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10 Dec 2009 : Column 167WH—continued
All that is against a background of existing damage to final salary schemes. Active membership of final salary schemes has halved since 1996, and there have been problems associated with the Pension Protection Fund and the financial assistance scheme, which the hon. Member for Stroud (Mr. Drew) referred to. There have been considerable problems in getting compensation for people in all the schemes that have collapsed since 1997, which at the same time undermines people's confidence in the process of saving for retirement. That is the key to all this; we must make it worth while for people to save for their retirement. If some experts are right, and one in four babies born today will live to see
their 100th birthday, a potential king-sized problem of pensioner poverty looms in the future, as we try to pay for many years of retirement, far more than we have at the moment.
Kelvin Hopkins: The hon. Gentleman rightly says that occupational schemes are declining. Is it completely unrealistic to expect people voluntarily to save the sort of amounts that will be required in order to have a decent pension in old age? Does he have a serious alternative to my state scheme proposal, which would be efficient and would work?
Mr. Waterson: As the hon. Gentleman might imagine, we are a bit dubious about any state-based solution. However, we think that auto-enrolment harnesses inertia-that is the problem; people are not interested in finding out the options. Furthermore, apart from not being a very conservative thing, straightforward compulsion means forcing people to do something that might not be in their best financial interests. A huge question mark hangs over personal accounts regarding the interaction of means-tested benefits.
The Parliamentary Under-Secretary of State for Work and Pensions (Helen Goodman): Would the hon. Gentleman repeal the legislation introduced by the Government in 2007-08, which enacts automatic savings and places a savings obligation on all employees? Is that what he means when he says that he does not want a state-based solution to encourage savings?
Mr. Waterson: I was saying that I did not want the state-based solution proposed by the hon. Member for Luton, North (Kelvin Hopkins). I am not saying that we would repeal that legislation. Let me be precise: we are in favour of automatic enrolment. We were in favour of it before the Turner review or personal accounts were dreamt about. It was in our last election manifesto, and we are signed up to the Turner consensus which, as far as I am concerned, includes an easy-to-access, cheap pensions saving vehicle for people who do not have pensions at the moment. Whether that is precisely the right model is another matter. We have said that if we win the election, we will review how far the Personal Accounts Delivery Authority has got with designing personal accounts, and I have mentioned one or two of the issues that the review would cover.
Paul Rowen: The hon. Gentleman says that he is wedded to the Turner consensus. Does that also mean the retirement age, and the agreement that there will be a progressive raising of the retirement age?
Mr. Waterson: I was coming to that issue, but I shall deal with it now. We think that anyone who tinkers with the Turner consensus does so at their peril. It was a painfully achieved consensus, and is the only game in town as far as long-term pension reform is concerned. The shadow Chancellor felt able to bring forward the timetable for raising the state pension age because Lord Turner has subsequently said that he wished he had been more radical. That is our reason for the line that we take, which I know is different from that taken by the hon. Gentleman's party.
I have a couple more points. Decumulation is a dreadful word, but it is an important issue that one or two people have touched on. People must know more
about the choices that are available to them as they approach retirement, particularly those about finding a better deal for annuities-the open market option, or OMO as it is called.
To return to the point made in the last intervention, it is important to have good thinking about whether people choose to work longer. Already, 1.3 million people are working beyond the state pension age. There are problems with the default retirement age. The situation is particularly bad in parts of the public sector and particularly local government, where as soon as someone is 65, it is goodbye. Many people resent that. Those points were made by my hon. Friend the Member for Henley (John Howell) and by the hon. Member for Rochdale.
There are benefits from working longer. Boosting incomes is an obvious one. There are many health benefits for some people. There are clear issues about longevity, physical jobs and so on that need to be examined, as I am the first to accept. It is a question of choice, but it is a good way of boosting incomes, apart from the other benefits to be had. Of course, one of the things that we did-in the Pensions Act 2004, I think-was to allow people to defer their state pension for five years and take a lump sum. That is one of the best deals around, as far as I can make out, as long as people are around to collect it.
I have a final quick thought on restoring the earnings link. The hon. Member for Luton, North particularly talked about that, as did other hon. Members. The Select Committee recommended that it should happen in 2012. My understanding is that the Government are currently committed to it happening some time in the next Parliament, if they are in power. It is about time that they came up with a specific promise on that.
This has been a bad few days for the Government's flagship policies. Tuesday saw the imploding of their Green Paper on social care. Yesterday saw a further undermining of personal accounts and pensions policy generally. This Government, like their flagship policies, are holed below the waterline and it is time for a fresh start.
4.21 pm
The Parliamentary Under-Secretary of State for Work and Pensions (Helen Goodman): It is a pleasure to speak under your chairmanship, Mr. Williams. I apologise on behalf of my hon. Friend the Minister for Pensions and the Ageing Society, who obviously has responsibility for this area of policy. Because of the combination of the timetabling of this debate with the uprating statement in the main Chamber, she was unable to be here, so I am speaking on behalf of the Government on this matter today.
