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For today’s 7 million women pensioners the picture is bleak, and for the fifth richest country in the world it is a national scandal. What are we going to do about it? In the Bill, the Government have gone quite a long way towards implementing the Turner recommendations, although if they had embraced the recommendations for a citizen’s pension—which has been Liberal Democrat policy for some time—much of the detail of the Bill, which leaves out some people who deserve a pension, would not have been necessary. However, we welcome the Bill as far as it goes, although I shall respectfully point out some areas in which I think it could be made better and fairer.
As we have heard, the Bill will help by reducing the number of years’ contributions needed for someone to claim the basic state pension to 30, from the current 44 for men and 39 for women. That will help women because, as I have said, many will have taken time off to bring up children, care for elderly relatives and so on. The introduction of the 30-year rule will create a cliff edge for those who have failed to achieve the 30 years because they retired a day, a week, a month or a year or more too soon. The gap that they will face will be huge.
Mark Pritchard: Given the hon. Lady’s point on the 30-year rule, what is Liberal Democrat policy on that? Will the period be 29 years or 31 years, or will it be some other period?
Lorely Burt: We will propose amendments to help those who fall short of the cliff edge to qualify. We will submit them in Committee, but let me say that the example given by the hon. Member for Colne Valley (Kali Mountford) about people with part-time jobs will be taken into account.
Mark Pritchard: In the spirit of consensus and wanting to be helpful, it would be helpful if Members knew in advance, if possible, of such Liberal Democrat proposals to enable us to deliberate on their detail, especially if the proposals warrant the support of the whole House. Do the Liberal Democrats propose that the period should be below or above 30 years?
Lorely Burt: We will table our amendments this evening, so the hon. Gentleman will know of our proposals as early as tomorrow. [Interruption.] Yes, as my hon. Friend the Member for Yeovil (Mr. Laws) says, “If you show us yours, we’ll show you ours.”
There should be recognition of the contribution that women have made to this country, particularly in the areas of unpaid work and caring for children and for the sick, the disabled and the elderly. We welcome the attempt that is being made in the Bill to right a wrong by enabling carers—men and women—who care for 20 hours or more a week to have their contribution counted towards pension credits. However, people who require care do not necessarily conform to neat categories of need. We can all recognise the picture of the severely disabled person who needs lots of care and attention; they are easy to identify. But we should also think about situations in which someone cares for a loved one who needs a lot of attention but does not qualify for the higher rate of disability living allowance. The hon. Member for Northampton, North (Ms Keeble) gave some good examples in that regard. Why should the
level of disability dictate the allowances for the carer, who has to put in the hours of care regardless of what disability allowance the person that they care for is receiving?
Those who care for people with intermittent needs will also be left out of this entitlement. A mother might have an adult child who has mental illness. That child might be okay for periods, but when the illness hits lots of time will be needed to care for them. Will that mother be able to get a full-time, well-paid job, knowing that they might have to break off at any time? We will be able to include many more people who deserve to receive carer’s pension credits if we build a little more flexibility into the Bill. We will table amendments to that effect.
Finally, I want to speak about the plight of pensioners today. Tomorrow’s pensioners will be helped if the Bill is enacted but, to be frank, 3 million of them will be dead by 2012, having had no improvements in their harsh circumstances. Further, by 2012 the value of the basic state pension will have fallen to just 13 per cent. of average earnings—yes, just 13 per cent. That cannot be allowed to happen. The National Pensioners Convention and many other groups have called for the immediate restoration of the earnings link. The cost of that has been estimated at £600 million per annum. That is a lot of money, but it pales into insignificance compared with the billions of pounds that the Government have thrown away on computer systems that do not work and an illegal war in Iraq, and with what they propose to spend on identity cards.
The Government have pledged to eradicate child poverty by 2020. That is a laudable aim, but under these proposals by then one in five of all pensioners will be in poverty—and, we can be sure, even more women than at present will be swelling the ranks of the poor. The Government can do something about that now. Planning for tomorrow is essential, but relieving the inequality and injustice of today is also essential if we are to be able to call ourselves a caring and civilised nation.
