My Lords, I should like to follow up on some points made about savers. In the UK, unlike in Europe, our homes and our pensions have been our savings. With full employment, that has been a sensible way to distribute income from working years to retirement; it is not sensible when, as now, you need those savings to cope with the financial turmoil of the next few years, debt, repossession, unemployment and, sadly, probably family disaster. We have to rethink pensions.
Pensions have been designed by men in 40-year full-time waged work for other men in 40-year full-time waged work; they simply do not fit the lives still of most women, the finances of the low paid or the expectations of the young. Think of their features. DC schemes require you to start young and save continuously even though half of all women stop pension contributions when they have children. Men do not, of course. You are expected, on a rising income, to put sufficient aside, yet women's earnings peak at about 30, men at 45. Even with personal accounts, contributions have to be very low to be affordable—and thus attractive—if they are not accessible because they are locked away, but then they may not spring you off income-related benefits, which makes their return less attractive still.
Above all, industry tells us that pensions are locked away for 40 years even though most women and many men will today suffer far more financial turbulence during their working lives than in retirement. People need both rainy-day savings and a pension. If they are low paid, they cannot usually afford both and so, conflicted, they often build neither. I fear, alas, that the savings gateway will not help much.
The answer to this seems to have come from the party opposite—although it has lost it since—and that is the lifetime savings account, LSAs. Other countries with funded OPSs have versions of LSAs—in the US the 401(k)s, the KiwiSavers in New Zealand, and others in Singapore, Chile and so on. The recent Pension Policy Institute paper, Would Allowing Early Access to Pensions Savings Increase Retirement Incomes?, discusses these, together with my own proposal to use the tax-free lump sum. Think for a moment about our current arrangements. At the moment, you may draw your 25 per cent tax-free lump sum at 50, soon to rise to 55, independent of drawing your pension. Only 14 per cent of people use that lump sum to add to their pension. It goes to repay debts or the mortgage, or to buy a new car, a new conservatory or a cruise. Why not remove the time bar? What really is the point of ideologically and rigidly reserving the lump sum for a pension when it is not used as a pension? Why is it okay to spend it on a car at 55 but not to use it to save your home at 45?
Why not permit anyone reaching a de minimis in their pot of, say, £10,000 or £20,000, to ensure the savings habit, up to a cap of, say, £80,000 or £100,000, to avoid fancy tax planning, to draw down that 25 per cent as they need it? On £40,000 they could take out £10,000, and only if they rebuilt to, say, £60,000 could they then take 25 per cent of that increment—that is, a further £5,000. At a stroke, this would transform DC pensions into what they need to become—LSAs, simple, single funds combining savings and pensions, with 75 per cent ring-fenced for the pension and 25 per cent available as savings and, as it is tax-free, no tax adjustments would be necessary.
I fear my noble friend may tell me four things: first, that tax privileges are for pensions only; secondly, that it is unfair to DB schemes; third, that it diminishes the value of final pensions; and, fourthly, that it is costly, complicated and too much trouble. If that is the way his argument is going to go, let me address those issues.
Tax privileges only for pensions? Not when we have ISAs and A-days allowing the affluent to turn tax-privileged savings into tax-privileged pensions but not allowing the poorer off, who cannot afford ISAs, to turn some part of their pensions back into desperately needed savings as their lives possibly crash around them.
Unfair to DB schemes? Given that DC schemes halve the contributions from employers while laying all the risk on employees, rebalancing would be decent. Diminishes the value of a final pension? Only if that money would have been spent on a pension, and it would not be. It takes value out of a pot's build-up? Legal and General's recent research shows that 42 per cent of those with a pension would save more, and that 42 per cent of those without a pension would start one, if they could access part of it. More would save and they would save more. Technically, it is no more difficult than tracking GMPs or deferred payments now.
Such a scheme would reduce opt-out rates after 2012, including from personal accounts; encourage more people to contribute and to contribute more; assist with home buying, job retraining and avoid repossessions; displace expensive commercial loans, freeing up income thereby for further saving and producing a virtuous spiral; and appeal to women facing financial crises, young people who refuse to lock savings away for 40 years and the low paid, who cannot afford high enough contributions if they remain inaccessible. They would then have what we all need: security in retirement sustained by savings for today's world. My noble friend probably knows more about pensions than anyone in this Chamber. I beg him to think out of the box. What do low-earning people face? Financial turbulence greater now than in retirement. What do they need? Access to savings. What savings do they have? They are in their pension fund. What will it cost the state? Virtually nothing. Would it encourage them to save more? Almost certainly. Helping to keep people afloat in their working years really is the best, and probably the only, way to ensure that they have a pension in retirement.