Pensions Bill

Ian Swales Excerpts

Monday 17th June 2013 Commons Chamber

[Mr Byrne]

I very much hope that the hon. Lady will be on the Bill Committee to ensure that such arguments are fully rehearsed. I am worried that an injustice is being perpetrated on these women, which is why it is incumbent on us all to search every possible option to help ensure that they can be included and not excluded, particularly in the context of changes to auto-enrolment that have moved 1.1 million people out of that future.

[Ian Swales (Redcar) (LD)]

I declare an interest in that my partner was born in exactly this period. In this spirit of equality, is the right hon. Gentleman proposing that these women should have their retirement age equalised with that of men?

[Mr Byrne]

As the hon. Gentleman will know, many of these women have already been hit by the acceleration of the state pension age at very short notice, so no—we want to search during Committee stage for ways to include these women. I know there will be many women in such a position in his constituency, and I am sure he will want engage in that debate.

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[Nigel Mills]

I think we recognise that in any change some people will lose out—it was particularly difficult to explain that point to those women whose retirement age increased at the start of this Parliament—but sadly these things are necessary in our financial situation.

[Ian Swales]

I recognise the hon. Gentleman’s expertise on these issues. Does he agree that we have a big job to do on communication, not just around the new flat-rate pension, but around how various groups will be affected? For example, MPs are already getting representations from existing pensioners who feel that the new arrangements are unfair on them. Communication is key.

[Nigel Mills]

I agree wholeheartedly. I think we have all had people come to us with calculations saying, “What will I get under this new pension? What would I have got?” When trying to talk them through it, there is an especial problem with people who do not understand that those who have contracted out for most of their working life will not get the full £143. They think a bonus is coming—that they will be £35 a week better off—whereas they might just miss out. We need to write to people before the change, saying, “Here’s what you’ve accrued”, “Here’s what will happen after the change”, “It looks like you’ll get your full £143 a week”, “It look like you won’t get the full £143 a week”, “Here’s what you can do”, “Are you due any credits for periods spent caring for children or other things?”, “Have you missed any years’ contributions?” We have to communicate all that clearly so that people have the information in time to make those decisions.

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[Dame Anne Begg (Aberdeen South) (Lab)]

It is important that any pension reform has support in all parties across the House, because the last thing we want is for pension reform to keep changing every time a new Government come in. Up to now, the reforms introduced by the Labour Government in 1997 and later have not been changed by the present Government—I will talk about pension credit later. The proposals we are discussing in this Bill build on a number of those reforms, particularly auto-enrolment and changes to the occupational or second-tier part of a pension.

It is right that we should support the principle of this Bill. It is crucial that people know what pension they can expect from the state; I am glad that they will be able to expect a state pension in future. There has been a lot of debate in various media and elsewhere about whether future Governments will be able to sustain the whole principle of a single-tier pension or even the first tier of a state pension. I pay tribute to the Government for nailing the fact that this is what the future will hold. There will be an element that is not quite universal, because people will have to pay in, but everybody who has lived, worked and cared in the UK for more than 10 years—and up to 35 years—can expect a basic pension from the state, and everybody will know how much it will be.

There is a huge mismatch between what people expect on their retirement and what they are saving. The Scottish Widows report published the other week showed that most people want an income of around £25,000 in retirement, yet less than 20% of the population are saving at a level that would take them even remotely close to that. Even with the reform of the state pension and the introduction of auto-enrolment, people’s income in retirement will still not come close to the £25,000 that they might expect or aspire to. However, it will come a bit closer as a result of these reforms, because establishing a single-tier pension—a flat-rate pension—will make it easier for those giving advice to people saving for their retirement to say that it will always pay to save.

My right hon. Friend the Member for Birmingham, Hodge Hill (Mr Byrne) provided an example of where savings might not necessarily give someone a larger income in retirement, but the measures in this Bill will generally make it easier for those kind of calculations to take place and will make it easier and more understandable for people to realise just how much they are going to have to contribute to get an income that comes close to what they desire.

