Lord Freud
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Lord Freud
“Pensions Act 2004 (c. 35)In section 258 of the Pensions Act 2004 (pension protection on transfer of employment), in subsection (2)(c), for sub-paragraphs (i) and (ii) substitute “complies with prescribed requirements”.”
The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud) (Con)
My Lords, before I speak directly to the subject of the amendment tabled in my name, I would like to address some of the points raised in debate last Wednesday while we were still considering amendments to Clause 24 and Schedule 14. I will start by acknowledging the points made in Wednesday’s debate about the need to ensure that statutory mechanisms to amend schemes are used with care. We have not chosen to apply an override lightly and we recognise the need to ensure that the extent is tightly defined.
The primary legislation sets out the key limits on the scope of the changes under the override, but much of the detail that deals with this, including how the extent of the changes is limited, will be set out in the technical regulations that we have been working on with trustees, scheme managers, the actuary profession and pension lawyers. We intend the regulations to set out a methodology and the assumptions that will apply to the calculation of the lost rebate.
We also intend to set out in the same way how the impact of changes to scheme rules are to be valued so that the actuary can certify that the employer is not recovering more than the lost national insurance rebate. We will of course conduct a full public consultation before these regulations are laid. As I said in my letter to Peers, if it would be helpful I would be happy to offer a separate briefing meeting with officials before Report. This will allow us to go through our thinking in detail in a way that is not possible in debate or correspondence.
I also want to make clear that we do not see use of the override as a default position for employers. We expect the override to be used by employers only as a fall-back position where they need to offset the costs resulting from the end of contracting out and have no options available other than closing the scheme. As several Lords pointed out, there are long-standing and established ways in which employers work with trustees to make changes to schemes when required. The noble Lord, Lord Browne, when paraphrasing the Pensions Minister, said:
“The strong incentive, therefore, is … to have a mature conversation with the trustees in order to reach an agreement”.—[Official Report, 8/1/14; col. GC 427.]
The Government have every expectation that, in the majority of cases, employers will do that and trustees will fully engage.
However, employers have told us that without the override, some of them will have few or no options available to them because such agreement cannot be reached or because scheme rules will not allow it. They tell us that this will force them to close their schemes. Some trustees have told us that without the override, they will find it difficult to agree changes. We therefore believe that the override is necessary to avoid schemes being closed, even though we believe that in most cases employers and trustees will be able to explore other options. As employers and trustees can be expected to discuss scheme changes as a matter of routine, and as it is in their interests to do so, we do not believe that those discussions would be facilitated by overlaying legislative requirements concerning the content and time limits of consultation. That is why we have not provided for that.
The noble Lord, Lord Browne, also asked whether the changes had been discussed with employers and, especially, small businesses concerning the impact of the increases to national insurance that they and employees will have to pay on the ending of contracting out. In particular, what would be the impact of large numbers of employees leaving schemes because of the increases in contributions? During the development of our policy we have engaged with a large range of employers, including the British Chambers of Commerce and the Federation of Small Businesses. Small businesses expressed no particular concern on the ending of contracting out. When we consult on our regulations, we will of course ensure that we gather views from employers of all sizes.
I turn now to scheme members. Notwithstanding the potential for increased contributions, members of defined benefit schemes will continue to get good-quality pension provision. Our expectation is that members, as demonstrated by the low opt-out rates with automatic enrolment, will choose to remain in their schemes. Our communications strategy will seek to ensure that both employers and employees are properly supported through this change and that both parties understand why the changes are taking place and what options and outcomes are available to them.
As to whether the override regulations should follow the negative procedure, I recognise the desire of the Committee to ensure proper scrutiny of the regulations. There is just over two years until the end of contracting out. To ensure that employers have adequate time to consult with actuaries, trustees and members about any potential changes, regulations need to be finalised as soon as possible. We are working hard to complete the regulations. However, these are complex provisions that require us to have extensive discussions with employers and trustees during and after a consultation period before we can get them right. Based on previous experience, we do not expect a final version to be ready to present to Parliament until May or June.
Our concern is that, with the affirmative procedure, we would not be able to secure time for a debate in both Houses before the Summer Recess. This would potentially delay the point at which employers can start to plan with confidence until October this year, just 18 months before contracting out ends. So, while recognising that the negative procedure does not allow Parliament the same level of scrutiny, it will mean that employers and schemes have longer to consider and consult on any changes. We believe that, on balance, this is the right approach.
The noble Lord, Lord Browne, specifically referred to the power in Clause 24(8) to extend the five-year window in which the employer override can be used. I will make clear that we think it important that there is a strict time limit on when the override can be used, which is why the Bill repeals the relevant provisions of Schedule 14 after five years. We fully expect those employers who wish to employ the override to have done so by 2021. However, we recognise that, in limited circumstances and given the complexity of some schemes, some employers may find it difficult to meet that time limit; for example, if several diverse employers have to agree on changes to a multi-employer scheme.
We therefore think it is vital that the time limit can be extended if absolutely necessary, but we also think that the extension of an existing time-limit period should not require the affirmative procedure when using the power would only allow employers otherwise prevented from using the override to do so. The power does not allow us to alter the way the override works or to extend its scope—only to extend the window in which employers can use it. As such, I do not believe the affirmative procedure would be appropriate. I apologise for the length of my contribution to the debate, but I hope that I have helped to reassure noble Lords on the issues that were raised last time we met.
I turn to Amendment 44 to Schedule 13. As I said when we last met, the abolition of contracting out is a natural consequence of the implementation of the single tier. With the ending of the additional state pension, there will no longer be anything to contract out of. Employers who contract out of the additional state pension must provide their scheme members with pension benefits that are broadly equal to, or better than, the benefits they would have received had they remained contracted in. To do so, they must satisfy the statutory standard set under Section 12A of the Pension Schemes Act 1993.
This is a consequential amendment to existing legislation to remove the reference to this statutory standard, as the standard will no longer exist once contracting out has ended. The amendment is to the provision for pension protection when someone transfers employment under TUPE regulations. For future transfers, and those who have already transferred, the intention is that regulations will ensure that employees will receive or continue to receive the same protection of their pension rights as they currently enjoy. I beg to move.
Lord Whitty (Lab)
My Lords, I am grateful to the Minister for giving in his opening remarks a reply wider than the amendment before us merits. I have no particular objection to the amendment, in so far as I understand it, but a few issues were raised in the debate last week that I do not think the Government have yet fully answered, even given the Minister’s speech today.
