Pensions: Reforms

Baroness Altmann Excerpts

Thursday 18th June 2015 Lords Chamber

[The Minister of State, Department for Work and Pensions (Baroness Altmann) (Con) (Maiden Speech)]

My Lords, I am proud and honoured to stand here today as a Member of this House and thank my noble friend Lord Flight for initiating this debate and for the many important and interesting points he raises, which I look forward to discussing with him. I also thank other noble Lords for their kind words. I must say that I am finding this such a friendly place. I am enormously grateful to my two supporters, my noble friends Lady Wheatcroft and Lord Freud, and to the doorkeepers and all the wonderful people who make this great House work so well.

I am particularly pleased to be among so many notable experts—especially all the noble Lords who have spoken so eloquently today—who have a deep knowledge of the UK pensions system. As someone who has studied and advised on pensions policies independently, I am excited to have joined the Government, with the opportunity it gives me to work inside this House to try to deliver the important pension reforms already under way, and initiated by my esteemed predecessor Steve Webb.

In the past 15 years or so, I have worked really hard to help ordinary pension savers. I have been involved in a number of campaigns trying to achieve justice for those who have lost out in our pension system, and it has been a privilege to have been able to make a difference to so many people’s lives. That is what motivates me. I earnestly hope that, in my new role, I will be able to help many more—time will tell. I thank the many noble Lords who have already shown me such warmth, kindness, support and friendship since arriving in the House.

As this is my maiden speech, I hope I may share with noble Lords a few words about my background. My mother, a wonderful woman, well liked by everyone, tells me that I always had a strong sense of social justice, helping others wherever I could. Even at school I would stand up for those who were bullied. I remember my parents being proud of me for defending my friend one day and telling me, “Don’t stand by, stand up, stand strong”. I often think of those words.

My parents and their families were refugees from eastern Europe who arrived here with nothing. All my grandparents were so grateful for the freedoms and opportunities they enjoyed in this wonderful country of ours. I have been asked why I chose Tottenham as my “place”, and can assure noble Lords that this is not because I have a hidden talent for playing football. Actually, my father’s parents lived at their small shop in Tottenham—the Hale Bargain Store. I have many fond memories of serving in the shop and then walking to football at White Hart Lane, holding hands with my father and granddad in the Tottenham Hotspur glory days. As I am the last member of my family of Altmanns, I have chosen Tottenham as my “place” as it holds so many special memories of my time there.

Sadly, my father passed away in his 50s and never reached retirement. This is quite poignant for me given that my career has focused on helping people prepare for, and enjoy, retirement. After reading economics and studying at Harvard, I completed a PhD on pensions and later-life poverty at the London School of Economics. I then worked in the City and spent many interesting years managing institutional assets, mostly pension funds.

I took time out after having my third child and then returned to corporate life as an independent consultant, working on pensions and investment policy. I advised the Treasury and the No. 10 Policy Unit, while also working with many top international firms on pension investment, risk management and member security. That work led to public recognition as a pensions expert and consumer champion, which is ultimately why I am here today, among such distinguished company.

Turning to the subject of today’s debate, I first express my gratitude for the important work done by the Pensions Commission in generating the momentum that has brought us to the point we have now reached. The commission’s excellent analysis showed that any system of private pension saving needs to be considered against the background of the state pension and, rightly in my view, concluded that means-testing must be reduced; state pensions should be flat-rate with the widest possible coverage and should rise in line with earnings; and that private saving must be facilitated. That is why the delivery of the new state pension, rolling out auto-enrolment to all employers and ensuring that customers are treated fairly in the new pensions landscape will be major priorities for me as I do my utmost for the pensioners of today and the future.

The reforms put in place so dedicatedly by my predecessor in the last Government—I echo the many tributes paid to Steve Webb—are now reaching a critical stage. I am well aware that the real tests for success are still to come, notwithstanding the encouraging trends so far. I am also actively aware that, as the noble Lord, Lord Hutton, mentioned, maintaining a consensus is vital. I think there is broad agreement that a base level of state pension is essential. The value of the basic state pension as a proportion of earnings had been in almost constant decline since 1978. However, with the introduction of the triple lock, the previous Government helped to ensure that today’s pensioners now receive the highest share of basic state pension relative to earnings in two decades, so that pensioners are protected even in tough times. I repeat the Prime Minister’s commitment that this triple lock will be maintained during this Parliament.

