Disabled People: Disability Living Allowance

Baroness Hollis of Heigham Excerpts

Monday 7th February 2011 Lords Chamber

[Lord Freud]

My Lords, as the noble Baroness pointed out, the target is to reduce the spending on DLA by 20 per cent by 2014-15. But that is against a projection of a benefit that is, frankly, out of control. The actual figure in that year will basically come down to the level that it was in 2009-10, which is just below the £12 billion mark.

[Baroness Hollis of Heigham]

My Lords, the consultation paper proposes that the three rates of DLA should be so-called “simplified” into two rates, which presumably implies—as the noble Baroness, Lady Campbell, suggested—the scrapping of the lower rate of DLA care. Lower-rate DLA care goes to those with significant need of help or supervision. Does the Minister agree with the noble Baroness that if the Government go ahead with that, it will take almost £900 million—nearly £1 billion—out of the incomes of disabled people, some of whom are among the poorest in this country? Is that what he means by saying that we are all in it together?

[Lord Freud]

My Lords, I disagree entirely with that premise. The personal independence payment is a new assessment of people’s needs and is designed to help people to live independent lives and to give them mobility. To that extent there can be no presumption about what is happening to existing rates. We will set these rates based on people’s requirements to live independent lives.

Housing Benefit (Amendment) Regulations 2010

Baroness Hollis of Heigham Excerpts

Monday 24th January 2011 Lords Chamber

[Baroness Thomas of Winchester]

My Lords, it is no secret that when these regulations were first announced I had deep concerns about them, as I made clear in the housing debate that the noble Baroness, Lady Hollis, introduced at the beginning of last November. When the Social Security Advisory Committee’s very critical report was published, the Government modified their original proposals in two important ways, as we have heard: in relation to the timing of the changes and in allowing direct payments to landlords in certain circumstances.

The nine months of breathing space for existing claimants is welcome to give them more time to find alternative accommodation if necessary, although it will be paid for by bringing forward the moving of LHA rates from the median to the 30th percentile for new claimants. Also delayed is the introduction of the cap on LHA payments and a reduction in the maximum number of bedrooms that a claimant is entitled to, from five to four. Overall, the change in the phasing means that some claimants will be hit by the cut a year earlier than they might have expected, while others will have a bit more time before the cuts bite.

Turning to the other concession, direct payments to landlords, I am glad that the Government have now agreed to widen the criteria that local authorities should consider in order for this to happen, although I find the wording of this concession quite convoluted—perhaps deliberately so, in order to give some flexibility—so perhaps the Minister can help me. The wording is:

“From April 2011, in cases assessed under the local housing allowance arrangements, local authorities will be able to pay housing benefit direct to the landlord where they consider that it would help the customer to secure a new tenancy or remain in their current home. It follows that the rent must be at a level that they can afford. We will work closely with local authorities to ensure that this provision is used in very specific circumstances where landlords are reducing rents to a level that is affordable for customers”.—[Official Report, 14/12/10; col. WA 170.]

I am glad that the Government are providing guidance to local authorities because to me these three sentences could mean three different things. I am not an expert in these matters, but they do not quite seem to hang together.

While I am talking about welcome news, we must not forget the two provisions in the original announcement of, first, an additional bedroom to be included in the size criteria used to assess HB claims in the private rented sector for an overnight carer of a disabled person or someone with a long-term health condition and, secondly, a large increase in the discretionary housing payments. Both those measures are very welcome.

The $64,000 question remains, however, as all the speakers so far have said: will these housing benefit regulations mean that landlords will reduce their rents, thus bringing the huge housing benefit bill down, to general rejoicing by taxpayers and the Government, or will it mean that not enough landlords will, or can afford to, reduce their rents low enough for LHA claimants, that the discretionary housing payments will be spread too thin to make much difference and that therefore thousands of people will face eviction, child poverty will increase and local authorities will eventually have to pick up a very large bill?

Many statistics have already been given and I will not add to them. We all know why the bill for housing benefit has ballooned—there is nowhere near enough social housing throughout the country and so councils have turned to the much more expensive private rented sector, with buy to let becoming a popular way for people with capital to cash in on the shortage of rental accommodation. While there may be a percentage of greedy landlords who are able to charge unjustifiably high rents—the noble Lord, Lord Best, referred to them and gave a figure—is not the real truth of why the HB bill is so high not that housing benefit has inflated rents but that there are huge numbers of low-paid and unemployed people who qualify for housing benefit?

