Pensions Bill [HL]

Baroness Hollis of Heigham Excerpts

Wednesday 27th April 2011 Lords Chamber

Moved by

[Baroness Hollis of Heigham]

1: After Clause 1, insert the following new Clause—
“Single tier or universal state pensions
(1) Before the end of June 2016, the Secretary of State must lay before Parliament a report containing an assessment of the consequences of its provisions on any proposals for the introduction of a single tier or universal state pension.
(2) For the avoidance of doubt, this section shall come into force on the day on which this Act is passed.”

[Baroness Hollis of Heigham]

My Lords, the amendment in my name would require the Secretary of State to introduce a report on the single state pension by June 2016, before Part 1 of the Bill, which refers to the delay in the state pension age for women, is commenced. I would also ask the House to ignore the word “universal” on this amendment—

[Baroness Anelay of St Johns]

I ask that colleagues carry out the normal courteous procedure. Those who are remaining in the Chamber wish to hear from the noble Baroness, Lady Hollis. Could those who are leaving do so rather quietly?

[Baroness Hollis of Heigham]

I thank the Chief Whip. The delay in women’s retirement age so that, for the most unfortunate, retirement is delayed by two years, was discussed and determined, narrowly, on Report. No one, I think, was happy about the bunching effect, including the Minister. It is the consequence of insisting, despite the coalition agreeing to the contrary, that the state pension age for women would rise to 66 by 2020. I remind the House that the coalition agreement that women’s state pension age would not begin to rise to 66 until after 2020 was not an election pledge that was broken in the name of coalition dealings and agreement but was part of the post-election coalition agreement from both government parties in the full knowledge of the costs and circumstances. To break that joint, agreed, published, post-election pledge within the year is, in my view, pretty disreputable. However, that is where we now are, regrettably. I hope very much that the other place will try to smooth out the bunching effect, which narrowly this House allowed to continue.

Since Report—I think on the day after—we have had the long-awaited Green Paper on the new single state pension. I am sure that noble Lords greatly welcome it, as I certainly do. It proposes bringing the basic state pension, the state second pension and pension credit into one pool, allowing the payment of a single pension based on national insurance contributions a few pounds above pension credit level. This would both tackle pensioner poverty, especially among women, and encourage saving. Existing accrued rights would be honoured, but possible future accrued rights would be capped in much the same way as when this House decided—rightly, in my view—to replace SERPS with S2P. That mostly capped men’s higher earnings-related pension entitlement with a scheme of more generous redistribution to lower wage earners, mainly women. To me, the Green Paper is very good news, and I congratulate the Minister and his right honourable friend in the other place, Mr Steve Webb, on achieving it in the face of, I suspect, the agnosticism of HMT at best, the scepticism of HMT at least, and the hostility of HMT at worst.

The new single pension is important in a couple of ways. I am raising it now because we did not have the opportunity to raise it on Report, given that the Green Paper just happened to be published the day after Report. There is agreement around the House about the desirability of NEST. It will effectively reintroduce an earnings-related pension, so to speak, to top up the new single pension, performing the same function but in a very different way from the old SERPS. However, as we all know, NEST is risky, particularly for low-earning women. If they do not have a partner at retirement whose pension income lifts them both off pension credit, they find that their savings in NEST are severely depleted by the operation of the pension credit taper. There is no way that someone at 30 can predict whether it is worth saving in NEST if it depends on what partnership and household arrangements they have 30 or 40 years down the line.

Pension credit has done a superb job of tackling the poverty of existing pensioners. It means that pensioners are no more or no less likely to be poor than any other group in society. However, it has added to the risk of future pensioners who seek to avoid poverty by building savings. The single state pension cuts through all of that. It means that your pension income from NEST will depend not on your household but on your own income, which is a far safer, clearer and cleaner path for savers. With a new pension, every penny you normally save in NEST will return to you as your pension. It has built out the risk from saving; it pays to save. That is why, on all sides of the House, we welcome NEST, and I am sure will welcome the new single pension. Hence this amendment.

--- Later in debate ---

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

My Lords, I am grateful to the noble Baroness for the opportunity to spend a little time today on our proposals for reforming the state pension. She has been instrumental, as other noble Lords have pointed out, in the move for better pension provision for those left out of the benefits of the heyday of the occupational pension and the earnings-related state counterpart. The Pensions Act 2007, with its enormous boost for women through the reduction in qualifying years for basic state pension and the increasing coverage of the state second pension, could have been the final push for equal treatment in state provision.

Even that was not good enough, though. In March last year, a week before the 2007 Act started to deliver for women, the noble Baroness launched the pamphlet The New State Pension: A Call to All Parties, which pushed for further radical change. Very skilfully, she got my honourable friend, the Minister responsible, to contribute a chapter to that. It proposed a new type of state pension with a near-universal amount, set above the level of the means test and made affordable by paying the pension to new pensioners only. Her main motivation, as ever, was to deliver an adequate state pension for women who, because of low pay and career breaks, have historically lost out in pension provision.

Just over a year later, the Government published their proposals for improving state provision, A State Pension for the 21st Century. That Green Paper confronts the big issue of how to respond to a decline in private saving at a time of increasing life expectancy. It describes how means-testing, with all the damage that it can do to private saving, pervades the state system. It describes the great complexity of the state system. Bluntly, for most people the system is simply impenetrable. Crucially, it fails to answer the most obvious of all questions from potential private savers: is it worth it? How much will I get from the state when I retire anyway? As importantly, it describes the extent of inequality in the state system—how women, on average, get £40 a week less state pension than men and how they are more likely to live in poverty as pensioners.

