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Pensions Bill

moved Amendment No. 53: 53: After Clause 15, insert the following new Clause— ““Right to access tax free lump sums The Secretary of State shall by regulations provide that a qualifying scheme or an automatic enrolment scheme shall allow a jobholder or worker to withdraw a tax free lump sum or sums during his or her working life.”” The noble Baroness said: Obviously this is a probing amendment; almost equally certainly it is a technically deficient amendment. I would like to restart the debate launched by the party opposite—by Mr Willetts and Mr Rifkind in the other place—for a lifetime savings account. I was persuaded by their arguments, if not the technicalities. The point of raising it today is that it is appropriate to see whether there is any support among the political parties, business and industry for such a scheme, because unless there is it is obviously not going to go anywhere. Why might such a scheme be necessary? As they grow older, men on above median earnings will usually have some savings beyond their pensions. As mortgage pressures, for example, ease, they may have an ISA or two. Those people on below median earnings, especially women who may be well below, seldom have savings. There is abundant research to show why. Scottish Widows has always flown the flag for women’s pension issues, as did the former EOC, which did good work on this, the DWP and the former DSS. Some of these points are fairly obvious but perhaps bear repeating. Women will not have rainy-day savings because, clearly, there is not enough disposable money. Their earnings may be part-time, low and intermittent; in some sense, they may be regarded as temporary. What money there is may generate difficulties of management and, more likely, problems of debt, rather than problems of savings. On top of that, for younger women especially, there is still the utopian view that a Prince Charming at best, or husband if not, will see to it that there is almost a financial division of labour within the family. He will do the long-term pension stuff, while she does the short-term household budget stuff. His pension, therefore, is for them both. The idea that the pension was for both of them was one of the reasons why your Lordships time and again were behind pension sharing after divorce. Despite what we know about family breakdown, the belief that it is for the man to provide for both of them persists. The woman may therefore feel that to save in a pension, rather like having a pre-nuptual agreement, somehow indicates a lack of trust. If money is tight and if the man saves into a pension, the woman, in turn, is more likely to view household spending as her priority. The trainers for the children and school trips are her contribution to family financial circumstances and she will tend to put other people’s financial needs, especially those of the children, ahead of her own. The woman sees saving in a pension as being selfish—research has shown that women use that word—and women are hard-wired to think that that is the worst of all social sins. Even if she does not think that she is being selfish, she could be put off by complexity, obscurity, worries about mis-selling and concerns about the impact of means-tested benefits whereby, allegedly, Tracey’s mum who saved is no better off than her aunt down the road who did not. Above all, pension savings are locked away for 40 years. Therefore, if there is a crisis around the corner, they are untouchable, even though the need now may be far greater than the need in 20 years’ time because of, for example, divorce, disability, repossession or the husband’s unemployment. I believe that the policy makers are making a mistake. At retirement, men and women are, for the most part, in similar financial situations with a steady but low income and steady but predictable expenditure. Because men are none the less worse off in retirement than when they are in work, that is projected somehow on to women’s working lives. Because they share a common retirement life, it is almost like a retrospective fallacy. It is presumed that they share a common financial situation in their working lives and that, therefore, the job of pension savings is for men and women alike, primarily to smooth the way from work to non-work worlds. However, just because the experience in retirement may be broadly similar, that does not mean that there will be a similar experience in work patterns and that, therefore, income should be relocated from working life to pensions in the same way. It does not mean that it makes equally good sense for women as it usually does for men to smooth incomes from working life to non-working life. Whereas men probably will work throughout and build a pension throughout, women face much more of a rollercoaster of risk, to which men are never exposed, which will result in intermittent connection with the labour market. We need to help women to smooth their incomes during their working lives—something that we do not normally need to do for men—just as we need to smooth for both genders their income from their working lives into retirement. More than most men, a woman will need a rainy-day savings account—£5,000, £10,000 or £15,000 probably—because of the risks that she will face, which will be higher than those of most