Pensions Bill

Lord Monks Excerpts

Tuesday 3rd December 2013 Lords Chamber

[Lord Monks (Lab)]

My Lords, I start by declaring an interest: I am a trustee of NOW:Pensions, which is a subsidiary of the Danish pensions institute, ATP. Those noble Lords who know about pensions internationally will know that Denmark has an enviable record in pensions.

Pensions in this country have become an area where successive Governments in the main have sought a degree of continuity with their predecessors. From time to time, there has been an impressive degree of cross-party agreement; my noble friend Lady Hollis has just reminded us of one or two significant contributions made by the current Pensions Minister. There is a recognition that this is a long-term problem and that long-term approaches need to be taken to pensions. They should be taken rather more in other areas, which are perhaps more politically controversial. Given the uneven nature of pension provision in Britain, we certainly need a continuous effort to tackle some of the more glaring inequalities that abound. Still, the degree of agreement has been impressive. That stems from a report by the Pensions Commission, which the noble Lord, Lord Turner, chaired and of which my noble friend Lady Drake was a member.

Despite a general welcome for the main pillars of the Bill, there are problems that I want to touch on briefly. I will look first at the statutory override in Clause 24 and Schedule 14, which provides that private sector employers must make changes in their schemes that are commensurate with the higher national insurance costs that arise from the end of contracting out, and for that be done without trustee or member consent. Because the calculation will be done at the aggregate level, not per individual, many scheme members may well lose out. Despite the requirement in Schedule 14 for actuarial certification of scheme changes, we believe that these protections are not solid enough to make sure that people do not lose out significantly.

On the state second pension itself, the concern has to be that the majority of future pensioners could well be worse off under the single tier, because its accrual rate is lower than the current system for people not contracted out. Those retiring later are more likely to lose out and to lose out more. It is not fair that people close to retirement and not contracted out of the state second pension will be unable to accrue a state pension above the single-tier starting rate, despite continuing to pay full national insurance contributions.

There are also problems with the accelerated timetable for increasing the state pension age to 67 in Clause 25. My noble friend Lady Hollis has just spoken eloquently along the same lines. There has not been enough time to address some of the inherent inequalities that exist both regionally and between manual and professional workers. It seems that you have won the jackpot if you are a professional worker in Dorset; if you are a manual worker in one of the old industrial areas, you are in trouble. Yet it is “one size fits all”, and that one size does not fit some, for whom, in the years after retirement, the forecasts are pretty poor. I hope that these will be considered. Certainly, if the state pension age is to be changed again, I hope that this review will lead to some independent process, to give people confidence in the judgment about retirement ages.

Of course, there are some obvious losers in the changes. In particular, dependent relatives look as though they are getting a pretty hard deal. As we go through the Bill, I hope that we can take a good look at their position.

On private pensions and auto-enrolment, Clause 35 extends government powers to cap pension scheme charges. Lower charges are very important. From my Danish knowledge, the contrast between low charges there and high charges here, historically, has been extremely marked and I welcome what is being done to bring down the British level. The principle is good, but the worry is that the changes over a single year can distort the benefits that come with long-term saving. We ask that the Minister and the House take a look at perhaps having a cap over the lifetime of the scheme, which would offer greater flexibility. In the current consultation exercise, it is important that we do not rush this fence too fast, without looking at the longer period over which to compute the appropriate cap.

On the “pot follows member” principle, several speakers have already questioned whether there is a problem with making that totally automatic, when a person could be transferred to an inferior scheme—and there are plenty of inferior schemes around. What about the costs for workers who change jobs frequently? They are often the lowest paid, on insecure contracts, and will be vulnerable to this kind of process.

My next issue concerns Clause 34 and the extremely broad power to create exceptions from the employer duty to auto-enrol staff into a workplace pension scheme. For our part, we are worried about the risk of abuse and are looking for strong safeguards to be built into this part of the Bill.

It is a useful Bill, but I hope that we will find the energy and time, and make the effort, to see whether we can make it better as it progresses through the House.