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9 Mar 2010 : Column 30WH—continued
Although the hon. Member for Northavon (Steve Webb) was right to say that there has always been a range of ages, without going into the statistics it seems to me that that range is getting wider. At the top end, many people are living into their 90s and even beyond 100, yet the increase at the bottom end seems not to be as great. I stand to be corrected on the statistics, but whatever they are, we are dealing with a wide range.
Angela Eagle: The statistics might cast some light on this. They are clearly projections, and they have to be kept under review, as do all statistics.
On the whole, the increase in state pension age will not result in a reduction in the number of people who survive to pension age. Indeed, it is projected to increase slightly. At the moment, 83 per cent. of men and 89 per cent. of women born in 1955 are expected to reach the state pension age of 65 in 2020. However, of those born in 1978, 85 per cent. of men, which is 2 per cent. higher, and 90 per cent. of women, which is 1 per cent. higher, are expected to reach the state pension age of 68 in 2046. What Parliament did when it legislated to increase the pension age gradually was to keep the percentages fairly similar; but it slightly increased the number projected to be able to retire despite the rise in age.
John Mason: I thank the Minister for that clarification. I have no problem with what she says. Again, the emphasis tends to be on the average, but I am more than happy to accept the figures. However, we should remember that the average covers an incredibly wide range of people. My point is that we should ensure that the system cares for the individual, whether before or after retirement age. We must emphasise that, and remember that there is a wide range of ages.
I found the Library briefing on the pension age useful. It states:
"An increase in State Pension age would also reduce long-term public expenditure. However, it would disproportionately affect lower-income people who rely more on state benefits in retirement. The same people tend also to have lower life expectancies, and so, with fewer years in retirement, they would see a disproportionate reduction in their income. The effect might be particularly severe on those who have done manual work for long periods in heavy industries, in which there is a record of low life expectancy."
The reality is that the situation of some of those at the top-that includes people such as my mother, who have increased life expectancy-is not matched across the board. The type of work that one does is clearly a factor. I am an accountant and a Member of Parliament, and I could work until the age of 70. However, those in very physical jobs cannot do so.
Another question is whether people can afford to retire. It is clear that people have not been saving enough, and that things are going to get worse as pension schemes close or benefits are cut. We have already touched on the fact that companies might do the minimum compared with what happened in the past, when many did a lot more than that. The danger for society is that the strongest will grab the most, and the most vulnerable will be left behind. The gap between rich and poor will get wider.
Some of the figures in a recent report on inequality jump out dramatically, although the report was quite lengthy, and I admit that I did not consume every word
of it. It said that the 10th richest percentile of the population have 96 times the wealth of the 10th lowest percentile. That gap has become wider over the last couple of decades. The report states that the top 10 per cent. of the population have average wealth of at least £853,000 and that the lowest 10 per cent. have £8,800 at the most. That is an incredible gap, and it is not acceptable. Society will have to consider whether it is acceptable for the gap to become even wider.
I return to the Library briefing. It cites a review of the Oxford Review of Economic Policy by Professor Nicholas Barr. He said:
"Raising retirement age has analogous regressive effects, since workers from poorer backgrounds typically start work earlier and hence make contributions for longer, but have a shorter life expectancy than better-off workers. It can be argued that pension design alone cannot solve problems of wider inequality, which require a broad range of policies including nutrition, health care, occupational safety, and education and training. But at a minimum it suggests a potential role for other instruments, notably disability pension, to reduce regressivity."
We must consider how much compulsion there is to save. Other European countries and Ireland have recently said that they are moving in that direction. It would obviously mean employers having to contribute, as well as employees. Some have suggested that educating people to save more would be sufficient-that we should explain to people that they need to save more for their retirement. It seems to me that the reality is different. For example, young people across the board, no matter what their background, have a tendency not to think of retiring. That is human nature. Another reality is that those on limited incomes are not able, even if they are willing, to put much aside.
Angela Eagle: The hon. Gentleman is making an interesting case for compulsion in saving. Automatic enrolment attempts to use inertia rather than compulsion. Is he saying that it is the policy of the Scottish National party to compel people to save?
John Mason: At this stage, I am simply saying that we need to consider it. Other countries are certainly considering it. My personal thoughts would lean in that direction. However, it would have to be tied in with the minimum wage, which at present is far too low. We cannot expect people to save from such a limited income.
However, some very profitable employers are not contributing to their employees' well-being both in the sense of the minimum wage and the pension contribution. I am happy that the Government have moved forward in some ways, but, as a society, I fear that we are putting too much emphasis on the individual's choice. Although, on the whole, I support individual choice, we as a society have to pick up the pieces, and we need to look at how much people are saving.
As life expectancy increases, the spread gets wider, too. Some people in society might retire at 70 and then live for another 20 years, and that would be great. We would all like to draw our pension from the age of 70 to the age of 90. However, many in my constituency and elsewhere could be retiring at 60 and living fewer than 10 years and drawing a pension at that time. We need to work together as a society. We cannot rely entirely on an individual saving for themselves.
