Pensions Bill

Debate between Lord Whitty and Baroness Donaghy

Wednesday 18th December 2013 Grand Committee

[Lord Whitty (Lab)]

My Lords, as my noble friend said, I have an amendment which is very similar to hers. It is worded slightly differently and in my view, and with no disrespect to my noble friend, it is in a better place—in other words, it relates to Clause 3 rather than Clause 2. However, the central issue is that for a lot of people who have worked most of their working life and have paid into the earnings-related pension in its various guises over that period, a figure of £144 or thereabouts will be a significant drop compared with what they might otherwise have expected.

If we are to have a scheme that is going to achieve a reasonable degree of support and consensus across the workforce and among potential and future pensioners, we need to pitch it at a level where existing workers do not miss out. I think that most of us are reasonably convinced that a single-tier answer is the right one, but it has to be structured on the basis of people’s existing expectations. The exact formula that we have in these amendments may not be acceptable to the Government but it needs to be a lot closer to current expectations for this reform to receive the kind of support that the Government are hoping for. At the moment, I know that £144 is, in a sense, a guess—or, if I am being nice to the Government, an informed guess—but it has raised alarm bells, certainly among the trade unions and those who, on pension schemes, represent the workforce who have hoped for more from the earnings-related element of the state pension.

I do not expect the Government to accept these amendments but I hope that they take the issue seriously before we reach the final stages of the Bill, and certainly in the regulations that are coming forward to define the level of the new single-tier pension.

[Baroness Donaghy (Lab)]

I support my noble friends Lady Turner and Lord Whitty. The pension letter that I receive reads a bit like a history book. Having completed the 40 years, I have a bit of graduated pension, some SERPS and some S2P. Obviously it all adds up penny by penny but, as I said at Second Reading, one of my concerns is that simplicity is not of itself the best objective. If the amount is set too low, the middle earners will not buy in to the new system. Any system that does not have a buy-in from the middle earners will, in the future, give rise to enormous political pressure from those people for some form of opting out, which I do not believe anyone in this room wants.

When we looked at all the charts at the briefing, we found the crossover point—which I think was in about 2040—before people start losing out. The discussion that took place on Monday about net versus gross may well place that crossover point a lot earlier, and people will see that they are going to lose out much earlier. They will then make a judgment about whether this flat rate is any good and, again, either there will be pressure to opt out or there will be pressure—dare I say it?—for SERPS, graduated pensions or S2P in about 20 to 30 years’ time. Therefore, this gives rise to very important issues.

I know that we are going to have another discussion about net versus gross when we come to later amendments, but I want to make the point that this is not a straightforward issue. I realise that there is cross-party consent about the flat rate but I am slightly sceptical about its long-term holding, although the Minister has said very confidently that it will last for more than 10 years. I hope that he is right, because the last thing I want to see is Governments tinkering with this. As I said, I do not want my grandchildren to have a history lesson in 40 years’ time in which they are reading about the different names for the pension.