Pensions Bill [HL]

Baroness Hollis of Heigham Excerpts

Wednesday 30th March 2011 Lords Chamber

[The Lord Bishop of Ripon and Leeds]

My Lords, I have put my name to these amendments because I want to talk about the speed with which the goalposts are being moved and the unfairness between individuals that that represents. I speak as the Bishop who has had major responsibility for changes to the Church of England clergy pensions scheme and the reduction in benefits that is involved in that. I have had to present those to the General Synod and I bear some of the scars for doing so. I am under no illusions as to the difficulty of this task for the Government.

I fully accept the arguments for equalisations and those based on longevity to which the noble Lord, Lord Boswell, has just been speaking. Change is needed, but I cannot accept that this speed of change is necessary. From my own experience, from my clergy postbag, and from my postbag about the Bill, I know that the two things that potential pensioners most resent are changes to their expectations with comparatively little notice and perceived unfairness. These proposals fail under both those headings, and the amendments put forward by the noble Lord do much to mitigate that unfairness and failure.

Individuals find changes in pension planning extremely complex and difficult to implement on a personal level. Many of the women who are affected here have taken time out to care for elderly parents, having worked long enough to qualify for the full pension. They have done that deliberately and they have responsibly assessed the way in which they are approaching retirement. Now they are simply being told, with only five to seven years’ notice, that they will have to cope on existing resources for one or two more years than they had anticipated—and than they had been told to anticipate as recently as the last changes in 2007. That is actually draconian for a group of individuals, notably the women, mentioned by the noble Baroness, Lady Howe, who were born in that month of March to April 1954. They face an immediate two-year increase in their state retirement age. Some 33,000 women are unfortunate enough to have been born in a particular month. It is not a tiny number, although it may be a small proportion of those who in one way or another will see a reduction in their pension expectation through the timetable of the Bill. We are often exhorted to plan carefully for retirement. It is understandable that people see little point in doing so if, for some, the goalposts are then moved to the other end of the pitch. This may not technically be retrospective legislation, but in practice that is exactly what it is for a significant number of women.

It causes changes to expectations at short notice and, secondly, unfairness. The proposals as they stand create a situation in which a woman born in 1950 obtained her pension in 2010 whereas her sister, born in 1954 and four years younger, has to wait until 2020 for hers—a six-year increase in the pension age, the best part of a decade between the times these sisters receive their pensions. When we look at the figures, it is easy to see the need for change, but we must also take account of the unfairness that that creates between neighbours, family groups and work colleagues, and the tension and pressure on friendships and relationships. That is why we need to think again on the timetable. The changes in the Bill bring no additional savings until 2016. The savings do not contribute to tackling the present economic crisis. It is a matter of justice for a significant number of women that we change that timetable today.

[Baroness Hollis of Heigham]

My Lords, I, like others, very much support these amendments. I have here the coalition programme for government, drawn up 10 months ago. On page 26, it makes seven promises on pensions relating to the earnings link, the Hutton review, a review on early access and so on. I agree with almost all of them and the coalition Government are honouring almost all of them—which is great—except for one. The coalition programme states:

“We will phase out the default retirement age and hold a review to set the date at which the state pension age starts to rise to 66, although it will not be sooner than 2016 for men and 2020 for women”.

I agree with the coalition programme on that too: it is a clear and reasonable promise that was made just 10 months ago. We need to equalise, in a steady way, and that coalition commitment would have delivered that. Now in this Bill, just a few months later, that key coalition agreement promise—the one that most directly affects women, and poorer women at that—has been torn up and junked.

