives, they get a miserable return on the annuity that by law they must purchase when they reach a certain age.
The main issue in the debate is that of the state pension. Age Concern and the Fawcett Society have waged a strong and effective campaign on that issue. They are at one with the Conservative party in wanting to eliminate means-testing as far as possible. In their joint report, "Simplicity, security and choice: working and saving for retirement." they state:
That is why my party has recently announced that it wishes to restore the earnings link for the state pension over one Parliament, and to roll back the means-testing and the complexity that often deters people from claiming. We know that the take-up of the state pension is, as near as makes no difference, 100 per cent. However, we know that many pensioners do not claim many other benefits, either because they are put off by the complexity or because they do not wish to go down the demeaning road of means-testingto go cap in hand to the Government and answer a lot of intrusive questions. I suspect that the pension credit will be no exceptionindeed, the Government's figures reflect that assumption.
Our proposals would have two other benefits. As well as significantly increasing the basic state pension over a four-year periodby £7 a week for a single person and £11 a week for couplesthey would take 1 million pensioners off means-tested benefits by 2006, thus restoring the dignity of pensioners which the Government are threatening. The proposals will also do much to reverse the disincentive to save that is a result, unintended or otherwise, of the Government's policies.
Maria Eagle : The hon. Gentleman began his remarks by talking about how poor some single female pensioners are. Does he accept the figures produced by the Institute for Fiscal Studies that indicate that the proposals that he has just outlined will cost poorer single pensioners, many of whom are women, £9 a week?
Mr. Waterson : No, I do not accept those figures because they make certain assumptions that I do not think are valid. We want to ensure that all pensioners get a better deal, and we are particularly keen for women pensioners to benefit. I am firmly of the belief that the proposals will do a great deal for the poorest pensioners, a large proportion of whom are women, as the hon. and learned Member for Redcar has rightly made clear.
Vera Baird : Does the hon. Gentleman feel able to list what the Conservative Government did during their lengthy period in office for women pensioners, who were much poorer then than they are now? He has ample time to tell us that listit will not take him very long.
The single most important thing that the Conservatives did for all pensioners, particularly women, as is shown by the figuressome of which, in fairness, the hon. and learned Member for Redcar quotedwas to encourage the massive expansion of occupational pensions. By the time we left office, our country was the envy of the rest of Europe because of that growth. One reason why women are beginning to catch up in the pension stakes is because of occupational pension funds. The Labour Government
To conclude, it seems that the reason why the hon. and learned Lady had to have another debate on this subject only a few months after the first is, as I said, that the Government's and the Minister's response last time was inadequate. Let us hope that since then the Government have given more thought to the serious issues raised, particularly by Age Concern and the Fawcett Society. Let us also hope that the Government will start to recognise that, as the hon. Member for Northavon said, simplicity in pensions is the ultimate answer to poverty, whether it affects women or male pensioners.
The Parliamentary Under-Secretary of State for Work and Pensions (Maria Eagle) : First, I congratulate my hon. and learned Friend the Member for Redcar (Vera Baird), not only on her success in obtaining the debate, but on the care that she has taken and on her detailed analysis. Even though there is more time than expected in which to conclude this debate, I fear that it might not prove possible for me to deal with every point raised, although, of course, I will do my best.
I cannot promise to satisfy the hon. Member for Eastbourne (Mr. Waterson), who appears to think that we are having this debate because of an inadequate former response. My view is that the Fawcett Society, Age Concern, and those such as my hon. and learned Friend, who have raised the subject on more than one occasion, do so simply because this is a vital issue with many facets and aspects. It cannot be dealt with in 30 minutes or an hour and a half in Westminster Hall. It is absolutely appropriate that the issue is returned to time and again, and it is appropriate that my hon. and learned Friend, who has shown an assiduous and detailed interest in the issue, should have come to this Chamber on more than one occasion to discuss various aspects of it.
Vera Baird : Did it seem to my hon. Friend the Minister that the hon. Member for Eastbourne (Mr. Waterson) talked about pension provision in a general sense, only tacking on women at the end of what he said from time to time as an afterthought? Is that at all typical of the Tory party's attitude to women?
