Tackling Intergenerational Unfairness (Select Committee Report)

Baroness Janke Excerpts

Monday 25th January 2021 Grand Committee

[Baroness Janke (LD) [V]]

My Lords, I congratulate the committee on its work and the quality of this report, but I wish to take issue with recommendations 33 and 34—the proposal to end the triple lock as well as removing and reducing benefits provided to pensioners.

The triple lock has meant that the state pension has recovered some though not all of its value since it was introduced in 2011. I am sure that those who depend on the state pension would not agree that the job of the triple lock is done. The UK state pension is still one of the lowest in Europe, so it is vitally important to low earners and many women who have no private pensions, having spent much of their working lives caring for families. If this report is considering redistribution, we need to think about distribution not just between generations but between rich and poor and men and women. A highly redistributed flat-rate state pension does quite a lot on the latter two. Contributions into the state pension are progressive, in that you pay more national insurance contribution as you earn more, but the payout is broadly flat; then the state pension is taxed, so top earners put a lot more in and get less out.

Young people will be old one day. They will not have access to generous defined benefit schemes unless they work in the public sector and, if their wages are depressed by Covid and other influences that we have heard about here, the rates of return on investments on direct contribution pensions are likely to be modest for years to come. They are not going to have very good private pensions, which makes a good state pension really important for them.

The triple lock also helps to reduce the need to claim pension credit, which is very poorly taken up and which penalises those with modest amounts of savings. Also, many older pensioners who are dependent on the state pension have told me that they are deeply suspicious of means tests. Having paid national insurance all their lives, they believed that there was a guarantee that they would be looked after in their old and failing years and not left a devalued state pension that puts them into a life of poverty. Let us not forget that older pensioners did not receive the 2014 increase.

Are we so confident that future generations, including women and low earners, will have healthy private pensions—so happy with that that we are happy also to see the state pension further devalued by being raised only at the increase of average earnings, as this report recommends? The poorest pensioners are those most dependent on the triple lock; the fact that wealthy pensioners do not need the state pension and can well afford to pay for the benefits that they receive should not be a reason for making the poorest and oldest pensioners worse off. It is like saying that, as the average income in Surrey is twice that of Cornwall, to be fair to the people of Cornwall we should make the people of Surrey worse off. I was surprised that the report did not appear to consider more progressive approaches to ensure that those who can afford it should pay for their benefits or not receive them. There are certainly other ways of paying for the state pension. As the noble Baroness, Lady Blackstone, said, raising the eligible age in line with life expectancy is one way, so long as advance notice is given at an early stage—and, of course, as she said, working pensioners should pay national insurance.

The most glaring inequality between the generations is, of course, to do with housing, as other noble Lords have said, and being able to afford to buy a home. There is no doubt that younger people are now having to wait longer before they can afford to buy a first home. The key point is surely that the rise in housing wealth is currently with the older generation; it is going to cascade through the generations as each generation dies so, although wealth is currently stuck in the hands of pensioners, it will in due course pass on to each succeeding generation. A problem with this is that the typical inheritance happens too late, roughly at the age of 60.

The noble Viscount, Lord Chandos, brought in a few suggestions in this area, in considering how the older generation could share their wealth with younger generations before they die. This is sometimes called “giving while living”. In that way, the older generation actually get to enjoy seeing the next generations benefit from their wealth and may even have a say in what it gets spent on, and the younger generation get a predictable amount at a predictable time instead of the lottery of when their parents or grandparents die. That is something that the report could have considered; it is a policy area that has been very much neglected, although I was encouraged to hear the noble Viscount talking about different forms of taxation to try to enable some more of the transfer of this wealth.

It is sad that this issue is often used to sow dissent and dissatisfaction between generations, and I am grateful for the sensitive way in which the committee has approached the subject, with generosity and open-mindedness. I am grateful also for the many positive recommendations within the report.