Lord Whitty
Main Page: Lord Whitty (Labour - Life peer)Department Debates - View all Lord Whitty's debates with the Department for Work and Pensions
(10 years, 4 months ago)
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Lord Whitty (Lab)
My Lords, as my noble friend said, I have an amendment which is very similar to hers. It is worded slightly differently and in my view, and with no disrespect to my noble friend, it is in a better place—in other words, it relates to Clause 3 rather than Clause 2. However, the central issue is that for a lot of people who have worked most of their working life and have paid into the earnings-related pension in its various guises over that period, a figure of £144 or thereabouts will be a significant drop compared with what they might otherwise have expected.
If we are to have a scheme that is going to achieve a reasonable degree of support and consensus across the workforce and among potential and future pensioners, we need to pitch it at a level where existing workers do not miss out. I think that most of us are reasonably convinced that a single-tier answer is the right one, but it has to be structured on the basis of people’s existing expectations. The exact formula that we have in these amendments may not be acceptable to the Government but it needs to be a lot closer to current expectations for this reform to receive the kind of support that the Government are hoping for. At the moment, I know that £144 is, in a sense, a guess—or, if I am being nice to the Government, an informed guess—but it has raised alarm bells, certainly among the trade unions and those who, on pension schemes, represent the workforce who have hoped for more from the earnings-related element of the state pension.
I do not expect the Government to accept these amendments but I hope that they take the issue seriously before we reach the final stages of the Bill, and certainly in the regulations that are coming forward to define the level of the new single-tier pension.
Baroness Donaghy (Lab)
I support my noble friends Lady Turner and Lord Whitty. The pension letter that I receive reads a bit like a history book. Having completed the 40 years, I have a bit of graduated pension, some SERPS and some S2P. Obviously it all adds up penny by penny but, as I said at Second Reading, one of my concerns is that simplicity is not of itself the best objective. If the amount is set too low, the middle earners will not buy in to the new system. Any system that does not have a buy-in from the middle earners will, in the future, give rise to enormous political pressure from those people for some form of opting out, which I do not believe anyone in this room wants.
When we looked at all the charts at the briefing, we found the crossover point—which I think was in about 2040—before people start losing out. The discussion that took place on Monday about net versus gross may well place that crossover point a lot earlier, and people will see that they are going to lose out much earlier. They will then make a judgment about whether this flat rate is any good and, again, either there will be pressure to opt out or there will be pressure—dare I say it?—for SERPS, graduated pensions or S2P in about 20 to 30 years’ time. Therefore, this gives rise to very important issues.
I know that we are going to have another discussion about net versus gross when we come to later amendments, but I want to make the point that this is not a straightforward issue. I realise that there is cross-party consent about the flat rate but I am slightly sceptical about its long-term holding, although the Minister has said very confidently that it will last for more than 10 years. I hope that he is right, because the last thing I want to see is Governments tinkering with this. As I said, I do not want my grandchildren to have a history lesson in 40 years’ time in which they are reading about the different names for the pension.
Baroness Sherlock
My Lords, I can understand why the Minister might be reluctant to commit his Government—or indeed a future Government, should one appear before too long—to a particular level of uprating of any benefit. However, the device of my noble friend Lord McKenzie is very interesting. I realise that the Government are finding themselves under increasing pressure to agree to the triple lock, but I suppose that to a degree they are caught in a trap of their own devising, in that the more they trumpet the importance of a triple lock, the more people will expect them to carry on being committed to it. As we discussed on Monday, all the assumptions in the impact assessment and the various illustrations with which we have been furnished are based on the single-tier pension being uprated by the triple lock.
Obviously, the Opposition are in no position to commit to what they might do in any future Government. They would have to make a judgment based on the state of the public finances when they arrived. In the mean time, my noble friend Lord McKenzie makes a very interesting suggestion—that the Government should, if they choose a route other than the triple lock, have to tell Parliament and the public what they have and have not done.
Earnings have been lagging behind prices in all but one of the months since David Cameron became Prime Minister, but we live in hope that that will not always be the case. At that point, the difference could be quite significant and that would have to be taken into account by any future Government. I look forward to hearing the Minister’s reply.
Lord Whitty
Before the Minister replies, the noble Baroness, Lady Greengross, who has an amendment in this group, has had to leave. She apologises.
Lord Freud
My Lords, the engagement of the guaranteed minimum 2.5% uplift in April this year saw the basic state pension reach a higher share of average earnings than at any time since 1992. Next year, in 2014-15, the basic state pension will be more than £8 a week higher than if it had been uprated by earnings alone in this Parliament.
This Government believe that, like the basic state pension, the single-tier pension should be uprated by at least earnings to ensure that it retains its value compared to wages, but there is flexibility in legislation for above-earnings increases. I therefore reassure the noble Lord, Lord McKenzie, that the triple lock could be used for the uprating of the single-tier pension, as it has been in this Parliament for the uprating of the basic state pension.
Clearly, the noble Lord would not—and the noble Baroness, Lady Sherlock, was generous enough not to—expect me to commit future Governments for the next 47 years. Looking back 47 years would take us back to 1966. That was a long time ago. Was it the summer of love? Perhaps that was 1967, but in any case it takes us back a long way. Therefore, I do not think that one could commit any Government to anything, and I am sure that there will be lots of different Governments over the next 47 years. However, when you look at the proportion of GDP taken up on the assumption of a triple lock, it is possible that Governments will want to stick to it. The Office for Budget Responsibility adjusts for the triple lock by applying a 0.3 of a percentage point premium to the annual uprating of the basic state pension over and above the earnings rate.