We have a difficult situation here. Everyone understands that contracting out has to cease in this respect, but the way in which it is done is vital. The Minister referred to the measures for private sector occupational schemes being tightly constrained by technical regulations. They definitely need to be tightly constrained because the Bill provides the ability to override trustees in all circumstances, to avoid any form of negotiation, and to place the full cost of any replacement of the contracting-out benefit on the employees. The cost of contracting out will jeopardise the solvency and therefore the future of many of these schemes. As we discussed at some length, and as was pointed out by my noble friend Lord Browne in particular, there is also the question of statutory protection in some circumstances in certain fairly significant schemes.
The Minister continues to justify doing all this on the basis of a negative resolution procedure. This is quite a revolution that will be imposed by this statute on private sector occupational pension schemes. There is not even, for example, a provision that states that there should be no retrospection. The whole principle of pension scheme regulation is that at any given point, benefits accumulated by an individual until that point will be frozen, even if changes are made by the trustees, by statute or whatever. That is not written into Schedule 14, as far as I can see. We need some reassurance on that.
The wider point is the one I raised last week. Where do the Government think we are going on private sector occupational pension schemes? The Minister said—perhaps not with relish; I would not put it quite like that—that it was a matter of inevitability that the decline in the number of people covered by defined benefit schemes had already reduced from more than 2 million to 1.6 million, and that the figure was expected to be roughly 0.9 million in a couple of years’ time. The Government seemed to regard that with some complacency. Of course changes will have to be made to those schemes, but it is not right to say that this imposition will have an effect only on defined benefit schemes, because the lack of trust in the future for any form of scheme is affected by the way that the Government can change solvency rules and the prospects of this scheme so drastically.
I am grateful to the Minister for offering us a meeting between now and Report. We will probably wish to take up that offer, and some schemes may wish to write to the Minister, but my point is that it is extraordinary that the Government seem to be relaxed about the prospect of the whole occupational pension scheme sector being undermined without any serious guarantees to beneficiaries or a clear strategy as to where we are going on the pensions scene.
The proposal is even odder coming from a Conservative-led Government, because these private sector schemes allow individuals to provide savings for the whole of their working lives. They are a way of providing security in retirement. They are a form of collaboration between employees and the employer in providing that. They defer pay in a way that, because it is in the pension pot and not in the pay packet, reduces inflationary pressures. Of course, they also create funds that will be the long-term investors in our business and industrial performance.
Lord Freud
I am grateful to noble Lords for their observations. I shall first take the query from the noble Lord, Lord Browne, about whether Amendment 44 is needed. I am conscious of his forensic skills in looking at particular bits of legislation in this area, and I therefore take his warning seriously. What it does is to remove a defunct reference on which legislation is worded. The default test is to meet the statutory standard. Actually, the legislation could work without this particular amendment, but it is confusing to those applying legislation and would leave an out-of-date reference on the statute book. The noble Lord, as usual, has picked up something quite clever.
He also picked up another clever thing: that I mis-spoke about my decades. I should have said two decades in each case, so I am pleased to correct that, and impressed that I was picked up.
On the negative procedure issue that the noble Lords, Lord Whitty and Lord Browne, and the noble Baroness, Lady Drake, mentioned, at this stage I do not have anything to add except to say that we are genuinely concerned about timing if the affirmative procedure is used. But that may be something we have a chance to discuss in our briefing ahead of Report.
On the question from the noble Baroness, Lady Drake, about the override being net or gross, as I mentioned in my letter on Friday, the intention is that the current rebate rate of 3.4% will be used for these calculations. Without reform, this rebate would change over time, but it is impossible to predict what would happen, and therefore creating a net value for the rebate in future years would be impractical.
Baroness Drake
I shall desist from arguing that point, as we are going to have a meeting, but it is such a wrong approach because it is an unexpected premium for employers. You can have net at the employer level and at the aggregate level—what employers would have to pay taking into account taxation and tax relief—as well as how you set the figure for NI overall. Individual employers would have been able to set the cost of the additional NI against their tax liabilities.
Baroness Drake
We are going to have another meeting, but the effect of what the Minister has just said worries me. Employers will be allowed to recoup the value that is crystallised in 2016, but everyone knows that if there had not been changes the post-2016 value would have gone down. In addition, the employer’s NI charges are an expenditure that can be taken into account and set against tax. If those two elements are not built in, is that not a little unfair in term of the rules for recoupment—a little imbalanced?
Lord Freud
I do not think that I am in a position to say anything further, but we will pick this up later and if we cannot satisfy the noble Baroness at that stage, I will have to write very specifically on that matter and the tax implications.
Baroness Drake
It goes to my point about negative regulations. We just do not get the opportunity to address these issues because they are not drafted.
Lord Freud
I hear the point. Clearly we will be looking at it some more.
On the point made by the noble Lord, Lord Whitty, about whether the override can be used for retrospective changes, the answer is no. That is contained in paragraph 3 of Schedule 14, which prohibits changes that might adversely affect subsisting rights; that is, rights to benefits already accrued.
On the noble Lord’s point about whether this undermines schemes, the override has been introduced precisely so as not to undermine schemes. Employers have told us that without the override, they would close schemes; the override is there to help them find ways of avoiding that.
On the protected persons question from the noble Lord, Lord Browne, I agree that it would be most unusual if the Government were not able to notify Parliament of their decision before the Bill completes its passage.
The noble Lord had a query about the rights of trustees to challenge. They could apply to the courts for direction, because amendments to the rules are not valid if they are beyond limits. Costs fall to the scheme, and ultimately the employer pays.
I hope that I have covered all the issues. Clearly this is an area of some interest and we will be spending more time on it.
Lord Freud
“( ) Where the effect of using the power to increase employee contributions of the relevant members would be to increase the contributions that the employer is required to pay, the power may be used to make other amendments needed to ensure that only the employee contributions are increased because of the use of the power.
“( ) Where the effect of using the power to alter the future accrual of benefits for or in respect of the relevant members would be to decrease the contributions that any members are required to pay, the power may be used to make other amendments needed to ensure that the contributions of those members are not decreased because of the use of the power.”
Lord Freud
“Part 1AOption to boost old retirement pensionsOption to boost old retirement pensions
In Schedule (Option to boost old retirement pensions)—Part 1 contains amendments to allow certain people to pay additional contributions to boost their retirement pensions;
Part 2 contains amendments to allow corresponding legislation to be put in place for Northern Ireland.”
Lord Freud
My Lords, Part 1 of the Bill is about future generations of pensioners who will benefit from the certainty of a contributory state pension set above the level of the basic means test.
We have dealt with a great deal of complexity as we have discussed the transition provisions. These are intended to respect past contributions by giving people reaching state pension age on 6 April 2016 onwards the higher of the value of their national insurance record calculated under both single tier or old scheme rules. As a result of this calculation, many people retiring in the early years of the single tier will have their pension boosted using new-scheme rules. So a woman with 30 qualifying years and £10 of state earnings related pension scheme in 2016 would get £123.30 of single-tier pension, which is around £6.30 a week more than under the old scheme rules. As illustrated here, the groups who will benefit most are those who have only modest amounts of additional state pension, if any at all. These tend to be, in the main, women and the self-employed whose social and economic contributions were not captured in SERPS and are not fully reflected in the state second pension.
