Westminster Hall is an alternative Chamber for MPs to hold debates, named after the adjoining Westminster Hall.
Each debate is chaired by an MP from the Panel of Chairs, rather than the Speaker or Deputy Speaker. A Government Minister will give the final speech, and no votes may be called on the debate topic.
This information is provided by Parallel Parliament and does not comprise part of the offical record
The Minister of State, Department for Work and Pensions (Steve Webb)
Good afternoon, Mrs Main. I congratulate the hon. Member for Inverclyde (Mr McKenzie) on securing the debate. He took part in the Second Reading debate on the Pensions Bill.
I want to start by addressing some of the factual errors in what the hon. Gentleman said. I believe that he was speaking in good faith, but some of the central arguments he advanced were factually wrong, and it is important to get the facts on the record. He talked of the 700,000 women who were born between 6 April 1951 and 5 April 1953, and I am pretty sure he said that the Government had put their pension age up; in fact, he probably said it several times. However, this Government have not put their pension age up at all—that is a statement of fact. The Pensions Act 1995 began the process of equalising the pension ages of men and women at 65 over the decade from 2010 to 2020. The increase in pension age beyond 60 for these women was therefore legislated for in 1995. It was not a short-notice change, although I accept that some women did not know about it, and not everybody heard about it at the time. Although it was all over the papers at the time, these women were a long way from pension age and probably turned the page when they saw the word “pension”, so I accept that some women did not know about this. However, the idea that these women have had a short-notice change to their pension is completely factually incorrect; they have not, and their pension age was set 18 years ago. It is important to put that on the record.
The Government have indeed changed some pension ages for women who reach pension age after 6 April 2016, and every woman for whom we have increased the state pension age will get the single-tier pension. There are therefore two sets of women: those who will not get the single tier, but whose pension age has not increased beyond that which was legislated for 18 years ago, and those who have had a further increase, but who will get the single tier.
The hon. Gentleman said that we should treat men and women the same, but he will understand that men and women have different state pension ages. Under the previous plans, that would have continued until 2020, and under our plans, it will continue until 2018. If we treated men and women the same in relation to single tier, it would be hard to argue that we should not treat them the same in relation to state pension age. It would be hard to say that men get single tier but have to wait until they are 65, while these women do not get single tier but can get a pension at 63 or earlier. It would be hard to say that these women should have the good bit of the deal—the single tier—but not the bad bit that the men have.
That goes to the nub of the hon. Gentleman’s point about his constituents. I entirely accept that many of them have worked in physically demanding jobs and may therefore have reduced life expectancy. As a result, however, being treated as a woman and getting a pension at 61 is far better than being treated as a man. If, hypothetically, I accepted the hon. Gentleman’s argument, and we said to every one of these 700,000 women, including his constituents, “It’s not fair. You can have men’s rules, not women’s rules,” we would make those women wait up to an extra four years for their pensions. Given everything the hon. Gentleman has said about their likely life expectancy, that would be absolutely perverse. It is dreadful that these women have a reduced life expectancy to the extent that they do, but given that they do, it is far better for them to have the women’s rather than the men’s state pension regime. The comparison with men does not, therefore, help the hon. Gentleman’s case.
The hon. Gentleman compared someone—he gave the example of Angela—who reaches state pension age just before April 2016 with someone who reaches it just after. He came up with a figure of £884, and it took me a while to work out where he got it from. He compares £127, which is the pension of someone such as Angela, with £144, which is the single tier, and he multiplies the difference by 52—I think that is where he gets his number from. However, that is not the right comparison. The reason someone such as Angela gets £127 is that, on average, women get smaller pensions than men, and they have fewer qualifying years and less from the state earnings-related pension scheme. Even if we apply the single-tier rules to someone with Angela’s contribution history, therefore, she would not get £144 on average, because she would get about another £6 a week, not another £17. The hon. Gentleman therefore trebles the difference that the single-tier calculation would make. That is the second thing to say.
The third thing is that there is an issue about people qualifying just before and just after midnight on 5 April 2016. However, in general, the 700,000 women the hon. Gentleman discusses will, on average, draw their pension—yes, it may be £6 a week less—for anything between two and four years longer than a man born on the same day. Indeed, women who reach pension age after April 2016, who he feels are treated favourably relative to the 700,000 he talks about, will have state pension ages of 63, which will soon rise to 64, then to 65 and then to 66 not longer after that. With their slightly younger sisters, I take the point that there is the “minute to midnight, minute after midnight” issue, as there inevitably is with any change, but the next cohort of 700,000 women and the cohort after that will overwhelmingly have to wait many years longer for their pensions. It is therefore quite hard to argue that the 700,000 women the hon. Gentleman is talking about are in some sense uniquely discriminated against, when another 700,000 who are coming down the track will have to wait years longer for their pensions, and when their older sisters had a tougher regime previously. Let me explain what I mean by that.