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Lynne Jones (Birmingham, Selly Oak) (Lab): I want to endorse the comments that several colleagues made about the welcome improvements in state pension provision for women in this legislation. It is also good that there has been such consensus on measures in the Bill, particularly those on the restoration of the link to earnings. However, I have some concerns about the lengthy delay before that improvement will be brought about. We will still see the value of the state pension reduce and means-testing increase until 2012 or even 2015. As has been pointed out, that means that today’s basic pension will be eroded in value from about £85 to £70, and potentially even to £67, a week. That is not good enough for a Labour Government.
The Pensions Commission pointed out in its earlier reports that, based on the Government’s own figures, spending on pensions and pensioner benefits was set to increase by 2050 to about 7.6 per cent. of gross domestic product from the current figure of 6.2 per cent., after an initial fall between 2010 and 2020 as
the state retirement age for women increases. The commission proposed a trade-off between improved benefits and a rise in the state retirement age. For example, its proposed restoration of the link from 2010-11 at the latest could be accommodated if the state retirement age were increased to 69 by 2050 and spending increased to 7.5 per cent. of GDP, which is slightly less than the Chancellor’s prediction if there is no change. The Turner report reckoned that if the state retirement age were increased to only 67 by 2050 spending would increase to about 8 per cent. of GDP.
The Government have accepted that we should try to reduce means-testing by the restoration of the link to earnings, but they say that doing so to an earlier time scale cannot be afforded. Yet, according to their figures, we are talking about a cost of some £3 billion, at today’s prices, by 2050. Adopting the 2010-11 proposal would mean an increase to £50 billion, compared with £47 billion, if adopted, in 2012 and £42 billion, if introduced, in 2015. Those are fairly small sums in terms of the growth in GDP that we might expect by 2050. None the less, there is a small, affordable gap and, as I said in an earlier intervention, it could be bridged simply by switching priorities. I do not agree with the proposal of the hon. Member for Yeovil (Mr. Laws) that savings should be made from public sector pensions. That is far too vague and probably not deliverable, and I do not particularly wish to advocate a reduction in the benefits of people working in the public sector, who generally receive lower remuneration than those in the private sector.
Mark Pritchard: I am grateful to the hon. Lady for giving way. Given her clear and evident reservations about the introduction of the average earnings link by 2012—she suggests that it is perhaps more likely to be 2015—and in the spirit of transparency and openness, come the next general election, will she be suggesting that pensioners in her constituency should expect that link not in 2012, but in 2015?
Lynne Jones: Well, I will not actually be standing at the next election, but I will be campaigning, and I hope to do so on as good a pensions package as possible. I do not anticipate that the change will be delayed until 2015—it is just that the Government have not specified whether it will be 2012 or 2015. I certainly hope that it will be well before 2015.
Where could we obtain the additional resources to improve the pensions package proposed in the Bill? The Turner commission pointed out that we spend large sums of money on tax relief, which it described as costly and poorly focused. It did not advocate one rate of tax relief for pension contributions for various practical reasons, and my right hon. Friend the Secretary of State was right to point that out. However, at one of the all-party group meetings with Lord Turner, I had the opportunity to make my point about the large sums of taxpayers’ money that go to some of the richest people in the land. Apparently—the figures come from my right hon. Friend the Member for Birkenhead (Mr. Field)—5 per cent. of the population get half of the tax forgone through tax relief on pensions. Lord Turner suggested a way forward that I commend to the Government. He suggested that the total pensions pot that is eligible for tax relief—now
some £1.25 million—should be frozen. I noticed in the last pre-Budget report that my right hon. Friend the Chancellor projects an increase in that sum to £1.35 million—that is what I recall the figure to be, although I stand to be corrected. We have the opportunity, therefore, to shift our priorities from tax relief for those in the very highest income brackets—who are not necessarily the highest income earners—and use the money released to benefit the majority who are on fairly low incomes and depend on state provision.
Ros Altmann makes a similar point, but she also points out that if the contracting-out provisions were abolished, £10 billion could be released annually. As I have said, the proposals would involve an increase of £3 billion annually by 2050. Another submission to the Work and Pensions Committee suggested that we could consider reducing or abolishing the tax relief on lump sum payouts by private pension provision. If the Government really wanted to prioritise improvement in state pension provision, they could do so.
