Pensions Bill [HL]

Baroness Drake Excerpts

Tuesday 1st March 2011 Grand Committee

I would much prefer the Government to slow down the implementation of the raising of women’s retirement age, as my noble friend argued. It is much the preferable solution, but if the Government insist on keeping their current timetable, I ask them to respond to the unintended consequences for those men on pension credit and whether they are comfortable with the fact that a man of 63 could well end up having double the income of a women of 63, which I am sure would not be widely acceptable. If the Government are uncomfortable with the implications of pension credit for existing men, then they have a moral responsibility to address this cliff-edge problem for women in the future and, frankly, for thousands of men now.

[Baroness Drake]

My Lords, I support Amendment 1 and others in the group in the name of my noble friend Lord McKenzie. As so many speakers have already said, the amendment is not an argument in principle about whether the state pension age needs to rise to keep fiscal sustainability in the state pension system. It is not an argument in principle about whether or not the timetable for the move to age 66, 67 or 68 should be revisited. On the point made by the noble Lord, Lord Boswell, I do not even argue that one cannot disturb settled expectations; in the face of the longevity trends, it is not sustainable to make that assumption. This is not even an argument about whether or not women’s state pension costs or poor people’s pension credit costs should make a contribution to reducing the fiscal deficit in this Parliament, because the Government’s proposals mean that the savings would flow from 1916—sorry, not 1916; oh that that were true. I mean 2016.

The amendment, however, is an argument about an important principle that is valid not only in this instance but whenever one revisits accelerating the state pension age, which might be the case on the subsequent increases—that is, that the manner and the timing of any state pension age increase has to give people fair and sufficient notice to adjust and minimise any disproportionate impact on particular groups of people. The acceleration of the equalisation timetable does not meet that principle.

I asked myself three questions. Who is impacted by the accelerated timetable? Are particular groups disproportionately impacted? Can those impacted reasonably adjust to their loss in the time given? I invite the Committee to look at those questions as well. In terms of those impacted, I do not want to rehearse all the figures that we have shared about the position of a particular group of women in their late 50s, but it is worth confirming that it is not a small number—500,000 will have their state pension age deferred for at least 12 months, and 300,000 for 18 months to two years.

With regard to the amendment of the noble Lord, Lord Boswell, it is important to see the distributional impact. I would not want the situation to be like the water in a balloon, where you think you have dealt with it moving one way but you have just created a consequence in another. If progress can be made, though, progress is valuable.

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[Baroness Turner of Camden]

My Lords, I am attempting to follow on from what I said at Second Reading, when we discussed the Bill in its entirety. I said at that time that there were many people, mostly men, who wanted to work on and who enjoyed the jobs they were doing, and did not object at all to working on. I made the point, however, that not all jobs or all people were the same. There were instances where I thought that there should be provision for some flexibility, and that is what my wording seeks. It may not be particularly marvellous wording and I am not committed to it, but I have some concern about the issues raised by it.

There are numerous people—mostly those who have manual skills but both men and women—who perform work that, if it is not done, we would notice and we would no doubt complain about it. We complain if our hospitals and schools are not properly cleaned and if we cannot get work done on the maintenance of our homes, if we want somebody to do it. These are the sort of people who, generally speaking, do not have a great deal of educational attainment, and whose skills are manual. They often, at the end of their working lives, look forward very much to being able to retire at what was the standard retirement age, but they now find that they are expected to work for longer, and in many cases they do not want to do so. In many cases they feel that enough is enough. They have had enough working time doing the sort of arduous, not particularly interesting and perhaps even back-breaking job that they have been doing, and they want the opportunity to retire. We want to make provision for people like that to be able to retire earlier. Often they have health problems of one sort or another. That is made clear in my amendment, where I say,

“case of illness or infirmity”.

