Clause 26 - Periodic review of rules about pensionable age

Pensions Bill – in a Public Bill Committee at 4:00 pm on 4th July 2013.

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Photo of Gregg McClymont Gregg McClymont Shadow Minister (Work and Pensions) 4:00 pm, 4th July 2013

I beg to move amendment 7, in clause 26, page 13, line 33, leave out ‘person or’ and insert ‘panel of’.

Photo of Anne Main Anne Main Conservative, St Albans

With this it will be convenient to discuss amendment 8, in clause 26, page 13, line 35, at end insert—

‘(5A) The panel shall include—

(a) representatives of the party or parties in opposition at the time;

(b) representatives of trade unions; and

(c) representatives of the House of Lords cross-benches.

(5B) The panel shall take evidence by way of evidence sessions to be held in public. It shall have power to determine its own terms of reference for evidence taking, which may include matters such as disparities in lifespan and life expectancy between sectors of the population.’.

Photo of Gregg McClymont Gregg McClymont Shadow Minister (Work and Pensions)

The amendments refer to the Government’s provisions for reviewing state pension age, which include the establishment of a panel to assess rises in longevity. Clause 26 states:

“(1) The Secretary of State must from time to time—

(a) review whether the rules about pensionable age are appropriate, having regard to life expectancy and other factors that the Secretary of State considers relevant, and

(b) prepare and publish a report on the outcome of the review.

(2) The first report must be published before 7 May 2017.

(3) Each subsequent report must be published before the end of the period of 6 years beginning with the day on which the previous report was published.

(4) For the purposes of each review, the Secretary of State must require the Government Actuary or Deputy Government Actuary to prepare a report for the Secretary of State on—

(a) whether the rules about pensionable age mean that, on average, a person who reaches pensionable age within a specified period can be expected to spend a specified proportion of his or her adult life in retirement, and

(b) if not, ways in which the rules might be changed with a view to achieving that result.

(5) The Secretary of State must, for the purposes of a review, appoint a person or persons to prepare a report for the Secretary of State on other specified factors relevant to the review.”

A key issue in subsection (4) will be the proportion of a person’s adult life after they reach a specified age.

The Government want to be able to assess regularly whether longevity is increasing. That makes sense, given that longevity has increased significantly in recent decades and has so far manage to outstrip actuarial calculations about life expectancy. Our amendments are designed to beef up the panel that is mentioned in the clause.

Amendment 8 would ensure that the panel included representatives from the Opposition party or parties—a very good idea for the Opposition, although probably not so much for the Government—and representatives of the trade unions. That is important, given that trade unions continue to be the voice of those who are on the receiving end of changes to pension provision. The requirement for the panel to include representatives from the House of Lords Cross Benches is a nod to the expertise that is to be found there. Proposed new subsection (5B) would give the panel additional powers and provide for its evidence sessions to be held in public. The amendments would beef up the panel and give it greater credibility. When one reads clause 26, one gets the impression it is putting all the powers in the hands of the Secretary of State. If we are trying to get cross-party, cross-generational and cross-society support for tough decisions that might have to be made about  the pension age in future, it is probably a good idea to have as wide a range of interests as possible represented on any panel the Minister might wish to set up.

The clause includes some detail on the periodic reviews to which I referred, but further clarity is needed. It is not our intention to stand in the way of the proposals in the Bill to increase the state pension age, as we discussed in considering clause 25. However, we have concerns about the mechanism for the periodic review. It is worth remembering in this context that the goalposts on the state pension age have been moved a number of times in this Parliament. We often talk about stability, certainty and long-term planning for retirement; moving the goalposts has not been conducive to those things, which we would all like to see, although I understand that by putting the review mechanism in place, the Government are trying to address that issue.

Legislation was agreed in 1995 to increase the state pension age for women from 60 to 65 gradually, over a 10-year period starting in April 2010. The Pensions Act 2011 speeds up that process so that women’s pension age will now reach 65 by November 2018; the state pension age for both men and women will then increase to 66 by October 2020. In discussions on that legislation in 2011, which I only became a part of during their dying minutes on Report and Third Reading, it emerged that a group of women were facing what we might call a cliff edge as a result of the pension age being changed again, and were facing an increase of up to two years with only a short time to prepare for that—certainly nowhere near the 10 years that most parties agree is the very least we should give individuals to prepare for changes to their pension age. I am delighted that at that time the Government agreed to modify the change so that the maximum increase any woman faced was 18 months, which was a welcome improvement. Of course, there is also the accelerated timetable for increasing the state pension age to 67, which clause 25 refers to.

The Secretary of State is asking for the power, unfettered, to review the state pension age every five years. The hon. Member for Gloucester, who is not in his place, referred a number of times to the importance of communication; as we will have a report from a person or persons every five years, there is a danger that people will fear that that means the pension age will go up every five years. That is inevitable. To reassure people, it would be useful to have a broader range of parties represented as a panel that makes the report. Also, if the Government want that power for the Secretary of State, we need more details on the procedure and mechanisms involved in the review.