It is clear that, as my noble friend Lord German has said, London with its high rents is in a category of its own, even though a lot of the boroughs are receiving the cushion of the bulk of the discretionary housing payments. To those of us who live and work in London, the mix of housing works to everyone’s advantage, as the noble Baroness, Lady Sherlock, said in her powerful contribution. If a large number of the low-paid workforce who receive LHA are forced to move out even of Greater London, then everyone suffers, because life in central London depends on low-paid workers; we do in this House. Of course we all understand that low-paid or unemployed people on housing benefit with large families cannot expect to live for ever in high-end houses or flats in central London, although I am quite sure that very few actually do. However, we know that a lot of families will be forced to move in the next couple of years, as the noble Lord, Lord Adebowale, said. We just hope that this will not mean that they will be pushed out of the reach of good employment and transport, thus exacerbating the situation.

The real worry about these regulations is that dropping to the 30th percentile could have a devastating effect on these families all over the country, many of whom find life a struggle even now. This regulation is the one that could cause evictions, particularly in housing hot spots outside London, such as Brighton and Cambridge, with landlords not having to reduce their rents because they can always find someone not on housing benefit to pay the going rate.

What we need, and what I called for in our debate in November, is what the noble Lord, Lord Best, calls for in his Motion: an independent review of housing benefit in the private rented sector. I know that the Minister will say that this happens automatically in his department, but we need an independent review to be set up and to alert Parliament quickly if the worst fears of some of the relevant organisations in this field, which have already been mentioned, are being realised. Many groups are warning of the dire consequences of the effect of these regulations in today’s difficult economic climate, particularly for single parents and disabled people. The noble Baroness, Lady Wilkins, may say more about disabled people shortly. What would reassure many of us who are concerned about these changes is to hear that the Government will take swift action to alleviate the situation if they are wrong and the organisations are right. I look forward to my noble friend’s reply.

[Baroness Hollis of Heigham]

My Lords, I declare an interest as chair of Broadland Housing Association. I will not follow my noble friend Lady Sherlock, the right reverend Prelate and the noble Lord, Lord Adebowale, in talking about the human stress, distress and misery potentially in waiting for so many thousands of families with children in our country. Instead, I want to do something different; I want to challenge the very premises behind the Government’s strategy, which I think are false.

We have been here before, with the Housing Finance Act 1972 and especially in the late 1980s when the Tory Government again pressed up rents on the grounds that they should subsidise people, not property. We on the Labour Benches pointed out then what would happen. The selfsame money that had been spent on new homes was now being spent on housing benefit, which in turn trapped people out of work and left us with a shortfall in housing. Now the Government are trying to rectify a problem of their own creation by capping HB. They believe, falsely, that HB is driving up private sector rents, that the HB bill has grown because of those increased rents and that, by capping HB, they will press down rents.

The second fallacy is that this policy is consistent with universal credit—a policy for which I applaud the noble Lord, Lord Freud—which seeks to bring more people into the labour market. On the contrary, I fear that these HB caps, together with the unpleasant and bizarre policies of Mr Pickles, will have the reverse effect. Let me unpick this a little. The Minister says that as 40 per cent of the tenants of private rented sector properties receive HB—a rather disputed figure—HB rates determine rents. However, he will be aware, I am sure, of two very simple statistics from his own department. First, as quoted by the noble Lord, Lord Best, the DWP’s own figures show that the increase in housing benefit has been caused not by increased rents but by increased demand for HB from more tenants in both the private and public sectors. Only 13 per cent of the increase in HB can be attributed to private sector rent increases. In other words, the increase in the HB bill has not come about because HB has driven up rents and, therefore, has sought to catch up with the rents that it has inflated. Instead, the HB bill has risen because more and poorer people are claiming HB, including those in low-paid work. That is a fact.

The second statistic is also from the DWP. An Answer to a PQ in August 2009—I do not have later figures—showed that 48 per cent, or nearly half, of all those receiving local housing allowance had, on average, a shortfall of £23 a week. This was because their contractual rent was higher than their HB. Some will have been in work, others on income support and so on. I do not know how they made ends meet. For those in shared accommodation, paying single-room rent, the HB research for the DWP showed that 87 per cent of young people faced a shortfall, on average, of £35 a week. I dread what will happen now that we propose to raise the age at which single-room rent can be claimed from 25 to 35. I repeat: 48 per cent found that their HB did not cover their rent. If the Minister is right and their HB then did not press down on their contractual rent—however much the tenants would have wanted and needed it to—why does he think now that by cutting HB 18 months later he will press their contractual rent down? It is a triumph of hope over history. It was not happening 18 months ago and landlords tell us that it will not happen this time either. SSAC confirms this. Nine in 10 landlords will avoid anyone on HB. Why? Because they can now let to other people at the rents that they seek to charge. In other words, the Government do not control, as they believe they do, the rents of the private rented sector. It is a fallacy. Indeed, preliminary findings from current research suggest that, whether housing benefit claimants account for 20 per cent or 70 per cent of the private rental market, it makes no difference at all to local rent levels. HB levels, and therefore the Government, do not shape the market, full stop.

