My Lords, with the leave of the House, I shall repeat an Oral Statement given in another place by my right honourable friend the Secretary of State for Work and Pensions on the state pension age review. The Statement is as follows:
“Last year the Government commissioned the Government Actuary and John Cridland CBE to produce independent reports to inform the first review of the state pension age required under the Pensions Act 2014. I am very grateful to John Cridland for his contributions to the evidence base. Over the course of his review, evidence was put forward by a wide range of people and organisations. I am grateful to everyone who took the time to engage.
Today I am publishing the Government’s report on this review. This Government are determined to deliver dignity and security in retirement, fairness across the generations and the certainty people need to plan for old age. In the review, I am setting out how we will achieve these things. As part of this publication, we have set out a coherent strategy targeted at strengthening and sustaining the UK’s pensions system for many decades to come.
This is about the Government taking responsible action in response to growing demographic and fiscal pressures. That is why today I am announcing the Government’s intention to accept the key recommendation of the Cridland review and increase the state pension age from 67 to 68 over two years from 2037. This brings forward the increase by seven years from its legislated date of 2044-46, in line with the recommendation made by John Cridland and following careful consideration of the evidence on life expectancy, fairness and public finances.
In 1948, when the modern state pension was introduced, a 65 year-old could expect to live for a further 13 and a half years. By 2007, when further legislation was introduced to increase the state pension age, this had risen to around 21 years. In 2037 it is expected to be nearly 25 years. As the Cridland review makes clear, the increases in life expectancy are to be celebrated, and I want to make it clear that, even under the timetable for the rise that I am announcing today, future pensioners can still expect to spend on average more than 22 years in receipt of the state pension.
However, increasing longevity also presents challenges to the Government. There is a balance to be struck between the funding of the state pension in years to come and ensuring fairness for future generations of taxpayers. The approach I am setting out today is the responsible and fair course of action. Failing to act now in light of compelling evidence of demographic pressures would be irresponsible and place an extremely unfair burden on younger generations.
While an ageing population means that state pension spending will rise under any of the possible timetables we have considered, the action we are taking reduces this rise by 0.4% of GDP in 2039-40—equivalent to a saving of around £400 per household, based on the number of households today. Our proposed timetable will save £74 billion to 2045-46 when compared with current plans, and more than £250 billion to 2045-46 when compared with capping the rise in the state pension age at 66 in 2020, as the party opposite has advocated.
It is the duty of responsible government to keep the state pension sustainable and to maintain fairness between generations. That is why the Government are aiming for the proportion of adult life spent in receipt of the state pension to be up to 32%. We believe that this is a fair deal for current and future pensioners. We will carry out a further review before legislating to bring forward the rise in the state pension age to 68, to enable consideration of the latest life expectancy projections and to allow us to evaluate the effects of rises in the state pension age already under way.
This Government have a proven record on helping people plan for their retirement. Alongside our automatic enrolment scheme, which has already brought the benefits of private pensions to nearly 10 million people since its inception, we have set out plans to enhance the availability of impartial consumer advice through schemes such as the single financial guidance body and the pensions dashboard. Today, people have a much better idea of what their pension will be, bringing more certainty and clarity. This is something the Government will build on, making it easier for people to seek advice and make effective financial decisions.
I want Britain to be the best country in the world in which to grow old, where everyone enjoys the dignity and security they deserve in retirement. At the same time, we need to ensure that the costs of an ageing population are shared out fairly, without placing an unfair tax burden on future generations. To deliver this, we need to make responsible choices on state pension age”.
I commend this Statement to the House.
My Lords, I thank the Minister for repeating the Statement and for advanced sight of it. We have been waiting keenly to see how and when Ministers would finally respond to the Cridland report but, frankly, the response is disappointing. Only yesterday Sir Michael Marmot described how a century-long rise in life expectancy was,
“pretty close to having ground to a halt”.
John Cridland himself acknowledged in his report that inequality in pension outcomes remains, with certain groups in particular at risk of lower incomes in retirement. There are significant variations in life expectancy across socioeconomic groups.