Maria Eagle : I hear what my hon. and learned Friend says, but I do not wish to be particularly ungenerous to the hon. Gentleman, who was not present at the previous debate and is relatively new to his Front Bench duties on this subject. He is walking into an extremely complex set of issues, problems and interrelations that no one can hope to master in a short period. However,
I was grateful that my hon. and learned Friend fully accepted the progress that has been made by the Government. It is easy for those who are passionate about advancing the interests of women, in particular with regard to pension provision given the potential problems, to forget to say, "Well done," or "Keep at it." There has been progress, and I was grateful that she took the time to deal with that, and to say, "Well done" where she thought that progress had been made.
My hon. and learned Friend still made several sharp and significant criticisms, and I shall deal with some of them. She would acceptcertainly she has done in the pastthat pensions policies are time capsules. The hon. Member for Northavon (Mr. Webb) fully accepted that. The current distribution of income in retirement, if we consider today's pensioners, is inevitably a reflection of pension policies past. As much as we, as new Ministers, want to bound into office and sweep everything away to start anew, that is perhaps least possible when it comes to pension policy. What we have at present is a reflection of past social mores and social policy, and past assumptions about society and gender roles. We must bear that in mind as we consider how to deal with the issues raised by my hon. and learned Friend.
My hon. and learned Friend, the Fawcett Society and Age Concern have rightly perceived the unequal position of women in income distribution among today's pensioners. The figures that my hon. and learned Friend quoted from various sources show that the average man earns £194 a week, and the average woman earns £153.
If I had to encapsulate what my hon. and learned Friend said in a couple of sentence, I would say that her main concern is primarily that, without further change to pensions policy, the gender gap in retirement will continue. She said that it will continue until Vera Baird the FifthI did not realise that she was of such grand lineage, but I should have done. Those who are of working ageshe talked about her daughters, granddaughters and great-granddaughtersmight face the same problem that we all perceive in the current distribution of income.
I want to provide hon. Members with some reassurance by detailing in part how some policy changes that we are implementing will help to tackle the problem. I mercifully have a little more time than usual, so I also want to respond to points made by others.
I shall briefly set out what we are doing to help women of working agethose who we are talking about in today's debateto have better pension provision. I shall take a broad-brush approach, for which I make no apology because it is important first to take a quick look at the framework. Employment is key to ensuring that the private or occupational side of provision can be made more adequate. We are helping women gain employment through the new deal, which makes work possible, and which has so far helped more than 200,000 lone parents overcome the barriers to working life that child care and being alone with children can present.
We have also helped to make work pay through the tax credit, and put additional resources into child care to help remove one of the major barriers to work for lone parents and women who have caring responsibilities for children. That was acknowledged by my hon. and learned Friend and others, although not by the hon. Member for Eastbourne. We have one of the highest levels of female participation in the labour market in Europe: 70 per cent. and growing.
We are helping women improve their future pension provision by use of the state second pension and the introduction of stakeholder pensions. The stakeholder pension is a low-cost, flexible and portable option, which was not previously available. Its introduction plugs a gap that excluded all but full-time working women from a sensible occupational private pension option suitable to their needs. Its impact should not be underestimated.
The state second pension will revolutionise the pensions position of lower-paid workers, many of whom are women, carers or disabled women. About 5 million such people will build a second pension provision, worth at least twice as much as that provided by its predecessor, the state earnings-related pension scheme. Seventy per cent. of the beneficiaries will be women and a further 2.5 million carers will have access to the same pension rights as those who have been earners. That measure is wholly equitableI was pleased that my hon. and learned Friend recognised that it is particularly good for womenyet the Opposition, the party of the hon. Member for Eastbourne, are pledged to abolish it. That policy, on which he did not concentrate so much, is a particularly pernicious part of a wholly anti-women policy recently announced by the hon. Gentleman's party.
In addition to removing the beneficial impact that S2P represents over timeI realise that there are some points about how longthe Conservative party's policy would affect women in other ways. It would abolish the new deal for lone parents, which is the main, most effective means of helping women who have to look after young children, into the labour market. The new deal policy has seen participation in the labour market by young women with children above 50 per cent. for the first time. It seems to meI do not lay this at the door of the hon. Member for Eastbourne but at his party'sthat Conservatives have decided to restart their war on lone parents, 94 per cent of whom are women, after we thought that they had called a truce. They have spread that war to all women, rather than just lone parents. The hon. Gentleman does not accept the figures from the Institute for Fiscal Studies on how the policies that he outlined would penalise in particular the poorest single pensioners. I would be interested to know what assumptions he thinks have been made that are wrong; no doubt he can write to me on that.