I endorse the comments by the hon. Member for Solihull (Lorely Burt) about the money that we will waste on a computer system for identity cards, which would be better spent on this issue. I could add to that the cost of replacing our nuclear submarines, but I shall stick to the possibilities for redirecting funding from within the pension system itself. If we do not improve the basic state pension and remove means- testing more than the Bill proposes, all we will do is ensure that we do not have any more means-testing by 2050 than we have at present. We all know the present disincentives to private saving, so I urge my right hon. Friend the Secretary of State to try one more time to bend the Chancellor’s ear on this issue. If we do not make the improvements that I have outlined, we will not build a truly firm foundation for private pension saving. In addition, people being auto-enrolled into the national pensions scheme could discover, when they come to retire, that continual means-testing means they are still no better off.
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Mr. Mike Weir (Angus) (SNP): We have heard a lot in this debate about the consensus that exists in this House in respect of various pensions proposals. I suspect that members of the Scottish National party and Plaid Cymru stand somewhat outside that consensus. We support some aspects of the Bill, but other proposals cause us considerable concern.
The hon. Member for Amber Valley (Judy Mallaber) is no longer present, but she said that the plight of women pensioners resonates with her older constituents. That may be true, but the Bill’s biggest failing is that it does not tackle the problems faced by existing pensioners. The hon. Member for Aberdeen, South (Miss Begg) argued that it is not meant to, and I accept that that is probably the case, but we will fail to achieve the consensus that the Government claim to be seeking if we do not deal with those problems.
The important consensus is the one that exists outside this House, among the general public. If we do not achieve consensus there, we will not get people to take up the personal account—an important element in the modernisation of the pensions system. If today’s pensioners do not feel that their concerns are being
addressed, they will continue to feel aggrieved, and they will pass that feeling of grievance on to others.
When the National Pensioners Convention launched its alternative White Paper, it stated:
“The Government’s failure to address issues of pensioner poverty, unpopular means testing and the plight of 5 million existing women pensioners is the biggest whitewash of older people in the history of social policy”.
It does not get much more aggrieved than that, but that is a feeling shared by many of today’s pensioners.
All hon. Members probably agree that there should be a link between earnings and pensions, and there was some discussion earlier about exactly what that link should be. That is important, as it was announced today that general inflation had reached 3 per cent., the highest level in 10 years. However, the inflation faced by poorer pensioners is effectively much higher, as more of their income goes on things such as energy—and gas prices, for example, have risen by 40 per cent. over the past year alone.
The Government have accepted that there should be a link between pensions and earnings, but have delayed implementation until 2012 at the earliest. As has been noted, the link might not be introduced until 2015. Perhaps I am getting cynical in my old age, but I suspect that the date may well depend on when the Chancellor becomes Prime Minister and decides to go to the country. The introduction of the earnings link is perhaps a sweetie to be pulled out at the appropriate moment—although the matter is less relevant in Scotland, as we will be well on our way to independence by then. [Interruption.] I regard this as evangelising for poor English pensioners.
The National Association of Citizens Advice Bureaux has asked for more details as to when the earnings link will be re-established. I do not suppose that the Minister will tell us, but it would be nice for pensioners to know when they might expect that uprating.
However, even if the Government were to re-establish the link, it would do nothing to address the fact that today’s pensioners have fallen way behind since the Tories cut the link in the first place, nearly a quarter of a century ago. Moreover, it is worth noting that what is being proposed is not the restoration of the link that has been talked about in this debate. Between 1975 and 1980, the Secretary of State with responsibility for pensions was required to have regard either to earnings or prices, depending on which of them he considered to be more advantageous to beneficiaries. That meant that there was some flexibility when it came to determining whether earnings or prices were of greater benefit in uprating pensions, whereas the new version will depend straightforwardly on earnings.
In addition, although restoring the link with earnings will prevent the basic state pension from declining in value year on year, it will not make good the fall in the value of pensions that has happened over the years. That is an important point, which is not fully understood by many pensioners. I quote again from the alternative White Paper produced by the National Pensioners Convention. It is referring to the Government’s White Paper, but the same point applies to the Bill. The document states:
“The White Paper’s failure to call for an immediate increase in the basic state pension and instead opt for a promise to restore
the link with earnings some time between 2012 and 2015 will only give those on a full basic state pension approximately £1.40 a week more that year than they would receive anyway under the present system. Furthermore, the absence of any proposals to immediately improve existing state pensions has also in effect ignored the widely acknowledged scandal of low income amongst millions of existing women pensioners.”
