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Pensions Bill

My Lords, I declare an interest as a pension fund investment manager since 1976 and as an old lag on this Front Bench, too. I am leading on my third Pensions Bill since 2004. Once this Bill is law let us hope that for a year or two we can focus on implementation rather than legislation. I start with consensus, as far as it goes. That is the Government’s buzzword for the Bill. We all want to reverse the spiral of decline in private pension provision over recent years. It must be a cause for real national concern, not a party political point, that good quality final salary pension schemes of the type I have been proud to manage for most of my working life are now limited to the public sector and the odd oil company and bank. In 1995, 5 million people were members of open defined benefit pension schemes. As the noble Lord, Lord Skelmersdale, said, today that figure is 900,000—a fall of five-sixths. We all want to see as many people as possible saving again for a pension as long as they keep the fruits of their saving when they retire and do not see it eaten away by the maggot of means-testing. We must also fear for the future when family budgets are so savagely squeezed today. Two-fifths of households have negative monthly cash flows and nearly half of all credit card holders do not clear their debt each month. When hard-pressed families cannot find the cash for their gas bill or mortgage payment, they are sadly not going to spend a penny on a new pension. Debt destroys pensions saving today and it will cast its shadow over the whole ““does it pay to save?”” debate up to 2012 and beyond. Mike O’Brien, Minister for Pensions Reform, highlighted the problem just this week in the Financial Adviser. Referring to the 8 million or 9 million people expected to be auto-enrolled into personal accounts, he acknowledged that those with large debts, particularly with huge student loans, would not be best-served by personal accounts. He said: "““It is up to those with these large debts to decide whether they are best served servicing these debts or putting money into personal accounts. We cannot make decisions for people and it is up to them to inform themselves on the best financial choices””." Well yes, but only up to a point. The 8 million or 9 million people on low and middle incomes being auto-enrolled into personal accounts—especially women who miss out so badly today—will ultimately have to make their own decisions. Yet they will need access to good quality, simple and generic advice on one of the biggest financial decisions of their lives in what will be for many uncharted financial waters. Saying it is up to them to inform themselves on the best financial choices if they have large debts sends the wrong message. Millions of people drowning in debt desperately need help. With the collapsing housing market, a mortgage famine and savage credit squeeze, the debt crisis will not be solved any time soon. We have a cross-party consensus on the aims of pensions policy and the brave project of personal accounts at the heart of the Bill. In the cut and thrust of scrutiny and amendment as we improve the Bill, we on these Benches will always remember that a national pensions saving scheme, as we called it, was our idea. We will oppose any attempts to hobble it, pad it out or make the rules for personal accounts too restrictive. Like the People's Pension Coalition of Which?, Help the Aged, Age Concern, the TUC and the Equality and Human Rights Commission, we want to make personal accounts as simple, accessible and cost effective as possible—a real people's pension scheme. Paul Myners and Tim Jones, the chairman and the chief executive of PADA, were very persuasive in the useful evidence session in Committee in the Commons when they urged Parliament to avoid the temptation to add bells and whistles to personal accounts. Everyone in the pensions world always condemns complexity, but then each of us seems to have our own pet scheme or qualification to add to whatever is proposed. My Bill team and I have had many fascinating meetings and read many useful submissions on the Bill from business, charities, academics and campaigning organisations. We will discuss their ideas at length in Committee and, I am sure, benefit from them. But the first question on my mind on any amendment on personal accounts will be: does this make the scheme simpler to operate and understand? Does it keep the costs down so that people of modest means saving for the first time for a pension get the biggest bang they possibly can for their buck? The threat of ““levelling down”” posed by personal accounts is much exaggerated. It has been going on for years, well before personal accounts came in, and will continue quite independently. For perfectly understandable reasons, our highly sophisticated and profitable financial services industry has not been able to reach the 8 million or 9 million people who are the target market for personal accounts, as the abject failure of stakeholder pensions proved. Do not stop millions of people being ““levelled up”” from no private pension saving at all. Personal accounts do not represent a serious commercial threat to existing pension providers. It just is not their market, however fond our memories might be—for those of us old enough to remember—of the man from the Pru in his bicycle clips pedalling from door to door. That just is not something they can do today. Some of our businesses and insurance companies should be careful not to be seen to be adopting a dog in the manger approach. Financial services firms also will benefit both from investment management fees on the tens or even hundreds of billions being invested in personal accounts and from massive additional annuity business when personal account holders retire. So far so good; we are part of the consensus