Yet in this Statement, the Government have confirmed their intention to accept the headline recommendation of the Cridland report: that the state pension age should rise to 68 over a two-year period between 2037 and 2039. Astonishingly, there is nothing whatever in the Statement to acknowledge the issue of inequality in income and life expectancy. There is nothing in it about the huge variations in life expectancy in our country, or about how the Government will address improvements in morbidity—people’s general health—not keeping pace with people’s life expectancy. There is nothing about the wide variations in retirement income.
I would like to ask the Minister some questions. The Conservative Party election manifesto promised that it would,
“ensure that the state pension age reflects increases in life expectancy, while protecting each generation fairly”.
How does the Minister justify that promise, given this Statement? The Statement says that the Government will carry out a further review before legislating to increase the state pension age to 68, in order to consider the latest life expectancy projections and evaluate the effects of rises in state pension age already under way. Does that mean that Ministers may not enact the rise in state pension age to 68 after all? Is this a policy or just an aspiration?
What is the Government’s position now on the triple lock? Cridland recommended that it be abandoned; Labour pledged to keep it; the Tory manifesto pledged to ditch it from 2020 and move to a double lock, but the DUP rather likes it. Can the Minister clarify the Government’s position on the future of the triple lock? What is her response to the Cridland recommendation that those with caring responsibilities and ill health should be able to access pension credit a year earlier than the state pension age?
Labour has pledged early access to pension credit as a way to protect the WASPI group of women, who found themselves suddenly facing an increased state pension age without enough notice to enable them to plan. I hear that the Prime Minister was looking for ideas. Would she perhaps like to adopt this one? What is the Government’s plan to communicate with people who will be affected by the change in the state pension age? What lessons have they learned from the debacle of their previous repeated accelerations of changes in the state pension age, resulting in so many WASPI women struggling in their final years of working life? What assurances can they give the House that this will not happen again?
The Minister referred to plans for the single financial guidance body and its support for consumers, but is not the state pension excluded from its operations, subject to amendments we will be considering later?
What is the Government’s stance on the other Cridland recommendations? Will they commit to not raising the state pension age by more than one year in any 10-year period? Do they agree that conditionality in universal credit should be adjusted for those approaching state pension age to ease the transition into retirement? Do they accept the idea of statutory carers’ leave along the lines of SSP? What about the proposal that those over state pension age should be able to part draw down the pension, deferring the rest?
This Statement raises more questions than it answers. We can only hope that the report, when we have had a chance to study it in detail, will elucidate some areas. Labour want a different approach to this pensions crisis, which means more work for millions and absolute chaos for 50s-born women who have already had their state pension age quietly pushed back. In our manifesto, we committed to leaving the state pension age at 66 while we undertake a review into healthy life expectancy, arduous work and the potential for a flexible state pension age which recognises years of work and contribution, as many other countries currently do. This would be an evidence-based approach that looks to understand the varied experiences of working people across the country and to respond to their needs.
My Lords, I am grateful to the Minister for robustly repeating the Statement. My eye was drawn to the last phrase, which she read with a flourish: “and this is what the Government are doing today”. What are the Government going to do next week on some of these matters, particularly in relation to the triple lock? I support the questions addressed to the Minister by the noble Lord, Lord McKenzie. Most importantly—this was also addressed by the noble Lord, Lord McKenzie—if the Government are to secure dignity and security for retirement, at their next review they will need to look not just at average income data but at latter-day morbidity data as well.
The one thing that is missing from the Government’s Statement and response is the fact that the totality of the policy is missing. The Government need to move in a way that releases and uses the £74 billion that we will save by this move in the public policy field between now and 2045-46 to mitigate, as Cridland suggests, some of the transitional protections and to make it easier for those who are reaching retirement but who are less able to work—the disabled, carers and people of that kind. I hope the Minister will be able to say that by the next review these transitional and support questions will be addressed using some of the savings that we are obviously making from this important policy announcement this afternoon.