As set out in these amendments, we now want to give existing pensioners and those reaching state pension age before 6 April 2016 the opportunity to boost their additional state pension by paying a new class of voluntary national insurance contribution: class 3A. The intention is that a unit of additional pension, obtained by paying the class 3A contribution, will provide £1 a week of extra pension. The extra pension itself will simply be added to people’s state pension. The intention is for the scheme to start from October 2015 and run for a limited time of between 18 months to two years. There are just two entitlement conditions to class 3A—entitlement to a UK pension and that the person reaches state pension age on or before 5 April 2016.
We published a briefing paper that provides more details of the scheme, but we have left some decisions to secondary legislation. These include questions such as whether there should be a cap, perhaps of £25 a week; how long the scheme should be open; and whether people should have a cooling-off period after paying class 3A contributions. As the extra pension obtained will be the additional state pension, it will be uprated by CPI, it will be heritable and people will be able to defer, in line with existing rules.
I turn now to costs. As noble Lords will know, covering basic state pension gaps through existing class 3 is relatively cheap. A person paying class 3 to acquire one qualifying year of basic state pension will get their money back within four years of reaching state pension age. A different approach is required for class 3A to ensure that the arrangements do not become a burden for today’s national insurance contributors. So the costs of class 3A, which will be set by the Treasury, will be based on actuarially fair terms, in consultation with the Government Actuary’s Department. In keeping with this, the cost will be adjusted to reflect the age of the pensioner at the time they pay class 3A.
The briefing paper provides an example of how pricing based on life expectancy will work. The Government Actuary expects to report back to us on a pricing structure shortly. The report will take account of the latest ONS life expectancy estimates that were published on 11 December. I should clarify at this point that entitlement to pay existing class 3 voluntary national insurance contributions, which allows people to cover gaps in their contribution record for basic state pension, will be unaffected by this measure. DWP and HMRC will put in place administrative arrangements to ensure that individuals applying to pay new class 3A contributions are made aware that they should check their eligibility to make class 3 contributions.
Lord Freud
It does not count. I can answer that straightaway because the discussions on the welfare cap have been around working-age benefits, not pension benefits. The Labour Party may have been discussing a wider pension cap but that is not what we—
Lord Browne of Ladyton
It is the pension cap that this Committee is discussing. I am grateful for that clarification, which was appropriate at this time.
Finally, there are the decision points for individuals. Will they get advice on whether they should buy class 3A contributions? After all, there are significant considerations for individuals, such as their life expectancy, which may be significantly affected by where they live in the United Kingdom; whether they are married or in a civil partnership, or likely to be so; and what other income or savings they have—and, therefore, whether it is a good idea, if it may affect their entitlement to incapability benefits, for example. After all, if someone with £10,000 in savings decided to spend £4,000 of those in buying another £5 in income, would they not simply lose that in pension credit and have 40% less of their savings? For all the reasons that we have discussed, those savings may be necessary at later stages in their life. Crucially, who would sell this to them? In the context of the briefing that we received from the Minister’s team, we were told that engagement between the purchasers of this and the Government would be through the Treasury. Does that mean that the Treasury will have certain responsibilities to people who call to inquire about buying these class 3A contributions? If so, how will they be discharged?
There are many questions to ask. The Committee will not be surprised if the Minister cannot answer them all now, because, with respect, he was unable to answer even any of his own questions on his introductory remarks. We may have to wait and see about some of the detail. I understand the reasons for haste; this legislative vehicle is important for this initiative and, if it proves to be positive, that is a good thing. But the scheme was rushed out in the Autumn Statement and added on to the Bill when it had gone through another place. We have no costings or details on price, and no idea how it will be administered—but we still look forward very much to the Minister’s reply.
Baroness Hollis of Heigham
Can I ask a question following on from my noble friend about the interaction of pension credit, which I was trying to tease out as he was going along? At the moment, if you have savings of more than about £40,000, the first £10,000 of pension credit capital is disregarded for pension credit purposes. Thereafter, you have the tariff income of £1 for every £500, which means that if you have savings at the moment of about £40,000 and you are single—I am not sure how it would work for a couple, because I do not have the figures in my head—you would be just about ineligible for pension credit, because your tariff income would float you above it. But turn that capital into a pension, given the fairly unattractive rates for annuity purposes, and I think as a result you would come into pension credit. I shall try to do some more work on this as the discussion moves on, but, if I am right, what the Minister will get in upfront savings he will lose not only in payments in perpetuity while those people live, through his additional pension, but also the immediate payments he will have to make in pension credit—because, having disbursed their capital, they will now come within the pension credit income rules.
Lord Freud
I need to thank noble Lords, as usual, for a mine of interesting questions, and I shall try to deal with as many as I can. On the point that the noble Baroness, Lady Hollis, raised about the research and the understanding of the prices, we are clearly looking at how much the original research needs to be complemented—and, indeed, we may consider more polling work. The original testing was based on a stylised scheme, and further work, playing in the fact that the scheme is secured in national insurance and state pension, may be beneficial. We will also look to consider qualitative research to find out what sort of barriers there may be to taking up class 3A contributions, and I will be happy to provide further details of that research. On the question raised by the noble Lord, Lord Browne, about whether some of that research needs to be redone, I think we would say that it needs to be complemented.
The example of £1,248 raised by the noble Lord, Lord Browne, was not the cost of £1 for a 65 year-old; it was illustrative only, and we are looking to do some more research on the final price. In answer to questions from both the noble Lords, Lord Browne and Lord McKenzie, about information and timing, we will provide comprehensive information and get it quality assured by stakeholders, and we build on the kind of information we provide for class 3, which noble Lords will be familiar with. This is the standard background that we will build on.
The noble Lord, Lord Browne, raised the question of the amount of financial advice that people will need before buying class 3A. Again, in this document, as in others, we draw people’s attention to the fact that they may wish to take independent financial advice before taking a decision that could affect their current or future income. We also need to note that HMRC, rather than the Treasury, administers this scheme.
On the point about pension credit that the noble Baroness, Lady Hollis, was developing in front of our eyes, she is correct that some people would come within the scope of pension credit, but it is up to the decision-maker to decide whether people deprive themselves of capital in order to derive income. We will look at that point further.
Baroness Hollis of Heigham
There is certainly a rule within all social security, along with the rule that capital may be treated as income and income treated as capital, that you may not wilfully deprive yourself of capital in order to boost income. However, to do so wilfully in response to a government campaign would be very different from handing a gift of £10,000 to your grandchild. I think that the Government would be open to mis-selling claims if they went down that road. I do warn the Minister.
