The Parliamentary Under-Secretary of State, Department for Work and Pensions (Baroness Buscombe) (Con)
My Lords, I thank the noble Baroness, Lady Scott, for introducing and securing this debate, and thank all those who have contributed. I shall do my best to respond to the various issues raised.
Work and society have changed tremendously since the introduction of the contributory state pension in 1948, and this Government believe that state pension provision should reflect this. As the demographic balance in the UK shifts, and fewer people of working age are expected to support a growing number of pensioners, it has become clear that an increase in the state pension age is necessary for the welfare of all. Underpinning this belief is the basic fact that a welfare and pensions system is only as successful as it is sustainable. Those who are able to work should support those who are not, confident in the expectation of support when they reach their own retirement. Today’s workers provide for the support of today’s pensioners, fulfilling this essential tenet of the social security system, as it has existed ever since the creation of the welfare state over 70 years ago. For this to continue, however, we must take steps to ensure that our model is fit for the future. A policy that allows each generation to spend an increasing percentage of life over state pension age, financed by an increased level of public pension expenditure, would be unsustainable in the long run and unfair to subsequent generations of taxpayers.
Women retiring today can still expect to receive the state pension for 23.5 years on average, almost three years longer than men. Even after equalising women’s state pension age with men’s, women will spend on average around two years more in receipt of their state pension because of their longer life expectancy. In response to the concerns raised during debates in both Houses on the Pensions Act 2011, we introduced a significant concession worth £1.1 billion, which ensured that no one would wait more than 18 months for their pension, when compared to the previous timetable. Any further concession would cost significantly more, and ask people of working age—more specifically, today’s younger people—to pay even more for it. It is the firm opinion of this Government that such an outcome simply cannot be justified.
Policy changes to the state pension system have been implemented over the past 22 years and supported by all three major political parties. Indeed, the noble Baroness’s party was in government when the 2011 Act was introduced, so it is disappointing that it has now chosen to distance itself from these necessary reforms, and talk about mistakes. The former Liberal Democrat Member of Parliament for Thornbury and Yate, for instance, who was Minister for Pensions under the coalition, has suggested that not enough was done to ensure that women were aware of the changes being made. We do not accept that argument. Since 1995, successive Governments have gone to great lengths to communicate changes to the state pension age. As my honourable friend in another place, the Minister for Pensions, has been clear in debates in the House of Commons, the Department for Work and Pensions has diligently communicated the timetable of these changes since they were set in train 22 years ago. This included writing to those affected by the 2011 Act throughout 2012 and 2013 to inform them of changes to their state pension age
Over the past 17 years, the DWP has provided over 19 million personalised state pension estimates. I do not think it is fair, therefore, for noble Lords somehow to suggest that these changes have been brought in by stealth. Indeed, as the noble Baroness’s friend in another place, the honourable Member of Parliament for Eastbourne, said just two weeks ago, there seems to be an “element of amnesia” to this debate.
The current arrangements represent the culmination of several decades of policy-making, to which all the major parties in this House have contributed. The noble Baroness’s party has yet to offer a clear alternative to our position. The official Opposition have outlined their ideas for potential changes to the Government’s policy and, with your Lordships’ permission, I will now address these. Noble Lords on the Benches opposite have suggested that the Government should set the pension credit qualifying age so that it precedes the state pension age as a means of compensating women affected by the changes we have discussed. While we acknowledge the good intentions that lie behind this proposal, we are clear that the unintended consequences of such a shift would render it unworkable.
Introducing a measure designed to benefit a specific group in this way would risk creating a new inequality. Any movement of the pension credit qualifying age would presumably have to be extended to cover not only women who are not affected by the 2011 Act but also men, if the Government’s actions are not be considered discriminatory. As a general point, it would also need to include housing benefit and help with council tax. If not, the proposal would risk providing money through pension credit with one hand and taking it away through higher housing costs with the other. To move women away from the working-age benefits system and the support available to them through their local jobcentre, in any case, would cause them to lose their link with the labour market, with an inevitable, negative effect on their household income and eventual pension pot. These women need support in the labour market, not exclusion from it—support that pension credit does not provide, with only a very small earnings disregard of over £5 a week.
The noble Lord, Lord McKenzie, or rather his party, has costed the option at over £800 million. However, we must also remember that the Labour Party manifesto committed to providing the 2.5 million women affected by the Pensions Act 2011 more generally with,
“some kind of compensation for their losses”.
It is not correct to say that these women have suffered losses of state pension. The position has always been that they will receive their state pension and other contributory benefits if they meet the entitlement conditions. The state pension they receive is determined under the rules in force on the date on which they meet these criteria. Making pension contributions in 1993, for instance, does not entitle someone to receive state pension according to the rules that were in force then. Paying state pension based on the pre-1995 rules, furthermore, would mean that pensioners would not receive all the additional benefits that have been introduced in the intervening years, or be protected under the triple lock.
The noble Lord opposite also suggested that we allow WASPI women early access to their state pension from the age of 64 at a reduced rate. Evidence submitted by the Government Actuary to the Work and Pensions Select Committee in April 2016, however, showed that it would be extremely complex to accurately predict the costs involved in this initiative. Within a matter of hours of suggesting it, I might add, two different versions of the policy were proposed. WASPI groups have rejected both. The introduction of a partial early payment in either form would involve bringing forward significant expenditure, even if the measure was assessed as cost-neutral in the long term. The wider impact on the economy cannot be ignored: adding even one year to people’s working lives would result in a sustained increase to GDP of over 1%—and 1% of GDP today is almost £20 billion.
The pension reforms we have undertaken have already greatly improved state pension provision for all, particularly women. Future pensioners stand to benefit not only from the introduction of the new state pension but also from the expansion of auto-enrolment and our Fuller Working Lives strategy. For many women, the new state pension is much more generous than the old system. By 2030, over 3 million women stand to gain an average of £550 extra per year as a result.
With respect, we cannot avoid the reality of the UK’s ageing population. The number of people over state pension age in this country is expected to grow by 4 million over the next 25 years, a rise of almost one-third. That is why the Government’s position remains firm and why we will not make any further concessions on this issue. Accelerating the increase in state pension age for both women and men has proved necessary in the light of increasing life expectancy and the increasing pressure on public resources. By 2035, the number of people aged 100 or over will have more than doubled. Failing to act on this evidence would not only be irresponsible but place a wholly unsustainable burden on future generations.
Our focus is to deliver a modern welfare system fit for the needs of the 21st century, which rewards work and targets support towards those who most need it. As part of this, we must ensure that the costs of an ageing population are shared out fairly. In this context, and given the financial pressures we face as a nation, we cannot, with regret, unpick a policy that has been in place for 22 years. It is simply not affordable. The average woman reaching state pension age last year will get a higher state pension income over her lifetime than at any point before. Let us celebrate the fact that longer life, better health and continued activity in later decades are reshaping the profile and participation of older people in our society. However, let us also accept that part of preparing the welfare system, and society at large, for the changes brought about by these advances must be to encourage older workers to benefit from fuller and longer working lives.