| Previous Section | Back to Table of Contents | Lords Hansard Home Page |
Baroness Castle of Blackburn: She has asked me to convey her determination to be present during our Committee debates. I am sure that that reassurance will be very welcome to the Minister.
No one would have guessed, on listening to the Minister galloping her indistinct way through her brief, that we were today taking part in a debate on one of the crucial turning points in the development of pensions policy in this country. It is all very low key, is it not? Everybody is keeping it down. The Government have very cunningly timed this debate to take place two days before we rise for the Christmas Recess, when all our minds, including mine, are on whether we have wrapped all our presents, sent all our Christmas cards and yet decorated the Christmas tree.
But I want to point out to this House what is happening. We are going to double the number of pensioners on means-tested benefit as a result of this legislation. That may not worry the Minister but it worries a number of us who do not believe that this country wants to live in the means-testing ethic to which the Government's policy is leading us.
Apart from anything else, how can they be so certain about the take-up? Dash it all, we have just heard in this debate that the Government's take-up campaign for MIG, which involved getting all kinds of celebrities almost on their knees to beg pensioners to take up the minimum income guarantee to which they were entitled, had only led, despite the expenditure of
considerable money, to an increase in successful applications of 120,000. You are now talking about 5 million pensioners. Do you really think that you are going to get 5 million pensioners taking up the pensioners' credit? I do not. I think that we shall be asking questions in this place in the coming years which will reveal that the take-up is as laggardly as it has been over the minimum income campaign. As more than one pensioners' body has pointed out, the elderly do not like the stigma of having to reveal their last penny in order to qualify for what they feel should be theirs as of right. I am afraid that we shall find that they will not accept the Government's easy solution of, "Oh well, that is all right. We will just tell them that it is their right".I was a Labour MP in the House of Commons during the 1960s, when we begged pensioners to take up the national assistance or supplementary benefit. We renamed it almost as many times as this Government have renamed their benefits. First, it was income support; then it became the minimum income guarantee; now it becomes the pensioners' credit. It does not matter how often you change the name or how often you tell proud people that this is not charity but their right, they will say, "Then why am I expected to fill in all these forms if it is my right?"
I acknowledge that the Government, as a result of the pressure from behind them in the years of debate on this matter, have reduced the application form for minimum income guarantee from 40 pages to 10 pages. I think that I could just about manage that, but it is hardly an "open sesame" to something that people feel is theirs as of right.
I must say that the Government do listen and sometimes act on what they hear, which is why some of us keep up our pressure in this House and refuse to accept defeat. The pensioners' credit is due to the efforts of people like Lady Turner and the rest of those who have joined in revealing that means testing penalises thrift, penalises people who have saved and put aside something for a second pension and penalises people who have not blown it all.
I remember in one of our earlier debates—I think on the pensions and welfare Bill; there have been so many and they all have different names—reading out a letter that I had received from a pensioner. She said that what she objected to was that having scraped and saved all her life—having got a little house, a little second pension and a few savings in the bank—her friend and neighbour, who had never saved a penny, received more pension than she did. I think that the House was impressed by the sincerity of that letter. She said, "I do not begrudge her it, but why should I be penalised for having been so careful?"
I think that that sort of clarion call penetrated even the Calvinistic heart of the Chancellor of the Exchequer because he suddenly said, "Oh, this Government have made a wonderful gesture—they are going to reward saving". That conversion was welcomed. Mind you, there were no credits given for the conversion to anyone else but themselves.
But then, you see, having accepted that we were right to say that means testing penalises thrift, hard earnings and the economic needs of this country for saving and investment, what do they do? What solution do they provide? More means testing. So we have another great paraphernalia for 5 million more.
Incidentally, I will tell you what I find interesting— there is no statement in any of the Government's documents as to what would be the administrative cost of extending means testing to 5 million pensioners. Because it costs, you know, just as private pensions cost. One pound in every £4 that you save goes on administrative costs, while, as the Office of Fair Trading pointed out in its report in 1996, the state pension, SERPS, was the most economical scheme to administer, the most comprehensive in its area and totally portable—something that could not be said about any of the other schemes and systems. But, no, that was awful.
I must tell the Minister that I am not disheartened by her rejection of my policies—not a bit. The more we see the effect of her alternative, the more my position is strengthened. I have a few instances here. It is very interesting to hear the voices that are now coming out. Age Concern has quite rightly stated in its briefing on this Bill that it believes that the best pension system is a nationally-administered state insurance scheme. Quite right. Good old Age Concern! Help the Aged has also said that it thinks the Government's present policy is misguided and believes that it would be better to revert to what we as a movement had so effectively before. The Institute of Public Policy Research—which I believe is a fairly Blairite kind of body—issued a report only recently saying that the Government's whole pension policy is unravelling and that the Government should go back to the drawing-board and see what they can do. I urge the House to take seriously what is happening. The future security of millions of our people is at stake. It said that the policy is unravelling because there is no certainty that the stakeholder pension will hit its target or that it will reach the people who need it. As for the state second pension, it remains dangerously obscure.
I received a lovely boost from an article in the Observer of 9th December, just a couple of Sundays ago. It cheered me up no end. It said:
- "It would be fairer and more cost-effective to adopt a nationally run social insurance system, with top-ups paid by the better-off, to co-exist with private saving".
- "exactly like the scheme suggested by Barbara Castle 30 years ago".
I do not always feel like boasting about my longevity but it is nice to be remembered after 30 years. I say only this: I did not only suggest the scheme—Parliament adopted it and the country welcomed it, as did the pensions industry. "At last", it said, "we have got a real public/private partnership that is realistic. It will work and leave out no one".