with the Government on making personal accounts work. But we will not be able to support much of the detail of the Bill in this place unless the Government face up far more honestly to the scale of the means-testing and generic advice problems and take action. The key problem on means-testing is still that our basic state pension is far too low—down, as the noble Lord, Lord Skelmersdale, pointed out, in the European relegation zone. Let me use another analogy. Britain’s rotten state pension is now worth less as a share of wages than when Clem Attlee was Prime Minister in 1950. We will move amendments in Committee to link pensions to earnings again, and we will be hoping—and hoping the Conservatives will come with us—to do that by 2010 at the latest, as the Turner commission proposed. We hope the Conservatives will back the link again, as they did in their last general election manifesto. Three million pensioners cannot wait until Labour’s last date of 2015, because they will be dead. Far too many people—30 per cent to 40 per cent on the Department for Work and Pensions’ own estimates released yesterday—will see chunks of their savings eroded by losing means-tested benefits. That can lay the Government open to a charge of mass pensions mis-selling unless the groups at most risk are guaranteed access to high-quality face-to-face generic pensions and debt advice. We are most concerned, as are the Pensions Policy Institute and the People's Pension Coalition, about the highest risk group: people over 50 who are likely to be on housing benefit when they retire. As the noble Lord, Lord Skelmersdale, made clear, the Conservatives care about means-testing too; of course they do. But unlike the Liberal Democrats they are not prepared to make a commitment to raise the basic state pension over two Parliaments so that pensioners then receive as of right the means-tested benefits they now have to apply for. As we know from the Department for Work and Pensions’ annual report, which has only just come out, it is clearly failing to get pension credit out even to its fairly modest targets, falling 800,000 short. That is just not working and not getting through. A simple citizens’ pension is the right and straightforward way to make sure people keep every pound they save. Meanwhile, let us at least try and carry the House with us on the principle that the earnings link will be restored as soon as possible, whichever party is in power. My noble friend Lady Thomas of Winchester will call for a massive expansion of integrated debt and pensions advice, based on the uniquely trusted one-stop shop, the citizens advice bureau. How can it be the right advice for people to save for a pension with an expected long-term rate of return of 7 or 8 per cent if they are paying 17 per cent a year, which is the average rate of interest on unpaid, unsettled credit card bills, or 30, 40 or 50 per cent on other borrowing, as so many lower-income people are today? The Government are clearly worried by the widely held and well-informed concern about whether it will pay for these high-risk groups to save. As the Minister has just said, they have set up a work programme for stakeholders which will report by the end of 2008. The Liberal Democrat and Conservative Front Benches have had an invitation, with an illustrious list of stakeholders in the pension debate, to a savings incentive seminar in the Duke of Wellington Hall on 11 June. I hope that DWP Ministers do not copy the example of the Duke who, when asked how his first Cabinet meeting had gone, said, ““I gave them their orders but they all insisted on asking questions””. I am afraid I have a prior engagement with the Association of Mirror Pensioners—the innocent victims of pirate captain Maxwell—but I very much hope that our new DWP spokesperson in the Commons, Jenny Willott MP, will be able to go. Frankly, a report after the Bill has been passed is not good enough. We on these Benches warned James Purnell in his previous incarnation as a DWP Minister years ago that he had to take the advice gap more seriously and urgently. We are not prepared to buy a pig in a poke, even from him. We will bring forward amendments to make it crystal clear to both buyers and sellers of annuities that the full range of options must be made available, including enhanced annuities. These used to be called impaired life annuities when they started but that had a rather ominous ring to it. This is for up to 40 per cent of people who might, for instance, have been smokers or had diabetes or cancer. Now you can get a better rate if you have an unhealthy postcode in Liverpool or Glasgow. As the Mail on Sunday and the Sunday Times have highlighted, only a quarter of people eligible currently buy these best-value products. More than half a million people retired in Britain last year and more than 400,000 bought annuities. They lost more than £1 billion in pensions altogether by not getting proper advice on their best-value annuity. That rip-off must stop. There is consensus on the aims of pensions policy and on the direction of travel but not on the Government’s snail’s pace of reform and poverty of ambition. Let us give women and carers pension justice now, as this House demanded overwhelmingly under the excellent lead of the noble Baroness, Lady Hollis, last year, by letting them buy back more years to qualify for a full basic state pension. Let us protect those most at risk from wasting their hard-earned pension savings by rolling out face-to-face debt and pension advice in every constituency in the country. And let us set a firm date now, whichever party is in power, to end the shameful erosion of our basic state pension and link it to average earnings to turn back at last the tide of means testing. This House must send a bolder and clearer Bill back down the corridor after it has done its job over the summer and autumn.