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Finally, in the
White Paper the Government also acknowledge that there is an issue over
changing life expectancy, so they have quite properly built into their
projections on how the pension age will rise in future a series of
review dates, to check that those rises in
pension age still make sense. If they do not, those review dates will
inevitably be an opportunity for instability, for this pensions
consensus to fracture and for the debate to be
reopened.
Those are just three examples of potential issues on the horizon that could lead to instability over the lifetime of this consensus. I am sure that all here would agree that if we can see three or four of those today, the chances are that there are several dozen more that we cannot spot that will almost certainly crop up unexpectedly during the course of the next decade or two. Therefore, I urge the Government to consider mechanisms to reduce that uncertainty—mechanisms to build stability and durability into this consensus so that we have fewer opportunities to reopen the debate, and so that the pensions consensus has built-in stabilisers that will allow it to ride out any changes, or most of the changes, that we can reasonably foresee.
Let me give some examples. How do we ensure stability and consensus? The weakest way of doing that, I am afraid, is what I can see in the White Paper, and that is to try to establish a pensions consensus today. That, on its own, is no mean feat and I am not trying to downplay that achievement. It is a vital and necessary part of achieving a proper pensions settlement for a generation. However, it is not enough on its own because future generations of MPs will inevitably come up with new ideas and have the urge to reopen the debate, doubtless for genuine and valid reasons.
So what else do we need to build into today’s consensus to allow that settlement to ride out the years? There are a couple of examples elsewhere. Sweden has a balancing mechanism—it is effectively a mathematical formula that allows its state pension system to adjust automatically for changes in national growth rates and longevity rates, and for other external macro-economic shocks. It is probably not perfect, but it does mean that when something comes up that might otherwise fracture that consensus, the system adjusts automatically. The debate can be reopened, but it does not have to be. The system has a built-in stabiliser.
I offer that as just one example for the Government to consider, perhaps in relation to longevity and retirement age, where establishing some principles, and potentially even a formula today, might very well allow the system to ride out some shocks in future. In fact, the Minister for Pensions Reform was at a meeting that I attended this morning where a member of the Turner commission urged him to do something similar to that to establish some principles that would guide future generations. I would argue that in fact we could go a step further than that and build a formula into the Government’s published proposals today.
Another
alternative is one that we can pluck from one of the ideas suggested by
the right hon. Member for Birkenhead. I am not signing up to all his
proposals, but one of his ideas is to have an independent board of
trustees, which he models on the governors of the Bank of England, that
is at arm’s length from the Government, that is independent and
that is charged with commenting on and maintaining the consensus and
the settlement that has been established today. We could build that
into the role of the trustees for the NPSS. I am not trying to tell the
Government how to do it—all I am saying is that if
they can establish an external, arm’s length body of experts who
have access to high quality analysis and have a duty and obligation to
comment on any proposed changes to the pensions settlement, they will
be a vital item of ballast and a way to ensure that the debate in 10 or
20 years’ time does not diverge from the central principles that
we are setting out today, or if it does so diverge, only does so for
the very best reasons and because it is founded on solid
analysis.
Those are just two or three possible examples—
Danny Alexander: The hon. Gentleman makes an important point about the need to have a stable and enduring consensus, rather than simply creating one now that then has the opportunity to fall apart after subsequent elections. Does he agree that one of the merits of some sort of independent commission, which he is discussing at the moment, is that it would also help to build public trust in the consensus because lack of public trust in the pensions system is one of the biggest problems that we face?
John Penrose: I agree that lack of public trust in the pensions system is one of the biggest problems thatwe face, and a degree of external comment by acknowledged experts might very well help build up trust. It is crucial to remember that if we believe that the proposals in the White Paper are worthwhile—there is a fair degree of unanimity on many aspects—valuable, and should stand the test of time, let us not sell them short. Let us instead build in stability, durability and mechanisms to ensure that they last, rather than simply trusting to hope.
6.48 pm
Mr. Russell Brown (Dumfries and Galloway) (Lab): It is a pleasure to follow the hon. Member for Weston-super-Mare (John Penrose). I say that because those who can speak in this Chamber without notes are to be admired. I hope to be here until I am of pensionable age, and perhaps can match that on one occasion at least.
The pensions issue has an impact on almost every household and is of importance to today’s pensioners. The White Paper, “Security in retirement: towards a new pensions system” is very much about looking to the future and the pensioners of tomorrow. I hope that the whole House would agree on two aspects of pensions provision. The hon. Member for Weston-super-Mare mentioned one of them—the sustainability of anything that we introduce into the pensions system. It must be sustainable, as Members would not be prepared to accept the option of going back to the levels of pensioner poverty that this country has witnessed in the past.
