My Lords, my first, pleasant duty is introducing today's debate—a really pleasant duty, because this will be the last time that I address your Lordships as chairman of the Economic Affairs Committee, a day that, for me, could not have come too soon. My second pleasant duty is to say how delighted I am by the excellent speakers' list and especially to welcome the three maiden speakers. As always, we look forward to their speeches. As I am in a cynical mood, let me say, "Do not believe a word that everyone tells you about how great you were today", because we have all had that said over the years.
Perhaps I may say a word or two about the Economic Affairs Committee, to put the report in perspective. Obviously most, although not all of us are members of political parties, but our committee is not and has never been party political in its deliberations or reports. Everything that we do is evidence-based. We have never voted and our reports are entirely consensual. Indeed, if we cannot agree, we simply leave that bit out, which seems to be quite a good way to work.
One of our roles, if not our main one, is the scrutiny of government policy. It is in the nature of things that where we criticise, the object of our remarks has to be the Government. In other words, our report is a report scrutinising and criticising the Government. As I said, that is in the nature of things, otherwise there is no point in our existence. I hope that my noble friend the Minister appreciates that that is criticism that is meant to make things better and, speaking for myself, is not meant to start a party political row.
However, we are not just ordinarily critical in this report. It is our view that in some important areas the Government's approach is profoundly mistaken. To make an intellectual point, the Government are living in the past and your Lordships are trying to point us towards the future. The report sets out many examples of that, one or two of which I shall deal with and many more of which my colleagues will address.
My first general point is that we are living in an overwhelmingly ageist society, and that view permeates all the evidence that we received. It is a society that has not adjusted to increased life expectancy, especially increased healthy life expectancy. In the private sector, there is ageism in job applications. Many firms simply have an arbitrary age limit when considering applications. We would like to believe that the new European directive will put an end to that, but it must be closely monitored, otherwise it will be ignored.
Of course, there is ageism when it comes to retirement. People are not judged on their merits but are made to leave firms when they are perfectly capable of doing jobs, and want to do so, because they have reached the so-called leaving age. There is nothing more horrifying than opening today's Financial Times only to find an enormous fraction of employers saying that they are very keen on having a mandatory retirement age. The reason for that, which emerged in our evidence, is that they find it difficult to run a capitalist system and a market economy, where you are supposed to judge things according to what is efficient and effective. They find it much easier to have a completely arbitrary rule, because then they do not have to judge anyone or do the job that they are supposed to do.
Having said that in criticism of the private sector, the public sector seems to us far worse as regards not only retirement but also—and there is a fair bit of evidence for this—recruitment. We are told, and many of us have supported the view, that the Government have moved towards flexible employment practices, but for the most part, that seems to be asymmetric. They are flexible when it comes to certain hiring practices to do with short contracts, but are very inflexible when it comes to such matters as mandatory retirement ages.
En passant, one beacon of light in all this is your Lordships' House. Looking around, we do not dismiss or ignore older colleagues simply on the ground that they are old. Also, in the Clerk's Office, for example, we are perfectly capable of hiring Clerks—albeit on a temporary basis—who have passed what is described as retirement age. So there is at least one body that can say that it has modern thinking on this matter: your Lordships' House.
Let me mention one or two vital economic facts that tend to get ignored. The fact is that the economy is growing and will continue to grow. If the present underlying growth rate of about 2.5 per cent per annum continues for, say, 40 years, which will be applicable to someone entering the labour force today, gross domestic product per head will be 2.5 times what it is now. Therefore, when we are told that there is a crisis in dealing with people getting older and that we cannot afford to do what is right for people of the age group that is just emerging, that is simply ridiculous. We can clearly afford things; the question is, what do we want to do.
My second point is that not only has life expectancy been increasing but it has been doing so for some time. It is bewildering to be told that all sorts of groups in society, particularly actuaries, are taken by surprise that people are living longer; the surprise would be if they were not. Believe it or not, actuaries and others are still planning on the "It can't go on" hypothesis—that the increase in life expectancy will stop. First, it will not; secondly, the notion that that is a problem, and that the fact that we live longer and are healthier leads to a crisis, is the most absurd thing that anybody could dream up. We must recognise the fact and do something about it, but that is not the same as saying that it is a crisis. The overall theme of our report is that there is no crisis. There are problems but they are solvable; a crisis will arise only if we decide not to solve them. That does not mean that we are not capable of producing a crisis, but it will be of our own making; there is nothing inevitable about it.
That takes me to what a rational person would do if confronted with those facts if applied to him or herself. It is argued that what a rational person would do is what we ought to generate for society. Rational people, if they are to live longer and be richer, first, will wish to spend more of that time in productive life. Secondly, they might rethink which bits of that productive life they will spend in the labour force and which they will spend out of it. On a point to which I shall return, it might be reasonable for some to enter the labour force much earlier than they would otherwise and to leave later, for some to have a more complicated mixture, and for others to work until much later. But the notion that everybody would leave at the same age and enter education at the same time—namely, only at 18—and such ideas may have done in the past. However, it is important to keep repeating in your Lordships' House that we seem to have the responsibility for looking forward because no one else does. It is our duty to dispel the notion that we should live in the past rather than create the circumstances for proper behaviour in the future. That will lead us to a society very different from our own.
I wish to make a minor economic point en passant. Gross domestic product is given at any time, and therefore it follows that in whatever scheme you adopt for pensions, whether a total state scheme, a total personal savings scheme or, as we and most people advocate, a mixed scheme of a very good basic state pension but then creating the circumstances in which the individual then adjusts to his own need, at any moment only some of the income that the economy produces will accrue to those in employment. That is true whether it is a savings scheme, where the retired will pay for their pensions on the basis of their saving, a tax scheme or any mixture of the two. It is logically impossible for retired people to get income without any of the burden—if I may use that word—of that falling on those currently in work. Therefore, people who say, "Let us go for this scheme rather than that because of the burden on the labour force", simply do not understand the most elementary economics involved.
What I have just said does not mean that we should not take a view on what is the best mixture. The committee makes a particular point about that mixture. Many people who wish to make for themselves additional provision are very risk-averse; in other words, they would like to make provision in addition to the overall state pension but they do not want to take risks. That means that they cannot get the best rate of return, which will include a return for risk, but they might be very satisfied with that riskless return. The only body that can provide a riskless return in our kind of economy are the Government. That means that the Government, even within a personal savings system, must make available to the system enough real-return fixed bonds, which they can do with ease, through which private pensions can be funded.
The present system has two very bad characteristics. First, it is so complex that no one understands it—by no one, I mean no one—therefore no one can work out whether they are getting the right pension; they just have to take someone else's word for it. Secondly, it involves means testing of the most idiotic kind imaginable. I understand fully the Chancellor's desire to get state resources to those who most need them, but unfortunately the Treasury does not seem to understand that the way to achieve that objective is not to engage in intricate means testing. The way to achieve it is to pay a proper index-linked pension but to bear in mind that it is fully taxable; therefore, the tax system with that marvellous invention, the income tax, is the best way of yielding means testing.
Unfortunately, I am about to run out of time, but I wish to make one other main point which the committee raised and that is relevant to what we have to say. It refers to the financing of higher education for older people. A lot of people would rationally enter higher education later in life rather than earlier. I see absolutely no reason why 18 should be the only right age.
For those of us who were the original inventors of student loan schemes and so forth—I was the very first person in the public sector to advocate such schemes—we thought that we were dealing with student grants. We accepted that education was productive for the individual. We thought that it was reasonable for students therefore to bear some of the maintenance grant cost of their education. That is still a view that I hold.
It had never occurred to me or, I think, any of us who worked in this field, that it would become a kind of Frankenstein's monster: that is, if it was known beforehand that people with loans would not be able to repay—rather than known later, when they were too poor to repay it—one would say, "In that case, we will not give them a loan for higher education". In other words, the Government, in their reply to our report, buy a version of the rate-of-return approach to student finance of a sort that, as far as I know, none of us advocated; namely, if a person is old and late in life, and getting an education because he or she thinks that it is a good thing—to which he is perfectly entitled—we will not give them a loan.
For those noble Lords who have an interest in the matter, it is of course particularly biased against women. Happily, today more women are equal to men, but in the past, many women did not have higher education, and they are now told that they cannot have a loan to finance themselves to do so.
In conclusion, the report was published a year ago. It was recognised as a definitive approach to the subject. About the only people who do not recognise it as such are the Government, which is much to my regret. But since I have always had a mission to explain, I am convinced that eventually I shall be able to explain to the Government why we are right.
I repeat that it is not true that we cannot afford to do the right things, many of which my colleagues will outline. It is not true that we cannot get rid of ageism. It is true that at this minute at the stroke of a pen, the Government could get rid of all the ageism in their employment practices by simply saying "We will not have it any more". That does not require legislation. At the second stroke of a pen, as regards public appointments, again the Government could say that they will appoint people to public bodies on the basis of what they can contribute rather than again automatically saying, "If you're old you can't be on, and if you're on and old you can't be reappointed". I beg to move.
My Lords, first, I congratulate the noble Lord and his committee on what I regard as an admirable report. It is a pity that so little public attention has been given to it and that we have had to wait for so long to debate in this House this crucial topic. Indeed, well before the Adair Turner report, this report was drawing together the evidence and pointing the way ahead.
Like the noble Lord, I think that every discussion of the ageing population must start and end with the subject of longevity. I declare an interest, as I have done before in these debates. I have a fairly active business life, including being a non-executive director of a life and pensions company. I am a trustee of a pension scheme, and so on. I am greatly struck that practically every time that there is a new evaluation or investigation of longevity, the longevity age increases.
A company in which I am involved has just, at its current valuation, had to put up its black hole of pension deficit by 10 per cent, solely on the grounds of longevity based on very recent evidence. Longevity is clearly a crucial factor, which, in the time available, I want to analyse from the point of view of the world at work and pensions.
One of the most startling statistics was in paragraph 4.3 of the report, which showed that by the state pension age around two thirds of men and half of women had left the labour market. In total, a third of people between the age of 50 and state pension age are outside the labour market; that is, almost 3 million people.
Of course, there are a number of reasons for that; for example, incapacity, inability to find jobs and so forth. Perhaps one of the major reasons for that is the "Saga" generation: I was slightly surprised that the report did not refer to Saga, not only for its help on insurance, but also for the admirable way in which it deals with the fit and active life that the older generations now pursue. However, I suspect that that Saga generation will diminish in time as people realise the dangers of retiring early on an inadequate pension when they expect to live a good and active lifestyle over 30 years. There are other reasons too.
I very much support the report's recommendation that further research should be done in that area. The Government have said that they are undertaking research in order to understand what is happening in that large group of people who do not work, although many no doubt may want to, up to the age of 65.
I think that the Government have missed the point. Perhaps I may say that the noble Lord, Lord Peston, put his finger on it absolutely when he said that the Government were living in the past or perhaps even the present, but were not looking ahead. That is a crucial area in terms of the world at work.
I was born and brought up in a coalmining community where pneumoconiosis made people totally disabled at what we would regard now as a fairly early age. I have just been around a truck manufacturing plant where all the heavy work is now done by machines. So there are none of the problems of back and disability that existed in the past in big manufacturing for the future. All of those factors will mean that people are able—and may want—to lead a fit and active working life. They may not be able to stay in the same career, and they may have to work part-time. After all, young people have to face the fact that they will not be in the same career for ever. We need to understand much more about why it is happening now and look ahead to what will happen in order to ensure that we change the cultural environment in which work for older people exists.
The noble Lord made the point about the House being an example of work for the over-70s. But it does not happen in many other places that fit and active over-70s are able to lead a very involved life. I was drawn to one paragraph in the report. My wife is an active magistrate. In paragraph 6.21, Dame Rennie Fritchie reported to the committee that in the case of magistrates there was a statutory upper age limit of 70 years old. She suggested that that limit should be reviewed in order to determine whether it now has or has ever had a functional justification. The report condemned that position. I meet so many of my wife's colleagues who are perfectly able to be active and good magistrates well beyond the age of 70. I hope that that recommendation will be taken into account. I do not have any more time in which to deal with work, but my main point is that the research should be looking ahead.
I turn now to the world of pensions. Just as working longer is logical given longevity, so it is with pensions. Here, I turn to the raising of the state pension age. Again, the Government's objections to raising the state pension age are concerned with the here and now. All of the criticisms are on that basis. But we are thinking, just as when we were raising the state pension age for women to 65 years old, of a phased-in period and looking some time ahead. That is what we should take into account. It is important to take that step now and to plan ahead so that everyone knows where they stand.
I was greatly struck by one comment in the report, in paragraph 4.20. Mrs O'Connell, director of the Pensions Policy Institute, said that raising the state pension age,
"has a huge totemic significance . . . a signal from the Government that [state pension age] is to be raised . . . is a very powerful message to say that people are now expected to work longer".
I very much agree with that. That is the context in which it should be approached. To do so would affect the cultural, behavioural and expectational attitude to working longer.
As regards broader pension issues, I turn in particular to the state pension. Coming from a Treasury stable originally, in the early to mid-1990s and even in the late 1990s I believed in the concept that the Government were then approaching. I believed that it was right to concentrate resources where the needs were most. Therefore, I supported the original minimum income guarantee and then the pension credit. I based my view on the belief that the private sector would continue to provide more and more of the pensions and that the ratio that the Government talked about in 1998 of moving to 40 per cent state pension and 60 per cent private pension was right.
I want to explain why I have changed my mind. First, above all, in the past seven years a huge number of factors have changed that situation. I know that the Minister does not like this, but there is the £5 billion a year that is taken out of pension funds, which, however she looks at it, means that there is £5 billion per year less in pension funds. Next there is the reduction in ISA and PEP incentives, which today are very small. For many people, those were their chosen way to provide for their retirement. I mention also the impact of the decline in equity markets. There has been a huge shift from defined benefits to defined contributions. That will continue and, I think, accelerate, so that in the foreseeable future we will have no defined benefit schemes. Moreover, the current Pensions Bill is increasing the disincentive to have them.
There are black holes in pension funds, along with the low-inflation, low-interest rate environment. There are the additional complexities now surrounding the provision of private pensions, along with a general lack of confidence as a result of pensions mis-selling. There is also the failure of stakeholding. It is clear that the stakeholder scheme has not succeeded, and even raising charges to 1.5 per cent will not be sufficiently encouraging for many providers.
Above all, I have been struck by the impact of the pension credit. No one now earning under £20,000 should be providing through private pension arrangements for their old age. That is a classic example of government mis-selling. Anyone earning less than £20,000 will be provided for by the pension credit, which is therefore a huge disincentive to many to take out private pensions.
Given all those factors, I have come to the conclusion that it is now necessary to raise the state pension age. We should start with the over 80 year-olds. I recognise that there will be large costs attached, of which we need a lot more analysis. Indeed, I have to say that one of the few weaknesses of the report, given that it examined the economics of an ageing population, is that it did not look at the economics of how to move forward in raising the pension age. I understand that it may well have been too complex for the committee and that they did not have sufficient resources for it, but it is essential that the Government should do so. Although I do not have time to go into it, raising the state pension age to where the minimum income credit position is now would deal with a whole range of issues, including that of compulsory second private pension provision. If the state pension age is gradually raised over a period—I accept that it would have to be done over a number of years—it will be less necessary to compel people to take out private pensions for themselves. So I realise that this would have to be gradual and thoroughly costed, but it certainly ought to be debated in detail.
