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Occupational Pensions

I am pleased to be able to make a contribution to the debate today. I am also aware that many Members still want to make their contributions, so I shall try to keep my comments quite brief. I want to touch on the longer-term impact of the changes that the Chancellor has brought in in relation to occupational pensions and, in particular, I want to talk about young people taking out occupational and also private pensions. There is no doubt that the Turner report raised a number of issues about the pensions crisis. It talked about the fact that the sorts of advantages that pensioners currently have will not be enjoyed by people who are pensioners in 30 years’ time, and about the fact that the dependency ratio, which we have not really discussed today, is dramatically increasing. It is not just a question of longevity increasing. The reality is that the number of people who will be expected to fund the state pensions is declining in relation to the number of pensioners that there will be. We have some serious problems. Turner pointed out that even if we have what could be called a modest rise in public expenditure on pensions in proportion to GDP—going from the current 6.1 per cent. to 6.9 per cent. in 2054—that would imply a 27 per cent. fall in average pensions relative to average earnings. For us to match the current level of pensions in relation to earnings, we would need to raise the proportion of public spending on pensions to 13 per cent. of GDP. Turner’s conclusion after all that was that that simply is not affordable, and therefore future pension provision has to involve people looking to their own private provision. That is why the changes that the Chancellor made in his first Budget were so damaging—they fundamentally undermined people’s confidence in being able to do that. I want to talk, in particular, about the impact that that will have on younger voters. Twenty-somethings living in Britain today will face a double whammy. Not only will the money that they pay into pensions be worth less because they will disproportionately suffer from the tax take—it will affect the entirety of their pension contributions, should they choose to make them—but they will be a generation that has disproportionately to fund an elderly generation claiming state pensions, in a way that no generation has had to do in the past. There are some serious barriers when it comes to young people and their ability to afford the consequences of the pensions crisis that has been stored up. Unfortunately, the issue goes further than that. For example, earnings have risen in recent years, but the earnings of young people between the ages of 18 and 29 have risen at only a third of the rate of people in the age group above them—30 to 39. In fact, 56 per cent. of those who graduated in 2002 are still dependent on their parents for some form of financial support. That is an amazing statistic. When it comes to those who will graduate in the coming years, we also know that the financial rate of return on degrees—a degree has often been seen as a way of being financially independent and being able to provide for oneself in the short, medium and longer term—has fallen. A study in 2005 by the university of Swansea said that, for some graduates, investing in a degree may have a negative rate of return. That is an important point. For a long time, the Government had a policy of getting 50 per cent. of all young people into university. Some people may have taken a decision on the basis that they thought that it would be financially appropriate, given the rate of return, but it has not been. Not only that, the other aspect is that we know that the average graduate a couple of years ago left with debts of about £14,000, but the average person entering university now will leave with debts of £20,000. It is okay for the Government to come up with schemes such as personal accounts, which are there for young people to use to save, but my point is that aside from young people’s lack of confidence in the pension system, they also simply will not have any disposable income to be able to invest in their long-term financial independence. These chickens are in danger of coming home to roost. Only last month, the Chancellor raised tax on low earners with no children. Again, those affected will disproportionately be young people. At the very time when we are hoping that this generation will be able not just to provide for themselves in a way that no young generation has had to in the past, but pay for more pensioners than any generation will have had to do in the past, they are having money taken off them by the Chancellor. That is happening not just when they invest in their pension pot—they will have to put up with this tax grab for longer than any other generation—but because they are having their income taxed more than it has been in the past. It is naive of the Government to think that putting in place new tools will necessarily mean that young people are in a position to use them. There is also the issue of whether many young people today believe that they are contributing to an adequate state pension through their national insurance and tax contributions. The National Consumer Council said:"““Younger consumers are not convinced that they are building up rights to an adequate state pension when they pay tax and National Insurance contributions.?" People fundamentally do not have confidence in the system that they currently pay into. The key statistics show that, whatever the warm words we have heard from those on the Government Benches tonight, what matters is what people in the real world think and their response to the policies that the Labour Government have brought in. There are clear-cut statistics that show what is going on with younger people and their pension provision. Let us look at the ““Living in Britain? general household survey, which was carried out by the Office for National Statistics. It shows that in 1995, 40 per cent. of all men aged between 18 and 24 in full-time employment had pensions. By 2003, the figure had fallen to just 27 per cent. We might have thought that given that more women were in the work force over that period, more would have been taking out pensions, but we would be wrong. In 1995, 46 per cent. of women aged between 18 and 24 in full-time employment were saving in an occupational or personal pension, but by 2003 the figure had fallen to 30 per cent. The situation was similar for the next age group up. In 1995, 91 per cent. of men aged between 25 and 34 in full-time employment had either an occupational or personal pension. However, the figure in 2003 was 63 per cent., so the number of people in this country providing for themselves independently of the state has gone backwards. The situation was similar for women. Back in 1995, 83 per cent. of women aged between 25 and 34 in full-time employment had an occupational or personal pension, but the figure had fallen to 66 per cent. by 2003. There are similar statistics for people aged between 35 and 44. There has thus been a reduction in people’s confidence in providing for themselves, but we also know that people lack confidence in the state’s ability to provide for them. We are left with an intractable situation with the result that young people are choosing not to save at all. They are hoping against hope that things will be okay by the time that they retire, although I am sure that many of them would not be able to explain why they necessarily think that that will happen. Many young people have seen what has happened to house prices. There have been many negative stories about occupational pensions and we have only to read the papers to find out about the Government’s utter dismissal of the parliamentary ombudsman’s report and their response to the mis-selling of pensions. People are thus being given the message that they should not trust the Government, especially not this one. When young people think about where they might want to put their money, the message that seems to be getting through to them is that rather than investing in pensions, it would be far better for them to invest in houses, given that that is the way in which their parents have made most money in recent years. All of us in the Chamber know that that is not necessarily a wise long-term investment strategy. I am worried that a generation of young people in this country do not think that there is any reason why they should want to invest in a pension. That has been a problem for a long time, and we understand why: retirement seems to be long in the future for young people. However, the steps that the Government have taken have undermined people’s confidence in investing in pensions, as is shown by the statistics in the ONS survey to which I referred. If young people choose not to invest in pensions, they will end up with no pension provision for themselves and be dependent on the state for support. At the moment, people talk about a grey pound that keeps the economy going, but there is a real danger that people will talk in the future about a grey penny because our pensioners will not be well-off, so they will not be spending money and keeping the economy going, which has been the case up until now. The problem is serious. We should not ignore the damage of the Chancellor’s change to tax credits on dividends and the dismissal of the ombudsman’s report. Young people latch on to that, as well as the lack of confidence and their parents’ experience of pensions. Eventually, the effects of what we are doing now will come home to roost. I am greatly worried that we have a Chancellor, who is likely to become Prime Minister, who is so dismissive of this.