Queen’s Speech

Baroness Hollis of Heigham Excerpts

Tuesday 15th May 2012 Lords Chamber

[Baroness Hollis of Heigham]

My Lords, in 1997, pensioners were among the poorest in society, while future pensioners were not saving enough. Our response to the former, pension credit, took existing pensioners out of poverty but, perversely, made it not worth saving for pensioners still to come.

If, 10 years ago, I could have foreseen the proposed new state pension, the raising of retirement incomes, the removal of means-testing and the making it safe to save, as well as the rollout of auto-enrolment, with NEST bringing even the low-paid into pensions, I would have been thrilled. Pensions would have been sorted, finally.

Details remain to be finessed. They include legacy issues for the state pension; transfers; caps; and, above all, thresholds for NEST, because, perversely, the more you raise tax thresholds, be it to £10,000 or even £12,000, the more people, 1.4 million of them and mostly women, you take out of auto-enrolment. They are the very people for whom NEST was designed. More widely in the pensions field, we could strip out normal essentials from DB schemes such as indexing and spouse’s benefits, cutting their costs in half and thus ensuring their survival. Or we could develop hybrid schemes, sharing the risk. Given that there are 54,000 DC schemes, we could respond to the NAPF’s call for super trusts.

However, despite the splendid work of Steve Webb, I no longer think that we have pensions sorted. They are fine for higher-rate taxpayers with parallel savings in ISAs and property who can absorb risk and wish to smooth consumption between work and retirement. Though I am delighted by the proposed pensions Bill, no one today would invent pensions for the low paid, especially women. As the IoD said in its recent Roadmap for Retirement Reform, pensions are,

“part of the problem, rather than part of the solution”.

That was the IoD. Just think—for a decent pension you need: a full-time job for 40 years; that job in a world of steady interest rates, inflation, employment and longevity; to contribute young, enough and throughout; to manage the investment and disinvestment risk; and, for those 40 years, not to touch it because you have other savings. Not one of those propositions fits the low paid.

We could not design a poorer fit for poorer women if we tried. Women are in and out of the waged labour market, interspersed with caring for the young and increasingly for the old who, because they are living longer, take a woman out of the labour market for longer at just the point when she should be building her own pension. Her work is part time and low paid. Half of all women face divorce, losing their home, health, money and partner. She is at high risk. It is key that her working years are more perilous than retirement. She has no accessible savings to smooth those risks but cannot touch her only savings—her pension. She can use her pension to build a conservatory at 62 but not to save her home from repossession at 42. That is mad and cruel.

Why is more money going into ISAs than pensions, despite there being no tax relief or employers’ contribution? The answer is access. We should stop shoehorning low-paid women into structures devised by well-paid men for other well-paid men 50 years ago. We need combined savings and pensions schemes: the lifetime savings accounts—LiSAs—of David Willetts; the combined ISA/pensions of Michael Johnson of CPS; or the early access to the 25% tax-free lump sum called for by Steve Webb and me.

Finally, we spend £30 billion a year on tax relief, half of which goes to the wealthiest 10% who least need help to save. That same £30 billion would buy a state pension of £20,000 a year for every couple in the land. Some £7 billion goes in higher rate tax relief alone—shamefully left untouched in an austerity Budget which halved the benefits for disabled children. That £7 billion would fund Dilnot twice over and, if ring-fenced, could redistribute from pensioners in their 60s to pensioners in their 80s, from wealthier pensioners who were higher-rate taxpayers to poorer pensioners who never had that advantage. It would do that in wise, decent and publically acceptable ways. We all talk the language of personal responsibility, reducing the role of the state, and about the need of the poor who are in debt to simultaneously save for their retirement. Pensions work only for the well-off who do not need them. For the lower paid, their working lives are too fragile and insecure for such a lofty perspective.

We have to rethink tax relief; rethink savings products, so that we can smooth risk across an entire life; revalue women’s work as increased longevity increases their caring work and their risks; and rethink the contributory state. Pensions would be a good place to start with all that.