My noble friend Lady Hollis has already drawn attention to the fact that there are many instances of, and much information available about, the ways in which some poorer people at the end of their lives are subject to ill health of one sort or another, and who should therefore not be expected to continue to work in order to acquire entitlement to their state pension, and certainly not when more years are required. That applies equally to women. Again, as I have said, if you have been doing a job cleaning, you may not want to go on and on until you are 66 or whatever. Certainly, although lighter work might be available, they might not be able to do it. I remember talking to a cleaner who said, “I have not got much education. I am not very good at reading or writing. I could not do another sort of job; I can only do this sort of work”. These people are valuable to us. We notice it very much, and do not like it, if they are not there to do the work that we expect in order to keep our lives reasonably comfortable. I therefore think that arrangements should be made for some flexibility in relation to people doing arduous and sometimes dangerous work. We do not want elderly people clambering up ladders in order to do construction work. That is not a good idea, and it might not even be safe for them to do it. We ought to have a degree of flexibility. I am not wedded to this wording, but that is what I am after, and it is worth considering.

[Baroness Drake]

I express my sympathy with the sentiments that concern my noble friend Lady Turner in her amendment. As we can see from the previous debate, the acceleration of the equalisation timetable is disproportionate in its impact on the poorest and on those with disabilities, many of whom will have worked in manually demanding professions. I look to speak to that issue in my Amendment 7. Although I have great sympathy with her concerns, I am not sure whether the state pension age is the right mechanism for recognising the disparity in life experience that people have, and it may take some time to reduce that disparity of experience or outcomes as a result of working life experiences. Certainly, initiatives aimed at improving health generally and reducing the disparities between socioeconomic groups and geographies—because that can be quite distinctive as well—are important, because I have a great deal of sympathy with the point made by my noble friend Lady Hollis, who said that when you look closely at the figures, certainly for lower socioeconomic groups, the healthy life expectancy rate of improvement is not as great. One does not absolutely know how that will evolve over time, which is why it is important that the Government retain initiatives aimed at reducing existing health disparities.

Flexibility in working arrangements is also extremely important because, regarding scrapping the default retirement age—of which I approve—and other stated policies to improve the working position of older people, it is one thing to have a policy but it is quite another challenge to deliver the changes and cultures in working practices at the work face to deliver the flexibility in working arrangements that you need for older people. Certainly, changing employers’ practices and attitudes is important. Those may be more effective mechanisms in reducing that disparity over the long term.

Having said that, if ill health disparity persists between socioeconomic groups, and one does not know how that will evolve—in terms of ill health the early signs are that those disparities could persist—a Government may well want to look at the qualifying age for pension credit to deal with those issues, where it is not possible for someone with ill health to address the disadvantaged-income position that they will be in. The Government should certainly remain open to that, depending on how the figures evolve.

[Lord Boswell of Aynho]

I wish briefly to comment on the amendment of the noble Baroness, Lady Turner. She is on to a substantive issue of concern: that there are clear occupational differences which, in a sense, mirror some of the concerns that many of us across the parties would have in relation to differential health outcomes between people with different occupations. In a sense, that supports some of the points that have been made about relative gender disadvantage. We understand why the Bill is conceived as it is, but those are issues that are entirely proper to raise in Committee.

I am not enthused by the text of the amendment, not least because I am not a Treasury official, and I notice that it provides a power to revise but does not explicitly state that there should be a power to revise downwards. Knowing one or two Treasury officials, they might have a go at the opposite. More seriously, there are concerns about whether we should differentiate the pensions and benefits system by different occupational groups, in the way that some of our continental neighbours have done. I may be old fashioned, but I would be reluctant to do that. Whether we could define the categories in any coherent way that did not give rise to further anomalies or whether this is the right approach, I am sure there is a problem which the noble Baroness is right to draw to the Committee’s attention. For example, I am sure that there are lots of issues in the construction industry or agriculture, which I know well, whereby we can try to mitigate and improve occupational health. We should do that, but I am not sure that a vehicle that is about the state pension age is the appropriate one to do it.

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Moved by

[Baroness Drake]

7: After Clause 1, insert the following new Clause—
“Qualifying age for pension credit
(1) The Secretary of State must make regulations setting out the qualifying age for pension credit.
(2) The qualifying age for pension credit from 6th March 2011 until 6th March 2020 shall be set so that the timetable in Schedule (Graduated timetable: qualifying age for pension credit) has effect.
(3) After 6th March 2020, the qualifying age for attaining pension credit shall be set at an age that does not exceed the age that a person qualifies for the state pension.”