Clearly, the triple lock has insulated pensioners from periods when the inflation rate has been relatively high, and has been particularly important in the unusually uncertain economic climate that we have seen in recent years. The Government do not want to constrain future Administrations by placing a requirement to uprate by the triple lock in primary legislation. It must be up to future Governments to decide, based on their annual reviews, whether uprating above the minimum of earnings is applied.
In response to the noble Lord’s question, the expenditure figures include the impact of the minimum qualifying period and deferrals, but the chart in chapter 3 of the impact assessment—there is a loser’s chart there —does not. No savings are assumed from passporting.
On the provisional outcomes on the basis of earnings upratings, the White Paper set out the assumption that the triple lock would be extended until 2060, but we have nevertheless demonstrated the impact on earnings upratings on expenditure in our impact assessment. That is in chart B2 in the impact assessment, which shows that the triple lock uprating has a progressively greater impact on expenditure, and therefore pensioners’ incomes, over time.
The annual uprating process for the state pension is transparent, based on a review made by the Secretary of State with reference to the general level of earnings and the overall economic situation. The indices for earnings and prices are published by the Office for National Statistics before the uprating decision is announced and are readily available. As a result, we see no advantage in committing in legislation to providing a relatively straightforward calculation. I therefore ask the noble Lord to withdraw his amendment.
Lord Whitty
Lord Whitty
I shall speak also to Amendments 20 and 21, 24, and 41 to 43. We are now moving to a different implication of the Bill. The strategic objective of the Bill to simplify the state pension system is broadly recognised, but, of course, the state pension is only part of the pension scheme. To some extent, the relatively low expenditure on state pensions in this country compared with some others is due to what was a very healthy occupational pension system covering a significant proportion of the population, although by no means everyone. Those occupational pension schemes will seriously be hit by the Bill.
That impact has not been highlighted in the Government’s public presentation of the Bill. You have to get to page 39 of the impact assessment before it is mentioned. Page 39 clearly states that the net impact on occupational pension schemes will be £5 billion a year.
I shall speak generally about public sector schemes, and most of these amendments relate primarily to them. I declare a non-pecuniary interest as a vice-president of the Local Government Association and a member of the GMB. I was also, until relatively recently, chair of one of the funds in the local government scheme, the Environment Agency scheme.
As I mentioned at Second Reading, I have a longer historic interest in this, but not quite as far back as 1966—I was at the cup final, by the way, and have not had such a high point since. In the early 1970s, I was instrumental in setting up an occupational pension service in my union, now the GMB, to establish in the private sector schemes which covered manual workers for the first time and to make improvements in public sector schemes to allow, in particular, part-time women workers into them for the first time. Those who were in their 30s and 40s at that time retired on a pretty decent pension. As has been in the headlines over the past few days, it is clear that those who retire in a few years’ time—those who are in their 40s and 50s now—will have less good pensions and a less good life in retirement than their parents.
There are many reasons for the withdrawal of occupational pensions, particularly defined benefit pensions in the private sector, and their dilution in the public sector, including the recession, the fall of asset values and, I would argue, the rather overrigorous way in which we judge the assets of pension schemes. They have also been affected by this Government’s activity, particularly the Public Service Pensions Act, which had a direct effect on public sector pensions, and the very significant indirect effect of this Bill.
This arises at various points in the Bill. Schedule 1 and Clause 4 deal with the ending of contracting out. Aspects of this are covered in Clause 24, Schedule 13 and Schedule 14. The net result is that, as a result of the withdrawal of the rebate arising from the ending of contracting out, employees in such schemes on between £109 and £770 a week—in other words, the vast majority—will have to increase their contribution as employees by 1.4% and employers will have to increase their contribution by 3.4%. In the case of the LGPS, this means an increase for employers of £700 million a year, plus £300 million for employees, or £25 per month for the average employee member of the scheme. Equivalent levels will arise in other public service schemes. It will be £0.9 million for employers in the National Health Service, for example.
It will have a very significant impact on the viability of these schemes. It is a logical effect of the Bill, and there is a real dichotomy at the heart of the Bill which by simplifying one part of the pension system is undermining the other. There is no obvious solution. These costs of £4.2 million in the public sector and £0.7 million per annum in the private sector will somehow have to be compensated for, either by the Treasury—I assume that, as of today, the Minister has no agreement to that, but one of my amendments addresses that situation—or by those who are in charge of the governance of such schemes. In the private sector, many such schemes have already been forced to reduce benefits, and to some degree that has applied to the public sector as well. In the public sector, it took a lot of negotiation between employers and the unions to ensure that we are now in the process of implementing the changes due to the Act earlier this year.
Lord Whitty
I thank the Minister and noble Lords who have intervened, largely in support of doing something about this situation. The Minister has kicked a ticking time bomb down the road, effectively saying that this threat to the future of occupational pension schemes, in the public as well as the private sector, will only be dealt with by the next Parliament and probably not then. Whoever is in power at that point is going to have a problem. We have long relied on occupational pension schemes to provide an assured income in retirement as part of the terms and conditions of working within that particular public sector or that particular company. If we are reneging on that—and it is a reneging—then the Government of the day will find themselves in some difficulty if we pass this Bill as it currently stands. The Government need to think again.
As I said, there may be other ways of dealing with this, or at least cushioning it. Yes, there will always be winners and losers in the short and long term, but it must surely be the Government’s intention, in the long term, that effective, well run and well funded private occupational pension schemes—a non-state occupational pension scheme—should continue to be part of our landscape and available on good terms to workers of all sorts.
This indirect effect of the Bill threatens that and is a very serious prospect for the future pensions landscape. I hope therefore that the Government will think again, preferably by Report. I welcome the round table, as long as Merlin is also present, because this will require some degree of ingenuity. I am not sure that the Minister has demonstrated that appropriately today but for the moment, I will withdraw my amendment.