My Lords, I would like to pay tribute to those whose diligent work underpins this Bill, in particular the former pensions commissioners the noble Lord, Lord Turner, and the noble Baroness, Lady Drake, and the noble Lord, Lord McKenzie, for his work on the previous Pensions Acts. I am sure that this will be a very interesting and well informed debate.
It is the nature of the legislative process that this Bill sharpens and defines the Pensions Acts that have passed before. The foundations of the current pensions regime stretch back to Lloyd George's epoch and we strive, as many have done before, to enhance the system and ensure that stewardship of the pensions system in our own era is worthy of our predecessors.
Even since the noble Lord, Lord McKenzie, stood in this spot in this House in 2008, our pensions landscape has continued to change. In 2008, the Office for National Statistics produced new population projections. If noble Lords would indulge me for a minute, it is worth putting this change into context. In 1981, someone retiring at 65 had on average 16 years in retirement. Today, someone retiring at 65 will spend on average over 21 years in retirement. In future, this is forecast to increase, with some spending half their adult life in retirement. With every new demographic forecast comes a continuing increase in life expectancy.
The very fact that people are living longer is testament to the many welcome advances made in medicine, in technology and in standards of living. Yet the increase in life expectancy places a great deal of pressure on the pensions system. Despite the policies implemented by the coalition Government that are aimed at restoring sustainable public finances, the Office for Budget Responsibility has projected that the impact of an ageing society could wipe out any progress on deficit reduction. Furthermore, the OBR's projections indicate that if the impact of the longevity challenge is left unaddressed, public sector net debt could reach 100 per cent of GDP by 2050. This is simply untenable.
Pension reform has traditionally proved the ability of the legislature to build consensus on an issue. We all agree that something must be done; that much is clear. Therefore, as we celebrate the fact that people are living longer, healthier lives, we also have to recognise that we need to establish a fair and sustainable pensions system to meet the inevitable challenges of increasing longevity.
We need a fair system that provides a decent income for an individual in retirement and distributes the costs appropriately between the generations; we need a sustainable system that acknowledges the changes in life expectancy and adapts to the reality of the society in which we live; and we need a balanced system in which the state, individuals and employers all play their role in achieving a fairer balance between work, saving and retirement.
This Bill makes amendments to existing legislation by correcting, revising and adding, where appropriate, to ensure that our pensions legislation is up to date and fit for the 21st century. A higher proportion of people are now living to 65 than ever before. Life expectancy beyond 65 is increasing steadily. Yet under existing legislation, the timetable for the state pension age increase to 66 was not due to be completed for another 16 years.
The Pensions Commission's 2005 report stated unequivocally that,
"A policy which allows each generation to spend an increasing proportion of life in retirement financed by an increased level of public pension expenditure as a percentage of GDP will be unsustainable in the long run and unfair to subsequent generations of taxpayers".
In short, the timetable that provided the foundations for the 2007 Act is out of date, since that Act was based on the 2004 ONS projections of average life expectancy.
Noble Lords will be pleased to hear that 2006 was a golden year for all of us, because in that year the ONS updated its expectancy projections; and compared with 2004, many of us lucky individuals gathered here ended the year nearly a year younger than at the start because of this revision. Of course I am looking at age in terms of how long you are expected to have left rather than how long you have had. No anti-ageing cream or time machine can be as effective as what we saw in that wonderful year. But there is a price. If you take just the cohort of people retiring in 2010, the latest increase in life expectancy equates to an estimated £6.5 billion in cost, in constant price terms, over the lifetime of that single pensioner cohort. Given the scale of these costs, it is simply not affordable to wait to increase the state pension age, and it is certainly not fair to the working-age generation who fund the state pension. As outlined in the Government's command paper published in November 2010, Clause 1 of the Bill will bring forward the timetable to complete the equalisation of women's state pension age with men's by November 2018. We will then raise the state pension age for both men and women to 66 by April 2020.
Noble Lords may wish to note that increasing the state pension age is something of a trend internationally. Ireland has already legislated for the pension age to be raised to 66 by 2014. Similarly, the Netherlands and Australia are increasing the state pension age to 66 by 2020. There is widespread recognition across the developed world that this is an issue that must be addressed.
The Government want all pensioners to have a decent and secure income in their retirement. That is why we have introduced the triple guarantee, for example, to ensure that the basic state pension will help to provide a more solid financial foundation for pensioners from the state. But alongside this, the Government must also encourage and enable a culture of individual savings. Around 7 million people are currently not saving enough to meet their retirement aspirations. This means that if we do not address the issue of under-saving now, huge numbers of people reaching retirement will be met with a pension income that is less than they hoped for. It is imperative that we encourage individuals to save for their retirement now rather than as a belated afterthought. The automatic enrolment of individuals into a workplace pension means that people will start thinking about their retirement in good time.
So, under the Pensions Act 2008, all employers will be required automatically to enrol all eligible workers into a qualifying workplace pension scheme from 2012. For the first time, employers will be obliged to make a contribution to that arrangement. I would describe this as an example of asymmetric paternalism-policy benefitting those who would perhaps not plan ahead but simultaneously allowing choice for those who do.
The principle of automatic enrolment has already been debated in this House during the passing of the Pensions Act 2008. We are absolutely committed to that principle. The Bill will tweak some of the parameters of the policy to ensure that automatic enrolment works as effectively as possible. This is what was set out in the recent independent review, Making Automatic Enrolment Work.
We propose a slight increase to the earnings threshold at which automatic enrolment is triggered, aligning it with the basic rate tax threshold. This simplifies the administration by aligning automatic enrolment with existing thresholds that employers use. We believe that this measure will create a buffer against de mimimis contributions without creating a significant contribution cliff edge.
The Bill introduces measures to ease the regulatory burden on employers by allowing a waiting period of up to three months. This is on the proviso that employers must provide a notice of their intention to invoke a waiting period and workers are able to opt in to pension saving if they wish to do so within this period.
The Bill also contains a measure to enable employers who are using money purchase schemes to certify that their scheme satisfies the relevant quality requirements. My department has worked closely with employers and industry bodies, including the ABI, CBI and NAPF, to design a straightforward test that will work in practice. The details of the test will be set out in regulations, but this clause sets out appropriate parameters to deliver an easement for employers to continue delivering quality pension provision while protecting individuals.
As a result of the workplace pension reforms, we expect 4 million to 8 million people to start saving, or save more, in all forms of workplace pension schemes. These savings could make all the difference to a comfortable retirement. To put this in financial terms, we estimate that someone earning £28,000 a year and saving into a workplace pension, with an employer contribution of 3 per cent, could increase their pension pot by an extra £650 a year as a result of the reforms. This will transform the pensions landscape in this country and help steer individuals towards a more secure future.
Part 3 of the Bill covers occupational pension measures. The Bill amends a few rogue references to the retail prices index in existing pensions legislation to set occupational pension schemes' indexation and revaluation at the "general level of prices". This follows on from the Government's decision to use the consumer prices index, as announced in the emergency Budget. We believe that the CPI is the most appropriate measure of the general level of prices in this country for the uprating of pensions. If noble Lords will indulge me, I shall explain this approach. For example, as only 7 per cent of pensioners have a mortgage, with about 70 per cent of pensioners owning their own homes outright, the Government consider it appropriate and correct to use an index that excludes mortgage interest payments. The CPI excludes these costs.
Furthermore-a technical matter which I find fascinating-the CPI takes account of consumers trading down to cheaper goods when prices rise: the so-called substitution effect. The RPI does not do this. That does not make the RPI an inappropriate measure, but it makes the CPI a measure that is more appropriate in this instance. Who does not switch brands of teabags or biscuits when feeling the pinch on the wallet? It is basic budgeting. The CPI reflects the changes that people make. Suffice it to reiterate the words spoken about CPI in 2003 by the then Chancellor, Gordon Brown:
"It is more reliable ... It is more precise".-[Hansard, Commons, 10/12/03; col. 1063.]
I shall not weary your Lordships now with the details of the methodology behind the two indices and the advantages of that employed by the CPI. The comparison between the two indices is what fuels this debate-the question of which is the most appropriate index for pension payments to reflect inflation.
We must remember that the key legislation for setting the statutory minima for the revaluation and indexation of occupational pensions is not in this Bill. The Occupational Pensions (Revaluation) Order 2010 was laid in December and came into force earlier this year. Legislation requires the Secretary of State to consider the "general level of prices in Great Britain", not a specific index or a specific price. Furthermore, indexation is aimed at protecting purchasing power, and the use of the CPI does indeed protect an individual's occupational pension from inflation. Noble Lords may also note that any schemes wishing to pay the higher of RPI or CPI are perfectly able to do so. In similar vein, the Bill amends references to compensation paid by the Pension Protection Fund. Provisions are also included to remove the indexation requirement for cash balance benefits.
The Bill also introduces provisions to allow for contributions to be taken from members of the salaried judiciary towards the cost of providing personal pension benefits. The interim report of the noble Lord, Lord Hutton, found that the value of public service pensions had been increasing following dramatic increases in life expectancy at retirement. The Government have accepted the noble Lord's recommendations that the most effective way to make short-term savings on the cost of public service pensions is to increase member contributions. In view of this recommendation, it is right that judges, like other public service pension scheme members, should begin to contribute towards their own pensions.
In 2009-10, judges paid £4.3 million in total towards dependants' benefits, compared to a contribution by the Government-and, ultimately, the taxpayer-of nearly £84 million. There is clearly a good reason for members of the judiciary to make a greater contribution if their pensions are to remain fair to them and to taxpayers, as well as remaining affordable for the country. I would therefore argue that the provisions for the judiciary included in the Bill represent a fair, affordable and responsible way forward.