If the Observer is prepared to look back 30 years, why should not this House? Why should we not have the guts to face up to this patchwork quilt? They say,
"Oh yes, means testing is uneconomic, so let's slap on some more means testing". I ask you. If I were still a Minister, I should be ashamed to put that forward. I would get my lads and special advisers around the table and we would say, "What can we do? It has got to be affordable. The sky is not the limit. We all know that we are up against public expenditure limits. What is the best that we can do?" In other words, I call on the Government to listen to the public policy research people and Help the Aged, and to say, "Our policy is unravelling. We will go back to the drawing-board".4.43 p.m.
Lord Fowler: My Lords, it is a great pleasure to follow the noble Baroness, Lady Castle of Blackburn. The first speech that I ever made on pensions was on her Bill in 1975. Two weeks earlier, I had been appointed to the shadow Cabinet of my noble friend Lady Thatcher, much to my surprise and the great annoyance of my rivals. For the next two weeks, I immersed myself in pensions. I took advice from virtually everyone, including the noble Baroness, Lady Andrews, who made an excellent speech this afternoon. I turned up for the debate in the House of Commons with great trepidation, thinking that it would be one of the great debates of our time. I found that when the Bill was called, the House emptied; 10 people remained on one side and 10 on the other—that is unlike what happened in your Lordships' House a few hours ago. After a while, the noble Baroness, Lady Castle, disappeared as well, to hold a press conference on why we should say "no" to the European Union.
My career has followed that of the noble Baroness in every way. I have gone into every department that she worked in, including those responsible for social services, transport and employment. In those areas, I do not think that we have agreed on anything at all. I pay very sincere tribute—I believe that I speak for the whole House—to a politician who has always fought with great courage for what she believes in.
I turn to the Bill. Not wanting to change the political habits of a lifetime, I fear that I have to say that I do not agree with the noble Baroness. In making policy on pensions and social security, there are two broad choices that any Minister and any government can make. One can give general benefits to everyone irrespective of need. The disadvantage of that is that one obviously gives benefits to many people who by most—virtually all—definitions do not need them. It is vastly expensive and, even with the clawback of taxation, it remains so. Enormous sums are involved.
Alternatively, one can try to target benefits to those who need them. I agree with the noble Baroness, Lady Andrews, who said that we should get away from the emotiveness involved in describing that process as means testing. In 1985, I carried out a social security review under the Thatcher government. I argued unambiguously for more targeting of benefits. The aim was to produce help for those who needed it and not to put a counterproductive burden on the economy. So we kept, for example, child benefit as a general benefit but we introduced family credit for low-income
working families who needed extra support in bringing up children. That policy was accepted and followed by the Major government. It is the obvious basis of today's child tax credit system.I have to say that at the time and in subsequent speeches I have argued that the natural complement to that policy is the pension credit. That gives an additional pension to those who, through no fault of their own, have not been able to build up an adequate occupational or personal scheme. That may have been because there was no occupational scheme for them to build up or because of the indefensible rules of some of the occupational schemes that used to exist. I remember my father's own experience—or my mother's, as it happened. My father died aged 62, having worked for 30 years for the same company and built up a pension. However, because he had not reached the age of 65, no widow's pension came; all that was returned were the contributions that he had made. Fortunately, as a Minister, I was able to help change that indefensible position.
To be frank, I should have preferred it if my government had introduced the pension credit. I have no intention of jumping overboard just because that proposal comes from the current Government. It is long overdue, and my hope is that it will provide support for some of the most deserving people in this country.
I am of course aware of the counter-arguments. One of the chief counter-arguments is that the system is over-complex. If it can be simplified, all to the good. If it can be paid through the tax system, I am entirely in favour. My party used to be committed to tax credits, and I still believe that there is much in that system.
I also believe that a great deal of nonsense is talked about simplifying social security. When I carried out my social security review, we came across a very simple benefit called the death grant. The condition that triggered the benefit could not have been clearer. One did not need to think deeply about how the benefit was secured. There was no means test—the benefit went to the widow of a millionaire or the widow of someone on low income and in poverty. It was introduced for the very best of motives—to take away the real concern among families that they would be unable to afford the cost of a funeral. A benefit was introduced with impeccable intentions but in practice it turned out to be disastrously inadequate.
By the time that I reached the Department for Social Services, the grant amounted to £30. It was irrelevant to most people and it was entirely inadequate to those who needed it. In terms of spending, it cost £12 million to administer an annual expenditure of £17 million. That is the position I inherited. No government would increase the benefit but neither would they abolish it because it was regarded as politically untouchable. We did abolish it but, at the same time, we targeted spending on those who needed help. At the time, the policy was opposed by the party opposite, but I see no great rush to return to that old system.
Therefore, I do not go along with the idea that simplicity is all. There is complexity in social security just as there is in the tax system, and for very much the
same reason. One is dealing with millions of different people with different incomes, different needs and different positions and conditions. But that is in no way an argument for saying that one should not do as much as possible to clarify the position. We should obviously do that. But I remain the supporter of a system which gives child benefit as a general benefit and, in addition, family credit as a targeted benefit. I certainly support the idea of the basic state pension and of additional, targeted help to those who need it.I shall retain my detailed criticisms of the Bill for the Committee stage. I believe that the very title of the State Pension Credit Bill is extraordinary nonsense. If anything, it is the taxpayers' pension credit Bill. But we all know why the Government are doing this—it is so they can say that they have replaced the noble Baroness's state earnings related pension scheme with the state pension credit scheme. I do not believe that the mere fact that the one has next to nothing to do with the other has deterred them.
