Clause 5
Pensions Bill
11:15 am
James Purnell (Minister of State (Pensions Reform), Department for Work and Pensions; Stalybridge and Hyde, Labour)
Our policy is that we will make a statement on exactly when that will happen in 2012. Our central projection is about 28 per cent., but, as I said, it would be inappropriate to pretend that differences of 1 or 2 per cent. in the projections are reliable given that we are projecting to a date that is 40 or more years away. The hon. Gentleman might have a better statistical engine than we do, but we set out quite clearly in our forecasts the reasons why those variations in the statistics need to be taken into account.
So I have dealt with the effect of amendment No. 32. Amendment No. 35 could conceivably bring forward the date by which the order has to be made if, for example, this Parliament were to run for four years, ending in June 2009. That would mean that an order identifying the first review year would have to be made before the first day in April 2010. We doubt whether it will be possible to make legislation based on a start and end date of a Parliament so we thought that the best approach would be to pin it to the existing arrangements on uprating, which is what we have done. That will clearly implement the Government’s overall policy, which I have mentioned already to the hon. Gentleman.
Amendment No. 36 would also remove flexibility and inadvertently the provision to bring into effect the earnings uprating of the pension credit standard minimum guarantee as soon as possible after the Bill receives Royal Assent—in other words, from the tax year beginning in 2008. Similarly, amendments Nos. 76 and 77 would remove flexibility. Like amendment No. 36, amendment No. 77 would remove the link between the commencement of earnings uprating and the dissolution of Parliament. Amendment No.76 then seeks to ensure that the year in which earnings uprating would take effect must begin before 6 April 2013—in other words, no later than the tax year beginning in April 2012.
New clause 19 is at the core of the debate initiated by the hon. Member for Yeovil. His proposal is that, from 2012, for each additional year that the basic state pension is not increased by earnings, the increase in the state pension age should be delayed. I glad that the House has a general consensus on the principle of increases in the state pension age, which is to the credit of the Pensions Commission and the way in which my predecessors ran the national pensions debate. What might have been a very difficult issue for politicians to agree on has been tackled effectively, which is a credit to the way in which the process worked.
The question that the hon. Member for Yeovil asked was whether, if there is a delay in the earnings link, there should also be a delay in the increase in the state pension age. That is to mistake short-term for long-term affordability. The state pension age decision is important because the commitment is long term. We and the Pensions Commission had to come up with a package that was affordable for the long term. On its own, uprating the basic state pension in line with earnings would cost around £56 billion in 2050. That is the main cost in our reform package. By the time that the first increase in the state pension age occurs, from 2024, the basic state pension will already have been linked to earnings for a decade. Increases in the state pension age from 2024 will, by 2050, reduce the cost of our reforms to the state pension system by around £32 billion. That is the bulk of the way in which it is made affordable, and in which it is made fair. By increasing the state pension age gradually, we will be ensuring that the costs of rising longevity are shared fairly between those contributing to and those receiving state pensions.
A more generous state pension and a rising state pension age, therefore, go hand in hand for the long term. They are part of an integrated package of complementary reforms, so they are of course linked. The crucial point is that they are quite different in nature. People must have absolute certainty about when they will get their state pension, so that they can undertake meaningful planning. It would be irresponsible not to provide this.
Let me confirm our commitment on earnings uprating. I said to the hon. Member for Yeovil earlier that our objective, subject to affordability and the fiscal position, is to introduce the earnings link in 2012 or, at the latest, by the end of the next Parliament. I hope that that gives my hon. Friend the Member for Sheffield, Hillsborough some of the reassurance that she was looking for.
Flexibility around affordability is essential if the package is to stay within the envelope of affordability at the time. Neither the hon. Member for Yeovil nor I know what will be the precise budgetary position in 2012. Framing the decision in terms of affordability at that stage has always been important. The issue of the state pension age is quite different and is about affordability in the long run. We do not think that saying to people, “Here’s a timetable, but it might shift”, is appropriate. People have to know when they are going to retire. That is why we are planning to legislate on that basis for the state pension age. We are clear that we can legislate the linking of the state pension for the next Parliament and we have set out as an objective a year for achieving that. We believe that to be the right approach.