Part of the debate – in the House of Lords at 5:06 pm on 27 October 2008.
My Lords, the provenance of this new clause, tabled in my name and that of my noble friend Lord Oakeshott of Seagrove Bay, was my looking, over the summer, at the debates in your Lordships' House on the 2007 Pensions Bill. In June of that year, my noble friend eloquently moved a not dissimilar amendment in Committee. Indeed, the amendment was more widely drawn in that it would have provided for an independent commission with a remit to analyse research and provide information on pension costs and public policy issues over the longer term. I am grateful to other colleagues who have tidied up some of the wording, which improves the new clause which, for the purposes of clarity, is intended to be of permanent standing and not a temporary commission.
Over the summer I was able to draw on the very important publication of the Pensions Policy Institute, of which I am a governor. In 2008 it published an assessment of the Government's reforms to public sector pensions. If I were concerned before, I was even more concerned after reading the document at some of the gaps in our knowledge in looking forward—very long term—to some of these important areas of public policy. The Pensions Policy Institute looked at the background to the 2002 Green Paper, which reformed public service pension provision, and at how those changes impacted on public sector employees, how the financial stability of the schemes were improved over the longer term, whether it closed the gap between public and private pensions, and whether public sector pensions made up for lower pay, which was an important part of the underlying argument when the Government changed the scheme for public sector pensions.
The report treats the subject very seriously; it repays careful study and I commend it to colleagues. It has convinced me that Parliament does not yet have all the facts in the public domain to enable it to make sensible and objective decisions about the future costs that the country may be facing in this important public policy area. These issues are not new; they have been debated before, but bringing them back in this Bill is important. For the reasons that we have just been discussing on annuities, the situation on pension provision is now more acute this year than last. Last year's concerns are even more relevant and need consideration in today's uncertainty about the future of savings schemes generally and private sector provision particularly, which is being delivered more and more through defined contribution schemes.
There is great potential for this issue to be debated in a non-constructive way; a lot of ill-informed comment can be expressed. Big numbers are involved in unfunded liabilities, and the rest, which can scare people. In the run-up to the next general election, debate may be less informed than it might be if we had transparent access to the facts. The Government can state that the 2002 Green Paper reforms were put in place and are only just maturing—the last of them were introduced in April 2008—but, by accepting the new clause, which seeks greater transparency in the future, they would have a better chance of instilling in the electorate confidence that they are taking the issue seriously. Indeed, it needs to be taken seriously.
I want to quote from this important PPI report. First, the section dealing with the financial stability of public sector schemes puts the debate into context, as there are issues that need to be considered.
The paragraph headed:
"Will the reforms improve the financial sustainability of the", public sector "schemes?" states that:
"Public sector pensions are projected to grow more quickly over the next twenty years than any other area of state spending for which long-term projections are available. Over this period, spending on unfunded public sector pensions is projected to grow from 1.0% of GDP to 1.4% of GDP in 2027/8, after allowing for the savings from the recent reforms. This is an increase of 40%, which compares to an increase of 17% for long-term care, 16% for health and 14% for state pensions over the same period".
Of course, those are percentage increases, not absolute figures—we must bear that in mind—but that gives us a sense of the extent to which the current provisions after the reforms will build in long-term state spending over the next 20 years or so.
The latest estimate for the future unfunded public sector pension schemes liability that I have been able to find is from 2006. The figure is set at £650 billion. It would be of great interest to know whether the Government have a more current estimate of unfunded liability than that. Obviously, as the report makes clear, it depends a lot on discount rates, but the House is entitled to a much more up-to-date figure than one from 2006, which is likely to be higher than £650 billion. If the Minister can tell us the current estimate of liability, that will be very useful.
I have also not been able to find whether the Government have published an overall estimate of the year-on-year cost savings that they would expect in future as a result of the 2002 Green Paper reforms. We know—the then Chancellor, Prime Minister Brown, told the Treasury Select Committee—that the Government were anticipating saving about £13 billion over the next 50 years. That sounds like a big saving, but when you consider that there is a public sector contribution of £10 billion each year to public sector pensions, that puts it in context.