Needless to say, I believe that there are far more profound and fundamental criticisms concerning the Government's policies. My aim was to create a position in which everyone had a second pension of their own—either an occupational or a personal pension—in order to do away progressively with the need for pension credits. Frankly, I do not believe that the Government's current policy will achieve that end. That is my basic criticism in this Second Reading debate.
Currently, we are seeing companies abandon final salary schemes. There is no question of that. Mostly we are seeing people being discouraged, not encouraged, to save for their retirement. I do not say for a moment that that is all the Government's fault. Clearly it is not. Demographic trends and people living much longer than previously obviously add to the uncertainties of the cost of a final salary scheme. There is no question about that. Nor do new accounting rules, mentioned by my noble friend Lord Higgins, that put perceived actuarial deficits into company accounts have a helpful effect on the continuation of those schemes.
But the Government seem to be fundamentally at fault in at least two respects. First, I believe that the £5 billion a year pension tax introduced by the Chancellor in the 1997 Budget has had a very damaging effect. Five billion pounds a year is being taken out of pension funds, and that affects everyone who saves for their retirement. In many ways I believe that it is amazing that the Government, with so little perceived outrage at the proposal, have got away with an attack which has affected so many people in this country.
I fear that the reason is that pensions and pensions policy are perceived by the public as a rather complex area. Sometimes pension holders do not even know the details of the schemes to which they belong. I remember that we carried out a survey on the state earnings related pension scheme when we considered changing the system. We found that virtually half the people who were in that scheme did not know that they were members of it. That is a fairly dramatic example of the ignorance that I fear exists in relation to
pensions policy. If one then begins to talk about changes in advanced corporation tax, there is a great danger that the public will switch off altogether. The fact is that the full impact of what is taking place will not be felt now; it will be felt in the future when pensioners come to draw the pension. That is the real tragedy of what is taking place.The second reason that I blame the Government is the impact of the rule which states that, if one has a personal pension, one must put one's savings into an annuity at the age of 75. Annuity rates have fallen and I believe that we must take account of that. The position is not the same as it was 10 or 20 years ago. People see that clearly for themselves, and many no longer regard the advantages of saving in a pension scheme as they once did. Again, the consequences will be felt not immediately but, I believe, by people who do not make proper provision for their retirement. So far as that is concerned, we shall again see a delayed impact.
I know that the Government have now said that they will re-examine the position concerning annuities at the age of 75. Personally, I do not expect a great deal from such a review for the following reason. At the TUC conference in October, the Minister for Pensions, Ian McCartney, dismissed the case as applying only to the rich. I believe that that is complete nonsense. I do not consider that it applies only to the rich; it applies to a whole range of middle-income people in this country. I believe that he would be well advised to consider that case with sympathy and with the aim of trying to encourage people to make more and more provision for their retirement. There should be no doubt or debate about that.
Therefore, I fear that many people could face an impoverished retirement unless we change policy. That is the case directly because of the Government's policies. Furthermore, I believe that there will be two nations in retirement. One will be the public sector, including civil servants, Ministers and MPs like Mr McCartney, and former MPs and Ministers like myself. Incidentally, even now MPs are pressing for a further reduction in their accrual rate. They will have their final salary scheme. I guarantee that that will be preserved, and the bill will be picked up by the state and local government; in other words, by the taxpayer.
The other nation will be the private sector and, in particular, middle-income groups which are losing out directly as a result of the Government's policies. I believe that we must face the issue and the problem that exists there.
Therefore, I say to the noble Baroness that I support the pension credit and I congratulate the Government on having introduced it. However, at the same time I deplore the way in which the Government are eroding the financial position of those in this country who save for retirement. We are not talking about rich people; we are talking about middle Britain and millions and millions of people who are trying to save for their retirement. At least the mis-selling of personal pensions could be put right, albeit in a cumbersome and lengthy process. But the £5 billion a year pension
tax will not be put right. We all know that. The Government do not have the slightest intention of putting right that tax, and the people who will suffer will be tomorrow's pensioners.4.58 p.m.
Baroness Gibson of Market Rasen: My Lords, I do not know who decided on the speakers' list today but I have obviously drawn the short straw, speaking as I do after two such formidable experts in your Lordships' House as my noble friend Lady Castle and the noble Lord, Lord Fowler.
In my short intervention I want to concentrate on only one aspect of the Bill—the pension service. I begin by explaining that I shall use the language of entitlements rather than delve into means-testing because it seems that the way that evaluation is being tackled in this Bill is different from the way that it has been tackled in the past.
We have heard much about the complexities of the Bill. However, I want to welcome one proposal in it that should make life easier for pensioners; that is, the pension service. It is a system designed to be both simpler for all to understand and fairer in its implementation. It is on that subject that I wish to concentrate today.
Like my noble friend Lady Andrews, as I read the Bill my thoughts turned to my mother. Without any doubt the current system is extremely complex. Currently my mother lives in a residential home in my home town of Market Rasen. The home is pleasant, well-run and caring. In that sense my mother is lucky, but on the downside she is 89, very frail and easily bewildered. Luckily for her I am able to assist in the running of her affairs. If I were not able to do that, I dread to think how she would have coped with the plethora of forms and questionnaires that she needed to fill in to gain the rightful payments towards her keep in the home.
So that she could receive her entitlement I filled in the forms from different authorities, couched in less than helpful language and I spent hours on the telephone to different parts of the country. My mother could not have managed to do that. Six years ago, when she became unable to care for herself, she had to sell her only valuable possession—her bungalow—to pay for her upkeep in the home. Now the money that she received for the bungalow is running out and again I am dealing with the various authorities to sort out her affairs. Already the nightmare of being pushed from pillar to post has begun.