--- Later in debate ---

[Lord Freud]

I thank the noble Lord for his intervention. Very elegantly, I have an answer for him on my next page—although, of course, I am not reading, I am keeping carefully to my text in this important area. The noble Lord, Lord Best, suggested that the review should be published after a year and we considered that point very carefully, but given the implementation timescales for these changes, particularly the transitional protection arrangements that we have introduced, I think that one year is too soon for a meaningful piece of evaluation research. Many housing benefit recipients will not be affected by the changes until well into 2012. We will therefore make the findings available in early 2013, with initial findings available in the spring of 2012 and an interim report in the summer of 2012.

[Baroness Hollis of Heigham]

That is very helpful of the Minister. I fully understand his reasoning for why the report may therefore need to come out somewhat later than the noble Lord, Lord Best, originally proposed. Will the Minister also be giving us details about what is happening with rent levels, the 30th percentile, CPI and as a result, if necessary, the continued rebasing of the 30th percentile figure to ensure that it does not drift down because of the effect of CPI?

[Lord Freud]

I thank the noble Baroness for that. If I have one minute when I finish my prepared speech, I will try to touch on the CPI.

With regard to further reporting after what I have just described, I am not convinced that it would be appropriate to commit to an annual report on these reforms when so many other welfare changes will be made, as the noble Baroness has pointed out—not least, the introduction of the universal credit. I suggest that we ask the authors of the independent review to recommend whether they think that a follow-up evaluation will be necessary. As I said, I am happy to commit to the independent review that I have described.

Before I close on the CPI, I should point out that it is designed to bear down and we are locked into it for the years 2013-14 and 2014-15. Thereafter it is up to the Government to decide whether rates using that methodology go out of kilter.

These changes are important. We have put in a lot of transitional support along with a comprehensive programme of practical support to help local authorities implement these measures so that we can finally reform housing benefit and make it fit for purpose. There is no doubt that these statutory instruments are sensible and proportionate. They must go ahead and I commend them to the House.

Welfare Reform

Baroness Hollis of Heigham Excerpts

Tuesday 16th November 2010 Lords Chamber

[Lord Freud]

My Lords, I thank my noble friend for putting his finger right on the point of these proposals: this is a measure to help people back into work. I should point out that a very similar measure, the Work for your Benefit scheme introduced by the previous Administration, was looked at by the Human Rights Joint Committee in the light of Article 4 of the ECHR, and it was found that it in no way went against people’s human rights or constituted forced labour.

[Baroness Hollis of Heigham]

My Lords, the Minister mentioned the universal credit, which I and, I think, most of the House very much welcome. It will bring together half a dozen benefit payments into one. At the moment, as the noble Lord will know, some payments, such as tax credits, go to the mother, whereas others, such as JSA, may go to the father. How will the Minister ensure that with a universal credit mothers’ incomes are protected?

[Lord Freud]

My Lords, I thank the noble Baroness for that question. With regard to the wallet and purse issue, we are giving each household the option to decide who gets the universal credit. We are also exploring whether couples can decide to divide the credit between them. Again, that is a decision that we have to finalise.

Welfare Reform

Baroness Hollis of Heigham Excerpts

Monday 11th October 2010 Lords Chamber

[Lord Freud]

The core difference between the work programme and past programmes is that we are determined to put price differentiation into it because otherwise, as the noble Lord pointed out, the financial incentive for providers is to concentrate on the easiest people. To neutralise that effect, we need to give providers a higher reward for helping the more difficult people. That also has the effect of encouraging the consortia which are formed to be rather rich in terms of their capability. As the noble Lord pointed out, the third sector has some of the greatest expertise in the most difficult people to help. Once you pay for that, it encourages consortia to form which include them. That price differentiation mechanism is one of the most powerful aspects of the work programme for lifting people out of poverty into jobs.

[Baroness Hollis of Heigham]

My Lords, I very much support the Government’s approach in their 21st Century Welfare paper on making work pay and on the running particularly of benefits alongside low hour working in order to reduce the risk of returning to work. That approach is absolutely right and well done on that point. However, for most people of whom I have had experience the issue is not whether work paid, because people have an irrational attachment to being in work, it is whether you can reduce the risk of returning to work. If the job folds and as a result you have to go back on benefits, which may take three to four weeks to come through, and you are only two tins of baked beans away from not being able to feed your children, you may prefer the security of a low but steady income than the risk of work. I hope that the Government’s approach on that will identify that problem, but it is to be welcomed and very much supported.

