Pensions Bill

My Lords, I should like to say some words in support of both amendments. The idea of an Independent Pensions Commission returning on a periodic basis or perhaps being a standing commission that reported periodically was one that the Pensions Commission supported and was in our recommendations. We made those recommendations very wary of the idea that once a commission gets to the end, it should propose that there is another commission to replace it. Frankly, we thought that we had done a reasonable job and that our proposals made good sense in themselves. We did not necessarily believe that a whole load of extra work needed to be done immediately to take it forward. But we were very aware that things change. If they do not change dramatically in four years, they will certainly change dramatically in 10 years, and over time. For instance, our estimates of life expectancy have been transformed dramatically over the past 10 years. When we started our work in 2003, estimates of life expectancy for a man aged 65 had changed by about four years in the previous 10 years. In 1993, the Government Actuary's Department said that in 2003, a man aged 65 had a life expectancy of 15 years, but when we looked at it, it said that it was 19 years. That figure is rising, and it could rise quite rapidly. We could get dramatic changes in medical science where we see either a slowdown in the pace of life expectancy on which we are presently planning or very major accelerations. We need a process to ensure that, quite separate from the pressures of government—the pressures that necessarily push Governments at any one time to suggest that things are under control and are okay—someone is looking independently at an area where the facts could change but also where the implication of those facts lies far in the future. We in this country—this has been a good development in the government of our country—are heading towards increasingly identifying a number of areas of public policy where there is value in having a permanent independent commission or permanent independent authority. The noble Lord, Lord MacGregor, has pointed out that the analogy with the Monetary Policy Committee is not precise, because that committee actually pulls the policy levers rather than simply provides advice, but it is similar in that the argument for the independence of the Bank of England and its control of the pursuit of an inflation target are based on the fact that the detriment of bad inflationary control tends to lie far in the future, so that if it is left without independence and is simply under the control of the Chancellor of the Exchequer, there is a tendency, as we have known for decades, to favour the short-term benefit of low interest rates over the long-term benefit of low inflation. That is why the present Prime Minister, in a very bold and very appropriate step, moved to the independence of the Bank of England in 1997. That is not remotely equivalent to this, because there is no intention that this independent commission pulls the levers, but it is similar in the sense that we are dealing with pension policies that have been a problem for many years because the benefits of good pension policy lie very far in the future. This is a policy matter that relates to an intergenerational equity between people today and people far in the future, and it is not easy to get the right answers entirely within the framework of adversarial party politics. The noble Lord, Lord Oakeshott, referred earlier to the fact that, when he initially took over the pensions brief, he was aware, as I am sure are most people who consider this issue, that the state pension age would have to be increased, but that he was somewhat reticent about mentioning it. That reticence was pretty much total at 11 am on 30 November 2005 when I presented the Pensions Commission’s report. Not one of our three major political parties was committed to an increase in the state pension age. We said that it had better go up, and, by that evening’s news, all three major political parties had said that it was a rather sensible idea. There is sometimes a role for an independent view that is completely separate from party politics. We in this country are slowly heading towards defining areas of policy where such commissions have a role. The independence of the Bank of England is one such area. Indeed, it is a very extreme case in that it actually pulls the policy levers. Another one, to which my noble friend Lord Howarth has already referred, is a proposal in the new draft Climate Change Bill for an independent committee to hold the Government to account on the progress made towards achieving the emission reduction targets required for climate change mitigation. Again, that places a deliberate external discipline on short-term politics to ensure that the long term is given sufficient focus. That was the argument used by the Pensions Commission. We thought that pensions and the challenges of longevity fell into that category of problem and that there was an appropriate role either for a standing commission that reported periodically or for a commission that was pre-set to be reformed every four years. I have nothing against that as an alternative proposal. Amendment No. 34 relates to issues which I said something about in Committee. I should say to the noble Baroness, Lady Turner, that one cannot simply say, ““This contract has been formed as part of a negotiation, therefore end of story. No one is allowed to look at its future cost””. This is a very particular form of contract. It is not a contract in which someone promises to give their labour in the next six months and receive remuneration in the next six months, but one that purports to set someone’s retirement age 40 or 45 years in advance. We do not know its value because we do not know how long that person will live when they get to 2050, given the uncertainty about longevity, which I mentioned earlier. We are promising people who have already joined the Civil Service that they will retire at 60 in 2047 or thereabouts. That has a certain possible value; indeed, it has a very large value, given that by then someone aged 60 may well be expected to live for another 30 years. But it is quite possible that changes in medical science will mean that someone then aged 60 can expect to live for another 35 or 40 years. In that case, we have written a very large, and also blank, cheque to those people through the contract that we have proposed. A contract of that nature makes it legitimate for society to look at it occasionally on behalf of taxpayers and to ask whether it is affordable and whether it is fair, relative to other people. After all, that is what we have done in relation to the state pension age. Some people in the workforce today may have believed that they had a categorical promise that they were going to retire on the state pension at 65, or at 60 in the case of women before the reforms that were introduced 15 or 20 years ago. We as a society have said that that promise does not make sense and is not a fair contract between the working population and the retired population, as it would place too much of a burden on future taxpayers. Legally, one should respect rights that have already accrued for service that has already been given. However, one cannot treat future service as an agreement that, once made, can never be challenged. In the light of that and the major concerns about the structure of public sector pensions, which the noble Lord, Lord Turnbull, has very effectively expressed, it is important that we continually present the facts about public sector pensions, whether through a commission or reports or by other means, and scrutinise them with an intensity with which the state and private sector pensions have increasingly been scrutinised but which the public sector pensions have escaped.