[Baroness Drake]

My Lords, I shall speak also to Amendment 11. I return to the principle that the manner and timing of any increase in the age of state pension payments must give people fair and proper notice and should not be disproportionate in its impact on particular groups. The Government’s proposals for accelerating the timetable for state pension age equalisation and commencing the move to 66 for men and women from 2018 provides a five-year or seven-year notice period, depending on whether you are a man or a woman. Under the Government’s proposals, however, the age of eligibility for the receipt of pension credit, which is targeted on the poorest pensioners, follows the women’s state pension age. Both the short and shorter notice for the acceleration of the equalisation timetable impacts the poorest men and women, who will have to wait longer to receive their pension credit income but with little time to prepare.

Pension credit in 2011 will be £137.35 per week for a single person, so a further increase in the state pension age of two years, for example, results in a corresponding increase in the age for eligibility for pension credit and will result in a loss closer to £15,000 for those affected. To get some sense of scale, in 2010 there were approximately 954,000 claimants for pension guarantee credit, of whom over 540,000 were women.

The amendment is intended to reduce the disproportionate loss that would be experienced by those who are the poorest and on the lowest incomes, and are the least able to adjust to the short notice from the accelerated timetable. The amendment would provide for a way of mitigating that disproportionate impact by allowing the age for eligibility for pension credit to track the original equalisation timetable set out in the Pensions Act 1995—that is, for it to rise more slowly. Those eligible to receive pension credit would do so on the same date between 2011 and 2020 as they would have done under the original timetable for state pension age equalisation. In this way, the beneficiaries of pension credit—men and women currently in their late 50s—would not experience the markedly higher loss of pension credit income that would otherwise occur. Amendment 11 reinstates that timetable for wholly pension credit purposes.

I repeat, because it is important, that the Government’s current proposal that the age for receipt of pension credit should track women’s state pension age, in line with their accelerated timetable, does not make a contribution to reducing the fiscal deficit in this Parliament, because of the flow of savings from 2016. Again, this amendment does not undermine fiscal stability in the long term. The state pension age will still rise in response to increasing life expectancy, although my noble friend Lord McKenzie and I would argue that the increase from 65 to 66 should commence in 2020, which would still maintain the course for the long-term fiscal sustainability of the state pension system. This amendment is about fairer treatment for the poorest and least well off who are in their late 50s and nearer to pension credit age.

I turn now to the justification for the amendment. The Government, in their impact assessment, identified key criteria against which they assess the timetable options for accelerating the increase of the state pension age for women and men, and consequently the impact on the eligible age for pension credit. One criterion was the effect on the fiscal sustainability of the state pension system and another was inter- and intra-generational fairness. This amendment does not undermine long-term fiscal sustainability or prevent progress on inter-generational fairness. However, it seeks to inject some intra-generational fairness in that it seeks to mitigate for the concentrated impact on the poorest group of people who had the misfortunate to be born in particular months in the 1950s.

Perhaps I may pause here to anticipate the point made by the noble Lord, Lord Freud, in response to Amendment 1, which I am sure will be influencing his thinking on this amendment too; namely, that once one has reduced the level of debt in this Parliament, one cannot afford to relax because there is still the long-term sustainability challenge. I agree that one cannot relax over that, but there are more changes in the pension system to come. The timing of the phases of other increases—to 66, 67 and 68—I am sure will be a debate of some substance. The adjustments that will be made to increasing longevity in private pensions are happening and will continue to happen because of the impact that will be felt in annuity rates. We know that, even where there are DB schemes, normal retirement ages are rising and we await the report of the noble Lord, Lord Hutton, on longevity and the Government’s exposure to fiscal liability over the long term.

These are the big battalion contributions to fiscal sustainability over the long term. It is not the treatment of women in their late 50s, or of the very poor who happen to have a birth date in some period in 1954, that is going to deal with that major challenge, which I completely accept, of long-term sustainability. We can banter about which political party or group had the better timetable—I still hold to my principle on any timetable—but I pay credit to the noble Lord, Lord Turner, because he relayed the narrative to the country that the state pension age had to rise. He took the flak and he drew the sting, which allowed politicians to debate it and to produce the policy changes that were required in that situation.

So there is an important argument about long-term fiscal sustainability. I continue to struggle with the fact that with those big battalions, which are important—we have some big debates to come—somehow a group of women born in a particular period in the 1950s has to be treated in a deeply unfair way for this country to be in a sustainable position.