I conclude with one further point. The report rightly draws attention to the problem of encouraging further private sector pension provision among those who can afford it; that is, those earning over £20,000 a year. In order to do this, one must take into account the inflexibility of the current arrangements. Five years ago, I chaired a conference at Gleneagles being run by Chase Manhattan, now JPMorgan. At that conference, we developed the concept of a lifetime savings plan under which people could build up savings over a period. If they needed to withdraw any of those savings prior to retirement, they would lose their tax benefit. None the less, flexibility is an important concept which I hope we can develop further.
Let me finish by saying that this is an admirable report, and I hope that we shall be able to debate all the issues raised in it many times in the future.
My Lords, I declare an interest as a pension fund investment manager for more years than I care to remember. After spending some 65 hours in Grand Committee and in this Chamber on the Pensions Bill, I almost feel like saying to the noble Baroness, Lady Hollis of Heigham, that we cannot go on meeting like this. However, at least let us treat today's debate as something of an awayday from the hard grind and explore some of the wide-ranging and thought-provoking aspects of the Select Committee report.
I was privileged to serve on the committee; I really mean that. I found its work invaluable, both in examining the array of expert witnesses, most notably Alison O'Connell of the Pensions Policy Institute, to whom the noble Lord, Lord MacGregor, has already referred, and Christine Farnish of the National Association of Pension Funds. I also found cross- questioning that sparkling trio, Frank Field, Steve Webb and David Willetts interesting, as I did listening to a characteristically dogged and honest defence of the indefensible by Andrew Smith. It is most important, however, that I pay tribute to our chairman, the noble Lord, Lord Peston, for his foresight in choosing for our work what has now turned out to be the top political priority in Britain. Some 54 per cent of people who responded to the latest Gallup poll in the Daily Telegraph said that that is what the question of pensions is. I also thank the noble Lord for his clarity of analysis of the problem and his vision of how it would be solved.
We are not exactly a committee of "yes" men and women, but we all signed up to a pretty clear agenda. This report, coming out as it did at the turn of the year, has played a major part in building the policy consensus we now see in Britain on pensions, which runs right across the pension fund movement, industry, the trade unions, political parties and—dare I say it?—even, most encouragingly, Ministers in the Department for Work and Pensions. They are now veering towards the policies we set out in our report.
Steve Webb and I certainly prayed in aid very hard this report when we were battling to persuade our party to find the money for a citizen's pension. I even gave Charles Kennedy a copy to take away and read up in the Highlands. It must have been a wet weekend because he came back fully seized and engaged with our work. Sadly, we all know that there is of course one immovable road block in the way of consensus. I commend to you his remarks made last week to the CBI, and I hardly need mention the name.
We believe that our report makes an unanswerable case against means testing for pensions on grounds both of fairness and of the disincentives to saving for a private pension. But I should like to explore a little more deeply private pension saving and the vehicles we can use for it. Even when we do achieve a citizen's pension for all at a level that people can live on, there will still be a crying need for simple, safe, long-term savings products that lower-income and middle-income earners can trust as building blocks for extra pensions.
This is where the report's innovative proposal for a national savings pension bond opens a real prospect of progress. I would go further and develop a strong, wholly new arm of National Savings & Investments, which we could call National Savings and Pensions. The trouble is that even where people are almost certain to gain by regular saving over the long term, and when they have recognised the need to do so, they are just too frightened to make the commitment now, for all the reasons pointed out by the noble Lord, Lord MacGregor.
The strength of the National Savings brand and the economies of scale we would enjoy if we set up the range of funds that I shall outline in a moment mean that it could offer pension savers a real bargain. Total long-term charges at wholesale rates on each fund of no more than 0.5 per cent a year would let the power of compound interest over long periods really work to build up people's pension savings. I should have thought that we want four bog standard, simple products: a 10 or 20-year United Kingdom FTSE equities tracker fund, a conventional gilt-edged fund, an index-linked fund and a money market cash deposit fund. National Savings—I shall call it NASP—could not give investment advice. It could not afford to do so when offering such low-cost products. But it would be a natural first port of call for people advised by the community-based national finance network which we recommend in the report. The obvious place to base that would be within the citizens' advice bureaux network. For a lot of people, the first piece of advice they are given about saving for a pension is, "Get yourself out of debt and do not carry on with expensive credit". The CAB system is ideally placed for such advice.
I am sorry to have to say this to the noble Lord, Lord Leitch, who is to make his maiden speech later in the debate and who has a distinguished record in the insurance field. While we look forward very much to his remarks, I am afraid that the whole cost base and reward structure of the insurance industry and the investment selling industry generally does not make it economic for them to service those on lower incomes in the population. It is just too big a leap. Moreover, stakeholder pensions are not going to work, even with 1 per cent or 1.5 per cent charges, and if one sets the charges higher than that, they will eat critically into people's long-term total returns.
I want to say a few words about why I think it is so important to produce a long-term product that lets lower-income and middle-income people access long-term equity returns. Equities have produced very good total returns for long-term investors over many years. Of course it is not totally risk free, but anyone investing in UK equities for any 10-year period since 1918 would have lost in capital terms only twice and would have gained 83 times. Even in those two years, the dividend income would have more than made up for the loss. And despite the downturn in the equity market between 2000 and 2002 that we hear so much about, real returns after inflation on UK equities have remained very satisfactory over the past 10 to 15 years. Over periods longer than 20 years, they beat by a long way virtually every other investment.
Looking at this in terms of total returns, they are also very competitive with housing. I fear that many people are going to get a very bad surprise when they see what has happened to the money they put aside for their pensions through buy-to-let investments. Anything which is sufficiently long term—a tracker of that kind—would allow small pension savers to capture these historically excellent returns without suffering excessive middlemen's charges.
The Government's response to our national savings bond idea was distinctly cool. I was amazed in particular—I do not know how many people know this—to discover that the National Savings and Investments core remit no longer contains any reference to encouraging people to save but to,
"provide cost-effective financing of the Government debt".
In plain English, that means to pay as low a rate of interest to savers as you can get away with. That is far too narrow an aim.
National Savings and Investments should use the unrivalled trust for its brand, and its vast buying power in the financial services world, to develop its own-brand products—rather like Tesco—using its muscle to put high-quality savings products on its shelves at low cost.
Finally, 40 per cent of the votes at the last election were cast by pensioners. That figure could push up nearer to 50 per cent next time. This is the most pressing economic and social problem facing our country; now, at last, it is waking up to it.
My Lords, I join with the congratulations to the noble Lord, Lord Peston, and his committee on their truly excellent report. It is extremely timely, very comprehensive and points to the future. Although it makes some immediate recommendations, it also takes the long-term view, which is essential.
The ageing of the population affects people of all ages and from all walks of life. It should be recognised that the ageing of our population and increasing longevity are triumphs of the 20th century but that planning for such huge change is essential. We have to set in place the structures and the processes to meet the challenges or the doom-mongers will be proved to be correct in their predictions. That would be a tragedy.
It is fortunate that this year, while we have been waiting for this debate to take place, the issues have risen to the top of the agenda, as the noble Lords, Lord Oakeshott and Lord MacGregor, have said. But the debate is still timely because there has been a great deal of publicity about the subject in ways other than we might have expected. For example, we have heard a great deal about falling life expectancy, particularly among the coming generation, as a result of obesity and poor diet. That has led to much younger people being affected by the diseases of older age, such as diabetes and cardiovascular disease. Some of today's children may belong to the first generation to live shorter lives than their parents. It is a serious problem.
That does not detract from the points raised already by noble Lords. I share the concerns of the noble Lords, Lord MacGregor and Lord Oakeshott, and agree with their points about pensions. I am pleased that the report and the consensus now emerging about pension provision have come through during the year in the way that they have.
I congratulate the committee on its focus on age discrimination, which affects many areas of life. It is not usually recognised that, even in areas which are not directly economic, its effect on the economy is profound. For example, there is still a great deal of discrimination in healthcare, despite the excellent work done by, among others, Professor Ian Philp and the national service framework he has introduced. If people with chronic disease are refused treatment or are neglected in their care, before they die they will demand and expect a higher level of care for longer. This will have an immediate effect on the wider economy.
The other forms of ageism which affect all of us are found in the financial services, which has been mentioned; in civil society and participation, which has also been mentioned; and of course in the labour market, where it is deeply embedded, as the report points out. All of that affects our economy disastrously.
The fact is that we now have a healthier, more active and potentially more productive older population which is often prevented from participating fully in the economy—not necessarily in the paid labour market for salaries and wages, but as consumers and people who pay taxes; people who are purposeful and involved. That is a big tragedy of our time and a waste of an economic resource that we can ill do without.
There are two areas in particular where the Select Committee's report has already influenced matters. For example, the Department for Education and Skills is considering how to tackle ageism in higher education, specifically with regard to age limits on student loans. That issue features in the report's recommendations. A DfES working group is still meeting on the matter. I was pleased to persist with an amendment to that effect during the passage of the Higher Education Bill.
I am also privileged to sit on a sub-committee of the European Union Select Committee. Its next inquiry will be into future EU education initiatives, one of which affects life-long learning. We have to ask whether lifelong learning means what it is called, or whether it means that people can retrain only until they reach 50 or 60. It is important that we define this properly.
The report does not deal in depth with the global impact of longevity and the ageing of the population. Here I declare another interest as a trustee of Help Age International. The issue has moved up the international agenda following the UN World Assembly on Ageing in Madrid in April 2002. Despite the crisis of AIDS in Africa and Russia's falling life expectancy, the impact of global ageing is a challenge on a par with other global issues such as climate change, tackling the AIDS pandemic, sustainable development and so on.
One impact of AIDS is that more older people—particularly grandparents—have to care for young children, and even teenagers, throughout the rest of their life. So, even though AIDS is reducing average life expectancy across Africa, it still has a substantial policy impact on ageing and older people.
I wish to touch briefly on one other key area which is not commonly associated with economic affairs but should be. Health and longevity lead to greater wealth. Marc Danzon, the regional director for Europe of the World Health Organisation, said recently that health was a fundamental human right and a prerequisite for economic development. Some eminent academics at Harvard, among others, have proposed that health and longevity lead to wealth measured in terms of the GDP.
One of the reasons for that is that people cost the same in the last stages of life whether they are 80, 100, 60 or 50. So, if we can reduce the period of morbidity and put off that last stage of life when people are dying and very often suffering from chronic disease, they will have longer to remain active as purposeful and productive human beings. The key is to press morbidity into as short a time-frame as possible. I am pleased to say that that is already happening in many countries, including our own, but more research into how to make it more effective is necessary.
Good health must, as we know, work in tandem with tackling age discrimination, so that older people are not denied opportunities, which means promoting age equality where eventually age becomes irrelevant, not a factor in itself. It is poor management in the labour market to rely on age as the sole criterion for whether a person can do a job. That is why I hope the Government will eventually remove the fixed retirement age, even if the age at which an employee can begin to receive their pension is fixed at, say, 65, or even higher in the future. I hope that the Minister can update the House on the Government's thinking about age discrimination and the legislation, which is just two years away from implementation.
Perhaps we need to develop ways in which we can assess a person's biological age, as distinct from their chronological age. That is mentioned a lot now and, perhaps rather unwisely, it has been taken up by the anti-ageing market. But there is a serious point here: very often, a person's biological age is quite different from their chronological age. We are all different when we are children in the way we develop, and we remain different from each other throughout our life. What research have the Government supported in that field, and how far has a national research strategy on ageing and longevity progressed since the DTI's Foresight programme, as well as any work supported by her department and the Department of Health in particular?
The implications for public policy of ageing and longevity are challenging for everyone, not least those in the developing world. We live in the oldest continent in the world, but we will be caught up soon by Japan and subsequently by all the rest of the world. Your Lordships should be reassured by human ingenuity to rise to that challenge. It is a reflection of human triumph.
My Lords, it is with enormous pleasure that I address your Lordships' House for the first time. It truly is an honour to be a Member of this House, surrounded by people of such great expertise. As a democratic socialist, it is a particular delight to be sitting on these Benches. Like all new Members, I have benefited enormously from the warm welcome and ready assistance of the staff of the House of Lords. I thank them for their help and for their patience.
Maybe noble Lords will allow me to tell them a little of my background and my interests, before moving on to the substance of today's debate. I come from Blaisdon, a very beautiful, small village in the Forest of Dean, which has been my home for 40 years. Most of my family is Welsh and, having spent my life on the borders, Wales is my nation. I am, however, married to an Englishman, two of our children support Wales, one supports England, and I am proud to be Welsh, British and European.
For the past 18 months, I was privileged to be the head of the European Commission Office in Wales. Before that, I worked in Brussels. Despite what your Lordships may have heard to the contrary, the majority of my colleagues in the European Commission are diligent and hard-working, serving the best interests of the people of the European Union.
The European Union has been an important part of my working life since 1979, but it has been much more to me than a place of employment. I firmly believe that the peace, prosperity and stability that we now enjoy stem directly from the vision that brought together the six founding members of the European Economic Community. My walk through the poppy field this morning, in remembrance of individual lives and generations lost, was a stark reminder that our continent must never again be torn apart by war. I am convinced that the stability of an enlarged European Union is the best guarantee of peace. It will be no surprise to your Lordships, therefore, to learn that I will take every opportunity to make the case for the constitutional treaty and to ensure that this country can continue to take a full and proactive part in the European Union, participating fully in the decision-making process with our partners.
My views on the European Union were shaped by my commitment to the values of social justice and equality. I share R H Tawney's concept of equality: society should be organised so that,
"all its members may be equally enabled to make the best of such powers as they possess".
My wish to contribute to today's debate on the excellent report from the Select Committee stems from my view that society at present does not properly value or use the talents, skills and experience of older people. It often does not enable them to participate in the world of work, and this has a detrimental effect on both individuals and the economy.
I must, however, declare an interest. This fiery redhead hopes one day to be a healthy grey tiger. I am 49, on the threshold of becoming what is classed as an "older worker". I wonder if we should perhaps change our vocabulary and refer to "more experienced workers" rather than "older workers". The former gives the impression that all people aged 50 and older are too old to be productive. The latter would enable us to focus on experience as a positive element of ageing.
The emphasis in the Select Committee report is on the need to retain, retrain and attract the most experienced workers. This emphasis was shared by the high level group on the Lisbon strategy, under the chairmanship of Wim Kok. His report, published last week, stressed the need to provide the right incentives for people to work longer, and for employers to hire and keep older workers, as well as the need to increase participation in lifelong learning for all ages. The challenge of an ageing population is common to the European Union as a whole, and common problems require common solutions.
Training and access to employment are a means of sustaining dignity and combating poverty, as well as contributing to the economy. I take this opportunity to highlight two very different initiatives, which I believe enable many people, especially older people, either to retrain or to return to work. First, there is an excellent Objective 1 social fund project, managed by Jobcentre Plus, in 40 centres in Wales. I recently visited a centre in Porth, in the Rhondda, where they are doing a fine job in getting older—and younger—people back into the labour market. Work gives them confidence and self-esteem. It also enables people to lift themselves out of poverty and to contribute to the economy.
Secondly, thanks to the Carers (Equal Opportunities) Act 2004, thousands of carers, the majority of whom are women over 50, will be able to take up education, training and employment opportunities. It will enable carers to continue to care for their loved ones at the same time as fulfilling their own potential. This is good for their health and finances as well as for society as a whole.
At present, the poorest in our communities are the least likely to enjoy the benefits of a healthy, longer life. They may well have the legacy of ill health associated with deprivation, from heart conditions to diabetes. In Wales, for example, where since the 1980s, pay and incomes have remained well below the British average, 37 per cent of people of pensioner age receive sick or disabled benefits—far more than in any other region of Britain—and life expectancy is lower.
The Government have made huge strides in combating pensioner poverty, through targeted pensioner credit, among other things. The Welsh Assembly Government, with their ground-breaking strategy for older people, are making solid progress in their efforts to deal with the challenges of an ageing population. There is, however, still much to do.