Whereas women before 2016 are seeing their pension age rise gradually, in steps of one year for every two years, suddenly from 2016 the rate at which their pension age is deferred extends, so that they have to wait three years instead of two and four years instead of three. From then on, half a million women will have to wait more than one year for their pension, 300,000 for more than a year and a half and 33,000—as the right reverend Prelate emphasised—for two years. It means that Susan, born in March 1953, will reach pension age at 63 in 2016. Her cousin Barbara, born a year later in March 1954, will reach pension age in March 2020, when she will be 66—one year younger, and she waits a further four years for her pension. Is that fair? Of course not. Is it necessary? The Government ran two arguments in their impact analysis and in Committee: first, given the deficit, that we need to find savings even from the pensions of the poorest women to sustain fiscal futures; and secondly, given increasing life expectancy, that we need to raise the pension age faster than anticipated.

Neither of these arguments, in my view, is valid. Given the deficit and the need to find savings—as has been mentioned by my noble friend Lord McKenzie and others today—and given that this acceleration starts in only 2016, we are already beyond the deficit period. Anticipated savings of £30 billion—virtually all from women—are not part of the four-year plan. Is it necessary, however, for longer-term fiscal stability? In the longer term, yes; it is the speed that we are objecting to and the unfairness for women dependent on the month in which they are born as to whether they get a reasonable or a very bad deal from the state. It is a lottery, my Lords. The Government, unlike the markets, should not engage in lotteries with people’s pensions.

--- Later in debate ---

[Lord Stoneham of Droxford]

We are very sympathetic to the noble Baroness’s amendment. I congratulate her on an important contribution to this debate on an issue that the Government must address. A number of reasons have been explained, in this debate and in the preceding debate, on why that is important. Men are not being disadvantaged by more than one year, but over half a million women are. The period of notice is inadequate. Women in this age group are some of the most disadvantaged in terms of their pension provision. We have to accept that there is a contradiction with the coalition agreement. We are expecting some assurances from the Government in this debate, but we also accept that this is largely a negotiating matter with the Treasury. We welcome the announcement in the Budget of the new basic pension.

The noble Baroness, Lady Hollis, complained at Second Reading that the Pensions Bill ignored the £140 new basic pension, and said that it was like Hamlet without the prince. Now we have Hamlet with the prince but without a script. We want to see some details of the government proposals before committing ourselves to new transitional arrangements. We know that in present value terms the amendment will cost £7 billion, but the Government need to address the problem and come back with a considered amendment during the passage of this Bill in the other House with regard to how women affected by these transitional arrangements will benefit from the new higher basic pension.

[Baroness Hollis of Heigham]

My Lords, I will be brief because a lot of the arguments were effectively aired on all sides on the previous amendment. I support this amendment. I spent many hours—I will not say happy hours—last weekend trying to find a compromise, what I would call a fallback amendment, that would address the issue that we have all identified today. That issue is the women who are seeing an acceleration in the time that they have to wait—if that is not a reverse phrase—for their pension.

The Government are proposing to accept the existing timetable to 2016 but, instead of continuing it to 2020, to collapse it to 2018, so that what would have happened over four years is happening over two. That is what is producing the problems of bunching, the unfairness, the lottery, the roulette, one sister against another, one neighbour against another and the like.

We have heard the arguments. I tried, as I said, over many hours at the weekend to find a fallback compromise that overcame the problem of bunching without taking us up to 2020, but could not find one. What the noble Baroness, Lady Greengross, has done, for which she has our warmest congratulations, is none the less concentrated on the post-2020 period and reduces somewhat the period by which pensionable age would rise to 66. That produces the £3 billion of additional savings that the Government are so anxious to secure. It also protects the situation of women. It is smooth, as no woman waits more than one year for every additional year of her age. It is fair to all women. It is a compromise: we get to 66 somewhat earlier than I would like. None the less, it overcomes the basic unfairness of women having random times until which they must wait, according to the random month in which they were born. You cannot make state public policy on the basis of such a lottery. The amendment of the noble Baroness, Lady Greengross, addresses that issue, compromises on the later point and makes savings. I hope it will enjoy the support of the whole House.