Lord Freud
I am, of course, always very grateful for warnings from the noble Baroness or other members of the Committee. That is clearly one of the areas in which quite a lot of detailed work needs to be done. I suspect that it is a minority sport that she is defining, but nevertheless we will need to look at it.
On the question of the noble Lord, Lord McKenzie, about what pension entitlement is necessary, people can have a pension entitlement that consists of graduated retirement benefit or state pension based on their own record of national insurance, which is a category A pension, or one derived from a spouse or civil partner’s record, which is a category B pension. Proposed new Section 61ZA overrides the rules that prevent people having an entitlement to more than one pension at a time.
On the question about what we call it, I think that the noble Lord called it a savings vehicle. We have to be rather careful in our language, which the noble Lord was good enough to recognise and acknowledge. Class 3A will be a one-off opportunity for today’s pensioners, with a cap on the amount of additional pension that can be bought and a limited window during which applications can be taken. As with other forms of voluntary national insurance, we do not expect it to be seen as an investment in a commercial sense. As class 3A is not an investment product, it does not require regulation by the Financial Conduct Authority and, therefore, people with defined contribution pension savings will not be able to get their pension pot refunded in order to take up class 3A as an alternative to an annuity.
On the point raised by the noble Lord, Lord Browne, about the belt and braces approach of the Government Actuary or the Deputy Government Actuary, this is a provision to cover situations where the post of the Government Actuary is vacant. It enables engagement for consideration. I know the noble Lord takes an Occam’s razor attitude to legislation, but that is the reason.
The question from the noble Lord, Lord McKenzie, on the recovery—
The Deputy Chairman of Committees
I apologise to the Minister—he will have to finish in a few minutes. A Division has been called. The Committee will stand adjourned for 10 minutes.
Lord Freud
My Lords, I should start by quickly apologising to the noble Lord, Lord Browne, on my belt-and-braces comments. I should have directed my admiration towards the noble Lord, Lord McKenzie, as regards the deputy Government Actuary. I need to address to the noble Lord the point on recovery, which is a straightforward matter, to the extent that if someone changes their mind we will undo both sides of the payment and consider only any actual additional payment made to balance up.
Lord McKenzie of Luton
Perhaps we can clarify the point to get rid of it. In that case, does the reference to benefits paid basically include the additional pension that has been earned from the payment?
Lord Freud
Yes. To the extent that if someone changes their mind about wanting to buy class 3A contributions and recoups that fund, we will recoup the early payments made on that benefit in order to balance both sides of the position.
We hope to have the pricing details bottomed out by Budget time, although I cannot give any range at this point.
As regards the query on numbers from the noble Lord, Lord Browne, of the 7 million pensioners we assess as potentially being able to afford it, we estimate that around 30% will have savings of between £1,500 and £10,000, 20% will have between £10,000 and £20,000, and 50% will have more than the £20,000 limit. So if we assume that pensioners would not want to spend more than, say, 25% of their capital on this, we might expect the average amount bought to be £5 a week. However, those are, again, premature estimates, and it is not worth spending too much time on that because there will be more information later.
I also take on board the points made by noble Lords about the importance of communicating the new scheme effectively and giving people the right information at the right time. We will take great care in going through the detail of implementation and delivery arrangements to put the customer first and will work with key stakeholders to ensure that this happens.
As I said in my opening remarks on pricing and revenue raising, we need to bring regulations back to the House, and at that time we will have the details required for a fully informed debate. We will introduce those regulations as soon as possible. I hope that I have been able to assure noble Lords that the new voluntary national insurance class 3A policy is well intended, designed to give some people who may have lost out on the opportunity to build additional pension the chance to do so.
Lord McKenzie of Luton
Will the Minister clarify a couple of points? Is it the case that someone can avail themselves of these provisions if they are currently contracted out and that there is no prohibition on that?
Lord McKenzie of Luton
Whatever the level of their current S2P arrangements—they might have paid in significantly or they may have nothing at all—can they still avail themselves on the same basis as everyone else?
Baroness Sherlock (Lab)
My Lords, as this is the first discussion of Part 2 of the Bill, it may be worth setting out a couple of principles from these Benches at the outset. First, we agree with the principle of raising the state pension age to reflect longevity, as people are living longer than when the current arrangements were put in place, largely in post-war reforms. As I indicated at Second Reading, we also accept the need for periodic reviews of the state pension age, but we differ from the Government on how best to do that—we will return to that issue in the discussion of our later amendment.
Fixing the state pension age is never easy, and an issue of fairness is always at stake. There needs to be a balance between the interests of the generations on the funding of retirement incomes in a pay-as-you-go system, where today’s taxpayers fund today’s pensions. As we will discuss in later groups, our view is that having a careful, evidence-based review before taking any future decisions on changes to the state pension age is a crucial element of ensuring fairness between generations.
However the arguments made by my noble friend Lady Turner require careful attention from all of us. Sometimes fairness also requires at least a consideration of difference, and my noble friend has highlighted some crucial differences, particularly in relation to longevity and health. We all know that life expectancy is increasing, but that fact conceals as much as it reveals. Mortality rates vary widely, as do morbidity rates. There is a huge amount of socio-demographic data available to inform our debate—and I am sure we will hear a great deal of it in the groups to come—from the Wanless and Marmot reviews to government figures and other outside research. There are also some very interesting data from the TUC. I will say more on this later, but I do not want to pre-empt what I think could be a very substantial discussion coming up shortly.
There are no easy solutions to these problems. The biggest challenge to the Government is to address the question of differential mortality and morbidity rates through urgent attention to public health, but we also need time to reflect on how best to deal with these questions in relation to the state pension age. It is our view that the best way to do that is to ensure that the mechanism for reviewing the state pension age includes a review panel which has on it representatives of a wide range of interests in society, including employer and employee representatives and representatives of different parties and, indeed, our own Cross Benches. I shall move an amendment later today to that effect, but in the mean time, I hope very much that the Minister will take the concerns of my noble friend seriously. I look forward to his reply.
Lord Freud
My Lords, the purpose of Clause 25 is to bring forward by just over eight years the point at which the state pension age completes its rise to 67. The latest evidence shows that we are living longer and, on average, healthier lives than ever before. To illustrate this point: a man in the UK reaching the age of 65 30 years ago—in 1983—could expect to spend 14.5 years in retirement. Today, a man reaching that same age can expect to spend about 21.5 years in retirement.
The noble Baroness, Lady Turner, raised the key issue of differential life expectancy. I do not propose to go into that in great detail at this point because we will have the opportunity to address that full-on in the next amendment; so, if she will forgive me, I shall concentrate my remarks on raising the age to 67.
