Westminster Hall
Thursday 10 December 2009
[Hywel Williams in the Chair]
Pensioner Poverty
[Relevant documents: Fifth Report from the Work and Pensions Committee Session 2008-09 HC 411 and the Government response HC 1029.]
Motion made, and Question proposed, That the sitting be now adjourned.-(Mark Tami.)
2.30 pm
Mr. Terry Rooney (Bradford, North) (Lab): Although this is the first time that I have served under your chairmanship, Mr. Williams, it does not make it any less of a pleasure.
Unusually, I should like to start by thanking the Government for their fairly positive response to our report, which is not something that we are used to in our Committee. It usually takes two or three years for our fantastically good suggestions to bear fruit, but this time the Government have accepted much of what we said. Moreover, we should recognise the many organisations that submitted evidence to us and the hard work that they, and the witnesses who gave evidence for the report, put in.
When considering pensioner poverty, we need to focus on three distinct groups: today's pensioners, people who are nearly retired, and the remainder of the population. In his report in 1948, which seems a long time ago now, Beveridge said that the state pension on its own would never be enough on which to live in retirement, and that it would always have to be supplemented by savings or insurance. It is that last bit that most people forget. All the letters that we get as constituency MPs say, "I can't live on the state pension; it is not enough. You should put it up." Somewhere along the way, we lost that behavioural imperative of providing for our retirement through those two additional vehicles. It was partly in response to that situation that we got the 1975 Castle revisions, which brought in, among others things, SERPS and earnings-related elements.
By the 1980s, many of those changes had been eliminated or significantly reduced. The Social Security Act 1988 had the unfortunate consequence of what we now know as pensions mis-selling, with many people being deluded into coming out of relatively good final salary schemes into personal pension arrangements. In 1994, post-Maxwell, we had the 2,000 page Goode report, which, rather oddly, made no mention of annuities. One of the main things to come out of that report was the minimum funding requirements. However, in the late 1990s and early 2000s, when employers went into liquidation, it was discovered that a large number of schemes were deficient and that the minimum funding regime had never worked properly. The consequence of that was a financial assistance scheme, which, at the last count, would cost about £8 billion. It is clear, therefore, that significant sums of money come into play in such matters.
Those events led to the establishment of the Turner commission. It is very telling that the commission finally reported in 2005, four and a half years ago. Although we have moved a long way in terms of time, the same is not true of legislative responses. A number of changes are due to come in next year that should address some deficiencies. We were expecting personal accounts in 2012, but after yesterday, they look like being delayed for a year, which is sad and will have consequences.
So, who are the pensioners living in poverty? It is largely women, because, historically, most of that generation either never worked or had very short working lives, and that was the way in which society was organised at the time. Sadly, some of those who worked never came off what was called the married woman's stamp, so they never accrued pension entitlement themselves.
The second large group affected by pensioner poverty are black and minority ethnic communities. There is no obvious explanation for that other than, as a group, they tend to have lower earnings than the national average, and higher unemployment. The third significant group that suffers from pensioner poverty consists of those who live in inner London. No real insight has been given on why that is, but it may be due to a combination of a deep concentration of BME communities and large numbers of retired women.
One of the major responses-in fact, the principal response-to pensioner poverty has been pension credit. Never in the history of government has so much time, effort and finance been put into a take-up campaign as has been put into that for pension credit. All the evidence shows that the amount invested has diminishing returns. The vast majority of those who are entitled to the guarantee element receive it. However, we need to become more scientific about where we direct our effort on take-up, and particularly look at the BME community, those who live in inner London and any other blips that show up in the statistics.
Certain groups are likely to end up in poverty in retirement, including low earners, the disabled, carers and those with broken work records. The other thing that will lead to a lot of people suffering from poverty in retirement is longevity. Someone might retire at 65 with a reasonable or modest pension and an accumulation of savings, but savings run down over time. The longer they live, the more expenses they face to tackle the effects of ageing and poorer health, and the more their assets disappear. So, what initially was a comfortable retirement inevitably leads to a distressing situation.
Over the years, the accumulation of pension savings and assets has received enormous concentration and no end of debate in the House, but little attention has been given to "decumulation". There is a minimal amount of advice about what to do when one gets to retirement age, and that links back to some of the debates about annuities. Sadly, despite the legislative changes, the vast majority of people who have defined contribution schemes will, when it comes to retirement, take an annuity with the provider of the scheme. They do not use the facility to shop around. Evidence suggests that someone can get up to 15 or 20 per cent. more than what is on offer from their provider.
Another vehicle that will become increasingly important in the coming years in attacking pension poverty is equity release. Some of us will remember what happened in the early 1990s and, dare I say it, the West Bromwich
and, I think, Norwich Union. That was a scandal, but as long as we learn from the past, there is a role and place for equity release, providing people are able to get the proper advice and know exactly what they are getting into.