I have two key questions, to which my noble friend referred, on child benefit. Perhaps the Minister can help us. One shocking consequence of the proposals is that at the moment, if you are on child benefit, through the passporting of HPP—home protection payment—being a carer of a child until your youngest child is 12 years old gives you credits into the state pension. Women who stay at home to bring up their children—all credit to them—whose husbands earn above £44,000 will lose their child benefit. At the moment, those same mums will simultaneously lose a huge chunk, potentially, of their state pension credits. That is completely and utterly unacceptable. If that is not amended, I am sure that this House may have a view which differs from that of the Minister as at present exposed. It would be good if he could help us on this. To penalise stay-at-home mums twice over with the loss of child benefit and the loss of credits into the state pension is completely unacceptable.

Secondly, I turn to the connection between JSA and HB with the threat that HB will be cut after 12 months on JSA. This assumes that what is stopping people on JSA after 12 months going into work is their unwillingness to work and that, therefore, they need to be sanctioned by an additional sanction of 10 per cent on their HB. On this point, I should declare my interest as chair of Broadland Housing Association. I had the stats done for me by the House of Lords for July. In July in Norfolk, 15,900 people—just under 16,000 people—were on JSA. The number of job vacancies in Norfolk was 3,500. The people who get those vacancies will be those who have been most recently made unemployed because they are the most attractive to the employer. Those of us involved in social housing will have on our books young people, who are sometimes difficult to place in jobs, who will have been on JSA for far more than 12 months by virtue of the job shortages that currently exist. Yet they will face a sanction of 10 per cent on their rent.

As a chair of a housing association, I can either accept that rent arrears will mount or I can evict them. They will become homeless and then they may squat. But if I keep them and their rent arrears go up, I do not have the money to put in the solar panels et cetera to reduce the fuel poverty of elderly people. What choice would the Minister have me make? Should I evict those young people who through no fault of their own cannot get a job where there are 16,000 people unemployed and 3,500 vacancies or deprive elderly people of the opportunity to reduce their fuel poverty? No Government should force socially responsible landlords into having to choose between those two categories. I hope that the Minister today will assure us that that will not be the choice we will have to make.

[Lord Freud]

I thank the noble Baroness, Lady Hollis. Again, I take comfort from her general support for the universal credit. The point I would like to emphasise is that because we have two systems, an out-of-work benefit system and an in-work tax credit system, the risk of moving from one to the other is enormous. One has only to experience doing a job which does not work out, having to fall back into out-of-work benefits with perhaps a delay of three months as the bureaucracy is sorted out and thus not being able to afford the baked beans mentioned by the noble Baroness, to realise that that kind of risk is highly unattractive. We have created a very conservative group of people who should be prepared to take that risk, by which I mean conservative with a small “c”. On child benefit, we have not made a full announcement of what is going to be in the spending review on 20 October, at which point the detail will be revealed, so I am not in a position to answer.

On the second point made by the noble Baroness, noble Lords will be aware that what we are looking at in the numbers is flows. Any work programme tries to balance the disadvantage experienced by people who have been out of the job market for a period and what it takes to get them back into work against those who have only just lost their jobs. Effectively, that is what all programmes try to do. Clearly, we need to ramp up the speed with which we can get people back into work, and this is one measure that is designed to encourage and put pressure on them.

Disabled People

Baroness Hollis of Heigham Excerpts

Tuesday 27th July 2010 Lords Chamber

[Lord Freud]

My Lords, we are making sure that all the impact assessments that we are obliged by law to go through are being done on a timely and appropriate basis.

[Baroness Hollis of Heigham]

My Lords, will the Minister kindly tell us what representations RADAR and other disability organisations have made to the Government in light of the proposed severe cuts to disability living allowance?

[Lord Freud]

My Lords, we are just embarking on a process of investigating what to do in the context of DLA. As the noble Baroness knows, this is due to come in in 2013. We have to design a whole structure of making those assessments. We will do so in full consultation with members of the disability lobby.