Indeed, the principle of contribution is already contained within judicial pension schemes. Existing provisions are in place for contributions to be taken from members of judicial pension schemes towards the costs of widows', widowers', surviving partners' and children's benefits. The Bill proposes to extend the contributory principle to cover personal pension benefits, with rates to be set through secondary legislation, consistent with the approach taken for existing contributions. However, judicial office holders who have already accrued full pension benefits will not be required to contribute under this measure. The Bill legislates for this provision to be phased in from April 2012, and the savings on pension costs will make an important contribution to our commitment to deficit reduction.
I must also acknowledge that esteemed body, the Delegated Powers and Regulatory Reform Committee, which has published a report on the delegation of powers contained within the Bill. The committee commented on one of the amendments, in Schedule 4 to the Bill, relating to the Pension Protection Fund, and it has requested an explanation of the relative financial significance for pension schemes of the PPF levy in comparison with the pension protection levy and the general levy.
I would be happy to clarify this matter for the House. The amounts to be recovered on behalf of the Secretary of State through the PPF administration levy and the general levy are broadly equivalent. For both the financial year ending
The Bill contains several parts, but these parts are joined together by a common thread-readjusting the pensions landscape to work towards a more sustainable system in the face of increasing longevity. I do not need to labour the point about the scale of this challenge: many noble Lords present have contributed richly to writing the book on pensions reform, including taking legislation through this House and another place. I will, however, reiterate that the Bill provides the essential amendments needed to ensure that we have a fair, affordable and sustainable pension system to pass on to the next generation. I beg to move.
My Lords, I thank the noble Lord, Lord Freud, for introducing the Bill and I acknowledge his willingness to discuss matters. We are pleased that the Government are pushing ahead with the automatic enrolment of workers into workplace pensions, thereby continuing the reform programme, introduced under the Labour Government, which commanded widespread consensus across political parties and stakeholders. We want to work with the Government to maintain that consensus and to build on it. However, we believe that they should not proceed with the accelerated timetable for equalising the state pension age; that the proposals for the threshold of earnings which trigger the automatic enrolment of workers into a pension have the potential to detract from enabling low to moderate earners to save; and we have concerns about the employers' self-certification and occupational pensions indexation.
In the face of increasing life expectancy, I accept that raising the state pension age is part of the solution to maintaining a sustainable state pension system that supports private pension saving. I accept that when improvements in life expectancy accelerate at a greater rate than anticipated, it becomes necessary to revisit existing plans. As a principle, however, the manner and timing of any increase in the state pension must give people fair and proper notice and sufficient time to adjust, and ensure that the impact is not unfair and disproportionate for particular groups. The acceleration of the timetable to achieve the equalisation of pension age for women and men, from April 2020 to November 2018, does not meet that principle and breaks the promise made in the coalition agreement not to start increasing the state pension age to 66 for women before 2020. The Government should honour the 2020 timetable for equalisation and focus the acceleration of the timetable for the state pension age to rise from 65 to 66 for both men and women to between 2020 and 2022
Let me state the nature of the unfairness. Under the Government's proposals, some half a million women will receive their state pension at least 12 months later than they had previously been advised. For 300,000 women born between December 1953 and October 1954, this delay will increase to between one and a half to two years. For 33,000 women born between
Women in their later 50s are less likely to be in a pension scheme and more likely to be working part-time, earning low incomes. Many are inactive because of looking after family. Even the Government, in their report A Sustainable State Pension, concede that speeding up the pension age equalisation timetable will not significantly reduce the gap in the proportion of women aged 55 to 65 who are out of the labour market compared to men. Women in their later 50s have fewer savings: the median pension saving of a 56 year-old woman is just £9,100, almost six times lower than that of a man, which stands at £52,800. Although as a result of reforms introduced by the Labour Government, most women reaching state pension age in late 2018 will be entitled to a full basic state pension, they will still have a lower entitlement to additional state pension. Nearly 40 per cent of women approaching retirement are not part of an ongoing marriage so many cannot rely on their partner's income to cushion the financial loss.
In summary, women in their later 50s, for historic reasons of gender discrimination, will have lower state pension and private savings than men, will have earned less over their lifetime, may have been unable to join a workplace pension, had interrupted careers and are more likely to be carers. This inequality will remain and is exacerbated by the accelerated timetable, which does not give them sufficient time to prepare for their income loss. The fiscal benefit from the acceleration of the equalisation timetable will not impact on the deficit reduction in this Parliament. The savings will start to flow from 2016, when net borrowing is forecast to have fallen significantly.
We are pleased that the Government are pushing ahead with automatic enrolment, but the changes to the earnings threshold, which triggers a worker's enrolment into a pension scheme, cause deep concern. The Government have set the threshold at £7,475 in 2011-12 earnings terms so that it is aligned with the threshold for income tax. However, the Government's aspiration for the income tax threshold is to raise it to £10,190. If the threshold to trigger auto-enrolment were to rise to £10,190, it would exclude nearly 1 million workers per year from workplace pensions, 76 per cent of whom would be women, with the loss of £40 million of employer pension contributions. Consequently, of the group targeted to benefit from the workplace pension reform, 66 per cent would be men and only 34 per cent women. The earnings threshold for auto-enrolment should be set and maintained in relation to the national insurance threshold, not the income tax threshold. Raising it to £10,100 would not, if I may say so to the Minister, be a slight increase, but directly undermine the objective of enabling low and moderate earners to save, which is confirmed by the Government's own impact assessment and the Paul Johnson review. Nearly half of those in the lowest earning group are in couples, where one works part time and the other full time. The Johnson review says:
"Many or most very low earners are women, who live in households with others with higher earnings and/or receive working tax credits. These may well be exactly the people who should be automatically enrolled".
Yet we have a set of proposals that would exclude them.
A key principle of pension reform is to enable women to build up a pension in their own right. The higher the threshold for auto-enrolment, the less the reforms will work for women. Evidence also shows that earnings are not static and that for many workers, men and women, they can change significantly over their lifetime. Most low earners go on to earn more, so saving will still be very beneficial, because of the continuing contribution to their pension over their working life. The Johnson review presented a variety of evidence to show that relatively few people have persistently low earnings over their lifetime. If the threshold is raised to £10,190, it is not sufficient to say that the impact can be mitigated by those earning below this being allowed voluntarily to opt in. Inertia prevents people from saving, which is why we have these reforms. So it is really not credible to say that the lower paid still have to overcome these barriers but that those earning higher incomes would benefit from auto-enrolment-or asymmetric paternalism.
A higher threshold disregards how working-age benefits can make it pay to save. Individuals' pension contribution is disregarded from income when calculating entitlement to tax credits. Just over one-third of those earning between £5,000 and £10,000 are in receipt of tax credits. That, for some, can produce an implied tax relief of 50 per cent to 60 per cent, which provides a very positive incentive to save.
The Bill provides for an employer to certify, subject to a regulatory test, that their company arrangements meet the requirements on minimum pension contributions. Although the Bill proscribes the powers of the Secretary of State in setting the test, our concern is that, in trying to accommodate the good employers, a compliance loophole is created for bad employers. The test is still subject to consultation, and there may be pressure to change further. Although the Johnson review asserts that under the proposed test, based on ONS figures, 92 per cent of workers would match the qualifying earnings, post auto-enrolment an incentive may have been created to reduce basic pay and arbitrage between the 8 per cent on the band of earnings test and the certificate of alternative test.
I must take the opportunity of this Bill to refer to the decision to use CPI as a measure of increase in the general level of prices, which is estimated to deliver-in estimates revised upwards by the Government-an £83 billion reduction to occupational scheme members' pension benefits over the next 15 years. This change effects a switch of assets and benefits from scheme members to scheme sponsors but does not directly impact the public deficit. While one can see the merits in a change for a limited period, the permanent change will be felt even after the fiscal deficit is long gone. I say this against a background of concern over whether the CPI index is appropriately constructed, given the basket of goods that it captures, notwithstanding the merits or otherwise of an argument on the way in which the mean and the substitution effect is calculated.
The Bill allows employers to defer enrolling eligible workers into a pension for up to three months and consequently reduces annual employer pension contributions by some £150 million. Given that individuals have, on average, 11 different labour market interactions during their working life, this could add up to nearly three years of pension savings or a 7 per cent reduction in an individual's fund. Will the Government be monitoring the impact of the three-month waiting period and how widespread the usage of that facility will be by employers? Finally, stakeholders need timetable and policy certainty so that they can understand and prepare. The Bill leaves a significant amount to regulation. Can the Minister therefore confirm in writing when the regulations will be available in draft?
My Lords, I begin by stating my interest as a pension trustee for the National Assembly for Wales pension fund. I also thank the Library here for its detailed note on this Bill, along with the many organisations and bodies, some of which have been referred to already, which have provided some briefing on and support and criticisms of the matters which are now before us. One must start, I suppose, by looking at the work of the noble Lord, Lord Turner, and his view on this issue, which started in train the changes from which we are seeing some conclusions today. His conclusion was about longer life and I am grateful to the Minister for informing me that I am now a year younger than I was. Perhaps that will mean that I will no longer be able to claim the state pension this year. Maybe the Minister will want to refer to that context later.
