Pensions: Reforms

Lord Kirkwood of Kirkhope Excerpts

Thursday 18th June 2015 Lords Chamber

[Lord Kirkwood of Kirkhope (LD)]

My Lords, it is always a pleasure to follow the noble Baroness, Lady Drake. She is an expert and the House is lucky to have access to her experience. I support most of what she has said, but I would underscore her last point about the importance of the entitlement of women in the past and in the future. It was one of the issues that Steve Webb dealt with best, and my noble friend Lord German has paid a substantial and appropriate tribute to him. We are all agreed that we need to be solicitous of women’s rights and entitlements in the country’s future pension provision policy.

I declare an interest. I am the chairman of the General Medical Council’s superannuation DB scheme. It has been a source of education for me on some of the complexities of investment policy and will inform some of the things I have to say. I applaud the noble Lord, Lord Flight, not only for the debate today but for the keen interest he takes in this issue. We are on different sides of the park on some of the economic arguments but no one can take away from him the fact that he has been dedicated to trying to get people to consider a savings policy. He, too, has great knowledge from which we benefit.

I welcome again—I will keep welcoming her for a long time to come—the noble Baroness, Lady Altmann, to her ministerial role. I am going to offer her some quite gratuitous advice: she should refuse to resign. If over the next five years she is threatened with a ministerial reshuffle, I hope she will promise to come and tell some of her friends on all sides of the House that that is a possibility because we know where the Prime Minister lives and how to give people a really hard time. It is stark-staringly obvious why I say that. One of the reasons Steve Webb was a successful Minister is that he was not one of 14—he was in place for five years. If the noble Baroness is given a full term, I am confident that she will make a positive contribution. If the ministerial role is chopped and changed it will be to no one’s advantage. We will be solidly behind her when she refuses to resign. I hope she will take that piece of advice.

I would also advise the Minister to do nothing, take no steps and make no changes until she is absolutely sure that the department has given her the full brief on winners and losers in both the long and short terms. I do not need to tell her that. It is important that we recognise the significance of some of the changes that may be made for ordinary people and the political ramifications of those changes.

As a Scot, perhaps I may remind her that quite a bit of the industry is based in Edinburgh. There is quite a lot of politics going on in Scotland at the moment as well. If she were kind enough to visit Edinburgh, I would personally organise the pipe band. There is a serious point to be made about the other parts of the United Kingdom as well because this is a UK-wide policy area. A lot of it is—and should be—based in the City but there are other parts of the kingdom furth of London. I do not think I need to tell her that, either.

This has been a very good debate which will repay careful study. I want to support some of the things that other noble Lords have said. I am sure the Minister knows already that the game has changed. Thinking about pensions needs to be done entirely differently in the future. I was encouraged that, in his important remarks, my noble friend Lord German referred to the need to look after low-paid households and low-paid members of schemes—particularly DC schemes. I agree with what the noble Lord, Lord Hutton of Furness, said about the significance of DC schemes and the decisions we will have to take about them. I support—well, half support—what he said about the need for a new commission.

Will the Minister go back to the department and ask for the papers about the Pension Provision Group to be dug out? The group was set up by Harriet Harman in about 1992, and a splendid Scot called Tom Ross chaired it. The group was independent and had access to specialist departmental support staff. It did an analysis of the waterfront and came up with the recommendation that eventually led to the Pensions Commission. That valuable contribution from the noble Lord, Lord Turner of Ecchinswell, was therefore spawned by the work done by Tom Ross’s group.

The plea from the noble Lord, Lord Hutton, to have a full-blown rerun of the commission—which I would support—falls on deaf ears because it is too complicated or would take too long. Perhaps I may recommend an alternative. It is not as good, but it would do. It could be done within 18 months and would produce a SWOT analysis which I think the Minister would find very useful. This would be a small, independent group which would look at where the gaps are. As other noble Lords have said, all the reforms that have been put into place have rightly been made with all-party support. We are grateful to be in this position. We should also be grateful for the quality of the industry that we have behind us. We are global leaders in this area.

Although the situation is urgent and needs attention, we should not forget the industry in our deliberations. I think it was really fed up and ticked off by the announcement in Budget 2014 that all these changes would happen “just like that”. I understand why that was done. Some information is market sensitive and some things have to be announced in ways that protect it. However, we must give the industry an honest chance to participate in some of our thinking about the future. We need to be looking at how the pieces of the jigsaw fit together. There are gaps and I think that the Minister will be driven to address them. It would be better if she anticipated them and started thinking about them before they happened.

