House of Commons - Work and Pensions

Select Committee on Work and Pensions Fourth Report

11 WORKING LONGER

402. It is important to draw the distinction between retirement age and pension age. As well as proposing in the White Paper to increase the State Pension Age, the Government noted that it planned "to take measures to support longer working, as set out in the publication A new deal for welfare: Empowering people to work, and consider greater flexibility around, and communication of, State Pension deferral."

403. Recent work by the OECD suggested that there were three key barriers to working at an older age:[496]

Financial disincentives (public pension rules, formal and formal early retirement schemes and few options for phased retirement)
Employer barriers (negative attitudes, high labour costs and strict job protection rules); and
Weak employability (obsolete skills, inadequate help for older jobseekers and unsuitable work conditions and poor health).

404. Chapter 4 of the White Paper sets out measures to "extend working life in an ageing society." It refers to the Government's aim to increase the number of older workers by 1 million,[497] the New Deal 50 plus and the recent Age Positive campaign.[498] New legislation comes into force on 1 October 2006 which will make discrimination on the basis of age unlawful in employment and training, and compulsory retirement below the age of 65 will be illegal unless it can be objectively justified. Furthermore, employers will have a duty to formally consider requests from individuals to work beyond 65.[499] The Government has also undertaken to consider in 2011 whether to abolish the default retirement age.[500]

405. The Government set out in its Green Paper on Welfare Reform that there were "a number of specific steps we will take to ensure that messages are communicated consistently to the over-50s, to help them understand the options available to them."[501]

406. In a supplementary memorandum submitted after the White Paper was published, Help the Aged, however, warned that there was:[502]

"a sense of suspended reality in the way in which economists and academics factor in an extension of working lives in order to make the pensions arithmetic look more palatable, but […] precious little action on the ground to support this paper exercise. The Leitch Review is already showing how badly older workers fare as far as training"

407. Citizens Advice quoted research that "one in four people aged 50 to 69 has experienced age discrimination when working or looking for work."[503]

408. The lack of training available for older workers was particularly criticised, with Mervyn Kohler from Help the Aged expressing the problem in strong terms: "There are damn few training opportunities for people over the age of about 40."[504] The CBI took a different view:[505]

"most important of all is the role played by employees themselves. The Government and unions have to do more to motivate older workers to retrain and take advantage of the training opportunities that come their way".

409. The Equal Opportunities Commission told us:[506]

"Our research report, 'Older workers and options for flexible work', last year revealed that up to one million older workers want to return to work. However, too many are being prevented from remaining in or returning to the workforce because of a lack of flexible working arrangements, such as flexitime or job sharing. Less than one in six older (50+) men and only one in four older women are currently employed on a flexible working arrangement. This increases the burden of social security payments for taxpayers and exacerbates the UK's skills shortage".

410. Getting more older people into work will be necessary both for pensions reform to be successful and for the achievement of the Government's aspiration to reach an 80% employment rate. However, as alluded to in the evidence we received, achieving this aim will be a considerable challenge.

411. Partly because of this complexity, and the importance of older workers, the Committee has decided to conduct an inquiry in the autumn into the Government's employment strategy and will include as part of that a detailed study of this aspect of labour market policy. We will therefore return to the matter later this year.

Public sector pensions

412. The vexed issue of public sector pensions was brought up by a number of witnesses during our inquiry. For example Adrian Waddingham, from the Association of Consulting Actuaries, told us "I think there will be political resentment in future if we do have the "them" in the public sector and the "us" in the private sector with this huge disparity."[507]

413. On the other hand, Kay Carberry from the TUC took the view that this was about keeping promises[508] and that the main agreement reached was "exactly the same as what is happening in a lot of private sector occupational schemes." Lord Turner, giving evidence to us in December, took the view that it was "perfectly reasonable" to have salary related pensions in the public sector, as long as there was a "process of continual adjustment so that as life expectancy goes up the generosity and cost of public sector pensions is kept reasonably stable."[509]

414. The Rt Hon Frank Field MP told the Committee:[510]

"I do think one of the areas the Government will have to attend to after it has done its White Paper is to seriously begin a review about public sector pensions and their financing, the different ways that they are financed and the impact on taxation and council taxation as well. I also think that in that review our own pensions, as part of the public sector, have to be put into the equation, and one of the questions voters will want answered is that certainly in the past the public sector rightly got what was thought to be more generous pensions because they had a worse pay deal. Is that currently true, has relative pay in the public sector caught up or in some instances advanced over the private sector? If that is so then it seems reasonable one looks at the other side of the equation as well. Given this is an area where people's prejudices can be paraded about quite easily, it would be very, very useful for the Government to start collecting the data so that we can have an informed discussion rather than merely shuffling our prejudices".

415. The DWP memorandum set out the situation from April 2006:[511]

"The earliest age from which a pension can be taken will be raised from 50 to 55 by 2010. This applies to all non-state pensions. The normal pension age for members of public sector pension schemes will increase from 60 to 65, initially for new members only."

416. Responding to questions after his statement to the House in May, the Secretary of State said "let me remind the hon. Gentleman and the House that several negotiations are taking place now, scheme by scheme, to change the terms of those [public sector] schemes. It is right to change those terms, and the negotiations will continue."[512]

417. He expanded on these points when he gave evidence to the Committee:[513]

"We are not going to change our position on that. […] We have negotiated change to the public sector pension schemes and they are going to save the taxpayer significant amounts of money over the next few decades, but, fundamentally, people tend to confuse two quite different things here. In relation to the public sector, we are talking about the normal pensionable age in those schemes going up from 60 to 65, and for existing workers they will stay at 60 where that is the existing age - they will stay at whatever their existing age for the NPA is for those schemes […] They overlook the fact that, if, for example, you take the Civil Service, there is a huge amount of change and churn in employment in the Civil Service. I think last year it changed by about 10%. So, by the time we get to 2026, when the first increase in the State Pension Age takes place, there will be, I think, only a minority of people in the Civil Service who can still retire at 60, and by the time we get to the end of the process of increasing the State Pension Age, I think it will only be 3% of civil servants who will still have an entitlement to retire at the age of 60".

418. We agree with the point made by the Rt Hon Frank Field MP that informed discussion, rather than "merely shuffling our prejudices" is necessary for a debate on the future level and terms of public sector pensions. We recommend that the Government commission an independent review, which includes involvement from both the private and public sectors, about the future terms, benefits and financing of these schemes.

496 Presentation by Mark Keese, Employment, Labour and Social Affairs, OECD to a High-level OECD Parliamentary seminar on the "Policy Implications of ageing populations", 23 February 2006, based on an OECD publication, Live Longer, Work Longer, available at http://www.oecd.org/document/42/0,2340,en_2649_34747_36104426_1_1_1_1,00.html Back

497 White Paper, para 4.5 Back

498 White Paper, para 4.11 Back

499 Ev 367, para 14 Back

500 White Paper, para 4.13 Back

501 Department for Work and Pensions, A new deal for welfare: empowering people to work, Cm 6730, January 2006 Back

502 Ev 167 Back

503 Ev 298, para 4.9 Back

504 Q 123 Back

505 Ev 363, para 73 Back

506 Ev 129, para 58 Back

507 Q 183 Back