The introduction of the single-tier pension will also reduce means-testing, but only if the flat-rate pension is set above pension credit level. One of the Select Committee’s recommendations in our pre-legislative scrutiny report was that there should be clear blue water between the level of the single-tier pension and the pension credit—a bit more than the £1 and something that is there now. We had hoped that that principle would be built into the Bill and we are disappointed that the Government did not see their way to doing that. The principle is important —that the single-tier pension will always lift someone out of the basic means test.

Pension credit has come in for some criticism today, but at the time, it was absolutely the right thing to do, because the biggest issue that needed addressing in 1997 was that of pensioner poverty. Thanks to a level of success, the pension credit has managed to lift 2 million pensioners out of poverty. It means, too, that pensioners are not generally living in poverty; being old no longer equates to being poor. There are still people who are old and poor, but not in any different proportion than can be found in the general or working-age population.

[Ian Swales]

Does the hon. Lady regret the fact that two out of every five people who qualify for pension credit do not claim it, and does she welcome the measures in the Bill that will reduce the number of people who have to face the issue of means-testing?

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[Greg Mulholland (Leeds North West) (LD)]

It is a pleasure to follow the hon. Member for Aberdeen South (Dame Anne Begg), Chair of the Work and Pensions Committee. I had the pleasure to serve alongside her throughout the last Parliament when we were both members of the Committee. Together with our Committee colleagues, we wrestled with many issues, including pensions. I am delighted she is now in the elevated position of Committee Chair and is continuing to demonstrate to the House the importance of the Select Committee system. It brings expertise to bear on subjects, both through the members who take a particular interest in a set of issues and the staff who support Select Committees so well and provide them, and therefore the House, with real expertise and analysis. I hope that that continues throughout the passage of this Bill.

I am delighted to welcome the Second Reading of this hugely important Bill. It is hugely important for both now and the future, and also for the country as a whole, not just our older citizens. The state clearly has an obligation to our older citizens; that is something that, despite our political differences, each and every Member of this House strongly believes. I concur with the hon. Lady’s comments about the continuation of a state pension for all in this country, and I am delighted that, across the political spectrum, we continue to believe in that.

That is not only an obligation, however; it is also financially sensible. It makes financial sense to have a simple state pension that gives people not only a fair basic level of income in retirement provided by the state, but certainty as to what the state will provide in their retirement. That entails certainty about what they need to do in respect of their income throughout their working life, which will, of course, fluctuate, in order to add to the amount and get to the levels of pension income they would want. The simple reality is that the current system is not sustainable financially, is far from universal and in many ways is simply unfair.

I am delighted that Members on both sides of the House with an interest in pensions issues have welcomed the principles of this Bill, and that many have welcomed the practical details, too. I must say, however, that I am proud that my party, the Liberal Democrats, have championed this for a long time. The pensions Minister, my hon. Friend the Member for Thornbury and Yate (Steve Webb), has led us to this day and the publication of this Bill, and he knows, as I do, that the Liberal Democrat party as a whole passed our policy of a citizen’s pension back at our federal conference in 2006, and that that has become the blueprint for the single-tier pension presented in this Bill.

Such a pension was also at the heart of our manifesto in 2010 as one of the key things we would want to introduce if we were in government, as we now are. Our manifesto said we were committed to

“immediately restore the link between the basic state pension and earnings”,

as well as moving towards the kind of pension we have today.

I am glad other Members have paid tribute to my hon. Friend the Member for Thornbury and Yate, and I join in those congratulations. He has shown his dedication, remarkable intelligence and expertise throughout the introduction of this reform, and I hope he will continue to lead on it. It is notable that he is already by some margin the longest-serving pensions Minister we have ever had in this country, and I hope he manages to add to that record with at least another period of the best part of two years as we take this important reform through.

Why are the Government doing this? Indeed, why are Members on both sides of the House aware that we have to make changes, as the Committee Chair, the hon. Member for Aberdeen South, made clear? I shall tackle the controversial issue first: we have not grasped the simple reality that for some time there have had to be changes to the retirement age. That has been ducked, which is understandable, as it is never going to be easy or popular, but it can be ducked no longer. The state pension age has been 60 for women and 65 for men since the 1940s. There has also been a strange and institutionalised form of unfairness between the sexes, and it is right to tackle that, particularly as we have known for some time that men have a slightly lower average life expectancy than women.