The conception that the noble Lord, Lord Turner, had was that a variety of different tools were available to us to make the necessary changes to deal with the longer time that we are going to be spending alive in this world. The first option was to make pensioners poorer; I think that everyone concluded that that was not realistic-a conclusion which we would all want to share. The second option was that taxes would rise or that there would be cutbacks in expenditure on other public goods and services. There were the options, thirdly, that savings would rise and, fourthly, that retirement ages would rise. His conclusion, which has subsequently been resolved through many debates in this place and the other place, was that there is a range of choices but that a combination of the three factors-tax rises or service cuts, rises in personal savings and rises in retirement ages-is necessary.
The demographic challenge, which has been referred to, is the fundamental that we all need. From the work that has already been concluded, both by the previous Government and in the commissions that have taken place, I suspect that there is a general acceptance that the number of years should bear some sense of how long we can expect to live after retirement. In other words, there should be a life expectancy general rule which seems to be a thread throughout these changes. That is why we are bound to revisit this matter. The noble Baroness, Lady Drake, said that this is undoubtedly something that we will have to come back to since, if the trend continues, we will have to alter the state pension age.
However, it cannot be looked at in isolation without including the potential and announced changes to the basic state pension. I come now to the question of deficit reduction, to which the noble Baroness, Lady Drake, referred. She said that we will not see the savings in terms of a contribution to deficit reduction until 2016. What we can do is use some of these changes to assist in ensuring that we have a fundamental review and a fundamentally improved basic state pension. While we have already put in place the triple lock from this April to ensure that pensioners will not be worse off, I have read in the newspapers and other publications that ambitious changes are proposed for the basic state pension. That is a consequence of these measures as well, and I hope we will be able to say something about it at the same time.
There is, however, the issue of acceleration in respect of one group of women. I call it the acceleration bubble. One group of women will bear more of the brunt of the changes than others-those who were born around 1954. On the shoulders of that bubble, it will affect those born between 1953 and 1956. Those women who are still travelling along the same road as people of roughly the same age will see the horizon moving further away from them faster than those around them will. In the most extreme case under these proposals, two women who were born one year apart could see a three-year difference in their pension ages. The crucial thing about this bubble is the extra working months that some women will have to put in, compared to those who are nearly the same age. That is a genuine concern: there is a cohort of women who will be treated differently.
While the announced and prospective changes to the basic state pension will assist us, the Government should give careful consideration to this group of women who will be more affected by the changes-those within the biggest area of that acceleration bubble. Rather than say that the acceleration must be slowed down, there are changes that the Government could make for that specific group of women because it is a one-off. They could, for example, start by making exemptions or providing additional support for those who are seriously ill. They could make adjustments to the pension credit arrangements, which might make a difference for that group of women. They could make changes that affected the whole cohort born between 1953 and 1957, rather than only those who were born in 1954. There is a difference of effect between people with different years of birth.
The Government could also look at some of the other measures that are not a consequence of this Bill but where longevity has produced policy issues that need addressing. The most important of those is health inequalities. Where people live longer, some will do so because of the inequality in their life as a whole. That could be something to do with work opportunities and is usually also to do with poor housing. There are areas that the Government should address in those respects to reduce such health inequalities, particularly in older age.
On age discrimination, both in and outside the workplace, I welcome the removal of the retirement age. It means that people will be treated with dignity whatever age they wish to work to. A basic state pension should be the crucial tool to take people out of poverty. I hope that the changes which are likely to be announced will provide that help. Fundamentally, we must protect those with disabilities or caring responsibilities.
I accept the Government's need to remove the cost of auto-enrolment to business as we want to encourage as many as possible to participate. However, as regards the three-month waiting period, the key issue for the Government to address is the right to opt in. The Bill states that you can opt in during that three-month period, but to be able to do so you need to have received clear information from your employer. Is the Minister prepared to consider introducing legislation to enable that information to be provided as of right to people in companies affected by the waiting period? Migrating between jobs also affects auto-enrolment if the threshold is not reached-for example, if you work a different number of hours from month to month and your wages fall below the threshold one month and above it the next. The key issue is whether that three-month period has to be consecutive, or will the waiting period end as soon as three qualifying months have been achieved, even if they are not consecutive? I welcome clarification from the Minister on that.
One of the big problems with re-enrolment is that there is a two-year period in which an employer can simply return the contributions which a member has made in a pension fund during that period, excluding the employer's contribution. The member does not have the right to reinvest the contributions and re-enrol in the scheme. Members who defer their pensions from these pots are often charged an extra 1 per cent in service charges. Over a lifespan, that can amount to a considerable sum. Is there a role here for the FSA to regulate to ensure that those people get a fair deal? What benchmarking will be put in place to enable a scheme to be approved for auto-enrolment? Clarity is needed in that regard. We need to be given assurances about the quality of a scheme so that a NEST scheme can be compared with others. Employers need to be able to assure their workforce that a quality standard is in place with regard to pension funds.
The legislation is silent on the previous commitment to remove the contributions cap, which will be £3,600 in 2017, moving up to about £4,270 at present-day prices. In the previous legislation that cap was due to be removed in 2017. I hope that that will be possible because this affects a group of workers who often have very small pots of money which they need to reinvest and who want to avoid the bureaucratic burden of moving their pension pot every time they change job. I understand the concerns of the pensions industry regarding the restriction on transfers to the new pension fund but a balance has to be struck between meeting the needs of the pensions industry and those of the workers and those companies that are paying their contributions to ensure that a fair deal is arrived at which works for everyone.
As regards the RPI/CPI impact of the Bill, as the Minister said, no housing costs are included in the CPI. He said that only 7 per cent of pensioners have mortgages. However, 21 per cent of pensioners pay rent, which is the other important housing statistic. Pensioners who pay rent and are on low incomes are protected by housing benefit. However, I understand that the Government wish to include some housing costs in future CPI arrangements. I should be grateful if the Minister could tell me when the Bank of England will return to this matter and advise the Government on it. It is welcome, by the way, that there is no override on pension funds where the scheme specifies that RPI will be the measure of increase, and that the Government do not intend to override these private pension schemes.
It is clear from the figures presented in the impact assessment and by companies and bodies that have advised us on the Bill that some defined benefit schemes may now be able to continue if they switch to CPI. The Pensions Policy Institute believes that this could affect between 20 per cent and 40 per cent of schemes. I hope that the Government will monitor that effect, because it would be useful to obtain a quick evaluation of whether schemes that have been in severe difficulty will be able to retain the rights for their pensioners. The overall change will benefit poorer pensioners, but we may find that richer pensioners have to pay a bit more. I do not know whether other Members of this House consider that to be acceptable or not, but I believe it is the right way to do things.
I noticed that the noble Baroness, Lady Drake, did not refer to judges' pensions, but I will poke in my toe to test the water. This matter is clearly out of kilter with the current culture of saving for the future, and there is a need for transparency. There is a place not too far from this Chamber where pay awards were made and refused by others on their behalf, and consequently other measures were included in a sort of compensation package that caused a lot of trouble for Members of the other place. It should be clear that if the question is about there being no pension contribution because it is a reflection of a lower salary, it would be much better to improve the salary, and that would be transparent for the public to see. I hope that the Minister can advise us on this matter.
Finally, this is a compendium Bill, in the sense that it has a broad title-the Pensions Bill-and the Minister might consider other measures that are not in the Bill. One of those is of course the rights of pensioners to receive information from those who manage their pensions on their behalf, particularly the need for an annual report to pension holders and a report that can be passed down the food chain on the risks inherent in the investment strategy of pension funds, whereby those affected by pension change will know those risks. It is a world in which people have little knowledge of what is happening on their behalf. Perhaps if they were given more information, the level of awareness would be raised for those who are about to receive pensions or will receive them in the future.
In conclusion, this is undoubtedly an area to which we will return. I expect to see changes in the basic state pension, and I expect that the review by the noble Lord, Lord Hutton, of public sector pensions will undoubtedly attract discussion here. As the Minister said, longer life goes on.
My Lords, I declare an interest in that I head up ILC-UK, one of 12 organisations across the world that look at planning for the future in the light of demographic change. I agree with the Minister that, while we all celebrate the incredible changes in life expectancy and we all hope to benefit from them, they present us with enormous challenges that we all must try to meet in a fair, just and realistic way. I am therefore pleased to take part in this Second Reading debate.
I am sure that all of us in this House would support the aim of getting more people to save for their old age. I particularly welcome the fact that NEST is designed particularly to meet the needs of people who are largely new to pension saving. I am certain that NEST will be a valuable addition to the pensions landscape and I welcome the incorporation into the Bill of the recommendations of the 2012 review team to widen pension provision and to help to keep existing schemes open.
One good aspect of the earnings trigger of £7,475, which the noble Baroness, Lady Drake, was worried about, is that it should help to prevent employees and employers from making very small contributions. However, while welcoming the Bill, we must be alert to the possibility of unintended consequences. Unless we deal with them, there could be a lot of losers as well as winners, as other noble Lords have pointed out.
I will make brief comments about the three key areas of the Bill: auto-enrolment and its particular relevance for older workers; raising the state pension age and, in particular, the impact on older women, as has been mentioned; and the move from RPI to CPI and its impact on older people.
The Bill introduces an optional waiting period for auto-enrolment so that an employer can give an employee notice that their auto-enrolment will be delayed by up to three months. However, to ensure that those workers who have their auto-enrolment deferred are aware of their rights and to encourage consumers to take personal responsibility for their pension saving, it is important that the notice should state clearly that the worker retains the right to opt in to the pension scheme at any time.
