Pensions: Reforms

Lord Stoneham of Droxford Excerpts

Thursday 18th June 2015 Lords Chamber

[Lord Stoneham of Droxford (LD)]

My Lords, I, too, congratulate the noble Lord, Lord Flight, on initiating this debate and on his remarks. I have known him for nearly 50 years, and I can honestly say that I have never agreed more with one of his speeches than the one he made today. I also join in welcoming the noble Baroness, Lady Altmann, and I look forward to her maiden speech, particularly given her experience at the consumer interface. I hope that one of the things she will concentrate on as the new Minister is that area of pension policy. I and my colleagues on these Benches, my noble friends Lord German and Lord Kirkwood, saw the legislation through the coalition Government from these Benches. It is good to see that this was actually one of the most successful parts of the coalition Government.

I join in thanking Steve Webb today for all the work that he did in the coalition. That team effort was built on his very successful working with Iain Duncan Smith and the noble Lord, Lord Freud. This produced reforms that in my view would not have happened with a single-party Government. It built—and this is another lesson for pension policy—on the reforms initiated by the previous Government and the foundations prepared by the Turner commission, whose membership included the noble Baroness, Lady Drake. Turner’s vision was of a simple state pension that adjusted to life-expectancy improvements, with automatic enrolment into private pension savings and with the full back-up of the state-sponsored scheme that is now NEST. The coalition’s achievement was really to review and then reform the structure of pension policy, which is now simpler and more coherent. However, as has been raised in this debate, we still need to cope with how to raise the actual level of saving.

Steve Webb brought huge experience of pensions and expertise into government. I was very proud to have been associated with Steve in the pension review which our own party carried out in 2003-04, which set out the case for a citizen pension. This has effectively become the higher state pension and is set at the level of pension credit. It was in our manifestos in 2005 and 2010, and it included a commitment to the triple lock. Despite the restraints on public spending that we had in the last Government, it is good that both those measures—the triple lock and the introduction of the higher single state pension—were supported.

Steve Webb had to fight hard in government to get that, particularly the single state pension, especially in the middle of the Government between 2012 and 2013, and it is right that he should be proud of that legacy. He has effectively restored the Beveridge commitments that there should be a basic state pension approaching 20% of average earnings to provide a minimum standard of living while at the same time acting as a platform on which private pension savings would be built. The triple lock stops the withering away of the relative value of that state pension, which has been going on since 1981.

A couple of other reforms were important in the coalition Government. We undertook a review of public pensions, which was conducted very thoroughly by the noble Lord, Lord Hutton. It has not been mentioned in the debate. It was not a popular thing to do, but it had to be done. The coalition, and the consensus that that report helped to introduce, helped the introduction of those reforms, which are ongoing.

Although auto-enrolment had been envisaged by the previous Labour Government, it was reviewed by the coalition. It has been well introduced and we have had success so far, but as the noble Baroness, Lady Drake, warned us, there are issues that we will need to follow up. I hope that the Minister will give us some of the latest figures on auto-enrolment, as the figures that I have seen have not been updated since last year. Contributions are still too low, but the introduction of auto-enrolment has to be phased in. It is a start, and what we need now is stability of policy-making.

Two other reforms were introduced by the previous Government. Steve Webb was always concerned about charging. He imposed a cap on the auto-enrolment schemes, which was welcomed. The Government then got into the issue, which again I support, of providing choice and the ability for people to use their pension funds more flexibly. That was almost inevitable once people began to question the returns they were getting from annuities, as the noble Lord, Lord Flight, said. We need to encourage more saving. Frankly, if people feel restrained and do not have that choice, that in itself will be a deterrent to saving.

Looking to the future, there are a number of priorities that the noble Baroness, Lady Altmann, could look at. As people have said in the debate, there is a need for stability: people need certainty that these policies will now be bedded down and continued with. I think Steve Webb mentioned this recently: if there is one area where the Government could have done more it is improving communication and education. People need to save more, and if they are to be encouraged to do that they have to have a better understanding of and confidence in the policy, which needs greater stability.

I hope that we will use the digital facilities to help them. I will give one example. In the previous Government we tried to have better communication with people who were about to take their state pension, because there is very little communication with them. I suspect that this is the experience of others: every year I get a letter about my winter fuel allowance, telling me that it has been paid into my bank account. Frankly, that money and that communication should be used to prompt people either when they are undercontributing or when their pensions are not adequate to meet the requirements of their retirement. Just as endowment policy companies have been forced to write to people where their policies clearly were not delivering what they were meant to deliver, we should look at improving communication with regard to state pensions. It can be done more easily and cheaply digitally than by a letter through the mail, which I still get for my winter fuel allowance.

Now that the structure is in place for policy, clearly we have to look at other means of improving better saving. I support the views of the noble Lord, Lord Hutton, that we must look at the defined contribution alternatives and particularly the defined ambition schemes as a way of widening the debate to deal with the issues and people’s concern as they look at their savings and the poor returns that they could be getting from their defined contribution schemes.

Providers will be the key in the future. The confidence which consumers and potential pensioners have in the providers of their pensions is essential. There is still a lot of distrust over charges, because they are misunderstood and often hidden. If we are going to get into the whole issue of freeing up draw-down options, we must deal with the fact that every time we have had a reform in pensions and financial services, it has provided an opportunity for further fraud and mis-selling. If we introduce these things too quickly and before proper regulation is in place, we will have difficulties, and that will undermine confidence in savings. If there was a criticism, it is probably fair to say that the opening up has been done too quickly, which leads to the possibility that we will have more problems in the future.

We could have done with a few more years of Steve Webb in charge. However, I am sure that the noble Baroness will contribute to the ongoing debate in this important area, and I know that Steve Webb will be contributing to the debate outside Parliament. We on these Benches salute Steve Webb’s achievements in government and we hope that the noble Baroness, Lady Altmann, will defend and develop his legacy and that of the coalition in government.