The Government's figures confirm that the pension income loss for those men and women who face a more aggressively accelerated increase in eligibility age for pension credit is even more marked for those for whom receipt of pension credit is deferred for more than a year than would be the case under existing plans. If allowance is made for their lower life expectancy, because they are more likely to be in the lower socioeconomic groups, that loss rises even further to as high as 10 per cent of state pension income. I accept that the evidence shows that those in lower socioeconomic groups have also benefited from improvements in their life expectancy—although, as we have just discussed and as my noble friend Lady Hollis was sharp correctly to point out, not necessarily so greatly in their healthy life expectancy. That improvement is an argument in support of the general proposition that the state pension age needs to rise. It is not an argument to deploy to defend giving those on the lowest incomes so little time to adjust.

The men and women who will be impacted by the accelerated rise in the qualifying age for pension credit will have little opportunity to adjust to their loss in the time available. For men and women without private savings and dependent on pension credit, working may not result in any improvement in post-retirement income, because any resulting gain in state pension accruals could be offset by reduced pension credit entitlement. For women who will be dependent on pension credit, we have only to look at the difference in median pension savings between those of a 56 year-old woman of £9,100, which translates to £11 per week on a level basis, and those of a man, at £52,800, which translates to more than £60 a week, to confirm on those median figures how little prospect low-income women have of saving sufficient to cover their loss from the delayed receipt of pension credit. That is particularly so given all that we know about their labour market participation level, earnings, membership of pension schemes and caring responsibilities. We partly debated this under the previous amendment, but men who are dependent on pension credit face similar challenges.

Lower-income groups are likely to be less healthy and, if working, to have lower incomes and to be less able to adjust to the short notice by working longer and saving more. The Government's impact assessment shows that men and women born between 1953 and 1955 on lower earnings, with interrupted careers and dependent on pension credit throughout retirement, will suffer the greatest percentage loss in lifetime pension income as a result of the accelerated timetable.

The Government’s modelling shows that people who rely mainly on pension credit in retirement will lose proportionately more than higher earners, who can also carry on contributing to their private pension saving. A lot of those figures are taken from the impact assessment. If we relate them to different ethnic groups, people of black and black British origin have the lowest level of private pension and investment income: £46 per week compared to £155 for white people.

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[Lord Freud]

I need to come back to the point that working-age support systems are much better systems of supporting people, particularly by universal credit, than artificial manipulation of when pension age and pension credits click in. There is very little difference between the position of people who are just below state pension age and those just above it. We just happen to use this age as a useful justification of where we can draw the line. Just as there is little difference between the line at state pension age, so there is little difference between those who are 63 and 62 or 62 and 61. In benefit terms, the only difference is what help people might receive to get into or stay in employment. We are quite certain that we want people below state pension age to work if they possibly can. We cannot give up on these people. That has been going on too long. The right place for people below state pension age is on a working-age benefit, and universal credit, which will be available in 2016—although it is starting in 2013—will be the most suitable benefit.

It is important that we target means-tested help in the most appropriate way. State pension age is a fair way of separating out support for those of working age and of pension age. Ensuring that people get the appropriate work-related support and making work pay are essential to enable people to move out of poverty and build up sufficient resources for their retirement. For these reasons, I urge the noble Baroness, Lady Drake, to withdraw her amendment.

[Baroness Drake]

I shall try to pick up some of the points put by the noble Lord, Lord Freud. This amendment breaks the link between the state pension age and the pension credit qualifying age only until 2020 because the associated amendment puts a time limit on that. It seeks to replicate the 1995 timetable for equalisation because it is trying to address a problem created by the acceleration of the original timetable. It is not seeking to bind the Government’s hand once that problem has been dealt with. The amendment would allow the Government to restore the link between the state pension age and the pension qualifying age. In another place, in another debate, I might want to argue the merits of not doing that, but that is not what this amendment seeks to do. We have sought to avoid the complication of that debate. It is merely for a defined period to address this disproportionate income impact point from this accelerated timetable.

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[Baroness Drake]

I would like to comment on Amendment 8, tabled in the name of the noble Lords, Lord German and Lord Stoneham, which has my sympathy. I concur with the comments made by the noble Lord, Lord German, that we are clearly all concerned with the consequences of the accelerated timetable. The noble Lord, Lord Boswell, referred to us all looking for different architectures with which we can address this matter, and one should never close one’s mind to architectures if one can get the outcome that one desires, or at least progress towards it.

