My Lords, in moving this amendment, I suspect I will also speak to some of the other amendments in the group en route. Clause 26 states that the Secretary of State must review pensionable age from time to time,
“having regard to life expectancy and other factors”,
he considers relevant. In preparing this report he must consult GAD and a panel appointed by him which will produce their own reports to inform his. All that seems entirely sensible and I welcome it.
This amendment is a limited and modest one, which I hope the Government will find helpful and might even accept. It simply asks to put in the Bill, for the avoidance of doubt, those factors that the White Paper of January 2013 on page 77, paragraph 161 stated:
“are expected to be considered”.
There is also one additional factor, gender, which slightly oddly was omitted.
What factors does the White Paper expect “to be considered” both by the Secretary of State and the review body? The first is:
“evidence of variations in life expectancy … by socio-economic class”,
and therefore, by implication, as my noble friend Lady Turner said, by occupation, and by geographic reason. Secondly, there are,
“trends in healthy life expectancy”,
a point I am sure we will pick up and explore as my noble friend already has done in referring to the Marmot report. Thirdly, there are
“alternative ways of measuring life expectancy”,
and, finally,
“impact on the labour market”.
As I said, all these factors, which the amendment seeks to put in the Bill, come from page 77 of the Government’s own White Paper from January 2013—The Single-tier Pension: a Simple Foundation for Saving. The only missing factor, as I have said, which I have added in was gender, which I presume was an oversight, given the recent fusses we have had over unisex annuity rates and the like. This amendment is very simple. It seeks to put in the Bill that the considerations in the Government’s White Paper will come into play.
Why bother to spell it out in the Bill instead of leaving well alone and keeping it in the White Paper? My noble friend has mentioned the Marmot report, which was highly important. I, and I am sure other Members of the Committee, have read—and I know the Chair of the Committee knows it very well—the recent Lords report from the Committee chaired by the noble Lord, Lord Filkin, called Ready for Ageing?. I have been through all of its 1,000-plus pages of evidence. It was an important and valuable report, especially for the evidence coming in from the wide range of contributors. However, I was surprised to see how relatively little attention, particularly in the recommendations, was paid to these other factors. Instead, there is an insistence on trying to connect retirement age, in some rather formulaic way, to increased longevity, as, I fear, the Minister has just done.
We have recently had the Autumn Statement, in which the Chancellor of the Exchequer again seems to think that retirement age should be mechanistically linked to longevity by defining a set proportion of adult life that should be spent in retirement, irrespective of what happens to whom or what the quality of that retirement is like. It is all, in my view, highly elitist, and I am delighted that the DWP is not following the Chancellor’s approach, which is the easy, mechanistic way, but is seeking appropriate evidence with which to inform its decisions. This amendment would strengthen the DWP’s decent, evidence-based approach against a simplistic, bulldozing Chancellor, now or in the future, who wanted easy money to cut the welfare budget in its entirety by raising the state pension age.
What are the issues? Some have been touched on by my noble friend Lady Turner. Most commentators go over the well worn statistics—a year for every three or four years; the doubling of numbers of those over 85;
the trebling of centenarians, and so on. They end up with the glib assumption that we cannot afford it so we must all work longer or, more specifically, delay drawing our pension to pay for all those—not us, of course—who in future will linger too long; and if we do not do this we are destroying the life chances of our children and grandchildren. That argument is pretty well nonsense. The issue of affordability is invariably prayed in aid and is, I think, inappropriately stated—indeed, badly misstated.
The first point is that half the population growth among the elderly, by which we are so financially frightened, is a temporary bulge left over from the baby boomers and will scale down from the 2030s on, at which point we will have one of the best worker/pensioner support ratios in Europe. I do not think the Chancellor told us that, if he actually knew it. The second point is that I remember doing a speech at the Institute of Directors 18 months or so ago and to a man—as, indeed, they were—they thought that the state pension age should be 70 and that they should have the right to dismiss staff at 65. No connection was made between the two. There is little point in raising the state pension age if people do not stay in the labour market. It merely means that they linger longer in the twilight of inadequate working-age benefits.