As many noble Lords have said, the current state pension system is one of the most complex in the world. State pension provision has undermined private pension saving as too many pensioners just ended up on means-tested benefits that penalised their private income. The new state pension introduced by my predecessor—I echo the remarks of the noble Lord, Lord Stoneham, in that regard—will significantly reduce pensioner means-testing. People therefore have a better chance of knowing what to expect from the state pension, so they can plan any additional personal retirement income they may want or need on top. Unfortunately, the new state pension has not yet been properly understood. This is mainly because of the complexity of contracting out, and we need to communicate this more clearly. I absolutely agree with the noble Lord, Lord Stoneham, about the importance of communication. This is an area on which I have already spent an enormous amount of time in my new role. I reassure my noble friend Lord Kirkwood that among the plethora of briefings that I have requested from my team, I have already asked for submissions on winners and losers and will now add to that ever-growing list a request regarding the Pension Provision Group. I should also let him know that I hope to be in Edinburgh in the middle of July and look forward to the band.

Rising longevity means that successive generations are spending longer and longer in retirement. This is, of course, pretty good news. However, we all know that there are also huge cost implications for state pensions, which is why we will have an independent review of the state pension age by 2017. I want the review to consider not only rising life expectancy but wider social, occupational and gender factors. I reassure the noble Baroness, Lady Drake, and the noble Lord, Lord Kirkwood, that I am acutely aware of the disadvantages faced by women in our pension system.

Let me now address the pension freedoms. There are some who say that the financial industry or the Government know best what people should do with their private pensions and that most people cannot make sensible decisions for themselves. I disagree. Yes, some may be reckless and most will certainly need protection, guidance and even advice but the new pension freedoms are right, in my view. I have long been an advocate of trusting people with their own money. I was acutely aware of how the one-size-fits-all approach of the past meant that too many people—unless they had very large pension funds—were forced to buy annuities that were often not suitable for their needs. I am most grateful for the support for the new pension freedoms, in particular from the noble Lord, Lord Bradley.

The previous system most benefited the wealthy but we have now offered more choice and flexibility for the majority of savers as well. I should like to stress an important point: the reforms are particularly helpful in that they use the tax system to incentivise people to keep money in their pensions into later life. By taxing lump sum withdrawals, removing the 55% tax on death and allowing pension savings to pass to the next generation free of inheritance tax, there are strong reasons for people to keep pensions rather than spend them too soon. Most importantly, these reforms will also encourage more people to save in pensions in the first place.

Of course, we must also make sure that customers have good value options to choose from. The pensions industry needs to help individuals to act as they would like to and as the law now allows but, so far, too many firms are not offering many of the new options to their customers, or they are imposing hefty charges, lengthy delays or exit penalties on those wishing to transfer to other providers. This is most disappointing.

My right honourable friend the Chancellor of the Exchequer announced yesterday in another place—this was welcomed by the noble Baroness, Lady Drake—that we will be launching a consultation next month, asking the industry, consumer groups, media and individuals to submit evidence of the reality facing customers in this new landscape. We need the evidence to inform any action that might be required to ensure that the market works as intended and customers are treated fairly. We must not allow consumer rights to play second fiddle to the interests of large financial firms. So far, it is clear that competition has not always addressed consumer detriment but, ultimately, it is in the interests of providers to look after their customers well. Their long-term success requires a new approach, and I assure noble Lords that I am at least as concerned about this as they are. I intend to take action to drive fair treatment of customers. I am also concerned about the transparency of all fees and charges for pensions and savings products. The noble Lord, Lord German, rightly mentioned this. I share the sense of urgency expressed by the noble Lord, Lord Bradley, and I reassure him that I will reflect on his other remarks.

