Pensions Bill

My Lords, I hope that the Minister is reassured by all the ex-Ministers taking part in this debate: former pensions Ministers such as the noble Baroness, Lady Hollis, and me, and ex-Ministers such as my noble friends Lord Hunt, Lord Freeman and Lord MacGregor, my ex-Treasury colleague. I assure the Minister that we have only one aim: to help him to improve this legislation. Quite seriously, I congratulate the noble Lord, Lord Turner, on his report, which is an extremely skilful analysis of pensions issues. He has had rather more success in fighting off the Treasury than I had back in the 1980s with my own review. I say to the noble Lord, Lord Rosser, that we pointed out in that review the increased longevity of the population, the increased number of pensioners building up and the falling ratio of contributors to those pensions, and we sought to plan for it. It should not have come as a surprise to the Government in 1997. In introducing this Bill in the other place, the Secretary of State, Mr John Hutton, said that it, "““represents probably the biggest change to our pension system since Clement Attlee’s post-war Labour Government implemented the Beveridge reforms””.—[Official Report, Commons, 16/1/07; col. 659.]" I humbly suggest that Ministers of all parties leave out all these claims about following in Beveridge’s footsteps. I acquit the noble Lord of that this afternoon, but we have all in our time made the claim. I plead guilty; in 1984, when I set up my own review of social security, I said that it was, "““the most substantial examination of the social security system since the Beveridge report 40 years ago””." I am sure that, before me, Barbara Castle said exactly the same thing. There are good reasons for not invoking Beveridge, a great man though he was. First, the post-war Labour Government did not implement the Beveridge report. Beveridge wanted a system based on insurance. The Attlee Government introduced a pay-as-you-go system. Today’s contributors pay for today’s beneficiaries in the hope that, when their turn comes, future generations will do the same for them. It is not the insurance principle but the contributory principle. Secondly, Beveridge reported in another age. The position of women, particularly working women, was simply not recognised. When my father and mother moved south in the 1930s, my mother, a qualified teacher, was refused a job in Essex because her husband already had a job. In this way, they almost—but I am glad to say not quite—prevented her from earning a teacher’s pension. Clearly that position has changed radically, but still two-thirds of pensioners living in poverty are women. I hope that in the further consideration of the Bill we can spend some time on that, and I am sure that with the noble Baroness, Lady Hollis, present we will not be disappointed. I hope that we can have some sensible cross-party co-operation in these areas, as we did on the Communications Bill. The third and most important reason to gently shelve Beveridge is that it gives the impression that there is one ““big bang”” solution to everything, and frankly I do not think there is. We would do much better to think in terms of step-by-step improvement. I acknowledge that in this Bill and the one that will follow there are some steps, like the increase in the state pension age and automatic enrolment, to be welcomed. I congratulate the noble Lord, Lord Turner, particularly on the latter. But the steps proposed by the Government are not sufficient even now to give everyone the maximum income in retirement that we all want to see. That is why I am wary of all the talk of seeking a consensus between the parties on every conceivable point. Consensus gave us a state earnings-related pension scheme. I remember it only too clearly because I was the new shadow Secretary of State who took over with 10 days to go before Barbara Castle introduced the Pensions Bill. I inherited a policy that, I was told, was to give industry some stability, and we went along with it. Perhaps we should not have done; perhaps from the start we should have said that the original scheme was too expensive, quite apart from the state getting into the business of providing not only first pensions but also second pensions on that scale. Our attitude should be to agree on those policies that are clearly sensible, like the pension age and encouraging more personal provision, while continuing to question and oppose the indefensible policies of this Government, such as those towards the public sector, which the noble Lord, Lord Oakeshott, has already referred to. We are in real danger of creating two nations in regard to pensions: one in the private sector and one in the public sector. We would do well to follow the noble Lord’s suggestion of an inquiry into the cost of all that. My view is that pensions policy should be on a twin-pillar basis: public provision together with personal saving. I have concentrated on personal saving, but I welcome the decision that the basic pension should become earnings-related. Having said that, the previous Conservative Government, of which I was a member, were altogether right to put the pension on a price-related basis in the context of the position in 1979. The economy was in a self-evident mess, we were getting arbitration awards for 14 per cent to 18 per cent salary increases in the public sector, and public spending was out of control. The Government were right to move, and my noble friend Lord Jenkin is to be congratulated on his determination in seeing that policy through. Equally, with the economy substantially restored after 20 years of recovery, it is right that the rewards of growth are shared. I fear, however, that the new plans still leave behind a very complex system. That complexity, particularly permanent means-testing, will act against private and personal saving. There