As noble Lords have already stated, the report rightly draws attention to age discrimination in the labour market and the detrimental effect that this can have, on both older people and the economy. This theme was very effectively taken up in Age Concern Week, which drew attention to the fact that age discrimination costs the UK economy £31 billion each year. Work is good for health and well-being, but it also enables older people to boost their incomes and thereby contribute more to their local economies. While it seems that overt discrimination, in the form of age limits in advertisements, is now unusual, covert discrimination is still a real problem—not only in the UK but throughout the European Union.
Naturally, I am pleased therefore that the age strand of the EU Employment Directive providing a common framework of protection against discrimination on the grounds of sexual orientation, religion or belief, disability and age, has to be implemented by December 2006. Indeed, I am proud of that directive, having worked on it from an early stage, following the decision of the heads of state and governments to include a new anti-discrimination clause in the Treaty of Amsterdam.
As the Select Committee report makes clear, there is no looming crisis in the UK, but action is needed now to meet the future challenges of an ageing population. Some of that action requires government intervention, either through legislation or policy development, but I believe that a cultural change is also necessary to bring about a truly inclusive labour market in which education, training and employment are open and accessible to people of all ages. I trust that we shall all play our part in bringing about this cultural change.
My Lords, I congratulate the noble Baroness on what the whole House will agree was an excellent maiden speech. She has had a distinguished career; I could not help noticing the period before her European offices, when she was the political adviser and researcher to Neil Kinnock between 1986 and 1994. I imagine that in that time she scripted some of the fierce attacks that Mr Kinnock made on my policies when I was a Minister, particularly in the area of social security and pensions. But in no way do I hold that against her. I agreed very much with what she said on age discrimination. The whole House will look forward to listening to future contributions from her.
I shall concentrate on pensions, if I may. I congratulate the noble Lord, Lord Peston, and his committee on an excellent report—but that is not to say that I agree with all that is in it. For example, I do not agree with the proposal to abolish the lump sum, with regard to pensions. At a stage when our whole aim should be to encourage saving, that would represent a serious blow, particularly as it follows the pension tax of £5 billion a year, which my noble friend has already referred to. In my view, that proposal would be damaging.
I was intrigued by the proposal that National Savings should provide a pension bond. I believe that it is an extremely good idea; we had the same idea in the social security and pensions review of 1985, and we put it to National Savings, which rejected the idea completely out of hand. That goes to another truth about pensions policy: the most imaginative plans can come from the Department for Work and Pensions, but, unless the Treasury is on board, you can forget about those plans ever happening. I see that my old adversary—I mean, my colleague—my noble friend Lord Lawson, the former Chancellor, has now left. That is a pity, because he and I could have had an interesting debate on that subject. Personally, I do not feel that the Treasury's contribution to pensions policy in the past quarter of a century has been entirely outstanding. I notice also from the report that the present Chancellor has already rejected the idea of a basic pension uprated by earnings. That does not entirely bode well for the future debate, but we shall see what happens.
I particularly applaud the report's last proposal, that the Government should establish an independent authority to monitor, undertake research and make recommendations on pensions policy. That is an extremely important point—particularly with regard to monitoring. We now spend time, and rightly so, on pre-legislative scrutiny, but we should spend much more time on post-legislative scrutiny, monitoring how the proposals and enactments have worked out in practice. That is not to double guess the aim of the legislation, but to check whether the aims are actually being carried out: whether a commitment given by a Minister when a Bill passes through Parliament is being acted upon, to check how it is being administered, what problems are appearing and how they should be dealt with.
Many of the mistakes relating to legislation come in the immediate post-implementation—or non- implementation—period. We have to recognise that when new Ministers come in they generally do not feel that their role in life is to administer the legislation of their predecessors. They do not feel that that will make their reputation; they want to make new legislation of their own. That places a great deal of importance on having successful post-legislative scrutiny. The committee's proposal is very important and should be acted upon.
I agree with the point made by my noble friend Lord MacGregor about retirement age. Back in 1985 or 1986, when we reviewed pensions and social security, I proposed a period of a decade for retirement, between the ages of 60 and 70. At the time, that was seen as an extremely eccentric move, because everyone was saying that pension age should come down. The argument was not about pension age going up, but coming down to 60 if not to 55—because the French, or some other country, did it in that way. Obviously, the argument has moved on. But the idea of 65 being the end, with regard to pensions, is an outdated one.
Above all, the report shows that there is now an emerging political consensus on the way forward for pensions policy. The first part of it is that we should have the most generous basic state pension that we can afford. Whether it is earnings-indexed or indexed on the basis of what the economy can afford is a matter for debate, as are the exact rules of eligibility. But the basic pension should be the foundation, with the aim of making unnecessary as many means-tested benefits as we can. But I have one caveat. I supported the introduction of pension credit, and introduced family credit myself; to an extent, it was the next logical step. But the purpose of pension credit as introduced now should be clear: it is to help those who have already reached retirement.
There is no point in saying to 70 and 80 year-olds, "Now is your opportunity to go out and save". They have not had that opportunity, and we should recognise that many of them need extra help at that point. Equally, however, pension credit should not be regarded as a permanent feature of the landscape forevermore—otherwise, it starts to impact on incentives. It should be phased out over time. Pensions policy, as all noble Lords have made clear, is policy made over years. Governments should make clear what the timetable is, but not remove pension credit from people who at the moment badly need it.
With regard to a better basic pension, I should like to see the Government come out entirely of the second pension provision. I agree that there are problems with that proposal, because we have a pay-as-you-go system; that is the basis of state pension. I pay my tax on the basis that the next generation does the same for me, so cutting that knot is difficult, because people would still be paying for others while being told that future generations were not going to pay for them. But we should bite the bullet in relation to the second pension.
I come to the most difficult issue of all. All parties want there to be more private savings, although I do not know what the Government's present position is on that. I believe that it used to be an aim but that it has come down to an aspiration of about 60 per cent with private savings. So do we compel the public in that direction? Compulsion can mean different things; it can mean compelling every employee to contribute, which works perfectly well in other countries. But that would also leave us open to the criticism that individuals might have done better investing on another basis, perhaps in housing.
The other form of compulsion is to insist that companies not only provide the opportunity for a money purchase pension, but must make a minimum contribution to that money purchase pension as well. In other words, the employer matches the contribution of the employee. The decision then rests with the employee. The Government, and one hopes companies, will encourage the man or woman to contribute.
At the same time, the Government should pursue policies that actually encourage saving itself. Frankly, that has not been the position over the past few years. We can argue about the detail, but very few people would say that, over the past few years, the characteristic of public policy in this country has been to encourage savings. We have not been encouraging savings. We very urgently need to examine a range of measures whereby we can do that.
Although I do not expect to have a particularly encouraging reply from the Minister in this respect, I hope that the Government will at least recognise the growing public feeling that compulsory annuities at 75 is not only an unjust policy; it is also a deterrent to those seeking to save and on future generations seeking to save. I think that a consensus on that issue also is beginning to form. I do not understand the Government's obstinacy in resisting it.
My overriding fear is that, under current policies, we are proceeding to two nations in retirement, one of which is the public sector and senior staff in the private sector with final salary schemes—which are, as my noble friend pointed out, rapidly becoming something of the past. The other nation does not have any prospect of a final salary scheme and, unless policy is changed, will not have an adequate money purchase scheme either. I think that all parties need to work to ensure that that does not happen in this country.
My Lords, I should like to declare an interest as chairman of Age Concern Surrey, and to say how much I enjoyed reading the report. I was not a member of the committee that wrote it, but I found it very sensible, robust and practical, as one might expect of a report from a committee chaired by the noble Lord, Lord Peston. I should also like to say how much I enjoyed the maiden speech of the noble Baroness, Lady Royall. It was good to hear of her background in the European community and of some of the links with this issue.
One of the important features of the report is that it has dispelled a number of myths. As a number of speakers have pointed out, it has provided the background to what is now a growing consensus. First, it has dispelled the myth that the impact of the ageing population on the aggregate macro-economy is likely to be difficult. It is not. The report shows very clearly that that impact is both manageable and in many senses will in future be negligible.
Secondly, the report makes it clear that there is no crisis of affordability. The current United Kingdom pension scheme is so lean and so mean that, despite the increase in the number of the population over 65 from the current 16 per cent to 24.5 per cent between now and 2050, the proportion of GDP spent on pensions will increase only marginally by about half a percentage point, to 5 per cent of GDP, as compared with an expected 14 per cent or 15 per cent for our European partners.
If there is a crisis, it is a crisis of adequacy because the level of private pension provision is too low to meet aspirations. I was struck by paragraph 9.26 of the report, which reported on a Consumers' Association survey showing that the average respondent wanted to retire at 58 on a pension worth 75 per cent of their current salary, and yet 46 per cent of those responding were not contributing to any pension scheme at all other than through national insurance.
The inadequacy of private pension provision has been reinforced by the Turner report which was published so recently. That report showed that 11.3 million workers were making no pension contributions at all beyond their national insurance and that the shortfall on firm pension schemes was likely to be about £50 billion. However, it also highlighted a point which I think came out in this report and of which we are increasingly aware: the failures of actuaries to anticipate increasing life expectancy. They have consistently underestimated people's increasing life expectancy.
The Select Committee report focused on both the private and the public sector. The Adair Turner report focused entirely on the private sector, but its conclusions complement those of the Select Committee. There is growing consensus among political parties. I am particularly delighted that my own party has adopted a number of the suggestions, particularly the concept of National Savings providing a low-cost pension scheme that people from low and middle incomes can buy into. When one talks with people on the doorsteps about the very real pension problem, one of the issues that arises time and again is the complexity and failure to understand what it is all about.
I should like to pick up three specific issues that I think illustrate some of the complexities. The first issue is women and pensions, which was mentioned in the report. Many of the discussions that I have had on the doorsteps have been with elderly women, most of whom, if they played a part in the labour force, played only a peripheral part; their husbands were the main breadwinners. Many of them have inherited occupational pensions, but many of those pensions were not index linked. Some widows of husbands who died in the 1980s were left very well off but now find themselves in penury. Yet those women are frequently too proud to want to submit themselves to means testing. In that sense, the pension credit has not worked.
Many women in the 80 to 90 year-old bracket are among our poorest pensioners. One very good reason for our espousal of the citizen's pension is that it will help to take those people out of pension poverty. Those people did not contribute to a pension fund but they contributed a great deal to the nation. It is not right that they are now left in poverty. The same applies even in my own generation. When I started working in the 1960s, I was given the option of opting out of paying high national insurance contributions. Many in my generation gave up work to bring up children and, consequently, have a very patchy contribution record—one picked up little bits here and there.
I suppose that my experience illustrates, as the noble Lord, Lord Peston, and others have mentioned, the value of time. I had a very small pension from working for three years in the Civil Service. After three years, when I moved to the London School of Economics, it had accumulated to about £500. It was put into a fund to wait there until I reached 60. By the time I was 60, the £500 had grown to £11,000. The power of compound interest is very considerable and useful. As I had to buy an annuity with it, it was perhaps not as valuable as it might have been. Nevertheless, had I invested it in equities when I received it in 2002, I probably would have lost badly. So perhaps it is better in an annuity. Women and pensions is an important issue.
Secondly, I would like to talk about the value of volunteering. Age Concern Surrey reckons that the value of those who volunteer for us amounts to about a third of a million pounds a year. The total value of unpaid work provided by older people in this country amounts to £24 billion—2½ per cent of GDP. Caring for older relatives—those who are even older than the people looking after them—constitutes the biggest part of this. It is reckoned that something like £15 billion goes into caring for older relatives; £4 billion into grandparenting and £5 billion into other volunteering activities such as voluntary work for citizens advice bureaux and Age Concern. All kinds of charities benefit enormously from volunteers.
The more we encourage this age group to go on working, to some extent the less time they will have for volunteering. We should recognise that. One of the issues that we shall have to face up to is the need to think about the caring services. Today's news of the elderly gentleman with Alzheimer's who was left in an A&E department with a sad note from his wife that said, "I am just driven to despair. I cannot go on", illustrates some of the tensions that carers have to face: long nights that are disturbed, which you do not expect when you are 60 or 70; the sadness of no longer being able really to communicate; and the difficulty of feeding and constantly nursing.
The answer from the Minister is that the Government are giving local authorities money to provide care services. They are, and organisations such as Age Concern Surrey are contracted out to help with those care services, but without our volunteers we could not possibly meet the costs because the overheads are just too high. In addition the Minister has said, "Of course, we shall be looking to an expanding number of volunteers". We have to think very carefully about how far the volunteering society can bear the burdens that are being put upon it. Citizens advice bureaux, for example, are funded not by government but by local authorities through discretionary expenditure at a time when local authorities are being squeezed. It is very difficult to get more money out of local authorities to provide core services and yet we are talking about citizens advice bureaux providing more financial advice.
Finally, I want briefly to remark on lifelong learning, picking up the theme mentioned by the noble Baroness, Lady Greengross. Like the noble Lord, Lord Peston, I thought that the Government's response to the suggestion that they should provide loans to those aged over 54 was extraordinarily mean, miserly and hard-hearted. Why do we have to look at the matter in this competitive way all the time regarding whether someone is likely to be able to pay back what he or she has borrowed? Part of the benefit of living longer is surely that of learning for longer. Lifelong learning provides an opportunity to explore all kinds of areas that perhaps one could not explore earlier in life when one was working. For many people it is a pleasure to do so when they are retired.
I point out to your Lordships that lifelong learning is now funded by the Learning and Skills Council. It has been shifted from local authorities and local education authorities. Although it is provided by local education authorities it is all funded by the Learning and Skills Council. However, their priorities do not lie with lifelong learning; they lie entirely with courses that end up in qualifications. Again, we are seeing an increasing squeeze on funds that provide for the wider aspects of learning and life enjoyment. That is very sad. We have to ensure that there is proper provision for the continuation of learning among an ageing population.
My Lords, it is with enormous pride, and not without a little trepidation, that I address this noble and historic House for the first time. Being here is an immense privilege. I have been struck by the warmth of my reception from your Lordships and officials and I have been impressed by the high quality of incisive debate. I particularly like beginning our daily proceedings with prayers from the right reverend Prelates—a precious and private moment to reflect in too busy a world. Many business organisations could well benefit from the same approach.
I do admit though that, at times, everything has seemed quite bamboozling, and I have made the odd mistake. But what is so nice is that being "admonished" is even a pleasant experience—well, mostly! I have been given lots of sound advice on maiden speeches—the wisest coming from my noble friend Lord Haskel, who said, "Sandy, don't try to be witty or intellectual, just be yourself". I thank my noble friend for his wisdom.
The report before us covers fundamental and far-reaching issues of both national and international importance. I congratulate my noble friend Lord Peston and his Select Committee on such a powerful study. For me it is a very appropriate topic on which to make my maiden speech. This is because I have worked in financial services all my life, becoming chairman and chief executive of a major organisation spanning 17 countries. I was also chairman of the Association of British Insurers. I believe passionately in the worth that the insurance and savings industry brings—so often making the difference between dignity and destitution to the lives of millions of people. At the same time I agree with the noble Lord, Lord Oakeshott, that there is a need for serious change in the industry.
I am also in my fifth year as chair of the National Employment Panel. This is an independent, employer-led adviser to government on how to move more people off welfare and into work. And, as deputy chairman of Business in the Community, I have worked to combat disadvantage and discrimination at all levels. As your Lordships can sense, my professional experience lends itself to the issues raised in the report.
