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Pensions Bill

We have heard a lot in this debate about the consensus that exists in this House in respect of various pensions proposals. I suspect that members of the Scottish National party and Plaid Cymru stand somewhat outside that consensus. We support some aspects of the Bill, but other proposals cause us considerable concern. The hon. Member for Amber Valley (Judy Mallaber) is no longer present, but she said that the plight of women pensioners resonates with her older constituents. That may be true, but the Bill’s biggest failing is that it does not tackle the problems faced by existing pensioners. The hon. Member for Aberdeen, South (Miss Begg) argued that it is not meant to, and I accept that that is probably the case, but we will fail to achieve the consensus that the Government claim to be seeking if we do not deal with those problems. The important consensus is the one that exists outside this House, among the general public. If we do not achieve consensus there, we will not get people to take up the personal account—an important element in the modernisation of the pensions system. If today’s pensioners do not feel that their concerns are being addressed, they will continue to feel aggrieved, and they will pass that feeling of grievance on to others. When the National Pensioners Convention launched its alternative White Paper, it stated:"““The Government’s failure to address issues of pensioner poverty, unpopular means testing and the plight of 5 million existing women pensioners is the biggest whitewash of older people in the history of social policy””." It does not get much more aggrieved than that, but that is a feeling shared by many of today’s pensioners. All hon. Members probably agree that there should be a link between earnings and pensions, and there was some discussion earlier about exactly what that link should be. That is important, as it was announced today that general inflation had reached 3 per cent., the highest level in 10 years. However, the inflation faced by poorer pensioners is effectively much higher, as more of their income goes on things such as energy—and gas prices, for example, have risen by 40 per cent. over the past year alone. The Government have accepted that there should be a link between pensions and earnings, but have delayed implementation until 2012 at the earliest. As has been noted, the link might not be introduced until 2015. Perhaps I am getting cynical in my old age, but I suspect that the date may well depend on when the Chancellor becomes Prime Minister and decides to go to the country. The introduction of the earnings link is perhaps a sweetie to be pulled out at the appropriate moment—although the matter is less relevant in Scotland, as we will be well on our way to independence by then. The National Association of Citizens Advice Bureaux has evangelised for poor English pensioners, and has asked for more details as to when the earnings link will be re-established. I do not suppose that the Minister will tell us, but it would be nice for pensioners to know when they might expect that uprating. However, even if the Government were to re-establish the link, it would do nothing to address the fact that today’s pensioners have fallen way behind since the Tories cut the link in the first place, nearly a quarter of a century ago. Moreover, it is worth noting that what is being proposed is not the restoration of the link that has been talked about in this debate. Between 1975 and 1980, the Secretary of State with responsibility for pensions was required to have regard either to earnings or prices, depending on which of them he considered to be more advantageous to beneficiaries. That meant that there was some flexibility when it came to determining whether earnings or prices were of greater benefit in uprating pensions, whereas the new version will depend straightforwardly on earnings. In addition, although restoring the link with earnings will prevent the basic state pension from declining in value year on year, it will not make good the fall in the value of pensions that has happened over the years. That is an important point, which is not fully understood by many pensioners. I quote again from the alternative White Paper produced by the National Pensioners Convention. It is referring to the Government’s White Paper, but the same point applies to the Bill. The document states:"““The White Paper’s failure to call for an immediate increase in the basic state pension and instead opt for a promise to restore ""the link with earnings some time between 2012 and 2015 will only give those on a full basic state pension approximately £1.40 a week more that year than they would receive anyway under the present system. Furthermore, the absence of any proposals to immediately improve existing state pensions has also in effect ignored the widely acknowledged scandal of low income amongst millions of existing women pensioners.””" Restoration of the link to the basic state pension will be delayed until at least 2012, when the value of the pension will have fallen to about 12 per cent. of average earnings—£71 in current terms. As has already been said, up to 3 million of today’s pensioners will die before the link is restored. Worse still, if it is delayed until 2015, the value will be only 65 per cent., and it is estimated that up to 4.5 million of today’s pensioners will never receive any benefit. Those are legitimate concerns among today’s pensioners, and they affect the debate in the country, as well as attempts to find a consensus on the way forward. If we do not tackle those problems and provide a firm foundation for the future of the state pension, the Bill’s proposals will not succeed. Much has been said about the citizen’s pension. The Scottish National party and Plaid Cymru support the citizen’s pension. After our last debate on pensions, I thought that we might be the last remaining parties to do so, but the Liberal Democrats seem to have come round to it again. The problem with the current system is that it is based on labour market participation, the effect of which is to translate poverty during people’s working life into poverty in old age. We all know that many women and carers do not receive the full basic state pension, because they have a broken employment history. I support the provisions that will tackle that problem. We welcome them, but they will still leave too many people in poverty. Whenever the issue of pensioner poverty is raised, the Government point to the pension credit—as has been done this afternoon—but why should a pensioner have to rely on means-tested benefit for a decent retirement pension? The state should—indeed, it must—ensure that every one of our pensioners has a decent minimum income in retirement. By the very act of introducing pension credit, the Government accepted that the current rate of basic state pension is inadequate. Under a citizen’s pension, every pensioner would have a decent state pension, which under our proposals would be set at the current level of basic state pension, together with the maximum pension credit, and thereafter linked to increases in average earnings. If we introduce such a citizen’s pension, we will ensure that all our pensioners are lifted out of poverty and given a firm foundation on which they can