I congratulate the members of the Work and Pensions Committee on an excellent and, as has been noted already, extremely comprehensive report on pensioner poverty. In particular, I congratulate the Chairman of the Committee, my hon. Friend the Member for Bradford, North (Mr. Rooney), who once again brought to the discussion not just his huge knowledge, but his great commitment to the people affected by the pensions and benefits system. He began by reminding us of the position as set out by Sir William Beveridge. Of course,
he is absolutely right: Sir William Beveridge always envisaged that the state pension would be supplemented by people's own savings-by people taking responsibility for themselves.
The reforms that the present Government have introduced in the Pensions Acts of 2007 and 2008 are among the most significant reforms of pensions legislation that any Government have undertaken since the second world war. They will deliver a fairer and more generous state pension. As a result of the reforms, three quarters of women reaching state pension age in 2010 will be entitled to a full basic state pension, compared with less than half now. The introduction of auto-enrolment will result in between 5 million and 9 million people newly saving or saving more for their retirement. Those are fundamental changes in our pensions system, which will allow people to take more responsibility for themselves.
The 2007 Act provides a fairer and more generous pension. The changes will help to tackle the historical inequalities in the state system-in particular, by reducing to 30 the number of qualifying years that people need for a full basic state pension for both men and women. The Government have made it clear that we will restore the link between the basic state pension and earnings. Subject to affordability and the fiscal position, that will begin in 2012 but will in any case be completed by the end of the next Parliament.
Paul Rowen: I am interested in the Minister's comments about beginning in 2012 and ending within the Parliament. Could she clarify what she means by that?
Helen Goodman: We have said that we will do it at some point from 2012 but in any case by the end of the next Parliament. That is the position that the Government take.
We are replacing home responsibilities protection with a new system of weekly credits for those pensioners receiving child benefit for children up to the age of 12, approved foster carers and those who spend at least 20 hours a week caring for severely disabled people. That is to ensure that there is provision through the state system for those whom the Committee has identified as the ones who are particularly liable to suffer pensioner poverty.
From 2010, an extra 1 million people will build up entitlement to the state second pension. Uprating the basic state pension in line with earnings from 2012 should roughly double its value by 2050, compared with the value if current uprating policies continued.
Kelvin Hopkins: Although I welcome that, as I am sure we all do, the reality is that the slippage since 1980 has been so substantial that there should also be substantial increases in the pension-not just the re-linking with the earnings index but substantial increases-to compensate for what has been lost.
Helen Goodman:
I intended to finish by saying something about the general record of the Government, but as has been pointed out to my hon. Friend by other hon. Members, the fact is that by introducing the minimum income guarantee and the pension credit, the Government have lifted 900,000 pensioners out of poverty in the past 12 years. I am sorry about the fact that the previous Administration cut the earnings link, but it would not
be realistic for the present Government to undo what was done more than 30 years ago, within the timetable that my hon. Friend seems to be suggesting.
Kelvin Hopkins: I have some figures from 2007; I agree that they have changed slightly since then. The figures, from Aon Consulting and published in The Guardian, show the UK at the bottom of the European league table, with the European average for the basic state pension at 60 per cent. of average working pay and ours at just over 30 per cent. In terms of making up that gap, even the National Pensioners Convention figure would still be below the EU average.
Helen Goodman: It is misleading to focus on the state pension alone. I think that my hon. Friend was referring to the OECD report published in June. That report shows that the replacement rate for the average earner, taking account of private pension provision, rises to 70 per cent., which is above the overall OECD average. The European Commission's report on social protection and social inclusion this year showed that the median income of those aged 65 and over in the UK rose from 15 per cent. below the EU average in 1997 to 9 per cent. above it in 2007. So my hon. Friend should give credit where it is due.
Let me say a few words about the Pensions Act 2008. For the first time, all employers will be required to contribute a minimum of 3 per cent. to an eligible employee's workplace pension scheme. That will supplement the 4 per cent. contribution from the employee and about 1 per cent. from the Government in the form of tax relief. It is planned to introduce from 2012 a new low-cost saving vehicle-the personal accounts scheme-aimed at employees who do not have access to a good-quality work-based pension scheme. In the main, those are median to low earners.
The Opposition spokesman, the hon. Member for Eastbourne (Mr. Waterson), suggested that this week there had somehow been a U-turn, or at least an S-bend. That is absolutely not true. The starting date for automatic enrolment is unchanged; it was always planned to be October 2012, and it is still planned to be 2012. Implementation was always intended to be staged, and it is still intended to be staged. We will announce in January the details of our full implementation path, in response to the consultation that we have undertaken.