The latest statistics I have—the Minister’s may be more up-to-date—is that some 30% of men have left the labour market before the state pension age of 65, though the averages are skewed and in practice it is actually a higher number because some men, and women, continue working for a couple of years after 65, a subject we debated when talking about lump sums earlier in Committee. At the moment, that 30% or so of men who leave the labour market early, whether through unemployment or poor health, are protected. This is a point that is never raised in any of these discussions and I do not know why, because it is very relevant. They are protected because they can claim pension credit on the same terms as women and thus, while pension age remains unequal, they have, or have had, a level of benefit equivalent to the state pension topped up by pension credit for up to five years while they linger in the twilight world between leaving work and pension credit age. That will disappear as the state pension age is equalised and poorer men, unable to work but unable officially to retire will find themselves in a no-man’s land on a low level of benefits with no top-up by pension credit as the state pension age continues to rise. As far as I know, no consideration at all has been given to that by anyone, and it should have been.
I come to my third point. What matters, therefore, when we consider the cost of state pensions is their percentage of GDP, which over the next 20 years will actually fall. Why has that not been brought into play as an argument? It depends also on employment levels and productivity during working years; savings ratios, including pensions, which conventionally are not counted in the savings ratio—the difference between outgoings and incomings; rising real incomes, which can buy adequate heating and food, both before and during retirement; and the ability in the later years of retirement, the decade of growing disability, to release assets such
as one’s home. Those are also not counted in the savings ratio—and there is a big difference between us and Germany. That could be done by trading down, or equity release, can help co-payment of the cost of old age. Then there is the degree to which heavy-end caring, especially dementia, can be pushed back.
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The crisis of affordability is simply not the case. Apart from half of it, which is due to the temporary baby-boomer bump, we have one of the best ratios among OECD countries, and we have affordable choices that we can make. We never hear those spelt out in any debate; there is simply a mechanistic argument that, as longevity increases, we have to raise the state pension age, without considering what is going on over time with the situation for older people.
So why is that option of the longevity/pension age formula so profoundly wrong? I hope that noble Lords will forgive me if I repeat the nature of what lies ahead of us. I was delighted to receive the DWP’s statistics a few days ago—thank you very much for that—and to see that they coincided with my own understanding of the demographics, which I used at Second Reading and which were to some extent drawn from the information in the Lords report on ageing.
We retire at 65, although many, up to 30%, have dropped out of the labour market several years earlier. A middle-income person, Mr Average, who retires in good health, can then hope to have a decade or so until his mid-seventies, when he increasingly develops functional disability with walking, reaching, hearing, seeing, when he receives not care but some degree of support. By 84 and 85, he is in his third stage of old age and increasingly likely to need care; he is probably bedbound and may be developing dementia. He may be dependent on others putting him to bed at night, getting up and feeding him and giving him intimate attention. That stage is likely to be around three to four years, and that has not changed much over the past 30 to 40 years as a proportion of older age.
The good news is that aids and appliances can be wonderfully effective in maintaining a quality of life in stage 2, growing disability. Motability scooters, for example, are so popular now that one of the awkward problems in my sheltered housing schemes is where to park and recharge a dozen or 20 of the blessed things, a problem that did not exist when we bought the schemes 20 years ago. There is smart technology, and there are smart houses, mats, detectors, alarms—we are getting better at this all the time. Over and beyond the heart/stroke/cancer problems are the falls, due very often to loose slippers and loose stair carpets, the fractured hip and the hospitalisation and institutionalisation that follows, which leads into our third stage of dependency where we need substantial care. Yes, we are living longer but—and this is key—that extra longevity is not added to the first decade of our retirement when we are healthy and can enjoy it but largely to that second decade of increasing disability and dependency.
As the Government’s own statistics show, between 2002 and 2010, in those eight years, we gained more than two years of extra life expectancy. I think that it
was 2.2 years extra—but less than one-third of that, 0.7 of a year, will be healthy life expectancy. The rest will be an ever-increasing period of functional disability. The gap between the two is widening, not narrowing. The problem is getting worse, and the more that life expectancy rises, the longer the period spent in that second decade of partial disability. No one ever tells us this. ONS figures show that it is already the case that the most deprived one-fifth of men have a healthy life expectancy of only 55 years, 15 years lower than the more affluent. As my noble friend Lady Turner said, that is why a one-size-fits-all state pension age is profoundly unfair.
