Social Security

Baroness Clark of Kilwinning Excerpts

Thursday 17th February 2011 Commons Chamber

[Steve Webb]

My hon. Friend is quite right. One of my first tasks as a Minister was quite strange. I had to write ministerial letters to say why we the Government—meaning my predecessors—had frozen people’s SERPS pensions, which was precisely because the RPI was negative, yet inflation was not.

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

When the Chancellor announced the change in his emergency Budget last June, he said that it would save more than £6 billion a year by the end of this Parliament. If that is true, it must surely mean that individuals will be worse off.

[Steve Webb]

Just to be clear, my right hon. Friend the Chancellor was talking about the CPI indexation of all social security benefits, not just pensions. Clearly, compared with previous plans, benefits for people of working age will generally increase by less over the Parliament, which will lead to significant savings. I should mention therefore in passing that any political party that went into the election promising to reverse that would also have to indicate where many billions of pounds would come from over the course of a Parliament. However, specifically for pensioners, the earnings link in the long-term is much more generous than the reduction from the CPI change.

--- Later in debate ---

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

My contribution will be brief, but I want to speak because we are taking a momentous decision today. It is very sad, on the day when we are passing legislation that will reinstate the link between earnings and pensions—for which I and many Labour Members have campaigned over many years, and which Government Members have been able to get their Ministers to deliver on—that we are also probably going to pass legislation that will make a very significant, and probably a very long-term, change to the way in which we uprate pensions and benefits.

Today’s debate has made it very clear that these proposals are being made not just because of the current economic situation or because of the Government’s policy of deficit reduction, but because of the belief on the Government Benches that this is a more appropriate means of uprating. I have always taken the view—the trade union view—that pensions are deferred pay. It is very important that people have certainty in arrangements for their retirement. The decision we are making today will have implications for many of the lowest-income people, who are dependent on benefits, and some of the poorest pensioners.

I have been lobbied by a considerable number of constituents on this issue, but that number is a very small fraction of the number of people who will be affected by these changes and, I suspect, will be very angry when they realise the impact that the changes will have on them. I have also been lobbied by several of the trade unions that represent the affected individuals.

My hon. Friend the Member for Aberdeen South (Dame Anne Begg) mentioned women in the local government pension scheme, who have an average pension of approximately £2,600 per annum and will be worse off by £40 this year if the changes go ahead. They would have been £40 better off if the RPI link had been maintained. According to the trade union Unison, the average person who receives a pension from the local government pension scheme receives £4,100 per annum, and they will be £62 worse off in the coming year if the change goes ahead. A woman who works in the national health service receives, on average, a pension of £3,500; these are not people on high incomes, by any stretch of the imagination, and they will be £53 worse off this year if the change goes ahead.

If we pass the order today, it is likely that next year a similar order will be proposed, and the same approach will be taken for decades. The cumulative effect on the pensions of individuals will be very substantial indeed. Reference was made to figures released by the PCS trade union showing the impact that it thinks the change will have on its members.

These are very considerable public policy issues, about the extent to which we feel it is important as a society—

[Jane Ellison]

I must press the hon. Lady. She refers to the impact on pensioners, but does she give regard to the impact for the taxpayer of an aspect mentioned by my hon. Friend the Member for Finchley and Golders Green (Mike Freer)—the long-term lack of viability of major pension funds in the public sector?

[Katy Clark]

The matter under discussion has long-term and considerable public policy implications. Indeed, the Fire Brigades Union informs me that part of Lord Hutton’s interim report states that pay freezes and work force reductions will reduce future pension costs. Further, the gross cost of paying unfunded public service pensions is expected to fall from 1.9% of GDP in 2011 to 1.4% of GDP by 2060. If the long-term effect is that we pay less as a society towards pension funds, that will have significant implications for the individuals concerned, who will have less income, but also for the public purse. If people do not have adequate pension provision for their retirement, the state will have to pick up the cost, perhaps in greater benefit bills.

If public policy does not develop in such a way that people employed in the private and public sectors have pensions constructed and funded to be their main source of income in retirement, that will have substantial implications. If the changes go ahead, constituents of Members on both sides of the House will be worse off. No Member should take that lightly, given that inflation is rising and people are facing difficulties. I say to the hon. Lady and to other Members who support the decision that we as a society need to find the funds collectively. We need a public policy that encourages individuals to save for their retirement, but that also puts provision in place to ensure that they have adequate pensions in retirement.

In the emergency Budget in June last year, the Chancellor announced that the change would result in a saving of more than £6 billion a year by the end of this Parliament. There is no doubt, therefore, that the proposal is cost driven. My submission is that, as an ageing society, we need to find ways, collectively and individually, to put more aside for our retirement. We need pensions that are at a reasonable level for people to live on in retirement. If the change goes ahead, fewer people will have pensions that allow them an adequate standard of living in retirement.