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Mr. Philip Dunne (Ludlow) (Con): Like many Members, I welcome the Bill. I am pleased to follow the hon. Member for Amber Valley (Judy Mallaber). Somewhat to my surprise, I found myself in agreement with many of her comments about the benefits of the Bill in bringing women, carers and others who have not been able to secure full state pensions into that category.
It has been an interesting debate enlivened at one point by the revelation that my hon. Friend the Member for Runnymede and Weybridge (Mr. Hammond) has his own shadow in the copycat form of the hon. Member for Yeovil (Mr. Laws). We are getting used to the Government looking to the Conservative party for inspiration for fresh policy initiativesfor example, in this Bill we have the linking of the state pension to earnings rather than prices, which was in the Conservative manifesto at the last electionbut now we learn that the Liberal Democrats look to the Conservative party for their parliamentary questions.
The Bill seeks to deal with a big demographic challenge that has been ticking away but has not been addressed by any Government for some time. An illustration of the consequences of that was brought home to me in my constituency the other day by the primary care trust, which had put together a report on our community hospitals that pointed out that more than 30 per cent. of the people in south-west Shropshire are now over 65. I accept that that proportion is much higher than the national average, but that is still rising rapidly. Those over 85 are expected to increase by 50 per cent. over the 10 years to 2013. As a result of medical advances and people living longer our future pension provision faces a rapidly growing funding crisis. The Bill is a first step in attempting to deal with that.
Sadly, the Bill will do virtually nothing for many years for existing pensioners. Reservations have been expressed to me, and no doubt to other Members, by representatives of pensioner groups about the fact that such a forward-looking measure that does so little for existing pensioners. The link to earnings, which the Chancellor has left himself wriggle room to defer until 2015, means that for todays pensioners a very modest
increase in their state pension might be forthcoming in anything from five to eight years time. That does not give rise to much enthusiasm in the senior citizen forums that I attend.
I welcome the introduction of personal accounts and the prospect of restoring some of the savings culture that has been so weakened, particularly in the past 10 years. When I have raised that with Ministers in the past, they have always tried to brush it aside by saying that it is entirely correlated with the strength of the economy, but it is not purely to do with the economy it is also to do with the culture and savings habits of the population.
Let me deal with two main difficulties with the Bill. One is an omission and I hope that the other can be tackled in Committee. The omission is the lack of reform of public sector pensions. That is a missed opportunity. For party political reasons, the Government have not dealt with the disparity between public and private sector pension provision and established common rules for all pensioners. When the Secretary of State was challenged about that in the Select Committee, he said that he did not perceive it as a problem because 10 per cent. of civil servants change employment every year. He anticipated that that would continue so that, by 2026, only a minority of people in the civil service could retire at 60. He calculated that, by the time the measures were fully implemented, only 3 per cent. of civil servants would be entitled to retire at 60. That may be the case because the arrangements will be introduced over several decades. In 50 years, no one in the civil service will retire at 60. However, that is far too long a period for bringing the two sectors of society together. The Government have made a feeble attempt to find an excuse for not being prepared to tackle the public sector pension challenge.
My hon. Friend the Member for Runnymede and Weybridge referred to the other issue when he mentioned the state second pension. The abolition of the contracted-out rebate and the proposals to move the state second pension on to a flat rate over time have revealed the prospect of many people who are in that pension regime saving for no return. The state second pension will effectively be a stealth tax dressed up as equalisation of pensions. That must be tackled, because there is an injustice in arrangements whereby the benefits for a specific category of people go to waste. I hope that we can consider that in Committee and ascertain whether we can introduce provisions to right the wrong.
I want to concentrate on two other specific matters. The first is specific or general advice, which relates to the operation of personal accounts. It has been a thorny issue for the Government, not least because of their track record. Other hon. Members have mentioned the parliamentary ombudsmans devastating critique of pensions mis-selling, which the Government ignored but the public did not. It raises the question of trust. If the Government wish to encourage saving, the population needs to have complete trust and confidence that the governance and structures of the scheme in which it saves are subject to rules of conduct. Advice is key. As other hon. Members said, given the prevalence of means-testing, which will continue to apply to many who consider whether to opt in or out of the personal accounts scheme, it is important that people receive clear guidance about whether it is appropriate and in
their interests to participate. The Government have failed to tackle the matter fully, although I expect that it will be picked up when we consider the second stage Bill in the summer.
