Pensions Bill [HL]

Baroness Browning Excerpts

Wednesday 30th March 2011 Lords Chamber

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

My Lords, this set of amendments puts forward the first of two alternative routes to achieving a combined retirement age at 66. We shall discuss the second route in the next group of amendments, tabled by the noble Baroness, Lady Greengross.

I thank the noble Lord, Lord McKenzie, and the noble Baroness for giving us a further opportunity to debate the issues that the amendments in this group raise. Let me start by saying that we are not insensitive to the impact that our timetable will have on the women who will face a much steeper increase in their state pension age than they were expecting. We also appreciate that we are asking them to make this adjustment with less notice than we would provide in an ideal world. However, for reasons that I shall explain, we are not in an ideal world, as my noble friend Lord Flight has just said. We remain of the view that, although this is a genuinely difficult decision, it is still the right one.

[Baroness Browning]

When my noble friend explains his intentions to the House, will he include an explanation of what the practical implications would be of helping those women most affected by shifting the burden on to the wider pensioner population?

[Lord Freud]

Yes, I will try to address that now. If we were to look for funding by asking men and women, after their pension ages were combined at age 66, to go on for a little later than 66, the sums of the adjustment—although it is not easy to do them—would be roughly £330 million a year per month. It would depend on how many years you have. I will write to my noble friend and try to spell out the figures on making that adjustment.

Let me revert to the amendment, which is fundamentally the same proposition that the noble Lord, Lord McKenzie, made in Committee. I shall recapitulate why—notwithstanding the many concerns that we heard today and in Committee—we believe that we are taking the right course of action. It is common ground all around the House that we simply cannot go on ignoring the increases in life expectancy and the pressure that this puts on the state pension system now and in the future. Indeed, these amendments acknowledge that we need to move faster than the timetable that was set earlier. The impact of the upward revision in the life-expectancy projections is an extra £6.5 billion in state pension spending over the lifetime of just that cohort retiring in 2010.

As many noble Lords have pointed out, the amendment would cost the public purse upwards of £10 billion that would need to be found elsewhere. When the coalition Government came into power, we had not only to combat the huge financial debt the UK was in at that time, but put the country on a sound financial footing for the future.

I remind noble Lords that the financing of old age as a whole is the single biggest structural, long-term economic issue facing this country. We need to address the long-term costs of our pension system and ensure that we can deal with any wider economic problems that may appear on the horizon—a point made by my noble friends Lord Boswell and Lord German.

We expect public debt to be on a declining path by 2015-16, but it will still be well above pre-crisis levels. By the end of this Parliament, we will still have a national debt of £1.3 trillion. Waiting until 2020 to start moving to retirement at 66 would reduce the savings that we are looking for by a third—£10 billion off a total of £30 billion. That is the equivalent of reducing the education budget by 10 per cent over the spending review period, or one year’s capital budget for health. We have not yet heard a plausible alternative that would deliver those savings—with apologies, perhaps, to the noble Lord, Lord Stoddart. This is not an insignificant amount of money that we can easily pass up.

We believe it is right that those people who will benefit from recent increases in life expectancy make a contribution to the additional cost that comes from those longevity improvements. Women, no less than men, have benefited from increases in life expectancy. In three generations, projected average life expectancy at age 65 has risen by nine years for women. At the same time, women’s basic state pension outcomes have been rapidly catching up with those of men and continue to improve. In 2006, only 30 per cent of women retired on a full basic state pension. In 2010-11, that figure has increased to around 75 per cent. The projection is for it to reach 90 per cent by 2018, which is a big change-around in the support that older and retired women will get.

On the point made by the noble Baroness, Lady Howe, we have also taken action to ensure that the state continues to provide a decent income for people when they retire, with the state pension supported by the triple lock and key support elements for pensioners protected, such as free TV licences, cold-weather payments maintained at £25 and so on.

As the Chancellor has now officially announced, we will be consulting shortly on proposals for a simpler state pension, which will boost state pension outcomes further for the groups which are traditionally disadvantaged in the current system by low earnings and by interruptions, which is a point that several noble Lords have made. I have been challenged by my noble friend Lord German to talk more about the single tier. Every time we meet, I think there is more discussion on it than on anything else. A Green Paper is due shortly that contains two proposals. There is a proposal for a single-tier system, which will be looked at alongside the alternative option of accelerating the currently legislated changes to the current system—so-called flat rating.

The single-tier system would be around £140 a week and its main benefit would be much greater simplicity for individuals, which would give them a much clearer idea of how to plan ahead. It is also cost-neutral, a factor that is particularly valuable in the current climate, as I have pointed out. However, this is a complicated thing to do, and it is important that the reforms fit in with the programme of automatic enrolment and we will actively consult on the proposals. I take to heart the point about information made by my noble friend Lord German. I will take that back to the department and see how much clarity I can get.

Women retiring at 66 in 2020 should receive their state pension for 24 years on average. That is the same amount of time that we expected this group of women to receive their state pension for at the time that the pensions commission reported in 2005, when they were due to retire at 64.

Of the 2.6 million women affected by the change in state pension age, around 12 per cent face an increase of 18 months or more, and 1 per cent face the maximum increase of two years. That point was made by the noble Baroness, Lady Bakewell. Survey data show that 70 per cent of these women are still in employment. While I accept that we are asking these women to work longer, they will benefit from additional income and a potential boost to their pension savings and entitlements. In response to the point made by the right reverend Prelate the Bishop of Ripon and Leeds, data show that only 4 per cent of the women affected by these proposals have already retired.

The noble Baroness, Lady Hollins, raised the issue of carers. Clearly, they are a most valuable group in society, and we acknowledge them as such. There has been a downward trend in the proportion of women who say that they are not in the labour market because of caring or domestic responsibilities—the figure fell from 10.7 per cent in 1998 to 6.9 per cent in 2010.

The data show that employment rates decline as people approach the state pension age. Currently, the average age at which women leave the labour market is two years below that of men, although it is still two years above the current state pension age for women. The noble Lord, Lord McKenzie, made the point that women are less able to cushion the impact of any change. Current employment patterns for women in their early 60s are not a reliable indicator of future trends, as those women will already have started getting their state pension. It is difficult to predict with certainty how women will respond to the changes in the state pension age. I recognise that women are more likely than men to face competing demands in the form of caring and other responsibilities. Despite this, the figures show that the age at which women exit the labour market has risen steadily, from sixty-one and a half in 2004 to sixty-two and a half in 2010.

We had to act quickly to reduce the increasing costs imposed on the state pension system by the increase in longevity. It has not been possible to give a notice period similar to those given for previous increases in the pension age, but these women will still have between five and a half and six and a half years’ notice of an increase in their state pension age, enabling them in many cases to change their retirement plans.

In order to get to 66 by 2020, we have had to make some hard decisions. The noble Baroness, Lady Hollis, talked about our coalition plans. I point out to her in reply that the single-tier pension was also not in the government programme. Clearly, the new timetable creates a pension age gap between women born in March 1953 and March 1954, which increases from one to three years, but that is the most extreme contrast and applies only to women born in that month.