Peter Viggers (Gosport) (Con):
Like my hon. Friend the Member for Grantham and Stamford (Mr. Davies), I did not approach the debate in a particularly consensual mood. I have a declared interest in relation to the pensions industry. Although the pension fund of which I am chairman is well funded and robust, it brings me into contact with a wide range of people in the pensions field, so I know of the distress and difficulty caused to them and to the employees of their companies by the difficulty in which the industry has been put.
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Currently, a large number of people can live with some dignity in retirementthe high proportion of people who retired on final salary pensions. However, I do not share the sturdy optimism that seems to permeate the Turner report and I fear for the future pensions of people in their 30s and 40s. The situation will deteriorate, and badly.
Why? I have heard some people simplistically blame the Chancellor of the Exchequer for the impost of £5 billion a year on the pensions industry in 1997, but that does not put things into the correct context. The causes of this massive crisisthe shortfall of funding in the pensions industryare more varied. The Association of Consulting Actuaries has estimated the deficit at £130 billion. That is a massive deficit and it is difficult to see how it can be overcome. Its first cause is longevity.
For continuous mortality investigationCMIactuaries normally use the mortality tables of the 92 series, which means that they are basing mortality estimates on the period from 1991 to 1994. They will not be using the 00 series, which covers 1999 to 2002, until much later; indeed, that series will not even be published until the late spring of 2006. The difference in projecting tables forward is dramatic. Forward projections using the 92 tables, making the assumptions on which the 00 tables are basedeven those are not fully up to datewould be that a 60-year-old man in 2006 would live to between 85 and three quarters and 92 and three quarters, with a central assumption of 88 and three quarter years. That is one and a quarter to eight and a quarter years more than the previous central assumption of four and three quarter years. In case anyone writes to me after the debate saying that the sums do not add up, I point out that they are actuarial figures not arithmetical ones. The numbers are dramatic and they throw out of gear most of the previous calculations.
The second cause of the shortfall was stock exchange weakness, which has led to a rush into gilts. The gilts yield has gone down, thereby increasing the problem of covering projected pension costs, because of asset liability modelling.
Thirdly, FRS 17 accounting standards have caused companies to include pensions in their general accounts. Fourthly, the ACA says that the increasing regulation and cost of pension fund administration causes a considerable burden. Fifthly, there is the unreality of final salary schemesdefined benefitsand unsustainable benefits. To a certain extent, we all lived in a fool's paradise in the 1980s and 1990s, failing to realise that the aspirations of those who were due to retire could not be sustained.
Finally, there is the Chancellor of the Exchequer, who in 1997 failed to see the weakness of the pensions industry and kicked the patient downstairs. A range of measures were taken in the 1997, of which the then Financial Secretary said,
In fact, the Chancellor of the Exchequer imposed a £3 billion charge on pension funds and actuaries took account of that; they factored it in and adjusted their figures accordingly, so £3 billion a year has been taken out of the pensions industry since 1997, which has caused this massive crisis.
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What are the problems to be faced? First, my hon. Friend the Member for Runnymede and Weybridge (Mr. Hammond), who spoke from the Front Bench, made the fair point that the Chancellor of the Exchequer must accept that the solution to the pensions crisis will cost public funds a great deal of money. When I first became involved in the pensions industry, I used to take a factor of 18 to multiply the amount that would be needed to generate a pensionso to generate a pension of £10,000 a year, for instance, one would need a fund of £180,000. Now I take a factor of 24 to 26. It would take £240,000 to £260,000 to generate a pension of £10,000 a year. There is no such thing as a cheap pension.
Secondly, I agree with my hon. Friend the Member for Grantham and Stamford (Mr. Davies) in saying that, having considered the matter carefully, there is no alternative to compulsion. I cannot understand how we can succeed in persuading enough people to go in for the amount of pension that is needed without compulsion. That leads me to the third point: incentives or means-testing.
A couple of days ago, we who serve on the Treasury Committee had before us witnesses who gave evidence about the corrosive effect of means-testing. We were told that means-testing does not really have much effect on savings, because the people involved in means-testing would not bother to save anyway. In fact, means-testing has a corrosive effect, and we cannot continue with the present rate of means-testing. The percentage of pensioners on means-testing is now rising well above 50 per cent. and approaching 60 per cent. That is totally unsustainable. We must therefore have incentives.