Pensions: Automatic Enrolment

Baroness Hollis of Heigham Excerpts

Thursday 10th June 2010 Lords Chamber

[Baroness Hollis of Heigham]

My Lords, I, too, thank the noble Lord, Lord Kirkwood, for introducing this debate today. There is very little that I would disagree with within what the noble Lord, Lord Fowler, said. The crisis in occupational pensions, which certainly exists, has a deeper base, which is the issue of longevity. A quarter of all women, which I reckon is, or was, about three of us in this Chamber, will live to 95. Fifty years from now, the Lancet estimates that the median life expectancy will be more than 100 years—102—with half above it as well as half below. There are now more 65-year olds and above than there are under-16s. We all live a year for every three.

It was not until about 2005-06 and the report of the noble Lord, Lord Turner, that actuaries started building that in, after five years in which many companies had been taking contribution holidays. The resulting panic of renewed employer contributions at much higher levels accentuated by FRS 1719 and the collapse of the markets since then means that when I last checked, only four of the FTSE top 100 companies still had their DB schemes open to new members. We all know that in DC schemes, the employer’s contribution is 6 per cent, rather than 16 per cent in DB schemes, so the employee gets a smaller pot, together with investment risk, disinvestment risk, inflation and longevity risks, all falling on the shoulders of people who find pensions intimidating. We end up in the DC private sector with only 40 per cent of people covered, compared to 85 per cent in the DB public sector. It is coverage and adequacy as much as pension type that divides private and public sector pensions, which is why I so welcome auto-enrolment, either into an existing pension or into a shell stakeholder—which may be the most important element of all this, where we know that if employers do not contribute, employees will not, and which will therefore have an employers’ content for the first time—and NEST.

Will auto-enrolment work? Yes. When Scottish and Newcastle went from opting in to opting out, it went within a matter of months from 45 per cent contributions to 90 per cent contributions. The only people opting out were student workers. So there is huge potential. As always, I am especially concerned with the implication of auto-enrolment for the low paid, especially women. Should low-paid people be auto-enrolled? Without trying to go over the arguments that some of us raised in debate on the Queen’s Speech, only if it is safe to save and only if it is attractive to save. We must make it safe and attractive. Here, I entirely support the noble Lord, Lord Fowler. Increasingly, there is all-party consensus and full industry support for a new state pension which lifts people off means-tested pension credit.

As Steve Webb, who is now the Minister for Pensions, and I argue in a pamphlet, which can be found at www.soapboxcommunications.co.uk/anewstate pension.pdf, we could fund that pension by putting into one pot BSP, the state second pension capped at 2020 to give the extra headspace, and pension credit. At a stroke, there is a pension floating people off pension credit and thus making it safe to save and pay to save. Without such a platform, too many people will be at risk of mis-selling, and if we do not do it, issues such as annuitisation at 75 will be at risk. If we scrap annuitisation at 75, which I support, then, but only then, if it is underpinned by a safe new state pension, savers would no longer have to annuitise a slice of their pot to keep them off pension credit should they blow it all. A new state pension also sorts out the NEST problem, the removal of annuitisation at 75 problem and the stakeholder problem. That is not bad, and it is all for broadly the same cost as now.

In order to make it attractive to save, we have to allow low-paid people, who often have no other savings, access to a slice of their pension fund, perhaps represented by the 25 per cent tax-free lump sum, otherwise women, in particular, will not save if they have to lock the money away for 40 years when they may face all sorts of financial tumult in their working lives from divorce, disability or the need for running away money. We need to find appropriate low-cost vehicles in which to save. I have great hopes for auto-enrolment and also for employers’ contributions into existing shell stakeholder pensions. For example, we know that where employers do not contribute to a shell stakeholder pension, only 13 per cent of employees contribute, but where employers contribute, something like 80 to 90 per cent of employees contribute. As a result of NEST, people who are lower paid or are working in businesses with fewer than five members of staff—the cut-off point for stakeholder pensions—will have the opportunity to come into auto-enrolment.

I shall raise some detailed issues about NEST, and I hope the Minister will bear with me. I hope they will be considered in the 2017 review. NEST is targeted at the low paid, who are disproportionately women, who are probably earning between £10,000 and £20,000 a year. Given that they are low paid, to start with the NEST pots will be pretty small. I accept that you cannot ask kitchen-table employers to contribute more than 3 per cent at this stage, although I would hope that in time that would rise to at least 5 per cent.