Therefore, there are more questions than answers at this stage. A piecemeal approach to pension provision, as is happening, does not seem to be working. Although
we all understand that the pension age and retirement age are two separate things, they are very much linked. How do we get more individuality and encourage individual responsibility, yet protect the most vulnerable?
The Pensions Commission report of 2005 stated:
"Faced with the increasing proportion of the population aged over 65, society and individuals must choose between four options. Either pensioners will become poorer relative to the rest of society; or taxes/National Insurance contributions devoted to pensions must rise; or savings must rise; or average retirement ages must rise. But the first option (poorer pensioners) appears unattractive; and there are significant barriers to solving the problem through any one of the other three options alone. Some mix of higher taxes/National Insurance contributions, higher savings and later retirement ages is required."
That is a very good summary of the position. We need to consider the three options of increased taxes or national insurance, savings and average retirement ages increasing. None the less, the fear is that the first option, which means that pensioners will become poorer, might be where we are heading.
11.42 am
Steve Webb (Northavon) (LD): I congratulate the hon. Member for Leyton and Wanstead (Harry Cohen) on bringing this important issue before the House. It is one to which we have not devoted enough attention. Although we are talking about what happens post 2020 when we go from 65 to 68, I strongly suspect that our mailbags will start to fill up very soon with letters from women who did not know that the age was going up from 60. Although that change-I think that I am right in saying this-was contained in a pensions Act in the mid-1990s-
Angela Eagle: The change was in the Pensions Act 1995, and there was a lead-in time of 15 years.
Steve Webb: The Minister does not need to be quite so defensive. A Tory Government passed the legislation, so I was not attacking her. When I said a pensions Act of the mid-1990s, I was referring to the 1995 Act. The point I was trying to make is that it can take an awfully long time for people to know about such changes. Given that only those aged 45 or younger would be affected, not many of them were thinking very hard about their pensions in 1995, and that is one of the problems. We need a long lead-in to such changes.
I want to consider issues of both process and substance. The issue about the process is how we make the decision. A number of principles need to be adopted here. In a sense the 1995 Act was right to give 15 years' warning. It does not surprise people, it gives them the chance to plan ahead and enables them to think about their own personal and private pension arrangements and to mesh the two together in a calm, ordered and measured way. The wrong way to do it is what we saw at the Tory party conference last year when the shadow Chancellor pulled a rabbit out of his hat and announced an increase in the male state pension age. When quizzed on women, he announced that there would be a review. As ever when it comes to pensions, it is as if women are an afterthought. That is clearly not the way in which to change state pension ages. We already have a measured, phased process going through. Women's pension ages are rising from 60 to 65 because of equalisation. It seems perverse for a potential party of Government to increase the
gap-albeit temporarily-between male and female state pension ages. I do not know whether the hon. Member for Hammersmith and Fulham (Mr. Hands) will tell us about the legal advice that was sought either before or since that announcement on whether it is legal to increase the gap between male and female state pension ages in an era of equality legislation. I doubt whether it is legal. If such a measure were put into practice, I strongly suspect that a man would take that future Conservative Government to court for treating him disadvantageously relative to women, and I think that he might win his case.
Harry Cohen: That is a very good point. Does the hon. Gentleman not think that if the Conservatives are looking to increase the male retirement age to 66 by 2016, they may say that because of the legal challenge to the equality law, they have to introduce it for women by 2016 as well?
Steve Webb: That would be even more unreasonable given that at the moment, women's pension age will have reached only 63 by 2016. We have heard different versions of the Conservative proposal. Last October, the shadow Secretary of State for Work and Pensions, the right hon. Member for Maidenhead (Mrs. May), said:
"We will bring forward the date when the pension age rises."
"We will review the state pension age, to consider whether the increase...should be brought forward."
Therefore, it is not clear whether Conservatives will change the date, but the point that I made when I intervened on the hon. Member for Leyton and Wanstead is critical. The shadow Chancellor said, "We are making a tough choice. We are raising pension ages to pay for the earnings link. We are being straight with you; the earnings link costs money. We can't get money from nowhere, so we will pay for it by raising pension ages." That was the quid pro quo and it was courageous of him to say that. However, we should look behind the scenes and ask, "If the state pension age is not going to be increased until 2016 or 2022, where does the money come from for the earnings link by 2015?" The sums do not seem to add up, so I hope that we will have an answer to that today.
Going back to process, Professor Nicholas Barr has been quoted once already today. He said something else about process in his evidence to the Work and Pensions Committee in 2006. He was talking about the long-term signalling, and he said:
"If what people hear is that the retirement age will rise from 60 to 65, they think, 'I'm going to have to work 5 years longer; we are a1l going to have to work 5 years longer.' If you do it right, as we did it for raising women's retirement age, you announce the change a long time in advance so nobody is affected in the short run. Thus you do not give people nasty, short-run surprises, but phase in the change gradually."