I start on a positive note. Increasing longevity is wonderful news for our society. Perhaps it is a blinding glimpse of the obvious, but it is welcome news that we are living longer—and living better. Of course there are disturbing demographic time bombs ahead—and we cannot defuse them all. As the noble Lord, Lord Peston, said, reform is both necessary and overdue. The first law of reform is to recognise the problem. This report and the Pensions Commission study are defining steps in facing up to the problems.
I agree with the Select Committee that an ageing population demands different approaches from those of today. We need to deliver: more people into work; more people working longer; and more people saving more. But that is easier said than done. What we need to do is to be better at joining up the work agenda and the pensions agenda. It is effective labour market policies which will empower us to support an ageing population. The good news is that we start from a very strong position. Today the UK employment rate is the highest of all G7 countries, with unemployment at its lowest since 1975. The bad news is that population ageing will reduce the absolute numbers of working age people. Our skill and capacity gap will widen.
Yet, despite recent improvements, we have an immense pool of non-working, untapped talent that can fill the gap. Over 5 million people are on working age benefits. Employment rates for the disabled, ethnic minorities, lone parents and older people are too low. The majority of these men and women want to work, to leave benefit and to find rewarding employment. There is no simple panacea here, but there are actions that we can take and that we must take. We need to reform benefits that encourage work; remove barriers to employment; and encourage employers to extend working lives, to set the skills agenda and to recruit candidates from historically untapped groups.
I turn to pensions. Pensions are complicated. Few of us understand them. Non-experts find pensions a bewildering, impenetrable maze and most experts are right there in the middle of that complex maze, trying to find a way out. The truth of the matter is that, for 50 years, the UK's occupational pension system was the envy of the world, but dramatic improvements in longevity, unexpected reductions in equity performance, coupled with a hefty degree of complacency and misdirection, see this country staring into a future crisis of pensions inadequacy.
Too few people today are saving enough for retirement. Consequently, too many people tomorrow will be poorer in retirement. The facts are stark. We have a growing savings gap. There are 12 million non-savers who either cannot afford to save or do not know what to do and the position will get worse. More pensioners will be supported by relatively fewer workers. We have the grave prospect of a huge pensions underclass. We cannot allow the poor to fall into the pensions abyss. This problem must be tackled; this problem can be tackled. This is a national priority. But, it is hugely difficult and solutions will come only when government, regulators, consumers, employers and the insurance industry work together in partnership.
As I see it, the solution is both self-evident and compelling. Those who can afford it must be encouraged and enabled to save more. Those who cannot afford it must be provided with an adequate and reasonable pension. There is no escaping the fact that someone will have to pay more and pay more than now. That is unpalatable but inescapable. And, as I have said, we need more people into work and working longer.
I should also emphasise that state pension reform alone will not be enough to close the pensions gap. We must get the pensions voluntary system working again and we must put employers back at the centre of pensions provision to their workers.
This is a massive and complex subject and I cannot do it justice in these brief remarks, but I do feel passionately about the issues. The consequences of getting it wrong are truly unthinkable, but the consequences of getting it right will leave an enduring and historic legacy for generations to come.
My Lords, it is my very great pleasure to congratulate the noble Lord on his maiden speech. It was excellent and I look forward to hearing him many times in the future.
I am at a disadvantage in that the noble Lord, Lord Peston, started this debate by saying that whatever sort of maiden speech noble Lords make, they will be congratulated when they have done it. One has to try to find extra words to say, because all noble Lords are anticipating us saying nice words about it. I can say to the noble Lord only this: the making of a maiden speech and being congratulated may be a routine, but there are ways of congratulating people which are different from others. I think back to my maiden speech in the House of Commons, which I suspect was one of the worst speeches that had ever been made. The best that one honourable Member could say about my speech was, "Well, it will read well in Hansard".
The noble Lord's speech was well delivered. We look forward to hearing him many times in the future. The maiden speech of the noble Baroness, Lady Royall, was similarly well delivered. There is one more to come. I am sure that that will be good because I see from the biographical details of the noble Lord, Lord Carter of Coles, that he went to school at Brentwood, to which I went to speak last week. Brentwood has now exceeded Eton as the school at which most people in the House of Commons have been educated. So the noble Lord comes from a powerful political tradition and I look forward to hearing what he has to say.
I have the great honour to be a member of the Economic Affairs Select Committee. I served under the noble Lord, Lord Peston, who has his own special way of chairing the committee, but he is very effective in the results. I said to him on another occasion in the Chamber that the only time he is not effective is when he tries to tell us that he does not understand what is going on. However, he has done an excellent job, not just on this report, but also over many years in chairing the Select Committee and producing many valuable reports. Indeed, one was published just yesterday and was well reviewed in the newspapers. I hope that we may still be able to congratulate him on his work in the future.
However, I was not a member of the committee when it worked on this report and therefore I feel no embarrassment at all in saying what a good report it is. It was universally well received by most serious commentators when it came out. It makes a serious contribution to an important debate. If I may so, it does the House of Lords, as an institution, a great deal of credit that a report like that has been produced by one of its committees.
I do not pretend to have any great expertise in this matter, but I read the report and something struck me—something that most noble Lords have already picked up; that is, the central theme that an ageing population is one of the success stories of our generation. We should be proud of what we have achieved and talk of crisis is wide of the mark. Indeed, as I discovered when I was the chairman of the Royal Commission on the Reform of the House of Lords, the noble Lord, Lord Leitch, has now joined a select band whose expectation of life is three years longer than that of the public generally. The life expectation of Members of this House is three years more than the average, so we will hear the noble Lord a lot more.
The world is richer and more prosperous than it has ever been. If we fail to make adequate provision for the nation's, and increasingly the world's, longevity, it is our fault. The resources are there if we allocate them sensibly.
The Government of the day have a big responsibility, but it is not exclusively theirs: others have a responsibility too. Pension provision is a long-term business, so we should cultivate as much cross-party consensus as we can. Government and Opposition should work together, studying the evidence and trying to find common solutions as far as is possible.
I remember my early days in the House of Commons. A then much respected and now sorely missed honourable Member for Rotherham, Brian O'Malley, who was Minister of State for Pensions and who died far too young, was extremely good at consulting behind the scenes with members of the Opposition and seeking to find common ground on the way forward. I am not sure how much his boss, who was Barbara Castle, knew about his consultations at the time, but as she was my pair for many years, I have not been prepared to say anything critical of her when she was alive and not since. She was a very good friend.
However, we now have a new opportunity for the Secretary of State to find the best way forward. I urge on him the necessity and desirability of discussions to get as much consensus as possible to find a lasting, long-term solution.
As to the substance of the Select Committee's report, it is interesting to see how the Government reacted to one of its most important recommendations, which is set out in Chapter 8; namely, that the Government should investigate the option of providing a decent, non-means-tested, basic citizenship pension based on years of residence rather than on a full contribution record. The Government, in their response, seemed not to criticise the proposal, but to show that by building greater and greater complications into the system they were meeting some of the difficulties of the present arrangements.
However, that is in my view to miss a very important point. The Select Committee's proposal was about simplification. Another point to come out of this debate so far is that most people agree that our present arrangements are far too complicated. I urge the Government to look at the matter again.
Simplification will require a strong Minister and a determined Government. Officials in the department will tell them that there are problems of simplification; many, I suspect, in the name of fairness. The same problems arise over means-tested benefits, where sooner or later the basic state pension will have to be raised and many of the means-tested benefits phased out. Incidentally, similar arguments were used, certainly when I was in the Treasury, about simplifying the tax system. Fairness is, of course, important. But one person's fairness is someone else's unfairness. In the long run a simplified system will benefit us all.
But it is not just the Government who must change; the private sector has its responsibilities. At least in some respects, I would like to see us move away from the present system towards a system whereby an employee has, in effect, a contract with his employer for the provision of a fund for his retirement. Over-estimating future growth projections, thus reducing company contributions to pension funds and the like, must stop.
Lastly, I suspect that employees—nearly all of us—have a part to play. We probably have as a nation put too much of our savings into our houses, which are tax-free, rather than pension provision, where the Government are continuously nibbling away at the tax arrangements. Perhaps I may end on a slightly more controversial note. If I was the Chancellor, I would be looking for ways in which I could provide more incentives for saving—but perhaps that is a debate for another day.
My Lords, I am happy to echo what the noble Lord, Lord Wakeham, said about the report and the standing of the noble Lord, Lord Peston, as chairman of the committee. The report is not only valuable, but the noble Lord's work as chairman on this report was a notable landmark that we respect. When the noble Lord, Lord Peston, talked about his "mission to explain", it demonstrated his attitude throughout our deliberations.
Over the past 50 years there have been two fundamental changes in the way we have come to look at retirement. The first is, of course, the increase in longevity, which owes much to medical treatment as well as to more healthy living. Not only do people live longer, but they are more mentally and physically alert. Like many MPs, I visited centenarians during my period as Member of Parliament for Ashton under Lyne. I remember the first centenarian I visited, in 1965. She was 100 years old and I got nothing out of her at all. She was just a vegetable and the only conversation was me speaking to her and hoping that she heard and understood some of what I said. The last time I spoke to a centenarian was in 2001. On that occasion we had a most stimulating discussion. It was wonderful to hear her speaking of the events of 90-odd years before and what the town and its people were like. There was a steady progression from the first of those centenarians to the last. That demonstrates the changes that we have seen over the years.
That is one change in particular. The other is the difference between the lifestyles of men and women. In a previous generation the role of men with their greater physical strength gave them a great advantage over women, which carried over to many other aspects of life. All that has changed. The advantage of physical strength has diminished greatly in an age where machinery has taken over so many of the functions of muscle. Employment opportunities, too, have shifted to those services which now employ so much more of our labour force. In that regard, women are at no disadvantage at all. The economic disadvantage which women still suffer is due to the time-lag of people coming to terms with the changing situation. There is, of course, also the time that women have to take off work to give birth and for the initial raising of children.
As a result of those changes, the rates of participation in the economy for older men and women are converging. Employment for men between the ages of 50 and 64 is 70 per cent, while for women it is currently 66 per cent, and the difference is becoming narrower all the time. But there are great differences across the country. In Merthyr Tydfil in the same age group 51 per cent of men were out of employment and claiming sickness benefit; and in many parts of the south-east of England there is practically full employment for those who wish to work. That was mentioned in paragraphs 4.24 and 4.25 of this valuable report.
The international comparisons also differ widely. There are almost three times as many men in the 60 to 64 age group who work in Britain than in France. In France only 18 per cent in the 60 to 64 age group actually work. If, however, we were to raise our sex and age working rates to the level of those in Sweden or Denmark, 30 years from now there would be an extra 2 million workers—that is set out in paragraph 4.8. That would make a substantial contribution to the problems that have been debated today regarding financing an ageing population.
There are also the problems of changing jobs and the difficulty of finding new employment. It is hard to re-employ those who have lost their jobs in later life. Perhaps I may refer to question 348 that was asked by the chairman of the committee. He asked:
"Having been in one sort of work, often the old heavy labouring work, sometimes it is difficult for you to cope if you become a shelf stacker in a supermarket, and yet it is perfectly acceptable work, it is just somehow not part of your self image. Do we still have that kind of problem?"
In answer, Mr Brinkley, the chief economist at the TUC, stated:
"It is hard to pin down. I would expect that problem to be there and perhaps even more intensely, for example, if you were an ex-miner or an ex-steelworker, and the jobs are social care or to be nursery nurses, or some other area of expanding demand, and it is almost impossible to make that jump yourself. I do not think many employers would feel very comfortable in employing ex-miners or ex-steelworkers in those sorts of areas, even though they could make a perfectly satisfactory worker there."
That is one of the problems of older people, because they come from sectors which are quite different from those where jobs are available. Ms Anderson, of the CBI, under further examination, was questioned by the chairman regarding new jobs, who stated:
"But they are all jobs that did not require numeracy and literacy."
"I am saying that employers are increasingly demanding their employees to be numerate and literate, and the number of jobs that call for no skills are shrinking. Therefore, once you have entered the unemployment pool—perhaps because your employer offers you a redundancy package that was related to your age and, therefore, more generous to people who have been with the company the longest, therefore the older people—younger people may well have said that was ageist; why would they not get those generous redundancy packages—for those who do not have those skills, it is going to be more difficult for you to re-enter the labour market."
That is the major problem that we observe, with people shifting over the years, as they have done, there will be problems such as those. Adaptation will be one of the problems that confront us. What is to be done?
In paragraph 5.7 of the report we state:
"We recommend that the Government, employer and labour organisations collect information and disseminate "best practice" guidelines on ways in which jobs and workplaces can be redesigned to facilitate the employment of older workers."
That is the problem that we face. How do we handle the difficulties of people being re-trained and getting to grips with the problems of their increasing age?
I now quote from Help the Aged, which has come up with a very valuable book, Older People: Our neglected assets. It states:
"The potential pensions crisis", on which there has been much comment so far today,
"with too many people saving too little to finance a longer period of retirement, will only be averted by a combination of greater pension saving and more years of paid employment".
I repeat: more years of paid employment. It goes on to point out a number of matters that need our further consideration. It states:
"Older adults need access to career guidance. Currently, [a large part of spending on] adult learning is spent on career guidance", but not much of that is for the older person, and that is going to be rather important in the years to come. It continues:
"Older workers are offered training and skills upgrades less often than younger workers".
As people move from manual labour to the service sector in other areas, they are going to need rather more training and skills upgrades.
I want to quote a final point from the Help the Aged report. It states that if older workers face redundancy, it is important to provide them quickly with support and opportunities, as depression, loss of self-esteem and unemployability can become rapidly a permanent feature of their lives. That is the crucial issue. When people change jobs later in life, that provides a proper safeguard for their future. If they do not do that, they decline mentally and physically and in many other ways as well.
One of the big lessons that we must learn from this report is that older people are our neglected assets. The whole report points out that, where there is redundancy, there needs to be quick support, and older people are a valuable and underused resource. I hope that, as a result of this debate and the report, we shall see the implementation of some of the initiatives that have been mentioned so far.
My Lords, I am grateful for the opportunity to address the House for the first time and to thank noble Lords for the warmth of welcome to their House. I also thank the officers and staff for their very discreet and tactful help and encouragement in recent weeks.
The excellent report produced by my noble friend Lord Peston is notable for its wise conclusions and the recommendations that have flowed from it. I was particularly struck by the large and rich body of evidence given. It made wonderful reading. When read in conjunction with the report of the Royal Commission on Long-Term Care of the Elderly and the recent Wanless report, it provides us with a comprehensive analysis of the issues that an ageing population requires us to address.
It is interesting that the statistics on ageing have been extremely well documented, and perhaps sometimes we lay too much emphasis on the problems of growing old. In contrast, a recent MORI survey, conducted, I think, for the Cabinet Office, showed that disability-free old age, with financial security, was the happiest stage of life. Therefore, that points to the fact that the eradication of pensioner poverty must be one of our key aims if happiness is to be delivered.
With Saga offering bungee jumping and skateboarding, we must accept that something is happening out there. Are the 70s the new 50s, as it were, or even the new 40s? We must see the positive aspects of ageing, and I want to look at one or two of those in the areas of activity and community.
Like many of your Lordships, I have had an active life—first in the private sector, creating businesses and employment where they did not exist before, and, latterly, in public service, working to help to resolve, among other things, issues in sport, the correctional services and certain aspects of taxation. For many years, I worked to provide housing, nursing homes and care for the elderly, and I think that I have a little understanding of the front-line issues of ageing. I should also say that I am Chair of Sport England and a member of the board of the Home Office.
From those experiences, I wish to speak, first, about activity and sport. There are sound economic reasons for thinking about activity and exercise. Recent evidence from the United States shows that the lifetime healthcare costs of an active individual are 30 per cent lower than those of an inactive one. It is also notable that the same MORI poll found that sport was one of the most significant factors in sustaining personal happiness in both youth and old age.