The full implementation of auto-enrolment throws into sharp focus some of the remaining unresolved issues surrounding the NEST proposition. Any amount saved in a personal pension has to be better than nothing and even a small pot may make a difference at the marginal level, where most people are. A minor issue that immediately springs to mind is the fact that transfers to NEST are currently heavily restricted. Allowing an employee to transfer pension pots-especially small ones-into NEST would encourage better pension savings and take away the burden of administering small pension pots from the employer and the pension scheme. I hope that the Minister will consider this point.
Personal accounts may not be suitable for all employees, particularly for low-earning individuals of 50 and over, as the charging structure of NEST and the phasing in and staging of auto-enrolment and the employer contribution could significantly reduce the size and value of savings pots for those close to pension age, particularly single people. At the same time, depending on overall household income, they could lose their entitlement to means-tested benefits. It is worth considering whether these people would get better value from devoting their funds to other forms of saving, such as ISAs, during their working life. Perhaps the noble Lord will consider that.
In order to manage expectations and to reduce the risk of disappointment at retirement, would it not make sense to impose the simple requirement on the employer that at enrolment the jobholder would be provided with an annual pension benefits forecast based on their statutory retirement age, which would include the impact that such benefits could have on any entitlement to state means-tested benefits? Such a forecast would complement any state pension forecast obtained from the Pension Service. The jobholder would then have the option to seek further advice and, if appropriate, to opt out of a personal account and consider alternative savings arrangements.
The raising of the state pension age was due to take effect between 2024 and 2026 but, because it is being brought forward, the timetable in the Pensions Act 1995 will be accelerated so that the state pension age for women will reach 65 by November 2018. The effect is that, although no men will have to work longer than an extra 12 months, half a million women will have to work at least a year longer, as the noble Baroness, Lady Drake, said. Three hundred thousand of those are going to have to work an extra 18 months, while 33,000, born between
I understand that deficit reduction is a priority for the Government, but the legislation is discriminatory against women born in 1954. I do not expect that I am alone in having received several letters illustrating this point from people who are, or feel, caught out by this change. It will hit them very harshly but make no impact on the deficit reduction in this Parliament. My concern is that those who will suffer are the most vulnerable women. Many are single; they have not had a chance to accumulate a private pension and will be reliant solely on the state pension. Many will also be unaware of the changes and will not be prepared. We need to give people time to order their affairs. For those who are going to have to work an extra two years, this is very unfair. The changes seem to be contrary to the coalition agreement, which said that any rise to 66 would not start sooner than 2020 for women. Therefore, could Her Majesty's Government consider leaving the increase in the state pension age to 66 until 2020, when under the current timetable women's state pension age will reach 65? I do not know whether the Minister can give me any reassurance on that.
Although the removal of a default retirement age will be welcomed by those who would prefer to continue working beyond 65, the recent Marmot report on health inequalities in England-mentioned by the noble Lord, Lord German-highlighted the fact that around 75 per cent of the population will not be healthy enough to work until the age of 68. Such figures are a clear argument in favour of more investment in preventive healthcare. If the Government are to succeed in extending the working age without creating inequitable outcomes, they need to place more emphasis on job quality, support for people with care responsibilities and the creation of transferable skills among the older workforce. In addition, not only is ill health a major factor in early retirement but it is more likely to affect lower-skilled workers, who tend to have less generous pension arrangements. We wonder what will happen to those who are forced to retire before the state pension age because of ill health but who do not have access to private or personal pension income to tide them over until they receive their state pension at this later age. Perhaps the Minister can elaborate a little on that.
Lastly, I wish to make a brief observation on the decision to use CPI rather than RPI as the measure for inflation indexation. As we know, the major difference between them is that CPI does not include housing costs-the effect of mortgage rates or council tax being part of that. Last week, the DWP published an impact assessment of the costs of the Government's decision for members of defined benefit pension schemes. The effect of the move from RPI to CPI for protecting the value of future pensions is to reduce the value of benefits over the next 15 years by £83 billion. As the DWP puts it:
"The main cost of this policy is to members of private sector DB pension schemes who will see the anticipated value of their pension rights reduced and the value of their total remuneration package reduced in the short term".
The value of this reduction in pension rights and total remuneration equates to a significant £5.7 billion per annum. For 2 million relevant active members of pension schemes, the reduction in their annual rate of pension accrual is broadly the same as a pay cut of between £2,250 and £2,500 a year on average. That is the implied fall in their total remuneration, including the value of the pension promise made to them by their employer. However, they will not feel it until they retire, when their pensions will be up to 12 per cent lower than would otherwise have been the case in real terms in 2027 and 20 per cent lower in 2050. This is a reduction in the value of pensions to pension scheme members and is a transfer from them to shareholders.
The changes in inflation indexing that will occur as we move from RPI to CPI will impact older pensioners in particular. According to Age UK's silver retail prices index, the impact of inflation on those in later life is far greater than estimated by official measures. For example, since the beginning of 2008, those aged over 55 have experienced price rises at almost two percentage points above that suggested by headline RPI figures, rising to four percentage points for those over 75. The gap between real and headline inflation over that period has cost the average 60 year-old £620 a year, rising to over £700 for someone aged between 65 and 69. This is mainly down to the different impact that fuel and energy price increases, reductions in savings rates, increases in mortgage interest payments and so on have on older people's, versus younger people's, spending power.
The Government have said that CPI is a more appropriate measure of pensioners' costs than the RPI but they have not given any detailed explanation of that. I do not agree that it is a better measure. Since 1997, the CPI has, on average, been around 0.8 per cent lower that the RPI. One important reason for this is that it excludes housing costs, as has been said. I believe that the Government should retain the RPI as the main measure to be used where pensions and state benefits are linked to price increases. I hope that the noble Lord can assure me on some of those points.
My Lords, I support this Bill. It is a bit of a ragbag of measures but I think that it has two main themes. The first is the need for pensions to contribute to deficit reduction and, importantly, to the restoration of our economy to a sustainable path for the future. The second is to support the need, which is supported on all sides of the House, to generate more savings to contribute towards retirement.
I shall start with restoring the nation's financial health. I fully support the proposals in the Bill to increase the state pension age to 66. That is long overdue. Taxpayers currently spend about 5.5 per cent of GDP on state pensions alone. Bringing forward a planned increase of the state pension age will be a useful contribution to controlling the inevitable upward trend in that cost.
My concern is that increasing the age to 66 does not go far enough and that instead we should be looking at accelerating and extending the current plans to increase the state pension age to 68 by 2046. The Government should be bolder and reflect the fact that life expectancy continues to outpace cautious expectations. Can my noble friend the Minister say why the Government are not using the Bill to go beyond this first step of accelerating the age to 66?
Last year, the European Commission published proposals to increase pension age automatically in line with life expectancy. Although I do not think it is any business of the EU to tell member states what they should do in this area, I think that it has some promise as an idea. Do the Government believe that there is merit in creating a more automatic link in future so that further increases in state pension age can be a matter of evidence rather than a matter of politics?
I also support the Government's decision about converging the pension ages of men and women. I support it despite the small transitional impact on some women, to which other noble Lords have already referred and doubtless more will do so. The initial plan to bring women and men into line was far too leisurely. I never understood why women were allowed to draw a state pension much earlier than men, because their life expectancies have always been longer than those of men. Doubtless that was due to some misguided notion about the weaker sex. Your Lordships' House is proof that such ideas are long past their sell-by date.
Another key aspect of controlling the cost of pensions for taxpayers is dealing with the increasing cost of public sector pensions. Like many noble Lords with an interest in this area, I am looking forward to the final report of the noble Lord, Lord Hutton, later this year. His commission recognises that there has to be some way of controlling the burden of public sector pensions on taxpayers. If most public sector pensions were funded rather than unfunded, I have no doubt that the logical path would be for public sector pensions to follow private sector pensions and move away from defined benefit terms. Since the previous Government took power, the number of active members in open private sector defined benefit schemes has plummeted by about 80 per cent to about only l million people. By contrast, almost all of the 5 million or so active members in public sector schemes are in defined benefit schemes. The Government must deal with this inequality. Taxpayers simply will not tolerate funding public sector pensions at levels significantly beyond the opportunities available to them.
The real barrier to change is that the majority of public sector pensions are funded on a pay-as-you-go basis. If we shift to a defined contribution basis, we might have to pay out in cash on both bases simultaneously, which is of course impossible in the context of the nation's poor financial position. So I support the initial emphasis on pragmatic ways of reducing the cost of those pensions. This must inevitably involve greater employee contributions, as the interim report of the noble Lord, Lord Hutton, recognised. For this reason, I support the provisions of the Bill which bring judicial pensions into the real world of employee contributions. I hope that the Government will ensure that the contributions will be realistic relative to the very significant benefits which are obtained by members of the judicial schemes. I also hope that the Government will remain resolute when the inevitable judicial lobbying starts and that they will not cave in, like their predecessors.
Let me turn now to the improvements to auto-enrolment which underpin the policy, which has always had cross-party support, of generating more pension savings. I support auto-enrolment because it should dramatically increase the numbers saving for their retirement but my support has always been subject to the caveat that the very real needs and concerns of employers have to be recognised. If we overburden employers, we will kill jobs, which will defeat the object of increasing work-based pension provision. I do not believe that the previous Government always gave due weight to the concerns of employers.
The current Government were absolutely right to initiate a review of auto-enrolment, and the changes being made in this Bill are welcome. In particular, I welcome the higher earnings trigger and the optional waiting period, both of which will make it easier for employers to accommodate the new requirement.