That is absolutely right, and is clearly not what the Conservatives did last October. Moreover, they claimed spurious amounts of revenue from the change. The National Institute of Economic and Social Research had done some research into the long-term Exchequer flow-backs of a phased increase in retirement ages. The Conservatives lifted the figure from that report and said, "If we put up the pension age by one year for men,
we will get so many billion pounds back." The institute said, "That is not what we said." It had talked about a much longer term process whereby people's behaviour has time to change, and its research was about raising retirement ages. The point has already been made that pension ages are not retirement ages. If we simply jack up the age from 65 to 66, there will be a lot of men to whom we pay another benefit-whatever it might be-instead of a state pension. We will not save money because they will not magically go on working; many of them have already stopped working by 65. It is easy to wave around a large number and sound impressive and claim that it is based on complex economic modelling, but, if we want an answer, we have to ask the same question as the researchers.
We need stability and a transparent process. The Turner Commission was right to say-and the Government have not accepted this-that there should be a standing body. By that I mean an ongoing body, separate from the cut and thrust of party conference speeches, which reviews not just average life expectancies but, as the hon. Member for Glasgow, East (John Mason) reminded us, the dispersion of life expectancy-that is very important. I made the point to him that any pension age is unfair in the sense that some people will not reach it and others will live long past it, so there is a regressive element to having a state pension age. I suspect that the statistics that the Minister cited when she intervened reflected a narrowing of the differentials. It is true that someone who has slogged their guts out in heavy manual labour will tend to die young, but the number of such jobs are gradually diminishing for all sorts of reasons.
Although that change takes a very long time to work its way through the system, over time it will do that. I would therefore imagine that the proportion of the constituents of the hon. Member for Glasgow, East who retire after a lifetime of heavy manual work is declining every year or, if not, it will decline soon. So I hope that this issue of dispersion will diminish, but, like the poor, it will always be with us. There will always be dispersion and he is right to remind us of that.
My feeling is that, if people are slogging themselves into an early grave through heavy manual work, we should not fix that situation through the pension system but through what we do about the labour market, including the terms and conditions of work, occupational health and so on. As the hon. Gentleman said, this issue is not just about pensions; it is about everything that we do about working lives, life expectancies, neighbourhoods and so on. It is a big issue. Again, that is why I think that a standing commission, which would examine this issue and consider which groups will gain or lose through the changes, is the best way forward, taking the matter out of the daily cut and thrust of politics.
We cannot do nothing; we cannot stand still. I suppose that I slightly part company with the hon. Member for Leyton and Wanstead at this point. I do not know if this statistic is entirely accurate, but it is said that every 10 years, average life expectancies rise by two years. Alternatively, for the 90 minutes that we will spend in this debate, we will all live 18 minutes longer, or it might just feel like it-I do not know.
Therefore, the question is what we do about that increase in average life expectancies. The Government's
current plans are from 2020 and they are to raise the state pension age for men and women by three years over a 25-year period. At an increase of two years per decade, however, standing still would imply that the state pension age should be raised by five years, as a rule of thumb. So, even the rises that are in the pipeline will probably fall slightly further behind the advance of life expectancy. That is probably where Adair Turner is coming from when he says that perhaps he should have gone further. I have a feeling that if we asked a standing body to look at this issue again and to keep looking at it, it might regard an increase of one year per decade until 2044 as slightly too slow. Consensus is changing on this issue and I have a feeling that we will end up moving faster than that. However, the plans for the seventh Lib Dem term of Government are still a bit fluid at the moment, so I am not making a policy pledge for 2045.
The only caveat about that change is that, of course, actuaries notoriously get these things wrong. I once said to a senior actuary, "Look, isn't an actuary's job in life just one thing, which is to work out how long we're all going to live, and don't you keep getting it wrong?" He replied, "No, we get lots of other things wrong as well", which was not the most reassuring answer that I had ever heard. So we cannot just assume that life expectancy will go on rising inexorably. Childhood obesity, or a similar problem, could lead some generations to live for less time than their predecessors. Personally, however, I do not think that we are anywhere near that point.
Therefore, we need to keep this issue under review, but in a way that is measured, incremental and independent, so that there are no sudden surprises and no expressions of, "Ooh, there's a hole in my budget; I want a fancy policy commitment but how can I pay for it? Oh, I'll jack up the pension age". We want none of that sort of nonsense; we want measured, steady progress on this issue, so that people can plan ahead.
I thought that the hon. Member for Glasgow, East made a very interesting suggestion when he quoted Nicholas Barr about an early retirement disability pension. Perhaps we could call it the invalidity pension or something similar-I do not know. In a way, that suggestion may be part of the answer to the situation of a male manual worker who retires early in poor health. If we cannot govern the entire pension system for 10 million pensioners-eventually 15 million-around a particular group of such manual workers, perhaps we can have some type of targeted support for that group that is not grotesquely expensive, because it will not be paid to everybody, but that recognises the fact that, if we are not careful, any changes in retirement ages will prejudice some groups.
That is a very helpful point, which I will take away from this debate. The hon. Gentleman's suggestion might be one way of squaring the circle. If there are particular identifiable groups who will lose out from a general rise in the state pension age, some tailored measure of that sort might be the most nuanced policy response.
The state pension age is, of course, only part of the story. The state pension is now a much smaller part of people's income in retirement than it was in the past. The whole package of income in retirement is important. So it is not just a question of when someone can get the state pension, but how much they can get.
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