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Pensions

rose to call attention to the current issues concerning public sector and private pensions; and to move for Papers. The noble Lord said: My Lords, we welcome the noble Lord, Lord Hunt of Kings Heath, to what is his first proper pensions debate. The noble Lord comes from Birmingham, but that is not his only great distinction. I first came across him when I was Secretary of State for Health and he was director of the National Association of Health Authorities, forever issuing disobliging press releases about my policies. I knew that my turn would come. He has been out of government for some months following his resignation and I fear that he may not find his new area the best inheritance in Whitehall. Indeed, if they were not such a nice bunch, I would almost suspect that it was the revenge of the Government Whips. From this side, we were sorry to say goodbye to the noble Baroness, Lady Hollis, who has departed from the Front Bench. She was a formidable debater and at times was capable of arguing the most dubious of cases with enormous skill. I know that at this moment she is hurrying from a pensions conference to take part in the debate. Also from this side of the House, we are very sorry to say goodbye to my noble friend Lord Higgins, who has done a tremendous service for this party in a whole variety of positions. But obviously we very much welcome in his place the noble Lord, Lord Skelmersdale. I declare an interest in that I was in charge of pensions policy for six years in the Cabinet of my noble friend Lady Thatcher, and I am also a member of the funded House of Commons pension scheme, albeit before the newest, and I think very difficult to defend, accrual rates were introduced. I will say one thing for this Government. Over the past eight years, there has been no lack of inquiries, no lack of commissions and, for that matter, no lack of Secretaries of State—we have had four in the past two years—taking a fresh look at the pensions problem. The Government have been rather like a company which has called in consultants but cannot bring itself to do any of the things that they recommend so they bring in more consultants. In the outside world, that process leads to bankruptcy, which is, frankly, just about where pensions policy stands at the moment. Back in the heady days of 1997, the Government appointed Frank Field to think the unthinkable and then, a few months later, sacked him. In 2002 and 2003, they published Green and then White Papers on pensions and now, in 2005, as I will show, they reject their own declared policy. As for action, the most important step was taken not by the Secretary of State for Work and Pensions but by the Chancellor of the Exchequer when he imposed the notorious £5 billion a year pensions tax. His takings from pensions now total something like £40 billion, and that has been one reason why we have seen the collapse of final salary schemes in the private sector, where, we might remember, 80 per cent of the population work. But let me be more specific about government pensions policy and examine an area where the Government have direct policy and financial responsibility—that is, public sector pensions and policy on the age of retirement. There is little or no doubt about the demographic trend. The latest government inquiry by the Pensions Commission, headed by the noble Lord, Lord Turner, whom we certainly welcome to this House and whose report we saw today in the Financial Times some weeks ahead of official publication, sets out the position very clearly in its first report. The Executive Summary of that report states:"““Life expectancy is increasing rapidly and will continue to do so. This is good news. But combined with a forecast low birth rate this will produce a near doubling in the percentage of the population aged 65 years and over between now and 2050, with further increase thereafter””." That means that the ratio of the over-65s to the working population between the ages of 20 and 64 will increase from 27 per cent today to 48 per cent in 2050. In other words, the working population will have to finance not only their children but also an increasing number of retired people. That, of course, is not a new message. Twenty years ago, when I published my own pensions White Paper, I set out the same kind of forecast, although at that time I was challenged by spokesmen of the party opposite, who then wanted a reduction in the retirement age. Self-evidently, this demographic trend has a major effect on the Government, who, through the taxpayer, are financing public sector pensions. Many of the big schemes, such as that of the Civil Service and the health service, are unfunded in that they are not backed by marketable assets. They are run on a pay-as-you-go basis, and the taxpayer not only stands behind them but also picks up the bill. What is the size of that unfunded liability? The only disagreement is how vast the liability is. The last official estimate was £460 billion. The estimate of the actuaries Watson Wyatt is almost £700 billion, and the latest estimate from the much respected Institute of Economic Affairs is that it is more than £800 billion. My own view is that we would be wise to veer to the estimates of bodies such as the IEA, which has a good track record and no interest in understating the liability. But we can all agree that there is a formidable liability and, as the Turner commission says more generally, unavoidable choices in the policies to be pursued. No one policy will meet all our aspirations for a decent pension system for both men and women in this country—I emphasise ““pensions for women”” because that is a vitally important area as well—and, at the same time, be just to all our citizens and be afforded. But on one point all the Government’s advisers were united: future policy needs to include an increase in the retirement age. The summary to the Turner commission’s report stated:"““Our