The Pensions Act 2007 was informed by the Office for National Statistics’ 2004-based life expectancy projections. Those projections suggested that a man aged 67 in 2028 would survive for a further 19.9 years. However, on our latest understanding, this same man is projected to survive for a further 21.5 years, fully 1.6 years longer than we thought when setting the original timetable in the 2007 Act.
We continue to believe that it is only fair that those enjoying the benefits of longer life expectancy pay a share of the associated costs. Bringing forward the increase in pensionable age to 66 through provisions in the Pensions Act 2011 ensured the short-term sustainability of the UK’s state pension system. Now, the measures contained in this clause to accelerate the increase to the age of 67, combined with the regular review mechanism as set out in Clause 26, will help ensure the fairness and affordability of the system into the medium and long term. The savings projected to result from this proposal are significant—some £73 billion in net savings between 2026 and 2036—but not only are there net spending reductions, but this measure is projected to increase employment rates and boost GDP by around £100 billion over the same period.
Bringing forward the rise to 67 by some eight years will affect around 8 million men and women born between 6 April 1960 and 5 April 1969: people who are now aged between about 44 and 53. As with previous increases in state pension age, the transition to the higher age will be phased in gradually: men and women born between 6 April 1960 and 5 March 1961 will have a state pension age of between 66 and 67, and those born between 6 March 1961 and 5 April 1969 will have a state pension age of 67. Those born after 5 April 1969 will not be affected by this change because they already have a state pension age of 67 or 68, or somewhere in between the two, as legislated for in the Pensions Act 2007. The proposals in this clause mean that the maximum increase that any individual will experience in their state pension age, in relation to the Pensions Act 2007, is one year. By starting the transition to age 67 in 2026, no one who was affected by the Pensions Act 2011 will have their state pension age changed again by the measures in this Bill. To help people prepare for the change, we announced these proposals back in November 2011, giving the first cohorts affected more than 14 years’ notice.
Finally, noble Lords will be aware that an ageing society is not a phenomenon unique to the UK. That is why other countries in Europe and beyond are moving to adjust the age at which retirement benefits become available. Indeed, even by moving to a state pension age of 67 in 2028, we will still be behind many other countries—Ireland will get there in 2021, the Netherlands and Australia in 2023, and Denmark and the US in 2027. In bringing forward the rise to a state pension age of 67 we are ensuring that the system as a whole remains fair between the generations and sustainable and that we are doing so in a way that is on a par with elsewhere in the developed world. I beg to move that Clause 25 stands part of the Bill.
Baroness Sherlock
My Lords, in addition to a gender divide, we have heard that there is a class divide and a geographical divide. To add to the examples from Glasgow, Liverpool and Norfolk, I offer Dorset, which I am reliably informed is the place to live—statistically, you are expected to live longest in the UK. Women in east Dorset can expect to live nine years longer than women in Corby—the area with the shortest life expectancy for women. Men living in east Dorset can expect to live 7.1 years longer than men in Manchester—the area with the shortest life expectancy for men. Then there is the effect of this differential life expectancy on state retirement incomes. Those living shortest post retirement, primarily the poorest and least skilled workers, will obviously receive less in state pension than their better-off counterparts in Dorset. Women in Corby will get £67,000 less and men in Manchester will get £53,000 less. And, of course, those manual workers may well have contributed for longer than those who spent longer in education.
Where does all this take us? It does not take us to any straightforward policy solutions. As I am sure is the case with other noble Lords, many representations have been made to me on ways in which the Government should tackle this—that perhaps they should not raise the state pension age until we have tackled inequalities in health; or that a variable retirement age should be brought in, taking account of life expectancy, work pattern or contribution history; or that there should be flexible retirement proposals or the idea of paying actuarially adjusted pensions early for those retiring in their 60s but before the state pension age. It is quite likely that none of these will commend themselves to the Minister. Given the look on his face, I expect that I am right in that. However, I am sure the Minister will accept that what we have heard today is an analysis that suggests that a significant set of public policy issues needs to be addressed. They are not all pension issues—a point that my noble friend Lady Drake made powerfully—but are effectively spillovers from decisions around the state pension age, which will then impact on public policy-making in a range of other areas.
If the Minister does not feel able to respond positively to any of those concrete suggestions on how to deal with this issue, I encourage him at the very least to go along with the idea of spelling out in the Bill the need to take account of all these factors, because that would then at least put the review process for setting the state pension age in the position of having to tackle all these complicated issues and making some recommendations to government on which we could all, I hope, place some store.
Lord Freud
My Lords, the purpose of Clause 26 is to ensure that every Government consider state pension age in light of the latest life expectancy projections and other relevant data. The legislation sets out that a review must be informed by a report from the Government Actuary on the proportion of adult life spent in retirement and corresponding implications for state pension age.
On the point about pensions as a percentage of GDP raised by the noble Baroness, Lady Hollis, the single-tier impact assessment shows that even with an SPA of 67 in 2028 and an SPA of 68 in 2046, the proportion of pensioner benefit expenditure could rise from under 7% of GDP in 2016 to 9% of GDP by the 2060s. I am addressing her point about the baby boom.
It is true that life expectancy is different between socio-economic groups, and even in the latest figures it slightly widened. However, it is increasing for all groups. Such inequalities have always existed and, as the Minister noted in Committee in the other place, adjusting the pension age is not the right way to address these inequalities. We need to address these issues elsewhere through tackling the factors that lead to these differences in life expectancy. To illustrate the rate of increase, the period of life expectancy at age 65 for males in the lowest occupational class between 2002 and 2006 was 15.3 years. You have to go back only to 1999 for the average period of life expectancy of males from all occupations to be the same figure.
I will not go into detail on one of the amendments regarding adult age because we have not discussed it very much, but I will pick up the point raised by the noble Baroness, Lady Hollis, and the noble Lord, Lord Whitty, on the timing of when people enter the labour market.
The single-tier pension’s key features are simplicity—giving people the clarity and confidence to save—and a value set above the minimum income guarantee standard. Allowing early access would mean that we would have actuarially to reduce the pension, and this would severely undermine both these key features of the new system, complicating outcomes and meaning that, if people’s actuarially reduced state pension was below the minimum guarantee, we would retain an extensive and complex system of means-testing. International organisations have repeatedly advised countries to withdraw incentives to early retirement. Indeed, in recent years, a number of countries have put in place measures to discourage it, including Denmark, Finland and Germany.