A total savings culture change is necessary, and I was very interested to see that Mr Martin Wheatley of the FCA said the other day:

“You can no more live in modern society without finance than you could without housing or water”.

Coming from the chairman of the FCA, that is a pretty powerful statement, and I absolutely agree with it. It is the sort of thinking that should underlie all of our policies in the future. In the long term the culture will change, and I am sure that the Minister’s experience will serve her well in driving the agenda.

I agree wholeheartedly with the noble Lord, Lord Flight, when he says that we should promote the Minister to a senior role in the Treasury. If my experience is anything to go by, she will find that the ideas she may have in the future will be blocked by people along the road. This agenda needs to be driven by someone who is in the middle of the spider’s web. I know that she will be in the middle of her own spider’s web, but she needs a bigger web. She needs Treasury support to do what she needs to do, and I think she probably knows that.

In the short term, running repairs are necessary, as is identifying the gaps. A Pension Provision Group analysis would help in that. I concur entirely with the noble Lord, Lord Hutton of Furness, in what he said about occupational schemes. Come 2018, we will need to be vigilant about what is happening to these schemes. I am very worried about this. If I have read the data from the auto-enrolment declaration of compliance report correctly, at the moment there are as many people—5.2 million to 5.3 million—outside auto-enrolment as are inside, and that is only looking at bigger employers. The next phase of auto-enrolment will involve smaller employers. The effect of earnings of £10,000 triggering access along with job definition and self-employment restrictions means that we are leaving a whole lot of people outside the scheme, and that is even before we get to the version of the problems described by the noble Lord, Lord Hutton. He is right to remind us about that. Indeed, he made a powerful speech in the debate on the Queen’s Speech which I read with interest; he has persuaded me about this.

I shall make a quick point about the triple lock. My noble friend Lord German said that there are some savings to be made, and he is correct. Her Majesty’s Government are making huge savings over a 50-year or 60-year schedule, as the Institute for Fiscal Studies has pointed out, by suppressing the accrued rights of S2P from maturing in the future. They are also making huge changes in terms of extending the state pension age. I agree with the noble Lord, Lord Flight, that within reason it is a sensible thing to do, but people need time to plan for it. So any attack on the triple lock, certainly in this Parliament, should not happen. Colleagues should remember that the triple lock can still exist and be cheaper because all you need to do is change the definition of earnings or reduce the increase from 2.5% to 2%. Those are the factors. I would not put it past the Treasury to do this if things get tough later on, but if it happens, I can tell the noble Baroness that she will meet stout resistance from, I suspect, all sides of the House. If the Government do try to do that, we will start to look seriously at the savings they will be making over the long term in terms of SPA and abolishing S2P rights. She will have a fight on her hands if that is tried, so I am warning her of it right now. I will say it only once, because it is important.

Finally, I think that the Pension Wise service is wholly correct, but wholly inadequate. I said earlier that I learn an enormous amount as the chairman of a defined benefit scheme. It is a struggle, although it has a really supportive sponsoring employer who could not do more to support the trustees in trying to defend the interests of the scheme members. It is now fantastically complicated trying to stay ahead of the curve, given the volatility of the asset market and gilts. The noble Lord, Lord Flight, knows more about those than I do. Investment rates and contribution rates over a 40-year period are nearly impossible for individuals to work out, a point made by the noble Baroness, Lady Drake. It is almost impossible for ordinary people to comprehend during a 40-minute Pension Wise interview. They need continuous help.

As the chair of a small superannuation fund, I get fortnightly briefings about the state of the market to try to stay ahead of the game. If ordinary people who know nothing more about the pensions industry than the man in the street do not get enough help, then I am not surprised that they get into ISAs. Maybe we should be thinking more carefully about that, which is another important point made by the noble Lord, Lord Flight. Right now, I am certain that while the guidance guarantee was correct, it is inadequate. It really needs to be substantially beefed up if it is to be safe.

In conclusion, I say to the Minister that I wish her well. I am sure that she will be successful and that she will be in her role for five years, because if she is not there will be more to-do about it, in my view. She is part of a one-nation Government who are contemplating £12,000 million of cuts, if the Chancellor is to be believed. We will also be looking to her to fight the good fight within government, to make sure that low-income families in particular, who are trying to save and to make proper provision for an adequate retirement income, are properly protected by this one-nation Government over the course of these cuts. I wish the Minister well.