I particularly welcome Clause 10, which introduces alternative self-certification requirements. The noble Lord, Lord McKenzie of Luton, may well recall the many discussions that we held during the passage of the Pensions Act 2008, when I tried, with only partial success, to shift the Government from their stance of requiring private schemes to match the Act's curious calculations at the level of every single employee. The best was very much the enemy of the good, and I applaud this Government's decision to help good private schemes to exist on a much more pragmatic basis. I hope that the Government will also ensure that the impact of phasing does not undermine the good work that they have done in Clause 10 and that phasing can be allowed to go alongside meeting the new self-certification tests.
My greatest regret is that the Government have not heeded concerns about micro-employers. We are talking about the vast majority in terms of numbers of employers-probably two thirds of the total-but, of course, a far smaller proportion of affected employees. The Government have decided to include micro-employers fully within auto-enrolment, notwithstanding the very much higher cost burdens on them. Many of these people are simply private individuals employing personal staff. Real burdens will be imposed. I am aware that the Government's review recommended no change on micro-employers, but that was hardly surprising given the composition of the review team. I do not believe that flagging and communications, which have been put forward as solutions to the problems of micro-employers, have any beneficial impact. They are bureaucratic activities which will do nothing to reduce the regulatory burden on micro-employers, let alone to reduce the cost of auto-enrolment, and we have to remember that the Pensions Regulator has no experience of dealing with micro-employers. I predict that there could well be a backlash from micro-employers once they understand the requirements. I hope that the Government will keep an open mind and be prepared to be flexible as the impact of this policy unfolds.
I should declare that I am a sceptic on the value of NEST. I believe that there were alternatives to one big nationalised pension scheme which could have been pursued. I have seen nothing to suggest that NEST will be incentivised to do other than behave like all monopolies-that is, in an inefficient and unresponsive way-but it is not a part of this Bill, and I do not, in many ways, blame the Government for taking the line of least resistance, given the large amounts of money that have already been invested in the development of NEST. We shall see whether NEST justifies the trust that the Government are placing in it.
The last topic that I would like to address is the use of CPI rather than RPI in revaluation and indexation. First, I support the Government's decision to use CPI to uprate public sector pensions and many benefits. It should provide a welcome contribution to reducing the costs of those items over time. However, as the Minister pointed out, that is not in this Bill. I regret the fact that the Government are not using this Bill to help private sector employers shift from RPI to CPI, and I disagree with the noble Lord, Lord German, on this. If CPI is a proper measure of inflation for the purpose of increasing benefits and public sector pensions, it is difficult to see why the Government have not helped private sector employers to make an equivalent change. The Government know full well that without statutory help it is not easy for employers to make this change, except by very costly negotiation. Having said that, I support the intention of Clause 14 in trying to avoid the ratchet effect on private sector revaluation and indexation when CPI exceeds RPI. I have already mentioned to my noble friend the Minister that the CBI is concerned that this clause may not quite achieve the clear policy intent set out for it, and I hope that he will consider an amendment in Committee to put this right.
My Lords, I thank the noble Lord, Lord Freud, for his clear introduction of this Bill and congratulate my noble friend Lady Drake on a very impressive first performance on the opposition Front Bench. I hope, of course, that she will not be on the opposition Front Bench for very long.
There are two issues for me in this Bill. The first, which has been mentioned by other noble Lords, is women's retirement age. Like others, I have no problem with the equalisation of women's retirement age, but I have a problem with its speed, which is unacceptable. After the Government made the same sort of mess when changing the SERPS widows pension many years ago, we had to add an extra eight years before implementation to allow women the opportunity to rearrange their financial affairs. We have been here before and we should learn from that. As the noble Baroness, Lady Greengross, said, raising the retirement age will require some women to stay two years longer in the labour market-although very few will actually do so because of health, caring responsibilities and so on-or linger on lower benefits and go into retirement in even greater poverty.
The second issue is NEST, which needs to be made more women-friendly, but I fear that most of the changes in this Bill will make it less women-friendly. I will put three big questions, two smaller questions and a thought to the noble Lord, Lord Freud. The first issue was raised by my noble friend Lady Drake. The Government seek to raise the point at which women enter NEST under auto-enrolment so that they will enter not at the lower earnings limit of £5,204 at which you get credited into the NI system-as was originally proposed-nor even at the earnings threshold, where bizarrely you pay NI but do not pay tax, but instead at £7,475, which is the personal tax threshold. Women earning above the LEL but below about £7,500 will, however, be able to opt in voluntarily.
The Government's proposals to raise the tax threshold ultimately to £10,000 will have serious implications for the constituency of NEST. Given the proposed threshold of about £7,500 before automatic enrolment, 1 million people-mostly women-who have incomes below £7,500 but at the LEL, will be excluded. If the tax threshold is raised to £10,000, which is around half of women's average earnings, some 2 million people-three-quarters of them women-will not be automatically enrolled.
The whole point of NEST and auto-enrolment was to nudge into a pension scheme precisely those low-paid and part-time workers who would otherwise not join-that is why we have it. Raising the entry threshold ultimately to £10,000, which is half of average earnings for women, will mean that those most in need will in effect be excluded from NEST. A woman on half of average earnings will have no NEST pension at all, and a woman on average earnings will have only half her earnings covered by NEST. Under Labour, she would have ended up with a pot of £20,000; with a pension threshold of £10,000, a woman on half of average earnings will have no pension at all. The Government intend top allow such women to auto-enrol voluntarily if their earnings are between the LEL-about £5,200-and the current £7,500 threshold, which will ultimately be raised to £10,000. However, NEST exists precisely because voluntary self-enrolment has not worked for most low-paid women, because such women feel that they cannot afford a pension, they think it selfish to save or they cannot access their money.
In any case, the Government must do more than merely allow those with incomes above the LEL to opt in; the Government must allow all women who earn above the LEL not only to come into NEST at that point but, if they so choose, to contribute on their entire income from the first pound, as in all other occupational pensions. Only NEST excludes potentially half or two-thirds of the income of the poorest women from a pension contribution. I argue that if a woman chooses to contribute, employers must also do so. A woman on half of average earnings could then potentially have a pot of £40,000 after 25 years; under the Government's proposed scheme, she would have a pot of zero. If the Government do not move, NEST will not do what it says on the tin, which is to bring the poorest women, by virtue of nudging them, into auto-enrolment.
The second big issue around NEST is the risk-a word that we have not heard today-associated with auto-enrolment. We know that a few women should not enrol, especially if they are likely to be on housing benefit and, possibly, on pension credit. The difficulty with pension credit is that, when people are 30 or 50, it is completely unpredictable as to whether they will need pension credit in retirement. If you are partnered in retirement, his income will almost certainly float you off the pension credit threshold; if you are single, divorced, widowed or a cohabitee with no financial interdependence, you will probably lose 40 per cent of your savings to pension credit. That risk is entirely unpredictable for any individual-no one can foresee what their private lives will look like five years down the line, let alone 20 or 30 years on-yet, on such an issue, the household income of many women will depend almost entirely on whether, in retrospect, they made the right decision to enter NEST.
So what to do? I firmly believe that, in any nudge activity of the Government, the Government have a moral responsibility to build risk out of the situation so that what the Government want for all of us is in the best interests of each of us. How? It is really very simple. We need a new state pension, promoted by the Minister's right honourable friend Steve Webb, at or above pension credit level-the £140 a week proposed by the Pensions Minister-by bringing together the basic state pension, the state second pension and pension credit. With early flat-rating and capping of S2P, that could be introduced by 2020 within the same financial envelope. That is absolutely key because, without it, we have "Hamlet" without the prince.
Such a pension, based on 30 years of NI contributions, would ensure that almost all women would carry their own full state pension, which, if they are in a partnership, would give them together a family income of £14,000 a year before occupational pensions. That would be a real attack on pensioner poverty, especially that of women. More than that-and relevant to this Bill especially -such a pension would encourage women to save, because it would build out the risk that the value of a woman's savings would be depleted by pension credit, depending on whether she was single or partnered. It would become safe to save. Industry, the financial institutions, the NAPF, women's organisations, patients' organisations and the trade unions have all called for it. I repeat that it could be done within current costings.
So where have the proposals got to? We were promised a Green Paper at Christmas, which we have not had. Minister, when can we expect that? I support strongly the work by the noble Lord, Lord Freud, on universal credit for people of working age, but a new state pension is the major equivalent reform for people as they face retirement. I failed to persuade my Government of both of these; if the Minister can achieve both, I shall be cheering him on.
The third major question about NEST is: where has the Government's consultation paper on early access to pensions got to? Poorer women cannot afford rainy-day savings, such as ISAs, alongside pensions. As a result, they usually have neither. If we could develop a joint product such as a lifetime savings account-which was first a Conservative thought-poorer women could have the same advantages as those who are more comfortably off in smoothing, with an accessible slice of their pensions, the possible financial traumas of their working life, from divorce to disability to debt incurred by unemployment. Incidentally, that would be much cheaper than having to borrow from someone else.
In my view, that would mean earlier access to the tax-free lump sum of 25 per cent, which until last year was accessible at the age of 50 but is now accessible at 55, and which can be drawn independently of drawing the pension itself. Why is it okay for people to spend that lump sum on a conservatory when they are 55 but not okay for them to use it to protect their home from repossession at 45? As I have said, all the research shows that the main reason for women not contributing to a pension is that they think it selfish, but the second reason is that they cannot afford to tuck away that money for 40 years, given that the working lives of women are financially much more precarious than those of men. Therefore, we should make it easy and attractive for them so that, for every pound that goes into an occupational pension-including NEST-75p is ring-fenced for their pension and 25p for a savings slice. They may never need to draw on that, but the fact that they could would encourage them to join NEST. The industry believes that that would encourage the very group that most needs help.