The Green Paper describes two options for reform to respond to the challenges that the pension system faces. The first option would simplify the state second pension. It would strip out the earnings-related part of the second pension, leaving just a flat-rate amount—the same pension for all workers and people who are credited into the system for caring and other good reasons. The second, more radical, option would effectively fold the basic and second pensions into one to create a simple single-tier pension, set above the level of the guarantee credit. This option, which is clearly similar to the one that the noble Baroness proposed a little more than a year ago, would mean that by 2020 no less than 90 per cent of pensioners—men and women—would retire on a pension above the guarantee credit.

The Green Paper, as I said, was published earlier this month and the consultation is currently under way. As the noble Baroness appreciates, changes of the magnitude proposed in the Green Paper can be progressed only by listening to the views of all those with an interest. It is far too early in the process for the Government to come to a view on the way ahead, so I cannot give a conclusion to the consultation. I assure the noble Baroness that, should the Government decide to bring forward proposals to reform the state pension system, we would as a matter of course publish a full assessment of impacts, including those on women, alongside any reform proposals.

I remind the House that we published an impact assessment, including a gender, race and disability impact assessment, of our proposals to increase the state pension age first as part of the White Paper setting out our response to the call for evidence and again alongside the publication of the Bill when it first entered Parliament. Those assessments will be further amended and revised as necessary for republication when the Bill enters the Commons and yet again once the Bill has completed its passage through Parliament. I can therefore assure the House that, were the Government to publish a White Paper on reform, we would be no less diligent in providing detailed information on the impacts of any policy changes by gender, ethnicity and a range of other factors. In short, there will be plenty of opportunity for noble Lords, as well as Members of another place, to scrutinise any proposals for reform and their likely impacts, should the Government decide to proceed with reform.

I emphasise that the proposals that we have set out in the Green Paper do not depend on increasing the state pension age. As I said in our debates on Clause 1, the rise in the state pension age must be brought forward because the sharp upward revision in life expectancy projections has overtaken the legislated timetable. The revised timetable would be necessary with or without the reforms on which we are consulting. We have already discussed at some length the impact of our proposed changes to the pension age timetable, in particular on those cohorts of women who face an increase in their pension age of up to two years. A number of noble Lords have emphasised that point and I do not propose to rerun that debate. However, I draw attention to the fact that a key objective of the reforms, alongside simplifying the system and rewarding those who save, is to look at how the state pension could be made fairer for groups, including women.

The noble Baroness’s amendment seeks to ensure that we consider the impact of the state pension age changes in conjunction with our proposals for reforming the state pension scheme. As I said, we are only at the consultation stage on our reform proposals but I can assure the House that although, as I hope I have made clear, these are not interdependent changes, we would undertake such an assessment if these reforms are taken forward. I trust that I have been able to assure noble Lords that the statutory duty that the noble Baroness’s amendment would impose is not necessary and, furthermore, is somewhat premature. We will have many opportunities to debate what to do with any reform proposals as they go through the whole process. I therefore urge the noble Baroness to withdraw her amendment.

[Baroness Hollis of Heigham]

My Lords, I thank all those who have taken part around the House, including the noble Lord, Lord Boswell, the noble Baroness, Lady Howe, and my noble friend for their warm support for the principle of the amendment. If the comments in this House are anything to go by, the Minister can be assured of the reception that his Green Paper will receive outside the House. I am confident that it will be greeted with warm support.

I very much take the point made by the noble Lord, Lord Boswell, that we have to see pensions as part of a structure. However, such a new single state pension is the keystone for any reform not just of state pensions but of occupational pensions that do not generate a savings trap for those on lower earnings. That is why noble Lords all round the House are so delighted to see the possibility of that keystone finally coming into place. The noble Lord said that we should minimise retrospective unfairness and avoid future moral hazard. Those words are well taken; they are wise words for us to absorb.

My noble friend Lord McKenzie is absolutely right that, with the advent of a new single state pension, the issue of the threshold of enrolment into NEST disappears. It does not matter whether you end up with £3,000, £30,000 or £300,000 of savings; you keep the lot if the new single state pension is in place. Therefore, you do not have to legislate to avoid the moral hazard of low-paid women earning less than £7,500 a year going into NEST because their savings may not be worth having, given the effect of pension credit. As NEST will be reviewed in 2017, which many of us are already looking forward to, I very much hope that we shall be able to revisit this issue then as, with the new single pension in place, a threshold of enrolment will simply not be necessary. However modest the savings, they will be worth having and worth encouraging, so that even the poorest of people can go into retirement with a cushion against the adversities of old age.

I am grateful to the noble Lord, Lord Freud, for his generous comments on the background to the single pension and to his officials for their work in bringing the Green Paper forward. My only regret is that the Green Paper came too late for Report and that Third Reading has come too early for the results of the consultation. None the less, we are trying to wedge this in between the two. I believe that the new single pension will transform the pension landscape and should receive huge support. I was delighted to hear from the Minister that there was no interdependence between the deferring of the state pension age—in other words, the raising of the state pension age to 66—and the funding or costing of the Green Paper. That is key. It gives me hope that he and his honourable friend Steve Webb will be seeking to smooth the bunching effect whereby some women have a much rougher deal than others. Some wait nearly an extra year for their pensions and some wait for nearly two years. We all recognise that that is—in the words of the noble Lord, Lord Boswell—rough justice. I would go further than that: it is unacceptable. I and, I am sure, the Minister hope that a decent solution can be found to that in the other place.

However, I am, in a way, using the amendment to do what we would have done had the Green Paper been introduced by a Statement, which was not the case. We are delighted to have the Green Paper in place. We wish the consultation good speed. We hope that the results will come through in such a way that the Government are encouraged to go down the path that they should. I can assure the noble Lord, Lord Freud, that if he comes forward with such legislation in this House or the other place he will have wide and enthusiastic support. I beg leave to withdraw the amendment.

Amendment 1 withdrawn.