My Lords, I thank noble Lords for their response to the Statement. We believe it is really important that we have a seriously responsible approach to this. The Opposition’s wish to fix the state pension age at 66, even though they legislated to increase the pension age to 68, demonstrates a failure to appreciate the situation. Their approach would add £250 billion to national debt spending in 2040, which is equal to £20 billion a year borne by future generations. It is hugely important that we take these steps now, act responsibly and with care, and focus very much on intergenerational fairness.
The noble Lord, Lord McKenzie, asked about life expectancy. We will of course look at all life expectancy data very carefully, particularly following the report by Sir Michael Marmot. The current ONS projections are that life expectancy will continue to increase, but there is uncertainty around the rate of change in future life expectancy, which is why the state pension age review mechanism ensures regular six-yearly reviews. Long-term trends of increasing life expectancy mean we need to balance the needs of pensioners with the working-age generations who fund the pensions and health and care needs of an ageing population. As for the possibility that life expectancy may be falling, the latest ONS statistics show that 65 year-olds in the UK are expected to live over half of their remaining life in good health: 11.1 years for women and 10.3 for men. Healthy life expectancy has also been increasing over recent decades and, at age 65, has been relatively stable as a proportion of total life expectancy since 2000.
The noble Lord, Lord McKenzie, spoke about regional unfairness. John Cridland, in his report, concluded that there are no practical or workable ways to factor in variations in life expectancy, and there is no evidence of regional options being any fairer or more targeted at disadvantaged groups. Allowing early access to the state pension on a reduced basis would risk leaving people with an inadequate pension. Also, disadvantaged groups should be assisted, through working age, through the benefits system rather than through changes to the state pension age.
As for the triple lock, that will remain in place for the remainder of this Parliament. The noble Lord, Lord McKenzie, also asked about whether we are going to go ahead with this or not. We have said that the Government have decided that the rise in state pension age to 68 should take place between 2037 and 2039; however we will carry out a further review before legislating, to enable consideration of the latest life expectancy projections and to allow us to evaluate the current rises in state pension age.
In relation to carers, the new statutory entitlement to carer’s leave is a BEIS-led policy. The Government are reviewing long-term carers’ leave entitlements and will set out our plans in due course. Carers will not be disadvantaged by increases to state pension age. As society ages, and care needs increase, it is important that carers are able to combine caring with paid employment or to return to paid employment when their caring duties allow. We are working with employers nationwide to encourage the adoption of carer-friendly employment policies. Under universal credit, carers are provided with more flexible support, because their claims can remain open even when they move into work. The Government’s Fuller Working Lives strategy, published in February 2017, sets out proposals to help carers combine work and care. The Government remain committed to the provision of a safety net to support pensioners who, for whatever reason, do not have a full state pension.
We are very much focused on improving communications. The intention is to provide people with adequate notice to give them clarity and certainty over their state pension. People can now use the online Check your State Pension service to get a forecast of their state pension, find out when they will reach their state pension age, how they may be able to improve their state pension and view their national insurance contribution record. Indeed, since its launch in February 2016, over 4.5 million state pension forecasts have been viewed online up to the end of June 2017. But, for any future changes, we will seek to make the position clear at least 10 years in advance. We recognise the need to provide transparency for future pensioners to facilitate effective retirement planning. The Department for Work and Pensions is looking at how best to take advantage of emerging technologies in the coming years, to build greater engagement in financial planning for later life.
The noble Lord, Lord McKenzie, also referred to the state pension. We will be discussing that very issue later this afternoon when we are in Committee on the single Financial Guidance and Claims Bill. The Opposition Front Bench also asked whether we are supporting John Cridland’s proposal to increase the state pension age once per decade, which means the next increase would not occur until 2047-49.