The Government are helping existing pensioners through the pension credit, which provides a reward for having saved, as well as a guaranteed minimum income to top up help to those who need it most. That means an average extra payment of about £400 a year, most of which goes to those who need it most at the poorest end of the income scale, many of them women. Although that policy leaves pensioners £1,250 a year better off on average, the poorest are £1,600 a year better off. That is
Mr. Waterson : The Minister's target is the 1.4 million pensioners who are not claiming pension credit, although they are entitled to it, including about 2,000 of the poorest pensioners in Redcar, for example. How many does she think will be women?
Maria Eagle : The hon. Gentleman has misunderstood. The Government's aim is for all pensioners who are entitled to take up the pension credit to do so. Claiming it is significantly simpler than claiming minimum income guarantee was. All it requires is a 20-minute phone call once every five years. Most pensioners can manage that. To encourage take-up, there is a provision to enable face-to-face interviews, including home visits, for those who cannot make such a phone call. I refute the assumption that the number of people whom we want to ensure as a minimum are entitled to claim pension credit represents some sort of ceiling. Of course, it does not. My hon. Friend the Minister for Pensions has made it clear that he would like to see 100 per cent. take-up; so would we all. If Opposition partiesI do not so much blame the Liberal Democrats for thiswould stop characterising a 20-minute phone call once every five years as akin to the Poor Law means test, we might have a better chance of ensuring that people were not put off from claiming. Some of the comments that we received from people who have claimed have been extremely complimentary, and that is as it should be. We want to make claiming easy, and we want people to claim their entitlement and enjoy the full effect of having done so.
Equally importantly, we are also improving pensions information to ensure that individuals are aware of their own pension position, rather than just having a general awareness that saving for the future is good but not knowing what that means to them. It is critical that women have regular access to good information and can make plans about the level of income that they want and need in retirement. My hon. and learned Friend the Member for Redcar quoted a survey that found that only one in 10 young women who had extra income would put it into a pension. I sometimes think that that is a reflection of the selfless nature of many women. My hon. and learned Friend suggested that it might have something to do with being hard up, and I am sure that an element of that is involved. There is no doubt that if women get extra money, they like to spend it on the kids.
The Green Paper consultation indicated strong support for making informed choice a reality. In its response, the Equal Opportunities Commission commented that evidence suggests that women have lower awareness of pensions than men and endorsed the need for greater awareness among women. That backs up the survey evidence that my hon. and learned Friend read out to us in her speech.
As a Government, we are committed to making a success of the balanced approach of both targeting state support on those at the poor end of the income scale and developing the right framework and information for individuals to make informed decisions about further
We are also working through the employers' taskforce, with human resources and employee benefit specialists, to develop a strategy for encouraging the wider use of communication tools such as the total benefit statement. When women take a break from work, the automatic pension forecast should ensure that they still have the information that they need to plan their retirement. We hope that with the flexibility of measures such as stakeholder pensions, which were designed with women's employment patterns in mind, they can make contributions when not working. That will mean that when women take a break from work, it does not necessarily mean that they take a break from pension contributions.
I shall deal with some of the points that have been raised in the debate. I hope that Members will forgive me if I do not get through them all, but I will do my best to answer the main ones. I will start with the points made by my hon. and learned Friend, whose debate this is.
My hon. and learned Friend referred to home responsibilities protection and the lower earnings limit, but she started by talking about the pay gap. As a woman, it is always difficult to read about the pay gap, because we know that our female colleagues may suffer from it. When the Equal Pay Act 1970 was passed, the gap stood at about 37 per cent. Since then, it has closed to about 18 per cent, and although that is still a major gap, it is significantly less than it was.