Restoration of the link to the basic state pension will be delayed until at least 2012, when the value of the pension will have fallen to about 12 per cent. of average earnings—£71 in current terms. As has already been said, up to 3 million of today’s pensioners will die before the link is restored. Worse still, if it is delayed until 2015, the value will be only £65, and it is estimated that up to 4.5 million of today’s pensioners will never receive any benefit.
Those are legitimate concerns among today’s pensioners, and they affect the debate in the country, as well as attempts to find a consensus on the way forward. If we do not tackle those problems and provide a firm foundation for the future of the state pension, the Bill’s proposals will not succeed.
Much has been said about the citizen’s pension. The Scottish National party and Plaid Cymru support the citizen’s pension. After our last debate on pensions, I thought that we might be the last remaining parties to do so, but the Liberal Democrats seem to have come round to it again. The problem with the current system is that it is based on labour market participation, the effect of which is to translate poverty during people’s working life into poverty in old age. We all know that many women and carers do not receive the full basic state pension, because they have a broken employment history. I support the provisions that will tackle that problem. We welcome them, but they will still leave too many people in poverty.
Whenever the issue of pensioner poverty is raised, the Government point to the pension credit—as has been done this afternoon—but why should a pensioner have to rely on means-tested benefit for a decent retirement pension? The state should—indeed, it must—ensure that every one of our pensioners has a decent minimum income in retirement. By the very act of introducing pension credit, the Government accepted that the current rate of basic state pension is inadequate. With a citizen’s pension, every pensioner would have a decent state pension, which under our proposals would be set at the current level of basic state pension, together with the maximum pension credit, and thereafter linked to increases in average earnings.
If we introduce such a citizen’s pension, we will ensure that all our pensioners are lifted out of poverty and given a firm foundation on which they can build their own additional pension provision. I do not believe that the personal account scheme that the Secretary of State proposed has any real chance of success, because it will be undermined by means-testing, especially for its main target group—those on relatively low incomes. Whatever the reality, there is a great fear that they will not gain much at the end of the day, due to the effect of the means-tested pension credit. If, however, it was linked to a citizen’s pension it could provide a powerful incentive to make private savings and ensure that each pensioner had a much better standard of living in retirement.
The hon. Member for Glasgow, North (Ann McKechin) expressed surprise that we supported the personal account. I do not know why, because we proposed something similar more than two years ago, and when the White Paper was debated recently I made it clear that we supported such a scheme as an important part of the future pension.
Of course, it is legitimate to ask how we propose to fund the citizen’s pension, and we have not shied away from that. We do not follow the same route as the Liberal Democrats, as we have published figures to show that by using the amount currently spent on basic state pension and pension credit—and, crucially, by reforming the current system of tax relief on private pensions, on which the hon. Member for Birmingham, Selly Oak (Lynne Jones) touched—we could afford to create a true citizen’s pension. The problem is not lack of money, but lack of political will.
The Government often tell us that we must take the hard decisions. Frankly, it is about time that the Government took a hard decision for the benefit of the majority of pensioners. It is worth noting the extent of the tax relief on private pensions. When we published our proposals, “A Secure Retirement for All”, early in 2005, we calculated that the amount of tax forgone with the subsidy amounted to £11.4 billion a year. In his report, Lord Turner points out that the cost is £12 billion, but he goes on to refer to a further £8 billion in national insurance contributions, taking the total cost of the relief to £20 billion. In effect, that is a massive subsidy to private pensions, which could be used to provide a decent state pension for all.
Worse still—I was surprised that the hon. Member for Glasgow, North also mentioned this—half the total cost of tax relief on private pensions is received by the richest 10 per cent. of the population. 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. The Bill does not tackle that problem—that serious omission will undermine the whole idea of personal accounts. I note in passing that the TUC briefing also says that consideration needs to be given to reform of tax relief.
Another aspect of the Bill with which we have great difficulty is the proposal to raise the state retirement age, which we believe will discriminate against those in many areas of the country where life expectancy is lower. The effect can be quite dramatic. If we take the example of a man in Glasgow—as already mentioned, one of the worst areas in this respect—I understand that life expectancy is about 69.3 years, whereas a man in Kensington in central London has a life expectancy of 80.8 years. Under the present system, Kensington man can expect to receive pension payments totalling £65,728—nearly four times that of the Glasgow man, who would receive a mere £17,888. If the pension age is raised to 68, Glasgow man would receive only £5,408, while Kensington man would receive 10 times more at £53,248. That is manifestly unfair.
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