The changes to state pension age are primarily about fiscal sustainability and fairness between the generations, such as taxpayers and pensioners, at any given time. It is therefore right that the Government Actuary’s Department focuses on total life expectancy from state pension age and not on healthy life expectancy. Indeed, the Pensions Commission advocated that pension age should rise proportionately in line with life expectancy, thereby maintaining the proportion of adult life spent in retirement. Just last week, the noble Lord, Lord Turner, reasserted this principle. This is what the GAD element of the review is for.
We also think it is crucial that future Governments have access to wider evidence before laying any proposals to change state pension age before Parliament. We have been clear in the White Paper and in the other place that we believe the reviews of state pension age should consider healthy life expectancy but also differences between socioeconomic groups and the wider economic effects of increasing state pension age.
On my original point about flexibility, we do not want to be too prescriptive in setting out factors that must be looked at by each review. We want to foster a more long-term view which would allow each Government to specify factors relevant to the circumstances at the time of commissioning the review. There is the danger that, by setting out a list of things for each review to consider, future Governments will simply have a tick-box approach to the reviews. As my noble friend Lord Stonham said—
Lord Freud
When I last talked to the noble Lord he was pretty indifferent about his pronunciation, but I apologise to the noble Lord, Lord Stoneham. He made a point which I want to reinforce. When we are looking out for 10, 20 or more years, it is quite difficult to specify all the considerations that a review should take into account. The risk is that that if you specify them, you become restricted.
Baroness Hollis of Heigham
The Minister is being a little unfair in this argument because at no stage did I suggest that we remove the words “other factors”. They would remain. All I am trying to do is transpose the wording from this document into the Bill; they are both the Government’s documents.
Lord Freud
I am very grateful to the noble Baroness for her advice, but we want to make sure that future Governments look at this themselves, take a proactive approach to the review process and are transparent and conscious about what they are commissioning. Stipulating now all the variables and all the factors to be taken into account restricts rather than supports that responsibility. Greater discretion will also allow an iterative approach with future Governments building on the reviews of previous ones.
A lighter touch approach will help to generate more debate at the time when the state pension age review is conducted. This should encourage all interested parties across Parliament and industry to feed in their thoughts and contributions and involve them better in the process.
The noble Baroness and, indeed, the noble Lord, Lord Whitty, discussed quite a lot of the factors. I do not wish to get into a huge debate about healthy life expectancy, and so on, but I will make just make a few points on it. The first is to warn noble Lords that the ONS measure of healthy life expectancy from 2000 onwards was changed to run in comparison with our EU partners, so we do not have a consistent data run for the whole period, although we have evidence that shows that healthy life expectancy has increased consistently since the 1980s. Do not use the run because there is a discontinuity in it.
Lord Freud
It is a very fair point that health is, importantly, attitudinal. It is not a matter of just taking a medical model for this. I accept that point.
However, where we have an unbroken record, which is the time spent free of disability, which runs from 1981 to 2010, the figure for men in Great Britain rose by 2.9 years and by 2.8 years for women. It is possible to take a rather more encouraging attitude towards our healthy life expectancy compared with some of the gloom I sometimes hear. The House of Lords report, Ready for Ageing—the Filkin review to which the noble Baroness referred—concluded:
“The Government were right to raise the state pension age, but they are now adopting a timetable of increases slower than that recommended by the Turner Commission and will have to revisit this with rising healthy life expectancy”.
Baroness Hollis of Heigham
Yes, but one of the problems is that people quote that without reading the 980 pages of evidence that went with it, which show that the summary of those recommendations did not pick up most of the debates in the evidence.
Lord Freud
My Lords, I can only go with the conclusion that I would like to leave on the record alongside my warning to take a little care on some of the conclusions that have been drawn on the progress of healthy life expectancy.
The noble Lord, Lord Whitty, asked whether people can work longer and what the trends are in the labour market. The SPA has remained at 65 for men since the 1940s and the average age of labour market exit in 1950 was just over 67 for men and just under 64 for women. That figure has declined, ironically, along with the nature of the work that we have been talking about—hard physical labour. We have seen a countertrend in what has happened since then.
I genuinely welcome this debate and believe that it is important to keep having these discussions, whether inside or outside the House. But we should not seek to prescribe every last detail in the Bill; we must make sure that each and every Government revisit the issue in the light of the circumstances. I urge the noble Baroness to withdraw her amendment.
Baroness Hollis of Heigham
Despite being interrupted by a couple of votes, we have had an interesting, valuable and, I hope, important debate. I am very grateful to the number of noble Lords who have taken part in it, including those who had not expected to do so. I was certainly grateful to hear from the noble Lord, Lord Stoneham—not to be confused with the housing association called Stonham.
I am grateful to my noble friends Lord Whitty and Lady Drake for joining me in pressing the Government to put these provisions in the Bill, not to challenge where we are now but for future consideration, when we are thinking about raising the state pension age—and I cannot emphasise too strongly—so that we have a coherent policy across government. We need that, because, as pension credit is withdrawn, with every year that we equalise the state pension age between men and women, we reduce the income of men who are in their twilight and who have dropped out of the labour market early, as 30% or more have and do. That figure will increase as the pension age rises—that 30% will probably go up to 35% and 40%, and so on, as we raise the state pension age, unless we can keep people in the labour market for longer, as my noble friend says.
Lord Freud
Let me just make a point, before we take those figures absolutely on face value. When you have differential incentives—in other words, the point that the noble Baroness is making precisely, when you have a higher level of pension credit than working age benefit—you cannot be too surprised when people elect to go with the better paying structure. That probably tells you less than it could about what is happening to those people.
Baroness Hollis of Heigham
Oh, dear me. Are we assuming that somebody who has a real choice about whether to stay in work is going to make a rational decision to forgo a job that pays £400 a week to take an extra £30 or £40 or £50 in pension credit to top up an employment support allowance? Is that what the Minister is saying—that that person is so rational that he will willingly reduce his income to one-third of what it was because of the enticement of pension credit? Is that the Minister’s position?
Lord Freud
I was referring to the differential between the two benefit structures. I was not referring to enticement; I was just saying that one cannot be too surprised if people select the better of two options.
Baroness Hollis of Heigham
I think that I am right in saying that under 10%—probably about 7%—of those in that position do not choose to go on pension credit when that choice is available to them, and the rest do. So clearly the Government’s position assumes that people are making a choice that is attractive because they have been financially encouraged to do so by the relative generosity of pension credit. I cannot attach any other understanding to the Minister’s position. If pension credit did not exist, the assumption would be that the benefits structure was less attractive and therefore, presumably, that they would stay in work for longer—and that therefore they are being encouraged because of pension credit to leave earlier than they need to and that, therefore, withdrawing pension credit is a wise move in the process of the rationality of economic thought in the labour market. Is that what the Minister is saying?
Lord Freud
My Lords, I am saying that when you have a higher benefits structure, it is not surprising if people select it, other things being equal, over a lower one.
