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Pensioner Poverty

Although this is the first time that I have served under your chairmanship, Mr. Williams, it does not make it any less of a pleasure. Unusually, I should like to start by thanking the Government for their fairly positive response to our report, which is not something that we are used to in our Committee. It usually takes two or three years for our fantastically good suggestions to bear fruit, but this time the Government have accepted much of what we said. Moreover, we should recognise the many organisations that submitted evidence to us and the hard work that they, and the witnesses who gave evidence for the report, put in. When considering pensioner poverty, we need to focus on three distinct groups: today's pensioners, people who are nearly retired, and the remainder of the population. In his report in 1948, which seems a long time ago now, Beveridge said that the state pension on its own would never be enough on which to live in retirement, and that it would always have to be supplemented by savings or insurance. It is that last bit that most people forget. All the letters that we get as constituency MPs say, "I can't live on the state pension; it is not enough. You should put it up." Somewhere along the way, we lost that behavioural imperative of providing for our retirement through those two additional vehicles. It was partly in response to that situation that we got the 1975 Castle revisions, which brought in, among others things, SERPS and earnings-related elements. By the 1980s, many of those changes had been eliminated or significantly reduced. The Social Security Act 1988 had the unfortunate consequence of what we now know as pensions mis-selling, with many people being deluded into coming out of relatively good final salary schemes into personal pension arrangements. In 1994, post-Maxwell, we had the 2,000 page Goode report, which, rather oddly, made no mention of annuities. One of the main things to come out of that report was the minimum funding requirements. However, in the late 1990s and early 2000s, when employers went into liquidation, it was discovered that a large number of schemes were deficient and that the minimum funding regime had never worked properly. The consequence of that was a financial assistance scheme, which, at the last count, would cost about £8 billion. It is clear, therefore, that significant sums of money come into play in such matters. Those events led to the establishment of the Turner commission. It is very telling that the commission finally reported in 2005, four and a half years ago. Although we have moved a long way in terms of time, the same is not true of legislative responses. A number of changes are due to come in next year that should address some deficiencies. We were expecting personal accounts in 2012, but after yesterday, they look like being delayed for a year, which is sad and will have consequences. So, who are the pensioners living in poverty? It is largely women, because, historically, most of that generation either never worked or had very short working lives, and that was the way in which society was organised at the time. Sadly, some of those who worked never came off what was called the married woman's stamp, so they never accrued pension entitlement themselves. The second large group affected by pensioner poverty are black and minority ethnic communities. There is no obvious explanation for that other than, as a group, they tend to have lower earnings than the national average, and higher unemployment. The third significant group that suffers from pensioner poverty is those who live in inner London. No real insight has been given on why that is, but it may be due to a combination of a deep concentration of BME communities and large numbers of retired women. One of the major responses—in fact, the principal response—to pensioner poverty has been pension credit. Never in the history of government has so much time, effort and finance been put into a take-up campaign as has been put into that for pension credit. All the evidence shows that the amount invested has diminishing returns. The vast majority of those who are entitled to the guarantee element receive it. However, we need to become more scientific about where we direct our effort on take-up, and particularly look at the BME community, those who live in inner London and any other blips that show up in the statistics. Certain groups are likely to end up in poverty in retirement, including low earners, the disabled, carers and those with broken work records. The other thing that will lead to a lot of people suffering from poverty in retirement is longevity. Someone might retire at 65 with a reasonable or modest pension and an accumulation of savings, but savings run down over time. The longer they live, the more expenses they face to tackle the effects of ageing and poorer health, and the more their assets disappear. So, what initially was a comfortable retirement inevitably leads to a distressing situation. Over the years, the accumulation of pension savings and assets has received enormous concentration and no end of debate in the House, but little attention has been given to "decumulation". There is a minimal amount of advice about what to do when one gets to retirement age, and that links back to some of the debates about annuities. Sadly, despite the legislative changes, the vast majority of people who have defined contribution schemes will, when it comes to retirement, take an annuity with the provider of the scheme. They do not use the facility to shop around. Evidence suggests that someone can get up to 15 or 20 per cent. more than what is on offer from their provider. Another vehicle that will become increasingly important in the coming years in attacking pension poverty is equity release. Some of us will remember what happened in the early 1990s and, dare I say it, the West Bromwich and, I think, Norwich Union. That was a scandal, but as long as we learn from the past, there is a role and place for equity release, providing people are able to get the proper advice and know exactly what they are getting into. We have a problem in general in our society with financial literacy. A theme running through our report was the necessity for people who are nearing retirement to get appropriate, accurate and cheap advice on the options that they have to maximise whatever situation they are in. We still have not cracked that. I know that the Department for Work and Pensions have conducted some pilots on money guidance and that the Treasury are doing some things, but we need to pull those strands together so that people can maximise their situation and avoid being in poverty for the want of such advice.