The next point is defined benefits, and I accept with reluctance that defined benefits are now dated. It is most unusual for someone to start with a firm and stay with that employerunless it is the public sectorfor two or three decades. I therefore accept that defined contributions are the logical way ahead, but it is also a fact that employers have tended to put 12 to 15 per cent. of employees' wages into defined benefit schemes, whereas the amount going into defined contributions schemes will be much lower6 to 7 per cent. or thereabouts and sometimes as low as 4 per cent.
The fifth point that we must face is the private-public gap. It is natural for those in the public sector to wish to hold on to their pension advantages and their great advantage of having the benefit of early retirement. Ministers have made much of the fact that the public sector will save £13 billion from adjustments to the age of retirement; but, in fact, that is a £13 billion adjustment between people who are fortunate enough to be on the escalator of earlier retirement and those who are unfortunate enough to come in later. That is most unfair.
My sixth point is the Pension Protection Fund. I recently attended a meeting with the regulator, David Norgrove, who was very charming, competent and capableI wish him wellbut the massive burden that the PPF will impose on business has been widely misunderstood and underestimated. It will be a major problem, and the classification of companies, which will cause some to pay many times more than others, will cause immense disadvantages and difficulties. It will
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drag down bad companies and, finally, it will drag down good companies. I fear that, in the medium term, the PPF will impose a burden on private sector companies that is simply not understood at the moment.
In summary, I accept the main thrust of the Turner commission. First, I agree that there should be a new earnings-related provisionit should be privateand I would not rule out the national pensions savings system. I suspect that such a system might well change its spots and evolve into something very different with time, so it deserves study. Secondly, the state pension must be reformed, with a consequent reduction in means-testing. Thirdly, everyone, including the Chancellor of the Exchequer, must accept that public expenditure on pensions will need to rise. Fourthly, the pension age must be addressed and, I think, raised. We need to face up to our problems. We need to be frank and open about the numbers and the problems, and I submit that Ministers have not always done so. We must encourage informed debate. That is the democratic way.
Vera Baird (Redcar) (Lab): The Government have recognised, in a way that the previous Government simply did not, that women suffer from serious pension inequality. I fear that nothing has changed because the hon. Member for Runnymede and Weybridge (Mr. Hammond), who opened the debate for the official Opposition, made not one single proposal for the 51 per cent. of pensioners who are women. Indeed, the only time the word "woman" crossed his lips was when he suggested that we should all profit from the fact that from 2020 women will work until they are 65. Women will not have missed the significance of that.
Much praise has been lavished on Lord Turner, which I share, but I want to mention another member of the commission, Jeannie Drake. She played a key role in ensuring that women's difficulties with pensions were analysed with the intellectual rigour for which she is well known.
Only 17 per cent. of women pensioners receive the full basic state pension of £84. The average woman receives £50, but that statistic hides the many women who have given a lifetime of service, such as Jennifer, who is my worker in Redcar. Jennifer was in full-time nursing and then cared full-time for two children, who are now highly productive citizens who have been nurtured exactly as we would want. She was then in part-time nursing and now she works part-time for me. For her lifetime of service, she has a basic state pension forecast of 28p a weekindex link that. No wonder the previous Secretary of State but oneI hope that I have got the numbers rightcalled the situation a national disgrace.
If the basic state pension is a platform on which to build with one's savings, a lot of women are starting with something that is better characterised as a dark hole. That happens because the Beveridge system, which is in its dotage, or at least in serious need of multiple limb replacement, gives credit only for full-time paid work. Attempts to help women and carers have worked in only a half-baked way. Home responsibilities protection gives a sort of credit for every year that a mother is out of work and child rearing, but if she works for one week and earns more than the lower earnings limits so that she pays one national insurance
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contribution, she loses the whole credit and thus gets one contribution instead of the 52 that would be received under HRP. Two part-time job wages cannot be added up to bring a woman into the lower earnings limit so that she can make a contribution. If one wage is below the LEL, she can receive no credit. Many women in my constituency work as dinner ladies at lunchtimes and in convenience stores at night. Although they might work for 40 hours or more a week and look after kids as well, they get not a single credit towards their pensions.
