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My noble friend Lady Thomas of Winchester will call for a massive expansion of integrated debt and pensions advice, based on the uniquely trusted one-stop shop, the citizens advice bureau. How can it be the right advice for people to save for a pension with an expected long-term rate of return of 7 or 8 per cent if they are paying 17 per cent a year, which is the average rate of interest on unpaid, unsettled credit card bills, or 30, 40 or 50 per cent on other borrowing, as so many lower-income people are today?

The Government are clearly worried by the widely held and well-informed concern about whether it will pay for these high-risk groups to save. As the Minister has just said, they have set up a work programme for stakeholders which will report by the end of 2008. The Liberal Democrat and Conservative Front Benches have had an invitation, with an illustrious list of stakeholders in the pension debate, to a savings incentive seminar in the Duke of Wellington Hall on 11 June. I hope that DWP Ministers do not copy the example of the Duke who, when asked how his first Cabinet meeting had gone, said, “I gave them their orders but they all insisted on asking questions”. I am afraid I have a prior engagement with the Association of Mirror Pensioners—the innocent victims of pirate captain Maxwell—but I very much hope that our new DWP spokesperson in the Commons, Jenny Willott MP, will be able to go. Frankly, a report after the Bill has been passed is not good enough. We on these Benches warned James Purnell in his previous incarnation as a DWP Minister years ago that he had to take the advice gap more seriously and urgently. We are not prepared to buy a pig in a poke, even from him.

We will bring forward amendments to make it crystal clear to both buyers and sellers of annuities that the full range of options must be made available, including enhanced annuities. These used to be called impaired life annuities when they started but that had a rather ominous ring to it. This is for up to 40 per cent of people who might, for instance, have been smokers or had diabetes or cancer. Now you can get a better rate if you have an unhealthy postcode in Liverpool or Glasgow. As the Mail on Sunday and the Sunday Times have highlighted, only a quarter of people eligible currently buy these best-value products. More than half a million people retired in Britain last year and more than 400,000 bought annuities. They lost more than £1 billion in pensions altogether by not getting proper advice on their best-value annuity. That rip-off must stop.

There is consensus on the aims of pensions policy and on the direction of travel but not on the Government’s snail’s pace of reform and poverty of ambition. Let us give women and carers pension justice now, as this House demanded overwhelmingly under the excellent lead of the noble Baroness, Lady Hollis, last year, by letting them buy back more years to qualify for a full basic state pension. Let us protect those most at risk from wasting their hard-earned pension savings by rolling out face-to-face debt and pension advice in every constituency in the country. And let us set a firm date now, whichever party is in power, to end the shameful erosion of our basic state pension and link it to average earnings to turn back at

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last the tide of means testing. This House must send a bolder and clearer Bill back down the corridor after it has done its job over the summer and autumn.

3.53 pm

Baroness Hollis of Heigham: My Lords, pensions are designed to deal with the low-income and longevity of old age by smoothing earnings from work to retirement and locking them away. We ask people to start saving early, to save enough, to do so regularly, and not to touch their savings for 40 years with the promise that it will be worth it in the end. Yet none of this makes much sense for many women. Pensions have been a poor fit for the risks and realities they face, which is why, outside the public sector, as both of the previous speakers have said, so few low-earning women have pensions. For pensions you need to start early, for example by 30, and pay regularly, but whereas men’s earnings peak at 42, and their pension payments with it, women’s peak around 29 and then fall off. If they have children, half of them stop paying into a pension whereas men carry on.

Do they pay in enough? Women are paid less, they often work part time or for small employers, they move jobs more often and they are exposed to risks that most men do not face, including lone parenthood and caring responsibilities. They therefore want savings that they can access in an emergency, not a pension that they cannot access. His income, for example, rises after divorce; hers falls. She may experience more financial pressure during her working life than at retirement, unlike him.

Over the years, the basic state pension has recognised this through HRP, carers’ credits and, in particular, last year’s excellent Bill, but occupational pensions have not, because they presume a full-time attachment to the labour market. Personal accounts are designed to be an occupational pension for the low paid, especially women. There are low rates, low charges, auto-enrolment, no small-firm exemptions and there is greater portability. They are contracted in and built on the platform of the BSP and the state second pension.

