Fairness in Pension Provision

Jim Cunningham Excerpts

Tuesday 8th April 2014 Westminster Hall

[Mr Brian H. Donohoe (Central Ayrshire) (Lab)]

It is good to see you in your place, Mrs Riordan. You, too, have a great interest in pensions, in the fairness of the system and in applying that fairness.

Since I was a very young person, I have always accepted that pension provision is part of deferred income and should be treated by employers and Government as such. All my life, I have believed that fairness should be applied to the whole question of pensions. At the bottom of this debate in many respects, however, is the unfairness in the application of the state pension scheme over a great number of years. I commend the Government for some of the changes to the scheme, making it much simpler than it was, but there is still a long way to go in terms of how we see the future for some elements of the situation. I will cover that later.

I come before the Chamber mainly because of the many constituents who came to see me to complain about the system. None of the three I will mention is after anything for themselves. They all accept that they are at an age when nothing further can be done for them, but by making themselves available to public scrutiny they want to help and protect those who follow to have a more level playing field.

I want to talk first about Ann Aitken, a constituent of mine for some time. She, as well as the other two, has worked since she was 15. She worked for ICI locally in various jobs, and then went to a knitwear company. She took five years off employment to bring up her first child and afterwards worked in shops and factories, before going to a local computer company, Fullerton Fabrication. Since then, she has worked in Crown Paints for some 22 years. She retires this Thursday, so I congratulate her.

Ann wants to bring to the attention of the House what she sees as an anomaly. Over that whole period, she never put her hand out for any form of Government assistance, other than the credits available for the times off she took. That would be in connection with the additional state pension. She is a friendly person and, from talking to her friends, has discovered that her additional state pension is less than that of someone who has never worked. She receives something like £16.22 for the additional state pension, while others she knows receive £21. Although she took five years off, she got no tax credits, because no such thing existed, yet she is now facing the penalty. She has a simple question: what reward was there for her working? What reward has she had for all the years that she has given? She hopes that her situation will not be repeated in future. That is what Ann is concerned about and why she has raised the issue with me.

The second person I want to talk about is Jean Dickson, another constituent who has come to me about her position. She worked from the age of 15, for all her days. Sadly, she lost her husband in 1998, and was grateful for the widow’s pension she received as a consequence, but she has worked all her days, even taking five years out to improve her educational standards. Latterly, she was employed as a nurse in an acute surgical area of the hospital. She, too, says, “Look, I have a state pension, and I am very grateful for it”, and it will be £566 per month. In addition, because of the occupational pension, she is receiving £240 per month before tax. As a result of her husband having a pension, she receives another £300 per year. As a consequence of the unfairness that I will cover in the latter stages of my presentation, she receives £166 per annum for the state earnings-related pension scheme, SERPS. In her last job, she paid 6.5% of her pay towards superannuation, so she still feels that there is injustice in her situation. She retired in October 2012, but is being penalised for working all her days, compared with those who perhaps were not.

The third case is that of Lawrence Clark, who came to see me and whose case particularly caught my imagination. He started working at the age of 15, similarly to people such as myself and my colleagues—he is of our age group. He started as a trainee accountant at Hyster, a local company, and went on to work for various companies, including Simpson Turner as a toolmaker. He moved on to Wilson Sporting Goods, another local company, where he worked for 25-odd years. He then worked for Digital, a local company that went bust, and for Scottish Golf Cast, which again lasted a few months. He ended up at the charity Quarriers for 15 years.

After that working life, he has managed to accrue £97 a month from his Wilson Sporting Goods occupational pension and £223 as a consequence of his work at Quarriers. In addition to that, on the basis of advice he received—another point I want to address in my conclusion—he paid towards a private pension that gives him something like £14 a month. From November 2015 he is going to receive a state pension of £123 a week. He is saying that, after 47 years, as a consequence of all that, as well as of being unemployed—if that is the right terminology for him—up until that point next November, he gets £60 a week for his pension credit guarantee, whereas others are apparently receiving £140. If he had not paid something like £30,000 into a superannuation scheme, he believes that he would currently be better off per week until he retires. That seems very unfair, and it should be looked at. He thinks that, had he not taken out a private pension or been involved in superannuation, he would have been better off. That is the unfairness that those three constituents believe they face.

I have outlined three cases in which there are problems with the pension provision directly, but we can also compare other aspects of the life they have lived with those of other people. Others have had free dentistry, free prescriptions for glasses, and housing benefit has been part of their scheme. The situation may have changed in Scotland now, but some people had to pay for their prescriptions all their lives. I am not saying for a minute that it is wrong that unemployed individuals are receiving these elements, but those three constituents say that perhaps more concern should be given to how they deal with the situation and how the Government deal with their problems.

On that basis, I want to broaden the argument. That is the difficulty for each of those individuals, but the position is more general too. The problem is that the great mass of people in this country do not have a clue, when they are aged 25, 35 or 55, about what provision they are making. They do not know what the result of their contributions will be for their pension. This issue has plagued me over the years, and it still does. Even here in the House, there are hundreds of Members of Parliament who do not have a clue what their pension provision is, and I say that as someone responsible for trying to educate them about that. It is clear that there must be a fundamental shift—information must be provided to every individual in this country to make them aware of the provision and advice available.