We do not support John Cridland’s proposal to commit to only one year’s rise every 10 years, as this would limit the Government’s ability to respond to future changes in life expectancy and would go too far in removing the link between when we change state pension age and the proportion of life people can expect to spend in receipt of state pension. However, we recognise the need for appropriately spaced rises. In the past, the UK has been slow to take account fully of life expectancy increases. This has led to changes to state pension age in three Acts of Parliament in the past 10 years, as noble Lords will know.
Thanks to the action we have now taken, however, the UK state pension is now on a firmer footing. The state pension age review framework should maintain that position through its greater responsiveness to changing life expectancy projections. This will ensure a stable state pension system in the future. That is our focus: a sustainable pension so that future generations can enjoy a state pensions.
Using the 32% proportion of adult life spent over state pension age as our longer-term benchmark balances the need to maintain an affordable state pension against the need to give people clarity about what they can expect from the state: security in retirement and confidence in the value of private pension savings. I hope this in large part covers the questions raised by the noble Lords opposite.
My Lords, it is the role of the Government Actuary, as set out formally in legislation, to advise the Government on trends in life expectancy to inform the state pension age. His duties are quite clearly set down in that respect. The John Cridland review was intended also to embrace wider considerations, such as socioeconomic differences and other matters, so it is disappointing that the Statement does not respond on any such issues at all—not one. I was quite surprised by that, so I take the opportunity to raise one associated issue that was addressed by John Cridland and on which he made a recommendation.
We know that auto-enrolment has seen the rise of defined contribution workplace pension saving as a mass market, and it is anticipated that some £1.7 trillion will be held in workplace schemes by 2030, which is all good news for pension savings. However, as more workers save into DC schemes, the financial capability challenge gets greater, because millions have to manage more complexity and choices. I ask the Minister: will the Government take the opportunity of the Financial Guidance and Claims Bill, the purpose of which is to raise the capacity of people to make informed financial decisions, to implement John Cridland’s recommendation and put into legislation universal access for all those in their 50s to get a mid-life financial MOT?
My Lords, I thank the noble Baroness for her question. I am conscious that she knows an enormous amount more than I do about the whole issue of pensions. A number of wider recommendations were put forward by John Cridland, and the Government have been listening responsively to the whole question of a mid-life MOT. This will be part of an ongoing review process. Whether or not it is right for that to be in the legislation on the single financial guidance body is another issue, but I assure the noble Baroness that the Government believe that this, among other recommendations, is seriously worthy of further review and discussion.
My Lords, I welcome my noble friend’s responsible approach and agree on the scale of the financial challenge that we face and the need for a big shift in the interests of intergenerational fairness, especially given the problems that youngsters have in buying their own homes, which are of course another form of support in old age. My question is different: why are the Government not going faster, bringing these changes in more quickly and, perhaps, going further up the age range?
I thank my noble friend for her question. Together with my noble friend, I have the good fortune to have not so young children with young families. They are questioning how sustainable even our current proposal will be, given that the burden on the next generation of funding public services in this country is ever increasing. I have talked to some in their late teens and early 20s who seem surprised that the working age should cease at 68: they think it should go on rather longer. Indeed, your Lordships’ House is an example where people want to and are capable of working late into life. There is no question but that we should keep the whole issue of state pension age under review. That is why we have set out a clear pathway for the future.
My Lords, I think we all share the Minister’s view that any future settlement needs to reflect life expectancy, fairness and public finances, but the fourth question, which she referred to briefly in response to the noble Lord, Lord Kirkwood, is not mentioned at all in the Statement—although John Cridland has tried to address it in meetings that we have had with him where some of us have pressed him on this issue—which is healthy life expectancy. We know that the gap in life expectancy between men and women is narrowing, which is good. We also know that the gap in life expectancy by social class—As and Bs as opposed to Ds and Es in the old census formula—is widening. For them, for every extra year of life expectancy, anything between six and 10 months of it will be in very poor health. In other words, every year gained in life expectancy for the bottom third of our population is a year in poor health. Therefore, people can leave their working life without a healthy year of retirement in their future: they will start with disability. The Minister mentioned that there would be responses in the benefit system to those in that situation. Will she move away from the concept of benefits and all the problems associated with universal credit, PIP and the rest of it, which are now coming through in horrifying forms, and instead think about the expansion of pension credit, which is much more closely connected to pensioner incomes rather than working-age incomes, as a way of ameliorating the situation of those who are unable to draw their state pension at an early enough age, denying them even a single year of healthy retirement?
