My Lords, I will speak about those aspects of the gracious Speech that support people saving for retirement and the important ongoing reform of state pension provision. Obviously, the focus of the coalition is to get the British economy back on an even keel, but we should not forget the important social reforms that it has undertaken, and those in the pension field are, in my view, outstanding.
Most of the pension objectives set out in the coalition agreement have been implemented: the triple lock for state pension enhancements; the review of the sustainability of public service pensions, which has largely been agreed; the raising of the state pension retirement age and the phasing out of the default retirement age; and the launch of auto-enrolment. Most of these policies were derived from the implementation of the pensions commission’s recommendations, initiated by the previous Government. The gracious Speech brings forward further reforms: a new single-tier state pension to simplify and create a fairer system designed to encourage more retirement saving; the increase of the pension age to 67 in 2026-28 and the formalisation of a permanent system for reviewing the retirement age in future; the reform of bereavement benefits; and the automatic transfer of smaller pension pots.
These are important reforms and they have benefited from the continuity and determination of our work and pensions ministerial team: Iain Duncan Smith, my noble friend Lord Freud and Steve Webb. It must be significant that they have been together for three years. They have apparently resisted efforts to break them up and are now getting into their stride, concentrating not just on getting legislation through but tackling the central importance of delivery on pensions and welfare generally in the second half of the coalition Government. I have been reading Jack Straw’s autobiography; I always like to understand how admirers of Liberal Democrats work and think. One of the examples he gives of not-so-good government is that the previous Government, in one nine-year period, had nine Secretaries of State for Work and Pensions. The coalition has learnt that lesson in the interests of better government, just as the Liberal Democrats have learnt the importance of discipline in coalition.
I agreed with every word that the noble Baroness, Lady Hollis, said on the single-tier state pension and social care. Fixing the single-tier state pension at the level for means-tested benefits will greatly simplify pension provision and end a system whereby 46% of pensioners currently rely on means-tested benefits while 33% of those entitled to claim do not do so. It also recognises the huge problem we have with pension saving and the incentives to save. In 2011, 30% of 35 to 64 year-olds made no pension provision. Activists in pension schemes fell from 12 million in 1967 to 8.2 million in 2011. It is therefore essential that the new single-tier pension will complement the auto-enrolment reform that is being phased in.
There will be transitional difficulties with the ending of contracting out, especially with the imposition of particular costs on defined benefit schemes. Legislation must provide for a statutory override that supports private sector employers coping with these problems. Steve Webb has clearly convinced the Prime Minister of his concerns. We should have confidence in his ability to guide us through these difficulties.
I was less in agreement with the noble Baroness, Lady Hollis, on her view that seems to resist the further raising of the state pension age. Some 33% of children born in 2012 are expected to live to 100. By all predictions, at least 95,000 of those reaching 65 this year will celebrate their 100th birthday in 2048. Longevity and active living are increasing. I agree with the noble Baroness that, in making decisions on raising the state pension age, we should consider the quality of retirement as well as its length, and also the social inequalities that arise in retirement. We need a formal process to arrive at consensus about what is the right and appropriate state pension age. I believe that that is what the Government are seeking to do.
It is also important that pension reform must lead us to encourage the easy transfer of small pension pots between pension schemes, but we must ensure that people are not transferring their pension pots to poorer providers. Now that these key reforms are coming into place, we need to concentrate on the protection of individual pension provision and the paramount need to maintain consumer confidence in investors and saving institutions. There remains strong cynicism and an enormous lack of understanding about costs and investment risk. This area has to be regulated and reformed to encourage more saving.
I hope that the Government and the regulators will look again at the whole concept of fiduciary duties of investors to ensure that they act only in the best interests of pension clients. We will need a culture of trust, confidence and respect in pension management. That must recognise that more people will be dependent on contract-based pension schemes, rather than of those such as NEST, which have had trustee basis for their governance. We have to continue to anticipate these problems so that our worst fears are never realised.