Pensions Bill [HL]

Baroness Turner of Camden Excerpts

Tuesday 15th March 2011 Grand Committee

Moved by

[Baroness Turner of Camden]

47: Clause 14, page 10, line 9, after “Britain” insert “as shown in the retail prices index”

[Baroness Turner of Camden]

My Lords, my amendments are an attempt to deal with the Government’s intention to replace the retail prices index with the consumer prices index as the indexation for pensions in payment. That was raised on Second Reading, and I am sure that everyone is aware that a lot of people have already voiced opposition to that because it is felt that people will suffer very much in their expectation—mostly people who are already receiving pensions.

I understand that people in the public sector have already received notification that they will be receiving the lower amount rather than an increase in line with the retail prices index. A number of them feel very angry about it. My own sister, who is a retired teacher, has phoned up to complain to me about it, and I am not surprised. I have already read quite a lot of material from the TUC, which supports the view that it is not fair. That view has also been expressed extensively by Saga, which has been writing to a number of people on the Committee about the Bill, and I support what it has been doing.

The situation regarding public sector workers is that although there is a lot of talk about public sector pensions being gold-plated and so on, many people working in the public sector do not get paid large amounts of money. Women in the public sector are usually on salaries of between £4,000 and £5,000, and even the loss of a relatively small amount of money means quite a bit to people at that sort of pension level.

With regard to the private sector, the Government have been instructing the pension providers that they have to inform their pensioners that in future the increases will be in relation to the consumer prices index rather than the retail prices index, and their obligation is simply to notify people that that will be their situation. I believe that that has already happened in the private sector. I understand, however, although I am not sure, that if your pension is provided on contract and the contract provides for retail prices index increases, that will not be interfered with by the Government’s new ruling.

One of the reasons why people feel it is so unfair is that we are now in a situation where inflation is running at 4 per cent and everyone expects it to go up—the papers are full of information about how we can expect the cost living to rise substantially—and at the same time many of the people in this category, who were advised to save and have been saving, find that their savings are not worth what they once thought they were, because there has been nothing much by way of interest on their savings. Many of these older people feel that they are losing out twice; they are not getting what they expected with the retail prices index increases, while at the same time the savings that they have been prudentially putting aside are not going to produce the kind of increases or support that they had expected to receive. For those reasons, both Saga and the TUC have been pressing for this to be reviewed. The situation is not fair, and I hope that the Government will be prepared to look sympathetically at their request.

With regard to Amendment 48A, with which my two amendments are grouped, I understand that my noble friends Lord McKenzie and Lady Drake are anxious to soften the blow a bit by providing for the whole thing to be reviewed. I understand that and I respect what they are trying to do. Nevertheless, I want the Government to look again at the whole issue of the retail prices index, as there is a lot of concern about it. I beg to move.

[Lord Boswell of Aynho]

My Lords, I oppose the amendment. I should perhaps declare that I, too, have members of my family—two daughters, in fact—who are in public sector pension schemes, and of course one hears comments of the sort that have been honourably and properly recorded by the noble Baroness. There are many people in the private sector who for a variety of reasons, not necessarily where their schemes have collapsed into the Pension Protection Fund, are feeling some stress as well. That needs to be said.

I would just say that although I did not respond to the Minister on his remarkable presentation last night with regard to the social security uprating orders, I was actually convinced by it, which I am not wholly sure that I had been until he gave that presentation. It is a change that we have to make, particularly bearing in mind that there are alternative arrangements for retirement pensions which will meet the triple test and will accelerate state retirement pension levels rather faster than the CPI.

I will make one further comment on Amendment 48A and the scheme proposed by the noble Lord, Lord McKenzie of Luton. I understand the motivation, but it is asking for a report on one-hand clapping, as the Zen Buddhists would say. It would be better expressed if it called for a report on the relative impact of the use of the CPI and of the retail prices index. We would then have some measure of comparison. As all noble Lords are aware, historically the CPI has run ahead of the RPI. My noble friend last night made representations about why this was overstating the problem and arguably would overcompensate recipients.

That leads me to make a technical comment of my own, to which my noble friend may want to respond. As one takes the heat off the RPI, it will become less immediately salient, although it will still be used and reportable for a number of purposes. As that happens, given the types of interaction and substitution effects that were rehearsed last night, it may be that it will cease to be of quite the utility that it was. Somewhere at the back of my mind—I must say it while I remember it, and hope that I still can—are my scribbled lecture notes of 45 years ago that I took on the Laspeyres and Paasche indices, and on all the different impacts of these complications. I implore noble Lords not to ask me to explain to the Committee how they work, but I will make the point that as we shift the emphasis to the CPI—that will surely be an irreversible shift, and I have given reasons for supporting the concept—the RPI will move out of focus and could become distorted in the uses for which it is still employed. Perhaps the Minister will give me some assurance that it will retain its integrity even if it is not being used for these uprating purposes.

--- Later in debate ---

We are constantly monitoring the impacts of our policies. In the case of private pensions, we can call on the annual Occupational Pension Schemes Survey, the annual Family Resources Survey, the Purple Book and the biennial Employer Pension Provision Survey, to name but a few. With the assurance that we are mindful of the need to understand the impact of the change and that we have a number of existing tools that will allow us to do precisely that, I hope that the noble Baroness and the noble Lord will feel able to withdraw the amendments.

[Baroness Turner of Camden]

I thank the Minister for that detailed response. My aim in putting down the amendments was to give voice to a lot of the opposition that has been voiced to me in the letters and complaints that I have received after people have been notified that they are likely to have a different arrangement with regard to indexation from what they have hitherto expected. There is a lot of anger about it, so I put the amendments down. I am not exactly committed to the wording, but I wanted very much to voice that opposition and to say that the people concerned have real worries about what will happen to them and their pensions in future.

I also thank my noble friend Lord McKenzie for what he had to say in support of his amendment. In default of getting anything like my amendment on to the statute book, his amendment seems very worthwhile because it means that the situation has to be reviewed and there is an attempt to ensure that what has happened is placed under survey at intervals. If it seems to be what you might call a soft answer, at least it is an improvement on what people think that they are facing in future.

I will read carefully what the Minister has said. I found it interesting that modifications can be made, surveys are conducted and so on. That is very useful and I will look at it carefully.

[Lord McKenzie of Luton]

Before my colleague withdraws her amendment, and I certainly do not intend to press mine, it seems a bit hard for the Government to say that their policy is fully evidence-based when they are only just gathering the responses to the survey and will take some while to analyse the consequences. The survey of the consequences of the switch to CPI for occupational schemes is an important one, and one might have hoped that the Government would wait for that analysis and research before they committed to the switch long-term.

[Lord Freud]

The consultation exercise informs how we do these things in some detail in regulatory terms, but it does not affect the decision and direction of travel.

[Baroness Turner of Camden]

I beg leave to withdraw the amendment.

Amendment 47 withdrawn.