Pensions Bill [Lords]

Ben Gummer Excerpts

Monday 20th June 2011 Commons Chamber

[Mr Byrne]

Perhaps the hon. Lady would like to reflect on why, just over 12 months ago, the Government whom she is so proud to support set out a policy in direct contradiction to the one proposed in the Bill. I look forward to seeing which way she votes and how she justifies that to her constituents.

This afternoon, we must try to bring some order to that confusion, and establish which clauses we agree on, and which clauses the Government—and, I might say, the Treasury—need to rethink. The Secretary of State began with automatic entitlement, on which there is a measure of agreement—it is a rock that we should hang on to in that regard. The proposal for automatic enrolment of workers into workplace pensions is to be retained, which is important, because as a country, we under-save for pensions. In fact, 7 million could be under-saving for their retirements. Bringing those people into a pension system and creating a national pension scheme into which they might opt could lead to a step-change in savings in this country.

The previous Government were very careful to build that consensus, which we did patiently, beginning with the noble Lord Turner’s commission. I am grateful that the Government have not junked that proposal, but it is deeply regrettable that they are increasing the salary threshold to entitle an individual to auto-enrolment. It is also regrettable that they are introducing a three-month waiting period before people opt in.

I understand the trade-offs that the Secretary of State is trying to make, but frankly, he has made the wrong call. Why? The first reason is that the salary at which someone is automatically enrolled will be raised from £5,000 to nearly £7,500. The impact of that will hit 600,000 people—they will be much less likely to opt in to long-term savings. If the Government raise that threshold in line with the coalition’s ambition to increase the income tax threshold to £10,000, nearly 1 million people will be excluded, three quarters of whom will be women. Their loss, potentially, is £40 million of employer pension contributions.

The Government are proceeding in full knowledge of that. There is no defence of ignorance. Their review states:

“Many or most very low earners are women, who live in households with others with higher earnings and/or receive working tax credits. These may well be exactly the people who should be automatically enrolled.”

Yet the House has been presented today with proposals that could exclude more than 1 million people. We think, therefore, that the earnings threshold should be looked at again. And if that idea was not bad enough, the idea of a three-month waiting period makes it worse and in itself could mean 500,000 fewer people enrolling automatically in a pension scheme. The loss to them could be £150 million in employer pension contributions. Put those two things together and the average man or woman could lose nearly three years of pension saving—a 7% reduction in an individual’s fund. I am afraid that we simply cannot support that measure.

That takes me to the most audacious broken promise of the lot—the proposal to single out a group of 500,000 of our fellow citizens, all of them women, and say to them, “You know your plans for the future? Well, you can put them in the bin.” The Secretary of State might think it a relatively small and trivial number, but the Opposition do not.

[Ben Gummer (Ipswich) (Con)]

Will the hon. Gentleman give way?

[Mr Byrne]

I will in a moment.

This unfolding chaos has been impressive even for a Government who have presided over U-turns on forests, sentencing reform and the reorganisation of the NHS, because we thought we knew where we were. The coalition Government made a wise move in appointing the Pensions Minister to his brief—he is a man who knows a thing or two about pensions. Indeed, in one of his first major speeches, he told his audience:

“I have become known as something of a bore at pensions conferences.”

We have no problem with that. Then we had the coalition agreement. I do not know whether anyone remembers the coalition agreement—it was important once. Page 26 reads:

“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.”

For good measure, the Pensions Minister got to his feet a month or so later and said that the Government were committed to any change not being sooner than 2020 for women. Then, 118 days later, the Chancellor arrives on the scene. He stands at the Dispatch Box and says that

“the state pension age for men and women will reach 66 by 2020.”—[Official Report, 20 October 2010; Vol. 516, c. 956.]

Yet buried in the fine print, we learnt the truth—not the Pensions Minister, the Secretary of State or the Chancellor could bring themselves to that Dispatch Box and actually tell people straight that that policy set out in the coalition agreement was absolutely worthless. The truth was set out in the depths of the spending review, page 69 of which read:

“The State Pension Age will then increase to 66 for both men and women from December 2018 to April 2020.”

That is a promise well and truly broken. At least when the Lib Dems changed their minds about increasing tuition fees, they could pretend that they were just making things up to get elected, but this was a promise they made and broke in government. Just last summer, the Pensions Minister boasted of reforms in the system that he said included

“those who the system has always missed out such as women and the lower paid.”