My mother is only one of thousands of citizens all over the country whose anxieties reach breaking point if they have to deal with bewildering bureaucracy. Anything that can simplify the current unwieldy system must be welcomed. I agree with other noble Lords who have spoken that one area of simplification must be the forms that have to be filled in, of which I am sure the Minister is aware.
The pension service should not only simplify matters, but it should also establish a system whereby pensioners can receive all their entitlement
automatically. The first indication that the Government would introduce a new pensions organisation to deliver services and benefits to pensioners was in March 2000 and two years later it will begin to operate. As I understand it, the proposals are that pensioners will be contacted before they reach pension age to assess future income, to calculate the pension credits and to organise the basic state pension payments. After that first assessment, the pension credit will usually need to be assessed only every five years.The pension service will deal with all pensioners issues. It will provide one point of contact for pensioners and it will act as a gateway to other services. It will provide a local service, working in partnership with local authorities and other organisations such as the health service, social services and government departments. That is a simple and sensible way to progress. I wonder why it has taken successive governments so long to arrive at this point. If only the pension service had been in effect six years ago my life would have been easier.
I welcome this part of the Bill and hope that it will prove successful when implemented. I hope that the Minister will be able to assure me that I have understood correctly the main proposals relating to the pension service and that my faith in it is justified.
5.3 p.m.
Lord Henley: My Lords, I intend to speak fairly briefly. It is eight years since I last spoke on social security matters in this House. I believe on that occasion I was sitting where the Minister is sitting and she was opposite me. Since then things have changed a little. The department's name has changed. No longer is it the Department of Social Security, but the Department for Work and Pensions. I find it strange that work and pensions come into the department, but there is no mention of disability matters, income support and so on. Perhaps that is a point to be made on another occasion.
Eight years ago the noble Baroness was already well experienced in social security matters. I believe she entered the House in 1990 and almost immediately became social security spokesman. She has continued to serve in opposition and in government, representing that brief. I believe that all noble Lords will agree that she knows as much about the subject as virtually anyone in the House. All noble Lords are grateful for her detailed explanation of the Bill and for dealing with so many of the problems that she said that my noble friend Lord Higgins and others would raise with her. For that we are eternally grateful. She also assured us that the Bill is not over-complex. No doubt that is a matter that can be explored in considerably greater detail in Committee.
Although I know a certain amount about social security matters, my knowledge is fairly rusty. I want to make four brief points in a broadbrush manner. I hope that in Committee I shall be in a position to consider these matters in greater detail. My first point relates to evidence of the long-term thinking that is
necessary in relation to all social security matters, especially pensions. When the Government first came to power in 1997 we were told that they would think the unthinkable in terms of pensions reform. We saw little of that unthinkable thinking. In the end, Frank Field, who was supposed to think the unthinkable, left the department and that appeared to be that. I have a sneaking suspicion that the Bill is a further tinkering at the edges and that it will impose ever-greater burdens on future taxpayers. We have to accept that in the end the taxpayer funds the pensions of the future, through national insurance or whatever.We have to consider the matter in the long term because pensions affect us all in the long term. Fairly major demographic changes are taking place. When pensions were first introduced at the beginning of the previous century, on average the retired lived for a relatively few number of years after retiring and taking up a pension. Thanks to improvements in medical science and in standards of living—no doubt due to the work of engineers and others—we are all living considerably longer and in many cases we are retiring considerably earlier.
In my days in the Department of Social Security we spoke of there being three people of working age for every pensioner. We also said that by the time someone like myself faced retirement age—in the year 2018—that figure would have changed from three people of working age for every pensioner to two people. Pensions are a means of transferring wealth between the generations, and it seems to me that the burden on my children will be 50 per cent greater for the same degree of provision in 2018 than at the moment.
Can the Minister confirm that those figures are still broadly correct? In the past eight years have they worsened or do we have a clearer view of what demographic changes we shall see in the coming 20 or 30 years? Is the population likely to stabilise? Will there be further demographic changes in terms of the proportion of different people of different ages? That will depend on how many children are born in the future. We know how many are born at the moment, so we can predict matters for a goodly number of years in the future. My first question relates to sustainability. What can the noble Baroness say about demographic changes that are likely to take place in the future and what will be the likely burdens?
My second broadbrush point concerns the growth in occupational and private pension provision, which was touched on by my noble friend Lord Fowler. In this country we have, and always have had, immensely strong occupational pension provision. I seem to remember quoting the fact that the total value of United Kingdom pension funds was greater than the total value of all the pension funds in the rest of the European Community put together. That gives us a terrific advantage in that our pension provision can be partly state-provided and partly provided by means of occupational and private pensions. Is there still a growth in occupational pension provision? If not, why not? What will the Government do to encourage yet further growth?
I am sure the noble Baroness will accept that not everyone wants standardised nationalised state pension provision. Everyone needs something different to cater for their own particular needs. Therefore, it is very important that we hear from the Government about provision beyond that provided by the state and that provided by the private sector.
My third broadbrush point concerns the complexity of the new benefit and of the Bill. I am not quite like Sydney Smith who said:
- "I never read a book before reviewing it; it prejudices a man so".
I took the trouble to glance through the Bill before coming to the House. I shall no doubt look at it in much greater detail in due course. The Bill certainly seems to be very complex, the benefit even more so.