Baroness Hollis of Heigham
I think that the Minister and I have a very different understanding. My view is based on my experience representing—I do not know if the noble Lord has ever had that privilege—one of the poorest wards in my city for nearly 25 years. My noble friends here have either represented such wards or constituencies with very poor members and I can tell the Minister that if people can work they want to work. They want it for self-respect, for income, for social mobility and they regard going “on the club”, as it used to be called in my ward, or taking benefits as something that they are not proud of but reluctantly do because the labour market does not make appropriate provision for them, given the state either of their skills or their health. If that comes from experience of working with people, as I have done and as I am sure my noble friends have done, then I regret that the Minister cannot share that personal experience, which might give him a greater respect for the pressures that some people face in making decisions when they have to leave the labour market. I am not for a moment suggesting that he is lacking respect, but there is a great difference in perspective on this and I do not know that I can bridge it with the noble Lord.
It is certainly the case that, as pension credit is withdrawn, it will reduce the income of people who have already had to leave the labour market, usually on grounds of ill health, and as a result they will have less money for heating, diet and all the other things that we know they will need. People going onto pension credit are already effectively entering that second decade of disability without, in many cases, having gone through the first decade of reasonably healthy retirement. By withdrawing pension credit and putting no substitute in its place, we are ensuring that all we do is increase people’s poverty and thereby progressively increase the rate at which they go into further ill health, since they can no longer afford the heating, the diet, the aids and appliances, the cleaning help and all the rest of it which keeps them more effectively fit and engaged in society. Again, I am really disappointed in the Minister if he does not appreciate that.
Lord Freud
I cannot understand the difference between what the noble Baroness has just been talking about and what she was saying the other day when she was so indignant that men could get pension credit at women’s state pension age. She described it, if I remember right, as a smooth path to the beach before getting state pension.
Baroness Hollis of Heigham
Indeed so—I made the image up on the spot, but I will, indeed, repeat it. What I was arguing there was that women were facing a cliff edge. Men had always had that slow path to the beach, but that is now being withdrawn from them and as a result they have a cliff edge in the future between where they are, on benefits, and state pension. Unfortunately for the Minister, the argument continues to be made.
I do not think that any of us disagree, as my noble friend Lady Drake pointed out so well and as was reinforced by my noble friend Lady Sherlock, that we need to extend healthy life expectancy and that that requires health policies. We need to make the second decade of average life expectancy, of increasing disability, of as decent a quality as we possibly can. The noble Lord, Lord Stoneham, said that factors will change. Of course they will. The Minister said that factors will change, but the point is that that is already covered, as was pointed out by my noble friend Lord Browne, but the wording of Clause 26(1)(a) gives the Secretary of State alone the privilege of determining the other factors. Putting all these factors in the Bill, as listed in the White Paper, does not exclude other factors that may develop as time permits; it is a basis on which I would hope that the DWP has its arm strengthened as it engages in battles for resources with other departments and with the Treasury.
Does the Minister really think that he will have greater powers of persuasion to get those health policies that we would want to extend healthy life expectancy, or those supporting policies from local government or from the DCLG for the second decade if these factors are not in the Bill and if the Government are not bound by the legislative requirement to consider those factors? On the contrary; by putting those factors into the Bill we will strengthen the DWP’s arm in requiring other departments to play their part in seeking to extend healthy life expectancy and to improve the quality of the decade of disability. Without it, his position will be weaker, not stronger. The other factors, as my noble friend Lord Browne has reminded me, remain the same. I hope that this addresses the point made by the noble Lord, Lord Stoneham. We are absolutely right to challenge the assumption of reduced inequality.
My noble friend Lady Sherlock said that we are going to eat into capital. The point is that, for example, somebody who is in a position to draw down an occupational pension has a choice of when they retire and they are not dependent on their basic state pension. The people we are talking about in this Bill are, and they have no such choice. As my noble friend Lady Sherlock said, they will eat into their capital, thus ensuring an impoverished old age as they wait to reach their state pension age.
Baroness Sherlock
My Lords, as I said, there has been a succession of changes to pension policy and legislation. One key example is that under the previous Labour Government the number of years of contributions required to get a full basic state pension fell significantly, only for there to be a change of Government and for the number now being proposed to shoot back up again. The Chancellor did not help by giving the appearance of using the Autumn Statement to make an ad hoc announcement about the raising of state pension age. Once the dust settled, that turned out to be nothing more than what was already in the Pensions Bill and was therefore not necessary. However, that ran the risk of reinforcing the impression that pensions policy is made on the hoof, and we need to tackle that.
If we are serious about getting Britain saving for retirement, we need a proper, cross-party consensus on the way forward for settling the state pension age. Rather than simply being a matter for the Secretary of State, as the Bill proposes, we need a proper external panel which has the kind of cross-party and independent representation which will reassure the public and give confidence to parliamentarians from across the spectrum. We need a review mechanism that is clearly understood, a review body that is clear in purpose and function and ways of working, and clear parliamentary scrutiny of its finding—the kinds of things that will come from the report.
I know that the Minister will want to be reassuring about the Government’s intentions. In another place, the Pensions Minister said, in the face of pressure from the Opposition, that he had always envisaged a model such as the Hutton review, where the review is chaired by someone who people respect and who has credibility across the spectrum. That point was underlined by the Minister at Second Reading. I am happy to accept that the current Pensions Minister means that. However, even if that proposal were satisfactory, he will not always be Pensions Minister. I mean no disrespect when I say that I hope very much that in 18 months he will not be Pensions Minister any more. I can recommend my right honourable friend Mr Gregg McClymont, should anyone be looking for an alternative. However, Mr Webb, even when he is Pensions Minister, cannot bind the hands of his successors, even in this Parliament, never mind a future one. That is why this matter needs fixing in legislation.
Our amendment proposes simply that the review body should include representatives of the opposition parties and of the Cross-Bench Members of this House to ensure that Parliament as a whole is at the heart of this process. It would also include representatives of trade unions as those who represent those who are spending their ever-longer working lives saving for retirement. This broader representation on the review panel will give people confidence that a wide range of views will be heard. This amendment does not seek to shape the remit beyond that of having a range of competent and representative people sitting on the review panel. I urge the Minister to accept it.
Lord Freud
My Lords, I start by acknowledging the expertise and experience of the noble Baroness, Lady Drake, as a member of the Pensions Commission, on which she was able to rest when she moved this debate.