In his own Department’s review, he said that he wanted to look at the “particular challenge” for

“women pensioners. A group I have long worked for, and who are so often the poor relations in regard to pensions.”

I will let the House draw its own conclusions. One moment the Pensions Minister is offering to protect women pensioners, the next he is presenting proposals that will punish half a million women with a bill for up to £16,000.

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[Richard Graham (Gloucester) (Con)]

rose—

[Ben Gummer]

rose—

[Richard Fuller]

rose—

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[Mr Byrne]

I am glad to hear that correction about Baroness Thatcher. I think that the hon. Gentleman would also accept his Government’s own figures, which show that pensioner poverty is now at its lowest level for 30 years. I am sure that he would accept that pensioner incomes increased faster than gross domestic product and faster than earnings over the past 13 years. That is why we are proud of our record of delivering on pensions.

[Ben Gummer]

In response to an intervention by the hon. Member for Slough (Fiona Mactaggart), the right hon. Gentleman said that the legal advice was news to him. It was not news to the House of Lords, however, as it was debated there on 15 February, at which point this matter was raised. Surely the real news appeared in the weekend’s newspapers, which have provided yet another bandwagon for the right hon. Member to jump on.

[Mr Byrne]

I do not know how much attention the hon. Gentleman has been paying to this debate, but we championed this issue before it came to the House of Lords and as it went through the other place. We will champion it through the House of Commons as well, until this bad Bill has been thrown out.

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[Ben Gummer (Ipswich) (Con)]

The salient fact of this debate is that by the time it finishes at 10 o’clock, the average age to which we and our constituents might expect to live will have increased by an hour and a half. If I were to speak for 10 minutes or a quarter of an hour, which I will not, then merely in the course of my speech average life expectancy would have increased by four minutes. I hope that that is compensation for what hon. Members are about to endure.

The simple fact of demography that for every hour that passes 15 minutes is added to the age to which we, as a population, can expect to live forces us to revisit the state retirement age—the age at which people stop paying taxes and start depending largely on the fruits of others’ labours. It is a fact that is unlikely to change in the half century to come. In fact, if the experience of the past few years is anything to go by, the acceleration of our expected mortality rates will only increase, rendering irrelevant and insufficient all the predictions on which we currently rely. There is near consensus that maintaining the existing pension age is unaffordable and that we should correct that by ratcheting up the state pension age year by year to reflect increasing life expectancy.

However, I am worried by the idea that by the mid part of this century, asking people to retire at 70—incidentally, the age intended by Lloyd George in his great Act of 1908—will be seen as the way to fix this problem, because we may not correct everything that we hope to correct just by increasing the state pension age and doing everything contained in this excellent Bill. Although I support the intention of the Bill and the immediate steps that it takes, the Government need rapidly to revisit the conventions and means by which successive Governments address the central problem of increasing life expectancy and the effect of that on the Exchequer and those working to fund it. Otherwise, we will again end up in a situation that is unsatisfactory and inadequate. It is unsatisfactory because with every increase in the state pension age, we inflict another set of injustices and unfairnesses on those who are approaching that moment in their lives. The predicament of the relatively small group of women we have been debating is a sure indication of far greater problems to come for Governments in future years.

Because we are facing this cross-generational challenge, it is incumbent on us to try to forge a consensus between the parties about the rules by which we deal with pensions policy. One of those rules is suggested by the example of the women who are particularly affected by the Government’s proposed changes. When times are normal—these are not normal times—there might be a rule whereby people are given at least 10 years’ notice before we change their pension entitlements or the age at which they can claim them. Perhaps the case of the class of ’53, as they call themselves, is the test by which the Government will be measured in this respect.

Although I understand why the Government might fairly ask that people work an additional year to deal with the horrendous deficit and national debt we have been left, to ask a relatively small group of people to work an additional two years with six years’ notice is a very big ask, not least because it calls into question other excellent parts of the Bill that are designed to encourage saving. We cannot ask people to save and then give them no time in which to do so. I hope that in considering a way to smooth the edge of this part of the legislation, the Government will not only fashion a compromise for the women who are being asked to work an additional 13 to 24 months, but thereby establish the first set of conventions by which successive Governments can deal with this issue.

Another unfairness in the Bill, which was not intended by the Government, results from the change from RPI to CPI for uprating. Many of my constituents who are on occupational schemes, mostly from British Telecom, have found that their pensions have been changed only two years after they were renegotiated between the trustee and the pensioners. The trustee claims that it has been forced to do that by the rules of the scheme. My constituents and I would be interested to know the degree of consideration the Minister gave to the effect that his changes to the uprating regulations would have on the occupational schemes of previously nationalised industries, because they have had a very adverse effect on people who thought that they had funded schemes.