I shall put four propositions to the Minister that would make NEST work and make it safe and attractive, which are the two criteria that dominate the debate. When NEST has rolled out, employers will contribute only 3 per cent, which will be 8 per cent in total, on earnings above the LEL. That means that someone on half average earnings—£10,000 to £11,000—will get a pot built on contributions of only just over half of that—£6,000—unlike other occupational pensions, which take the whole of the earnings range into account. I believe that where an employee wishes to contribute on all her earnings, including those below the LEL, as happens in other OPs, she should be allowed and encouraged to do so, and where she does, so must the employer. To do the full range for somebody on £11,000 a year would cost the employer an additional £4.50 a week, but the employee’s pot would more than double. Paying in only above the LEL for, say, 20 years on £11,000 a year would give her a pot of around £19,000 or an extra pension of around £19 a week, on which she promptly loses 40p in the pound on pension credit, so she ends up only approximately £11 a week better off. Put in the new state pension, and she would keep that £19—as opposed to £11—in full. Allow—indeed, encourage—her to pay on all her earnings, at a cost to her of an extra £5 a week, and her pot doubles to some £35,000 and she gets £35 a week, which brings her off pension credit. She keeps every penny and has a real, decent opportunity of comfort. So she could get £11 a week, £19 a week or £35 a week. By doubling her contribution, she receives three times her pension, and by making a new state pension, she receives double her pension—a huge increase for a modest additional cost, which, as I say, is about £4.50 a week or so for the average employer.

Secondly, I want NEST to offer access to that 25 per cent lump sum to encourage saving. After all, if a financial emergency hits you, it is much cheaper to borrow from yourself than from loan sharks charging 500 per cent APR down the road.

Thirdly, I want NEST to raise its ceiling in due course from £3,000 a year. I know that providers of other pensions were worried at the time that money that goes to them will be diverted, but, frankly, once NEST has settled down, we should permit it. Why is it okay to have a £10,000 cap on ISAs but only a £3,000 cap on pensions—on NEST? That is nonsensical.

Fourthly, NEST and other auto-enrol schemes really must help us with the problem of orphan pots. A hairdresser may have had a couple of periods of self-employment and built up a small pot of £2,000. She has £18,000 in her NEST pot on retirement, which is modest, but she cannot access that £2,000 because it is floating out there in the ether. She cannot trivially commute it into cash, because her NEST pot is above the trivial commutation limit. She cannot annuitise it because it is too small for providers to do so. She cannot import it into her NEST holding to raise it to £20,000 because of the preliminary rules that we have established and which should be reviewed. I know that there is good will in the DWP to attach it, so I hope the Minister can tell us how far it has gone with this when he replies. It would be unfair if someone in that hairdresser’s position had saved £20,000 but cannot touch 10 per cent of it because of completely arbitrary—and, if I may say so, man-made—rules.

Finally, I will go slightly wider than the topic, if I dare, and say a word about public sector pensions. I accept that government will wish to review how sustainable they are in the current climate. I am a new governor of the PPI—a long-established governor of the PPI, the noble Baroness, Lady Greengross, is sitting behind me—which is researching possible options for this. One option, which I really want to float today, is for DB for earnings that attract a standard rate, and then a flip to DC on earnings at a higher rate or at another figure of, say, £35,000 a year or £30,000, so that the broadest shoulders bear the risk and those who are most in need of protection have the security of a DB slice. It is a hybrid scheme, and your Lordships are quite sensitive about hybrid schemes at the moment. I regret that I have not been able to cost the savings, but it would be fair, protect the low paid and be simple. Everyone would know what it means, and it would share risks, allow public sector employers to have a better stab at protecting and predicting future liabilities. It would also discourage the habit of late-life promotion for white men to enhance their pensions.

I very much welcome today’s debate. I hope that the Minister will clearly show his support for NEST today, flag up that we will have a review in 2017, confirm that some of the issues that have been raised today and that could transform the financial outcomes for women in particular will be considered, and that he, like the noble Lord, Lord Fowler, and I, will join in the general consensus that the only way to get the low paid into pension provisions is, first, to make a new state pension safe and, secondly, to make it attractive. Ninety-five per cent of the bits are in place, and it would not take much to have a new picture on the jigsaw box. We would then have a landscape that was built on consensus and that could last us for a couple of generations.

--- Later in debate ---

[The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud)]

My Lords, I thank the noble Lord, Lord Kirkwood, for raising this debate and providing the House with an opportunity to discuss this important issue. I also congratulate those taking part and join the noble Baroness, Lady Greengross, in her congratulations to those people on such an extraordinarily high quality of debate, which I personally found extremely valuable as we shape the immediate period ahead.

During the past decade, we have seen a big decline in the level of pension saving in the UK. Overall saving in the private sector workplace in terms of pension provision has fallen, from 46 per cent of employees in 1997 to 37 per cent in 2009. That means that 2.6 million more people are not saving in a workplace pension. In the same period, the availability of defined benefit schemes in the private sector has also declined, as the noble Baroness, Lady Hollis, pointed out, and membership fell by 1 million between 2005 and 2009.