Equally, on the second aspect,
Members have referred to what the Government have done for
today’s pensioners. There was much to be admired in the
introduction of the minimum income guarantee, followed by the pension
credit and the savings credit. Like many other Members, I have met
pensioner groups in my constituency. In all fairness, we get some stick
about what the Government have done, but many people in my
constituency—people from a solid trade union background and
people with roughly the same
political leanings as myself—do not always recognise how
redistributive the Government were in what they did for the poorest
pensioners. Nevertheless, although we have done some positive things, I
always admit that there remains much more to do.
I want to reflect on what has brought us to the current stage of unrest, uncertainty and disappointment. Occupational or works pensions are one important issue, and how some companies reached their current position is another. A significant number of final salary pension schemes have been closed. Speaking as one who worked for 23 years with a multinational company—or rather I was employed for 23 years, as working and being employed by a company are two different things—I witnessed what happened when it wanted to reduce its numbers. Of course, the big advantage was a good redundancy package, but an additional carrot was access to a pension scheme. The company I was employed by was not alone, as it happened right across the country during the 80s and early 90s. When people get early access to a pension scheme and people are living longer, it undoubtedly puts pressure on the schemes.
I have to say that the same thing happened in the public sector. As a councillor for 11 years during the days of Mrs. Thatcher, I experienced the squeeze on local government spending in the late 80s and early 90s, which was also pursued by her successor, John Major. Council departments across the country were asked to reduce numbers, but those who decided to leave were the people on high salaries with big pensions. Pension funds cannot sustain the sort of numbers that we saw moving out of the public sector, especially local government, over those years.
The Government are trying to put a message across about the importance of preparing and saving for old age. I regret to say that some of today’s pensioners send out the wrong message at our surgeries, although I understand why they feel angry. Irate pensioners sometimes complain about the couple down the road, neither of whom work and who are in receipt of pension credit, getting exactly the same money or perhaps even more than they do. The big argument then is whether it is worth saving for old age. The answer has to go out loud and clear from this Government from this Chamber that it is indeed right to prepare for old age.
The country is witnessing a significant demographic shift like never before. In my constituency of Dumfries and Galloway, it is projected that about 4,000 or 5,000 jobs will not be filled between 2012 and 2015, simply because people are growing older and more people are retiring in the area, while at the same time many young people are leaving the locality due to the lack of decent, well paid jobs.
That brings me
to my first point about the White Paper. I represent a part of the
country that is recognised as having a low wage economy. I believe
that, had it not been for the introduction of the national minimum
wage, we would still have wages of about £4 an hour in my area.
The minimum wage has made a difference, but it is still very much a low
wage economy. I applaud the concept of a national pension savings
scheme—or personal accounts, as they are called in the White
Paper—but we must not forget
those on low incomes. We really need to deal with the issue of how to
get over some of the problems of low earners. The most obvious barrier
to saving for many people is poverty and low income, as they have to
think about the necessities and essential spending. Saving for
retirement is not an option for those people.
More than half of all the households identified by the National Association of Citizens Advice Bureaux as having serious debts have incomes of less than £7,500 a year. More than 12 million people—about43 per cent. of the working population—are not saving enough in a private pension for their retirement. That figure is on the rise; it was only 36 per cent. in 2003. Currently, an estimated 7.5 million people are not saving at all and just under 5 million save only small amounts. Those on the lowest incomes—less than £15,000 a year—account for 3 million of those who are not saving at all. If personal accounts are to succeed for all employees, they will have to provide the guarantee of a state-backed pension scheme, so employers must contribute. Lord Turner’s report set out a model, but it would have been preferable if the Government had come out in its favour.
I have been a trade unionist for more than 30 years, so the Minister will not be surprised to hear that I greatly agree with the position of the TUC, which emphasises that a good scheme definitely needs to meet a number of criteria. Costs must be kept to a minimum, which can be done only through a simple system that minimises regulatory advice and marketing costs. There must be a simple default option available to all and it must make sense for the vast majority of NPSS savers. There must be other choices, but it is important to have a straightforward lifestyle option. Savers should have their own pot and should feel that it belongs to them. They should have representation in scheme administration and stewardship, as with trustee stakeholders. Employers should not choose NPSS suppliers for their staff as there are too many opportunities for mis-selling and it is a burden that employers do not want, although employers are free to do better with their own schemes.
