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My Lords, the Bill is focused on master trusts, to which I will not speak. However, the Explanatory Notes open with the statement:
“The Bill’s focus is on protecting savers and maintaining confidence in pension savings”,
to which I will speak, as did the noble Lord, Lord Naseby.
Much recent government policy has been misguided. The bit we got right, after our campaigning, was the single state pension. However, those on, say, three zero-hour contracts, each of 10 hours, making 30 hours in total, still cannot aggregate their hours to come into NI and build a state pension, while someone on JSA does. There are 1 million people on ZHCs, working in the flexible labour market without access to NI and thus, potentially, to a state pension. It is wrong but, with RTI, easy to rectify.
The Government then cut projected new state pension costs by suddenly raising retirement ages faster. Steve Webb claims he did not fully understand the implications of that. Really? Equality, yes—but as our worker-pensioner ratio in 2025 will be more favourable than that of any other EU country, from Germany to Greece, apart from some smaller countries such as Ireland, the Czech Republic and Luxembourg, we argued that we could afford a slower timetable, but were refused. We argued for transitional arrangements for those WASPI women, but were denied. Women are especially dependent on a state pension, as most lack a decent OP, and caring for children and elderly parents, their pay and their hours all hobble them. The WASPI women continue to fight on, and I hope that, despite the remarks of the noble Lord, Lord Freud, today, the Government will respond.
The Government are capping costs by tying SPA to longevity. A third of your life will be spent in retirement, hence those healthy elite pale males, breezily contemplating an SPA of 68, 69 or 70. Life expectancy is rising, but not evenly. The gender gap has narrowed, while the socioeconomic gap widens. Within Norwich—a tight city with common services and standards—two city wards are one mile but some 11 years of life expectancy apart. In the council estates, most people started work six or seven years younger than in the owner-occupier ward. They start work young and they die young, but without receiving much of the pension that they paid for and we enjoy.
However, it is worse than that. Although we are living longer, healthy life expectancy has not risen pro rata. More of those extra years are spent in poor health, especially for those in manual work, who have double the rate of poor health than those who are better off. Women, for example, live longer than men but proportionately spend much more of their later life in poor health. A woman reaching 65 in Richmond can expect 16.7 years of good health; in Tower Hamlets she can expect just 3.3 years. The second woman faces fewer years of retirement and then even fewer of those years disability-free—she is doubly disadvantaged.
We have to change this, and I look to Cridland. A single SPA is profoundly and increasingly unfair. It needs to be tailored but not means tested—only half of those entitled to pension credit ever claimed it. Like NI, it should be a universal and contributory entitlement, easy to understand and administer, fair to men and women alike, and affordable. The Pensions Policy Institute reckons that 38% could draw their SPA earlier if they qualified with 45 years of NI contributions, costing around just £200 million a year. Passporting from ESA or from caring responsibilities within five years of retirement might double that. Refuse collectors in Norwich often die within two years of retirement—two years. Is it right that their lifetime NI, which barely benefits them, should pay for 20-plus years of all our state pensions? I think not.
I turn now to occupational pensions, especially as they affect the worse off. Auto-enrolment was for those too low-paid to build a private pension, but instead of the entry point being pegged at an LEL of £5,800, it became a rising tax threshold which over the years excluded 1 million people, mainly women. The industry complained noisily about managing small sums, but even a £5,000 pot may be transformational for a woman who has never had any capital in her life. It has been frozen this year at £10,000, which is very welcome, but will the Government be reviewing this issue in 2017?
However, the biggest worry for me in recent government policy is pension liberation at 55. Spend it on a Lamborghini, government Ministers suggested; it is your money. Except it is not. Two-thirds of “your” pot actually came from others, employers and taxpayers, privileged with billions of pounds of tax relief precisely— as the Explanatory Notes state—to build pension savings, not to provide a honeypot for some to blow in middle age, perhaps leaving taxpayers to fund their later-life care for the second time round.
What is needed for a decent private pension? We all know that you must: save early, but with student debt or saving for a deposit you cannot; save regularly, but mothers in and out of waged labour mostly cannot; save enough, but with employers now contributing a meagre 44% on average through DC pots, you cannot; leave it untouched until retirement, but that is gone, so many will not; and then be rewarded proportionately, live to enjoy it, but if you are poorer you will not, so do not. Government policies in this respect are contradictory and regressive.
What might we do? ISAs attract more money than personal pensions. Why? Easy access. Only the better off can afford to fund both ISAs for working-life access and pensions for retirement. Low-paid women, part-time workers, the self-employed and those on ZHCs, with average earnings of £11,000, can barely afford one, certainly not both financial instruments.
If, through auto-enrolment inertia, most pay into a pension they cannot access until 55, that is too late to help with divorce, disability or disaster before then, but they may have no other resources. ONS statistics show that a third of all men and women, and about half of those separated or divorced, have less than £500 in accessible savings. Many turn to debt and are trapped.
We should instead combine aspects of ISAs and pensions in one simple product. You save, and perhaps save more, into a pension if you know that you can access emergency savings from it, borrowing cheaply from yourself rather than expensively from others—which may have caused you to stop contributing to your pension entirely. FCA figures show that, of pensions accessed between October and December 2015, more than half—mainly, of course, the small pots—were fully cashed out. The PLSA shows that in the first six months of pension freedom, of those taking cash, 14% were paying off loans or debts, perhaps after years of carrying charges. Modest savers in Norwich Credit Union use its loans for holidays, Christmas, cars, household improvements and goods, yes, but also significantly for the consolidation of debts.
How to combine pension and savings in one simple product for those who, I fear, may otherwise not build either? Here are two of many possibilities. You pay into your pension account. Effectively, 75% remains ring-fenced for retirement, but 25%, the tax-free lump sum, is your easy-access savings slice floating on top. Build your pot to, say, £5,000, and you can take a quarter of it; to take more, you must rebuild. Cap it, so that there is no recycling by the wealthy.
Alternatively, StepChange, the debt charity, to which I am grateful for its help, proposes embedding a £1,000 accessible savings slice within your pension pot, which it says would remove 500,000 families from problem debt—debt that helps to lock people into poverty for years on end. Could this be part of the 2017 review, perhaps?
To conclude, we should be offering transitional arrangements for WASPI women, given that we have one of the strongest worker-pensioner ratios in the OECD, and certainly in Europe. We should allow aggregation of hours for those with multiple jobs. We should tailor state pension age to reflect morbidity. All that may help to secure fairer state pensions, which I am sure we all want. Overlay that with a fairer and more attractive private pension. How? Reduce the auto-enrolment threshold back to LEL. Consider a default de-accumulation strategy. Allow access to a savings slice embedded in a pension, and thereby encourage what the Explanatory Notes state is the purpose of the Bill—both a savings culture and a pensions culture—and do so in one product. And, of course, support capping charges and regulating master trusts.