For those in defined contribution schemes, there has been a decade of lost growth in the primary market—the equity market. The average real rate of return between 1999 and 2009 was minus 1.2 per cent per annum, and just last month the typical pension fund performance for balanced managed funds was down 3 per cent.

While those trends have been happening, life expectancy in the UK has reached its highest level on record and will increase further to the point where in 2050 there will be just three working people for each pensioner. The reality is that, if people want to enjoy a decent standard of living in retirement, we all as individuals and as a nation need to be much better prepared. But that, of course, is not the only problem we face. Whatever we do now needs to be seen in the context of the worst recession since the Second World War, and the need to reduce the unprecedented fiscal deficit. As a nation, we simply cannot afford to continue without a step change in our savings culture.

This coalition wants to see the principles of fairness, responsibility and social justice apply to both our welfare and pension agendas. The Government want to encourage individuals to take more personal responsibility for themselves by saving more and saving longer towards a retirement income that will meet their expectations. Already, we are in a position today where 45 per cent of pensioner households are entitled to pension credit, and 50 per cent to council tax benefit. It is not sustainable for the state to continue to meet the challenges of undersaving all on its own.

The state pension needs to provide a fair and solid foundation for people to save for their retirement, so this Government will restore the earnings link with the basic state pension from April next year with a “triple guarantee” so that it will rise by the higher of earnings, prices or 2.5 per cent. However, at the same time, we need to restore confidence in public finances, so we will hold a review to set the date at which the state pension age starts to rise to 66 years.

We also want a more flexible approach to retirement. People need to be able to retire when it is right for them, so we intend to phase out the default retirement age and will be consulting with employers and others on how to do this. However, if we are to have a pension system which is fair and sustainable into the future, we also need to reverse the significant decline in private pension saving that we have witnessed in the past decade. That is why we continue to support automatic enrolment.

We want to encourage employers to provide high quality pensions for their employees, but additionally we want to explore options that will stimulate greater personal saving. We are therefore considering additional ways of reducing the costs of running pension schemes, making pensions more affordable for employers to run, and investigating ways of making saving more attractive to individuals. Changes such as our commitment to abolish compulsory annuitisation at 75—as the noble Lord, Lord Fowler, suggested—will provide greater flexibility for pension savers in planning for their future.

The big prize here is to help people when they are working to save more and save for longer, and to make it easier for them to do so—to take responsibility for their future. We need to encourage and enable participation in pension saving so that it is no longer the preserve of the financially savvy or those who happen to work for particular employers. Quite simply, we need to get people back into the savings habit and ensure that they have access to a good workplace pension scheme.

The Pensions Commission’s solution to this dilemma was automatic enrolment into a pension scheme, with mandatory contributions by employers. We on the Government Benches have long been firm supporters of automatic enrolment. We believe that it will be highly effective at tackling the failures in our pensions system by increasing participation in pension saving.

At this point, I pay tribute to the work of one of the earliest behavioural economists, Dr George Loewenstein, who happens to be my cousin. He created the concept of asymmetric paternalism which was so influential in getting these automatic enrolment features in a range of public provision. The evidence shows that it works, leading to increased participation. Your Lordships have only to look at the United States, where automatic enrolment increased membership of its 401(k) schemes among new employees from around 20 to 40 per cent to nearer 90 per cent. Another example is New Zealand, where the introduction of automatic enrolment is estimated to have doubled pension savings in the KiwiSaver product over a three-year period.

As we made clear in our coalition programme, we remain committed to automatic enrolment, but we need to find the right way to make it work. A lot has changed since the Pensions Commission published its recommendations back in 2005. Given the current economic climate, it is essential that we ensure that automatic enrolment is introduced in a way that strikes the right balance between cost and benefits, and ensures maximum value for money for individuals, for employers and for the public purse.

Our review of these reforms will cover the scope of existing plans for automatic enrolment and NEST. Noble Lords would agree that it is vital that the Government take ownership of this initiative so that we have cross-party agreement on this, which, as my noble friend Lord Kirkwood pointed out, is so essential.

We will reach our conclusions quickly and take a hard look over the summer at the plans that we have inherited. If necessary, we will make changes to ensure that the reforms deliver for individuals, employers and the taxpayer.

Let me deal with the many fascinating points raised in debate; I will aim to get through as many as possible.

[Baroness Hollis of Heigham]

I was fascinated by the noble Lord’s point about the review. Which areas in particular are the Government concerned about, and will therefore be discussed in the review? I do not mean what will the conclusions be, but what will the territory be?