I accept the points made by my noble friend Lord Fowler, but, of necessity, most social security provisions are likely to be very complex indeed. I accept that there must be a tension between universal benefits, which, by definition, are expensive and fully targeted, but relatively cheap to administer—although my noble friend told us about the death grant which cost almost as much to administer as it paid out—and means-tested benefits which are better targeted but more complex, and then much more complicated and expensive to deliver. There is that further tension within means-tested benefits of those with a long taper and low rates of withdrawal but including ever increasing numbers of people within the benefits and those with a much shorter taper but where the beneficiary can find the marginal rates of deduction very high indeed. I certainly remember the noble Baroness quoting deduction rates of 90 per cent or possibly even higher.
Having said that, we have over the years, and certainly when we were in government, seen a decline in the number of pensioners on means-tested benefits. Between 1979 and 1997 the number of pensioners on means-tested benefits fell from 57 per cent to 38 per cent. With the Bill, and as I understood the remarks of the noble Baroness, Lady Castle of Blackburn, we shall see a dramatically increased number of pensioners on means-tested benefits, even though the Minister seeks to argue that they are not means-tested benefits and we must not call them so. But I would certainly be interested to hear from her what she thinks will happen in terms of that decline from 57 per cent down to 38 per cent. How will that percentage increase over the years?
My final point concerns the likely effect of the Bill on future pensioners. Any state provision must always be based on the premise that individuals must be encouraged to look after themselves and that it is no good introducing perverse incentives to save. I accept that that is what the measure attempts to do. I have considerable doubts. They were spelt out much more effectively by my noble friend Lord Higgins who quoted the Institute for Fiscal Studies. There will be perverse incentives and people will in many cases be
discouraged from saving. There is no need to repeat what my noble friend said, but we must come back to that matter in Committee.I look forward to the Committee stage of the Bill. I am sure that we shall be able to go through what may necessarily be a complex measure in a great deal of detail.
5.14 p.m.
Lord Hodgson of Astley Abbotts: My Lords, I start by declaring an interest as the chairman of trustees of an occupational pension scheme. It is a final salary scheme. I shall come back to that in a minute.
I apologise to the Minister for not attending her briefing session the other day. If I cover some of the points that she wanted to then cover, I apologise now.
On Monday, 10th December, just over a week ago, the noble Lord, Lord Renton, asked an Unstarred Question relating to the drafting of Acts of Parliament. The noble Lord sought to press for an effort to make Acts of Parliament comprehensible to the averagely intelligent and interested reader. Other noble Lords in that debate drew attention to the paperchase effect where, by following through a reference in a Bill to a provision in an earlier Act, one can find if that particular provision was itself a revision of yet an earlier statute. So one trawls through ever earlier pieces of legislation.
This particular proposal before us today must be a prime candidate for the Renton treatment. It is not an easy read. Therefore, I, along with other noble Lords, fear endless confusion and misunderstanding as it begins to be rolled out to a wider public.
Clearly, we want to ensure that all members of our society have some assured level of income in their old age. We want to do that and at the same time make it worthwhile for people to save.
When I was a member of another place, there was probably no issue that angered my constituents in Walsall more than to find neighbours who had given no thought for the morrow and had spent all their money. However, they were able to accrue the same or better benefits than those who had foregone their spending to build up savings for their old age. The noble Baroness, Lady Castle, attributed this fury to means testing. I am not sure that she is right. I think that the fury was directed at the unfairness of it all, rather than at the means testing. But, never mind, whether she is right or I am right, I therefore understand the thrust behind the Bill.
But, as my noble friend Lord Fowler has said, at least part of the problem that we are discussing and trying to address in the Bill has been caused by the Government. I referred earlier to my chairmanship of an occupational pension scheme, a final salary scheme. We have had to close it. From 1st December we shall no longer accept entrants to the scheme. They will have to take a group personal pension plan. We do that with regret because we should have liked to provide the opportunity for the people in this particular company to join the group scheme. But longevity, which is nothing to do with the Government, the burden of
regulation, which is something to do with the Government, and the tax changes, which are all to do with the Government, have meant that we have had to move to a system of benefits which, while it offers flexibility, probably does not offer over time necessarily the same benefits as a group scheme would be able to.So, in my specific comments to the noble Baroness, I address the need for flexibility going forward into the future. We live in a changing era and in very rapidly changing circumstances. Therefore, I should like to think that we could have flexibility built in wherever possible.
The first question that I ask is about qualifying income. The yellow booklet that the noble Baroness had prepared and circulated talks about putting money aside in a bank or building society or by saving in a second pension. I was concerned about the rather narrow nature of these examples. The Bill appears to give a wider definition of income from capital and income of any prescribed description. I want to ask the Minister whether that includes dividends from shares.
My noble friend Lord Higgins referred to the important question of PEPs and ISAs, but many people have taken shares in their company when it has been denationalised or privatised. Not all of them are as sadly afflicted as Railtrack; some of them have quite substantial savings built up.
In my capacity in the City, we have in many cases put ESOPs—employee share ownership plans—into companies, where people of quite limited salary aspirations and limited hours of work are able, over a lifetime, to build up quite substantial savings if the company for which they work is successful. What will be the position of these people under this particular legislation?
The second point concerns the capital disregard. The paper again bravely states that we shall abolish the rule which excludes pensioners with £12,000 or more in savings. That is a brave statement. Am I right in thinking that what has been imposed in its place is a £17,000 limit for single pensioners and £25,000 for couples? A 4 per cent attribution to the maximum amount one can receive under the savings credit would give the amounts of £17,000 and £25,000 respectively. Perhaps the Minister will deal with that when she comes to wind up the debate.