The 700,000 women the hon. Gentleman is talking about get a full basic state pension for 30 years of contributions or credits, but a woman who reached state pension age just before 6 April 2010 needed 39 years. Constituents who are just a couple of years older than the women he is speaking for might well be aggrieved that their younger sisters, who he feels have had a rough deal, get a pension after 30 years, when they had to do 39 years. He talked about hard-working women in his constituency, but how does the woman who retired on 5 April 2010, after 39 years, feel about the woman who retires on 6 April 2010 and who gets a full pension after 30 years? She might well be very aggrieved.
I happen to think, broadly speaking, that reducing the number of years required was a move in the right direction. We have balanced things up in the single tier. The reduction from 39 years was a good thing, but that was a cliff edge too—much more of a cliff edge than what we are doing in 2016, because that reduction was pure windfall: from 6 April 2010, it was 30 years, not 39, for a full pension, and there was virtually no transition and no difference in state pension age to speak of. If we put the pre-April 2016 women through the new system, on average they get £6 a week more—we think the figure will be about that. However, on average, those 700,000 women are working fewer years than the post-2016 women, because state pension ages have been going up. That seems broadly fair, in my judgment.
The hon. Member for Strangford (Jim Shannon) raised the issue of women’s longer working lives, and asked whether that was bad news for the young unemployed. That is an argument that we hear a lot. This country and other countries have tried pensioning off older workers. In the 1980s we had something called the job release scheme, for example, which tried to do that. All that it did was put lots of men in their early 60s on pension, while it did nothing for youth unemployment. On the whole, young unemployed people are not very good substitutes for the recently retired. They do not slot into the vacancies. I appreciate that it could be argued that everyone would move up, but the evidence is that the older worker, on average, is a highly productive, valuable member of the work force. Pensioning off older workers who still make a contribution means that the economy as a whole suffers. The Institute for Fiscal Studies considered schemes for getting rid of older workers and encouraging younger workers in countries across the developed world, and there is no evidence that the younger workers benefit from pensioning off the older ones. If anything, the evidence is that the economy benefits from older workers, and that young people benefit, too.
Jim Shannon
I appreciate the Minister’s detailed response, but the idea of someone leaving early and creating a job is that the jobseeker would move into the lower echelons of the job market, and those in the middle rank would move up; it would be a sort of circle.
Steve Webb
That is what I meant—I was gesturing, but that will not be in Hansard. It could be argued that the person retires and everyone else moves up a step, and the young unemployed person comes in at the bottom; but what has been lost is the productivity, skills and experience of the older worker. If that worker has not been adding anything to the firm, then fine—get rid of them—but they are. That is the point. On average—not in every case—older workers are, by definition, the most experienced; they are often very productive and less likely to take time off sick than slightly younger people. They contribute a huge amount. The evidence from around the world—not from Government research but from work by the Institute for Fiscal Studies and others—is that pensioning them off does not benefit younger workers. There is not a battle between the generations; in many ways they are complementary, because the older, experienced worker can mentor, and use their skills to bring on, younger workers.
Mr McKenzie
I thank the Minister for his detailed response, but I cannot help but think that his argument about elderly workers not retiring to release jobs to younger workers implies that employers should hold on to employees as long as possible, even when they are near retirement age and want to retire.
Steve Webb
The hon. Gentleman is putting words into my mouth. I am saying that older workers, on average, are very productive. Clearly there comes a point when our productivity declines, as we get much older. We should bear in mind that the 700,000 women who are the subject of the debate are in their early 60s. I think that many of the hon. Gentleman’s constituents would be offended at the suggestion that they are not productive, valuable members of the work force. We do not say that employers should be forced to go on employing them if they want to stop working, but the evidence from the IFS has debunked what has been called the lump of labour fallacy—the idea that there is a lump of labour to be done, and so it is possible to knock out an older worker and slot in a younger one. That neglects the valuable contribution of older workers.
Clearly there is a limit. The hon. Gentleman mentioned the age of 72 or 73, although the statute book takes us only to 68 at the moment, so I am not sure where he got that from.
