Social Security

Rehman Chishti Excerpts

Thursday 17th February 2011 Commons Chamber

[Steve Webb]

People often miss one important point. The numbers on pensions in payment are in a sense straightforward, because we know the level of the state pension and the average pension in payment. To give the hon. Gentleman a flavour, the average occupational pension in payment is £70 a week, and the basic state pension is of the order of £100 a week. If we give an extra 2% on the £100 and take 0.8% off the £70, it is clear that people in that typical situation will be better off. Those are long-term changes, so there will be a big cumulative effect for someone who is 25. Of course, they do not see the boost to the state pension—they do not see that, in 40 years’ time, 40 years’ worth of earnings link will be embodied in their state pension. It is very hard to project that, which is why those people do not see it. Overall, I am confident that large numbers of pensioners will be net beneficiaries of the change.

[Rehman Chishti (Gillingham and Rainham) (Con)]

I am grateful to the Minister for clarifying the situation on SERPS. Will he confirm that the previous Government did not uprate SERPS in 2010?

[Steve Webb]

My hon. Friend is quite right. One of my first tasks as a Minister was quite strange. I had to write ministerial letters to say why we the Government—meaning my predecessors—had frozen people’s SERPS pensions, which was precisely because the RPI was negative, yet inflation was not.

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[Stephen Timms]

My point is that people who have been contributing to those schemes throughout their working lives have done so on the basis of a promise, but the Government are now saying that that promise should be torn up, perhaps just a few months before somebody retires. Is that fair? As I am sure that we will hear in this debate, a lot of people feel that it is deeply unfair—and we can all understand why they take that view.

Lord Hutton’s report on public sector occupational pensions pointed out:

“This change in the indexation measure”—

from RPI to CPI—

“may have reduced the value of benefits to scheme members by around 15 per cent on average. When this change is combined with other reforms to date across the major schemes the value to current members of reformed schemes with CPI indexation is, on average, around 25 per cent less than the pre-reform schemes with RPI indexation.”

Even the Minister’s own Department, in numbers slipped out at the end of last week, estimated a fall of £83 billion in the value of occupational pensions over the next 15 years as a result. For the 2 million members of defined benefit schemes, that is broadly the same as a pay cut, on average, of between £2,250 and £2,500 a year.

The figure of £83 billion has gone up by more than 8% since the Department last calculated it in December. We ought to know why the Department got their figures so wrong last time round. My worry is that the Department does not really know what the impact of this ill-thought-through measure will be in reality. I ask the Minister, therefore, whether he can assure us that this—in itself alarming—estimate of the scale of the loss to defined benefit pension scheme members will not be revised any further.

[Rehman Chishti]

Am I right in thinking that the shadow Minister was a Treasury Minister in the previous Government? If so, will he clarify the fact that when the coalition Government came into office last May, we inherited the worst financial deficit of the G20 and the worst structural deficit of the G7 countries, and that that is why we have to make some tough decisions?

[Stephen Timms]

I was indeed a Treasury Minister—on four separate occasions. We managed the global economic crisis with great skill, to the extent that the increase in unemployment, which was widely anticipated before the crisis hit, did not happen. Under the previous Government there was about half the unemployment and half the home repossessions that we experienced in the recession of the early 1990s. I was indeed a Minister at the Treasury when those successes were being achieved.

[Rehman Chishti]

The shadow Minister talks about unemployment and the previous Government’s actions. Is that why my constituency of Gillingham had 30% unemployment for 18 to 24-year-olds in 2006? The figure for youth unemployment remained at 30% in 2007 and 2009, and was the same in 2010 before we came into government. Will the right hon. Gentleman apologise to my constituents for that record?

[Stephen Timms]

I agree with the hon. Gentleman about the damaging impact of youth unemployment, and I hope that he shares my deep regret that it has increased again. It is now the highest that it has been since comparable figures began to be compiled nearly 20 years ago. The highest figure ever recorded was published in the statistics yesterday. I certainly take the view that the Government need to do more to reduce that figure.

The estimate of a hit of £83 billion on defined pension schemes makes it clear that long after the deficit is gone, the Government will be keeping pensioners out of pocket. I fear that the order is the start of a move that will mean that millions of pensioners and other benefit claimants experience a fall in the value of their benefits every year, relative to RPI. If the Government had simply applied the much-vaunted triple lock this year, the basic state pension would be uprated next year far below the RPI level that the previous system would have delivered. That is the problem with the Government’s proposition.