I commend the Government, because at the very least, and on the basis of all-party agreement, we now have financial advisers who are independent—in every sense of the word—in the advice they are giving. It used to be that financial advisers worked for companies on commission. The same individuals now charge for their services. That, at the very least, is a bit fairer, or gives the impression of being fairer.

[Mr Jim Cunningham (Coventry South) (Lab)]

I certainly remember the early ’80s when people were encouraged to take out a private pension, but unless they worked for a reputable company it was not explained how a private pension could sometimes affect the state pension. There must be thousands of people in that situation in this country. Whatever my views about the Government’s pension proposals, at least they will explain them to people. When I worked at Rolls-Royce, it spent a lot of money trying to persuade us away from the state pension to a private pension scheme and to some extent we got reasonable advice, but I can think of other car companies in the Coventry area where even today there are still problems with pensions.

[Mr Donohoe]

My hon. Friend has focused on an issue that was dear to my heart and about which I argued forcefully when a previous Administration allowed people to contract out of their company’s superannuation scheme. I was a joint secretary of the Scottish Transport Group when, for the first time in about 1982, people were given the opportunity of opting out of its pension fund and going private. I argued forcefully with everyone and anyone that that was a big mistake, that they were leaving themselves open and that when they eventually retired they would find themselves in a different situation. We had what was recognised at the time to be the best pension scheme—perhaps not as good as that for MPs, but certainly a very good pension scheme. Some people are now in a worse position because they were pounced on by supposedly independent financial advisers who told them that they would be far better off in a private scheme, when the truth was the exact opposite.

Many years ago, I was a convener and shop steward in a shipyard where the blue-collar workers were not in a pension scheme. I argued with the employer and succeeded in persuading them to introduce a scheme. That company is still in my constituency and I still have people telling me, some 40 years later, that it was the best thing that was ever done and that they have never been better off after taking advice and voting overwhelmingly to join that scheme. I do not know whether I am an anorak in terms of pensions, but I believe that making provision for a pension is more important than anything else in life. People should understand that, and do so earlier.

I seek clarification on one or two points, but I want to make a plea to the Minister. How widely defined are “employees” and “new arrangements”? Are the self- employed, carers and the unemployed included? They exclude zero-hours contracts and people who may have two part-time jobs. That is unfair and should be looked at.

I have grave reservations about the new scheme because people will be able to take out money and go on a world cruise or buy a Ferrari. That worries me. It will send the signal to many people who do not understand pensions that they can draw on that money, but at the end of the day they will be a lot worse off. I want an assurance that they will be protected. Financial advice is important, and that must be stated clearly.

A business man came to me and said that every business man in the UK received a letter from No. 10 Downing street telling them about the advantages of the latest Budget proposals on national insurance from 6 April. Will the Minister have a word with No. 10 Downing street to see to it that every single person in the country is sent a letter telling them how fundamental it is for them to look after their old age, and telling them that if they were to die in service, that would be looked at as far as their families are concerned? If I get that assurance, I will go back to my constituents and tell them that the debate has been worth while. I look forward to hearing what the Minister has to say.

--- Later in debate ---

[Mr Jim Cunningham]

My problem with what the Minister has said about zero-hours contracts is that surely a situation is possible in which someone falls below the threshold because there is not continuity of employment. That is a “suck it and see” situation. How would the Minister deal with that, 40 years down the road?

[Steve Webb]

A zero-hours contract is a contract. If someone has a contract of employment, in the weeks or months—whatever the period is—when they are above the earnings threshold, money goes into the pension. We will not insist on pension contributions being made in weeks when people do not earn any money. How would they put money in?

I think the zero-hours contract argument is greatly overdone, in the sense that the typical person on a zero-hours contract does 20 hours a week, on average. It may vary—when they earn a lot in a good week, they will put a lot into the pension; when they earn less, in a bad week, less will go in. As long as they get work through the contract they will be in a pension, possibly for the first time. I think that many people on zero-hours contracts will do better, because employers would not generally have put them in a pension at all. We are making that happen.

As to people with multiple jobs, a small number of people have jobs that, taken together, would put them into the system, but, taken separately, do not. Sometimes they will have children, and if they do they are credited in the state system anyway. Only 35 years of contributions are needed for a full pension, so someone might not make contributions for a number of years and still get a full pension.

The House of Lords, in about half an hour, I think, is going to talk about the issue in the debate on the Pensions Bill. We will gather more data on it. We think the issue is small, but clearly we need to ensure that we know what is going on. The number of women, for example, doing multiple part-time jobs went down in the past 12 months, so we do not think that the assumption that the numbers are all going up and that it will all get worse is borne out by the data. However, it is a serious point and we will look into it.

The hon. Gentleman is right that people often do not have a clue. It would be lovely to think that one letter from Downing street would fix things. I have two views on the matter. We need to make sure that pensions work for people who do not get it and never will, because with the best will in the world, expecting tens of millions of people to understand all this stuff is a heck of an ask. For me, we have to make sure that the system works for people who do not understand it and do not make active choices. That is where the state pension reforms come in.