In Norwich, we have Mile Cross ward, in the north, which has largely social housing, and Eaton ward in the south, with more affluent owner-occupiers. The difference between those two wards in life expectancy is 11 years; in healthy life expectancy it is nearer 15—and the difference is widening. We are not talking Glasgow compared to Westminster; we all know those stats. I am talking about two wards two miles apart, with the same air, same water and same public services, supermarkets, parks and pavement, and the same city government. How fair can it be to impose the same state pension age on both?
We are where we are now but as we expect to raise the state pension age, as the Government propose, those considerations should come into play. Those people do not enter the labour market at the same time and do not leave it at the same time, so why do we expect that they should draw a pension at the same time? It is too late for the poor who are in poor health and may be unnecessarily early for the better off in better health. Higher-income and higher-educated people such as me will usually have longer than that first decade of healthy retirement, I hope. Those who left school at 16 for unskilled jobs, as my noble friend mentioned, will be lucky to have three or four years of healthy retirement. Raise the pension retirement age by one year and they will lose a precious year of those three to four healthy life years. Raise it by three years and they will move almost immediately from being officially in the labour market into a retirement cribbed and confined by growing ill health and disability.
We talk about intergenerational inequality: how unfair it is on our children or grandchildren to support us in older age, when we should instead be postponing our state pension age. But the British Academy recently estimated that the over-65s contribute £40 billion net—after health and other costs—to the UK economy. It is only after 75 that they are less likely to give than to receive. In other words, and I cannot emphasise this enough—we need it in the moral equivalent of capital letters—the large inequalities within generations are far greater and far more significant and worrying than those between generations. This was a point well made in the evidence of John Hills to the Filkin committee. However, those large inequalities get little or no attention.
The life expectancy difference between men and women is closing quite fast and that between those in routine and professional classes, to use the DWP formula, is widening quite fast. The gap between increased life expectancy and healthy life expectancy is widening fastest of all. Those trends, which widen
inequality, are far more significant and serious than the issue of affordability for younger generations to come, given that half that problem will have disappeared once the bulge of baby boomers has gone through. Again, no one ever tells us that, yet we are proposing to widen those inequalities still further by unilaterally continuing to raise the state pension age.
The question we should ask ourselves in all this is: why do we have a state pension at all? It was devised, and remains, to give an income to the poorer among us in old age. Why then do we expect those same poorer-off people to find their state pension effectively shrinking, given the years that they will receive it, while others of us like me who have additional retirement income find the value of their state pension increasing? The DWP rightly recognised all this in its list of factors to be considered in its White Paper. Well done to it for being spot on, as that was one of the first papers of which I know that listed it in that way. However, I have no confidence at all that HMRC will shape its policy accordingly. That is why these factors really need to be in the Bill—not because I doubt the DWP but because other departments want to savage welfare spending to protect themselves. Increased longevity, with an automatic mechanistic tie into a later retirement age, is a self-evidentially quick and easy win.
I am not suggesting in this amendment by what and how we should raise the state pension age, or for whom, but to have an evidence-based approach to it. The DWP claims on page 31 of our November 2013 information pack that,
“the Government believes that it is right to retain flexibility in the review so has not set out in legislation what factors the body must consider”.
Really? I remind the Minister that the Bill asks the Secretary of State only to,
“review whether the rules about pensionable age are appropriate, having regard to life expectancy and other factors”.
Other factors, after all, remain that give the Government flexibility. The amendment merely specifies what some of those other factors mentioned in the White Paper are. Flexibility is not affected. It is not an issue. Other factors remain and the Government’s argument is not valid.
To argue with that is absurd unless and only if the Secretary of State wants to resile from this White Paper and abandon its philosophy while keeping intact the structure of the Bill. I am sure that that is neither the Minister’s nor the department’s wish. The amendment does not bind him in any way as to what he or the department would do now or in the future about the state retirement age. There is no loss of flexibility and considerable gain in transparency—a popular word with the Government in the Bill.
I urge the Minister to accept this modest, helpful amendment, which spells out in the Bill the wise policy intent of the White Paper. It is wise because it recognises the differences and distinctiveness of human experience, that one size does not fit all and that, above all, the poor among us should not be expected to wait longer and in poorer health for their state pensions in order to help protect the wealth and pensions of those of us with good health and good incomes. That is not decent. I beg to move.