To what extent does the Bill rectify the shortcomings in conventional pension provision for women? To what extent is it a good fit, given women’s needs? To what extent will the Bill overcome poverty in retirement? To what extent will it encourage women to save and will saving be worth it? I apologise to the House—well, no, actually I do not—for putting up the gender filter in this way, because personal accounts very much have low-paid women in mind.

Auto-enrolment should encourage the early start of payments and research suggests that up to 70 per cent of women will continue to pay in, which is good news, and it should be worth it, which is very good news. If a woman on half median earnings, say £11,000 a year, saves for 30 years—not 40 years, but 30—in a personal account, I calculate that she should have a replacement income in retirement of some 85 per cent of her earnings, which is transforming. I congratulate my noble and right honourable friends in the DWP on such an achievement.

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However, certain safeguards need to be in place to achieve that outcome. First, as both noble Lords on the Benches opposite have mentioned—for which I am grateful—there must be an opportunity for women to have a full basic state pension by having a right of buy-back for missing years when they have been looking after other people, children or the elderly, instead of themselves. This issue is not going away, as the noble Lord, Lord Skelmersdale, helpfully reminded the House. I hope that the Government will agree with that; if they do not, I shall again seek the support of the House on this issue.

The second safeguard is that with a broken work record a woman’s ability to save may be more lumpy than that of a man. Pension sharing on divorce may bring in a small sum, or she may receive a small inheritance following caring, which has taken her out of the labour market. So we need to add a modest lifetime cap in addition to the annual cap. Will my noble friend confirm that at the very least—I pick up a point made by the noble Lord, Lord Skelmersdale—women will be able to buy back not just current years in which they might be out of the labour market, but missing past years, which would then exceed their annual contribution, as with the BSP? Given that she changes jobs more frequently and may pile up several very small pots, she should, within limits, be allowed to transfer them into her personal account. We all accept that personal accounts should draw in new money, not recycled, existing money. We need greater flexibility regarding women’s capacity to contribute. The simplicity of a single pot with smaller pots going into it as a result of her job mobility would be a great gain and very attractive.

Another issue that we must explore, given that pension contributions to personal accounts, unlike WPPs, are made only on earnings above £5,000, is that a woman with two £6,000 jobs is very much worse off than a woman with one £12,000 job. I am confident that we can find a way through this issue in Committee.

Thirdly—this has already been mentioned by noble Lords—we must ensure that we spring the trap of means-tested benefits. Like everyone else, I am well aware of the downside of IRBs, especially the intractable housing benefit, although I understand that there is a government working party on this. Of course, now only a quarter of pensioners are not owner-occupiers and the number is reducing. I think we all understand that, unless need is targeted, benefits will be either too limited in their effect on the individual or, in an attempt to make them adequate but universal, too expensive for the community.

Men have more than twice the pension income of women. Pension credit is mostly claimed by and paid to single women—mainly elderly widows whose income has died with their husband. That is usually because his annuity is single-life, flat-rate and eroded by inflation. I know that there are technical difficulties with this but changing the rules on annuities might do more to keep widows off pension credit than changing the rules of pension credit. If not, unless and until women have their own pensions

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in their own right, widowhood will need the benefits and means-testing that stand between them and profound poverty.

The complaints about means-testing may be erroneous in another way. In future, any woman retiring with a full earnings-linked basic state pension and a full state second pension would have an income of around £145 in today’s terms—enough to float her off pension credit entirely. Therefore, the two state pensions added together would mean that at the point of retirement her income would be above the level of pension credit and she could enjoy and keep her personal account pound for pound. Full state pensions plus personal accounts, if paid in full, equal no means-testing at retirement.

A fourth way of avoiding the means-test trap is by trivial commutation, which at the moment is limited to some £16,000, or about £1,200 a year, and is fussy and fiddly to administer. I hope that the Government will consider raising it to, say, £25,000, doubling to 22 per cent the number of pensioners who are able to commute. Most pensioners live within their income but have a shortfall in capital for white goods, improved heating, the car, the roof or the walk-in bath/shower. Those things are especially necessary because, as pensioners grow frail, they need to adapt their homes if they are not to move into residential care, and that takes capital. Can we please have some joined-up thinking? After all, we can all turn capital into income if we wish but it is very difficult on a low income to turn income back into capital.

I should also like to see whether we can raise, or perhaps even align with commutation, the exempt capital in pension credit—currently £6,000—and related benefits. However, that would be costly. It would require £240,000 to raise it to £15,000 and £350,000 for a £25,000 disregard for PC and related benefits, but it would spring pensioners out of means-tested benefits and into relative comfort in retirement.