We have a problem in general in our society with financial literacy. A theme running through our report was the necessity for people who are nearing retirement to get appropriate, accurate and cheap advice on the options that they have to maximise whatever situation they are in. We still have not cracked that. I know that the Department for Work and Pensions have conducted some pilots on money guidance and that the Treasury are doing some things, but we need to pull those strands together so that people can maximise their situation and avoid being in poverty for the want of such advice.
Mr. David Drew (Stroud) (Lab/Co-op): Will my hon. Friend add to his point the need for independent advice? One of the real difficulties with equity release is that, dare I say it, families are not dispassionately interested in how that equity release might operate. It is not unknown for people either to advise their parents or, more commonly, to get someone they know to advise their parents. Sadly, that is where some of the family disputes come from. Therefore, it is necessary for older people to get genuinely independent advice.
Mr. Rooney: I take my hon. Friend's point. That is not a road that I particularly want to travel, but there have been some fairly scandalous examples of offspring being too eager to get their hands on their inheritance before there is a natural death-I think I will leave it at that.
In considering pensioner poverty, it is important not only to look at the income side but to look at the expenditure side too. There is no doubt at all that schemes such as free bus travel and winter fuel allowance have been major instruments in assisting retired people to reduce their expenditure and thus hold off the onset of poverty. The warm homes scheme itself has improved the heating systems of some 2.5 million pensioner households, through insulation, cavity wall insulation and so on. Again, that has the impact of reducing pensioners' fuel bills.
However, in our report we make the point that retired people are far less likely than the general population to switch their fuel provider. If someone has a basic acumen about the internet, they can switch their supplier online fairly easily, but the elderly are a group for whom that is not the norm. Retired people tend to stick with their supplier, which they may have been with for the past 20 or 30 years. Quite considerable savings can be made by switching supplier and, given that people's income gets lower and more fixed as they get older, the more important those savings are.
There is a long history of pensioner poverty. I am absolutely certain there will be more debates about it in the future. The changes that were introduced post-Turner were meant to ensure that we would have far less pensioner poverty in the future. I do not think that we will ever eliminate pensioner poverty. However, the principal instrument or change that is supposed to be introduced in 2012 is auto-enrolment, so that everybody hopefully would be in some scheme, even if it was only
the personal account with a fairly modest contribution of 8 per cent. to it. In that way, everybody would be on the building blocks of the basic state pension and the state second pension, which will continue.
Of course, that excludes people who are not in work. Frankly, all Governments have a pretty poor record of dealing with those people, particularly those with a disability. When somebody at birth has a very severe disability, it is not right to say to them, "You will be poor in childhood, you will be poor in your working age and you will be poor in retirement". Yes, we have built in assumptions that people with a severe disability are contributing to the state pension and the state second pension, but those people will still receive only an extremely modest income in retirement. As we move forward in the coming years, and hopefully as the public finances improve, we need to focus on that area and ask ourselves what we can do better for those disabled people, so that they do not experience a lifetime-from birth to death-of poverty.
2.44 pm
John Howell (Henley) (Con): I want to start by saying what a pleasure it was to serve on the Select Committee during this inquiry. Pensioner poverty is an important subject and, as people can see from the two volumes of the report that were produced and the evidence that went with them, it was a subject that we tackled in considerable depth, with assistance from a range of organisations.
I want to draw attention to four things in the report. The first is recommendation 130, which has already been mentioned by the Chairman of the Select Committee, the hon. Member for Bradford, North (Mr. Rooney). It relates to the Committee's disappointment that there is an unacceptable level of pensioner poverty in some black and minority ethnic communities but pretty little in the way of information that explains why that problem exists and how it can be tackled. Having said that, the take-up of pensioner credit among BME communities must play a crucial part. So I want to echo recommendation 130, which showed the seriousness with which we viewed that issue, and to stress the importance of that recommendation.
Recommendation 199 is particularly helpful. My constituency is relatively close to London compared with the north of England, but it is still a very rural constituency. Of the 75,000 voters in my constituency, I think that only 14,000 live in towns; the rest live in small villages. Recommendation 199 brings out clearly the difficulty for pensioners, particularly pensioners in poverty, of living in a rural area. I think that too often we forget the difficulties that living in a rural area creates-both the extra costs and the physical difficulties of transport. Essentially, in many rural areas people are restricted to using their own transport, as public transport is weak. For example, my own village is considered sustainable on the basis that it has a bus stop, but there is only one bus during the week that takes people to the market to shop and then brings them back a couple of hours later. Of course, that leads to the other side of pensioner poverty in rural areas, which is the isolation that pensioners feel. Obviously, the financial aspect, combined with that feeling of isolation, makes for a sort of double hit on pensioners in rural areas. So recommendation 199 was one that I felt particularly strongly about.
