My Lords, I declare an interest as a board member of the Pensions Advisory Service. In that capacity perhaps, I suggest to the noble Lord, Lord Paddick, that he should consider buying some voluntary NICs to make good his shortfall and he will get a 25% return on his capital.
Private DC pensions are deeply problematic. Most people, especially poorer women, do not understand them. They do not trust them; they cannot afford them; they cannot access them; and they do not know what income they would get from them. Pensions for them are high risk. I think the Minister once said that the poor can better cope with risk as they have less to lose. In my view, the exact opposite is true: when you are a week’s wages away from going hungry, you cannot afford any risk at all.
For me, the great virtue of the new state pension, unlike private pensions, is that it removes risk. So my test of the Bill, not dissimilar to that of my noble friend Lady Sherlock, is: does it make pensions simpler, easier to understand and more transparent? Will it produce an adequate replacement income in retirement while being affordable both to individuals and society? Is the Bill fair, recognising women’s unpaid as well as conventionally paid work, and not leaving groups of women unfairly outside the system? Is it also fair in its assumptions about retirement age? Does it encourage
savings where possible by removing means-testing, which inhibits them? My acronym is SAFER. The Bill must make pensions: simple; adequate and affordable; and fair; encouraging savings; and removing means-testing. Does it do so?
Is it simpler? Yes, although it is not yet simple. By bringing together the state retirement pension, S2P and pension credit into one single state pension, people can predict their state pension if they have full contributions. But they still have to work out whether their mix of contributions and credits will cover 35 years. Over time, it should do so given a full working age life, but it may not.
Is it adequate and affordable? Will the new state pension continue to address pensioner poverty? S2P, which redistributes to poorer earners, and pension credit, which especially helps older widowed women, were both in Bills that I took through this House. Together, they targeted pensioner poverty and succeeded. Since 1998, pensions have increased three times faster than wages. In 1997, pensioners were the poorest group of our society—the poorest of the poor. When we left, they were less likely to be poor than any other group in society.
But helping existing poor pensioners through means-testing has potentially the perverse effect of deterring future pensioners from saving. By building a stronger state platform, as the Bill does, we both target poverty and support saving. Is it adequate? A middle-aged couple, he on average earnings and she on a modest part-time job, might expect a replacement state pension in future of around 70%—adequate for them, yes. On top may come NEST, its value depending on their age, contributions and the markets.
Is it affordable for us? Given the raising of the state pension age, the capping of S2P and the overall £5.5 billion of NICs windfall from ending contracting out, which will go to HMRC, then, yes. Indeed, HMRC will make such a profit, no wonder we are bringing forward the new Bill by at least a year. In that case, some small fraction could be available for decent transitional arrangements.
Is the Bill fair? For me, that raises two questions. First, will all those who should do so get the new pension? No, it is not that fair. If I were the Minister I would want as inclusive a structure as possible. Those left out of the new single pension will continue to get pension credit, and the cost and confusion of running two systems for a further 40 years is clearly undesirable. Obviously, pension credit will remain as a residual safety net, but we want as few people as possible to fall into it. Who gets left out? Service wives do, possibly, depending on their age, and I will table an amendment on that. Women with several mini-jobs will also be left if they perhaps work 20 hours a week yet are not building their own state pension and are denied a future married women’s pension.
The problem in the past was the employers’ contribution and how we divvied it up. In 2007, the Government thought that there might be 15,000 affected women. We now think that it is almost three times that—40,000 women and 10,000 men—working above the lower earnings limit but still not coming within the
NI system to give them a state pension. With real-time information—one of the bonuses of UC—and treated as self-employed as this Bill rightly does for all other self-employed people, we can and must bring those 50,000 people into the new pension.
Steve Webb said in the other place, in a slightly male way, that such women would not thank us for paying £2.70 a week NICs. How does he know? Has he asked them? He also believed that their situation was short-lived and that they should have enough contributing years. How does he know? Has he asked them? He said that they could pay voluntary NICs, but that costs five times as much and might not cover early missing years—that, we do know. I am not myself willing to see 50,000 or so excluded on the beliefs—not facts—offered by the DWP. Those 50,000 should be treated as self-employed unless they opt out. It would allow them to move seamlessly between mini-jobs and a longer-hours job, as we want them to do, as their caring responsibilities require.
