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Pensions

My Lords, I declare an interest in this subject as chairman of the financial services division of Beachcroft Wansbroughs. I also welcome the noble Lord, Lord Hunt of Kings Heath, to the Government Front Bench. Once again, we are greatly indebted to my noble friend Lord Fowler for giving us this vital opportunity to discuss this important subject again. Listening to the speeches so far, I am greatly heartened by the potential for a consensus both within parties and between parties about the nature of the challenge that we face. I hope that the Government’s response to the Turner commission will be well considered, brave and also—if it is in any way possible—underpinned by that broad, cross-party consensus. However, there is excessive complexity in the market and confusion in the minds of the public. It inevitably starts with the lack of clarity about the one area of the pensions maze with which we are all involved; namely what the state will provide. I am not implying for one moment that it is easy to provide guarantees about what the hard-pressed taxpayer will be able to provide in 2050 or even 2015; yet it is incredibly difficult for citizens to make rational decisions about those important matters if there is substantial and widespread uncertainty. The nature and extent of state provision in the longer term are the Alpha and Omega of this debate; all else flows from them. That is the main reason for turning this into a cross-party matter rather than one forced to exist under the cloud of partisan debates. Otherwise, how on earth can citizens make the necessary decisions about the situations that they are likely to face in 20, 30 or 40 years’ time? The situation of course is made far worse by complex products and complicated tax rules. All of that threatens to obscure the one, all-important fact; it does pay to save. Looking at this morning’s press reports, I offer one word of caution. Whether it is due to the commission or to the journalists’ embellishment, there is a serious danger of not comparing like with like. Press reports suggest that BritSaver, as it seems to have been dubbed—the nationalised pension savings plan to be more accurate—would cost 0.2 per cent, while personal pensions cost 1 per cent to 1.5 per cent. That is a gross oversimplification; one of those includes the cost of advice and the other does not. BritSaver does not make the need for advice go away; the cost has to be included somewhere. Moreover, the true costs of large occupational schemes and group personal pension schemes are actually very similar; a figure of 0.4 to 0.5 per cent might reasonably cover both. I hope that we do not make important changes to the way society provides for its retirement on the basis of misleading and partial figures; we will need to get to the bottom of that. As I pointed out, the principal role of the state must remain the prevention and alleviation of poverty. That surely requires a simplification of the state pension. Please would the state remove significant complexity from that provision? That would enable those consumers who can afford to save to see more clearly what steps they need to take if they aspire to a more comfortable standard of living in retirement. The state must encourage people to save on top of what the taxpayer is able to provide. The incentive must be strong, clear and unambiguous. That is why the system of tax relief on pension contributions is so important, and also why it is essential for the state to ensure that the system of regulation allows the private sector to flourish to the benefit of all. I shall give some tests by which we should judge the Government’s response to the forthcoming Turner report. First, how many more people will end up with sufficient retirement saving? According to the DWP, 12 million people are undersaving or not saving at all at present. The noble Lord, Lord Turner, apparently concludes that sufficiency for a high/average/lower earner means a retirement income that replaces 50 per cent /67 per cent /80 per cent, respectively, of pre-retirement earnings, which seems to me a reasonable thumb-rule. Lifting people off means-testing is worthwhile, but on its own it will not enable most to meet their aspirations for their retirement; that will require bold policy. Future generations will pay if the Government duck big decisions for tomorrow for fear of angering businesses and voters today. Secondly, we should ask, as other noble Lords have already, what the proposals do for specific underpensioned groups, such as women, carers and self-employed people. Thirdly, we should be asking whether workplace pension provision will be revitalised. There is clear evidence and consensus that the link between working and saving for retirement should be exploited, not diluted. I would like to see targeted incentives to encourage employers to contribute to workers’ pensions, tailored to reflect the fact that we cannot expect the same kind of behaviour from small and medium-sized enterprises and self-employed people as we might expect to see on the part of larger firms. Radical and urgent action in this area is desperately needed. Fourthly, we should be asking whether the people of this country will engage much more positively with the proposition that they need to plan for the future. The people of this country need to change their behaviour fundamentally, and it goes without saying that there must be a limit to compulsion. Unless citizens of their own free will begin to defer a significantly higher proportion of their consumption, we simply cannot sort this problem out. That is why we need a Government and industry partnership for consumer engagement, based on sustained awareness-raising campaigns.