With regard to the legs to the amendment—(a), (b) and (c)—on the basis of what I said on my Amendment 7, I wholeheartedly agree with making some pension credit adjustment but it would need to be made for both men and women, otherwise you would simply address the issue of poor women, not poor men.

On the question of providing for women with serious illness, those who are seriously ill clearly believe or feel that they have a payment that they have built up and are entitled to under the state pension system that has been withdrawn with little notice. They will have absolutely no prospects of adjusting to their loss, and are unlikely to benefit from the argument that they will live longer. I imagine that there would be some complexities in trying to administer a provision that focused on those with a serious illness, and I take my noble friend Lady Hollis’s point about who, and how much, should be paid.

It may be that the easiest solution is still to look at decelerating the timetable. As my noble friend Lord McKenzie said in responding to the amendment of the noble Lord, Lord Boswell, we are all keen to make progress and should stay open to looking at timetables. My noble friend and others have revealed how the timetable has an accelerating effect. There are those who lose for a year, those who lose for up to 18 months and those who lose for up to two years, so there is an accelerating impact in terms of numbers of people affected. Still, I would not want to fall out over architecture if there was a way of moving forward to get the kind of outcome that we all seem desirous of achieving—those of us moving amendments, anyway.

[Lord Freud]

I thank my noble friend Lord German for tabling the amendment. We have covered a lot of the ground in relation to it already, so I shall try not to be repetitious. We are talking about what has been variously described as an acceleration bubble, a moving horizon or a squidgy balloon—as the noble Baroness, Lady Drake, said. We are effectively looking at concessions for women born between July 1953 and September 1955.

I am not in a position at this stage to provide any additional information about discussions on a single tier, which I referred to at Second Reading, but one of the issues here is clearly that when one looks at the complexity of the architecture, one has to have an eye to whatever might or might not emerge from those discussions. We have already talked about freezing or delaying the increase in the pension credit qualifying age for people affected by the changes in state pension age. We are not going to make a song and dance about technical drafting here, although the noble Baroness, Lady Drake, made the point about the application of the amendment to women, when it would actually have to apply to men. However, let us put that to one side.

The issue that I aimed to emphasise in the previous discussion was that pitching the pension credit qualifying age at a point below the state pension age for a specific group would undermine fundamental welfare reforms. However, it is not about just the structure—and I accept that this is about a temporary change—or purely the money; it is complex for customers and complex to administer. That is one of the reasons why that solution is difficult, if not undesirable.

In response to the request of the noble Baroness, Lady Hollis, for me to write to her on the costs of paying people in between the old and the new pension ages, I am happy to look at those costs and to write to interested noble Lords. I imagine that that includes most of us in the Room.

I move on to the issue of serious illness and emphasise that we have great sympathy for those with ill health, including those in this particular cohort of women. However, I must point out that help and benefits are already available for people with health problems and I do not therefore accept that we need to provide additional financial support, whether that is in the form of a payment above what we already pay out or some bespoke pension age arrangement.

The final option suggested by the amendment is slowing the acceleration of the pension age increase for these women.

I can assure noble Lords that, when we were considering how to bring forward the increase to 66, we looked at whether we could start that change for men slightly earlier than for women, to avoid altering women’s state pension age before 2020. The reason that we have not done this is because it would be unfair to increase the difference in treatment between men and women. It would also be unfair to prolong the difference in treatment beyond the period already agreed. I will take this opportunity to explain why, and I am picking up the question raised by my noble friend Lord Boswell earlier in the afternoon. The equal treatment directive allows the setting of the state pension age to be a limited exception to the overarching rule that men and women must be treated equally in social security matters. This exemption, or exception, is only temporary to give member states time to adjust their state pension ages so as to bring women’s state pension age into line with men’s. As we know, the legislation in 1995 set out a timetable for equalising the state pension ages between 2010 and 2020, so anything we do now will be measured against that timeline. That is why we decided that we must increase the state pension age to 66 only after women’s state pension age has reached 65. I therefore urge the noble Lord to withdraw his amendment.