Trust covers so many different aspects. The collapse of final salary pension schemes has posed questions, with which we are all now familiar, about pensions. The Financial Services Authority imposes clear rules and procedures on private sector providers in the savings industry. The Government choose to ignore that when they describe the way in which the personal accounts system might work. That is a great mistake. When setting up a new system, it is vital for the Government to use clear, precise and careful language, especially when they describe what they want to achieve and try to build trust among the population.
James Purnell: Given that there will be no time to tackle all the points in the winding-up speech, I draw the hon. Gentlemans attention to the fact that the review that we announced today of the regulatory landscape will tackle the regulation of personal accounts. They should be regulated in the same way as any other financial product and we are considering precisely that issue. Of course, there is a difference between an informal discussion in a blog and the professional advice that one provides as part of a regulated service.
Mr. Dunne: We will participate in that consultation and examine the Ministers pronouncements carefully, whether they are formal or informal. A problem with advice is that it adds cost. The Minister accepts that some sort of advice will be necessary, whether in a generic printed form or on websites. However, it needs to be clear, available and inexpensive.
The second matter, which follows from the first, is trust in the system of governance. I asked the Secretary of State about independence during his opening remarks and I did not find his response reassuring. Independence and the perception of the independence of the regulatory body is vital because it helps establish trust in personal accounts. For individuals, many of whom will not have saved previously, to decide to lock up amounts of money for the whole of their working lives, they need to be sure that their savings will be administered properly, invested wisely and not be subject to Government interference.
In the consultation stages before the Bill was published, many commentators called for the scheme to be independent of Government and accountable to Parliament, similar to the board of trustees of a defined contribution scheme. The Pensions Commission proposed that and the Select Committee agreed, as did many of the independent commentators, from the Consumers Association Which?at one extreme to the Investment Management Association acting for the professional investment managers at the other.
Although the Secretary of State talked about independence, the Bill gives him specific powers. I should like to reiterate them, to ascertain whether the House believes that the personal accounts delivery authority will be independent. The Bill gives the Secretary of State powers to determine the average earnings calculationsurely that should be job of the newly
independent National Statistics? He will have the power to remove the chairman or any non-executive. He will also have the power to determine the remuneration of the chairman, the chief executive and all the non-executives, covering their pay, their pensions, their allowances and their gratuitiesit is interesting that the members of such an authority might expect gratuitiesand to determine whether they are entitled to compensation on loss of office. He will also have the specific power, set out explicitly in the Bill, to issue guidance from time to time to the authority about the discharge of its functions. The authority will have to pay regard to that guidance.
The authority will be independent in name only, not in substance. The Government need to be much more imaginative in granting independence to the authority and, more specifically, to its successor, the personal accounts board. Perhaps they might like to look to the Conservatives for ideas on how to grant independence, so that the public can have real confidence, over successive Governments, that their funds will not be at risk from Government meddling.
Ann McKechin (Glasgow, North) (Lab): The overriding message from todays debate has been that neither the issue of pensions nor the Bill can be seen in isolation. The Government need to adapt to peoples increasingly complex work and social lives, and to develop a new approach to preparing our citizens for making financial decisions appropriate to their needs. My hon. Friend the Member for Amber Valley (Judy Mallaber) has mentioned the need for a continuing effort to address the pay gap between the genders. Other hon. Members have mentioned the issue of those who suffer from long-term low pay, and their ability to make their savings work for them.
