CPI/RPI Pensions Uprating

Debate between Baroness Clark of Kilwinning and Alasdair McDonnell

Thursday 1st March 2012 Commons Chamber

[Katy Clark (North Ayrshire and Arran) (Lab)]

It is a pleasure to speak in this debate. I listened carefully to what the hon. Member for Eastbourne (Stephen Lloyd) was saying and, in particular, to his question at the end about the basic state pension. Of course, the increase in the basic state pension might offset the loss for some people as a result of this change from RPI to CPI, but my understanding is that for the vast majority of people the amounts of money that are being talked for the basic state pension will not help individuals such as the firefighter to whom we have already referred. That firefighter is due to retire and planned his finances on the basis of a pension he was expecting to get, but now understands that he is likely to be in the region of £25,000 worse off if he lives the average length of time of someone in that situation.

Some very important principles are involved in this debate. I have always been surprised by pension law in this country and the fact that there is so much discretion. Within our system there is no guaranteed pension and there has always been a legal set-up within which it has been possible for employers to take pension holidays when the stock market has been doing well. There seems to have been a collective belief that things would stay the same and a failure to understand the very turbulent nature of the financial system. That is particularly important when we talk about pensions because people pay up and make decisions about their pension over many decades. They make decisions at the beginning, one hopes, of their working life that are going to affect what they receive 40 years later.

I believe that the Government’s decision to move from the retail prices index to the consumer prices index has been made on financial grounds—to save money. However, as I said earlier, I am not convinced that it will save the amounts the Government hope for in the long term unless there are going to be absolutely savage cuts in welfare benefits, although that might well come from this Government.

[Dr Alasdair McDonnell (Belfast South) (SDLP)]

May I endorse my hon. Friend’s approach to this issue? It causes serious concern to my constituents. Age Sector Platform has highlighted that a pensioner with a £10,000 annual pension will receive more than £36,000 less—those figures are in direct contrast to some of those given by the hon. Member for Eastbourne (Stephen Lloyd). These changes are a serious threat in my constituency, where pensioners spend their money in the retail sector; our retail shops and other outlets are taking a hammering, with many closing. Does my hon. Friend agree that although the primary problem here is a pensions problem, there will be a bigger impact on local micro-economies?

[Katy Clark]

I fully agree with the hon. Gentleman about the wider economic impacts the changes are likely to have. Indeed, that was one of the points I was trying to make in last Thursday’s debate on the uprating of social security benefits and pensions. If the collective effect of some of these changes is that some of those on the lowest incomes and on modest incomes have less money in their pockets, that will have ramifications for the economies of constituencies such as his and mine. Unfortunately, my constituency is extremely reliant on the public sector because we still have not recovered from the decades of industrial decline and the closure of traditional industries in areas such as North Ayrshire. We are therefore over-reliant on the public sector and nothing that the Government are currently proposing looks likely to reverse that trend.

I believe the proposal is about cutting public expenditure and I do not accept that it is about the deficit. The Government’s position is that the policy will be a long-term one, not a short-term one for four years or so. At the beginning of this Parliament, the Government’s policy was that they would pay off the deficit within the Parliament, but if we look at the progress that has been made to date and the economic impact that their policies are having, we see that the growth and unemployment figures suggest that we will still be left with that deficit at the end of the Parliament.

I intervened on my hon. Friend the Member for Hayes and Harlington (John McDonnell) regarding opt-outs from public sector schemes. This is an important issue, particularly for those on low incomes. I have been provided with figures by the trade union Unison, as I believe have other Members, about the impact some of the changes will have on its members. These figures have been quoted in the House before and as far as I am aware they are accurate. Unison says that a woman receiving the average local government pension scheme pension for women of £2,600 a year would be £37 worse off this year and that a member—a man or a woman—receiving the average local government pension scheme pension of approximately £4,100 a year would be £58 worse off this year. It gives a further example of a woman on a median woman’s pension in the NHS pension scheme of approximately £3,500, who would be £49 worse off this year. As the hon. Member for Eastbourne indicated, there might be an element of offset so that if there are increases in the basic state pension and in other forms of benefit, some of those people might recover that money in other ways. However, going back to the example that the Member for Belfast South (Dr McDonnell) gave, of someone on a public sector pension in the region of £10,000, I understand from what the Minister said in last week’s debate that such an individual would be unlikely to obtain equivalent sums in other ways and would be worse off as a result of the changes.

I am concerned about opt-outs and I would be grateful if the Minister addressed this issue today or on a later occasion, because there will be long-term consequences of these changes, particularly for public sector schemes. There is great concern, particularly regarding those on low incomes, that we might see far higher levels of people opting out of public sector schemes as a result of this policy. That will be compounded by people’s experiences over recent years with the financial crisis. As we know, there is a complete crisis of confidence in the financial institutions and in the ability of vehicles such as pensions adequately to provide for people or to provide any certainty for future years. That is one reason why changes such as this RPI/CPI change are so unhelpful: it contributes to the erosion of that confidence when people do not know what they are going to end up with. They think, “If they make this change now, perhaps they’ll come back again and try to erode the scheme further in future years.” For people on low incomes, particularly women, this is a big issue, and I would be grateful if the Minister responded to my points. I know that some figures were provided more than a year ago about the likely impact of these policies on opt-out rates and there was great concern that those figures might have been over-enthusiastic.