State Pension: Women

Lord Stoneham of Droxford Excerpts

Thursday 3rd December 2015 Lords Chamber

[Lord Stoneham of Droxford (LD)]

My Lords, I thank the noble Baroness for initiating this debate and congratulate her on her ongoing efforts to campaign on behalf of women disadvantaged in our pension system. It is the first debate in which I have engaged with the noble Baroness, Lady Altmann, and I congratulate her on her appointment and wish her well—and wish her well in reply to this debate.

We know that women are hugely disadvantaged when it comes to pensions. Lower earnings and lower contributions have contributed to that disadvantage, and the trouble with pensions is that problems build up and are compounded. Change in pensions is always very difficult. We have seen that over the past five years, with the unravelling of many complexities that have built up in the past. We have had to deal with the economic constraints that have made it more difficult in helping that transition, and we have had to recognise that life expectancy is improving and that there is pressure for equality in pension ages.

Let us remind ourselves of the principal benefits of the new single state pension, which will be coming in in April 2016. The first benefit is that it is a much simpler system, and anyone who eventually has 35 years in that system will get a flat-rate pension and will know exactly what it is going to be. There are huge benefits from that certainty, which can help in planning and saving. We have got rid of the complexity, or at least we will, of the existing system of contracting out or contracting in.

A second advantage of the system, and the reason it was supported, is that it aims to improve outcomes for people who do not do well under the current system. Those are mainly women, particularly older women, whose participation in work and lower earnings have disadvantaged them. That has been helped by the retrospective re-evaluation of credits for contributions. The other group which benefits from the single state pension is the self-employed, a growing proportion of our working population.

The third advantage of the single state pension is that auto-enrolment can work only if we reduce means testing. With the state pension at £119, and with means-tested income just over £150, that means that any pension over £35 is immediately clawed back.

However, during the transition, there have inevitably been complications. There has been a misunderstanding, as there always is, that our pension system is contributory. That means that if you have not contributed for the full 35 years, even with credits, you do not get the full flat-rate pension. To do otherwise would be unfair on those who have made those contributions. Then there is the complication of contracting in. Those with the state pension will still get it, but those who have contracted out will get less. Many of them have other pension schemes, and it would be unfair if they, having paid lower contributions, got the same as those who paid the full contributions.

There is a third issue, which was complicated during the coalition Government by the Pensions Act 2011: the raising of the pension age. I accept that the notice given was probably too short. It would have been much more helpful to have a longer transition, but there were demands on the finances that insisted that it went ahead. Everyone who has been disadvantaged by the change, as the noble Baroness, Lady Jenkin, said, will have the benefit of the new single-tier pension, so advantages will accompany that change as well.

This debate is largely about the lack of information. In the pension field, information is never enough. One of the problems is that half the time people are not listening, because they do not want to. Sometimes they do not want to face up to the reality of their low savings in pension; it might make their working lives pretty miserable if they did. However, we just have to keep working at it.

There was a problem with the 1995 Act and the information that was given at that time. The 2011 changes suddenly stirred up a lot of people when they were told that the age was going up even more because they had not been properly informed of that first change. In the last few years, fortunately, at least we have had a good period for employment in terms of employment growth, which has helped people to come back into the labour market. We know that a lot of people who otherwise might have retired have stayed in the labour market, which, hopefully, will eventually be good for their pensions.

As we look at the efforts to inform, we have first to remember that we have been able to inform people only since March 2014, when this legislation went through. I understand that 500,000 personal letters have been issued where people asked for information, and, as someone who has delayed his state pension, I have to say that I recently rang up and it worked absolutely perfectly. I even found that I had another £30 from the state earnings-related pension scheme that I did not expect to have, and I had a letter by return of post. So it certainly worked for my sample of one, but clearly we have to do much more. Maybe the Minister could confirm the number of personal letters, because the key is to get people to register and go in and, as they start to think about their retirement and their pension, find out exactly what their pension position is.

I note in the Library papers that last autumn my colleague Steve Webb produced a detailed communication plan. I thought that it was actually quite good. Maybe the Minister can tell us the progress on it. Certainly a lot of work was done, although I accept that the situation can never be perfect.

The coalition Government initiated a number of top-up schemes for contributions. I know that not everyone can afford this, but there are voluntary contributions to top up this year’s pension. There is the possibility of delaying your pension so that you can take a 10.6% top-up, which lasts until April next year, and there is the top-up annuity, which has not been given a great deal of publicity but is available until April 2017, which, with the appropriate lump-sum payments, can lead to an extra £25 on your pension.

Obviously, the key is personalised communications. We want eventually to build up to a situation where people are getting communications 20 years, 10 years and five years before they retire, a bit like what is beginning to happen in the health service, where you are reminded about having checks and so on regarding your health. Similar things should be happening in the pension field as well. There is great scope for government departments to break down some of those silos. Why is the Inland Revenue, when it puts out its tax demands, not putting out reminders about people finding out about their pensions? Similarly, the health sector is sending out its letters. Some of these communications could be combined with promotion for what is happening in the pension field, as a way of sending money and increasing the number of communications. Inevitably, you just have to keep at the education effort to get communications through. Pension reform is not easy, but I think the single state pension will be seen as a great landmark for pension reform in the years to come.

There are just a couple of specific points that I want to ask the Minister about. We are talking about women being disadvantaged in pensions. There are two issues that are immediate at the moment. First, any delay in auto-enrolment affects women proportionately more. Could we have some details about delays that are already happening in auto-enrolment, and some assurance that as they go for this employment levy for apprenticeships the Government are not going to use that as a further excuse to delay the implementation of auto-enrolment?

Secondly, I come back to a point that I raised in a Question in the House a week or two ago: the whole issue of mobile portable pension pots. This is very important to women who are on low earnings and change jobs regularly; they need to be able to move their pension pots easily and together. I understand from the Minister’s reply that the Government, despite having had a policy laid down by the previous Government in legislation, are not contemplating implementing this until 2018. I hate to think how many pots will be available by then for people changing jobs in the interim. This is an issue that is set down in legislation; we should get on and do it because failing to do so will just build up further problems for women in the pension field.

With the single state pension, we have delivered on Beveridge’s principles. We have a pension approaching 20% of state earnings and a proper platform for private pension provision. Through the reforms of the previous Government, we have adjusted for life expectancy. We have automatic enrolment for private savings and, above all, we have the triple lock which improves and defends women’s pensions.