My other concerns about NEST have been heard in the House previously, but I hope that, given the proposed universal credit, the noble Lord, Lord Freud, may be able to help us. First, what are we doing to help the self-employed? For too long, we have done very little. By what means, if any, can we bring them within NEST, particularly the lower paid? Secondly, what about mini-jobs and pensions? Of the 50,000 women who have a part-time job with earnings below LEL, it is believed-although the stats are not very robust-that something like 15,000 may have a couple of part-time jobs, which, if the earnings from both jobs were added together, would take them above the LEL and bring them into the national insurance system. However, that is not possible at present, because the figures cannot be added together, so such women stay out of the contributory element to the basic state pension and, as a result, may lose the possibility of a full pension.
I appreciate that the noble Lord, Lord Freud, is anxious to solve this unfairness, so I hope to hear a little more today about how it might be done. The issue is increasingly urgent, because 90 per cent of the latest 200,000 new jobs are part-time. Given that universal credit will rightly encourage mini-jobs and more women may find it easier to build a portfolio of mini-jobs rather than one full-time job, particularly in rural areas, the problem may grow. There needs to be a solution if women who work more than 16 hours a week but in a variety of smaller jobs are to come within the NI system.
Another issue is orphan assets. For example, a hairdresser may have £20K in NEST as well as two small £2K pots from previous employment. Within NEST, she cannot commute her small orphan pensions, but, equally, those are too small to annuitise. At the moment, from her £24K savings, she may lose £4K entirely. It is a disgrace that this continues. She should be able to bring such savings into NEST at the point of retirement at the very least and hopefully-as the noble Baroness, Lady Greengross, said-earlier than that with a higher contribution cap. I hope that the Minister will agree with me.
I have one final, somewhat off-the-wall suggestion. We are desperately in need of more social housing. The Minister's right honourable friend Mr Pickles has proposed that most new housing should be paid for at intermediate rents in the social housing sector, which will be financed quite heavily, I suspect, by the DWP's benefits bill-I declare an interest as chair of a housing association, which will certainly do its best to ensure that happens. Alternative finance has conventionally been raised from the banks, but, given the pressure on banks to lend to small businesses and to hoard reserves, it will be increasingly difficult to secure social housing finance from the banks. Indeed, it looks as though things may stagnate altogether. As the Minister will appreciate from his very appropriate City background, could not pension funds-including the hundreds of millions of pounds of new savings that will flow into NEST-be a commercial funder of social housing, which after all, being bricks and mortar, is a triple-A asset? That would add to social housing and would reduce the benefit bill, so there would be a virtuous circle indeed. I wonder whether the Minister could apply nudge here, too.
The major issue on which we disagree strongly with the Government is the speed with which they propose to change the state pension age for women. The Minister knows where we stand on this, which is against. But I hope that, on the more technical but also important issues of NEST, and its potential interconnectedness with universal credit, the Minister will be forthcoming and constructive. I know that he wants NEST to work, and I believe that he knows what needs to be done.
My Lords, the Bill seeks to build on the previous Government's work to implement the Turner commission recommendations. I accept that there will be differences on the details of the implementation but I hope that we will maintain cross-party consensus on an issue which has long-term implications. I congratulate the Government and the ministerial team on the excellent consultative papers we have had in preparation for the Bill. I would have expected nothing less of the current Minister for Pensions.
On pensions, three fundamental issues need to be addressed, many of which have been covered in the debate. We cannot ignore the pressures of longevity on funding. There has been a severe decline in private sector provision for pensions overall and an emasculation of the defined benefit schemes. The noble Baroness, Lady Hollis, referred to it as Hamlet without the prince, but today's debate cannot also fail to consider the low level of the basic pension which simply supplements the problem of credits acting as a disincentive to saving, an issue to which I will return in a moment.
Turner highlighted the longevity problem. Everyone appreciates-particularly in this House-improving longevity, but it is a disaster for pension planning. There is no alternative but to raise the pension age-the figures speak for themselves; the intergenerational balance and the social contract between generations demands that attention-and resources should be made available to fund pension improvements. The impact on funding, if we do not deal with this issue, will be disastrous across all pension schemes, whether private, public or in the state sector, and will create huge imbalances and pressures.
The only question concerns the exact detail of how we implement the change. Clearly, in the development of this Bill there has been a trade-off with the Treasury and I accept that the swiftness of the change places more disadvantage on women than on men. That is unfortunate, as is the fact that in making these changes we are departing from the previously agreed principles of 15 years' notice for women and 10 years' for men. However, the particulars need to be examined as the legislation goes through both Houses. It would be easier if we could spell out what people will get in improved benefits in return for the raising of the pension age in order that this is not seen simply as an exercise in cost-cutting. I shall return to that point in a moment.
On the second issue, the decline of private pension provision, the figures are frightening. They have accelerated even further than Turner predicted and the current private sector coverage for defined pension schemes has declined from 45 per cent to 35 per cent since 1997. We know that defined benefit schemes have been emasculated. There has been a decline in confidence in funded schemes and people have started looking at alternative forms of savings and moving out of pensions. We know that many defined benefit contribution schemes have been oversold and that only later will people discover the poor returns they are to receive, which will be too late. There is a trend among employers to move towards more flexible, lower contribution schemes; they are moving away from defined benefit schemes and following the trend to flexible benefit structures.
Effective pension provision means starting contributions early in life, and automatic enrolment may help. In theory, it will help those most in need of pension improvement and where insurance companies are least interested in making provision. State support is needed and the NEST scheme will help, but it is unlikely to transform matters quickly and it is a myth to think otherwise.
The problem is that the contributions envisaged are actually quite small beer. They may work for those starting contributions early in their working life but they will be of little benefit to the women in their 50s who are going to be most affected by the rise in the pension age. The pots will be small and are hardly likely to provide a very significant pension for those people; and what they do get could well be eaten up by the withdrawal of other benefits.
This therefore takes me to the other prime issue, that of the basic pension. This is where the previous Government gave us least encouragement in these reforms. Raising the basic state pension, reforming the second state pension and reducing benefits' complexity remain a priority if these changes we are discussing today are to be effective. The earnings link is already a major reform for this Government. It seeks to address the fact that since that link was abolished back in the 1970s, the relative position of the basic pension has declined by about a third, which neither Conservative nor the Labour Governments have addressed. It needs correcting, and it is not simply keeping up with earnings-we now have to try to correct the fact that there has been a fall. I notice that the one area in the coalition agreement dealing with pensions was about deciding what we were going to say and do about addressing this problem, because it is pretty fundamental. It is easier to accept a change in retirement age if there is a direct link to improved pensions and not simply cost savings.
I was directly involved with Steve Webb in working on our party's proposals for a citizen pension. I hope the Government will use the talents of Steve Webb-one of the foremost pensions experts in this country-to bring in a radical reform of the basic state pension and I hope they will announce the principles for doing this during the course of this legislation. Until we do, we cannot help those in most need of it, who are nearing retirement and are having their working lives extended. Auto-enrolment will be diminished if the effective marginal tax rate associated with reducing credits and benefits undermines the incentives to save and the savings people are making through NEST. If we do not use some of the savings from a higher pension age, we will lose that opportunity forever. Frankly, the Treasury needs to put some petrol in the engine to achieve these reforms.
When it comes to the detail of this Bill, I hope that we will look at the smoothing of the pension age change; but it should be seen in the context of what the Government are going to do on the basic pension, because that is where the trade-off should be. We should make sure that the higher threshold does not discriminate against women doing more than one part-time job and does not encourage employers to increase part-time work in order to avoid making pension contributions. We must work to improve confidence in, and understanding of, private pension schemes, because these proposals assume quite a massive expansion in such schemes. However, we know from history that that expansion can lead to exploitation and mis-selling. We must therefore protect individual consumers and look very closely at the regulation that will do that.
Fourthly, we must improve the relative position of the basic pension to illustrate the direct benefit of raising the pension age. Turner, and now Hutton, recognises that pension reform is required. Whether we like it or not, it will require a combination of higher contributions, a higher pension age and some sharing of risk between stakeholders. This basic, technical Bill will deserve all-party support and should be an important component of delivering the coalition's plans for pensions, provided that some of the concerns I have raised are dealt with during its passage.
My Lords, in thanking the Minister for introducing this Second Reading, I hope he will forgive me for paying particular tribute to my noble friend Lady Drake, for her extraordinary work for many years in this area. The noble Lord, Lord Stoneham, has just talked about the Turner report, but it was of course the Turner, Drake and Hills report-and, had it been alphabetical, it would have been the Drake, Hills and Turner report.
The aim of the Turner report was to enable a future generation of retirees to enjoy a meaningful income, partly by having worked longer but partly by having saved more, with a little help from the state and the employer. That is an aim that we all support. As for working longer, in 1995 the law equalised the state pension age for men and women and said it should be achieved by 2020. Of course this change hurt only women as it was their pension age that was changed, from 60 to 65. However, more than 25 years were allowed for this change to happen. Then there was the 2007 Act, which was influenced very much by what I have newly named the Drake, Hills and Turner report. It was agreed on a cross-party basis that both men's and women's pension age was to rise first to 66 by 2026, then to 67 by 2036 and, finally, to 68 by 2046. In each case, however, there was plenty of notice and time to plan, especially for women, for whom this increase from 65 to 68 would come on top of the earlier rise from 60 to 65. Overall, the increase of eight years in the pension age for women, phased over that 36-year period from 2010 to 2046, gave effectively a working life to prepare. How different it is with this Bill.
