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Pensions

My Lords, I, too, thank the noble Lord, Lord Fowler, for giving us this opportunity to debate pensions. I welcome my noble friend Lord Hunt to the first major debate on pensions to which he will reply. He has a hard act to follow as we all recognise that my noble friend Lady Hollis was expert at handling her brief. However, I am sure that my noble friend Lord Hunt will do extremely well. There has been much talk about a pensions crisis. While it may not be appropriate to describe the present situation as a complete crisis, there could well be a crisis in the future if nothing is done. Nevertheless some people today are facing acute problems because of the failure of the companies they work for and the consequent collapse of pension provision. In my years as a trade union official I was always keen to get members into final salary schemes. Indeed, such schemes were largely regarded as one of the major success stories of the previous century. For many people they have been an enormous success, enabling them to lead retirements free of financial anxiety. We did not, of course, envisage the collapse of the stock market several years ago, nor the bankruptcy of a number of major firms, leading to the disappearance of pension provision to which their employees had contributed believing their investment to be totally safe. I agree that the Government’s decision on tax in relation to ACT did not help very much. I disagree with the noble Lord, Lord Fowler, about the Government’s recent decision on public sector pension provision because all the Government seem to me to be doing are honouring existing contracts and offering different contracts to new employees. That, of course, happens all the time in the private sector. The Government have attempted to deal with some of the problems in their recent pensions legislation, a key element of which was the new Pension Protection Fund designed to provide compensation for employees caught in this situation. It did not at the time deal with the problems of employees who had already lost out, but some steps have been taken via the introduction of another fund to cope with those caught in the gap. I certainly supported all those moves but the major concern is that there may not be enough resources available in the funds to deal with all the problems that could arise. We also have a new pensions regulator with much wider powers than existed for OPRA. The Government are to be applauded on the steps they have taken to cope with that unfortunate situation. However, as many speakers have said, the problem remains the overall one that we have an ageing population. We are all living longer—which should be celebrated—but we may not be saving enough as a community, either individually or communally, via the tax system to provide adequately for future generations when they retire. The trade unions support occupational pension schemes, which they believe should be brought about as a result of negotiation between unions and employers, but think that there should be a system of compulsory contributions. The report of the TUC’s pensions task group recommends that contribution rates should be set initially at 6 per cent of all pensionable earnings in excess of £6,000 per annum, with a longer term target of 15 per cent. It proposes a 2:1 split in employer and employee contributions. There will no doubt be an opportunity for further discussion of this and other suggestions when we get the much awaited Turner report. I think, however, that compulsory contributions will be difficult to sell to the workforce unless there is more confidence in private occupational provision. People obviously will want to feel that their savings are safe. The Government have clearly realised that and hence we have the Pension Protection Fund and the financial assistance fund. However, most commentators on private pensions regard the state system as being the bedrock of pension provision. It has long been my view that the basic state pension should be substantially improved, and then increased regularly in line with the wages index. The Government have sought to deal with pensioner poverty through the introduction of the pensions credit. This has had the effect of lifting more than 3 million pensioners out of penury, but there is one drawback in my view—it depends on means testing. As a result it is expensive to administer and many very vulnerable people do not succeed in getting it at all. They do not receive it even though the Government have made a commendable effort to publicise it. Nevertheless it does not reach all those who are entitled to it. I still think that improving the basic state pension for everyone is the best solution. The Government’s fear that the money would go to pensioners who do not really need it can be met via the taxation system, as it is already—the better off would simply pay a little more tax, but pensioners would get the money as of right without having to make a case that they were poor enough to need it. Probably the poorest group of pensioners are women. I am glad that the Government appear to be giving a lot of attention to the position of women. I am particularly glad that the DWP document, Women and Pensions, has been produced. Although it does not offer any solutions, it sets out some of the problems with a great deal of clarity. The problems are ones with which we are all familiar. In a contributory system—which is what the state system is—women often have an interrupted record because they take time out of the labour market to care for children and often elderly or disabled relatives. Despite home responsibilities protection, which gives some cover for years spent caring for others, women often still do not qualify for the full state pension. About 30 per cent reaching the age of 60 do not qualify for the full state pension. The problem is even greater for women from ethnic minorities, particularly those with a Pakistani or Bangladeshi background, as for cultural reasons many of them spend a great deal of time out of the workforce and therefore do not make contributions. This very excellent report sets out the problems, although no solutions are offered. There is, however, a case for looking at the possibility of a citizen’s pension based on residence in this country rather than a contribution record. Of course, it would be rather difficult to introduce because something would need to be done in relation to those who had contributed and would obviously feel that their contributions should count for something. On the other hand, society may be changing very rapidly with almost all women involved in working for wages outside the home and men allowed more time off to participate in child support. It will be interesting to see whether the Turner report offers some solutions to those admittedly rather difficult and complex problems. I have found this debate extremely interesting and I thank the noble Lord, Lord Fowler, for introducing it.