Will she also deal with the question of where the home fits into all that? I am a director of a building society in the West Midlands. It is a blue-collar society. We are talking about not highly but modestly priced homes: our average mortgage is for less than £35,000. Those are modestly priced homes in Telford and the urban West Midlands, often purchased cheaply under the right-to-buy legislation and owned by people who are not necessarily well paid but have scrimped and saved to purchase their homes.
We are being approached by an increasing number of people who, in their old age, are looking to obtain a form of equity release—that is, to use their home to obtain capital to live on, interest free, that will be
repaid at their death by the sale of the home. We must know where such people, who have an alternative form of savings, will fall under the savings credit.Finally, to pick up the question raised by the noble Baroness, Lady Barker, how often will the assessment of levels—the £6,000 level and the 60p in the pound credit—take place? I leave aside the question of why such people should be charged the top rate of income tax, but if the top rate of income tax were altered, would that provision also be changed? Will the assumed rate of 10 per cent be changed if inflation and other economic circumstances change? If we take the example given in the yellow booklet of the maximum savings of about £16,000, the imputed savings rate is about 6.25 per cent—a good deal higher than is now available on gilts or most government bonds.
I understand and appreciate the objectives behind the Bill, but the detail and complexity will require considerable analysis in Committee.
5.22 p.m.
Lord Lea of Crondall: My Lords, I rise to make a brief contribution in support of the main thrust of the Bill. I shall then follow those noble Lords who have taken the liberty of making some broader points about pensions strategy.
We have heard a delicate balance of arguments, and ultimately we must all stand up to defend whatever compromise we finally arrive at—especially the overall costings, a point addressed by the noble Baroness, Lady Greengross. The theme of the debate—with the distinguished exception of the noble Baroness, Lady Castle of Blackburn—has been a growing consensus about the delicacy of the balance that we are designing, rather than any more basic disagreement about architectural faults of design.
As my noble friend Lady Gibson of Market Rasen said, that balance extends to the question of the practicability of making the entitlements approach different, and perceived to be different, from a means-testing approach—with the emotiveness that has, understandably, always been associated with that. Nowadays, the debate should not be about the pension credit versus the uprating of the state pension. We certainly need both and are getting both—although there is an upside and a downside to both. The entitlements approach is strong and, as many noble Lords, including the noble Baroness, Lady Castle, have pointed out, the Government have undoubtedly been doing a formidable amount of listening. The pamphlet on the subject is user-friendly; even I could understand it. It is a much better document than we have been used to in this area. That gives us confidence that when the provision gets off the drawing board onto the streets, the public information campaign that must follow will be one that people can understand.
My right honourable friend the Chancellor of the Exchequer may be going a little far when he implies that the process is just like filling out an income tax form, but that claim is not as outrageous as it would have been about the minimum income guarantee. There has been a growth in segmentation, or
variability, of pensions arrangements in recent years and, as many noble Lords have said, that will increase apace in the next 10 to 20 years.The problem of penalising thrift is addressed quite well and the increased allowances for savings are an essential reform to remove the major objection to the current arrangements. If I may say so, if we do not like the capital limits, it is incumbent on us to say which limits we should prefer, with the relevant price tag attached to them.
The leaflet on the pension service also makes the point that there is scope for people to use the telephone to talk through their application. That is an important point. The Trades Union Congress investigated the question of what people were looking for when it set up a helpline. The problem of complexity and how to get people comfortable when talking through what is inherently a complex situation was the main feature of that investigation. All our lives are complex in that sense.
The point has been made that even for the poorest group of the population—the 2 million to 3 million concerned for the narrow purposes of the Bill—access to a private telephone is now almost universal, whether individually at home or through the warden in a residential home, and so on. In many debates we have heard stories about the financial insecurity of people—especially women—who have been caring for relatives throughout their lives. They will rely exclusively on the state pension and will find the procedure under the Bill far more acceptable and helpful than any previous procedure.
Those are not just minor points and footnotes; they are central to the concerns of people in their real lives. While it may be premature to say that Whitehall has learnt how to be customer-friendly, the new pension service concept is certainly a step in that direction.
The fact that the state pension will go up—even if the retail prices index does not—by 2.5 per cent is part of the two-legged approach that we must always bear in mind when saying that the pensioner credit will rise with earnings during this Parliament. If I may go slightly wide of the Bill, as have one or two other noble Lords, that begins to address the fact that there are serious strategy problems in the wider pensions field.
Unfortunately, it is increasingly perilous for people to look at their future prospects when there are uncertainties about retirement age. The Bill must address a technical problem relating to equalisation, but everyone knows that there is a bigger debate out there. It was touched upon by the noble Lord, Lord Henley, when he referred to the ratio of 2:1, or whatever it is. We all know that the situation will be more serious if we live to be 95. The slogan "Don't retire until you're 95" may be a good one for this House. The noble Lord, Lord Henley, who is not in his place, might like to try that out for size. It will not be a widely popular method of solving people's problems as they perceive them because they may have thought they would be playing golf before they were 95 and perhaps now they will have to join a golf club for the over-95s.
I did not hear many noble Lords who mentioned final salary schemes say what they would do to support them. It is a way in which employers can take money out of the employer/employee ratio; they can reduce what they contribute to their companies' pension funds. A typical employer will be contributing less to workers' pensions if we stop new entrants to the final salary schemes. There is increasing anxiety about that issue.
Another increasing anxiety is understandable. If the large pension funds—those amounting to £500 billion—are to decline, what will happen to the chronic problems of short-termism, which have been analysed for many years, in the investment cycle in British industry? If the pension funds decline, will that not have effects on that cycle?
I turn to the concerns which I want to address to the Minister. I am sure that they will not be new to her. The first relates to the IPPR. How far is the guarantee a long-term commitment, because the IPPR and other bodies are saying that it is not financially sustainable? I am sure that it is but we must ask ourselves how, from one Parliament to the next, we can work out the kind of guarantees that must be given for such an arrangement.
