Lord Freud
: My Lords, I am not surprised that this has been a fascinating and very well-informed debate. I particularly congratulate the noble Baroness, Lady Drake, on her speech. The noble Baroness, Lady Hollis, said she was looking forward to seeing her noble friend on the Front Bench, and I have to say that that speech left us with the same view. The noble Baroness is very welcome over here—in fact she could do some of this for me. A huge number of points were raised and, to be honest, I have no chance of dealing with all of them in the time available to me. However, I know that we will be dealing with them in great depth in Committee.
Let me go back to the core issue around the acceleration in the pension age. We have been left with a record structural deficit and we need a sustainable system that works fairly for current and future pensioners. The argument comes down to simple financial discipline. Spending on state pensions in 10 years’ time will be nearly £26 billion higher if we leave the timetable unchanged. That reflects a mounting financial pressure on the working population. We cannot spend money we do not have. Just as we have been clear on our intention to restore the public finances in the short term, we are also determined to do so in the medium term. In 10 years’ time there will be nearly a quarter more individuals over the age of 65—what will we do for them then? “Sorry, there’s no money”, is not an option when it comes to dealing with people’s security in retirement.
As I said in opening, people are living longer, and rapidly. We are trying to deal with the bubble that my noble friend Lord German talked about—the beneficial bubble of living much longer. The new pension age will reduce pressure on public finances by around £30 billion between 2016 and 2026. Automatic enrolment will result in £9 billion a year in additional workplace pension savings by individuals. These are significant numbers and they represent real cash value for the individuals of this country.
Let me deal with the issue raised by a large number of noble Lords. The noble Baronesses, Lady Drake, Lady Greengross, Lady Hollis and Lady Bakewell, and my noble friends Lord German, Lady Noakes, Lord Stoneham and Lord Boswell, talked about women in their 50s facing longer in the workplace. The fundamental argument runs along these lines: those people who have enjoyed this dramatic increase in longevity should help to fund their pensions. As the Minister for Pensions said in another place yesterday, if we wait until 2020, when the current equalisation timetable is completed, overall savings will be reduced by £10 billion. That represents an extra £10 billion that the working-age population will have to find.
We have heard some figures relating to the women affected—300,000 facing another 18 months or more and 33,000, right at the edge, facing two years more before they get their state pension than they might have excepted. However, 70 per cent of these women are currently working and this measure encourages them to continue working. Some of them have retired early and have a pension enabling them to do so. Some of them have independent means. Clearly, some of them will need to be supported by the working-age benefit system, which is not as generous as a pension but nevertheless represents a support network. People are working beyond the age of 65. Some 900,000 people are doing, which is twice the number of a decade ago. Indeed, 60 per cent of people in their 50s say that they would like to continue working after the state pension age.
I come to what the noble Baroness, Lady Hollis, called Hamlet without the prince—what is happening with what has been called the single tier, which the noble Lord, Lord McKenzie, the noble Baroness, Lady Greengross, and my noble friend Lord Stoneham also raised. Last year, the Chancellor stated that the Treasury is working with the DWP on potential pension reform to simplify pensions and provide a boost for pensioners for many years to come. I am not in a position to update that statement, but it is still extant. I hope and expect that we will return to this topic in our debates, when I will be able to update noble Lords.
My noble friend Lady Noakes pressed me on further moves to raise the retirement age beyond 66 to 67 and 68. Once we have got the increase through to 66, we will start to consider further increases to state pension age to manage the ongoing challenge that we have, represented by increasing longevity. The idea of an automatic mechanism to raise it is attractive superficially but, in practice, some wider issues need to be looked at in this fiscal situation. With the level of healthy life expectancy, it is probably not the most obvious way to go.
A lot of issues have arisen on automatic enrolment. I deal first with the waiting periods, raised by my noble friend Lord German and the noble Baronesses, Lady Greengross and Lady Turner. The employer will be required to provide an individual notice to individual jobholders. It must inform the jobholder that the employer intends to use a waiting period, the jobholder’s new automatic enrolment date and, importantly, their right to opt in to the employer scheme during this waiting period. We are very conscious of the need to ensure that there is adequate information.
Many noble Lords raised the new threshold at £7,475, including the noble Baronesses, Lady Drake, Lady Hollis and Lady Hayter. We are setting that level after looking very closely at replacement rates, among other factors. We have not committed to chasing up the tax threshold figure with that rate. That is a decision that will be taken independently of that. Several noble Lords made the point about increasing exclusion if we were to raise that rate. Those are the issues that we will have to deal with when we take those decisions. We will discuss them in this forum, I suspect.