It is also important that the pension freedoms have been accompanied by the creation of Pension Wise. I am grateful for the support of many noble Lords, including the noble Lord, Lord German, and the noble Baroness, Lady Drake, for this service. Pension Wise has already been used by thousands of people. Its free and impartial guidance helps pension savers understand the options available to them and the risks and costs associated with each. People also need to be alive to the risk of scams and we must keep working hard to raise awareness of this important issue. I can tell the noble Lord, Lord Stoneham, that I have also already had conversations with the FCA about this issue, financial advice and the difficulties faced by advisers and their customers in accessing affordable advice. In addition, we need to improve financial education, as the noble Lord, Lord German, rightly said. Public understanding of the long-term savings and investment market is currently inadequate.

As well as problems with pensions, I have, for many years, been concerned about the looming crisis in social care funding. The ageing population means that there will be an enormous surge in the numbers needing to rely on care in coming years, and there is simply no money set aside to pay for this. There is still much more to be done to incentivise saving for later-life care, whether as part of pension provision, separate care savings plans, a widespread insurance system or a combination of all these.

Turning to auto-enrolment, the coverage and adequacy of pension saving had been in rapid decline for many years. Unfortunately, the rising costs and risks of defined benefit pension provision led, as we have heard today, to employers closing traditional defined benefit schemes. I have great sympathy with the many employers who have been struggling with ever-increasing pension liabilities in the current, exceptionally low interest rate environment. Pension provision is clearly moving towards defined contribution, which employers are using to replace defined benefit. It is encouraging, however, that automatic enrolment has so far been successful and that opt-out rates have been really low, especially among young people, so that coverage of workplace pensions is once again increasing.

I can inform the noble Lord, Lord Stoneham, that as of last week 5.25 million people have been automatically enrolled, 44,757 employers have met their automatic enrolment duties and the number of eligible employees participating in workplace pensions has increased by 900,000, to 11.7 million. But we must not be complacent: half of all employees have been automatically enrolled but this accounts for only 4% of employers and contributions are low, as the noble Lord, Lord Hutton, rightly remarked. The hardest work is just starting, as there will be many challenges in ensuring that the huge numbers of remaining employers manage the auto-enrolment process. In particular, I am conscious of the situation of micro-employers and I reassure the noble Lord, Lord German, that I am actively engaged in ensuring that auto-enrolment for the smallest employers is successful and that they are given an easier way to manage this issue. I have already had many meetings on this topic.

Of course, a major factor in people’s retirement income is how much and for how long they save into a pension but, as life expectancy keeps rising, it is also imperative to help people stay in the labour market in later life, including beyond the state pension age if they choose to do so. As my noble friend Lord Flight rightly said, we need to retire the traditional concept of retirement. In that vein, I was amused by and grateful for the remarks by the noble Lord, Lord Kirkwood, about my possible retirement from my new ministerial role, even before I have made my maiden speech.

In conclusion, my aim as Pensions Minister is to try to make pensions work better for people. As I explained to your Lordships at the start of this speech, I have been involved in all aspects of pensions for my entire career. In this work I have always believed that pensions are not just about money. Ultimately, they are about people. We all hope to have a pension one day to help us enjoy our later life. Pensions are precious and need to be nurtured. So many of us have taken them for granted. As the Prime Minister announced to the press when asking me to join his Government:

“What we are doing is taking the country’s leading expert on pensions, on savings, on financial education, and … she will be at the heart of Government, making sure we complete this great revolution where we are giving people much more power to save, to access their pension, to pass their pension on to their children, because we want to create a real savings culture in our country for everybody”.

I realise that my new role in government and as part of this House is a huge responsibility. There is much to do. I have had the privilege of working with a large number of noble Lords from all sides of this House over the years, and I hope I can count many as friends. I would like to get to know and work with more of your Lordships in a spirit of co-operation and consensus rather than confrontation.

These are national and social imperatives in which we all have an interest, and I will try my best to make policy work better for people from all walks of life. With that in mind, I look forward to working with the House on the challenges ahead.