Mr. Jim McGovern (Dundee, West) (Lab): Does my hon. Friend share my concern that if employers are given an opportunity to contribute just 3p in the pound to a pension scheme, that is exactly what they will do? In some cases, employers might end up contributing less in the future than they do now.
Mr. Brown: Yes, that will go on the record and I hope that any employers taking an interest in today’s debate will hear what my hon. Friend says. Any system must be able to cope with workers who frequently change their jobs and, of course, with disorganised, short-lived employers, as they are often called.
I have already briefly mentioned the issue of demographic shift, as it impacts on my own area. The figures show that when the state pension was introduced, there was one pensioner for every 14 employees. Today, there is one pensioner for only four employees. I therefore understand the reasoning behind raising the retirement age over time. However, we must acknowledge that longevity is not equal throughout the country. My hon. Friend the Member for Aberdeen, South (Miss Begg) referred to that.
Extended life expectancy, which is good news in some parts of the country, is not experienced in many others. I know from conversations with colleagues from Glasgow and other industrial heartlands that three score years and 10 is not an option for many of their constituents. Admittedly, lifestyle has something to do with not only early retirement on the ground of ill health, but early departure from this world.
My hon. Friend the Member for Bradford, North (Mr. Rooney), the Chairman of the Select Committee, was right to discuss what people would do in their mid to late 50s and beyond. There needs to be a general change in attitude and understanding of how those in the latter years of their working lives will be best employed. That will mean retraining and ensuring that opportunities exist for people.
The White Paper contained announcements for carers and women. The Department has carried out research that demonstrates that pensions are not high among women’s priorities, but that, thankfully, that will change. Women tend to be more concerned about their families’ short to medium-term needs than saving for their future, and feel that their partner should or will provide for their retirement. They rarely think of pensions when making child-related employment choices, and few would have made different life choices if they had considered their future financial position. I worry even now when I watch programmes and witness young people, especially women—some are in their mid to late 30s and are professional people—who openly admit that they have made no attempt to provide for their retirement. It worries me when people of that age group who work in the City and who, one would think, know better, have made no provision.
The word “consensus” is bandied about the Chamber too often. When I came into the Chamber earlier, one of my colleagues said that I had a weakness in that I made rash judgments about the Opposition. If that is my only weakness, I am delighted. However, I worry that “consensus” trips off the tongue nicely, and has done so more often since the main Opposition party appointed a new leader towards the end of last year. For me, the jury is still out on whether we will reach consensus in the Chamber on the issue that we are considering, or any other.
When we discussed the recent ombudsman’s report, the hon. Member for Runnymede and Weybridge(Mr. Hammond), when pressed by the Secretary of State about what he would do about it, refused to give a commitment and merely said that he would look to the future. Yet the hon. Member for Eastbourne (Mr. Waterson) said in response to my hon. Friend the Member for Ayr, Carrick and Cumnock (Sandra Osborne) that the Conservative party would consider unclaimed assets to deal with the matter. I believed that two Front Benchers would have given the same answer to the same question.
Consensus is needed, but perhaps not political consensus in the Chamber and the other place. Consensus is needed in the country because what we determine will affect everyone’s future and we therefore need to carry people with us. We do not need some sort of consensus that is discussed here, but does nothing more than blur the edges and allow people to say that we are all the same in any case. We are not all the same, and the White Paper is a genuine starting point for the future of the pensioners of tomorrow.
7.4 pm
Mr. Mike Weir (Angus) (SNP): As the hon. Member for Dumfries and Galloway (Mr. Brown) said, the word “consensus” has floated around the Chamber today. However, the Government’s view appears to be, “There will be consensus about our proposals or nothing.” That is the wrong place to start because there are differing views about the future of pensions.
We in the Scottish National Party and Plaid Cymru believe that the Government have flunked a golden opportunity to tackle the perceived problems of the state pension system. Although we talk about consensus, the right hon. Member for Birkenhead (Mr. Field) was correct to say that there had to be consensus outwith the House. The consensus there, certainly among the people to whom I speak, emerged around the idea of a citizens pension, although views vary about the form that it should take.
As has been said, the White Paper does nothing for current pensioners. Earlier, the Minister for Pensions Reform argued that the proposals are about the future, not the present. The hon. Member for Aberdeen, South (Miss Begg) also referred to that. I take that on board to some extent but, unless we tackle the genuine concerns of today’s pensioners, we are unlikely to achieve consensus. As the hon. Member for Runnymede and Weybridge (Mr. Hammond) said when he spoke about the problems with occupational pensions, the genuine grievances of some people and the fact that we continue to hear stories about the matter means that we will never get past that issue. The same applies to the state pension. If today’s pensioners feel strongly that their problems are not being taken on board, the same process will happen. Indeed, the National Pensioners Convention has already made the point that the White Paper does nothing for today’s pensioners and I understand that it will publish an alternative White Paper next week.