I shall move on to the position of women in the pension system, because they were one of the key groups that the Select Committee identified as facing particular problems. Of course, the most important thing that has been done in the past 12 years is the introduction of pension credit, which means that pensioners need not live on less than £130 a week. Almost 60 per cent. of recipients of that credit are single women. As a result of the reforms that we have introduced, around three quarters of women reaching state pension age in 2010 will be entitled to a full state pension, compared with around half who would have been entitled without the reform, and the figure will have risen to more than 90 per cent. by 2025. Reforms in the Pensions Act 2008 will provide equality of opportunity for male and female workers to build up a private pension, thus tackling the long-term problems from which women in this country have suffered in the past two generations. We estimate
that around 3.5 million to 4 million women will be eligible for automatic enrolment in a workplace pension scheme.
My hon. Friend the Member for Bradford, North also raised the issue of people disabled in early life becoming poor old people-having a life totally lived in poverty. It is certainly true that that group has a high risk of living in poverty, but I would like to point to a number of policies that the Government are implementing that are intended to-and do-help to mitigate that situation. First, the gap between the employment rate of people with disabilities and that of the rest of the population has been falling, and that means that people with disabilities are able to build up their contributions record, which is what they need for their pension. Further to that, we have introduced reforms to the state pension, ensuring that more people with disabilities can build up a state second pension, as well as the credits for a full pension.
The hon. Member for Henley (John Howell) pulled out a number of issues from the report. The first one he talked about was the position of pensioners in rural areas. One of the things that the Government have done to support people in rural areas is to introduce free bus passes. I do not know the Conservative party position on that or whether it intends to maintain free bus passes.
Mr. Waterson: I am grateful for the opportunity to confirm that we are great supporters of concessionary bus fares for pensioners. We think that they have been liberating for pensioners, and have been a great success. I have only one caveat, which I suspect is shared by the hon. Member for Blackpool, North and Fleetwood. That caveat is that places such as seaside resorts end up spending a great deal of council tax payers' money running the buses, because the Government announced that bus travel was going to be free, but that did not come to pass in areas of high usage of bus passes, of which seaside resorts are a good example. The financing needs to be looked at, but we are great fans of the scheme and intend to continue concessionary bus travel.
Helen Goodman: I am sure that that is very welcome. The hon. Gentleman has not made it clear whether it will be financed by council taxpayers or from central taxation.
Issues relating to rural areas were also raised by my hon. Friend the Member for Stroud (Mr. Drew). A large amount of work has been done to support take-up campaigns in rural areas and they have been, as my hon. Friend said, extremely successful.
The hon. Member for Henley also asked about poverty among black and ethnic minority groups. The Department is absolutely conscious of the need to address that problem, which is why the Pension, Disability and Carers Service has specific take-up campaigns for those groups, and is addressing the issue energetically at the moment.
My hon. Friend the Member for Bradford, North also talked about the importance of equity release and the quality of advice that people receive. The Government are extremely supportive of innovations that promote independence and well-being in later life, and our aim is to provide a well-functioning market in that area. More than 90 per cent. of that market is now regulated by the safe home income plan of the UK industry body for
equity release. He also talked about the importance of good-quality financial advice and information. Services such as money guidance and the one-stop shop must gain public trust to be fully effective, and that is why we are working with the voluntary sector. We are working with Citizens Advice and Age Concern, and have some pilots in the north-east. Those groups already have the confidence of the communities and are, therefore, extremely effective not just in giving independent advice but in being understood to give it.
My hon. Friend the Member for Blackpool, North and Fleetwood (Mrs. Humble) talked about the position of the personal expenses allowance and her desire to see it increased to £40 from £21. Her concerns were echoed by my hon. Friend the Member for Aberdeen, South (Miss Begg). As colleagues from other Departments have pointed out on previous occasions, although that is a worthy objective, it would be extremely expensive, and at the moment the Government's priority is to concentrate on improving the quality and level of social care. I cannot, therefore, offer an immediate solution to the problem that my hon. Friends have raised.
My hon. Friend the Member for Luton, North (Kelvin Hopkins) questioned why we were encouraging a system for pensions for the long term that was not simply state provision. That question really was answered by the Chairman of the Select Committee in his opening remarks. Surely the key point here is incentives. We have to set up a system that rewards people who have saved and encourages people to save for the future, and to do that alongside providing-which we have done-a minimum income guarantee, which enables people to have a proper and dignified old age.
Kelvin Hopkins: There is a constant emphasis on voluntarism. Many countries in Europe have compulsory contributions by employers and employees, and any attempt to tamper with that sees demonstrations in the streets, as has happened in France. What is wrong with a compulsory state system? If people who are very rich want to save on top of that, fine, that is not a problem at all. They would not be means-tested because there would be no means-testing in the system.
Helen Goodman: I think that my hon. Friend is calling for the Pensions Act 2008, which we have already implemented and which provides for automatic savings.
Several hon. Members have talked about the importance of the default retirement age, the introduction of which in 2006 was a significant step forward. For the first time, it meant that people had the right to remain in work until the age of 65. Proposals to raise or abolish the default retirement age will clearly need consensus between employers and employees for it to work properly. It is not the sort of thing on which we can change our minds, rewriting legislation every couple of years. That is why we are reviewing the matter.
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