men, and because, as a low earner, she is much less likely to have any protection against those risks. Her need for a rainy-day account is greater, but her likelihood of having one is less. You would expect her instead to save in a pensions account. I suggest that those poorer women simply cannot afford to have both a rainy-day account and a pension, even if they were minded to. Faced with an impossible choice, women may choose to do neither and will remain at the edge of financial risk. How do we help such poorer women? We are very good at helping better-off men who need our help least. For example, the movement of ISAs to pensions is permitted, even if the man probably has both and can afford both. The woman needs the reverse—that is, pensions to ISAs. But ISAs alone will not do, as they do not have the tax attraction or the employer’s contribution. As far as I am aware, there is no one simple and affordable product on the market that allows women to combine short-term rainy-day savings and long-term pension savings. Would a LiSA do that? The Tory proposals originally were probably fiscally too complex, because of the tax relief that comes into a pension pot, which would not normally be available for spending purposes, and because the American example—401(k)—was probably too loose. But we have a ready-made vehicle: the 25 per cent tax-free lump sum is available at the age of 50 now, rising to 55 in April 2010. It is often used to pay off the mortgage, the university costs of children or even to help children on the housing ladder. That lump sum can be drawn ahead of drawing one’s pension by 15 or even 25 years if one chooses to continue to work, provided that the money goes into an income drawdown fund. So you can draw your lump sum at the age of 50, although you may not need to draw your pension until you are 75. I propose that, subject to a floor and ceiling, individuals—obviously this would be most helpful to women—could access that lump sum over their working life. The floor might be £20,000, so that there has to be something like 10 years of savings already in the pension pot. The ceiling might be £80,000 or £100,000, so that it is not distorted by clever accountants as a wheeze to pay school fees, for example. It would mean that the woman could access £5,000, £20,000 or £25,000 during her working life if she needed to, but it would have to be rebuilt before she could draw any more. For example, if she took £10,000 from a £40,000 pot, she would not be allowed any more until she had rebuilt beyond that £40,000 to, say, £60,000. She could then take 25 per cent of the difference between the £40,000 and £60,000—that is, a further £5,000. No tax adjustments would be necessary because that sum comes tax free. It is simple. Obviously, depending on when it is drawn down, it would have investment return implications and would need to be tracked in order to consider whether, for example, there should be a limit on the number of times it could be accessed. I believe that such a proposition or something similar would, if the Government and the industry were so minded, overcome what to me is the deepest risk of mis-selling, which is not that you are not better off in retirement than if you had not saved, which is how it is usually presented, but that you are worse off in your working life because you have saved and you cannot rescind that decision or touch those savings when your need in your working life may, especially for some women, be more desperate. We are hooked on the false assumption that you are always better off under the age of 65 and worse off over the age of 65. That is what pensions are all about. For some women that is simply not true. Yet that assumption is seldom questioned because we still think in gender terms. I certainly advise younger people with non-conventional careers or no employers’ contributions not to think of a pension but instead to go into an ISA. Poorer women do not have that luxury. However, with personal accounts and compulsory employer contributions, it is wise for a woman to go into a pension, but only if she has some rainy-day protection. To summarise and to conclude, I cannot do, and I do not think that any of us can, the counter-factual as to how many women might save who otherwise would not or, equally important, how many—I feel that there will be a growing number—would continue saving who otherwise would be tempted to give up when it gets difficult. We know that half of all women give up when they have children. When the going gets tough, the women get out. I believe that some women face far harder financial pressure during their working lives than at retirement, but this is seldom mentioned because it is not true for the men and we still continue to model pensions on assumptions about men’s working lives. I suggest to your Lordships that poorer women cannot afford both rainy-day savings and a pension. We may be giving them bad advice to go for a pension if through financial pressure they need access to that money earlier. That 25 per cent tax-free lump sum could allow us to bridge the risk that they face. As constructed, pensions are not an appropriate vehicle for some women. However, if there was support within government and the industry to provide a simple combined product—a LiSA—I think that that could be a win-win situation for us all. I beg to move.