Like others, I am thrilled by the proposal for a new state single pension of £140. I warmly congratulate the coalition in this House and the Ministers in the other place on it. Had there been eight bullet points, I would have agreed with eight out of eight instead of seven out of seven. I do not want to put this in a way that makes the noble Lord thump the Dispatch Box, but I hope he will today restore the honour of the coalition agreement by making it clear that he can accept this amendment or a version of it. The substance of what was promised in the coalition agreement by both parties forming the Government—that women’s pension age would not rise to 66 until 2020—will then be honoured, either through this amendment or the Government’s promise to come back with another. All sides of this House could then feel well content that they have protected some of the most vulnerable women, who rely solely on their state pension for their income in retirement. We will have treated them honourably, fairly and decently.

[Lord German]

My Lords, I echo the noble Lord, Lord Boswell, and the noble Baroness, Lady Hollis, in saying that we look to the Minister to address the issue behind the amendment of the noble Baroness, Lady Greengross, which is that no woman’s pension age should be accelerated by more than 12 months. That is the issue that I raised in the earlier debate. It is a concern about equity. I hope that, in the architecture that the Minister may describe to us, he might find a way of answering that question. Whether it is this or some other architecture, as the noble Baroness, Lady Hollis, just said, is not the issue at stake here; it is about the intention. It is the intention to create that level of equity that is important.

Unfortunately, I have a question for the noble Baroness, Lady Greengross, when she comes to answer this debate. It is on a very technical point. This morning we took the liberty of plotting the dates in her amendment on a graph. Unfortunately, there were two kinks in the graph, which meant that it was not a straight line. I wonder whether, in the second line of the amendment, “August 2018” should not read “July 2018”; and, in the third line, whether “October 2018” should not read “September 2018”. That would produce a straight line. However, in the context of seeking agreement—and of the Government’s intention that no woman should wait more than 12 months, which I think was the intention behind the amendment—I hope that the Minister can give some support and succour to the amendment and the intention behind it.

--- Later in debate ---

If there is to be a major change in the earnings trigger, which will exclude perhaps 1 million or even 2 million people from the advantages of auto-enrolment into a workplace pension, I do not believe that that should be done by an order, even an affirmative order. It is of such significance to the outcome of the pension reform programme over time that there should be a high level of awareness of the consequences. People should understand the impact and all interest groups should be involved in that decision. I beg to move.

[Baroness Hollis of Heigham]

My Lords, I strongly support my noble friend’s amendment. The Government are essentially following the proposals of the Johnson report. I see red copies of it all around the House—I am sure that noble Lords have not consulted it for the first time as we now come to debate it. Having read that report, on which, as my noble friend said, the Government are basing their proposals to lift the trigger, I was completely unpersuaded. I thought that it was thin on everything except, possibly, employers’ preferences, which, left to them, would have no doubt pushed the earnings threshold to £10,000 or more. I am surprised, of course, by such a conclusion.

The Johnson report offers two reasons for raising the earnings trigger. The first is that such low earners are involved that even without NEST they would have a very high replacement income based on their state pensions in retirement, so they do not need an additional pension such as NEST. The second argument run by Johnson, and therefore presumably supported by the Government since it was relayed by the Minister in Committee, is that such people are so low paid that the sums they would achieve are not worth while. For example, if someone is earning £7,500 and the trigger is set at £5,700, they would bring in only about £130 a year for their pension pot.

Let us look at those two arguments. My response to the first argument, about high replacement, is, frankly, “So what?”. There is nothing to say that just because you are poor in your working life, you would break some golden Treasury rule by being at least as well off if not better off in retirement. It is simply an irrelevant argument. I shall make two points in response to the second argument about the small size of the pot. First, as the Johnson report acknowledges and as the Minister has rightly told us, many women will go on to higher-paid jobs, and even small sums started early enough will be valuable and increase persistency of saving and the savings habit. If someone has not enrolled, it will be that much harder for them to do so later on when a pay rise seems to be eaten up by auto-enrolment, and it will not happen.