The noble Baroness, Lady Drake, raised a point on loopholes in certification. Simply put, we are not complacent about that. We will be watching it very closely and we will monitor the trends. If we see that certification is being abused, as the noble Baroness is concerned about, we will have the power to strengthen the requirements and ultimately to repeal the legislation.
Several noble Lords—I am thinking of my noble friend Lord German and the noble Baroness, Lady Hollis—raised concerns about small pots and orphaned assets. Clearly, those little bits of irritating money are a major issue when they are stuck all over the place and cost you more to get out than to enjoy. We are considering the long-term implications of automatic enrolment; that is one of the issues. The DWP is currently working with HM Treasury, HMRC, the FSA and TPR, as well as with pension providers, to identify what additional work may be needed to address small pension pots. Our call for evidence on regulatory differences, which we published at the end of last month, also seeks solutions to address that. It is a real issue.
The noble Baroness, Lady Hollis, raised a question about early access to pension funds when one has small amounts of savings. As she will be aware, the Treasury has been conducting a public call for evidence on this issue. I listened to her remarks on that area with interest. I am sure that my Treasury colleagues will, too. If they do not, I will pass on the issue.
Perhaps I might deal with the question that my noble friend Lord German asked about including housing costs in the CPI. There are actually some housing costs in the CPI. However, mortgage interest payments are not in that but in the RPI. That is the way that the RPI deals with housing costs. There is work going on currently to look at how and whether housing costs could be taken in a less distorting way into the CPI. It is likely that that work would come out to a movement in the actual price of houses going into that particular index. The ONS is looking at that; the work is still at a relatively early stage and we expect it to take about two years, but it is entirely possible that that criticism of the CPI—about it excluding too much on housing—could be eroded.
I tread with great trepidation on the matter of judicial pensions, seeing people with scars all around me here. I shudder to take some of the wounds that they must have suffered in the past but perhaps I might deal very neutrally with some of the issues raised. We do not believe that taking personal contributions from judges amounts to salary reduction. Gross levels of payment will remain unaffected. We accept the argument made by all three noble and learned Lords that the independence of the judiciary is at the heart of our constitutional arrangements. There are a number of ways in which this independence is maintained including, clearly, salary protection for judicial officeholders. Salary protection does not prevent the payment of income tax or contributions that judges already make to pensions for dependants’ benefit.
The point that the noble and learned Lord, Lord Woolf, raised about recruitment and retention is clearly one that we need to maintain a very sharp eye on. We will monitor the effects of this measure. I recognise the roles of the heads of the UK judiciary and the judicial appointments bodies in questions of morale and recruitment. However, there is a very basic point here. It is right that judges should face the same restraints as other public service pension scheme members. There is a clear reason for introducing member contributions—to ensure a fairer distribution of costs between taxpayers and members so that the schemes remain affordable.
The noble Baroness, Lady Drake, asked when regulations will be available. We recognise the need to provide certainty as soon as possible. We will formally consult on the regulations immediately following Royal Assent. We will also consult informally on draft regulations in late April and early May.
The noble Baroness, Lady Hollis, asked about mini-jobs. She made a very valuable suggestion when we had a conversation about whether we can use the universal credit in relation to smaller, part-time jobs that add up to earnings above the threshold. That is a very interesting idea. It applies only to around 50,000 people at the moment, mainly women. However, our universal credit plans will increase the number of part-time workers by around 250,000, so that figure could be raised by a lot.
I am hurrying because there is so much that I would like to deal with. I will deal with a couple of points raised by the noble Lord, Lord McKenzie. I am not enamoured of him at the moment because he raised the issue of PUCODIs. I had begged him to keep quiet about them because I do not want to have to understand them, although I will if he insists. The latest position on the NEST contribution cap is that while we welcome the recommendations of the review, it is not the right time to legislate or carry out a review of the annual contribution limit for NEST. We will look at that review, as the noble Lord knows, in 2017. Similarly, it is much more sensible to wait until 2017 to look at the position on transfers into NEST. Those two issues will be dealt with once NEST is working. It is, after all, the largest experiment in asymmetric paternalism that the world has ever seen. We can afford to find out what it is doing and make adjustments at that stage.
As previously mentioned, this is a Bill of many parts, some of which may not seem to fit naturally together. In a way, that is not surprising. Pensions span a person’s lifetime, from saving on entering the job market, through planning and preparing in middle age, to enjoying retirement in later life. All those are factors across the piece. There is no one place that pension provision does, or should, solely sit. Therefore, the Bill recognises that the pension system needs to reflect this. As the demography of the UK has shifted, we have had to reassess our current structure and amend existing legislation accordingly. This Bill puts sustainability and fiscal responsibility at the heart of its measures. I commend the Bill to the House.