I congratulate the Department for Work and Pensions on the way in which it has carried out the pre-consultation process, including the work of Lord Turners commission. This is a good example of the Government doing the necessary ground work for an ambitious programme that will affect peoples lives for the next 30 to 40 years. Building a robust and thorough consensus is very much part of that. Despite the very long speech by the hon. Member for Yeovil (Mr. Laws) on behalf of the Liberal Democrats, I am still somewhat confused as to what his proposals are. However seemed to suggest that he would be part of the consensus this evening. The Scottish National party has indicated its agreement in principle to a personal account system, and I shall be interested to hear how it envisages such a system operating under its own policies. No doubt its representatives will table amendments on Report, and it will be interesting to flesh out the debate at that stage.
On the major points, the Government have achieved the consensus correctly, although there obviously had to be an element of compromise involved. The commitment to restore the earnings link is essential and, like many other Members, I would urge the Government to make that reconnection sooner rather than later. We need to ensure, as far as possible, that the real value of the basic state pension is at least preserved, and to encourage people to come on to the personal accounts system.
In my opinion, the most important feature of these proposals is the automatic opt-in provision. Most people are aware that it makes sense to save for their retirement, but as I found out when I worked as a solicitor before coming into the House, persuading them to do so is like trying to get them to draw up a will. They know that it is the right thing to do, but many people, especially the young, have an inbuilt resistance to giving the issue serious thought leading to a definite decision. Death and retirement planning remain the modern social taboos.
There is no doubt that this is a complex issue, however, and many people lack the knowledge to make an informed decision, or even to know where to go for proper advice. Poor awareness often translates into unrealistic expectations, particularly for those on the lowest incomes. I welcome the comments made on Monday by the Minister for Pensions Reform and the Economic Secretary to the Treasury about the need to improve peoples understanding of their financial affairs in general. This must involve tackling the great deal of misinformation out there unfortunately, mainly among the most vulnerable and least knowledgeable in our society. This measure must also be part of a wider effort to persuade more people of the value of saving regularly to deal with emergencies when they arise and to control their personal debt and keep it at a sustainable level. Otherwise, we shall face the possibility of people deliberately opting out of the scheme for short-term emergency reasons and losing out in both the short term and the long term.
A number of hon. Members have rightly mentioned the fact that we need to restore confidence in pensions. Again, this is particularly true for those on the lowest incomes. Although the financial services industry has been perfectly capable of dealing with people on higher incomes, it has never truly been able to offer stand-alone pension products for those on the lowest incomes. The level of administrative charges remains one of the most crucial factors in determining the worth of the scheme. That is why the reduction of the administrative charge for the proposed personal accounts to a much lower level than those charged on the open market will be significant for those on the lowest incomes. Given that at least one third of the adult population are not saving for their retirement at all, the need for such change is urgent.
It is also true that the nature of work, our health as a nation and social changes such as the fact that 25 per cent. of us now live alone, make it difficult to imagine what is going to happen 30 to 40 years hence. The circumstances pertaining when our parents generation entered the workplace had changed radically by the time they retired. My mother, who is 79 years of age, received a dowry from the civil service when she left to get married in lieu of her benefits; in fact, she has received no pension for her years service. When she returned to the workplace, she was not allowed, for the first few years, to join the local authority superannuation scheme.
Thankfully, those circumstances are now gone and past. The current adult population, however, are seeing rapid changes and much more variety in how people work, how long they expect to work and the type of
jobs that they enter. Those who are entering the job market now will see even more change. We cannot just park the issue for 20 years at a time; we must be prepared constantly to review and alter arrangements to suit changing lifestyles.
We have spoken about the raising of the pension age. Given that I represent a city that is routinely quoted as having the lowest life expectancy rates in the UK, the Minister for Pensions Reform will not be surprised to learn that while I understand the Governments motivation, I am also concerned that that must be met by a visible, firm commitment to address the health inequalities that bedevil cities such as Glasgow, and by an equally firm undertaking to keep the matter under review. Obviously, it is possibleI hope that it is less rather than more likelythat life expectancy rates will stall or decrease as new health problems emerge. Again, we must build flexibility into the system and keep it under regular review.