The third recommendation that I want to underline is 315, which refers to the default retirement age. There was huge support for allowing the flexibility that the recommendation calls for. Retirement age must be a judgment for individuals; they must have the flexibility to decide when they retire, so that they can manage their retirement as they have managed their working life. The evidence that we found was that such flexibility was not a particularly onerous burden on employers. We found that people did not want to work for more than one or two extra years, but that the extra time made a big difference to them financially.
The fourth and last point that I want to emphasise is not one of the report's recommendations but the evidence from our visit to Canada. For me, that visit was a particularly useful exercise, because we were impressed with Canada's success story in the last 10 years in reducing pensioner poverty. A number of things struck me about that success story that we might want to think about.
The first was the way in which the Canada pension plan had been funded, or at least part-funded, in the good times. Obviously, the opportunity to do the same has now passed us by and it is unlikely to be a practical option in the future, so it is a source of regret that we did not go down that route.
One of the other things that I was struck by was that the fact that the Canadian pension plan funds were managed on a completely arm's-length basis, unrelated to any contribution that they might have to make to the Canadian economy. They were there to generate as much income as possible to fund pensions. That professionalism came out very strongly.
The last element of the Canadian experience was the recognition that there was no obligation in Canada to purchase an annuity, something about which we have probably all had correspondence from constituents during these recessionary times. The Canadians thought about it in advance and ensured that annuity purchase was not compulsory, a policy that we would like to see enacted for pensions here; I would certainly welcome it.
I stress those three recommendations. The evidence from the Canadian trips usefully brought together a lot of my experience of the matter. It was a useful trip and one that achieved an enormous amount for my own personal education and knowledge. I am grateful to the Committee for allowing me to be a part of it and for choosing this subject.
2.50 pm
Mrs. Joan Humble (Blackpool, North and Fleetwood) (Lab): It is a pleasure to serve under your chairmanship, Mr. Williams, and to follow my colleague on the Committee, the hon. Member for Henley (John Howell), as well as our Chair, whose introduction of the report brought to bear the knowledge that he has developed over the years. There is a lot of important background to the report.
To start on a positive note, I am sure that the Minister was pleased to read in our report that we acknowledge the hard work done by the Government. Pensioner poverty has decreased in recent years. As the Chairman said, we acknowledge the important role of pensioner credit, the winter fuel payment, the increase in cold weather payments and other elements that help pensioners'
lives, not least of which is free bus travel. I see many pensioners in my constituency taking advantage of free bus travel and enjoying themselves.
Those things have helped pensioners, but the two recent Pensions Bills have also contained lots of improvements that should help reduce pensioner poverty in future, including the introduction of a credit for carers, a reduction in the number of qualifying years of national insurance contributions to 30-that will help everybody, especially women, to retire with a full state retirement pension-a proposal to uprate in line with earnings and the introduction of new personal accounts. We all want those improvements to happen sooner rather than later so that people get used to saving for their retirement and build up a personal pension pot as well as their entitlement to a state retirement pension.
Nevertheless, the reason for the Committee's report is the fact that we are all too aware that too many pensioners still live in poverty. We set ourselves a comprehensive task. Page 9 of our report sets out the terms of reference, the extent of which shows that the problem has many different angles that need to be considered. We wanted to know what the Department for Work and Pensions was doing to address the issue, but we also wanted to know what specific groups were more vulnerable to poverty in old age.
The terms include the impact of the financial crisis on pensioner poverty. Much of the debate about the global financial crisis has focused on people in work, but it also affects pensioners, some of whom, of course, are also in work. Other issues include benefits take-up, the basic state pension, disability living allowance, attendance allowance and carers' allowance, which all affect the problem. Are lump sum payments such as the winter fuel payment the right way to address pensioner poverty? Also, of course, there is the Government's overall welfare reform programme. That is why the report is comprehensive. We received a huge amount of evidence from a variety of different people.
Mr. Nigel Dodds (Belfast, North) (DUP): I congratulate the Committee on its excellent and comprehensive report. The hon. Lady mentioned a range of issues, including benefit take-up. One problem is that many people-I meet them in my constituency and elsewhere-do not get what they are entitled to, whether through lack of knowledge or due to difficulties filling in forms and all the rest of it. What more can be done to encourage and incentivise people to take up the benefits to which they are entitled rather than losing out on the £5 billion that Help the Aged says older people go without?
Mrs. Humble: The hon. Gentleman raises a key point. My contribution to this debate will concentrate on two areas. The first is simplifying the system, which includes enhancing take-up. One reason for low take-up of some benefits is that pensioners see them as too complicated and do not understand not only individual benefits but how benefits are inter-related. I shall address that issue.
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