The next problem for women is that pension savings cannot be touched. That is fine for men; come children, divorce or frail parents, they continue to work and build a pension. Each of these life changes for women, however, may take them out of the full-time labour market, stop them saving and create a financial crisis. The product that many women say they want was proposed by the party opposite: a combined lifetime savings and pension accounts, or LISA. I have always been a fan of that. At the moment, we can put ISAs into pensions but we cannot put pensions back into ISAs. It is absurd that of the two pots of value that most people have—a house and a pension—it is easier to get money from the bricks than it is to get money from the money. LISAs were complicated and the American 401K scheme is probably far too loose, but perhaps I may suggest a way forward. On retirement, we all get 25 per cent of our pot tax-free. Subject to a de minimis—let us say that you must have £20,000 in your pension pot—and a ceiling of, say, £80,000 or £100,000 so that there would be no fancy footwork for school fees, why should you not draw down during your working life that tax-free sum, giving your pension a defined top slice of liquidity—a savings element? No

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tax adjustments would be necessary. We obviously want to keep personal accounts simple but today we can draw our tax-free lump sum at 50 or 55, so today it is detached from paying a pension. No principle would be breached but it might overcome that psychological hurdle that you have locked money away for 40 years, come whatever crisis.

Most women would not want it or need it, but knowing that they could access between £5,000 and £25,000 according to the size of their pot for divorce, disability, debt, risk of repossession before retirement instead of only at retirement, would allow women to overcome a major hurdle to pension savings—their belief that pensions are selfish because their money is locked away for 40 years when they may need it 10 years down the road, given the huge financial riskiness of many women’s lives compared to those of men. After all, pensions should reduce financial risk. As presently structured they can, for many women, add to it. I hope that we will pursue that avenue.

This all suggests that for some women the decision to opt out would be finely balanced, and I follow the noble Lord, Lord Oakeshott, who was absolutely right. As John Hills said, the calculation for any individual as to whether to opt in or opt out is really quite simple. All they need to know is their age, gender, present and future employment status and earnings, existing savings and future investment returns, existing pension rights, present and future housing tenure, future eligibility for mean-tested benefits, future assets from elderly relatives—and all these factors for their partners as well—together with an assessment of their health and that of great-aunt Ethel’s. But despite the complexity of risk, we can offer broad-brush group guidance, which is why sound financial information and advice is essential.

I declare an interest as a trustee of the Pensions Advisory Service and we hope to produce a traffic-light system offering high, medium and low-risk guides to people seeking advice. We must address this issue, otherwise the Government and employers, both, face a particular risk and charge of mis-selling.

I give a warm welcome to the Bill; profound gratitude to the noble Lord, Lord, Turner, for making it possible; and to the Government for making it happen. We still have issues to address, safety nets to insert and loopholes to close if women are fully and safely to gain from this Bill, but we look forward to its future progress.

4.07 pm

Baroness Greengross: My Lords, I warmly welcome the Bill, which will ensure big changes in retirement saving, making it worth while for many for whom previously this has not been the case—especially women—to have access to a decent private pension for the first time. I strongly support the noble Baroness, Lady Hollis, in the work that she has been doing to ensure the right for women to buy back up to nine years of insurance contributions. I cannot understand why the Government find it so difficult to introduce that change, and I hope that something will be done to get it right.

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I also agree with the noble Lord, Lord Oakeshott, that our current state pension is still too low. If raised, it would deal with a lot of the problems of means-testing, and it needs to be relinked to earnings sooner than the Government plan for the obvious reason that a lot of the people about whom we are most worried will be dead by the time they would receive that benefit.

I welcome many aspects of the Bill, particularly the ones that I shall mention briefly, such as the broad definition of “jobholder” so that people with no formal contract can be included, and the personal accounts that are essential for jobholders who are not in current qualifying pension schemes. By ensuring automatic enrolment and compulsory employer contributions to personal accounts, people will be able to support themselves much better in the future. This automatic enrolment can combat the tendency not to act when faced with financial difficulties, which, sadly, as the noble Lord, Lord Oakeshott, said so eloquently, is a problem that many, particularly younger people, face at the moment.