is no question about that. Take personal credit, for instance. As Ministers in the other place were and are fond of claiming, I supported pension credit—I still do. I introduced family credit for children who needed more support than that provided by child benefit. I saw pension credit as a means of bringing help to those who, through no fault of their own, simply had not had the opportunity to build up an occupational pension. I did not envisage, however, that when that opportunity came and the basic pension was improved, it should continue indefinitely to be part of the pension landscape, certainly not to the extent that 30 per cent of pensioners—perhaps many more—will be relying on it even in 2050. We need to look at those figures carefully in Committee. The most serious development in pensions in the past 10 years has been the destruction of so many occupational pension schemes in this country. The debate continues on why that has happened. Most commentators and most in the industry think it had something to do with this Government introducing the £5 billion a year pensions tax at the wrong moment. The Government, Anatole Kaletsky and now the noble Lord, Lord Rosser, think otherwise. Mr Ed Balls, soon to be a Member of Gordon Brown’s new Cabinet, thinks that they were pushed into it by the CBI. The noble Lord, Lord Turner, can doubtless inform us on that, although frankly this must make him a natural recruit for the creative fiction section of the Department for Culture, Media and Sport. In fact, the explanation is very simple. It was one of the measures in the Treasury’s bottom drawer to be shown to all new Chancellors as they took office. Ken Clarke rejected it and Gordon Brown accepted it. What is clear is that we now have to deal with the consequences of this collapse. We have 11 million people in work who are not making any contribution whatsoever to any private pension scheme. Final salary schemes are becoming the preserve of the public sector and very senior management in the private sector. In some companies in the private sector, schemes have been closed altogether; in others they have closed to new entrants. Since 1997, more than 60,000 occupational pension schemes have been wound up or are being wound up. We should make no mistake about this: very few companies will start new final salary schemes. Despite having once been the envy of Europe, we have declined to a position where all the evidence is that people are simply not saving enough if they want to enjoy a decent life in retirement. The second pillar of private provision—personal saving for retirement—is seriously fractured and needs support. The proposal made by the noble Lord, Lord Turner, for automatic involvement should help here and is certainly a step forward from where we are now, but we will have to see if it works in practice and what the increase in private savings is. Personally, in the past I have favoured compulsion. I was glad to see from the consultation that on this I march arm in arm with the TUC. It has taken a long time but at last that day has arrived. To those who doubt compulsion on a theoretical, ideological ground, I would point out that compulsion was part of the private provision plan unanimously approved by Margaret Thatcher and her Cabinet for my pensions Green Paper in 1985. To those who doubt it on practical grounds, I point out that it has been worked successfully in Switzerland year after year. But I accept that it is not the Government’s plan, nor is it likely to be, therefore the challenge is to make the new voluntary approach work. We need something more than the minimum standards of automatic enrolment. We need more encouragement, somehow more incentive. In such a programme, we need to look again at the whole question of compulsory annuities at 75. Sometimes, often from the government Front Bench, that is written off as being only of interest to the rich. I do not agree; I do not think that the Government appreciate or see the potential. To give an analogy, you could likewise say that buying shares is only for the rich; yet when I privatised the National Freight Corporation, it was not just senior managers who took shares but also drivers, secretaries and warehouse staff, who turned up in their hundreds to the annual meetings. All the evidence suggests that people aspire to own their own pension, quite apart from what the state provides. In addition, the right to pass down the pension sum to their children would be a considerable incentive to many thousands of people in this country. I accept that many will still want annuities—that is their choice. I also accept that the Government will want some assurance that people who decline to take an annuity at 75 should not fall back on the state. But I see no justice in forcing someone to take an annuity at 75 when there is not the slightest prospect of that happening. Rather than trying to make saving for retirement more attractive, the Treasury seems to do all in its power to close what it says are loopholes. It supports a policy of voluntary personal provision but insists on compulsory annuities. Unless that view changes, I have fears for what this legislation will achieve. Letme say to the noble Lord, Lord Oakeshott, that when we table amendments to this, I hope the Liberal Democrats will have the stomach to support us all the way. Individual pension provision, far from growing, is in underlying decline. This is certainly not a healthy position for citizens, who will have their life in retirement reduced and constrained; and it is not a healthy position for the Government, who will be asked to come to their aid. The Bill goes some way to encouraging personal provision but I doubt whether it is enough. We need not just legislation but a change of attitude inside the Government so that millions more people in this country can have their own pension.