Pensions Bill

Baroness Donaghy Excerpts

Tuesday 3rd December 2013 Lords Chamber

[Baroness Donaghy (Lab)]

My Lords, I believe that some humility is required when we consider people’s pensions. Trust in the pensions industry is low for a very good reason. What is decided in this Bill in 2014 has a 40-year horizon—that is, up to 2054. Does anyone really believe that this legislation will last for 40 years?

There are two things that I am absolutely certain about: Governments will tinker and the financial services industry will get away with whatever it is allowed to. The Government have said that their aim is to,

“better support people to save for their retirement”,

and that is surely welcome. I have no idea whether the proposals in the Bill will do that, although auto-enrolment is a very good start.

When SERPS was established in 1978 as an addition to the basic state pension, the thinking of the day was that those earning slightly more would expect a better pension. When SERPS was replaced by the state second pension, or S2P, no doubt the thinking was the same. If it all disappears next year, the additional state pension will have existed for 36 years, so it nearly qualifies for the 40-year time horizon but not quite. Does anyone really believe that a flat-rate state pension will last for more than 10 years? I very much doubt it. That is not to say that clarity and simplicity are not welcome, but they are only two ingredients. If someone realises that they are clearly and simply going to be poor in retirement, it does not take us very far.

My first encounter with pensions was in 1970 when, as a NALGO branch secretary, I campaigned for an occupational pension for university non-teaching staff at the University of London. The existing schemes were college-based and run by insurance companies with very high administration costs. It took five years to establish the Superannuation Arrangements of the University of London—or SAUL, as they are called—and it now has assets of more than £1 billion. It was an uphill climb because the majority of staff were women. The assumption was that women were not going to stay in the job very long and would probably get married, so why would they want an occupational pension? Those on the lowest grade and part-timers were not even allowed into the college-based pension scheme, presumably because it was felt that they would not stay at work for very long.

That was the era when men could ask, “What’s a nice girl like you doing being passionate about pensions?”—I am trying to make it interesting—and suggesting alternative ways of expending that energy. It was the era of smiling through gritted teeth. It is where the 700,000 women born between 6 April 1951 and 5 April 1953 started their working lives. They probably had to struggle to join an occupational pension scheme, and they were probably advised to pay the lower national insurance stamp and rely on their husband’s pension. They had to fight every step of the way for employment equality, and now they are told that they are not eligible for the single-tier pension.

To give the Pensions Minister, Steve Webb, some credit, he did try to construct an argument as to why the 700,000 women would not receive the new pension. He compared them as a group to those who reached state pension age before April 2010 and those who will do so after April 2016. The Minister weighed up the good and the bad news and the “somewhere in the middle”, and argued that, on balance, the 1951-53 group was not being disadvantaged. That may look good on paper but, for a generation of women who have experienced every form of pension discrimination, it must look like more of the same. I ask the Minister to reconsider this decision. It he agrees to reconsider it, he will have the satisfaction of having 700,000 pleased and extremely surprised women on his hands.

I want to turn to the impact of increased national insurance contributions on public service pensions. I shall keep my remarks short because the noble Lord, Lord German, and my noble friend Lord Whitty have covered this area very well. Are the Government planning to pay these unbudgeted extra costs, which, if not met, could unravel a series of delicate negotiations with public sector workers? Is the Minister able to give us some assurance on this issue at this stage? If not, it will certainly come back in Committee.

I now turn to the issue of trust and transparency. The recommendations of the Workplace Retirement Income Commission, chaired by my noble friend Lord McFall of Alcluith, in 2011 really say it all:

“For consumers to have more trust in the pensions system, the industry needs to show it can reform itself to be trustworthy. An industry-led drive around disclosure, transparency, clear communication, and driving down costs and charges will help to achieve this … the Government and the Pensions Regulator should make it a priority to promote strong and consistent governance and employer engagement with workplace pension schemes, whether trust or contract-based”.

It is a good report and, in my view, it deserves further consideration.

A lack of transparency and overcharging, if not dealt with, will scupper this legislation or its potential good reputation. The Centre for Policy Studies said:

“In 2010, the City extracted some £7.3 billion in implicit charges, about which investors were told … nothing”.

The Royal Society of Arts, of which I am a fellow, referred to written evidence to the Work and Pensions Select Committee stating that from the time when the new Pensions Act is introduced,

“we can expect that many will be sold pensions where 50% or more of their potential pension disappears in charges”.

I am sure that we will come back to this in Committee, but limiting the “wrapper” charges is only a quarter of the story. It is the hidden charges for investing where the costs add up.

I have been a board member of two pension schemes—one as an employee representative and one as an employer representative, although not at the same time, I hasten to add. I lost count of the number of times I listened to presentations by investment companies which were trying to win the contract for investing the pension fund. You were drowned in glossy charts and sales-speak, and I would have liked a hot dinner for every time I heard, “And we aim to be in the upper quartile of returns”. If everybody was in the upper quartile, it would not be the upper quartile. Of course that was their aim, but if only the delivery had been as glossy and promising we would not be so apprehensive now.

Finally, I look forward to the Committee stage when we will have the opportunity to consider this wide-ranging Bill in detail.