The gap is influenced by a range of different factors, many of which are outside Government control. Men and women still make different choices about who cares for children, and we do not want to interfere with that. Families must make such decisions, and we do not want to take action that will end up penalising particular choices. The latest Office for National Statistics figures suggest that the pay gap has narrowed during the past year by a further 1 per cent. to its lowest level since the 1970 Act, so progress is still being made. The figures show that women now earn 82 per cent. of men's earnings, despite the fact that they work on average three and a half hours less a week. Average female wages rose by almost 3.5 per cent. while average male wages rose by just over 2 per cent. The hourly wagethis reflects the minimum wageof the bottom 50 per cent. of women rose by 3.5 per cent., the comparable male figure being 1 per cent. Progress is still being made.
My hon. and learned Friend also referred to home responsibilities protection and the inflexibility of some of the rules such as the 25 per cent. rule, the fact that it goes from April to April and that it represents a year off the sentence, as the hon. Member for Northavon rather depressingly put it, rather than a more positive year's credit. It was introduced in 1978 to help to protect the basic state pension for people whose opportunities to work were limited because of care and responsibilities at home. It is salutary to realise that it is not until then that caring for children at home was recognised at all in the credit system of national insurance. That shows those of
In any event, HRP helps millions of women who receive child benefit for a child under 16 and who are not doing paid work to have their responsibilities at home recognised in some way in the system. It also helps women who are caring for a person getting attendance allowance and disability living allowancebut not carers allowance as there is a different system for thatto get some credit for their work. It works by reducing the number of qualifying years rather than by crediting, but it means that a woman can get a full basic state pension if she has 20 years of qualifying years and 19 years discounted through home responsibilities protection. It can provide significant assistance.
The complexity of the system and the fact that people do not always understand it is not necessarily a bad thing. We do not require people to work out their own entitlement to basic state pension, or we would all be in trouble. That is one of the reasons why I do not take too seriously the comments made about the alleged complexity of pension credit. We do the calculations. We do not require those who benefit from it to do the calculations but simply to phone us. There is no evidence that people are missing out on the chance to protect their pension in this way. I know that my hon. and learned Friend did not so much allege that as suggest that the system could be improved.
Credits are slightly different. They are intended to protect benefit entitlement for people who are unable to work rather than to provide a recognition of those who have some shorter-term care and responsibility at home that might extend over a number of years. Credits are intended to protect benefit entitlement for people who cannot work for short periods due to circumstances outside their control, perhaps illness or disability. There is a difference between the longer-term nature of home responsibilities protection and the shorter-term nature of credit.
My hon. and learned Friend asked whether we could have a carers credit. We take the position of carers seriously. If one looks at the social security system since the war, it is clear that only more latterly has the role of carers been recognised in the welfare system. It was only relatively recently in benefit terms that carers allowance was even introduced. There are improvements through the state second pension, which my hon. and learned Friend recognised in respect of the requirements of pensioners. I will come on to the accrual rate in due course. There is certainly more recognition of the needs of carers in state pension provision in the state second pension.
We have also extended home responsibilities protection to foster carers for the first time. While that is a small issue, it is particularly important to foster carers. That builds on the existing help that is available through home responsibilities protection.
Mr. Webb : Is there not an issue of principle about how much value society places on different activities? After a week of shelf stacking at Tesco, someone has built up a full pension right. If someone spends a week caring for an elderly relative, they build up a year's full pension right. However, if someone spends a week with
Maria Eagle : It is not. The hon. Gentleman is assuming that the system was established at one time and in a coherent way, but he knows that it has not been. Things have grown up for different purposes over different periods, and consequently there can be incompatibilities and differences between them that do not necessarily reflect a conscious decision to take one thing more seriously than something else. I think that the hon. Gentleman is aware of that.
I move on to the point made by my hon. and learned Friend about unisex annuities. It was also raised by the hon. Members for Northavon and for Eastbourne. The Fawcett Society has suggested that unisex annuities should be considered. My hon. and learned Friend was particularly exercised by the fact that gender discrimination was allowed in annuities but that other types of discrimination were not. The hon. Members for Northavon and for Eastbourne expressed an interest in this, although I think that the hon. Member for Northavon was less convinced than the hon. Member for Eastbourne, who called for unisex annuities.