Secondly, the front page of the interesting leaflet on the Bill produced by the department points out that pension inequality has grown partly because original income inequality has grown. That is the unmistakable conclusion to be drawn from the graphs on the front page of the leaflet. How far can pensions policy be capable of redressing the growth of inequality in incomes at work? That is the greatest problem we have seen in the growth of social inequity in the past 20 years. Whether we attribute it to globalisation, new technology or the attack on the trade unions is a matter of opinion, but there will be great difficulty in having greater equality in pensions if there is rampantly growing inequality in incomes at work. At the end of the 21st century, we do not want the historians to look back and say that the century rubbed out all the gains made in social equality in the 20th century.
It is possible to use emotive language at both ends of the spectrum. Pension fund managers, Hermes, have called some American-style packages for the very wealthy tantamount to theft from the shareholders. It is warning that that is a contagion spreading to Britain. We must therefore recognise that there is a case for taking a pensions strategy as a whole. That is the context in which we must see this modest but important part of the jigsaw puzzle.
In conclusion, the handling of savings—the poverty trap—will not go away but I believe that it is being handled in as intelligent a manner as can be envisaged. The Government have done a good job in putting the Bill together in the way that they have.
5.35 p.m.
Baroness Fookes: My Lords, I never thought to express sympathy to a noble Baroness so well able to take care of herself as the Minister. However, I
thought it unkind when earlier in the debate she was accused of galloping. Metaphorically there may be a gallop because she is seeking to ride two horses which have a natural tendency to run away from one another; namely, the immediate need to deal with those on very low incomes and the need not to deter others from saving in retirement.I am anxious about the costs of the proposals. The noble Baroness, Lady Castle, said that she could find no indication of the administration costs of the new scheme, which will greatly increase the number of pensioners who fall within it. I am concerned about the more general substantive costs. Figures were given to us for 2003 but I can find nothing which relates to a period further ahead.
I understand the hope to be that the need for the various purposes of the Bill will lessen with time as more people are able to have second pensions. However, let us suppose that that does not occur. My noble friend Lord Fowler pointed to serious indications that the increase in occupational and personal pensions would not go according to plan. Therefore, we need to be provided with figures showing a best-case scenario and a worst-case scenario for a period further ahead than 2003. I should be interested if the noble Baroness could indicate the substantive costs as well as the administrative costs.
I now turn to the terms of the Bill. Like other noble Lords, I am concerned about the title of the benefits which are to be given. I am even more concerned about access. However, I am most relieved that I am no longer a constituency MP holding Friday surgeries to which my noble friend Lord Higgins alluded. I would not want to try to explain in detail to bewildered pensioners what is involved for them.
It would be helpful to see the draft form so that we could ascertain whether it was as simple and clear as we would wish. I would not expect to have that at Second Reading but I see no reason why we should not be given sight of it at later stages in the Bill. I hope that the Minister will be able to assure us that that can be done. A more detailed exposition of how the pensioners concerned will be targeted would also be extremely helpful.
I want to make two other points which have not so far been raised in the debate. The first is something of a hobby-horse of mine. I am dismayed, although not surprised, to see in Clause 1 that the benefits we are discussing would not be extended to anyone living outside Great Britain. I know that I go on about the subject and that it is probably boring, but I have a real concern for British pensioners living outside the European Union who gain nothing from the pension upratings. The arrangement under the Bill will serve only to make the gap even wider. I suspect that all of us shall be receiving further complaints from pensioners' organisations overseas in New Zealand, Canada and Australia when this information reaches them, if it has not done so already.
Secondly, there is an interesting clause covering polygamous marriages and how the benefits are to be distributed in those circumstances. However, we are
not given any indication of what the principles or practice might be. It is to be left to regulations. I share the concern expressed by my noble friend Lord Higgins when he referred to regulations which deal with a matter that is permanent, as opposed to dealing with changes where fresh regulations need to be made. We have no idea how this will be interpreted. It would be helpful if the noble Baroness could give at least some indication of how this is to be worked out.The hour is late and I am aware that many noble Lords are looking towards the wind-up of the debate. I conclude by saying that I think that the Bill is a brave attempt to reconcile the irreconcilable. I hope that, in Committee and during the following stages, we might seek to make further improvements to the legislation.
5.41 p.m.
Baroness Crawley: My Lords, it is a privilege to take part in a Second Reading debate which has attracted so many pensions experts, several of whom have spent their professional lives involved either in policy making or policy shaking for the benefit of older people.
In welcoming the Bill, I should like to refer to some of the observations and concerns expressed in over 400 responses to the pensions credit consultation paper that was produced this time last year. Reactions to the proposals came from a wide variety of organisations, including Age Concern—which has been referred to several times during the debate—the Alliance for Finance, the Chartered Institute of Taxation, the Fawcett Society, Help the Aged, Scottish Widows, the Transport and General Workers Union, the National Pensioners' Convention, the Northampton Afro-Caribbean Elders Society, the National Board of Catholic Women and so many others that I could go on listing them, but I shall not do so.
The vast majority of the responses that I have read expressed in general terms their welcome for the Bill, in particular as regards the issues of capital limits and the weekly assessment. In some cases, the responses went further in acknowledging the context of the Government's activity in favour of pensioners since 1997. In her opening remarks, my noble friend referred to the introduction of the minimum income guarantee to assist the poorest pensioners, the rise in the basic state pension, the recent winter fuel payments and so forth. The cumulative effect of those actions can be seen graphically in the chart set out in Annex B on page 16 of the yellow pension credit document from the Department for Work and Pensions to which my noble friend Lord Lea of Crondall referred. It is clear that the impact of government policy on the weekly income of pensioner households between 1997 and 2002 has resulted in a gain of £25 per week for those in decile 1 and a gain of £8 per week for those in decile 10, with an average gain of £18 per week. That includes the pension credit additions, after housing costs and excludes tax changes.