Just using those two examples, I make the case that it is nearly impossible, as far as I can judge with the information available to me, to assess the long-term affordability and sustainability of the 2002 Green Paper reforms. If that is the case, that is a serious matter for Parliament and it becomes an issue of what steps we need to take to get hold of that information so that judgment can be made.
I have no difficulty with the principle of unfunded public sector schemes being paid for by the taxpayer. I understand that those are contracted, negotiated arrangements between employers and employees, and that the trade unions take the very strong view that pension payments are deferred pay; I perfectly well understand all those issues. I am making no judgment about that in the proposed new clause; I am saying that we do not have the information available to us as policy-makers to make sensible judgments on important matters over the long term in the area of public provision of pensions.
I refer back to some of the advantages that we have been able to derive from work done by what were, admittedly, ad hoc groups in the past. I remember that the pensions provision group, which preceded the Turner commission, made a valuable contribution on the state pension sector some years back. The Turner commission also made a tremendously important contribution by illuminating, in a way that was trusted and independent of government, the whole background to the pension reforms that the Bill introduces. It helped to establish the consensus necessary to resolve some of these problems. The Pensions Commission comprised Miss Jeannie Drake, John Hills and Mr Adair Turner, as he was before he came into this House. It was not a big operation, a huge quango or a huge establishment, but it made a tremendous contribution to the way in which policy was debated after the report was produced.
The proposed new clause seeks to set up a standing body with characters of that calibre who are independent and are within the sequency of government and the department's circle of knowledge so that they have access to the best, most relevant and up-to-date figures, working with the Government Actuary's Department and regularly furnishing high-quality information that looks a long way forward. This is not the stuff that is easily traded in a normal political debate; it is an attempt to get more objectivity. Much of it is estimated, because many changes can be made in 20 years. The research and analysis that is available through such a route is invaluable when trying to get a better handle on exactly what provision needs to be made in Parliament.
Unless things are happening that I do not know about, the Government are not spending enough time looking at ageing as a policy. Ageing is not just a DWP issue; it affects everyone. I read papers at the weekend that reminded me that people in the 50 to 64 age cohort and the 64 to 75 age cohort have a much higher carbon footprint than other age groups. There is a whole raft of ageing-related issues. By 2031, the country will have 27 million people over 50 years of age. That is 41 per cent of the population. It will substantially change the way in which we run public services, and is not debated to the extent that it should be. The independent commission suggested by my proposed new clause is only part of that. The proposed new clause which my noble friend Lord Oakeshott tabled last year would have had a better chance of addressing broader pension provision. If the exclusive focus on public sector provision is too difficult for the Government, any truly independent commission set up to look at pensions should start by looking at the potential imbalance between public and private sector provision in the next 20 years. Perhaps that is what the Government are setting their face against in the amendment.
The House should look at tests that need to be met over the long term. I read with great interest the comments made by the noble Lord, Lord Turner, in Committee last year. He rightly talked about affordability, and the reasonableness of expenditure relative to the other public needs, being a cardinal test that needs to be passed. He also talked about fairness relative to the private sector. The PPI report adverts to this, and although it does not make judgments, it shed light on the relativities between the private sector and the public sector.
Another point made by the noble Lord, Lord Turner, concerned fairness within the public sector with regard to two-tier provision. Some final salary schemes have had to close because of the inherent discrimination involved. I do not want to find that, because of lack of forethought, preplanning and active, dispassionate consideration, public sector pensions suddenly become a hot political potato because they could be seen to be unstable at some point in the future. The only way that Parliament can be sure that it is attending to these important matters timeously and in a way that allows thought to be directed at the problems is with an independent commission in charge of its own agenda, working in a standing capacity and providing information in a transparent manner. That is what Parliament needs to make sensible decisions in these areas in the future. I beg to move.