By international standards, we do not do well on activity in the UK. In the rest of Europe, and particularly in northern Europe, the rates for activity and sport are significantly higher. In Sweden, for example, 45 per cent of people over the age of 60 are active. It is a little disappointing when we are confronted with a figure for this country of only 12 per cent.
It is easy to be active: it takes two and a half hours out of a week of 168 hours. That is not a lot to give for the prize to be gained. Those of us who have pedometers—a ready stock is available—can watch the steps click up, and I recommend that. If one wants to do just 10,000 steps a day, the benefits, economic and personal, are enormous. Some people are more ambitious and want to do more, and they can go clubbing. I do not mean going to St James's but, like the young, going out in the evening. I have been told— I have not experienced it myself—that young people sometimes dance 90,000 steps in an evening. Perhaps that explains why they are so fit.
It is also interesting that, as is the case with most things today, activity and sport are tending towards the informal and the personal. One challenge that we face is how society now operates on a far more devolved and personalised basis, and I think that sometimes our institutions have not necessarily understood that.
Therefore, I suggest that as a nation we need to take steps to make people aware of the benefits of being active and of making that part of their daily life. After all, when one considers how successful we have been in persuading people not to smoke and the huge benefits that have flowed economically and socially from that, the next step must be to make people more active.
The second area that I want to address is community and volunteering. In what one might feel is a cynical age, it is interesting that the number of people involved in community activity has risen from about 18 million in 2001 to more than 20 million in 2003. It is important that people come forward to volunteer, and the elderly are playing a most critical part in that. They are a big cohort. Among people who come forward to volunteer, the elderly are, after schoolchildren, by far the most significant. That must be encouraged.
As an example of that, it was comforting to hear yesterday about the work of Community Service Volunteers. They have a wonderful scheme in which more than 2,000 people over retirement age work in primary care trusts to help other elderly people to deal with the problems of health and ageing. Perhaps we should support the suggestion of researchers in the Joseph Rowntree Foundation and listen far more to the elderly. We need to understand what they want to give and what they need to receive, rather than have decisions made for them by those who purport to know. Therefore we need to understand much more, but the absence of research on understanding in that area is striking.
I firmly believe that we need to find ways of making all citizens, but particularly the elderly, agents and not clients for change. It is something that people have to do for themselves where they can. After all, in the elderly population, there are significantly more disability-free, capable and active people than not, and that is something to be tapped into. Even those who have disabilities often have the sharpest minds and, in my experience, certainly the clearest opinions. Therefore, we need to give more recognition to volunteering by supporting it, by providing education for it and, above all, by providing rewards in the form of public acclaim.
Those of us who were born immediately after the war have consistently benefited from activity. We have been a lucky generation. We have had active personal lives; we have been in active communities; and we have had governments of whatever persuasion who have been engaged in improving opportunities in education, from which many of us have benefited, in healthcare and in creating an enterprise culture. Would it not now be good to put in something further and give something back, so that the financing of retirement can be put on to a proper footing?
My Lords, we have had three excellent maiden speeches today. It gives me great pleasure to congratulate the noble Lord, Lord Carter of Coles, on his. He has wide experience in some fascinating sectors of business, including healthcare and the environment before that, and in public service and sport. I do not know where the Cabinet Office fits into that. I therefore expected his speech to give great breadth to the subject, and he has not disappointed me at all. I very much look forward to hearing his future speeches and to his involvement in this House. On a personal note, as president of London First, I wish him great success not only in this House, but with the Olympic bid that he is about to submit for London. We insist that he succeed.
I join others in congratulating our chairman, the noble Lord, Lord Peston, on his actions in producing the report. He kept us all very busy. Initially, some of us feared that the subject would be tedious and the report a duplication of a lot of work done, particularly on pensions. In fact, by careful selection of subject matter and expert input, that did not prove the case. I found it an excellent and thought-stimulating process. I certainly learnt that one can go on learning long past the age at which one should be learning; it goes on until death.
The Financial Times said some nice things about our House and the report, including:
"Anyone who doubts the effectiveness of the House of Lords should take a look at this report on the economic increase of increasing longevity. The report bristles with expertise, combining penetrating analysis with robust criticism".
As we are supposed to be non-party, I have left out the part about robust criticism of the Government. Is that all right? The noble Lord, Lord Peston, rightly kept us focused on the economic and social aspects of ageing, rather than on party-political aspects.
The report saw us looking at a high-quality problem—that people are living longer. That is not a problem, but great news, as others have said. The 489 pages of published evidence show how successful Select Committees of this House can be at attracting first-class expert input on the topics that they review. They show that people are very willing to give evidence to this House, because they know that they will get a balanced reaction to what they say.
The House has spent a lot of time in recent weeks on pension legislation, so noble Lords will be delighted to know that I have cut out my next 10 pages. The report makes a lot of very relevant policy recommendations, as has been said. How can we make the whole topic much more understandable to everyone? Should the state pension be on the basis of contributions or more on the basis of citizenship? How can we protect poorer pensioners without destroying lifetime incentives?
We sometimes talk as though our pension problems never existed in the past. That is not true. Today, our pension system is under threat because too few people are saving, society is getting older, state benefits are less generous in real terms than they have been historically, and occupational pensions have been hit by the decline of the equity market and tax changes. However, problems existed in the past. Noble Lords may excuse me for making a personal point, as it illustrates why I am passionate on the subject. I always remember seeing my father's pension slip when, after 51 years on the railways, he retired on £2 a week. It was in the late 1960s, but it was not much even then. He did better than my mother, who had been a part-time bank clerk for 21 years. She was always going to give up work the next week but never quite made it, until retirement. She got no pension at all, because she was part-time.
Those of us involved in pension schemes in the 1960s and 1970s, as trustees or whatever, will know how difficult it was to get the subject on to the agenda. Everyone wanted to talk about next week's pay rise, not about pensions. Fortunately, that has changed dramatically. The class distinction that used to upset me of salaried schemes and hourly paid schemes has also now gone entirely.
One of the tasks of a chief executive or CEO of a public company is to ensure that it has a fair and robust pension scheme. That is much more difficult today than it was in the 1980s and 1990s. I declare an interest as a pensioner, but I am delighted to say that the Grand Metropolitan scheme was very robust when I left it, and is now part of the Diageo scheme, joining up with Guinness, which also had a robust scheme. My pension comes from one of the top 10 schemes in terms of strength in the FTSE 100, so I feel a bit more secure. However, I feel that I earned it, given that I have helped with the scheme over my life.
Three topics surprised me in our deliberations. The first is the size of the dropout from economic employment in the age group from 50 to 65. The report illustrates how that varies significantly across the country. Is it truly to do with disability, or more to do with the decline of our manufacturing industry and the resultant loss of employment opportunity? The economic fallout, for both the individual and the economy as a whole, is quite dramatic. I am therefore encouraged that there is beginning to be a bit more political debate on the subject.
The second surprise was the lack of good analysis that we received on the relationship between age and productivity. Age discrimination legislation is planned, as we know, to relate employment opportunity to productivity rather than age. However, we need to understand the relationship better if we are to get the best out of that new legislation. The prejudice is that the older employee yields less economic return to an employer. Is that true, given the changes that another speaker mentioned, now that added-value manufacturing is not necessarily all about manual work? The same applies to the service sector, which is major. Surely employers' organisations and unions, and perhaps the Government, should be doing much more work on understanding that relationship.
The third surprise worried me. Although we received various attitude surveys and so on, we did not get as much input as I thought that we would on the willingness or desire of people to go on working if they were fit to do so. Someone mentioned, which I did not know, that our average life expectancy was three years longer than those outside; I do not know about the other place. The noble Lord, Lord Carter, mentioned community involvement. Do it and continuing to work give people an interest in life, and make even worse the pension problem by extending their life? I would like to see more work on that.
Our chairman rightly kept us out of politics, but let me mention a few matters. I am delighted that the Conservative Party is, perhaps somewhat belatedly, looking at indexation in terms of earnings rather than of inflation, particularly with inflation at low levels. Should the Government not look to the extent to which they have added to the problems of occupational pension schemes with their tax changes on dividends? Should not all the political parties be much more bold and robust? Should we not actually say, "Of course we have to make the state pension age 70 in 10 years' time"?
Should we look at how much money has been wasted on the disability issue? That is not a criticism of the individual; sometimes it may be, but the problem is the lack of economic opportunity for some of those people. Should we not also be more aggressive on the citizenship approach, even if we are to take a long time to look at the economics and politics of that? Surely we could at least take up our own recommendation for those aged 80 and above? It would cost a mere—it does not sound very much—£3 million to £4 million to cut out means testing for that group and to pay them the guaranteed minimum earnings level. Surely we should do that for our older citizens? I also declare that I may look 80 but that I am not.
I close by thanking the chairman for his leadership, the other members of the committee, our excellent specialist adviser and also those who gave evidence. I enjoyed the opportunity of participating in the committee.
My Lords, I too would like to thank my noble friend Lord Peston and his committee for what I genuinely believe is a very fine report.
I am unlucky enough to be thirteenth to speak today. The classic dilemma in that situation is that everything there is to be said has already been said. I shall not complete the cliché. The only way I can think around that is to have the temerity—and it is temerity—to question one theme of the report in my speech. It is only one; I agree with many of the report's themes.
It really is temerity because my noble friend Lord Peston, some members of his committee, and, indeed, noble Lords who have spoken this afternoon are proper economists and I am a mere dabbler in the dismal science. However, I have had some cause to reflect on the matters covered in the report, both as a member of the board of the Personal Investment Authority for many years, and as a member of the Royal Commission on Long-Term Care of the Elderly, whose report this does not deliberately address. So I do not speak entirely untutored.
In my journalist days I would have put the headline "Crisis: what crisis?" on this report; or, to cite the actual phrase in paragraph 2.1:
"Our society and economy have adjusted readily to both the opportunities and the challenges offered by the ageing of the population over the past century, and there is little reason to believe that adjustment will be less readily achieved in the future".
I find the report a useful corrective to some of the quite wild fears that have been raised. But, on the other hand, I have a concern that it may be a little too complacent. There is a point in economics, as in other matters, where the quantitative becomes qualitative. The particular fear I have was raised in the excellent speech of the noble Lord, Lord Oakeshott. The danger I perceive is a clash between the political and the economic. As the noble Lord, Lord Peston, pointed out, at any one point in time there is only a given pool of resources, and that has to be divided between the working population and the non-working population.
My fear is that the political power of the older population is growing because there are more of them and they are much more likely, as the noble Lord, Lord Oakeshott, demonstrated, to vote than younger people. So they have the political power to make high demands for an improved share of those resources. That is—I cannot resist saying—worsened by an electoral system that means that candidates are very often elected with no more than 35 per cent of the vote. So older people have political power.
Economic power of course lies with the working population. They have to be prepared to forgo income, either through profits of firms or in other ways through taxation and so on, in order to provide those resources. That seems to me to be a potentially dangerous confrontation. Usually when you have a demand for real resources that exceeds the real resources available, you either get inflation if the authorities accommodate that, or you get an unemployment if they struggle against it. I do not say that that will happen, but that it is a genuine concern and one that I think the report perhaps slightly underestimates.
On this matter I would therefore urge that the precautionary principle should apply: we should not dash to do things that are going to make that conflict worse or that will cost a great deal of money without being sure we know where we are going because the conflict will get a great deal worse from 2020 when the demographics shift and the rise in the number of elderly gets sharper.
Noble Lords who are aficionados of debates on the elderly will know what is coming next. One of the great political demands—and it comes from the Benches opposite—is for free long-term care of the elderly, which was the recommendation of the majority of the Royal Commission on Long-term Care of the Elderly, although myself and the noble Lord, Lord Joffe, signed a minority report explaining what was wrong with it.
We now begin to see what is wrong with that because in Scotland—for political reasons and contrary to the views of most of the Scots political class who investigated the matter—free long-term care of the elderly came in a year ago. It is very unattractive to say "I told you so", but in this case I cannot resist it—"I told you so, those Scots". Precisely what those of us who are sceptical of this policy said would happen has happened. That is to say, the total budget for free long-term care in Scotland was exhausted in nine months. In order to pay for free care for the better off, which is what the policy provides, the Scots are slashing services which support those in trouble, particularly the worst off—a reverse distribution of income; and, "We ain't seen nothing yet". When you look, as you need to, at the developing costs of long-term care, I would commend the remarkable report recently produced by the Rowntree Foundation, by Rafael—I am sorry, I nearly called him Wittgenstein, but he did not say,
"Whereof one cannot speak, thereof one must be silent".
I refer to the brilliant, brilliant report by Rafael Wittenberg at the LSE, which shows how much this provision will cost in future; how great the peril is that it will cost many times what is normally regarded as the cost; and the fact that all of it goes to help the best off third of the population. So that is an application of the precautionary principle. I think that we should look very charily at this particular policy despite the political pressure behind it.
I go a little further; I would also apply the precautionary principle to some of the things that have been said today about the basic state pension. Of course I understand the dislike of means testing; and of course in this House there is good sympathy for a better basic pension because we will benefit from it, and few of us will benefit from the means tested additions. I recognise the problems of incentives to savings and so on. These are difficult issues. But I think that the other side deserves to be put. If we go down the present path we are storing up a very large claim on real resources in the future. We would increase the basic pension—that is claim number one on future real resources—and we would therefore, we hope, cause people to save more. They will expect later on to get a return on those savings, and that is a second claim on real resources.
I am not saying that we should not do that, but that we should be jolly cautious about doing it. I think that in the long term there may be problems, both with people finding it very hard to collect the taxes necessary to pay for the state part of the pension and because of collective resistance to the levels of profit and so on that would be required to provide those returns on savings. Again, I would say that the demographics of this will get substantially worse from 2020 onwards.
To conclude, there are many remedies to the coming problems in this report with which I have immense sympathy, and on which the Government must do more, in terms of helping people to stay in work up to retirement age, changing careers and staying on beyond retirement age. All that is very wise. It increases the pool of real resources from which these demands can be met.
I am much more worried about those remedies that require additions to the resources going to the elderly from ever larger slices from a national cake without at the same time increasing the size of the cake. Giving the money means quick popularity, but that will not be worth it if it is at the expense of the long-term prosperity of our pensions, which we all want to see increased because that eventually and ultimately depends on the long-term prosperity of the country.
My Lords, being the fourteenth speaker is slightly worse than being the thirteenth. Therefore, I have decided to be as radical as I can, as that is the only way to stay awake—I mean me not noble Lords.
The report is excellent and we have heard excellent speeches, especially the three excellent maiden speeches. There is nothing in the report that I did not expect. It is a convention report, written very well, and it makes very well made conventional suggestions. However, to me the problem is two-fold. First, most long-term calculations made in social sciences are invariably wrong, and they are wrong within a generation. The noble Lord, Lord Fowler, gave a very good illustration of that. At one stage, we all thought of early retirement as the norm and we also thought that the UK private pensions were so fantastic that the Europeans should be jealous of us as we had solved all the problems. Lo and behold, 15 years later, within my lifetime, we have a crisis.
We have to be careful of taking such predictions literally and especially—I agree with the noble Lord, Lord Lipsey—of making commitments that are irreversible because we believe that times will be good. When we are flush with money, we spend it now and make commitments and regret it later on. I can understand why my right honourable friend the Chancellor is cautious. It has nothing to do with party political standing. All Chancellors have to be cautious because if they are not they will do much more damage.
