The hon. Gentleman makes an important point. It is worth saying that successive Governments have failed to communicate adequately with pensioners about a system that is, undoubtedly, very complex. The hon. Gentleman alluded to the WASPI women, and they are the best example of the problem at the moment. They have seen the goalposts shifted several times. Many of them are still not entirely sure what they are going to get and when, and they have had contradictory information, even in very recent times, from the Government.
I come back to the new state pension. We are calling it a single-tier pension and making much of that flat rate, but, in reality, there will be many different rates depending on an individual’s personal circumstances. In other words, it is not going to be so simple. Inevitably, the introduction of the new system means that two systems will operate concurrently for several decades. The danger is that the state pension could be seen as a two-tier system, because some existing pensioners would be better off if they were included in the new state pension. I am fairly confident that all MPs will be inundated with approaches from constituents after April once those people work out that they have been short-changed in comparison with their friends, relatives and spouses who are on the new state pension.
We all understand that there will, inevitably, be a cliff-edge with the introduction of a new system, and that it is impossible to predict accurately whether someone will lose or gain from the new pension without a crystal ball to tell us how long they will live in retirement.
Given all the inevitable anomalies, which will cause a huge sense of injustice, it is incumbent on the Government to introduce some flexibility in the system by letting people take a bit more responsibility for whether they are in the old or new system, so that at least it is their choice to take that gamble with their own life expectancy.
We need to acknowledge that, over time, the new system will be less generous for most people. Those born from 1970 onwards will mostly be worse off under the new arrangements. Those who have contributed to the system for longer—for example, those who moved into work at an early age and worked continuously—will also lose out significantly. On the other hand, there will be benefits for the self-employed and for those who, under universal credit, start to receive credits to the state pension for the first time. There will be winners and losers, but there will be more losers over time.
The new state pension is being introduced on a cost-neutral basis, but the reforms are eventually expected to reduce expenditure compared with cost projections for the existing system. We must also note that the different indexation arrangements for the two systems have the potential to lead to accusations that the Government are building inequality into the system. After April 2016, the new state pension will be uprated annually at least in line with earnings, as per the triple lock, and we all support that. However, my understanding is that an existing pensioner will have a triple lock on only the first £119.30 of their basic state pension, with a consumer prices index link on any state second pension above that level. If CPI inflation is lower than earnings growth, as it is now, the value of the state second pension will fall in real terms. That gap is likely to widen.
Around 7 million pensioners get some kind of state second pension payment, and the average payment is around £28 a week. Applying the same indexation arrangements to old and new state pensions to the same level would cost a modest sum relative to pension spending, but it would mean that both the basic and state second pension were linked to the triple lock. That would help the Government to avoid some of the disparities that are likely to develop in the coming years, and it would help to create a system that is more likely to be perceived to be fair.
I want to express disappointment about the fact that the Government are not uprating savings credit. Instead, it will fall in April from £14.82 to £13.07 for a single person, and from £17.43 to £14.75 for a couple, and it will no longer be available to new pensioners. The Government announced in November last year that savings credit would be further reduced for current recipients, but that reduction is not included in the order. I would be interested to hear whether Ministers have decided not to reduce the amount of savings credit, or when they intend to introduce regulations for that measure.
Savings credit supports pensioners on low incomes who have managed to save a small amount towards their retirement. The vast majority—around 80%—of those who receive it are women, many of whom will have spent their working lives in very low-paid jobs. They have had limited opportunity to save, but they have done so nevertheless. It seems to me that reducing savings credit, and abolishing it for new pensioners, sends exactly the wrong signal to people in low-paid jobs who feel as though they should be trying to save but who have little incentive to do so.
Before I conclude, I want to devote some attention to the part of the statutory instruments relating to the uprating—or rather, the non-uprating—of state pensions paid to those living overseas; this is the issue of so-called frozen pensions. Such state pensions are paid to people who have spent their working lives in the UK paying contributions towards the state pension, but who, for whatever reason, spend their retirement domiciled in countries that do not have a reciprocal arrangement with the UK for the uprating of state pensions. Those UK pensioners find that every year, while UK-domiciled pensioners and those living in other parts of the EU or countries with reciprocal arrangements receive an uprating, their pension remains frozen in cash terms at the amount it was when they retired. The value of their pension therefore falls every year in real terms, causing real hardship to those affected.
According to the explanatory memorandum attached to the order, more than 500,000 people are in that position. Most—more than 90%—live in Commonwealth countries such Australia, Canada, New Zealand and South Africa, and also in India, Pakistan, parts of the Caribbean and Africa. In other words, they live in countries that have deep cultural and familial ties to the UK. Some have dual citizenship and others are UK citizens who have retired overseas to be close to family, but they all paid their contributions in good faith. The International Consortium of British Pensioners points out that a pensioner aged 90 who has lived in, say, Canada or Australia throughout their retirement will get a basic state pension of just £43.60 a week. If they had stayed in the UK, they would be receiving £115.95, which is due to go up as per this uprating. I just do not think that that is right. We are doing very badly by those people.
Those who are affected by frozen pensions had no choice about whether to pay national insurance contributions —doing so was mandatory. We must remember that many of them lived and worked in a rapidly changing and globalising world in the post-war era, when few would have paid much attention to the small-print of their state pension arrangements. It seems to me wholly unfair that a pensioner who retires to the USA will get their full uprated pension, whereas a pensioner in Canada will continue to receive their pension at its original level. Clearly, there would be a cost attached to uprating, but the Government must offset that against the costs that would have been incurred if those individuals had chosen to remain in the UK. The Government estimate that every pensioner who lives abroad saves the public purse on average around £3,800 each year in health and social care costs alone.
It is hard to measure the deterrent effect of frozen pensions. Pensioners who would like to retire close to their children and grandchildren in other parts of the Commonwealth are prevented from doing so by the knowledge that a key component of their retirement income would not keep pace with the cost of living. A partial uprating such as that advocated by the all-party parliamentary group on frozen British pensions would cost around £30 million and represent a tiny 0.03% of pension spending, but it would signal that those pensioners were not forgotten.
We all want fair and sustainable pensions that provide enough support for our elderly population to enjoy a dignified and comfortable old age, but the arrangements must be fair, and must be seen to be fair, if we are to
maintain confidence in the system for future generations. I hope that the Minister will consider and respond fully to the points that I have raised.
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