Carers who look after people who are ill or old get a credit towards their pensions only if they serve someone who is getting disability living allowance for 35 hours or more a week. If they care part-time for up to 34 hours a week, they get no credit at all, irrespective of the damage that that does to their ability to work. Those situations show why the position of many women is so poor.
Women represent most pensioners, so let us face it for once that we must look at women first as a priority because if we get the situation right for them, we can get it right for everyone else. Labour market changes mean that 85 per cent. of women are likely to qualify for a full basic state pension by 2030. That figure is insufficient in itself and it hides many people such as Jennifer who do not want to work full-time because they want to concentrate on their children. Those people will never be ersatz Beveridge males in the form of modern females, so changes to the labour market will not put the problem right.
There is no doubt whatsoever that Opposition Members criticise means tests because they fundamentally do not know about poverty. They do not understand how many people in my constituency are now living an acceptable life, but did not do so in their pensionable years before the pension credit came into play. Of course the basic state pension is the important platform and it must be elevated, but I am worried that although the Conservatives say that they would make the basic state pension better by index linking it, they would do so by uncoupling the pension credit from index linking. That would lead to women watching a basic state pension that they did not receive going up while the pension credit on which they were dependent was going down because it would be linked only to prices. They would thus go back into poverty.
The Government now appreciate these problems and I am pretty satisfied that they are working hard to try to reconfigure the partial credits and the pension system so that more women and carers can be brought on to the basic state pension. That would mean that their caring was put on a par with working, which would be the right modern model. By making those adjustments, the Government will probably bring 95 per cent. of people into the basic state pension. My right hon. Friend the Secretary of State raised the question of affordability. The remaining 5 per cent. who will fall through the cracks of the improved credits will probably be poor, and will have be supported by the pension credit in any event. Does it make sense to undertake an elaborate reconfiguration of complex credits, or is it better to bring everyone into the basic state pension on the basis of residence? We would not sacrifice the contributory principle, as the hon. Member for Grantham and Stamford (Mr. Davies) suggested. I agree that people should get something for somethingand not something for nothingeven if that is a matter of
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perception rather than reality. The contributory principle can continue in connection with the second tier of the basic state pensionthe S2P. However it is configured, it can play a part in such an arrangement.
Turner's realisation that the pension should be paid to individual men and women is overdue. I want the rewards of my caring, my working or my residency to be paid to me. I do not want one pension to be paid to my husband, along with a 60 per cent. pension that is my entitlement as a dependant. That is an outdated model of womanhood that no one wants and which works only for the diminishing numbers of married people. As a woman, I pay a full national insurance credit, and I receive a full basic state pension. A married man pays national insurance credit, just like me, but he receives 1.6 pensions, which is a double inequity for women. In addition, increasing numbers of unmarried women receive only the poor basic state pensions that I have set out.
I applaud Turner's attempt to bridge the gap and help the poor make up for past poverty with his suggestion that we institute a universal basic state pension for everyone over 75. That excellent proposal will make up for past failures to some extent, but women will still suffer. If the Turner model is introduced in the two ways that I have set out, women who are halfway through their career would not receive credits for their past caring and part-time work. In future, they would be credited on residential grounds, but they would receive only half a pension because they would not be credited for their caring under the current rules. If those parts of the Turner report are implemented, it will be necessary to attend to those middle-aged women or a large number of female votes will be lost.
This is a short debate, and mine is a small contribution. If there were more time I would talk about the need for an enhanced state contribution to the excellent and redistributive S2P. If we get basic state pension credits right, and if the criteria become residential, women who are carers will, almost by definition, be low-paid and less able to save, whatever improvements we make. They need more help from the tax system if they are to be able to save on top of their basic state pension. They need the help from the tax system which top earners receive but simply do not need. That, however, is a debate for another day. Women's state pension position is the last bastion of institutionalised sex discrimination in this country, and I hope that the White Paper will announce that it will change very soon.