Pensions Bill

My Lords, I had not intended to say anything about the dividend tax credit, but given that the issue has been raised by both the Opposition and the Liberal Democrat Front Benches, perhaps it may be appropriate to make some observations. The removal of the dividend tax credit was associated with the reduction in the main corporation tax, the reduction in the rate of corporation tax for small companies and with increased incentives for investment, including increased capital allowances. Those reforms encouraged higher levels of investment. For example, since 1997, total business investment has risen by60 per cent, compared with a rise of 34 per cent in the previous decade. Corporate profitability has risen from £136 billion in 1996 to £205 billion in 2006. Whole economy investment has risen in every year since 1997—a decade of rising investment—while in the previous 18 years, investment growth was negative for a quarter of that period. The dividend income of pension funds was higher in 1999 than in 1996 and pension fund assets rose by £270 billion in that period. Dividends, employers’ contributions, employees’ contributions and total income rose in 1997, and all were higher in 1999 than they were in 1996. It is not often mentioned that pensions were hit by a series of problems from 2000, including the stock market fall in that year, which accounted for a reduction of about £250 billion in the market value of occupational pension scheme assets. Increasing life expectancy has already been referred to and does not seem to have been taken into account as fully as it might have been. Many firms decided to take contribution holidays during the 1980s and 1990s, despite rising liabilities, in the belief that a bullish equity market was a long-term trend. Interestingly, many funds continued with those holidays after 1997. It is also worth referring to what was said in the first report of the Pensions Commission. It stated: "““The underlying trend in private sector employer pension contributions has been downwards since the early 1980s, and the total level of funded pension saving is significantly less than ""official estimates have suggested. But irrational equity markets and delayed appreciation of life expectancy increases enabled many Defined Benefit (DB) schemes to avoid necessary adjustments until the late 1990s. As the fool’s paradise has come to an end, schemes have been closed to new members, and a shift to less generous Defined Contribution (DC) schemes has followed””." I am not sure that the issue is quite as explained from the Opposition and the Liberal Democrat Front Benches despite the apparent expertise they have in the area. Following the findings of the Pensions Commission, the Bill seeks to develop and implement what is hoped will be a broad consensus on pensions. Inevitably there will be many who want the Bill to go further and faster and there will be those who are not happy with all its provisions. In an ideal world it would be desirable if the state pension age could remain unaltered and not be increased. The current state pension age for men is 65 and has been unchanged, as has already been said, for more than 80 years. For women born on or after 6 April 1950, the state pension age rises to 65 between 2010 and 2020 under the terms of the Pensions Act 1995. However, with people living longer and proposals in the Bill to restore the earnings link for the basic state pension during the next Parliament, the costs of leaving the state pension age unaltered at 65 would be considerable. At the beginning of the last century, only 5 per cent of the population of the United Kingdom was aged 65 and above. It now stands at 16 per cent and by 2025 it is projected to rise to 20 per cent and to over a quarter by 2055. Life expectancy for men at 65 on average has nearly doubled compared with some50 years ago, from 11 years in 1951 to 20 years today. Over the same period, life expectancy for women at65 has increased from 15 years to 23 years. By 2050, current projections indicate that men will on average enjoy a further 4.4 years of life after 65 compared with today, while women will have another 3.7 years. Those who reached state pension age when the first contributory state pension was introduced in 1925 constituted only around one-third of their generation. Those reaching that age today comprise more than three-quarters of their generation and by 2050, despite increasing the state pension age by then to 68, this proportion is projected to rise to nearly 90 per cent. The Bill provides for the state pension age to be gradually raised from 2024 to reach 66 by 2026, 67 by 2036 and 68 by 2046. This reflects the fact that improvements in health mean we are living longer and that for financial reasons the state pension age cannot permanently stand still while life expectancy continues to rise to the extent that a 50 per cent increase in the number of pensioners is projected by 2050, with two people working for every one person in retirement compared with four today. While spending on pensions remains constant at 5 per cent of gross domestic product from now until 2020, it increases to 6.4 per cent of GDP in 2050 under the proposals in the Bill. There are issues related to this move, in particular the fact that, as people in manual occupations do not live as long on average as those in professional and managerial occupations, the impact of increasing the state pension age is likely to be more pronounced on one social group compared with another. I hope that the Government will continue to make every effort to address this fundamental inequality that exists over life expectancy rates. I hope the Government will also seek to satisfy those opposed to raising the basic state pension age that there are no acceptable means of raising the necessary finances to enable this to be done. The Bill makes real progress towards indexing the state retirement pension to average earnings not prices in the next Parliament, which will further improve the position of pensioners and, as a spin off, should also assist in achieving a welcome reduction in the level of means testing. Guaranteeing to link the basic state pension to earnings should mean thatthe state pension would be worth twice as much in 2050 in real terms than it would have been without reform. The Bill also reduces the number of years it takes to build a full basic state pension from 44 years for men and 39 for women to 30 years for men and women attaining pension age from 6 April 2010. Reducing the number of years needed for a full basic state pension and introducing weekly credits to recognise and reward caring will lead to many more women retiring with a full state pension, and is a welcome development. Following the changes in the Bill, some three-quarters of women reaching state pension age from 2010 will be entitled to a full basic state pension compared with around half without the changes. In 2025, around90 per cent of women and more than 90 per cent of men reaching state pension age will be entitled to a full basic state pension. These reforms will address the current discrimination in state pensions, reducing the income gap in retirement between men and women. I also welcome the commitment to implement a new system of personal accounts in 2012 to make it easier for more to save for their retirement. I trust it will be a system to which employers are required to contribute as well. Ten years is a long time, and it is certainly a long time to remember in any detail what conditions were like a decade ago. Under the previous Government, one in four pensioners was living in poverty. Over the past 10 years more than a million pensioners have moved out of relative poverty and 2 million out of absolute poverty. The Bill marks a significant step forward in giving a much better deal for pensioners. The Government are to be commended for the actions they have already taken in this regard and for the further actions they now intend to take.