[Lord Freud]

I thank the noble Baroness. That is exactly what I was about to get straight on to. I will deal with her particular issues in that context. Before I get into what the review will cover, I start with the speech of the noble Lord, Lord Kirkwood, particularly what he said about employer attitudes and his concerns after meeting the people from AXA and reading their research. Evidence emerging from our research—a large survey of employer attitudes—suggests that 56 per cent of employers believe that these reforms are a good idea. Seventy-seven per cent believe that when they are already contributing 3 per cent or more. There is no doubt that the cost to employers of automatic enrolment is significant. The cost to employers—the smallest employers in particular—concerns me and is something that I want to look at closely in the review.

We are committed to getting the details right. That is why we are carrying out the review—to ensure that the proposals work properly. Several participants in this debate have asked about the details of the review, including the noble Lord, Lord Kirkwood, my noble friend Lady Noakes and the noble Lord, Lord McKenzie. We are finalising the details of the terms of reference, including who will conduct the review, its process, its reporting and so on. We hope to make an announcement encompassing those issues soon. To offer some reassurance, we are concerned about the impact on employers, particularly small employers. We also want to look at the position of older workers. We will review the contract for the NEST administration services, but with an open mind; if it fits with what is needed we will run with it. We aim to reach our conclusions quickly. Again, the detail is yet to be determined, but I expect we will know where we are with this before the House returns after the summer.

The noble Lord, Lord Kirkwood, asked about the NEST charging structure and whether we would keep it. He will infer, from my last answer, that that is a level of detail that we have not yet got to. The first question to ask is: does the scope of auto-enrolment work for both individuals and employers? Scope is key here. Secondly, given that, is NEST, as it is currently configured, the right intervention?

The noble Lord, Lord Kirkwood, asked about the certification process and whether that meshed with the BIS drive to reduce red tape. We are committed to recognising and maintaining existing high-quality pension provision. That means developing a process for employers with good money purchase schemes to show that their scheme meets the minimum requirements for auto-enrolment. This is called the certification process. In the coming months, DWP officials will work with the pensions industry and directly with employers to develop effective processes to support automatic enrolment. This includes straightforward ways for employers to assure themselves that their pension schemes qualify under the law.

The noble Lord, Lord Kirkwood, queried the four-year implementation period. We are fully committed to taking forward the automatic enrolment provisions under the Pensions Act 2008. However, the effects over the medium and long term will be huge. That is why we want to take stock of where things are; that is what the review is about and I do not want to prejudge it.

The noble Lord, Lord Kirkwood, concentrated my mind on wider savings incentives. It is critically important that people have confidence in saving towards their retirement if we are to deliver the step change in savings behaviour that we want. The department’s analysis is that more than 99 per cent of people can expect to be better off in retirement if they have saved than if they have not saved. However, we need to take seriously the possibility of someone facing a loss. The problem is that the people who fall into this category are not like leopards with spots that one can see beforehand; that situation emerges later, so it is a difficult problem. It is important that we allow people to take personal responsibility. However, the noble Lord, Lord Fowler, made the point that people are woefully ignorant in this area. I think that the noble Lord, Lord Kirkwood, said that he used the term “ignorant” in the best way in that regard. There is ignorance in this area, which means that it is very hard for people to take personal responsibility. Clearly, this is a vital area which we will address in our review.

The noble Lord, Lord Kirkwood, mentioned the costs of the Personal Accounts Delivery Authority and the impact of any expenditure cuts. The reduction of the deficit is a number one priority for the Government. Therefore, we will need to look right through the cost base to ensure that the costs are justified and that savings can be made where possible. I reassure my noble friend Lady Noakes that we will take a hard look at those costs and that we will not spend money unnecessarily.

It is vital that individuals have information about opting out. The noble Lord, Lord Kirkwood, is concerned about that. That will be critical to the success of the reforms. We are working closely with the Pensions Regulator to ensure that there is coherent and consistent information.

The noble Lord, Lord Fowler, and the noble Baroness, Lady Hollis, talked about the state of our state provision. The noble Baroness, Lady Hollis, again drew to our attention, as she did in her excellent speech last week, her booklet, A New State Pension. I was touched to think of her running on to the age of 95, and I hope that she does. However, it is slightly invidious to say that, statistically, only three noble Baronesses who were then present in the Chamber would do so, as I count seven who are now present, so it is a case of pot luck. There are clearly attractions in combining various elements of the state pension to introduce a single decent state pension. However, a large number of issues, not least one of them being cost, need to be considered before we introduce such a scheme.

I am very conscious that I am running out of time—unless noble Lords want to give me three more minutes.