The problem is managing disappointment. I do not believe that that has been said yet. The people born in the first third of the last century had hard lives; they had war, depression and so on, but society was committed to providing them with a good pension. We forget how recent is the concept of pensions—a phenomenon on which people can rely, Lloyd George notwithstanding. Expecting to receive good pensions is mainly a post-Second World War phenomenon. I believe that those good days are over and ended about 10 or 15 years ago.
We still think as though we can go on making those kinds of promises to people. Having worked in the public sector, where pensions are guaranteed, I am one of the lucky ones—but one of the last lucky ones. People born after me will not have it as good. Our dilemma is how to tell them, "Look fellows, sorry, we have had a good time but you will not have a good time". For the people in between—people in their mid-40s and onwards—the situation will be worse. They have every right to have good expectations of the state system or the private system but both will fail them.
Younger people, those in their 20s and 30s, have plenty of early warning. If they still think that they will receive a pension they are stupid. We cannot allow for stupidity. They will not receive a good pension. How will they manage—through private savings or working longer, or frugal habits or whatever—is their business. Society will not be able to provide them with the kind of pensions with which it has provided my generation. That is the stark truth. No one is willing to say that.
Peter Lilley made an attempt in the dying days of the Major administration. I believe that in April 1997 a White Paper was published by Peter Lilley. It was a major, foolhardy act, but quite brave. That report more or less said, "Look, we have a generation who will lose out completely", and they are the people who are about to retire in the next 10 or 15 years. In future, people will have to be told during their employment, "Save or perish, we will not take care of you". That is the stark reality.
If that is the situation, we have to see what kind of bandage the state can apply to prevent utter poverty in old age. That is what we are really talking about. We are not talking about pensions in the sense of good, steady income in retirement which should afford good consumer standards if people have not saved. People fall back on the state pension because they believe that the state will not go bankrupt and the state will always be there to provide the money.
What has happened? Due to globalisation and many other changes, the kind of guarantees that the state could give to a generation in the good old Keynesian days, with tax revenue flowing in, expenditure under control and money to spare, are no longer possible. Generally, one observes the crisis of the welfare state, of which this is just a part. We have to face the fact that the welfare state was a great thing—we all had fun with it—but I do not believe that it is sustainable.
It is not a matter of how good an old Labour government we get, or how good the principles of the next Prime Minister or the Prime Minister after that are; it is a problem that the welfare state was good only when we had what I call capitalism in one country. The state had control over the economy, we were developed economies, we had good growth and very little international competition. Our manufacturing industry has disappeared and even our highly skilled service industry is going to face a lot of competition.
Richness cannot be taken for granted any longer. Outsourcing it is the first part. If we are true internationalists we ought to welcome outsourcing, as I do. Given that, we have to try very hard to continue to compete globally. This is where I ultimately agree with the projection of 2 per cent growth per annum for the next 50 years and all that. I have no reason to believe that that will happen. The Chinese and the Indians could take away all industry and live happily ever after.
We have to be much more cautious. I agree with the noble Lord, Lord Lipsey, that we have to be much more careful about projecting a prosperous future because prosperity may not be possible at the rate at which it occurred in the past 50 years. We simply have to look at the history before 1939 to know that there was quite a lot of poverty in this country. Annual growth was not taken for granted.
In an excellent maiden speech my noble friend Lord Carter said that volunteering should be encouraged. That is quite right. He also mentioned the CSV scheme, whereby people in their 60s and 70s could help people who are older than themselves. There is a great deal to be said for such a scheme. We ought to make caring slightly better paid than it is and we should utilise one resource that the elderly have, compared with those in mid-life; that is, plenty of time. Perhaps we could harness the time of the old to take care of even older people in a voluntary way, with some guarantees that when they get older they will be taken care of.
The problem of finding work for people of a certain age should not be that acute, because there is work to do. The difficulty is finding paid work. Much unpaid work needs to be done but we cannot find the people to do it. The idea would be to harness old people's time to take care of older people with the guarantee that that will happen to them when they get older. That is one way of overcoming some of the problems of healthcare and taking care of the elderly and at the same time keeping people employed and, therefore, healthy.
My Lords, following the significant debate last Wednesday, which highlighted the casual approach given to Select Committee reports, it is interesting to note that this report was printed exactly one year and one week ago. To say that that has been somewhat dispiriting to the members of the Select Committee is a masterful understatement. However, the quality of this debate has, up to a point, made some of the waiting worth while.
Now I am going to be dispiriting to the noble Lord, Lord Desai, by being insufficiently radical, but I must ask whether it is wise to attempt to be utterly radical in such an area, where being radical could be very risky. We must consider that it impinges on the life of every person in the country. Incidentally, later in his very provoking speech, the noble Lord said that we also had to be careful. I have a problem with juggling those two: being radical and being careful.
Our chairman, the redoubtable noble Lord, Lord Peston, spoke last Wednesday about our frustration, but that is behind us and today we have the opportunity to debate this interesting, helpful, informative report, which reflects serious concerns about aspects of the ageing population. Custom and practice dictate that we congratulate the chairman on his skilful chairmanship and tremendous output. The one thing that our chairman is not is a follower of custom and practice. Neither would he expect his fellow committee members to be such, especially one who has been with him right from the first day he became a member of the committee that preceded this one, namely the Select Committee on the Monetary Policy Committee of the Bank of England.
I must say that sitting on his committee was an utterly unforgettable experience. The noble Lord, Lord Peston, guided us; sometimes, we managed to guide him. He goaded us; sometimes, we attempted to goad him. He lectured us on his pet theories of unreconstructed Keynesian economics, and it was never dull, except when the compulsory comments about football had to be made—always, I must admit, with a neat twist of relevance to the subject in hand. The noble Lord's contribution and output were prodigious, and the report bears witness to both. It truly was a pleasure to serve on his committee, and we all owe him a debt of great gratitude, not only to him, but to our specialist adviser and our various Clerks.
Noble Lords who have read the report will realise that it is a substantial work, as has been mentioned several times. The content, evidence and recommendations should be studied seriously by anyone who has any interest in the subject. All of us here have such an interest, and I am sure that many hundreds of Members of your Lordships' House also have such an interest. I hope that at the end of this debate, people will read Hansard and go to get a copy to peruse it.
The area on which I want to dwell is the section entitled, "Opportunities for private provision for retirement", on page 53 of volume 1. Sadly, provision for one's old age is last on the list of priorities for young people starting out on their career. Any godmotherly advice that I have tried to give has been rewarded by a sad smile and a shake of the head. One can almost hear the thoughts mirrored in the facial expression, which says, "Poor old dear. Life is for living. I shall deal with that when I am 50 or 60". Part of the problem is that, to the young, lives seem eternal, so why deal with something so complicated, incomprehensible and for which there is no text messaging language?
As the noble Lord, Lord Leitch, said in an excellent maiden speech, more people must be encouraged and enabled to save more. We were all reluctant to throw more and more recommendations in the Government's direction, but it is in our long-term interest, not only that of the Government, that people should be aware of the paramount necessity for all citizens to provide for their old age. The committee considered that the situation could be helped by the promotion of a voluntary savings regime, among other ways. In a splendid speech, the noble Lord, Lord Oakeshott, who has all the advantage of expertise, mentioned the National Savings pension bond.
Section 9.12 of the report states that there are certain prerequisites for a voluntary savings regime to succeed. We have had rather a long time since publication to mull over that and other aspects of our report, and I think that we may have missed a minor trick by not considering the fact that financial literacy is almost non-existent when most of our young people leave the educational system. Is there any place where that could be rectified—I look directly at the Minister—in the curriculum for mathematics, or, indeed, in the citizenship part of the national curriculum? That is fundamentally important.
The committee believed that the level of information available to those wanting to get involved in a voluntary savings regime was inadequate. There was inadequate access to appropriate savings instruments and the ability to make,
"coherent and consistent long-term financial plans" and to,
"adhere to such plans once made", did not apply to a sufficient degree to meet the necessary expansion of private pension savings in the United Kingdom. A voluntary savings regime is surely something that should be encouraged—and from an early age. There have been moves in that direction, but much more needs to be done.
With the changed demographics, people living longer and not much, if any, reduction in people's wants and needs, the provision for our old-age should be a significant factor in every person's spending pattern from an early age. One of the most chilling statements made by a witness was that of Mr Bowie, a senior partner of Hymans Robertson, who said at paragraph 948 on page 349 of the evidence:
"From a practical point of view, the issue there is that most employees have no concept of how valuable their pension is".
That attitude seems scarcely credible when one considers how in the years between 1971 and 2051—we are almost halfway through that period—the number of pensioners will increase by 40 per cent, as shown by the table on page 11 of volume 1. Does everyone think that the Government will bail them out, if they do not make adequate pension provision? Maybe the Government would wish to do so and will probably have to do so, but at what price in impact on gross domestic product and the imposition of higher and higher taxes?
Recommendations 11.33 to 11.37 inclusive all ask the Government to do something. I know that that is the normal reflex action when apparently insurmountable problems present themselves. However, all those recommendations are eminently sensible and on a quick calculation I believe that they would not involve great expenditure. The cost/benefit analysis would almost certainly show a win/win situation.
The first three of that group of recommendations deal with information and simplification. It must be a good idea to include information on the value of employer pension contributions on payslips, and surely it is an equally good idea to encourage the delivery of more financial advice to individuals via the workplace. Inevitably, it is not simple. Sadly, the more that we legislate to protect the consumer and to prevent malpractice, the more complicated and apparently less accessible the products of the financial services industry seem to become.
As recommendation 11.34 points out, the delivery of financial advice via the workplace is significantly frustrated by the Government's policy of ensuring that financial advice is provided according to the FSA rules. To attempt to remedy that, recommendation 11.35 recommends that both the Government and the FSA should seek to resolve the conflict and to make it easier, "without lowering standards". I specifically draw your Lordships' attention to recommendation 11.36, which bears citing in its entirety. It states:
"We believe there is a role for Government in providing a simple, secured and guaranteed long-term savings instrument which can be used by lower-income individuals who do not wish to expose themselves to the cost and risks involved in purchasing a commercial pension product. The Government should provide such a product in the form of a pensions bond with a real rate of return linked to the economy-wide growth rate and administered by National Savings".
That reinforces the point made by the noble Lord, Lord Oakeshott.
By their very nature, debates such as this can only skim the surface of the work that has gone in to the report. Similarly, I have only homed in on a very small part of this magnum opus, albeit a part which seems to me to have the potential to go a long way to meet the desire to change attitudes towards the need to make financial provision for retirement years.
The whole report contains much that is extremely valuable, and I hope that, following this debate, the readership of the report will be extended both in your Lordships' House and elsewhere. Such a result would certainly encourage greater knowledge and appreciation of the problems involved in the economics of ageing.
My Lords, I congratulate the committee on this stimulating debate, exactly one year since it produced its report—surely that must be a record. I will be corrected if that is wrong, but I would like to find out if a report has ever been debated more than a year after it was published.
We are in debt to the three excellent maiden speakers. I welcome the arrival of my noble friend Lady Royall with her European experience, an area very close to my heart. I am a strong advocate of the European Union and the constitution. I shall certainly march shoulder to shoulder with her to get a "Yes" vote in 18 months' time.
The involvement of the European Commission in the directive on anti-discrimination legislation will give us a powerful framework in which the debate can take place over the coming year, alongside the final report of the Turner commission to be published next October or November. A complex and interesting agenda arises out of the anti-discrimination debate, about which I wish to make a couple of points.
I put myself in the "provisional alarmist" camp. The fertility rate is now 1.7. Actuaries have failed to get it right in recent years. In 1981, they said that longevity for men at 65 was 14.8 years but now it is 19 years. They got it wrong by a third, which is not insignificant. The baby boom has now hit us with a vengeance with the conclusion that 9 per cent of our national income is spent on pensions while it needs to increase to 14 per cent. That constitutes a gap of 5 per cent—mind the gap. A gap of 1 per cent of the national income of £1.5 trillion would be bad enough, but a 5 per cent gap represents £60 billion a year. Imagine Gordon Brown finding that amount, if it were to be met by the state.
In fact, we must mind two gaps. The second gap, to which I shall return, is the report's analysis of the logic of inequality of original income, which is not very strong. I welcome the remarks of my noble friend Lord Sheldon about the problems of individuals in poverty, and, in some respects, changing expectations of life over the previous generation. However, although we have just stabilised the alarming growth in inequality over 20 years, inequality is still a huge problem. The difficulty of fundamental inequality of original income reminds me of an observation on the Crossman report, which was published some years ago. It was said that Crossman was trying to redress the balance of inequality of original income in his pension scheme and that you cannot do that. Society sometimes wants to do it, but we cannot unless we start to get a little more Scandinavian-style equality of income. That is perfectly compatible with economic growth; indeed, the Scandinavians generally do well economically.
The attitude of employers has been mentioned. A possible criticism of the report is that it does not really understand the depths of the dilemma of default retirement age for employers. As a trade union official I would take a slightly different view in that I would be keen to query, as the report does, default retirement age. But for employers it is all about unfair dismissal. I do not think that the authors of the report understood the issue. Paragraph 6.38 of the report mentions clearly that many employment law protections change at retirement age, and the dilemma of many employers is that the more they take a lead in employing more older workers, the more they worry about how to say goodbye to them if there is not a default retirement age. I do not know the answer. I know the answer towards which I would tend, but we must not make sweeping statements without understanding the kernel of the problem.
Another related problem has appeared much in the newspapers in the past few weeks: incapacity benefit. As Jeannie Drake, the trade union member of the Equal Opportunities Commission and the Turner Commission said:
"An increase of state pension age could lead to many older people seeking other benefits instead".
I agree with all that my noble friend Lord Leitch and others have said; we want to get more people into work and so on. But why are those people on incapacity benefit? The noble Lord, Lord Sheldon, and others have given reasons for that. However, I disagree with the noble Lord, Lord Wakeham, in that it is not possible to say, as if we were talking about motherhood and apple pie, "Raise the state pension age, and while you are at it, phase out means testing". You cannot say it just like that, or they go in opposite directions. The more we raise the state pension age, the more others will seek means-tested benefits at that age. That question must be addressed because, if the state pension age were raised, statistically more people could claim incapacity benefit.
All the polls show 70 per cent support for compulsion. Adair Turner gave some very interesting reasons for that. It is the second main area where I disagree with the thrust of the support. Why compulsion? The reasons given by Adair Turner are powerful: people are not confident in the offers that they are made; they find the system very complex; yet they worry that they will not overcome the barriers to a so-called voluntarist solution. Adair Turner says:
"Unless new government initiatives can change behaviour, it is unlikely that the present voluntary system combined with the present state system, will solve the problems we face".
I say "Hear, hear" to that.
I should like to remind noble Lords of some of the arithmetic of Adair Turner, which updates what my noble friend Lord Peston has done. Adair Turner refers to the fallacy of the pure play approaches. We could take the four approaches to filling the gap, which are pensioners becoming relatively poorer, state spending shooting up, pension savings going up and the average retirement age going up. But the numbers are impossible.
Perhaps I may remind noble Lords of what the outcomes would be. First, pensioners would become 30 per cent poorer relative to average earnings; so we say "No" to that. The second solution—or non-solution—would be to raise state spending by 5 per cent of gross national product; we say "No", we cannot do that. The third solution, on its own, would be for pension savings to double. How will we do that? So we say "No" to that. The fourth solution may be for the average retirement age to increase; that is not a default retirement age but an actual achieved retirement age, which at the moment is 63 years old. I do not think that I have heard it mentioned today, but, interestingly, we have now stopped the rot—if it is a rot—of a lower retirement age, which has now just about stabilised at 63 years old. But it would have to go up quickly to the age of 70. So we say "No" to that because we are dealing with human beings. There is no way that that can happen in the short term, so there has to be a combination.