I thank the noble Baroness for her question. We are trying to look at what a suitable state pension is that rises in line with life expectancy and is fair across the board. I know the noble Baroness is very keen on the whole issue of fairness across all the socioeconomic areas, as it were. We are quite clear in our minds, having studied Cridland, that the reality is that our strategy is built on a solid evidence base that has been aided substantially by the two contributions from John Cridland and the Government Actuary. In fact, Cridland’s review took into account evidence provided by over 150 stakeholders. The question of life expectancy has gone up for all socioeconomic groups over the last 30 years, and for all constituent countries of the UK over the past decades. As I say, John Cridland did extensive work on this and concluded that a universal state pension age remains the best system as it provides simplicity and clarity, which enables people to plan for their retirement. As I have said, Cridland concluded that there are no practical or workable ways to factor in variations in life expectancy, and there is no evidence of regional options being any fairer or more targeted at disadvantaged groups. Allowing early access to the state pension on a reduced basis would risk leaving people with an inadequate pension. We believe that disadvantaged groups should be assisted through the working-age benefits system rather than through changes to the state pension age.
It is important to add that we should not see the issue of increasing the state pension age as one whereby we are bringing in a situation that is necessarily making it more difficult for people as they grow older, given that older workers can bring decades of valuable knowledge and experience to the workplace. This is all seeming rather doomy, but actually we should celebrate the fact that life expectancy is increasing. There are now 8.7 million people aged 50 to 64 in work, which is a record high, and more than 1.2 million people aged 65-plus who choose to remain in work. In 2017, we launched the Fuller Working Lives strategy in order to encourage more employers to take advantage of the benefits that older people bring. We are calling on employers to boost the number of older workers, not write people off once they reach a certain age.
My Lords, it may be that I am just getting older and more irascible and that I am just another angry old man, but I really do not see what there is to celebrate if you are old and poor and doing a manual job. It is perfectly true that life expectancy is increasing, but it is not getting any easier to get older. Surely we all understand that. What is lacking from the Statement and the Government’s response is any sense of justice around the process of being old, poor, disabled or a carer.
My Lords, I have to say I entirely disagree with the noble Lord. I listened to some of the comments made by his party in another place and I found them shocking in relation to the way that old people are referred to, as if old people are somehow rather useless and “worn out”—I think that was one of the expressions used at the other end. My young, who will be hitting retirement when this comes into fruition, would take that very poorly. We are looking for every opportunity to find ways to improve healthy working lives for everyone. If one was a little more positive about this, one would accept that it is totally unfair to ask young people today and tomorrow to be saddled with such an enormous burden as the party opposite want to impose on the young people of today and those who are very much in their youth. The idea of the party opposite is that we should add £250 billion to the debt because—even though it legislated to increase the retirement age to 68—it now says that, somehow, we are not being kind to people in poor health who are unable to work up to the state pension.
The welfare system provides a safety net for those experiencing hardship, with a range of benefits tailored to individual circumstances. Indeed, the Government are committed to supporting the vulnerable, spending around £50 billion a year on benefits to support disabled people and people with health conditions, which equates to more than 6% of all government spending. I recognise that this change will have a bigger impact on people with lower life expectancy, but we agree with Cridland that a universal state pension is important for simplicity and clarity for planning purposes. There have been substantial improvements in life expectancy at 65 across all socioeconomic groups over the last 30 years. This means that change is needed for fairness between the generations.
My Lords, I simply repeat that we have decided to retain the triple lock for the remainder of this Parliament. I had rather hoped that noble Lords who take advantage of it would welcome it.