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Pensions

My Lords, I begin by congratulating my noble friend Lord Fowler on achieving this debate against some opposition, muted though it was. The House was no doubt surprised to find the subject of pensions on the Order Paper just days before we are promised the second report of the Pensions Commission. Whether this Motion appearing on the Order Paper caused the leaks that we have seen in today’s Financial Times is a moot point. Nevertheless, as the noble Lord, Lord Young of Norwood Green, said, it is as a background for that report that this debate is being held. The noble Lord laid into the previous Conservative government, but I remind him that this Government have now had eight years to act. However many recriminations we have heard—I shall make a few—we should remember that we are where we are now, as the noble Lord, Lord Oakeshott, has just said. Thus, I was pleased that the noble Baroness, Lady Hollis, majored on that. Earlier in the debate there was a reference to beds of nails, and I observe that not one or two but four fakirs are speaking in this debate. As many speakers have said, the Government are in a mess on the pensions issue. The result of the debate on the Terrorism Bill in another place last week has been widely remarked upon in the newspapers. But I regard the subject of the health and wealth of the nation’s retired people to be even more important, and I am glad to know that, since I took this job, hardly a day has gone by without the thorny question of pensions being covered in one newspaper or another—not that any of them have any ideas as to what to do about the problem. However, they all accept that in 1997 the Government inherited the best pension position of any country in Europe. Today, eight years later, as the noble Lord, Lord Desai, pointed out, we are in the position so ably described by your Lordships today. I agree with the noble Baroness, Lady Greengross, that a consensus is required. But, as I shall say later, it takes two to tango. However, it is not true to say that the Government have done nothing. Last year’s Pensions Act set up the insurance scheme for occupational pension schemes, known as the PPF. There are inevitable problems with the annual premium levels that such schemes should pay, and my noble friend Lord Hodgson spoke vehemently about the unfairness that is currently proposed. That said, I am sure that they will be sorted out in time. In addition, during the passage of the Pensions Bill, the Government were forced by a threatened Back-Bench rebellion to set up a fund to give a small pension to retirees who had lost all their pension entitlement because their firms and final salary schemes had gone bust. Considering what they have missed out on, that is far from generous. Both these schemes help a little but do nothing for the myriad of people who have only their state pension, with or without pension credit, to rely on in their old age, which is lasting longer and longer. More curious in the Act was the provision of a lump sum option for members of the workforce who choose to carry on working beyond their retirement age and do not draw the state pension. That, of course, is an alternative to the enhanced weekly amount that the Conservative government brought in for such people. I railed against that commutation at the time on the basis that pensions are a means of saving for retirement and are not intended to build up a ““pot”” which can be spent on anything—a holiday or paying for a new kitchen or whatever. The only thing that can be said for that part of the Act is that it might—just might—act as an incentive for people to extend their working lives. We are now told that people must extend their working lives. When she was Prime Minister, my noble friend Lady Thatcher coined the phrase, ““There is no alternative””; indeed, on this issue, there is not. That brings me to joined-up government, which was mentioned by my noble friend Lord Fowler. It was around the time that the Bill was enacted that we had the Budget which, among myriad other matters, capped personal pension funds at £1.5 million. Any amount over that figure was taxed at 55 per cent. Of course, that affects only a small number of people. Shortly afterwards came the election and the gracious Speech, which proposed a Bill to take judges’ pensions out of this regime. Last week, it was quietly dropped, infuriating the judges, who suffer a serious pay cut when they are appointed but can afford, during their time at the Bar, to build up a large pension pot. It was a proposal to divide the rich, and I am not surprised that we are where we are. The Chancellor of the Exchequer has stamped heavily on the toes of the noble and learned Lord the Lord Chancellor and those with large pension pots. Another effect of the election was for the Prime Minister to move the former Secretary of State for Work and Pensions to the DTI, but asking him to retain control of public sector pensions. A few months later, he had several meetings with representatives of the teaching profession, the Civil Service and the NHS, and committed the Government to allowing those members already in work to continue to their current retirement age—usually, but not universally, 60—while insisting that new employees work until they are 65. Can the Minister explain how overall public sector reform is intended to be implemented when the Deputy Prime Minister insists that his department is considered separately from the ongoing negotiations? How are reforms ever to be carried out if every time a strike is threatened, the Government return to square one? This does not appear to me to be joined-up government. And if the Government cannot persuade the public sector unions’ members of the need to work until they are 65, how on earth are they to convince them to work until they are 67? The noble Baroness, Lady Turner, whose expertise on pensions I recognise and welcome, does not seem to realise that the contract is not really being torn up. The existing public service employees have made their contributions on the basis on which they joined first their work and then their scheme. If they worked longer, it goes without saying that they will receive more in retirement. Two other points arise. Why are the Government treating the public sector employees differently from private sector employees currently in work? They are encouraging private sector workers to work more and retire later to prepare for their retirement. However, they do not dare to say the same to public sector workers. Of course, certain jobs, such as those in fire fighting or the Armed Forces, must be taken into special consideration, but that need not stop pension policy being pursued equitably across all sectors. What does such a policy do for recruitment in the public sector? I shall not go into detail, but the Government are not even applying the same standards of transparency to themselves as they apply to private firms. The Institute of Economic Affairs estimation of the Government’s public sector pension liability is nearly twice as high as the Treasury’s. The Secretary of State for Trade and Industry has acknowledged that it is unfair for public sector workers to enjoy greater benefits than the private sector workers who fund them. Nevertheless, he has failed to follow through any reforms that will reduce the problem and is now proposing public sector reforms that will not be completed until after 2044. Why is he not following the well trodden and acceptable path that the previous Conservative government introduced for extending women’s working life, another thing we are led to believe the Turner report will say? When I left school, I could realistically expect to live until I was 77. Today, I can reasonably expect to remain alive until I am 81. In other words, for every 10 years that pass, I can foresee living for one extra year. The need for people to save and the Exchequer to have an achievable commitment to state pensions is therefore clear. The noble Lord, Lord Freeman, and my noble friend Lord Trenchard raised that matter, but that is not the only problem that the Government have visited upon us. The Prime Minister stated in February that he did not want the majority of people to be on means-tested pensions, but his policies have been predicted to achieve exactly that. Some 46 per cent of pensioners are subject to means testing now and that will rise to 64 per cent by 2025. When £1 of income from a private pension can lead to a 40p drop in one’s state pension, is it any wonder that many people do not consider private pensions worth their while to save for? Alas, time does not allow me to give my views on personal and occupational pensions mentioned by so many of your Lordships today. However, I point out to the noble Lord, Lord Rosser, that pension schemes had no option but to take pension holidays—the Inland Revenue demanded it at the time. I hope that the forthcoming report of the Pensions Commission will be fully and completely costed, because from the leaks that we have heard and seen, their recommendations are potentially unaffordable. The important thing is that the report should spur the Government on to the necessary action and soon—not, as the Prime Minister has suggested, in the next Parliament.