We have to ensure that we have the right balance of the three ways forward. First, there must be a revitalisation of the voluntary system. Secondly, there must be changes in the state system. Thirdly, there must be a greater degree of compulsion than that which is inherent within the existing state second pension contracting-out arrangements.
It is correct to say that we have now to define, as the noble Lord, Lord Fowler, said, what we mean by compulsion. I would mean by it an obligation on employers and employees. The real focus now therefore is on the type of minimum terms of default scheme we bring forward in the next year after the election, as Adair Turner has said. I think that this has now become a very exciting agenda for the next 18 months.
My Lords, the importance of the debate has been shown by the fact that 19 speakers have put their name down to take part in a Friday debate. Those 19 speeches have included three maiden speeches based on highly qualified knowledge of the issues. There were nearly 70 Members present at the opening of the debate. Something like half that number have stayed for the final stages. Clearly, it is a matter of great concern and importance to your Lordships' House, as it is to the country as a whole.
I speak as a current member of the Economic Affairs Select Committee, but one who was not a member when this report was published. I can therefore say that it is a valuable and important report without feeling that I am patting myself on the back. I have a particular interest in pensions issues. In the course of my practice as a barrister, I had some experience of issues concerning private sector pension funds. I was one of the predecessors of my noble friend Lord Oakeshott as the party spokesman in your Lordships' House on pension issues.
This report precedes the Turner report by nearly a year, but the two reports plainly reinforce each other. The position is not yet critical, but it is undoubtedly much more serious than was foreseen only a few years ago. A combination of the Chancellor of the Exchequer's raid on pension fund income and a sharp fall in the stock market has impoverished pension schemes.
In turn, that has led to many companies either closing their schemes—wholly or to new entrants—or switching from defined benefit to defined contribution schemes, usually with a reduced employer's contribution. It is plainly time for reform of the system.
I have two comments, which I would say are queries rather than criticisms, of the report's treatment of pensions. First, Chapter 8, in paragraphs 10 and 11, proposes that the basic state pension should be paid on the basis of citizenship, not of a contribution record. What is meant by "citizenship"? The normal meaning of citizenship is nationality. I do not think that the report can mean that because that would be unfair to many people, including, for example, my late father who, although he was American by birth and never took British nationality, in fact spent almost the whole of his working life working in England. If based on nationality, it would, I think, also be unlawful discrimination under European Union law.
I assume that in fact what is meant here is residence; presumably, residence as an adult below retirement age. That ambiguity is a little unfortunate. I agree however that it is a good idea to get rid of contribution records; both because of women's difficulties in getting full contribution records, as was pointed out by my noble friend Lady Sharp and other speakers, and the saving from not having to keep detailed contribution records.
The second thing that might be regarded, I think, as a shortcoming in the report is the fact that it does not discuss pensions for the self-employed. They would of course get the same basic state pension as others, but they would have no access to company schemes. In recent years, there has of course been a great increase in the number of self-employed workers. That is no problem for professionals—for highly paid lawyers or accountants—but there are now many low and moderate earners who are in fact self-employed. In large part, that is because it is tax efficient for a business to use self-employed people in place of employees. It relieves it of the need to pay employer's national insurance contributions and any obligation to provide a pension scheme. It is not at all clear to me how an adequately funded pension scheme can be provided for lower-paid people in self-employment.
I am uncertain about the possibility of increasing the retirement age, as advocated today, for example, by the noble Lord, Lord MacGregor. Workers are perhaps broadly divided into two groups: those with boring and undemanding jobs who want to retire as soon as possible and those with interesting jobs who want to go on working into their late 60s and early 70s.
I am reluctant to force people who dislike their job to go on doing it after they have reached the age of 65. Anyway, as the noble Lord, Lord Lea of Crondall, pointed out, most of them, if the age were increased to more than 65 years old, would be likely to go on to incapacity benefit or some other form of means-tested benefit.
For those who want to go on working, adoption of the EU directives barring age discrimination in employment will make it easier to do so. I certainly join the noble Baronesses, Lady Greengross and Lady Royall, in welcoming that. But we will need to change the culture of employers. We will also need to provide more opportunities for older people to move into less demanding or part-time jobs—at no doubt a lower salary—for the last few years of their employment if that is what they want to do or if they are no longer capable of doing the high-pressure jobs that they were doing.
There is room for some kind of compromise. We need an incentive for people to stay in work beyond the age of 65. It may therefore be appropriate that the basic state pension should be lower for those between the ages of 65 and 70 than for those over the age of 70. That might encourage people to move to lower paid work at 65 and not retire fully until 70. The corollary of course would be that people who retire before 70 and have no other income would still have to claim means-tested benefits up to the age of 70, but I would regard that as acceptable as part of the compromise.
I warmly welcome many of the recommendations in this report. First, it seems appropriate that the basic pension should be increased to the level at which there is no longer a need to rely on means-tested benefits, and for that pension to be linked to increases in earnings rather than prices. The report suggests that initially this should be limited to pensioners over the age of 80. I think that that is perhaps too modest and I would prefer initially to include those over the age 75, beyond which very few would remain in employment, and in due course possibly bring it down to the age of 70.
I do not agree with the noble Lord, Lord Lipsey, on this in that I think that the cost of going over to a basic pension of that kind is acceptable because we would save quite a large proportion of that cost from the end of the pension credit and of the state second pension. That is especially so if full basic pensions are limited to older pensioners, who are already more likely to have to fall back on the pension credit because funded pensions cannot provide increases in line with earnings.
Secondly, I strongly support the idea that the system should be simplified. Unquestionably, it needs radical simplification by, among other things, ending the state second pension and the possibility of opting out from it. Thirdly, I welcome the proposal that the Government should oversee the provision of simple, cheap and secure private pensions through National Savings for those with smaller incomes on the lines suggested by my noble friend Lord Oakeshott.
On compulsory pension contributions, I have to say that my views are rather more in favour than are those reflected in the report. The argument for compulsory pensions has been strengthened by the Turner report. It is clear that basic state pensions are never going to be more than basic, and personally—although I accept that in saying this I go beyond my party's current position on pensions—I believe that it is in the public interest that people should be required to contribute a proportion of their earnings to a pension scheme and that employers should be required also to contribute to their own pension fund or to an employee's personal pension.
Again, we would need to look at the obligations of the self-employed. The compulsory scheme seems to have got off to a good start in Australia, while polls taken in this country show a possibly surprising degree of popular support. But it will create difficulties for young people who may find themselves having to pay contributions to a pension at the same time as they are paying off tuition fees and starting mortgage repayments on their first home. It is very important that pension contributions are started early because of the effect of the accumulation of income over a longer period of time. So it may well be that compulsory personal pensions could be introduced only alongside the abolition or, at any rate, the substantial reduction of tuition fees and the obligation to repay them.
Pension issues have become more and more important over recent years, as has the related question of ending age discrimination against older people able and willing to continue in work. It is encouraging that today's debate has reflected a high level of consensus about both of these problems and the possible solutions to them. This report makes an extremely valuable contribution to the reconstruction of the pension system, which is now clearly necessary.
My Lords, the House will be grateful to the noble Lord, Lord Peston, and his committee for this very comprehensive report on the economics of ageing. Not only this House but, to judge from their response, the Government also appreciate their efforts. Like my noble friend Lady O'Cathain, I am sorry that the noble Lord, Lord Desai, felt it necessary to pour a certain amount of cold water on the report. I agree with him, however, that the advantage of a debate such as this does allow for what the noble Baroness, Lady Hollis, insists on calling "blue sky thinking". She has used that expression an awful lot lately.
The success of the report can be measured by the number of noble Lords who are not members of the committee but who have spoken today. The noble Lord, Lord Peston, must be gratified that no fewer than three new entrants to your Lordships' House have introduced themselves for the first time today. It was a pleasure for all of us to listen to the noble Lord, Lord Leitch, with his financial background, the noble Lord, Lord Carter of Coles, who spoke of his history in the health and sporting fields, and the noble Baroness, Lady Royall, who when I was preparing these words I was not sure exactly where she would come from. I am delighted that she was able to talk of the dignity bestowed by being in work. Given the high standard of speeches made by all three of today's maiden speakers, I hope that we shall hear from them again soon. But if we are to keep to the recommended daily finishing times, perhaps not too often.
The noble Lord, Lord Peston, along with my noble friend Lord Wakeham, might be interested to know that the average age of today's speakers is 64.84 years, thus verging on the current state pension age which so many of today's speakers have centred on. That said, I start with two propositions. First, to have a successful third age, a person needs health, wealth and mental agility. Secondly, the proper role of the state is to provide a basic platform of security, not necessarily the state itself, but to ensure that suitable conditions are in place in both the public and private sectors to achieve those objectives while also ensuring that, to play its part in the bargain, the taxpayer's pocket should be raided as little as possible. What we have seen since 1979 is that while tax levels have risen, people's choice of purchases—whether in spending or saving—has gone down, the latter dramatically.
It is the Government's duty to ensure that people have sufficient long-term savings to see them through to their death, and it is the Government's duty to underpin that through a compulsory and mainly contributory state pension which should provide a minimum living allowance. The current pension does not do that, and that is why the Government have done two things.
The first was to invent a successor to SERPS, which is the state second pension. The other is pension credit, which brings the basic pension up to the level currently required. The Minister is used to putting the best gloss she can on take-up, but the fact is that only 3.13 million of the 5.1 million eligible pensioners are receiving what they are due. Moreover, it is so roundly despised by charities working in the field and by many noble Lords on all sides of the House, that the Government are getting cold feet and are now talking about it having a "limited life". Indeed, the Secretary of State said so only the other day. As my noble friend Lord Sheppard of Didgemere said, my party recognised its limitations some time ago but, rather than abandoning it altogether—as we have been inaccurately accused of doing by the Prime Minister, no less—we plan when elected to raise the basic level of the state pension in line with earnings rather than prices, thus over time floating people off pension credit. How the noble Lord, Lord Lea, could have said and believed the opposite totally defeats me.
Be that as it may, the basic state pension is just that—basic. For an economically comfortable ageing population more is needed. Currently, according to the Turner report, 11.3 million people are not making any contributions to a non-state pension scheme. This week's report from the Association of British Insurers shows that only 42 per cent of people believe they should take main responsibility for retirement income. The Government must increase this figure substantially, not least because, since 1996–97, the percentage of average income the state pension has represented has fallen from 35 per cent to 30 per cent. Today the average basic state pension is only 20 per cent of average earnings. Without extra income from somewhere a person will take a massive drop in income on retirement.
I should tell the noble Lord, Lord Oakeshott, that I am not a total believer in a citizens' pension per se. I much prefer the idea of a lifetime savings scheme. My noble friend Lord Fowler and the noble Lord, Lord Goodhart, have come to believe that a compulsory work-based pension is the only way out of this conundrum. I note that my noble friend Lord MacGregor has now added his name to this list.
Indeed, my noble friend Lord Fowler said so back in July on Second Reading of the Pensions Bill. I am not yet prepared to follow him as I believe that compulsion should happen only as a last resort. In a phrase, it goes against the grain of my particular brand of conservatism. A great deal can be done before it becomes the only option. People currently mistrust occupational pensions. I believe that when the Government's pension protection fund is up and running it will do a great deal to cure that mistrust—but not until the first payments have been made.
We also know that many more people join occupational schemes when there is an employer contribution. I was pleased to learn that since the Stroke Association moved to a dual contributory scheme of this nature only two years ago, the take-up by staff has more than doubled.
I noted particularly the words of the noble Baroness, Lady Sharp, on the subject of volunteers in charitable work. There is a problem—I do not know whether she or other noble Lords have come across it—in that it is very difficult to insure them once they are over the age of 80. This is part of the endemic nature of ageism, which I shall come to in a moment.
The Government of course have a role to play. Currently, because of the Financial Services Act rules, firms are banned from promoting their own pension schemes, however good they may be. I am told that Treasury Ministers are looking into this aspect of the matter. The sooner they resolve it the better. Certainly there is no apparent reason why there should not be a presumption that an employee joins the firm's scheme at the beginning of his employment. Indeed, I understand that some enlightened employers are thinking along these lines, although obviously there must be an opportunity for an opt-out to another scheme, which may or may not be a personal pension scheme.
Not surprisingly, we have heard quite a lot recently about the withdrawal of tax credit, with the resultant £5 billion a year increase in the Treasury's disposable funds. I was particularly struck by the reference to this of the noble Lord, Lord Leitch. In responding to this criticism on the Second Reading of the Pensions Bill, the Minister said,
"pension funds are not taxpayers and I do not see why there should be an additional notional tax paid refund on top when pensions are already heavily tax privileged on the way in and on the way out compared to all other forms of savings".—[Hansard, 10/6/04; col. 438.]
The noble Baroness is right as far as it goes, but she failed to acknowledge that the recipients of pension schemes are taxpayers. Therefore it is not quite so bad on the way out as she implied.
She also failed to address another point in the same debate—that is that not only has this damaged pension funds but it has also damaged the value of stocks and shares in the stock market. Its net effect, therefore, is a double whammy on pension funds.
Tempting as it is following my four-month seminar on pensions with the Minister and other noble Lords to spend all my allotted time on this issue, I must not do so; there is so much more in the Select Committee's report that I must move on.
The most recent report of the Government Actuary's Department shows that by 2050, the average age of men will be 82.4 at death. The figure for women will be 86.2. Given the current retirement age for men of 65 and for women of 60—although this will change in 2010 to 65, when, incidentally, the figures will be 78 and 82.1 respectively—unless people can be persuaded to work longer, they will have at least seventeen and a half years in retirement. Small wonder, then, that successive governments have encouraged people to continue working beyond the state retirement age by paying enhanced pensions.
The latest twist to this is for the Government, rather than paying an increased weekly rate, to offer a lump sum which they say could, over five years, amount to somewhere between £30,000 and £40,000. This policy is directly opposite to raising the retirement age. The Government are, in fact, asking people to take a gamble on living as long as the average when, by definition, many people will not. Even if they do take up this bribe, the Government are being schizophrenic as, at the same time as asking people to work longer, they still have compulsory retirement ages set at a low level in great chunks of the public sector, as the report points out in Chapter 6.
Only the other day, I heard of the case of a perfectly healthy, capable court usher who had to retire at the age of 65, when she could easily have continued for several more years. As for the principal Civil Service, retirement ages of 50 are not unheard of. The Minister should justify each and every one of these. We all know about government waste, in all sorts of areas, but to waste training and experience is a crime of the first order. Ageism anywhere is wrong, and I commend supermarket chains, such as B&Q, for employing older people. I agree with the noble Lord, Lord Sheldon, and, on this occasion, the noble Lord, Lord Lea, that employing people made redundant is as much a psychological block for employers as it is for employees.
Given that over the 50 years from 2000 to 2050 the 65-plus age group will have expanded to 24.4 per cent of the total UK population, one might have thought that immigrant workers would make up the necessary shortfall in the labour market and in tax and national insurance receipts. I was therefore interested to note the Committee's conclusion that it is neither appropriate nor feasible to expect that this will be more than a partial solution.
What is appropriate is a continued drive to improve the health of the nation. Clearly, we are heading in the right direction, with cures for previously untreatable illnesses coming to fruition on a regular basis. My daughter, for example, is working at the forefront of cancer research—appropriate, noble Lords may think, given the environment in which she was brought up. She tells me that it is quite possible that alphastatin will come through all its tests and come to market within 10 years. Alphastatin shows signs of working with all cancers. However, the Government's current preoccupation is with smoking but, I am afraid, at the wrong end. Given that nicotine is an addictive drug, the trick is to persuade people not to start, rather than spending energy and money on persuading them to give up. I accept that the Government have had some success in this respect, but they have had very little, if any, at the starting end.