The reality is that our population is rising most quickly in the oldest age groups. The pensioner population is projected to increase from 12.2 million in 2010 to 15.3 million in 2035 and 18.3 million by 2060. Cohort life expectancy at age 65 is projected to increase from 21.0 in 2010 to 24.0 in 2035 for men, and from 23.7 in 2010 to 26.6 in 2035 for women. The Government estimate that even now almost 11 million people in the current work force face inadequate retirement incomes. The number of people currently saving in an occupational pension scheme has fallen from a peak of just over 12 million active members in 1967 to 8.2 million in 2011.

On unfairness, under the current pension system, the self-employed cannot get any more than £107.45 in basic state pension, despite the means-tested threshold being set at £142.70. More significantly perhaps, as this applies to everyone, at present some people—130,000 people in fact—get as little as £7 a week or less in basic state pension, while the same number of people get £230 or more a week. It is complex, it is not fair and it is not sustainable.

Let us look at the key groups and the need for reform. The first and most obvious change, and in many ways the most welcome, is what the reform will do for women. The single-tier pension will give a better pension to women, and it will clarify for them—as it clarifies for all pensioners—what they will receive from the state. The terrible reality is that under the current complex state pension system, on average women receive £40 less per week than men. The single-tier pension is, at its heart, devised to address that inequality, and also to count fully time spent out of work caring for children, which applies predominantly to women.

Secondly, I have mentioned the self-employed; across the political spectrum, we pride ourselves on recognising the importance of our self-employed and applauding the contribution they make to our country. They drive the local economy, contribute to the national economy and pay tax, yet they are so disgracefully discriminated against in the current pensions system. I warmly welcome the fact that that is being rightly recognised.

One healthy thing about the broad consensus on the need for reform and on the principles of that reform is that we can—I hope—have more thorough, positive and helpful scrutiny of the Bill. I echo the Select Committee Chair’s comments about the need for support from across the House to enact changes of this nature. At the same time, we should rightly ask the difficult questions and challenge every clause. The hon. Lady and her Committee have started that process, doing so at the pre-legislative stage, and it needs to happen throughout the passage of the Bill, with expertise and dedication coming from all who serve on that Committee.

Constituents have come to me to discuss the issue affecting women born between 1952 and 1953, which has been mentioned by hon. Members. I have spoken to the Minister about it, and I know that he and colleagues have examined it. I urge for much better communication on the issue so that we can ensure the Bill is as fair as possible. Perhaps the most telling thing that the Chair of the Select Committee said is that this matter will continue to be complicated; it will be all the way from now until we get to the stage at which citizens of this country know, from now, “I will have this pension when I retire.” All the other people in between will, by definition, have to go through the transitory arrangements.

I warmly welcome the work that the Minister, his colleagues and the civil servants have done to tackle the enormous complexities of dealing with the different systems and the transitional arrangements to make sure that what we have is fair, so that people who have contributed in different ways and have certain reasonable expectations of income will not be penalised. This will get simple in the end, when we reach the stage at which every citizen in this country knows precisely what the state will provide for them in old age, so they know exactly what they have to do. They need to be signposted to the correct advice on how they build up other forms of pension. I warmly welcome the work on auto-enrolment.

[Ian Swales]

My hon. Friend is making a powerful and persuasive speech. Does he recognise the point I made earlier about communication? Does he also recognise that certain cohorts need to be given clear information very quickly, as there are women born in 1952 who will be pensioners by the end of this year?

[Greg Mulholland]

My hon. Friend was right to raise that point, which was echoed by the Chair of the Select Committee. I am slightly worried that the letter she received sounds not to have been as clear as we would hope—that might be a euphemism. Given that all this good work has been done by civil servants and Ministers, we need to ensure that the communication to citizens of this country is better than it sometimes can be; things can be let down at that stage. There must be proper communication with all the different cohorts of people in their different situations, and that needs to take place as soon and as clearly as possible.

In conclusion, this is a historic day. I warmly welcome the principles of and measures in the Bill, and the way in which it has been handled. I look forward to contributing throughout the passage of this historic Bill, which will give people in this country the certainty, simplicity and fairness that all in this House would demand of a state pension system.