As I said, we greatly support a citizens pension, which we were the first to advocate, although others subsequently took up the idea. I suspect that we may be the last ones standing who continue to talk about it, given that the hon. Member for Yeovil (Mr. Laws) did not mention it. When the Turner report was published, initial reaction was that it advocated moves towards a citizens pension. However, on closer reading, it became clear that it did not take us very far down that road. Turner’s gradual approach meant that many years would pass before most people received a citizens pension.
Inadequate though those proposals are, the Government’s proposals do not even go that far. As I said in an intervention on the hon. Member for Aberdeen, South, the White Paper contains proposals that we greatly support and I shall enumerate some later if I have time. However, I want to consider the point that has been made repeatedly about the restoration of the link between pensions and earnings in 2012. That has been the spin on the White Paper since its publication, but I ask hon. Members to read its contents carefully.
The executive summary on page 17 states:
“During the next Parliament, we will re-link the uprating of the basic State Pension to average earnings. Our objective, subject to affordability and the fiscal position, is to do this in 2012, but in any event by the end of the Parliament at the latest. We will make a statement on the precise date at the beginning of the next Parliament.”
That could have been framed on Sir Humphrey Appleby’s office wall. It is not even jam tomorrow, but a statement that, if we have a good raspberry harvest and sugar remains at a low price, we might perhaps just find it possible to have some jam, but we will not say when. Hon. Members should note that the date on which the Government will make an announcement is nicely past the next general election. That does not give much succour to pensioners. Even if the Government implement that statement—I shall not dignify it by calling it a promise—it could be as late as 2015, not 2012. That is presuming that they win the next general election—they will not in Scotland but I cannot speak for England.
Even if the Government were to re-establish the link, it would do nothing to address the fact that pensions have fallen behind earnings since the Tories broke the link or to make up for the past 25 years, which is why a true citizens pensions is the correct way to deal with the matter.
Miss Begg: If by some strange miracle pigs were suddenly to fly and the Scottish National party were to obtain control of the Scottish Parliament next year and were to begin the process of disengaging Scotland from England, how long would it take to set up an independent Scotland, and how long would it take for the SNP to introduce its citizens pension? I suspect that those events would be much further in the future than 2015, even with a fair wind.
Mr. Weir: The hon. Lady will find out soon enough.
Two years ago, we published our own paper, “A secure retirement for all”, in which we set out our proposals for a citizens pension and the reasons why we believed that it was the correct way forward. Those reasons have not changed, and our solution remains the best way forward.
Despite what has been said about all that has been done for pensioners, far too many of our pensioners continue to live in poverty. The hon. Member for Aberdeen, South has mentioned many things that the Government have done for pensioners, and she specifically referred to the winter fuel allowance, but to put it into perspective, last week Scottish Power put up its charges by between 10 to 17 per cent., depending on the package, which is the third increase in a year. That one increase put up the average bill for a Scottish Power consumer to £131, which puts the £200 winter fuel allowance into perspective. The Scottish Executive have made good strides forward with their central heating scheme, but a central heating scheme is not much good if people are frightened to turn on the gas to use their central heating. Furthermore, many rural areas of Scotland are not connected to the gas main, so the central heating scheme does not do a great deal for people who live in those areas.
The current
pensions system is based on labour market participation, the effect of
which is to translate poverty during working lives into poverty in old
age. We all know that many women and carers do not receive the full
basic state pension because of their broken employment histories. The
Government proposals will begin to tackle
that problem, but they will still leave far too many people in poverty.
We should have the courage to take the bold step of true reform and
provide a state pension that delivers for all our pensioners. The state
must provide all pensioners with a decent minimum income in retirement
and take real steps to ameliorate the regressive effects of private
pensions for those on lower
incomes.
Whenever the matter is debated, the Government talk about the pension credit, as they have done again today, but why should our pensioners rely on means-tested benefits, which is the effect of the pension credit, for a decent retirement pension? The Government accept that the basic state pension is insufficient, which is why they have introduced the pension credit to increase pensioners’ incomes to a decent level. Under our proposal for a citizens pension, every pensioner would have a decent pension, which would be set at the current level of basic state pension together with the maximum level of pension credit. We would link the citizens pension to rises in average earnings from the start, rather than basing it on future uncertainties.