Gregg McClymont (Cumbernauld, Kilsyth and Kirkintilloch East) (Lab)
I am pleased to serve under your chairmanship, Mrs Main. I was going to ask the Minister about the lump of labour, which comes down to the argument that there is a fixed amount of labour in the economy. My view is that it is probably much more complicated; will the Minister expand on that a wee bit? Is there a demand issue as well? I take the point made by the hon. Member for Strangford (Jim Shannon) about people moving up a rung, but if we assume it is more complicated and stickier than that, there is a demand issue to do with the goods and services that older, wealthier workers are likely to buy.
Steve Webb
The very complexity of the issue is the reason for the IFS examining what happens across the developed world. It looked at different sorts of labour markets and different labour supply and demand conditions. Systematically, it found no evidence for the hypothesis that getting rid of older, more experienced, productive workers benefits the young unemployed.
Steve Webb
I hope that the hon. Gentleman will forgive me, but as this is the debate of the hon. Member for Inverclyde, I will continue to respond to his speech.
The hon. Member for Inverclyde raised the issue of what it would cost to bring the women in, and he suggested some inconsistency in the figures. To make things clear, typically a woman who reaches state pension age will draw a state pension for more than 20 years. There is a profile to the costs, but on average the extra spending would be a couple of hundred million per year; £200 million times 20 is £4 billion, so there is no inconsistency in the numbers. One is an annual figure and one is cumulative. I hope that that clarifies that point.
The hon. Gentleman asked about bringing forward the single tier. Of course, in an ideal world I would do it tomorrow. It is a good reform, and I am grateful for the Opposition’s support for the principle, but there are many things that need to be sorted out before we bring it in. The biggest of those—apart from programming our computers, which I am advised takes a while—is the impact on company pension funds. Having a single pension means there is nothing for people to contract out of. We have two pensions, at least, at the moment. There is a second state pension that big firms’ employees can contract out of. With a single pension, there is nothing to contract out of, so we abolish contracting out.
That means that the biggest pension funds in the land, which are currently contracted out, will contract back into the state pension scheme, and will face an increase in their national insurance costs—because they will lose the rebate—and then will have the option, under our Bill, of re-jigging their company pension scheme to recoup the cost. So, for example, because people will now be getting more from the state, rather than relying on the company scheme, the company might reduce the accrual rate of its scheme, or something like that. To do that, it will need actuarial valuations and will conduct long consultations with its employees.
We are advised by the Confederation of British Industry, the National Association of Pension Funds and others that even doing it in 2016 is tight. They argued at one point that 2017 was tight. Even if it were reasonable to bring the change forward for the reason that the hon. Gentleman has given, I think that 2016 is as soon as we can reasonably do it, not least because the primary legislation, subject to the will of Parliament, will not be through until Easter 2014. Secondary legislation will then be needed on the abolition of contracting out. We will have to consult on that, and it all takes time. I find it frustrating; there is always far more of a lead time on such reforms than one might imagine.
There is one other thing that I want to deal with. It is not a point that the hon. Gentleman made, but it has been made about the group of women in question. People sometimes ask why they cannot just be allowed to choose—perhaps to retire on the current pension, reach single tier, and then choose the better pension, if it would be better. One of the difficulties is that single tier does not cost any more overall. It is not a windfall. We have not found some money down the back of a sofa, which we want to pump into some pensions but not others. It is the same money, but it is being spent better. As a result, there are bits of the system that are less generous, and an example that I can give relates to widows.
Under the current system, when a woman’s husband dies the widow can claim a state pension based on his contributions and, in many cases, get a full basic state pension of £110 a week or so. Under single tier, the claim will be on the basis of someone’s own contributions, so a woman who, for example, opted into single tier because she would get £133 and not £127, but whose husband died the next day, would find she could not claim quite the same combination of widow’s benefits that she could under the old system; or she would not be able to claim the savings credit, whereas her sister, a few years earlier, could, because she was under the old system. I have no idea—I could not advise a woman on 6 April 2016—what it would be best to choose, because I do not know when her husband will die, or whether the savings credit will come into play, not just on the day when she claims but at any point through her whole retirement. We just do not know. If we gave people that choice and they made the wrong one, would we have to opt them back in again? Would we have to advise them? It would create great complexity.
In sum, we believe that the reform is a good, positive one, spending the planned budget in a better way. The women in the age group in question have had no state pension age increase from the Government. What the Government have given them is the triple lock, which means that they will get a bigger pension under our policies than if those of the previous Government had been carried forward.
Question put and agreed to.