Debate on the Address

My Lords, it is a great honour and privilege to congratulate the noble Baroness on her maiden speech, which I personally found extremely moving. I look forward to hearing more from her. Of course, I knew of her by reputation before she came here but I had not realised the depth and width of her experience, nor the fact that she was the author of some well known publications in the area of mental health. We have often discussed that subject in this House. We look forward to hearing more from her and I am very glad to welcome her here. It is delightful to see her and I thank her very much for what she said this afternoon. It is clear from the Queen’s Speech that one of the most important Bills in the new Session will be about pensions. It seems that there is a fair degree of consensus about what needs to be done. Many of the provisions will arise from the Turner report, which was widely welcomed. However, I remember that back in the 1970s there was cross-party agreement on the Castle plan, which introduced SERPS. I believe that that scheme was probably the best attempt that we have ever made to ensure security in retirement for working people. Unfortunately, successive Governments undermined SERPS and worsened state provision by detaching the basic state pension from the wages index. For a number of years, we believed that we had the best pension provision in Europe because of the growth of occupational pensions, many of which provided pensions based on the final-salary formula. However, as we know, those who retired during that period with pensions related to final salaries were the lucky ones, and many who were expecting to do so as well have been gravely disappointed. Moreover, those without adequate private or occupational pension provision have become increasingly dependent on means-tested benefits. Although pension credits have been of great benefit to many pensioners, they are means-tested, and that inevitably means that many who should have them do not, for various reasons. It is becoming increasingly obvious that the worst sufferers under the present system are women. The reasons for that are well known: pension entitlement is related to contributions paid and normally that involves full-time employment. Many women have a broken work record, and therefore less than 30 per cent of women receive a full basic state pension in their own right. The Government have attempted to deal with that via home responsibility payments. Perhaps it has been thought that, as more women are encouraged to return to waged employment, the problem will gradually be sorted out over time. The White Paper has made further moves towards helping women and those will no doubt appear in the Bill. Of course, it will assist if the number of years’ contributions leading to entitlement to the BSP is shortened for both women and men. The question nevertheless arises whether these moves are sufficient, taking account of the pattern of many working women's lives. It is, however, good to learn that the Government have at length accepted that the basic state pension should rise in line with the wages index, although pensioners will have to wait for that until 2012 and there will therefore be no immediate benefit to present-day pensioners from this change of policy. Had the policy been in operation, as Barbara Castle originally intended, the basic state pension would now be worth about £135 per week. That could have meant fewer people being dependent on means-testing. I have always been opposed to means-testing. Many older people find it humiliating. Often they find it difficult to claim, and that accounts for people who are eligible for pension credit not getting it. It also tends to discourage savings. The argument against increasing the basic state pension to an adequate level has always been that it would simply benefit the better-off, who already have good private provision. My answer to that has been that this could be corrected via the tax system—the better-off would simply pay more tax. The Government still seem to have concerns about affordability. It has been suggested that the increased cost of linking the BSP to the wages index could be borne by increasing the age at which the basic state pension is paid, and to do so in stages. I understand that there is an argument for this, as the expectation is that everyone will live longer, but I question whether it is a good idea for all employment. Many would like to continue working; others are only too glad to leave, possibly for lighter work, should it be available, but there are clearly industries—part of the construction industry, for example—where not only older workers but their co-workers might be at risk. The Government are clearly concerned that people do not save enough for retirement, and are anxious to encourage them to do so. It has to be recognised that many people find this difficult. Many people in mid-life, and younger, already have substantial debts; housing costs are very high; and there is a shortage of affordable housing in many large cities, notably in London. Recently the Financial Services Authority announced concerns about the willingness of mortgage lenders to lend up to five times a joint annual salary, and sometimes more, to people buying houses. That means an awful lot of debt. Younger people who have been to university are often in debt as a result of fees which have to be paid. If there are children, the wife may not be working. To a number of people, the need to save for retirement may not look like a very pressing requirement. The Government therefore intend to introduce personal pension plans into which employees can be automatically enrolled—with the right to opt out—with a compulsory employer contribution of a minimum of 3 per cent. I understand that there will be 1 per cent tax relief and that the employee will pay 7 per cent. However, it must be said that a good pension scheme will cost an employer a great deal more than 3 per cent. Trade unions have always regarded pensions as deferred pay. Indeed, it has always been customary for employers to take pension provision into account in pay negotiations. I should be interested to learn how the Government envisage that the scheme will be managed. Presumably there will be some form of regulation to ensure that the investments are suitably managed, but what if the investments go wrong? Moreover, unlike a good pension scheme, there will be no dependency benefits. Employers might cut back to the minimum level instead of providing a good scheme themselves. Trade unions are deeply involved with pension provision. They will no doubt maintain their campaigns to keep good schemes running and try to get them introduced where they do not currently exist. But that is becoming increasingly difficult. Employers have already turned away from final-salary provision and, increasingly, where pensions are on offer, they are of the money-purchase variety. Any legislative provision which might encourage employers to limit their contribution to 3 per cent might not be helpful. Unions have long believed that employers should make compulsory payments into schemes. We have of course discussed many of these issues before in this House. It is not so long ago that we had new pensions legislation to discuss. The Government have attempted to deal with some of these problems but the question is: have they gone far enough? I do not think so. The proposals, if enacted, are likely to add to the complexity of what is already too difficult to understand. It will leave too many people—most of them women—at the mercy of means-testing. I remember suggesting during the debate on the last pensions Bill that we should have a citizenship pension based on a residency test. That, plus the second-tier state pension, would eventually mean a retirement for most people without reliance on means-tested benefits. Of course, the matter of affordability will be raised but I understand that the National Insurance Fund is in considerable surplus. Why do the Government not use it for pensions? I believe that successive Governments have used the fund for all sorts of different requirements and I can never understand why it has not been used simply for pensions. Many people think that that is what it was there for originally. So far as concerns occupational pensions, the Government have introduced the financial assistance scheme to help people who have been affected by the winding up of underfunded schemes. There was concern that the arrangements were insufficient, but the Minister has written to me outlining major improvements which have been made to ensure that larger numbers will benefit, and I am very grateful to him for that. I understand that there are to be regulations and that there will be consultation about those regulations, so we will have the opportunity to try to ensure that those who are eligible receive assistance under the scheme. These are all issues which will no doubt be more fully explored when the Bill is ultimately before the House.