response to the demographic challenge should include a rise in the average age of retirement””," and that is confirmed by the reports today. The Government’s own White Paper was even more specific on public sector pensions, where the normal retirement age is 60. In their Green Paper they had proposed raising the normal pension age to 65 and in the White Paper they confirmed that policy. They said that all new staff would be recruited on the basis of retiring at 65 and—this is the important point—negotiations would start with existing staff to see on what basis the policy would be applied to them. That was their statement. Against the background of the vast unfunded liability, that was entirely sensible. Members of the public sector schemes could look forward to index-linked final salary pensions, which few of those who were financing those pensions could expect. It was entirely reasonable to ask for that. Let us be clear. No one has ever proposed that a man of 58 or 59 years of age would suddenly be told that his retirement age had just been increased to 65, but the plan would be to increase it by steps for staff in their 20s, 30s and 40s and perhaps even by a little for those in their early and mid-50s. That is what the negotiations were intended to be about and the Government said they were determined on that point. The White Paper not only said that explicitly but added:"““The Government has a responsibility in its role as a large employer to lead the way in addressing the social and economic consequences of demographic change””." And Mr. Alan Johnson, the Trade and Industry Secretary, said only the day before the final negotiation that the case for raising the retirement age was ““irrefutable””. He went on:"““We are healthier, living longer. The problem is that there are fewer people working, funding more people in retirement. For us to say to the private sector, ‘You have to work longer and save more money’, and to the public sector, ‘You stick with your retirement age’, is impossible””." And so how did the Government pursue their leadership role? How did they argue this ““irrefutable”” case? The answer is that they did neither. The public sector unions rattled their sabres and the Government collapsed. It takes quite a lot for the Financial Times, the Daily Mail and the Morning Star to use the same splash headline but they did so on the following day. The Financial Times said:"““Labour caves in over pensions””." The Daily Mail said:"““Labour caves in on public sector pensions””," and the Morning Star said:"““Ministers cave in on pensions””." Only the Morning Star used the phrase in praise of government action, but all three newspapers were right in their analysis. For, although at some stage new employees will be recruited on the basis that their retirement age is 65, all those already in employment, be they in their 20s or 30s, will still have a retirement age of 60 in addition to their indexed final salary pension. Lucky them. For in the private sector, final salary schemes are closing, and there is little prospect of new ones being created. And in the private sector, retirement ages are being increased. This does not show a Government leading but a Government abdicating responsibility and taking a decision they know to be both wrong and unjust. It is not fashionable in this House to be passionate, let alone on a subject such as pensions. But in my view this ranks as one of the very worst decisions that the Government have ever taken. I will tell your Lordships why I feel so strongly. In pensions policy, there are obvious differences between the parties and those of us who take part in these debates, but there is also a bipartisan aim to improve and settle the position. This is not an area in which we slavishly follow party policies. I supported the pension credit, to slight disgruntlement on my Front Bench, not as a permanent benefit but as a means of helping now those people who did not have the opportunity of building up their own, and my support was quoted by Ministers in the other place. I also believe strongly in people building up a second pension outside the state system. I have always been attracted by the compulsory pension saving scheme in Switzerland, which, again, is not exactly the policy of my party. Where are we left now in reaching sensible, agreed reform of pensions? The fact is that our plans have been torpedoed and destroyed by this baleful decision. How can you say to a man or woman in the private sector, ““You will work to 65 but your colleagues in the public sector, who may well be better paid, can retire at 60 on a pension you can only dream of and, incidentally, to which you are contributing””? How can you say to the man or woman in the private sector, ““We want you to save for your retirement and are even prepared to compel you to save more””? Might they not say, ““No way. The state should provide, just as it does with public sector pensions””? How on earth can the Prime Minister, as reported today and yesterday, contemplate raising the retirement age generally following the Turner report, having just run away from the decision with the public sector? Frankly, this is a public sector solution for the benefit of the public sector, agreed, I regret to say, by people who have no idea of what is happening in the labour force generally. Worst of all, they have no concept of the damage that they have done and are doing. This is a major setback to sensible pension policy in this country. It goes against the advice of the Government’s own advisers. It is a further kick in the teeth to the millions of people working in this country who do not have the benefit of an index-linked final salary scheme. Above all, it creates two nations in retirement: a privileged minority, ironically, are supported by a majority who do not have the same benefits. It is unjust and it is unfair. It is a policy which must be changed, if not by this Government then by a new one. The position cannot rest where it is.