By introducing a citizens pension, we would ensure that all our pensioners are lifted out of poverty, that they have a decent basic pension on which to build and that they do not have to rely on means-tested benefits, which many of them will not claim. According to the National Pensioners Convention, 2 million UK pensioners, of whom about 200,000 live in Scotland, do not claim pension credit although they are entitled to do so. The citizens pension also has the distinct advantage that the current system is a disincentive to save since, in effect, those with savings lose out on pension credit, and unless one can afford to save a substantial amount towards a private pension, there is a disincentive to do so. The White Paper mentions research that shows that there should be an incentive to save under the current system, but if there is, it does not seem to be working. Many have seen much of their savings wiped out in the recent past, which has created a great deal of wariness and resentment among pensioners and those approaching retirement.
It is legitimate to ask—I am sure that someone will—how the citizens pension can be paid for. It can be paid for by utilising the amounts currently paid in basic state pension and pension credit and, crucially, reforming the current system of tax relief on private pensions. I cannot understand why the Government will not examine that proposal.
Miss Begg: I have heard the hon. Gentleman make this argument on a number of occasions. What would he say to the constituent to whom I spoke on Saturday, who complained about having to pay tax on her pension? I explained that the money was tax free when it was paid into her pension, but under the SNP proposal, that money would be taxed when it goes in and, presumably, taxed when it goes out.
Mr.
Weir: The point is to consider taxation on private
pensions. The system will change, whether we use our proposal or the
proposal in the White Paper. I am sure that the hon. Lady attended the
meeting this morning, where the hon. Member for Edmonton(Mr.
Love) specifically asked the representative from the Pensions
Commission about that matter. The
representative from the commission talked about the complexity of the
matter and the fact that many people have already received fairly
substantial benefit from tax relief on private pensions. Labour Members
often say that we must tackle the hard issues, and the hard issue in
this case is the amount of relief on private pensions.
This morning, Professor Hills from the Pension Commission explained why both Turner and the Government have rejected changes to relief on private pensions, which was the first thing that the Secretary of State did when the Turner report was published. We believe that that is short-sighted and that the correct way forward is to deal with the blatant inequalities in the present system. There is absolutely no evidence that the present system of pension tax relief encourages private savings, which is the object of the system.
We agree with the Government that we must do more to encourage private saving over and above what the state provides. That is why we are interested in the NPSS, which has a lot of merit and which I shall discuss in a moment, if I have time. The current system of tax relief on private savings costs a fortune and is massively geared towards the better-off. When we compiled our proposals in 2003-04, the economic cost to the Treasury in terms of tax forgone with this subsidy was an estimated £11.4 billion. In his report, Lord Turner points out that the cost of that tax relief is about £12 billion and that there is a further £8 billion in national insurance, which takes the total cost to£20 billion a year. In effect, that is a massive subsidy to private pensions, rather than using taxpayers’ money to provide a proper state pension.
Worse still, more than half of the total cost of tax relief on private pension contributions is received by the richest 10 per cent. of the population. Unlike spending on state pensions, which is being restricted, there are no restrictions on the total amount of private pension savings. It is high time that tax relief was reformed to become much more progressive and transparent. In particular, it should be aimed at encouraging and rewarding low and moderate income earners to save for retirement. By reforming that relief, those billions could be released now to fund a citizens pension.
Instead, the Government propose to raise the retirement age for the state pension, and Sir Humphrey Appleby would be proud of how this is described in the document:
“We will support and encourage extended working lives”.
That is a cuddly and innocuous way of telling everyone that they will have to work for longer, which is unnecessary.
The hon. Member for Dumfries and Galloway(Mr. Brown) has hinted at a specific problem caused by the disparity between various socio-economic groups and various areas of the country in terms of life expectancy, which can have a dramatic effect.
Let me take
just one example. A man in Glasgow has a life expectancy of 69.3 years,
while a man in Kensington has one of 80.8 years. At present, Kensington
man can expect pension payments of £65,728, which is nearly four
times that of Glasgow man, who can expect £17,888. That becomes
even worse once the age is raised to 68, when Glasgow man would receive
£5,408 while Kensington man would receive nearly 10 times more,
at £53,248. That is
manifestly unfair. At least Lord Turner recognised that there was a
problem in this regard and recommended that eligibility to pension
credit should remain at age 65, but even that has been rejected in the
White Paper. It seems that Sir Humphrey has been busy again, as
paragraph 39
states:
“We think that this is an issue that must be considered nearer the relevant time in the light of the available evidence about inequalities and life expectancy and trends in working among older people.”
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