---

Pensions

My Lords, I try not to. The Pensions Commission’s first report made clear that the implications for pensioner income will be more serious in 20 to 25 years’ time than in the next 10, although I fully accept the warning that my noble friend made about the position of many women. As my noble friend Lord Lea suggested, we face demographic change, but so does every developed country and the scale of change that we face is less than in most countries in Europe. I am not complacent; but there are some strengths to our current system that we must build upon rather than build the problem up into a crisis. Meeting older people, as I have done, in a number of sessions to talk about pensions, actually makes them feel that they are a problem. That is wrong. We must look at older people as being an asset to society. In all that we do in relation to pensions or encouraging people to work longer, we need to recognise the strength and contribution that older people can make in our society. If I could summarise the comments made on the Benches opposite about the Government’s record, I would have to say that they were not entirely complimentary. But I want to put that into context; surely, the root of our private pensions’ challenge lies back in the early 1990s. We all remember the mis-selling scandals, which started to create an air of mistrust in pensions—and I am sorry that the noble Lord, Lord Fowler, was rather quiet on that subject. There are a number of reasons for the recent problems besetting defined benefit pension schemes, but we cannot ignore the stock market fall, which is worldwide rather than just a British phenomenon. I realise that a number of noble Lords here have taken part in pensions debates over a number of years, and clearly the withdrawal of payable tax credits is something that noble Lords have debated on a number of occasions. The Pensions Policy Institute, which we all respect, has estimated that the impact is significantly less than £5 billion a year. Indeed, as my noble friend Lord Young said, whatever the short-term effect of the measures on pension schemes might have been, it was small compared to the other factors that I have already mentioned, such as stock market trends. Surely, we cannot ignore the wider package of corporation tax reforms that took place at the same time. We should not underestimate, either, what the Government have achieved for pensioners today. Again, I pay tribute to my noble friend Lady Hollis. The fact is that, over the past eight years, pensioners’ incomes have grown, not only in real terms but faster than earnings. Since 1996, pensioners’ incomes have risen by 21 per cent, compared to 13 per cent for earnings, adjusted for price growth. I do not want to be complacent, but surely noble Lords must acknowledge the progress that has been made. Noble Lords have mentioned pension credit, which has made a huge difference to many pensioners. We now pay pension credit to 3.3 million pensioners in 2.7 million households, with an average award of £40 a week. I take the point made by the noble Baroness, Lady Greengross, and assure her that we are working as hard as we can to increase uptake; but we should not ignore the huge beneficial impact that it has had on many older people. The noble Lord, Lord Hunt, in his constructive speech, said that basic state pension is the core of all pension policy, and there is much in that. My noble friend Lady Turner unsurprisingly made a plea for more generous basic state pensions; anyone who heard the riveting debates that she took part in with the late Baroness Castle will know of her strong passion in this area. The emphasis that the Government have given since we came to power has been to tackle pensioner poverty. The approach taken was to address and target resources at those who most needed them; simply increasing basic state pension would not have helped those without full records—a point that my noble friend Lady Hollis so persuasively made—and only 30 per cent of women reaching state pension age have a full contribution record. So increasing the basic state pension to the guaranteed credit level, for which a number of noble Lords have argued and for which a number of organisations have argued outside this House, if earnings were uprated in future, would cost £8 billion immediately and an additional £82 billion—2.6 per cent of GDP—by 2050, which is a very large sum of money. Clearly the Government’s approach up to now has been to say that we should use the pension credit to ensure that the poorest pensioners share in the growing wealth of the nation while keeping spending on pensioners as a percentage of GDP broadly the same in future as it is today. Of course, we shall have to see what transpires from the Pensions Commission, but that is the Government’s current view. A number of noble Lords referred to the demographic changes that have taken place. It is true that whenever forecasts by government and the actuary are made, in practice they turn out to be under-optimistic. No doubt we should rejoice at that, as the noble Lord, Lord Skelmersdale, suggested. For instance, in 1980 decisions about public pension policy were being made on the basis of estimates that male life expectancy from age 65 in the year 2000 would be about 14 years. Now we have reached 2005, the estimate is 19 years. Looking forward, the current official base case forecast is 24 years of life expectancy for a man reaching 65 in 2050. However, many experts believe this will be revised upwards significantly as new information becomes available; indeed, figures in the high twenties are quite possible, and I agree with the comments made by a number of noble Lords about the need for this to be kept under active and regular review. A number of points were made about the importance of savings with which I very much agree. I was interested in the pension health check mentioned by the noble Lord, Lord Freeman. As a young person, I would have welcomed that. The Government recognise that part of encouraging people to save and go into pensions when they have the ability to do so is to improve financial literacy. That involves schools, and I know that they are doing what they can to increase financial literacy. Alongside that, we also have a programme that provides both state and private sector pension forecasts. More than 6 million people, including me, have received such a forecast. I think it was helpful, and I know that many people who received it found it so. We are also working to develop an online pension planner that will provide the sort of information that the noble Lord is seeking. Individual pension schemes could also do much more in that regard. The noble Lord, Lord Hodgson, made a point about annuities. We will consider issues like that in the light of what the Pensions Commission has to say. I move to a somewhat contentious matter: the subject of public pensions. Noble Lords opposite were critical of what the Government have achieved, but they understated the fact that the unions have agreed that, for new entrants in the public sector schemes for the Civil Service, the NHS and teachers, the retirement age will be increased to 65. That is a useful achievement. We always made clear that public sector pensions would be reformed, and that we needed to do that on the basis of affordability as well as what is needed to recruit and retain. We had always intended to provide existing staff with plenty of notice of the pension age change in order to allow them to adjust their retirement plans accordingly. Indeed, the agreement that has now been reached will be helpful to the condition and climate for pension change in the future. It has been agreed with the unions that the full savings we originally planned from reform will still be met. The question of how those savings are to be arrived at will be considered by the schemes when drawing up their further proposals on scheme design. This is a matter that has been discounted by many commentators because scheme-by-scheme negotiations will also consider whether schemes will move to a career-average basis, and all other aspects of reform other than the pension age question. The agreement will result in substantial savings—an estimated £13 billion to the taxpayer in net present-value terms. It is a sustainable solution for the long term, and noble Lords opposite have underestimated the achievement of the Government in reaching that agreement.