The first difference is that there has been no all-party consensus. The second is the accelerated rise for women, which we have already heard of, to 65 by 2018 instead of 2020. Furthermore, the pension age for men and women of 66 by 2020 has been brought forward a full six years from the original date of 2026. That is not just a minor adjustment for a small number of people. Some 4.5 million of our citizens face an increase in the age at which they can draw the pension to which they have contributed and which they have anticipated over perhaps 30 years. Some women will have to wait more than a year longer for their pension. Some of those will have got used to the idea of the uplift from the 60-year retirement age only in the second half of their working life.
I give the example of Linda Murray, who is one of the 500,000 women born between 1953 and 1954. In her words, she,
"will be confronted by real hardship... It means working a further 22 months before I can draw a pension".
Linda Murray has worked continuously since she was 16 years old, nearly always full time apart from a brief period when she looked after her mother, and she expected to draw a pension at 60. However, she accepted the 1995 increase, which saw her retirement date set as July 2018, when she would be 64 years and two months. But, as she says,
"having to wait an extra 22 months at such short notice before I daw a pension is not something I had planned for. I work in a physically demanding job"-
she says that; it is not me-
"at a dry cleaners, 46 hours a week just to make ends meet. I have never had the means to save for a private pension. We paid our contributions and assumed we would draw a state pension".
Even part-time retirement is no longer an option for her. She would need to save at least £12,000 to be able to work part time from the age of 64. I think that the House will understand that, with a take-home wage of £270 a week, saving is out of the question for her.
Do the Government even begin to understand the predicament of Linda Murray and others like her? I ask the noble Baroness, Lady Noakes, whether this is really someone she wants to have to continue to work, standing on her feet in the dry cleaners 46 hours a week until she is 68. I think that I must have misunderstood what was being said, as I do not think that that is what we would wish on women like that. What Linda Murray cannot understand, although she accepts the original increase, is how the goalposts have been moved with so little warning. I shall read from her words again, as they are worth repeating:
"Women of my generation have faced years of inequality in the workplace. Many took time out to raise families, and on average we earned much less than our male counterparts. We have not had the same opportunity to build up private pensions, and now we are facing severe financial losses, of between £10,000 and £15,000, without the time or opportunity to prepare".
Another correspondent, Joy Walters, wrote:
"I have no problem with the principle of equalisation but this is too fast and has placed an unexpected burden on women of my generation that was not foreseen earlier in our working lives".
This same Joy Walters will have to wait another 23 months to claim her pension. This is not fair-the word that was used earlier-as it affects women with little private pension and no time to make alternative plans. This is inequality laid on inequality. These women did not have equal pay at the start of their working lives and many were barred from company pensions simply for being part-time. These women have been given only seven years' notice of a further two years' increase in their pensionable age; men, by contrast, were given eight years' notice of an increase of one year.
Furthermore, under this Bill, as other noble Lords have said, there will be a three-year difference in pension age for women born just one year apart and an even bigger jump from my very lucky generation. I am only five years older than Joy Walters but I drew my pension at the age of 60, while she will have to wait until she is 66. It is Joy and her cohort, the women born around 1954, who have shouldered the burden of the increase in retirement age to equate with that of men. Funnily, when I was young, I thought that equality was going to help my gender. I did not realise that we were going to be the ones who ended up paying for equality, but such it is. It is a gross injustice that this group of women will be subject to a loss of pension greater than anyone else's. Joy Walters wrote:
"It has been difficult to get used to an increase of 4 years in pension age when we were already middle aged, but we accepted this without complaint. This further unexpected increase of another 2 years has left me devastated".
What is the cost to women of all this? As my noble friend Lady Drake said, a third of a million women will face an increase of 18 months or more, while 33,000 will have an increase of two years, retiring just weeks before their 66th birthday. These women, who are now in their mid-50s, will lose over £10,000 each. With just seven years to prepare, they have been told that they must work an extra two years. We already know the disadvantage that they have within private pension schemes. As my noble friend Lady Drake also said, the median pension saving of a 56 year-old woman is £9,100-one-sixth of a man's-which probably produces an income of £11 a week. That is not enough even for nice biscuits and teabags, I am afraid. It would be only £11 a week even if the whole of their savings could be put into a pension. I wonder what these women born in 1953 and 1954-the noble Lord, Lord German, referred to them as the bubble-did to upset the coalition so that they are being asked to bear the burden of this policy change.
There is an alternative. We must give men and women a chance to plan for their retirement, with time to plan and time to save, as the noble Baroness, Lady Greengross, said. No one should be put in the position of having an increase in state pension age of more than a year; everyone, I believe, should have at least nine years' notice. I urge the Government to retain the current timetable for the equalisation of pension age and delay the move to 66 until after 2020. At the very least, they should heed the wise words of the noble Lord, Lord German, in his specific suggestions.
I turn briefly to the second aspect that I want to touch on-auto-enrolment. Women have always done worse at work and worse at retirement. At work they have had low pay, and many have worked part-time. Fewer are in company pension schemes, and fewer have savings with which to boost their state pension. That is why the Labour Government legislated for auto-enrolment, which is vital for three reasons. First, it covers everyone, particularly the low-paid and part-timers. Secondly, by being an opt-out rather than opt-in scheme, it uses inertia-or the nudge, perhaps-to increase participation. Although it is true that I would have liked it to be compulsory, even that most brilliant Labour Government did not give me everything that I wanted in life. The opt-out nature of auto-enrolment was an important part of the scheme. Thirdly, it means doubling your money. For every pound that the employee puts in, the employer and the Government together then double it. This is a real incentive and a proper recognition of the responsibility of the state, the employer and the individual to put aside money for retirement. As for the question from the noble Baroness, Lady Greengross, about the use of ISAs, I wonder whether those accounts would double one's money as auto-enrolment does. I am sure the Minister will come back to that.
Finally, there is NEST, for which we have to thank my noble friend Lady Drake. She did so much to prepare for NEST during her chairmanship of PADA, a body on which I served for a few months. It is a brilliant organisation. It is the default pension scheme, so employers do not have to set up or run their own scheme. It has a low cost for members, is open to all employers and has a clear focus on members' interests. It is not a monopoly; it is a choice for the employer. Not everyone has to join. I warmly welcome the Government's confirmation of auto-enrolment and NEST. I congratulate NEST on its progress to date in preparing to open on schedule, within budget and with language and processes targeted precisely at the intended audience: the lower-paid, first-time savers and part-timers. Unfortunately, however, the Government have tinkered with auto-enrolment and will allow workers to wait three months before signing up. This undermines the inertia and means that people will have three months of getting used to their salary before feeling the loss of some of it into a pension scheme. That is just the moment at which they are likely to opt out. Three months may not seem a long time but if people get used to that income, they might be less keen to start paying into a pension scheme.
As has already been said, increasing the threshold would mean that as many as 6 million people are not eligible for auto-enrolment. Those are exactly the people whom the scheme was engineered to assist-women and part-timers. Even the Government's own impact assessment admitted that the changes, which aimed to ease the burden of employers and industry, are,
"likely to affect women more strongly than men due to underlying inequalities in private pension provision".
I rest my case. I urge the Government to think again and, at the very least, if they will not move on the threshold, to give us an assurance that it will not be increased further after this jump, and certainly that it will not go up with the tax threshold. If they do not do this then-in 10, 20 or 30 years-we will find ourselves with another cohort of people with inadequate retirement income.
I cannot help but note that it was mostly men in the City who got us into trouble over financial debt, yet it is women who are being made to pay the price. Perhaps if there were more women in the Cabinet-maybe women Ministers dealing with this-we would not find so much of the burden falling on women. The Minister used the word "fairness". I am not certain that the Bill is fair to women. I urge the Government to look at the timetable again.
My Lords, it is a particular pleasure for me to follow the noble Baroness, Lady Hayter of Kentish Town, not least because she was so staunch an ally in relation to the City of London during the later stages of the Parliamentary Voting System and Constituencies Bill. She has just made a much better speech than I shall. I am batting higher up the order than I should be.
I come to this subject as an innocent and shall describe my motivation in a moment, but first I should declare one interest not contained in the Register; namely, that my brother is a retired Lord Justice of Appeal, which will, at least in my view, preclude me from speaking on Part 4 of the Bill. I suppose, given the actuarial dimension of this subject, that I should declare an intellectual interest, which no one in the same condition so far has done, in belonging, like many in your Lordships' House, to that two-decade cohort uncovered by my right honourable friend David Willetts, MP and Minister, who were born between 1930 and 1950, and thus find that the austerity of their upbringing, with its beneficial effect on their health, adds at least four unexpected years to their lives beyond the normal expectations of the mortality tables.
