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Pensions Bill [HL]

My Lords, I rise to speak to Amendments 11 and 14 in this group. In doing so, I have some sympathy with the concerns expressed by my noble friend Lady Turner. These amendments address the position of the poorest men and women in the population who are disproportionately impacted by the acceleration of the timetable to achieve the equalisation of the state pension age. Under this Bill the age of eligibility for receipt of pension credit, which is targeted on the poorest pensioners, increases at the same accelerated rate. This is because, under current legislation, the age of eligibility for pension credit is aligned with women’s state pension age. This means that a particular group of the poorest men and women, who would have been eligible to receive pension credit on certain dates between 2016 and 2020 under the Pensions Act 1995, will now have to wait up to two years longer to receive their pension credit income but with little time, certainly with little capacity, to adjust. Pension credit in 2011 is £137.35 per week for a single person, so a deferment of up to two years can result in a loss of £15,000 for those affected. Even on a deferral of one year, the loss of income is still substantial to those concerned. Amendments 11 and 14 would ensure that both men and women who are presently in their late 50s and who are likely to be the beneficiaries of pension credit do not experience the markedly higher loss of lifetime pension income that would otherwise occur. This would be done by allowing the age of eligibility for pension credit to track the original equalisation timetable set out in the Pensions Act 1995. That would mean that those eligible to receive pension credit, both men and women and their birth cohorts, would do so on the same date between 2016 and 2020 as they would have done under the original timetable. I believe that these amendments may provide a more focused mechanism than that proposed by my noble friend Lady Turner in her amendment. There has been much debate on fiscal sustainability when assessing timetable options for accelerating or mitigating the acceleration of the increase in the state pension age, but this amendment in no way undermines long-term fiscal sustainability. The savings from accelerating the age of eligibility for receipt of pension credit do not start to flow until 2016. However, even looked at on a long-term basis, this amendment would not undermine fiscal stability for three reasons. First, the state pension age would still rise in response to increasing life expectancy. Secondly, the reduction in savings arising from the slower increase in the pension credit qualifying age, assuming current take-up rates, would be of the order of £0.75 billion. This figure has to be seen in the context of the Government’s proposals for accelerating equalisation and the introduction of the state pension age of 66, producing a reduction in expenditure on pension age benefits of £33.4 billion. We are talking about £0.75 billion in a total savings aspiration of £33.4 billion. These amendments simply do not fundamentally challenge the Government’s plans for fiscal sustainability post-2016, which so concerned the noble Lord, Lord Boswell. The timing of all future increases in the state pension age will be revisited, as we have heard in the Budget Statement. Adjustments in private pensions are already happening through annuity rates or other measures. The report prepared by my noble friend Lord Hutton has set the direction for the changes to public service pensions. We have seen the move from RPI to CPI. It is all these matters that will make the big contribution to fiscal sustainability of the pension system over the long term. It is not necessary to treat unfairly the poorest men and women, born in certain years in the 1950s, by having them make such a major contribution. The Government’s impact assessment shows that men and women with interrupted careers and dependent on pension credit throughout retirement will suffer the greatest percentage loss in lifetime pension income as a result of the accelerated timetable and will lose proportionately more than higher earners. If allowance is made for the reduced life expectancy of lower socioeconomic groups who will receive pension credit, the loss can rise to as much as 10 per cent of total lifetime pension income. By way of comparison, higher earners can reduce their lifetime pension income loss to 2 per cent because they have the ability to boost their retirement income by making highly tax-advantaged contributions to their pension pot. The economy faces challenging times. The group of poorest-income people most impacted by the accelerated timetable for pension age equalisation is more likely to have a lower life expectancy and more of it in ill health, to have a disability and to be a carer, and less likely to be able to access the labour market. Given the short notice, the people who are already economically inactive when the policy change is announced will find it very difficult to adjust to the accelerated increase in the age for receipt of pension credit and will have problems rejoining the workforce. We are supported in our view by the Pensions Policy Institute—the PPI—an independent expert in the field with no political bias. In its submission to the DWP on the accelerated increase, the PPI acknowledged that if the SPA is left unchanged: "““This may not be good for economic growth, nor is it necessarily fair to subsequent generations as they will end up bearing the cost of paying out state pensions for longer””." However, it went on to say: "““There are a number of factors that should be considered when considering the timing of future increases in the SPA. Economic activity rates at older ages, employers’ attitudes to employing older workers and inequalities in life expectancy/ healthy life expectancy will all play a role in determining how fast the SPA could be increased without unduly affecting certain cohorts of older people in a negative way””." The PPI suggests a number of safeguards that the Government could consider when accelerating the increase. It recognised that it is unlikely that in the short term the Government could help to improve the healthy life expectancies of those with the shortest life expectancies. It argues that the Government should consider short-term safeguards, "““to reduce the potential negative impact on those who may be disproportionately affected””," including continuing to pay the guaranteed pension credit from an earlier date than the increased SPA. That is exactly the short-term measure that we are proposing in the two amendments. Many low-income people in their late 50s have no prospect of adjusting to the accelerated time period, particularly those in certain ethnic groups. People of black and black British origin have the lowest levels of private pension and investment income: £46 per week compared to £155 for white people. Forty per cent of pensioners of Pakistani or Bangladeshi origin, and 29 per cent of black and black British pensioners, are in the bottom fifth income group, compared with 14 per cent of white pensioners. A person from a minority ethnic group is less likely to save for retirement, twice as likely to be entitled to pension credit at the minimum age, and, in the over-50 age group, less likely to be in employment. This is hardly the group to make a major contribution to fiscal deficit reduction. The Government's impact assessment states that, "““delaying the point at which the State Pension and Pension Credit become payable is likely to have a greater adverse impact on certain ethnic groups compared to others ... This impact is likely to be stronger for those affected by a delay in Pension Credit income of more than a year””." Similarly, because disabled people are more likely to be more reliant on pension credit at the minimum qualifying age, the impact on them will be proportionately greater. The impact statement assets: "““However, we consider this is justifiable in the wider context of the need to ensure that the state pensions system (including Pension Credit) is to be both affordable in the long-term, and provide a decent income in retirement””." I simply do not agree. I do not see that this group of vulnerable people has to take such a disproportionate impact. Having identified that impact, the Government have a duty at least to seek to mitigate it. The purpose of the amendments is to do precisely that: to allow the poorest, the disabled and ethnic minorities who would otherwise be in receipt of pension credit other than because they had the misfortune as a result of the Bill to be born in certain months in the 1950s to be able to receive the pension credit in line with the existing timetable set out in the 1995 Act. This is not the first amendment in the group. Depending on my noble friend Lady Turner and on the Minister’s reply, we are minded to test the opinion of the House when the amendment is called.