The Government need to ensure that personal accounts are offered to low and middle-income people who want to save, regardless of whether they take breaks from work for short periods. Age Concern has pointed out that that is very important. I am also worried about non-employed people, some of whom are the carers on whom we depend so much for the care of the very frail people in our population. We must ensure that such people are able to join personal accounts because, as the Bill is currently drafted, they may be excluded unless they have previously been a member of a scheme. I hope that the Government will be able to do something about that.

I agree with the noble Baroness, Lady Hollis, about trivial commutation. We have a fast-ageing population and many people will live to be very old and very frail. They need capital, not just income, and we need to ensure that poorer pensioners have access to some capital if they are to achieve the essential changes to their homes which enable them to stay in them in some comfort.

The Commission for Equality and Human Rights, on which I serve, has pointed out that there may be some individuals for whom savings will not pay, as their savings in personal accounts or other savings products will serve merely to replace means-tested benefits, such as pension credit, housing benefit or council tax benefit to which they would have been entitled had they not saved. The Pensions Policy Institute has pointed out that dilemma and I hope that the Government will be able to solve it.

Another group that has been mentioned to me is people who change employers regularly. Each time they leave a job they are given the option of taking back their pension contributions. When they ask what their contributions have bought in the way of a pension, they find that the amount is so little that they do not think it is worth keeping the pension in place. If we are not careful, such people will have no private pension at all when they eventually retire. We need to consider that group.

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Some young people, often those who are self-employed, have very high, even interest-only mortgage repayments and they are putting off paying into a pension scheme. They have been relying on increasing property values which are now falling very fast and the prediction is that 1 million people will face negative equity in the near future. The Government should consider what incentives or help they can give to that group.

A fully effective compliance regime is vital to ensure that no individual suffers detriment due to their employer failing to help them or attempting to coerce them into opting out of a scheme. We must ensure that that does not happen. There is an understandable concern in the pensions industry that some currently available and very sound pension schemes might be undermined because of the introduction of extremely flexible and low-cost products, which we know are essential. We need flexibility but the Government need to ensure that the mechanisms for levelling up do not result in levelling down elsewhere. I am sure that some of these points will be looked at in detail as the Bill goes through the House. We need to ensure that the Bill fulfils its potential to be of enormous benefit to our population as a whole. Lastly, I agree that information and advice services are essential, particularly for the target group of people for whom this Bill can do so much. We must get it right, as they need this Bill.

4.15 pm

Baroness Turner of Camden: My Lords, I welcome the opportunity to participate in this Second Reading debate and thank the Minister for his detailed introduction to this complex and important Bill. As he said, it is the second part of the Government’s reform of the UK pension system and is based very largely on the report of the Pensions Commission, which was chaired by the noble Lord, Lord Turner of Ecchinswell. That took place against the problems caused by the disappearance of many final salary schemes and their replacement—if they were replaced at all—by money-purchase schemes offering less secure pension entitlement. Stakeholder pensions have not been successful, largely because employers only had to offer access and did not have to make payments to such schemes. People have not been saving enough for retirement, which is hardly surprising in view of the pressures upon those who have to struggle in middle life to pay the mortgage; pension provision is often the last thing they want to think about. Moreover, it has become clear that due to health improvements, which we should all welcome, people are living much longer, so we have an ageing population. The basic state pension does not provide enough to live on unless backed by means-tested benefits.

The Government’s new personal accounts scheme has therefore attracted wide support. It is aimed at moderate to low earners who do not have access to a workplace pension scheme, and it places a duty on employers automatically to enrol jobholders in a qualifying workplace scheme, including the simple, low-cost saving scheme: the personal accounts scheme. The Personal Accounts Delivery Authority has had its remit broadened to enable it to oversee the establishment of the personal accounts scheme. That is the main thrust of the Government's pension reform programme, although there is much more detail to be discussed later.

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The main idea has been supported by consumer organisations, the main employer bodies, trade unions and the main political parties. That is important because major pension reforms are essentially long term and should not be undermined by possible future changes of Government. The noble Lord, Lord Skelmersdale, referred to past problems, and I agree with quite a lot of what he said. However, I remind him that Conservative Administrations have not always been very good about collective occupational pension provision. During the previous Conservative Administration, employees were encouraged to leave good schemes in favour of individual private pension provision and had to be compensated later for the resultant losses. I recall that well because at the time I was chair of the PIA Ombudsman Council, which had to deal with those claims.

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