Those are the unfair and unsatisfactory parts of the Bill, which I consider to be largely good. I understand that the Opposition supported the change from RPI to CPI, but on a temporary basis. With characteristic innumeracy, they therefore miss the central challenge that confronts us, which is not just the deficit that we must deal with between now and 2016, but the period after that. There is an idea that in 2016 the deficit will somehow come to an end, we will be finished with our problems, and we can then extract the cheque book from our pocket and go on another splurge. That will sadden people, because if we did that, we would find ourselves with one of the highest debt to GDP ratios in the developed world—higher than most of our developed competitors and significantly larger than almost all of our developing competitors, just at the point at which they move up the value chain to meet us on high-end manufacturing, learning-based skills and value-added services.

At that point, we will be faced with a demographic scene that is not much altered from the one the Government look at now. We need only look at the support ratio to tell us that. It currently sits at about four workers per pensioner—the lowest in the history of the state pension. Under the Pensions Act 2007, it would decrease by 2023 to 3.11 workers per pensioner. That figure will improve under the Bill to 3.35—a difference of 6%. At that point we will still be slipping down, and none of this changes the central projection to 2058—150 years after the introduction of the state pension—when there will be 2.74 workers per pensioner. There will then be fewer than three workers for every pensioner they must support.

Pensions are a double-sided promise. On the one hand, we, as parties engaging in government or opposition, must give people the security to know what they will receive in their retirement. That is why I urge the Government to look carefully at the women who will be particularly affected by this change, and at those who are coming to the end of their working life in the public sector. As many of their accrued rights as possible must be respected, because that is what was promised to them, whether or not it was prudent to do so at the time.

In understanding that, we have to be far more brutal with the younger generation, which has many more years to work. Frankly, younger people will not be able to have a pension of the size that their parents and grandparents have come to expect, because of the horrendous deficit and the enormous debt that we have been left by the previous Government—larger than those of almost all our competitors around the world. As a result of that debt, we will have less to spend on education, training and infrastructure improvement. [Interruption.] The hon. Member for Glasgow North East (Mr Bain) smiles, but it is true that as a result of the actions of his Government, we have less to spend on things that will grow the economy and there will be fewer tax receipts to pay for the welfare state that we have come to expect as a nation.

[Jonathan Evans]

I wonder whether my hon. Friend picked up on the remark from the right hon. Member for Birmingham, Hodge Hill (Mr Byrne), when challenged on the cost of his proposal, that money could be raised by bringing forward significantly the current programme for retirement at the ages of 67 and 68. Perhaps we should bank that promise from the Opposition before it evaporates like so many of their remarks.

[Ben Gummer]

What I found surprising about that comment from the right hon. Member for Birmingham, Hodge Hill (Mr Byrne) was that it completely ignored the sensible intervention by his colleague the right hon. Member for Birkenhead (Mr Field), who made quite plain the difficulty of bringing forward the state pension age rise too quickly because of its manifest unfairness on manual labourers, who have a much lower life expectancy than others. That is a central problem that we have to deal with and a reason why the state pension age will become inadequate. At some point, we have to address that unfairness, whether by measuring the length of period worked or by doing far more than has been done so far to improve the occupational health of large numbers of people in this country.

We come back to the essential problem: there is not only no money now, but there will be no money for many decades to come if we are to have the money to invest in growing our economy. Frankly, we will have no welfare state to pay for if we do not address these big issues now. We will be lying to future generations and forcing upon them a generational theft if we are not straight with them now about the reality that confronts them. That is my generation, as much as it is that of the hon. Member for Leeds West (Rachel Reeves). We will be expected to save considerably more and receive considerably less from the state. [Interruption.] The hon. Member for West Ham (Lyn Brown)—she is a Whip and I will not criticise her—is huffing and puffing away, but the fact is that between 2002 and 2006, the structural deficit was run up, inflicting this problem on generations of people to come. The worst affected will be those on low incomes and the unemployed—the very people her party was founded to protect.

We must be honest with future generations and correct the small inadequacies in this Bill. I urge the Minister to look carefully at the long-term reforms that are needed in our pensions system if we are not to come back here year after year to let down pensioners on the promises that were given to them in ages past.