Neither are the Government doing so well with sexual diseases, which are rising at an alarming rate. The noble Baroness, Lady Greengross, mentioned obesity. Sexual diseases have two effects: AIDS can cause death at a young or comparatively young age; and sexual diseases can often lead to barrenness in women, which does not help the situation one little bit.
Body repairs, too, are improving. Fifty years ago, hip operations did not exist, and 20 years ago, knee repairs were in their infancy. No wonder people reach old age more healthily than they ever have, and this is a continuing trend. The net result is that it will only take a cure for a major disease—I agree with noble Lords who mentioned this—for actuarial projections to change dramatically forwards. The average 82 year-old could become the average 86 year-old almost overnight. That leads me to my final point.
To have a successful third age, a person needs to be occupied. I was delighted to hear the noble Baroness, Lady Sharp, and my noble friend Lord MacGregor talk about continuing education and activity generally. The Romans used to talk about "mens sana in corpore sano". How right they were. For myself, I recommend walking, bridge, crosswords and, as my noble friend Lord MacGregor said, politics, but not quite in the way that the noble Lord, Lord Lipsey, meant, and not necessarily in that order.
My Lords, I was hoping that the noble Lord would add to his last remark by mentioning pensions Bills—but perhaps not. On behalf of all of us here today, I thank the members of the committee, and especially my noble friend Lord Peston, for this interesting and wide-ranging debate. It has been fascinating and heavyweight, and has revealed that there is probably more disagreement between the Members of each Bench than there is between Benches—including, if I may say so, the Lib Dem Bench, to my delight. The House of Lords is one of those places which one enters at the age of 50 and feels like an ingénue, so it is perhaps apposite that today we have debated the third age.
Like all your Lordships today, I particularly congratulate our maiden speakers—my noble friends Lady Royall, on a very moving and eloquent speech, Lord Leitch, on his warmth and wisdom and Lord Carter of Coles on his real enrichment of today's debate. I am sure that all noble Lords join with me in congratulating them.
As the Lords Select Committee and, more recently, Adair Turner's commission identified, our predicament comes largely from the good news that people are now living longer than ever before. Listening to your Lordships, I noticed that noble Lords seemed to think that that was a good idea for them personally, but were not quite so sure if it was a good idea for everybody else. The retirement age was introduced first in 1920, at a time when men could expect to live only to the age of 58. Life expectancy for men has now risen to 76, and a quarter of all men living today will live to 90, while a quarter of all women will live to 93. Life expectancy is growing by nearly two years a decade.
We have scouted a wide range of issues, some of which I do not propose to touch on—such as life-long learning, mentioned by the noble Baronesses, Lady Sharp and Lady Greengross, or the appointments committee recommendation, to which my noble friend Lord Peston drew our attention. Those questions are being addressed by other government departments. With huge self-restraint, I shall not discuss ACT, although I would love to, nor annuities at 75, although I would love to—or even the issue mentioned by my noble friend about the potential conflict between grey political power and less grey economic power, which my noble friend Lord Lipsey identified. Those are subjects for other debates.
Because of longevity and the fall in fertility, there are now more people over 60 than under 16, and that trend will continue. By 2052, one in four of the population will be over 65. The support ratio will fall from 3.35 to a figure of about 2.25. It is not a problem peculiar to the UK; in fact, the UK at the moment is in a better situation than most countries, because its age bulge has occurred earlier. The problem for a country such as Japan is virtually off the map. That allows us the relative luxury of being able to foresee a relatively stable 5 to 6 per cent of GDP as overall expenditure on pensions, whereas most European countries will have to double their expenditure if they continue with existing policies.
None the less, we have to respond to this pressure, which is why we commissioned the Adair Turner report. His comprehensive analysis focused sharply on issues outlined in my noble friend's report. Many noble Lords have called for a consensus and a robust future policy, particularly on pensions and our response to ageing. My noble friend Lord Lea described the situation well. On the issues identified by Adair Turner—that the choice is compulsion, as called for by the noble Lords, Lord Wakeham and Lord Fowler; delayed retirement age, called for by the noble Lord, Lord MacGregor; tax increases; or the management of reduced expectations in retirement— there is as yet no consensus. As I said, there are more divisions between Members of the same Benches than there are across the Benches.
The commission recognised that we were right to tackle pensioner poverty. Today's pensioners are significantly better off than they were in 1997; of the 2.7 million pensioners below the poverty line, some 1.8 million have been lifted out of poverty in absolute terms, so the number has fallen by two-thirds. Interestingly, the IFS said that a randomly chosen pensioner was now less likely to be in poverty than a randomly chosen non-pensioner. That is a heroic achievement to have managed since 1997, for which we are seldom given enough credit.
We are spending annually £10 billion extra on pensions compared with 1997, half of it going to the poorest pensioners. As a consequence the average pensioner is better off since 1997 in real terms by £26 a week and the poorest by £35 a week, due largely to pension credit, which has been whitewashed with coal in today's discussion. Perhaps I may outline our thinking behind it. Although I hope it will not be a long-term necessity, it still has a vital part to play in addressing pensioner poverty. My noble friend Lord Lea also made that point.
The situation we inherited since 1979 was that earnings had increased by about 38 per cent in real terms whereas pensioner incomes—and I am delighted by it—increased by 64 per cent in real terms, largely because of the growth of occupational pensions. So growth in pensioner incomes has far surpassed real growth in earnings, except that the top quintile of pensioner income had increased by 80 per cent, but the bottom quintile by barely 30 per cent. Inequalities had increased since 1979 in each type of household, but particularly among pensioners.
We thought that targeting was essential so that the bottom fifth began to recover the position it had lost in the years between 1979 and 1987 as a result of the growth of acquired and manmade, or woman-made, inequalities. Therefore, pension credit now guarantees an income of £105 a week for single people as compared with £69 a week in 1997, and it targets help to those who need it most.
People argue about the implications of whether that approach requires means testing. It takes account of means, obviously, but that is not to say that it is like a household means test of the 1930s. It takes a snapshot of income when one is 65 and does so again only five years later. I think that that takes us light years beyond what people experienced in the 1930s, 1940s or 1950s. I say to the noble Lord, Lord Skelmersdale, that as far as we can tell, those not claiming are those who have come into pension credit because of its increased generosity and therefore are at the far end of it. We think that the amount not claimed is very small. As the noble Lord, Lord Fowler, will know, the take-up figure was the same for family credit.
One point on which we all agree—the Pensions Commission, the House of Lords Select Committee, the Government, my Secretary of State—is that the structure of pension design has particularly disadvantaged women. We are still seeking to make sense of a Beveridge model implied in a post-Beveridge age. The result is that only 14 per cent of recently retired women of 60 enter retirement with a full basic state pension—BSP—in their own right as compared with more than 90 per cent of men.
Pension credit helps women. The state second pension particularly helps women, not only as workers but as carers and especially as low earners. All of that is right. But women too often continue to take on by choice the responsibility for caring which we all wish to see happen in our society, a responsibility that will become more burdensome for our society as people live longer. Yet, in pension terms, women who make those choices are punished for doing what is right. That cannot be decent and acceptable.
People have proposed a citizen's pension based on residency rather than contributions. There are various models. However, I think that we have to ensure that the proposals are properly based on research. I have figures that show that one model of a basic state pension which is set at MIG level and earnings related thereafter, but net of income related benefits and tax, would none the less cost an additional £25 billion in 2025 and an additional £70 billion in 2050. Those are mega-sums. We have to think them through very carefully in terms not only of affordability but of sustainability and what we mean by the contributory principle in today's society.
So the Pensions Commission's interim report confirms the challenges set out in your Lordships' report. But it also suggested ways of meeting them, some of which were highlighted in the 2002 Green Paper, others have been brought forward in the Pensions Bill that your Lordships are still discussing, with the Third Reading due on Monday.
On working age let me be clear: it is not our policy to raise the basic state pension age. It is our policy to establish a framework enabling those who want to work longer freely to do so. As the noble Lord, Lord MacGregor, said, it is not simply an issue of people working beyond 65. At the moment more than a third of men are outside the labour market by the age of 60. As many of your Lordships have said, by simply raising the basic state pension age you simply transfer people from one benefit to another, not necessarily bringing them back into the labour market unless or until we have adequate policies to bring people back into work.
Some of the things that we are doing on Pathways to Work for people on incapacity benefit are proving very effective indeed. In 10 pilot areas we are getting more returns to work of people on incapacity benefit than the rest of the country put together. However, if we do not intervene after one year, someone will stay on IB for eight years. If we have not intervened after two years, they stay on it for life. Therefore, early intervention is crucial if we are to ensure that people remain attached to the labour market and re-employable. We are working with our health partners and others to do that. It is a very interesting set of challenges and we are approaching it in exactly the right way through co-operation.
My Lords, I am not going to anticipate how any government, including, possibly one formed by the noble Lord's own party in the future, may wish to deal with the matter. However, I want to explain why we believe that the measure we are discussing is unfair at this point in time.
Between 1972 and 1976 the life expectancy gap between the professional classes and unskilled manual workers was 5½ years. Now that same gap is 7½ years. It has widened, not narrowed. Obviously, both groups live longer, but the professional classes have pulled ahead of manual workers. I am told that the average life expectancy in Glasgow is 67 although I cannot confirm that. Therefore, any raising of the state pension age which is not accompanied by a reduction in health and age inequalities falls deeply unfairly on those who are poorest and who have had less opportunity to enjoy their retirement. I would love to see those inequalities narrow, and in those circumstances I can well conceive that that question might be reopened. However, that is not where we are now and at the moment health inequalities have widened since the 1970s, not reduced. That is why we say what we are saying.
However, having said that, our recently announced changes to the rules on deferring state pension will provide solid financial incentives—in other words, carrots rather than sticks—for people to work beyond the state pension age. I believe that the noble Lord, Lord Goodhart, mentioned that. Providing a generous lump sum worth up to £40,000—the size of the average DC pot, incidentally—or, alternatively, generous increments will, I believe and hope, encourage people to work longer. Other proposals contained in the Bill concern being able to accompany your pension with reduced working hours and so on.
The noble Baroness, Lady Greengross, pressed me on the implications of the introduction of the EU directive on equal treatment, as did my noble friend Lady Royall. We are setting in place a legislative framework which ensures that people cannot be barred from employment on the basis of age. I believe that your Lordships acknowledged that in your report. However, it was left to my trade union friends again to see the issue to some degree from the point of view of employers. I understand that business has concerns—I hope that it is wrong about that—that to move towards scrapping a mandatory employment retirement age altogether would require them to introduce competency based systems to avoid reference to employment tribunals. I understand that evidence from southern Ireland shows that something like 20 per cent of all references to employment tribunals are age-related discrimination cases. It is that concern of employers, which I hope will prove ill founded, that we have to work to overcome. Certainly, flagship companies such as Marks & Spencer, which have abolished their mandatory retirement age, let alone the B&Qs of this world, show us just how rich a contribution older workers can make to the workforce. Indeed, interestingly, they are far less likely to throw "sickies" than younger workers, although when older workers become sick they are likely to stay off work for slightly longer, perhaps by virtue of the seriousness of their ill health.
The Pensions Commission said also that many people need to save, and we agree. Significant numbers of people are not financially prepared for their retirement. We are seeking to encourage them to be prepared—the noble Baroness, Lady O'Cathain, pressed me on this. We shall provide pension forecasting and information. We hope to see greater emphasis on financial information in the citizenship modules in school curriculums. The Secretary of State has made an announcement on financing trade union advisers. The pilot schemes with financial service advisers and the CAB are working well. We explored all those avenues at great length in the Pensions Bill to promote informed choice and to encourage people to acquire greater financial literacy. The noble Baroness is right. One cannot overstate how ill-informed most people are about their financial circumstances. The statistics quoted by the noble Baroness, Lady Sharp, were very relevant to that. We are seeking to address those issues, though we have a long way to go.
We are seeking also to strengthen protection in the Pensions Bill through the Pension Protection Fund and the Financial Assistance Scheme. We need to educate people into realising "the glories of compound interest" as I think the noble Baroness put it. I shall pick up on that idea. Even very modest savings, continued during a full lifetime, are very worth while.
I think I have the time to explore this for a moment. Let us take the example of someone who has earnings of £16,000 a year. If we accept the very modest assumptions of a 2 per cent growth in real earnings and a 4 per cent growth in investment earnings, someone who is earning £16,000 a year now, contributing 6 per cent of his income, or something like £14 a week net, matched by his employer and with everything else coming in, would retire in cash terms with a replacement pension of 72 per cent or £500 a week, in today's money. It is rolled up; it is the effect of compound interest. I hope on the basis of everything that has been said today that people do not think that even modest sums—£50 a month, let alone £100 a month, over time and paid regularly—do not roll up to something very useful and very substantial indeed.
We hope to encourage people to accept that it is worth their saving. We hope to encourage people to work longer so that they have longer to save. We hope to encourage employers to work with us to keep people in the labour market. We hope to reduce health inequalities so that people are able to do so.
As many of your Lordships have said, it is not a single strategy, but it is incrementalism across a wide range of fronts. That is the only way, and the right and decent way, to go forward.
I shall conclude. We are taking the challenges that longevity brings to the UK. We are extremely grateful for the report of my noble friend Lord Peston and other noble Lords. The Adair Turner commission has built on that. We are waiting for its final report. None of us disputes its analysis. We have a long way to go to build consensus on the way forward, but that we seek to do it by—if I may use that clumsy phrase—carrots rather than sticks I am sure at this stage is right.
However, I hope that if, together, we can increase financial literacy; if, together, we can ensure that employers recognise the richness that older people bring into the labour market; if, together, we can stop people dropping out of the labour market before they are 65, as they are currently doing, let alone working past 65; if, together, we can address the particular problem of women's structural inequality in the labour market and therefore in pensions provision, I hope that we can all look forward, not just for ourselves, but for our fellow citizens, to a comfortable as well as healthy old age.
My Lords, in bringing this interesting debate to a conclusion, I must rectify one omission from my opening remarks; namely, that I forgot to thank our clerks and our adviser, Professor Paul Johnston, for their contribution. Without them, there would have been no report. I forgot also—the noble Baroness, Lady O'Cathain, will say that it is typical of me—to thank the members of the committee. That is particularly remiss of me because, even sitting here and looking over the recommendations, I am struck by how many of the important ones came from members of the committee. The problem was to persuade me to think it through rather than to persuade the committee. This is very much the report of the committee. I thank them for that.
I believe that the Minister should have the last word. However, I have two substantive economic points to make. One is that it seems obvious that if GDP continues to grow at its present rate, if productive employment life increases pari passu with life expectancy, it must be the case that were the state pension to be index-linked by earnings, the ratio of the cost of the state pension to GDP would be constant. Therefore, it is completely beyond me where my noble friend gets the extra burden from.
I now turn, nastily, to my three noble friends. I must tell them that if GDP growth ceases, and if productive working life does not increase whereas life expectancy does increase, of course we would have a crisis and older people would have to get used to much lower incomes than would otherwise be the case. Perhaps I may make two comments on that. One is that that applies to any method of financing retirement, whether it is tax-based, savings-based, or a combination of the two. But I must ask my three noble friends why they would make such economically nonsensical assumptions to arrive at their conclusions. The assumptions made by the committee are very much more in line with what both economics and history say.
I have one last remark which the noble Lord, Lord Fowler, can talk to me about later. He favoured compulsion to facilitate savings. I thought that that was an excellent point, which I am rather sorry I had not thought of myself. He did not advocate compulsory savings; he said that we must compulsorily facilitate savings. In that regard, and this is positively my final remark, he is entirely right.