I call myself an innocent, but a reckless ignoramus might be more appropriate. Briefly, in the dying days of the second 1974 Labour Administration-those halcyon days of the Rooker-Wise amendment-I joined a small band of volunteers under my now noble friend Lady Chalker-then a DHSS shadow spokesman in the Commons-to take an interest in these matters. A co-volunteer, in those days before the big society was christened with a name, was my noble friend Lord Hodgson of Astley Abbotts. My only qualification to join was that a definition I had constructed for the benefit of my own small firm to illuminate the difference in purpose and detail between a 364-or was it a 384?-scheme and a 379 one in the then pensions legislation-the digits come back from long ago-so impressed our auditors at Arthur Andersen that they sought my copyright approval to use it throughout their practice's literature. However, the fall of the Callaghan Government on
Wiser men, especially those who have listened to my noble friends Lord Higgins and Lord Skelmersdale, the noble Baroness, Lady Hollis, the noble Lord, Lord McKenzie of Luton, and the late, great Earl Russell-Conrad Russell-discussing these subjects in the past decade, would maintain their distance from these technicalities, whose language to an untrained eye seems sometimes as arcane as Sanskrit, though to no one's discredit. But for better or worse I regard the reconstruction of a major social part of domestic government, which is being so nobly essayed by my noble friend Lord Freud in this and future related legislation, having as good a chance as any in the spectrum of the coalition's programme of being the monument by which the coalition will be remembered. I do not imagine that I shall myself add many pebbles to that notable cairn, but if one is to be a bystander at the making of history, it is better, if possible, to be an informed one.
Before leaving the great sweep of history, let me say how apposite it is that this essay, in the French sense, is being conducted by a coalition in which the great Liberal Party tradition of Lloyd George and Beveridge is so vitally and vividly represented. Of the six members of my family who have sat in the House of Commons in each of the six generations since the Great Reform Bill, the first four sat in the Liberal interest, and only my late noble kinsman and myself sat as Conservatives. I do not think that my late noble kinsman, who was in the Clintonian phrase more of a policy wonk than I have ever been, or shall be, would dissent from the felicity of this coalition coincidence.
What is certain is that we are engaged in the early stages of a massively monumental project. Anyone who doubts it need only go back to the dinner Lloyd George gave on the evening the Third Reading of the 1909 Budget Bill concluded. He gave it for the colleagues who had assisted him at the Dispatch Box during the passage of the Bill. Mischievously, the menu card that evening listed the voting records of those present during the course of the Bill. We think that yesterday's Third Reading was the culmination of a prolonged battle, but the scale of activity in the Division Lobbies during that Bill resembled largely that manoeuvre of my military youth-a tactical exercise without troops. In 1909, 554 Divisions were recorded on the menu card, with Lloyd George heading the role of honour at 462 personal appearances and Winston Churchill concluding it at around 200, with the engaging parenthesis "(twice in pyjamas)". That index of all-night sittings may eventually overtake us on this Bill and its successor universal credits legislation.
One of the iron behavioural laws of your Lordships' House is that if you put your name down to speak at the Second Reading of a Bill, anyone interested in briefing interested parties will immediately do so. The price you pay is that you then sit through the entire Second Reading debate, however long. I agree that in an emergency you could put your name down and then withdraw it, but you could do that decently only once. I congratulate my noble friend the Minister on, and thank him for, devising a Bill that is intellectually interesting without being incomprehensible to the layman, and which has had the effect of reducing the number of speakers by a third compared with those who will speak on postal services tomorrow. Of course, I am creating a rod for my own back, especially in understandable and reasonable correspondence from women approaching pensionable age, but in other respects the Second Reading duty works effectively, as I did not put my name down to speak until tea time yesterday. Yet Ros Altmann's admirably clear briefing from Saga was put on my desk between 7 pm and 9.30 pm last night. I realise that it is nothing to the torrent that may follow, just as I also realise that my noble friend Lord Freud is, in these cash-hungry days, between a rock and a hard place. Resolving these dilemmas lies ahead of us.
I do congratulate my noble friend on the ingenious intelligence which has gone into devising the auto-enrolment procedures. I appreciate that it was always the case that the big battalions, the small platoons and their collective champions would react differently to the procedures and that a decently lengthy Committee stage to examine this Bill sympathetically stretches out ahead of us. However, I am pleased that the TUC regards the project at least as well as it would a curate's egg, and, since the TUC approves the principle and resiles only from the detail, it may be an archdeacon's egg anyway.
I support my noble friend's praise for those who have prepared the Bill. I also congratulate my noble friend on the impact study, especially because it is noticeably not written in Sanskrit. My only whispered dissenting note on the Bill's initial presentation today is best reflected in an episode from my past, when in the 1970s, before I entered the other place, I was responsible for helping Rolls-Royce, then a somewhat inbred company, to recruit the chairman of another FTSE 100 company to its board. After his first board meeting, he took the company secretary aside and said that there had been 55 acronyms in the board papers without an accompanying legend, and that he would not attend a second board meeting unless he was provided with a code. The company secretary was apologetic, and within 24 hours he generated a list of 89 corporate acronyms and their underlying rationale, saying that in a fair number of cases the acronyms had been new to him as well. The problem is nothing like so severe in the departmental briefing, but the explanations are not universally reliable, and it is easier to approach the Sanskrit passages if a Sanskrit dictionary is to hand.
I look forward to the remaining stages, which have the lure of a seminar. As a penance for not adding more solid pabulum for these proceedings, I conclude with the light relief I was offered by the Treasury when I had to travel the country as Paymaster-General, explaining to British business the obligations placed on it by the Single European Act. This took the form of an illustration of a non-tariff barrier in the context of a level playing field; namely, that in the life insurance industry a British actuary could tell you how many people were going to die, whereas a Sicilian actuary could give you their names and addresses. To be fair, I suppose that in our marvellous continent a Sicilian insurance broker might be similarly mystified by the character in Saki who had to have his 21st birthday three years running because it would have been indelicate for him to move on and up until his mother admitted to more than 35 years. However, all these minutiae are for tomorrow. The Bill is a necessity today.
After that, another Pensions Bill. This time it follows legislation on pensions provision introduced by the previous Labour Government. In passing, I congratulate my noble friend Lady Drake for the way in which she introduced the debate. I support much of the new Bill, but I will draw attention to a few points.
The new Bill makes provision for auto-enrolment into the National Employment Savings Trust. The requirement for compulsory employer contributions and auto-enrolment into either NEST or an existing good-quality employer-provided pension is very important. Millions of people will for the first time save for a pension. That is a very good development.
The first part of the Bill deals with the state pension and state pension ages. It introduces equalisation for men and women. This was expected, as was the increase in the retirement age. The timetable set out in the Pensions Act 2007 was between 2024 and 2026. In the Bill, the timescale has been brought forward. For women, the SPA will reach 65 by November 2018 and 66 by April 2020. There will be equalisation for the sexes. A number of noble Lords have already drawn attention to the difficulty and unfairness that might be imposed by this arrangement on women born in 1954. I hope that their comments will be taken on board by the Minister.
Increasing the pension age will affect poorer people most, since they are much more likely to rely solely on the state pension. Those who are better off will have other resources such as an occupational pension or other means and will not be much concerned about the state pension age.
Of course, many people want to continue working after the current retirement age. They will include many-mostly men-who have jobs in which they are deeply interested. That is fine, but not all jobs are the same. It is in no one's interest for older workers to continue in employment that is physically demanding: construction is one such industry. It might not even be safe to continue employing older workers in such work. Retirement would be better, unless lighter work could be found. Many women who have done heavy, uninteresting and exhausting work will not welcome the idea of having to work until 66 before they get their state pension. There is a case for flexibility.
There may also be some disadvantage for disabled people, since the Bill indicates that their entitlement will be based on pensionable age and, under the new arrangement, that will be much later. I am sure that nobody would want to disadvantage disabled people through changes in the pensionable age.
Last year, the Government announced the triple guarantee to increase the basic state pension by the highest figure of earnings, prices or 2.5 per cent. This is very welcome, although not quite as good as it appears. For many years I have urged that the state pension should be increased in line with the wages index. My late friend Lady Castle was indefatigable in her campaign for this, but we did not succeed. Had it been introduced many years ago, pensioners would be much better off now. The wages index now is relatively flat; in fact, many wages are going down rather than up. Moreover, the Government are using the consumer prices index rather than the retail prices index as their chosen measure. It does not include housing and a number of other items, and produces a much lower amount. Over the years, provided that the economy improves, the wages index may produce higher figures, so I hope that pensioners may profit in future. However, they will not profit much now, particularly since the rise in inflation is having a dire effect on many household incomes.
The second part of the Bill relates to auto-enrolment, which, as I said, I welcome. However, I do not know why there should be an optional waiting period of up to three months before an employee must be enrolled automatically into a workplace pension. Employers must make sure that employees know from day one that they have a right to enrol and to receive the employer's contribution.
I am not sure about arrangements for transfers in and out of NEST. Many people in a working life could build up an entitlement to a number of pension pots. Is it intended that it will be possible to make arrangements for transfers in and out of NEST? Employers' contributions are rightly regarded by employees as part of a deferred salary package, and it should be wrong for employers to have the right to reclaim them.
Returning to the question of indexation, the Government have unilaterally decided that CPI should be applied rather than the retail prices index in regard not only to the basic state pension but to the state second pension, public service pensions, many occupational pensions, pension protection compensation payments and the financial assistance scheme. I understand that it cannot apply to private occupational pensions if increases in line with the retail prices index are covered by contract. However, everyone else is likely to lose out and that does seem very unfair. I understand that certain public sector employees have already been advised that that is on the cards and that their future increases will be in line with the CPI. My sister, who is a retired teacher, has told me that she has already received a notification to that effect regarding her pension. Why should employees, through no fault of their own, lose accrued pension rights? I hope that the Government will be persuaded to reconsider this.
Therefore, there are issues which could be pursued further in Committee but there is much to welcome in the new Bill-particularly the arrangements for auto-enrolment. As everyone knows, we have an ageing population, as has been referred to by everyone who has spoken in the debate. It is vital, however, that resources are available for people's final years to be spent in dignity and without the fear of grinding poverty, which has been the fate of many working people in previous generations.