Clearly, addressing the gender gap, reducing the number of years of qualification and reducing the number of hours for carers are important for our female population. We must be mindful, however, that affordability is much more likely to be a constraint for women than for men, with only 37 per cent. of women working full-time, compared with 60 per cent. of men. Women need to know that the new scheme will work for them and adapt to their life changes. As some of the problems experienced in relation to the tax credit scheme showed, we all underestimated to an extent the complexity of peoples working patterns. We need to address that.
The thoroughness of the gender assessment carried out was welcome and helpful. However, as my hon. Friend the Member for Aberdeen, South (Miss Begg) mentioned, we must ensure that the issue of trivial lump sum commutation is dealt with effectively. People will therefore be able to save with confidence, and even if their savings are low, which is likely for those who are over 45 when the scheme starts in 2012, they will get some value from them, even if only in the form of a lump sum. It is not, as the hon. Member for Yeovil said, that the scheme itself is at fault. Womens median average earnings are much lower than mens, and that is something that we should continue to addressthe minimum wage has improved the positionbut we should also remember that women live longer, so their annuity values will be lower. We must therefore ensure that they manage to escape the means-testing trap.
I agree with many of my hon. Friends that we need to consider the issue of carers. With 120,000 carers caring for 20 hours-plus a week who will apparently miss out under the current regulations, we must test the issue against the effect on carers and ensure that they are relieved of a burden. Yes, as the Secretary of State mentioned, there are additional costs, but we are still providing 50 per cent. of tax relief to the highest earners in society, the great majority of whom are male. If the Government are to follow through the gender assessment impact process as thoroughly as I am sure that they want to do, they should consider whether continuing that form of benefit is justifiable given the proven needs at the other end of the spectrum, where
most of those affected are female. Will the Department keep that in mind in ongoing negotiations with the Treasury?
This is a good Bill that will deliver substantial benefits, particularly for women and carers, who are not covered properly by the pensions market. It is a major step towards encouraging confidence in long-term savings. However, it must be met with a firm commitment to tackling the other problems that I have mentioned, which have an impact on both pensions and income more generally.
Lorely Burt (Solihull) (LD): I am grateful for the opportunity to speak because I have a special interest in the Bill. Although, as I am sure my speech will make clear, I am no expert on pensions, I am passionate about the subject. I speak for the Liberal Democrats on womens and equality issues, and I can think of no area in which this country has treated its women more shamefully.
One in four women pensioners in Britain today lives in poverty. The average income of women pensioners is only 57 per cent. of that of male pensioners, and only 30 per cent. of women retiring today qualify for the basic state pension. A good many statistics have been quoted, so I shall simply say that more than 2 million women are poor enough to receive the means-tested pension credit. That will raise their weekly income to £114.05, which is still £14 below the Governments official poverty level income of £128 for a single person. Of those 2 million women, 20 per cent. will be in even worse poverty because, for whatever reason, they do not claim the means-tested benefit.
It is not difficult to see why this state of affairs has arisen. For the most part, it is a self-perpetuating problem that will not be susceptible to resolution in the foreseeable future. As the hon. Member for Amber Valley (Judy Mallaber) observed, women earn less than men, so they accrue fewer pension contributions. Even if we compare the average full-time wages of the sexes, women earn 17 per cent. less than menbut many women work part-time so that they can care for growing families, elderly relatives and others, and part-time hourly earnings for women are only 88 per cent. of mens. Given their lower earnings, womens ability to pay any money into their pensions is diminished.
Historically, as many Members have pointed out today, the pensions system was designed on the assumption that the husband would be the main breadwinner. Married women were led to believe that they would still receive pensions if they paid the so-called married womans stamp, instituted by Beveridge in 1948. Too many found out too late that that was a fallacy. Even today, there are women who are still paying the married womans stamp. But perhaps the greater contributor to poverty among the elderly, particularly women, has been the fall in the value of the basic state pension caused by the removal of the earnings link in 1980, on Mrs. Thatchers watch. The basic state pension constitutes about half the income of women pensioners, a far greater proportion than that of men. Its value has now shrunk to £52.50 a week less than it would have been if the earnings link had been maintained.
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