The undoubted beneficial impact of government policy still leaves the unresolved and urgent issue of low pensioner income for a significant group of older
people to whom reference has been made in the course of the debate. I refer to pensioners with incomplete pension entitlement. That will not be resolved immediately by the terms of the State Pension Credit Bill. We know that because the legislation has been directed at rewarding modest savings. However, the Bill will benefit over 5 million pensioners, 1 million from the guaranteed income and 4 million from the savings reward. Furthermore, while welcoming the Bill as a proper response to a social security system that penalises pensioners with modest occupational pensions or savings, many organisations said in response to the consultation that they were extremely anxious to ensure that the legislation would not bring with it even further complexity in regard to accessing benefits. They hope that lessons have been learnt by the Government after the initial problems with MIG and its take-up.That is where the new pension service, to which my noble friend Lady Gibson referred, should come in. The response paper from Katherine Rake at ESRC Sage Research Group helpfully set out a list of criteria against which to judge a well-functioning pension system. The list echoes to some extent the criteria set out by the noble Baroness, Lady Barker: first, adequacy; secondly, equity; thirdly, protecting incentives; fourthly, transparency; fifthly, stability; and sixthly, administrative efficiency. That list is useful not only to bear in mind as we progress through the Committee and Report stages of the Bill, but also to use as a set of benchmarks when judging the effectiveness of the proposed new pension service.
I understand that the aim of the pension service, which is to commence next April, is to move progressively towards a system whereby pensioners may receive automatically all their entitlements. The calculations involved in assessing people's income will be the responsibility of the service rather than of the individual pensioner. Can I press my noble friend on the Front Bench to point out why she is confident that the new service will do better than the present situation, which still leaves so many pensioners confused about their entitlements? Discussions with my 80 year-old mother and her friends—whom she refers to as "elderly ladies" because they are in their late eighties and nineties—become lively when they touch on the subject of entitlements. Those ladies are clear about most aspects of their lives, but they find the issue of pension entitlements an extremely difficult hill to climb. Is the Minister quite confident that the new service will be able to meet the anxieties that have been expressed in the course of our debate?
Several respondents to the consultation document raised the issue of women pensioners. Again, other noble Lords have also referred to this matter. As the present Chair of the Women's National Commission, I am particularly exercised about improving the retirement income of women. The issue is one of the greater scandals of modern society. So many women see their incomes shrivel as they grow older. By the time they reach retirement age their financial reward, as it were, often bears no relation to the amount of
caring, teaching, effort and hard work that they have put into the lives of their families. In many ways the Government have tried to address those problems, which has proved to be a challenging task.I know that my noble friend on the Front Bench is extremely sympathetic to the plight of the poorest older women in this country. I press her to use her great intellectual capacity within the corridors of power to ensure that that group of people—who by the very nature of the Bill, cannot be covered by its provisions—are not forgotten.
Finally, the Bill will be welcomed by many women. The proportion of single women who are eligible for pension credit amounts to 53 per cent of the pensioner population, compared with a figure for male pensioners of 16 per cent. The Government have estimated that around half of all pensioners will gain from pension credit and that two-thirds of those entitled to pension credit will be women. Half of those women will be aged 75 or over. So the Bill will be greatly welcomed by many women who have struggled to save and who have a small occupational pension entitlement. It goes some way in challenging the scandal of poverty to which I have referred.
Some organisations, such as the National Pensioners' Convention, reflected the on-going debate—which we have heard from the noble Baroness, Lady Castle—about the universality of pension entitlement. In response to consultation especially, they referred to the Bill as part of a reversal of the post-war policy to reduce reliance on means testing.
Like my noble friend Lord Lea, I do not agree with that analysis. The state pension is still the foundation of the pensions system and must be maintained at a level that is meaningful and not derisory in terms of the variety of economic circumstances in which today's pensioners find themselves, or the security in retirement of future pensioners.
However, on top of the basic pension, it is crucial that government policy responds to the reality of older people's lives in Britain today. On average, pensioners' incomes are rising faster than those of any other broad group in the population, but these improvements are by no means shared equally within the pensioner population. Building on the basic state pension by targeting the most significant state help towards the poorest pensioners and at the same time encouraging those with savings is a modern, responsible and realistic way forward.
The Bill follows on from the provision for a state second pension and the new stakeholder pension. I believe that it will be an acknowledgement of so many people's struggle to work hard and save hard during their working lifetime. For that reason, despite the problems that have been aired in the debate, I welcome the Bill.
5.53 p.m.
Lord Addington: My Lords, after a debate of such quality, in which the Front Benches started off at a cracking pace, most of what I had intended to say has
already been said. Noble Lords will forgive me, therefore, if I do not go over all the ground that has been covered. I shall attempt to restrict my remarks to a couple of points.I have two genuine questions. First, are the implications of this legislation roughly neutral for all those who are in receipt of disability-related benefit? I have found no reference to that point in any of the literature that I have picked up, but I assume that that is the case.
The second question, which the Government have been asked on previous occasions, relates to the limits of £6,000 and £12,000 that were referred to. Are those limits to be regularly upgraded? If they become frozen in time—
Next Section
Back to Table of Contents
Lords Hansard Home Page