From my quick calculations over the weekend, even if there was only the very modest figure of £130 a year in real terms going into a pension pot, I estimate that over 30 years that would none the less allow a woman to build up a pot of £8,000 to £10,000. Given a decent state pension, it obviously would not be sensible to annuitise that pot, since it would be below the trivial commutation limit, but it would mean that she would go into retirement with a modest but useful capital sum, perhaps for the first time ever. After all—and this is the question that I would like the Minister to address—that was exactly the previous Government’s argument, which I think the current Government have also run. We encouraged people to defer taking their state pension by one or possibly two years and, with the money saved from that deferment, provided a capital sum of £10,000 to £15,000 as a pension pot, which we further privileged by ring-fencing it and protecting it from pension credit. I stand to be corrected, but I take it that this is continuing and that the Government have not scrapped it.

In other words, a few years back the consensus around the House was that we thought it important to encourage people, mostly men, to build a modest capital sum for retirement by not drawing down their state pension at the age of 65 but deferring it for one or two years. Indeed, we so much wanted this to happen that we ring-fenced those savings by not allowing them to count against pension credit taper. When it comes to NEST and women, however, we do not seem to think that the same argument runs. I disagree with that. The one argument that was not run by Johnson, but might have been valid, was the means-test trap. But even that depended on a woman’s household income and on whether she was partnered. Given the single state pension in prospect—alleluia—that problem evaporates. We are allowing women to do this voluntarily, but as my noble friend Lady Drake said so rightly, these are precisely the women for whom voluntary enrolment is least likely to happen, is the least suitable, and for whom auto-enrolment is appropriate.

I would ask the Minister to remind us why it is acceptable to encourage men to build a small capital sum by delaying taking their state pension for a year or so, even protecting it against pension credit, but when it comes to NEST and where a woman might have a similar small capital sum, apparently it is not so desirable, even though her finances may be infinitely more strained. I hope that the Government will reconsider this. The Johnson arguments are simply invalid. They may give the Government a hook to hang on, but they do not run. The Government seem to be signing up to the notion that if you are poor in your working life, it is morally acceptable to be poor in retirement. I do not accept that and neither should the Government. If they are saying that the capital sum is not worth having, since we do not allow that argument to run on the state pension, we should not allow it on NEST. On both of those grounds, I hope that the Minister will offer his favourable support to my noble friend’s amendment.

[Lord Stoneham of Droxford]

I support the proposal in the Bill that the threshold should be reviewed in line with the Johnson report. I do so particularly in the light of the reassurance given by the Minister in Committee that there is no proposal from the Government to link the increase in the thresholds to the increase in tax thresholds.

[Baroness Hollis of Heigham]

The noble Lord’s honourable friend in the other place, Mr Steve Webb, has made the contrary assertion.

[Lord Stoneham of Droxford]

Perhaps the Minister can clarify that, and I am sure he will. I do not know what the noble Baroness is quoting from since we remain committed to raising the tax threshold to £10,000, but we do not want this particular proposal undermined.

I shall come back to a further point that I think is important. The other interesting development is the new basic state pension. I am sure that my honourable friend the Minister in the other place will have had in mind his proposals on the threshold to align with what we are now proposing for the new basic pension. That makes sense. Too low a threshold, as we discussed in Committee, gives rise to considerable administrative problems and the issue of very small pension pots. I am sorry, but they are very small. They will be insignificant in the context of the improvement we will be making in the new basic state pension.

It is all very well for the noble Baroness to shake her head, but it is extremely dishonest to encourage people on low earnings to make contributions to their pensions which actually result in a low rate of return when they come to receive the benefit. Not only will they get that low return until we introduce the new state pension, but if they were in receipt of housing benefit they would actually lose income that they would have achieved through any increased pension.

[Baroness Hollis of Heigham]

I—

[Lord Stoneham of Droxford]

I have already allowed one intervention and I should like to move on, since this is a short debate.

Finally, it is important to understand that too low a threshold may well encourage more lower income people to opt out than would a more realistic one. For those reasons, I support the proposal set out in the Bill.