I made a point to the hon. Member for Eastbourne about the law of unintended consequences. There is a concern that introducing compulsion into unisex annuities could result in there being lower aggregate retirement incomes for the population as a whole, and in only marginalif anybenefits to women. Recent research by the Association of British Insurers suggests that that would be the case. It shows, on an actuarial basis, that the savings for women of purchasing a unisex annuity would be minimal. According to an ABI example, the sum would be about £3 a month for a woman with a typical pot of £10,000, and that any advantages would be far outweighed by starting to save a bit earlier. That suggests that we might do better by aiming our propaganda at enabling people to make informed choices, and at trying to get them to take savings more seriously earlier in their lives.
The consultation that we recently conducted revealed that insurers would be likely to respond to such a requirement by starting to collect new informationfor example, in respect of occupationwith which to segregate their customers, as an alternative to gender, and that that would not necessarily benefit women any more than would the straight gender information that they now use.
As is often the case in pensions, this issue is not as simple as it sounds with regard to both the analysis of the problem and the potential solutions. The Government do not want to spend their time in coming up with policy solutions that are circumvented by new proxies for gender discrimination, and for other things. I am sure that all Members agree with that. Therefore, we are not convinced, although it sounds like a good thing.
My hon. and learned Friend made a point about the state second pension applying to those with children under 16, rather than under six. There is an issue here. When home responsibilities protection was instituted, it was not generally the case that women with children went out to work. We are now trying to encourage such
The hon. Member for Northavon spoke about pension sharing on divorce. It is important that women get the full value of the partnership on the breaking up of relationships. Such circumstances are increasingly prevalent. We use the cash equivalent transfer value, which is a method of defining what the pension share should be. However, there is no easy answer. That method attempts to create the value of the benefits to which a member would have been entitled, had he ceased his service at the point at which it is calculatedat the point of divorce.
There is no way of knowing whether a scheme member might leave early due to a job change, go off to do something else, or retire early. This is, to some degree, a guessing game. There must always be a balance between achieving fairness when a divorce occurs and requiring employers, or scheme providers, to do ever more complex and administratively difficult calculations, which will increase the cost of the general provision of occupational pensions when we are trying to simplify and reduce the costs. Many hon. Members have talked about what is happening to occupational pensions. I think that there is some common ground between us on that matter. Putting more costs on to such schemes will not ensure better coverage or more access to schemes for young women.
The hon. Member for Eastbourne asked how we could persuade young people to become interested in pensions. If anybody has an answer to that question, I should be pleased if they would write to me as soon as possible and set it out in full. One of the conceits of youth, if I may put it that way, is that one is immortal and the last thing one needs to consider is pensions. If I had talked to any of my friends about pension provision when I was young, which was a long time ago, I would have been considered a pretty boring person. I suspect that most young people still feel the same way today. Getting people to save from an early enough age is one
This is a problem for us all. As the figures in the Green Paper show, there is no doubt that whether we are talking about young men or women, people do not start saving early enough for their retirement. If they started saving just a few years earlier, things would be a lot easier for them on becoming a bit older. Of course, they start thinking about that when the position is already not as good as it would have been if they had started sooner. We must try to tackle that problem by providing information and making savings easier and more flexible. However, there is no sensible, ready-made answer that will definitely work if we just apply it.
I realise that we are running a little short of time, but I want to deal with some of the points my hon. and learned Friend made about the lower earnings limit, and awards on credit to people with earnings below that. The current system of credits relies on clearly identifiable triggers. To deal with earnings below the lower earnings limit would pose administrative and evidential difficulties. Evidence of earnings at lower levels may not readily be available, so there would be a problem with verification.
My hon. and learned Friend said that it would be desirable to extend the state pension to those earning below the lower earnings level, but our current basic state pension system is based entirely on the contributory principle. That raises the question about whether it should be a contributory benefit. I am sure that the hon. Member for Northavon, who proposed his citizen's pension, would agree with me about that. We must protect the contributory principle and administer it fairly to all those who are in it, or would like to be. The contributory principle has underscored our basic state pension provision for as long as it has existed. Moving away from that to any great extent would create much wider problems than the small issue to which my hon. and learned Friend referred. That is another example, perhaps, of the law of unintended consequences and of the fact that, when we talk about pensions, it is almost impossible to propose a simple solution to what often seems to be a simple problem. As we all realise, this is a complex, intergenerational and long-term matter to which there are no simple solutions.