That is not the only Government measure to hit pensioners. The Minister proudly and fairly read out a list of excellent things that the previous Government did for pensioners, which the present Government will not abolish. I am glad that they will not. However, they have increased VAT, which means that pensioner couples will be £275 a year worse off, and single pensioners £125 a year worse off.

The Pensions Bill means that some women approaching retirement will have their state pension delayed by up to two years, with very little time to prepare. That will mean a loss of up to £10,000 in basic state pension, and up to £15,000 for those who would have qualified for pension credit.

My hon. Friend the Member for Leeds West (Rachel Reeves) asked the Minister previously about an individual’s accrued rights, and I referred to that in response to an earlier intervention. Let me press the Minister again on the same subject. Why has he made such an abrupt U-turn? Before the election, he said:

“We are very clear that all accrued rights should be honoured: a pension promise made should be a pension promise kept. Therefore we would not make any changes to pension rights that have already been built up. I have confirmed that I regard accrued index-linked rights as protected.”

I am sure that the Minister would agree that all those who contracted out—all those in the local government scheme that was mentioned a few minutes ago—did so on the basis that RPI would be used for uprating. On the basis of what the Minister said before the election, those rights should also be protected. They are not; they are being explicitly downgraded in the Government’s proposals.

--- Later in debate ---

[Rehman Chishti (Gillingham and Rainham) (Con)]

I very much welcome these initiatives by the Government, as they will help to improve the quality of life of the elderly, who have given so much to our society, and that of the most vulnerable in society. It is absolutely right and proper that we help those who are most vulnerable.

I believe that the Government are right to use one index for uprating additional state pensions, public and private pensions and social security benefits, and that the consumer prices index is a more appropriate measure of changes in the cost of living than the retail prices index. The CPI is the headline measure of inflation in Great Britain, forming the target for the Bank of England’s Monetary Policy Committee. The CPI excludes mortgage interest payments, which are not relevant to the majority of pensioners and benefit recipients. In fact, only 7% of pensioners have a mortgage, and working-age benefit recipients can get help with their housing costs. The methodology used to calculate the CPI takes into account the fact that many people tend to trade down to cheaper goods when prices rise; the RPI does not do that. That comprises a significant portion of the gap between the CPI and the RPI. In terms of population coverage, the RPI excludes the significant group of pensioner households who receive 75% or more of their income from the state; the CPI includes them.

The intention of indexing benefits and pensions is to protect their purchasing power, not to give the highest increase possible. Increases in line with growth in the CPI maintain benefit and pension value and put the system on a more sustainable footing, allowing the Government to focus help where it is needed most.

[Sheila Gilmore]

If the change to the CPI is such a good move, why are the Government running scared of using it as part of the triple lock for the basic state pension this year and picking another figure out of the air in order, presumably, to make pensioners feel better about what is happening?

[Rehman Chishti]

The hon. Lady raises an interesting point, which I think was dealt with by the Minister. She refers to pensioners getting the right deal from the triple lock. It is important that we listen to what people in the third sector, not only politicians, say about how this will affect people. I have here a quote from Age UK’s charity director, Michelle Mitchell:

“We are delighted the Government is introducing a ‘triple guarantee’ to raise the basic state pension from April, and also a matching increase for Pension Credit which will help the poorest in later life.”

[Stephen Lloyd]

I take my hon. Friend’s point entirely. Does he agree that one of the profound advantages of the triple lock is that we will not have the deplorable situation of a few years ago under the previous Government, when pensions were uprated by 50p? There are real advantages to the triple lock: it means that people can be sure that they will have a decent minimum rise.

[Rehman Chishti]

The hon. Gentleman raises a good and pertinent point. He said 50p, but to be fair to the Opposition, I think that it was 75p. Even so, it was totally unacceptable. If we link that to other things that happened to pensioners and the elderly—for example, the closure of so many post offices that were a lifeline for them—it is clear that the overall package under the previous Government was completely unacceptable. This measure goes a long way towards improving their quality of life.

It is estimated that the average person retiring on a full basic state pension in 2011 will receive £15,000 more in basic state pension income, and that can only be a good thing. In the light of what I have described, it is absolutely right and proper. I fully support the move to the CPI and the wider package that the Government are putting forward.

Looking at the time and applying the principle that brevity is a virtue, not a vice, I will end my remarks.