build their own additional pension provision. I do not believe that the personal account scheme that the Secretary of State proposed has any real chance of success, because it will be undermined by means-testing, especially for its main target group—those on relatively low incomes. Whatever the reality, there is a great fear that they will not gain much at the end of the day, due to the effect of the means-tested pension credit. If, however, it was linked to a citizen’s pension it could provide a powerful incentive to make private savings and ensure that each pensioner had a much better standard of living in retirement. The hon. Member for Glasgow, North (Ann McKechin) expressed surprise that we supported the personal account. I do not know why, because we proposed something similar more than two years ago, and when the White Paper was debated recently I made it clear that we supported such a scheme as an important part of the future pension. Of course, it is legitimate to ask how we propose to fund the citizen’s pension, and we have not shied away from that. We do not follow the same route as the Liberal Democrats, as we have published figures to show that by using the amount currently spent on basic state pension and pension credit—and, crucially, by reforming the current system of tax relief on private pensions, which the hon. Member for Birmingham, Selly Oak (Lynne Jones) touched on—we could afford to create a true citizen’s pension. The problem is not lack of money, but lack of political will. The Government often tell us that we must take the hard decisions. Frankly, it is about time that the Government took a hard decision for the benefit of the majority of pensioners. It is worth noting the extent of the tax relief on private pensions. When we published our proposals, ““A Secure Retirement for All””, early in 2005, we calculated that the amount of tax forgone with the subsidy amounted to £11.4 billion a year. In his report, Lord Turner points out that the cost is £12 billion, but he goes on to refer to a further £8 billion in national insurance contributions, taking the total cost of the relief to £20 billion. In effect, that is a massive subsidy to private pensions, which could be used to provide a decent state pension for all. Worse still—and I was surprised that the hon. Member for Glasgow, North also mentioned this—half the total cost of tax relief on private pensions is received by the richest 10 per cent. of the population. It is high time that tax relief was reformed to become much more progressive and transparent. In particular, it should be aimed at encouraging and rewarding low and moderate income earners to save for retirement. The Bill does not tackle that problem—that serious omission will undermine the whole idea of personal accounts. I note in passing that the TUC briefing also says that consideration needs to be given to reform of tax relief. Another aspect of the Bill with which we have great difficulty is the proposal to raise the state retirement age, which we believe will discriminate against those in many areas of the country where life expectancy is lower. The effect can be quite dramatic. If we take the example of a man in Glasgow—as already mentioned, one of the worst areas in this respect—I understand that life expectancy is about 69.3 years, whereas a man in Kensington in central London has a life expectancy of 80.8 years. Under the present system, Kensington man can expect to receive pension payments totalling £65,728—nearly four times that of the Glasgow man, who would receive a mere £17,888. If the pension age is raised to 68, Glasgow man would receive only £5,408, while Kensington man would receive 10 times more at £53,248. That is manifestly unfair. To be fair to Lord Turner, he recognised that problem and suggested that eligibility to pension credit should remain at age 65, but that has not been accepted in the Bill. I was slightly encouraged to hear the Secretary of State say that the Government were considering the matter further, which may result in some resolution of the problem. When the hon. Member for Bournemouth, West (Sir John Butterfill)—he is no longer in his place—was questioned about it, he said that it was all to do with health and particularly mentioned Scotland. Well, in Scotland, it is not all to do with health. It is to do with poverty, as the hon. Member for Aberdeen, South rightly said, and with poor housing. Nor is it just a problem in Scotland, as the same applies to many former industrial areas of England and Wales as well. It can be argued that inequalities in life expectancy may be eliminated over time, but although we talk about greater overall life expectancy nowadays, there is still a gap between different areas and until such time as that gap is closed, the problem will remain. As Age Concern mentioned in its briefing—Citizens Advice made a similar point—the impact will be disproportionately negative for people on low incomes, who may not have much choice about when they retire. The TUC drew attention to the same problem. It also said that there were many uncertainties about future mortality trends and that the Turner commission itself had identified some gaps in the data on the future of pensions. We therefore remain unconvinced that we should proceed with proposals to raise the state retirement age. Age Concern has also asked for assurances that increases in the pension age will be matched by measures to ensure that poorer groups do not lose out. There is an additional point. People may stay in the job market longer as a result of the changes and there are also the welfare reform proposals, which may bring many more people into the job market. The Government, in conjunction with the devolved Administrations, have to look seriously at how to create more jobs to mop up those groups. There is no point in getting people to work longer if the knock-on effect is on unemployment rather than pensions. To end on a note of some consensus, there are some areas of the Bill where we support what the Government propose. [Interruption.] I am trying to be fair. We are generally supportive of the moves to create the national pensions saving scheme of personal accounts. However, I repeat that, in our view, that will work only in conjunction with a citizen’s pension, to give confidence to those who are expected to use that scheme; otherwise, it will face the same problems as the current system. We also recognise that moves to increase the coverage of the basic state pension are sensible and have been widely welcomed in as much as they will offer some help to women and carers. We welcome the fact that the reduction to 30 years for the qualifying period, the carer’s credit and the changes to the second state pension will help to boost the income of women and carers who have missed out on paying national insurance contributions because of their sometimes broken work records. However, we share the reservations voiced by Age Concern, which has called for the 30 year qualifying period and abolition of the 25 per cent. rule to be retrospective. The reality is that many older women, who are often among the poorest pensioners, will not benefit otherwise. Again, that move would go a long way towards addressing some of the concerns of today’s pensioners. Only by doing that will we get a true consensus for moving forward.