Pensions Bill [Lords]

Mike Crockart Excerpts

Monday 20th June 2011 Commons Chamber

[Mike Crockart (Edinburgh West) (LD)]

I draw the House’s attention to my entry in the Register of Members’ Financial Interests, which details my paid employment in the pensions industry prior to my election last year.

I must admit to being a little confused by today’s debate. As a new Member, I had been under the impression that Second Reading was an opportunity for debate on the general principles of a Bill. I am also somewhat confused by the Labour party’s position. On the basis that some of the detail in the Bill is not yet right, it is prepared to throw the entire subject out and delay the reform that is necessary to move this country to a sustainable pensions system. It is worth spending some time looking at those general principles.

As has been noted, the present state pension age of 65 for men was set by the Widows’, Orphans’ and Old Age Contributory Pensions Act 1925, which was passed 86 years ago. That brought the pension age down from 70, which had been set in the excellent Old Age Pensions Act 1908. At that point, barely 40% of men lived long enough to claim it. The women’s pension age of 60 was set 71 years ago by the Old Age and Widows’ Pensions Act 1940, so change has not exactly been rushed into. As the hon. Member for Salisbury (John Glen) said earlier, this country’s demographics have meant that for decades we have faced a ticking pensions time bomb, but we have unfortunately been very slow to deal with it. We may well have started to do so in the past 10 years, but countries such as Sweden grasped the problem 20 years ago and introduced auto-enrolment back then.

Life expectancy is far from static, having gone up for those aged 65 by five years between 1920 and 1990 and, crucially, by a further five years between 1990 and now. Men can now expect to live until 77 and a half years old and women for four years longer than that, but not only are we paying state pensions longer; we can expect to pay them to far more people. As the baby-boomer generation of 1946-47 reaches retirement in 2012, 800,000 people will celebrate their 65th birthday—150,000 more than did so this year. It is now abundantly clear that our current state pensions system and its funding are entirely unsuitable and unsustainable. That is why I welcome the general thrust of this Bill and, indeed, much of its detail, but as we go forward it is clear that we have to sort out four elements to ensure a sustainable system.

First, we must be certain of what the state will provide. I welcome the current consultation, looking at the possibility of a single-tier universal pension, because, although it is not in the Bill, it is clearly part of the solution to the puzzle. With certainty about what they can expect from the Government, people will be able to decide whether the basic provision on offer is sufficient, although it is more likely to make it easier for them to decide to top up what is on offer.

Secondly, we must establish a level of state pension provision that is sustainable in the longer term and is regularly reviewed to ensure that it matches life expectancy. We simply cannot afford to find ourselves in this position again, having ignored the warning signs that our state pension offering has become unaffordable.

The current acceleration timetable for the state pension age will unfortunately, I fear, almost certainly fail to deal with the funding gap that I have outlined, but that does not mean that I support the Government’s current proposals, as it is quite clear that they will badly affect many women. It is simply wrong that those women, who are fast approaching their expected retirement age, will now be given as little as six years’ notice in order to plan how to cope with a delayed state pension. Some are already unemployed, caring for older relatives or working substantially reduced hours due to ill health.

The proposal hits especially hard those women who had already been told that their planned retirement would be delayed by four years. They are now being hit with a second delay. It will cause many to suffer unexpected financial pressures with insufficient notice, and it seems inequitable given the different outcomes for them and women of similar ages. An age difference of days could result in a pension two years later.

Unlike the hon. Member for Kilmarnock and Loudoun (Cathy Jamieson), however, I believe that there are signs that the Government may be prepared to move on the issue, and I urge them strongly to do so. The current acceleration timetable will not deliver sufficient progress, but, as Members have already said, a fairer way might be to accelerate the progression of the pension age to 67 and/or 68 years old and, by doing so, at least to give people 10 or more years in which to plan how they deal with it. That idea could find a great deal of support, given that Saga and Age UK have already proposed it, but I suspect that my support may well ensure that I am not a member of the Public Bill Committee.

On the third part of the pensions puzzle, we must make it as simple as possible for people to contribute to their own pensions provision and to take ownership of funding their own retirement. As we have heard, 7 million of us are not saving enough for our own retirement and 44% of working-age employees are not contributing at all towards a private pension.

That brings me to the fourth element of the solution—employers’ contributions. It is clear that to fill a funding gap of the size we are facing, we must strike a balance of responsibility between the state, the individual and employers. Mandatory auto-enrolment, as confirmed in the Bill, exemplifies that balance. The changes in the Bill will, I hope, do exactly what they aim to do in making automatic enrolment work, in the words of the title of the independent review. I hope that the provisions to raise the earnings threshold for auto-enrolment, to introduce the optional waiting period and to simplify the system of self-certification will increase employee and employer buy-in of the system.

Although raising the earnings threshold would certainly ease the financial difficulties of the lowest paid, it would effectively lock out of auto-enrolment those most in need of extra pension provision. Will the Minister reconsider that to see whether auto-enrolment could continue, merely delaying employment contributions until an earnings threshold is reached? Many examples of such graduated schemes already exist in the private sector. It is well known that even £1 invested earlier on for 40 years is likely to yield far greater returns than any amount invested 10 years later, once income has risen sufficiently to cross that threshold.

I agree with my hon. Friend the Member for Ipswich (Ben Gummer) that the proposals in the Bill are insufficient to deal with this immense problem. The auto-enrolment contribution level of 8% that is floated in the Bill is a start, especially from the low—indeed, at times non-existent—base that we have at present, but in many other countries the level is double that; in Sweden, for example, it stands at 18.5%. The proposed level is a good start, but only that.

More than five years ago, the Pensions Commission stated that

“there is…general acceptance that future policy needs to be based both on significant reforms to the state system and on a new approach to private pension saving which goes beyond a wholly voluntary approach.”

Having expressed my one concern about the Bill, I believe that it finally makes radical steps towards advancing that consensus, and I hope that the whole House will unite in supporting it.