CPI/RPI Pensions Uprating

Debate between Grahame Morris and David Crausby

Thursday 1st March 2012 Commons Chamber

[Mr David Crausby (Bolton North East) (Lab)]

Despite all the detailed arguments about geometric or arithmetical calculations, the reality is that CPI will pay out less than RPI. Even the Treasury calculates that the difference between the two measures is 0.5% per annum, and my hon. Friend the Member for Hayes and Harlington (John McDonnell) revealed some even more disturbing figures. That difference explains why the Government have changed the measure without consultation or negotiation. They have done so to cut both their costs and the earnings of those who will be affected. This is not an efficiency measure that will benefit us all; it is simply transferring money from poor pensioners to the Government or to private pension schemes.

Although I abhor any reduction in the earnings of poorly paid workers, I accept that it is perfectly legitimate for an employer or the Government to argue that a change in their financial circumstances means they simply cannot afford to continue to pay the same levels of remuneration. In turn, the employee, either individually or through their trade union, is then entitled in any free society to make a decision on whether they are going to accept that reduction in pay or seek employment elsewhere—or look for a different pension scheme.

That is why I believe that this issue of changing the payment of pensions should be dealt with in two parts: the future should be dealt with differently from the past. It is one thing to say that any pension earned from now on will be dealt with by indexing it to CPI, but to say that the arrangement will cover the whole of someone’s pension life is another. It reminds me of the story of the young, inexperienced trade union representative who called his members to a meeting to announce that he had met their employer and had good news and bad news to report. He informed them that the bad news was that he had been forced to accept a pay cut on their behalf. When asked what the good news was, he said that he had managed to get it backdated.

It should be a fundamental principle that employees should be aware of what their pension will pay when they qualify for it, because they will, thus, be able to make an objective decision about whether they should pay in and be part of the scheme. Pensions, once earned, are like earnings: they are the property of the individual and not the property of the employer or the Government. The employer and the Government should just be custodians of the pensioners’ invested money, and they should look after it prudently and honestly. Pensions are deferred wages, and backdating a pension cut is like backdating a wage cut—it is ridiculously unfair. In these circumstances, it is little wonder that working people are suspicious about saving up for their pension.

[Grahame M. Morris]

Does my hon. Friend acknowledge that if we attempt to balance the books on the backs of future pensions payouts, as the Government are proposing to do, there is a danger that people will simply opt out of pensions provision, particularly in the private sector, and therefore the cost that falls on the state and the taxpayer in the long run might actually be more? So this measure is a false economy.

[Mr Crausby]

I have always believed that this is principally a matter of trust between employees and employers, be they private employers or the Government, and so I agree with my hon. Friend.

I have represented poorly paid working people all my life, and my sympathy lies with those who come to my surgery to tell me, “I’ve worked hard all my life and saved what I could, but now I am retired I wonder why I bothered because I am no better off than those who didn’t work and saved nothing.” I rarely agree with that argument, because the truth is that they are nearly always better off than they think they are as a result of their prudence, and their neighbours who live on benefits are usually worse off than they are perceived to be, although I must say that sometimes it is very close to the margin. The Government’s decision to cut pensions arbitrarily by linking them to the inferior CPI encourages that prejudice, and it will persuade poorly paid people to save their money in a different and less sensible way.