The second question of fairness is around the state pension age. I am pretty fed up with people, usually in well paid, interesting, salubrious and physically undemanding jobs, pronouncing that as we are now living longer we must all work longer and what is more—the final insult—it is good for us. This House will know that we have three stages of older age. Most of us who reach 65 in good health can expect another decade of healthy retirement. From our mid-70s, we develop functional disability—mobility, sight, hearing and reach—which increasingly limits what we can do for the next decade. We need support. Then, in the last three to five years of life in our upper 80s, we need care. As the Government’s analysis in the ONS stats shows, between 2000-02 and 2008-10, male life expectancy rose by over two years. But—and this is key—only a third of that was healthy life expectancy. It was 0.7 of one year by the Government’s own stats. So we gain, as the noble Lord, Lord Paddick, said, three to four months every year, but only one month of that may be healthy.
Between 2007 and 2010, the most deprived fifth of the population had a healthy life expectancy of just 55 years—15 years less than the most affluent. The gender gap is narrowing, but the class gap is now widening. So those extra years that we are living are not, alas, years extending healthy retirement but additional years of increased disability and dependency, especially if you are poorer off. Every year that we raise the state pension age is deeply unfair on those who have had hard lives. They start work five years earlier than those who enjoy higher education, and they can expect 10 to 15 years less of overall life expectancy and of healthy life expectancy. By raising the state retirement age, we eat into and reduce their few healthy retirement years even further, all to subsidise the pensions of people such as me—the longer lived, healthier, better educated and better off, including those of us in your Lordships’ House. Our single-age retirement policy—one size fits all—is regressive and unfair. We do not need to shrug this off as Borisconi tough luck. We can do better than that, and I welcome the proposed independent review.
I proceed along with my SAFER acronym: simple, adequate, fair. Will the new state pension—E—encourage savings? Will it—R—reduce means-testing? Yes it should.
It will do so by removing the perceived disincentive that having savings costs you benefit. Savings credit actually supported small savings, but under half of those entitled claimed. Its value is eroding and overall the doorstep line I always encountered when canvassing was, “I’m not any better off for saving”. There is one point here about AIPs—assessed income periods. We should not add to yet more means-testing for those on pension credit, which is what the Government propose, while stripping it out, rightly, for those on the new pension. I implore the Government to leave it alone.
The sums saved will be small—I calculate them to be £60 million a year net at best. The stress for older pensioners will rise. The implications for funding social care from equity release for the over-75s—over half of whom are owner-occupiers—on which the social care bill is premised will be catastrophic, overwhelming any savings that the Government may get. Do not go there. What you may save in pension credit, you will overwhelmingly lose in people in not being able to co-fund social care. It is really not worth it.
Importantly, under the new state pension, auto-enrolment will be safe. Without the platform of a non-means-tested predictable pension we could, with some justice, be accused of mis-selling NEST. However, NEST was meant for women with low earnings. It originally kicked in at £5,700; from April it is £10,000. Every time you raise the tax threshold, another tranche—mainly women—drop out of auto-enrolment. There are 420,000 in 2013-14. Of course, consultation exercises show that employers like it. What is not to like? The last lift saved them £6.4 million. The losers—poor women—do not know and do not complain.
At the 2017 review we must reconsider NEST’s trigger, perhaps the PTT, and in the mean time strengthen opt-in arrangements. Some 1.1 million women have already lost the opportunity of auto-enrolment. Next spring, still more women will be excluded. Unless we intervene, NEST will lose the very group for whom it was designed.
I want also to register my disquiet at the proposed new bereavement benefit; the loss—proper stats, please—of the state pension lump sum; the interaction with other benefits, especially HB, after five years; the transitional arrangements for married women relying on the 60% pension; divorcees; and widows’ inherited rights. We can pursue all that in Committee.
Do I support this Bill? Yes. On the state pensions front, indeed I do. I even wrote a pamphlet calling for something similar before the last election, and was delighted to corral Steve Webb, then a Back-Bencher, into contributing to said pamphlet. All credit to him and the DWP team behind him for delivering the SAFER pension; I am really pleased. It will continue to reduce pensioner poverty; it will eradicate for very many the snakes and ladders of means-testing; it moves us closer to a decent state pension for all, but one rightly clothed in a contributory system. It will make it safe to save. Those are really valuable contributions. However, it can be improved. The Minister will be delighted to learn that there will be quite a few amendments in Committee. I look forward to them; I hope that he does, too.
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