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Pensions

My Lords, I am happy to join with the noble Lord, Lord Fowler, both personally and on behalf of these Benches, in his tributes to the noble Baroness, Lady Hollis, and the noble Lord, Lord Higgins, and welcome to the noble Lord, Lord Hunt. We have just heard in the speech of the noble Baroness, Lady Hollis, what a doughty fighter she is for women and what a loss she is to the Front Bench. Although the noble Baroness did not put it in terms in her remarks, one can deduce from her speech that she was one of four Labour speakers in the debate, in addition to the noble Baroness, Lady Greengross, who has argued for a much higher basic state pension, particularly to help women. I include in that group, of course, my noble friend Lord Kirkwood. As we approach the Turner report, that is a powerful message which reflects the developing strength of the case on the other side of the House; indeed, in all quarters. My noble friend Lord Kirkwood certainly made an excellent and concise argument for a high, non means-tested basic state pension so as to aid women. We have also heard powerful speeches from three Conservative former Cabinet Ministers. The noble Lord, Lord Fowler, was on his usual coruscating form, if I may say, and as noble Lords will hear when I develop my arguments on public sector pensions, I agree with much of what he said. I refer also to the noble Lords, Lord Freeman, Lord Hodgson and Lord Hunt of Wirral, who all gave us insightful and powerful descriptions of the problems facing private sector pension schemes. I intend to concentrate on the public sector pension issue, partly because otherwise we would be rather anticipating what we think the Turner report is going to say. I do not believe that it will be a central issue of that report, but I do believe that it is something we must face up to now. I should declare my interest as a pension fund manager for almost 30 years, and a member of my own small self-administered pension scheme, which is rather like a SIPP; that is, a private pensions pot. With A-day for pension simplification looming next April, when I shall be 59 and thus almost of public sector pension age, I will probably decide to start drawing my own pension. How much will I need? I thought that I had better take a look and get a few quotes for what I can do with my pension pot. What about starting with the equivalent of an MP’s maximum pension under the current House of Commons scheme? There an MP would retire now on £39,400 a year after 26 years and eight months’ service, with an index-linked spouse’s benefit at five-eighths of the MP’s pension and unlimited indexation of pensions in payment. How much of my pension pot would I need to buy that pension from, say, the Prudential? I would need the sum of £1.2 million. What about a Permanent Secretary with, say, 38 years in the Civil Service and retiring today at 60 on an index-linked pension of £62,000 a year? The man from the Pru would charge £1.9 million for that one, or £3.8 million for a pension of £125,000 a year at the top end of the Permanent Secretary’s range. Doctors in London—though not just in London because my wife is a doctor, although part time—quite normally now earn £100,000 a year. At the end of a normal working life, the pension value would be around £1.5 million on those prices. I did not even dare to get a quote for a judge’s pension because I know how sensitive our friends in that area are about their contractual rights. However, I am delighted that the Government at last seem to appreciate the absurdity of introducing a Bill to exempt only judges from a new tax on pension rights which is to apply to everyone else in the United Kingdom. I give these examples not because I begrudge our dedicated public servants a decent pension—accrued pension rights must be respected and changes must have long lead times, but something like a 20-year lead time would be reasonable, not the 40 years the Government have now conceded—but because we must face up to the widening chasm between our two nations of pension provision. It is unfair and it will make it much harder for people to move between the public and private sectors over their careers. Not only will that be a loss to them, but a loss to the economy as a whole. There is a growing sense of injustice as the unfunded liabilities of public sector schemes grow and people in the private sector anticipate both worsening pension provision for themselves and higher taxes. Almost all of the public sector, whether in funded or unfunded schemes, enjoys what nowadays can only be described as gold standard pension provision—defined benefit schemes with no limitation of guaranteed price indexation of pensions in payment to 2.5 per cent a year, which the Government introduced in the Pensions Act for private sector schemes; no need to pay possibly crippling insurance premiums to the pension protection fund, as the noble Lord, Lord Hodgson, pointed out; and an open-ended guarantee of public sector pensions from taxpayers and council tax payers. The noble Lord, Lord Turner, whom I warmly welcome to the House—I remember him as a very bright young man on the Economic Affairs Committee of the SDP many years ago—referred to the memorable statistic that the public sector employs 18 per cent of the country’s workforce with 30 per cent of the pension rights. On the present rates of closure of good quality DB schemes in the private sector, only the directors’ schemes—and here I agree very much with the point made by the noble Lord, Lord Rosser—of some FTSE 100 companies and the main schemes of a few very big oil companies and banks will offer pensions remotely in the same league as the public sector in five years’ time. There might have been a case for these levels of public sector benefits when comparable benefits were common and when public sector employees earned less than those in the private sector—but now that is just not so. National Statistics last week published the results of the 2005 annual survey of hours and earnings. Median full-time weekly earnings in the public sector were £475 a week in April this year, up by 4.1 per cent from a year ago. Median full-time private sector earnings were £413 a week, up only 2.8 per cent over the year. The public-private sector pay gap had widened to £62 a week from £53 a week last year.