The purpose of the review is to inform the Secretary of State. Its job would be to collect and analyse the latest data, compiling a report to give the Government of the day the information they need to make a decision. Of course, we are all keen that the Secretary of State receives a report that is both impartial and credible. We appreciate the attraction of a panel to ensure that a wide range of views are reflected in the compilation of the report. However, we have been clear that we do not think that prescribing a committee is the right way to go. We do not want to restrict future Governments by prescribing exactly what the review looks at and who is doing the looking. There is greater merit in allowing Governments to choose whether to appoint a single reviewer—as with the review of public service pensions by the noble Lord, Lord Hutton—or a larger commission, such as the Pensions Commission. Indeed, the latter, set up by the previous Government, was made up of three individuals, two from the worlds of academia and business, neither of which, incidentally, was mentioned in the amendment.
Both of those cases show that a legislative underpin is not required to set up a review that can win cross-party and wider public support and that there is no consensus on where is the best place to find the right people. We do not think that the proposal by the noble Baroness, Lady Drake, to set up a permanent commission—an NDPB or a standing commission, as she put it—is appropriate. That kind of structure is simply not necessary for a review that will come together and publish a report on a single issue, wide-ranging though it may be.
Baroness Hollis of Heigham
Is that so very different from the Low Pay Commission, which is also a single issue?
Lord Freud
The Low Pay Commission reports on a much more regular basis than the five years envisaged here. To pick up the timings that we have experienced, there is the example of Independent Public Service Pensions Commission. The noble Lord, Lord Hutton, was appointed in June 2010 and reported some nine months later, in March 2011. In the intervening period the noble Lord held two calls for evidence, undertook a research event, published an interim report and published his final report. It is clear that a lot can be done in the space of a year, and that is the kind of period that we imagine is about the right length of time required for a review.
NDPBs also tend to look at a wide variety of regularly changing data in the areas of longevity, healthy life expectancy, socioeconomic variations, trends in the labour market and so on, and they tend to be published on a much less regular basis than this. I want to be clear, though, that the groups indicated in Amendment 57A and many others should all be encouraged to participate and contribute in the process. Indeed, the review has been designed to ensure that both Parliament and stakeholders will have ample opportunity to participate in the process and shape the outcomes. Furthermore, because the reviews will be regular, stakeholders may indeed be able to better prepare and contribute than they are now.
Of course, if the Government decide to bring forward changes to the pension age, then those changes must be secured through primary legislation and subjected to the full scrutiny and approval of both Houses, as now. However, to have such extensive and political input at the data-gathering and analysis stage risks stymieing the process before information can even be provided to the Secretary of State. Indeed, the House of Commons Disqualification Act 1975 prevents MPs sitting on many public bodies, precisely in order to avoid politics influencing their work.
Regarding the publication of this report, subsection (6) of this clause requires all reports prepared under the clause to be published. This means that both the Government Actuary and the report from the independently led review, including any recommendations that that component of the review makes, will be published, so all the evidence that has been taken will be made available. Every report will be laid in Parliament and published, including the report from the Secretary of State. As I said before, any proposed changes will require primary legislation.
It is for the Government of the day to put forward proposals resulting from the reports and to present any legislation to Parliament. Responsibility for publishing any overall report on the outcome of the review therefore has to remain with the Secretary of State. I hope that I have been able to provide some reassurance about how we envisage the review working and why. In this case, less is more. I urge the noble Baroness to withdraw the amendment.
Baroness Drake
I thank the Minister for his comments. I certainly was not trying to overleverage my experience on the Pensions Commission; that was not necessarily the main driver for my amendment. I shall respond to some of the points that he made. In Clause 26 the periodic review on the state pension age is a standing arrangement, which is why it provides an opportunity to create an independent commission in support of that arrangement. It is not a case of a one-off job and then it finishes, otherwise it would not be in the Bill. It is obviously intended as a standing arrangement, which is meritorious; I do not disagree with that. However, that is materially different from a one-off commissioning of something. It says that if you are going to have this standing arrangement and periodic reviews and assess whether the current rules on state pension age are fit for purpose, that lends itself to being supported by a commission on a standing basis.
Again, on reading Clause 26 it is not simply dealing with the narrow issue of the state pension age rules, it is also quite clearly saying it will review other factors relevant to the review. The implication in that must be that the Government recognise that complexities would arise around the demographic challenge. That would need to be understood in order to influence policy decisions across a range of issues. Again, a standing commission would be able to assist in looking at that wider range of factors that would inform the review.
I also repeat the point I made in moving the amendment because it is really important. The long-term management of public finances, particularly in respect of responses to the demographic challenge, would be really helped by having a standing commission. The fact that so much progress was able to be made on a political consensus that we are still getting the reward from was because there was a commission. It was able to present the issues and the case to Governments and political parties, as well as the country as a whole, in such a compelling way that it drives, almost from a sense of political responsibility, a consensus on the long-term management of public finances on that issue. It would be a shame to lose that.
Sustainability is a long-term project. Secretaries of State change, Governments change, but as a society we want a political system that delivers rational policies that give us good long-term outcomes. The one thing that characterised pensions in the last 20 years of the previous century was the incremental decisions that Government after Government made about both the private and public pension system. When you stood back you could see the complexity and the dysfunctionality of what the political system, motivated as it might have been in each instance in a very positive way, created. Certainly, when employers started to withdraw from the private pension system it started to show the weaknesses of our political system.
If we are looking for long-term effective management of public finances, the sustainability of the private pension system and the demographic response over the long term this strikes me as a way to go forward. To take an anecdotal example, I remember telling my husband that I was about to go and tell the whole country that they had to work significantly longer and we could not even promise that even the first forecast of how much longer they would have to work would not be increased further in the light of experience. He thought that I was committing career suicide and could not believe that I could possibly do that. I explained to him that the evidence was so compelling and if one cared desperately about a pension system and the interests of the people in this country you had to have the courage to take that debate out to people.
I can remember the CBI being horrified at the thought of having to retain older workers. I can remember trade unions being mortified at the prospect of the default retirement age being raised or abolished because it was a stalking horse for raising the state pension age. However, because you had a commission you could have a much more positive influence on that debate. I remember, as I am sure the Minister will experience, lots of people from around the world, particularly in Europe, asking how the UK managed to get such a consensus from the country about the reforms that needed to be made to the pensions system and the state pension age in particular. I genuinely think that one of the reasons that was possible, compared with some of the problems that are being experienced in other countries, is because the analysis and the narrative that were taken out to people were not just the product of party politics. They were the product of a commission that sought to identify the issues and the choices on the basis that even if you did not make a choice, that by definition was a choice because you would be inevitably moving along a certain line.
I think that that is right. There are 60 million people in this country who have an investment over the very long term, either for themselves, their children or their grandchildren, so we must get this right. What is there to fear in trying to sustain the political consensus by having a group of independent people who assist that process by being able to assist with the narrative and identify the issues? It is that passion that makes me move the amendment, not just that I happened to be on a commission at a point in time. I beg leave to withdraw the amendment.