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Pensions

My Lords, I congratulate the noble Lord, Lord Fowler, on proposing this debate. I have spoken in previous debates that the noble Lord has introduced on pensions, and I look forward to many more that he will introduce in future. I must apologise to the House that I shall not be able to be here at the end, not because of any frivolity but because the House of Lords bridge team faces the marauding hoards of the MCC, and I must be there to defend our honour. As an economist, let me lay down a couple of ground rules. In a fundamental paper about 47 years ago, Paul Samuelson, a Nobel prize winner, showed that in all pension schemes the working generations’ savings pay for the retired generations’ consumptions. How you do it is your choice, but whichever way you do it, that is a fundamental proposition. So in a sense, while we concentrate quite hard on what I would call the stock of assets and the stock of liabilities, eventually it is the flow payments that are important. That is for two reasons: first, eventually the payment has to be there, whatever your stock position; secondly, the stock positions are difficult to estimate accurately, especially if they are many years ahead. No more than 15 years ago we were proudly saying how we had the best pension system in the whole world, and we were ahead of everyone else in Europe. Given a stock market slump, the whole situation is reversed. We have to be careful in claiming either a big shortfall or a big surplus. If there is a shortfall in private schemes and we make existing firms top up too quickly, that may harm their own viability as ongoing profit-earning firms. We have to be careful not to kill the golden goose. Whatever estimates we have about pension liabilities compared to likely assets must therefore be treated with not just a funnel of uncertainty, but a huge cave of uncertainty. Having got that off my chest, I congratulate my noble friend on his new bed of nails. He arrives in this position when not only pensions are a problem, but also welfare reform. This is a great opportunity to link the two subjects. My noble friend Lady Pitkeathley pointed out how a silly rule about overlapping benefits actually has the opposite result from what was originally intended: people who are unable to afford it suffer when they move onto a pension from the carer’s allowance. What if we think of pensions, not as pensions, but as senior citizen’s income? What if we say that every senior citizen—at a cut-off point of 60 or 65, as you like—is entitled to a state income, regardless of their work record or contribution? What if we roll up the secondary means-tested pension along with the basic state pension, pay women as much as men get, and allow people roughly £200 to £210 a week? That is not a great fortune, but it would avoid abysmal poverty for people in old age. If we do that, we should not cancel the carer’s allowance, because they have an additional responsibility, not just for looking after themselves, but for caring—which has no retirement age, as my noble friend pointed out. There is all this fuss over the age of 65 or 67, but that is not a choice open to carers. We ought to look after the worst-off people. Moving from pensions to senior citizen’s income will cost. Every time I get up, I cost the Government another few billion pounds. But this is the time to do it, and, if it is done, welfare reform for other entitlement incomes might become much simpler. We might think about extending the principle of a citizen’s income to other entitlements. I urge the Government to be cautiously bold in this one respect. If we can do this, at least the danger of poverty would be relieved. As to the retirement age, once again it is hard to forecast how behaviour will change. We are all assuming that in 30 years’ time people will behave as they do now, and therefore x, y and z will follow. It is possible, however, that the way people work may change so drastically—working at home might become so much easier—that we may be able to suspend the notion of a retirement age. If we have converted a state pension into a citizen’s income that accrues to people regardless of whether or not they are working at a certain age, the pressure to retire at a particular age will become that much less.