The Opposition are anxious to ensure safeguards so that there are no decisions to accelerate the state pension age rapidly without buy-in from stakeholders within society. The hon. Member for Plymouth, Sutton and Devonport mentioned the Royal Naval dockyard in his constituency and the 11-year discrepancy in life expectancy; such issues will continue to arise—they are not going to disappear overnight. We know that there are significant health inequalities, and further moves to raise the pension age will bring such issues further into focus. If the Government decide to go down that route, it is in their interests to have a panel that represents the broadest possible range of opinion, while still being small enough  to be effective—no doubt there would be a trade-off between the widest possible representation on the panel and its effectiveness. The Government should accept our amendments 7 and 8 and include those parties to which they refer in the review mechanism.

Photo of Christopher Pincher Christopher Pincher Conservative, Tamworth 4:15 pm, 4th July 2013

The hon. Gentleman’s amendment states that

“representatives of the party or parties in opposition at the time” should be included on the panel. Given that there is more than one party on the Opposition Benches—there are about half a dozen—does he envisage that a representative from each should sit on the panel?

Photo of Gregg McClymont Gregg McClymont Shadow Minister (Work and Pensions)

The hon. Gentleman’s question is fair and pertinent. If there is a trade-off between having the widest possible representation and keeping the panel that the Secretary of State and the Government wish to set up to a manageable number, at the very least, Her Majesty’s Opposition should be represented. Anything further than that can be the subject of negotiations; but I agree with the hon. Gentleman’s fair question.

The hon. Gentleman beat me to the punch, because I was going to say that a review should be cross-party in nature, whether it involves one, two or three parties. Of course, if we do not have a coalition Government, there may be an extra space on the panel for another Opposition party representative. Such things remain in the future, to which we are not privy. In all seriousness, this is a thorny issue and it poses significant questions for Parliament and society. It is therefore important that we try to get political consensus. We should also get representation from those at the sharp end.

Photo of Oliver Colvile Oliver Colvile Conservative, Plymouth, Sutton and Devonport

One of the groups that could be included is GPs, because they are “front of house” and see regularly how health inequalities work.

Photo of Gregg McClymont Gregg McClymont Shadow Minister (Work and Pensions)

That is a fair point, and I pay tribute to the hon. Gentleman’s interest in health inequalities. The greatest way we can make our society fairer is to reduce these striking health inequalities.

To get consensus, there should be employee representation alongside the political parties. GPs are at the sharp end. Sometimes, to understand these things it is necessary to be at the sharp end. My hon. Friend the Member for Middlesbrough South and East Cleveland has talked about people who work with asbestos and how long they are likely to live if they have been exposed to it. Such examples bring clarity to this issue.

According to mortality figures published by the House of Commons Library, of 1.2 million citizens who died between the ages of 65 and 69, 60% were in the bottom three income groups. The mortality rates of the poorest in our country are twice those of the richest. We must take great care to consider not just projections of life expectancy, but healthy life expectancy, an issue about which Baroness Hollis has spoken.

The review should take evidence in public, as our amendment states. If we are trying to get buy-in, and if the issue is about communication and making all of us aware of the challenges that longevity poses to society, there is a good case for holding the discussions in public. It is important that we have the confidence of the public and savers when we try to build consensus.

An independent commission is important. If the Government’s argument is that the state pension age might need to rise again, as a fair reading of the clause would suggest, the independence of the commission is important. As drafted, the clause establishes a largely formula-based approach to deciding state pension age in the future, and Ministers will make decisions based on information about the average life expectancy from the Government Actuary. It is not unfair to view the Minister’s observations on clause 25 in that sense. In the end, the Government will work from the average life expectancy.

We recognise that clause 26(5) also requires the Government to appoint an individual to provide the report and

“other specified factors relevant to the review.”

The Opposition do not believe, however, that that is enough to establish an independent, impartial and thorough process through which all factors relevant to decisions on the state pension age can be considered.

I believe that the Chancellor of the Exchequer referred to all the different things he has been doing to try to raise money or save money, and he said that the thing that has the biggest impact is raising the state pension age. He suggested that without the least fury, but I took from that that raising the state pension age was a Treasury decision. Given the health inequalities to which the hon. Member for Plymouth, Sutton and Devonport referred so eloquently, raising the state pension age will be more difficult to achieve in future without cross-societal support. We have heard evidence from a number of sources, and various bodies—from the Public Accounts Committee to the CBI—have expressed concern about the Secretary of State having unfettered power. Indeed, the CBI states that, when reviewing the state pension age

“there are many factors which should be taken into account such as healthy life expectancy.”

That makes our point, and the hon. Gentleman’s point, for us.

Further, the CBI believes that the review should be carried out by “non-political specialists” so that such factors can be considered. Let me make it clear that I am not an enormous fan of contracting out decisions to non-elected experts. Ultimately, the decision will have to be taken by the Government, but if they are going to proceed with the panel, it is probably wise to make the panel as effective as possible. Our amendments would help that process. Our view is that the clause as it stands does not provide clarity on the nature of the review of the state pension age. I hope the Minister will listen to our concerns and accept the amendment.

Photo of Steve Webb Steve Webb The Minister of State, Department for Work and Pensions

I am grateful to the hon. Gentleman for moving his amendment, which gives me a chance to put on the record how we believe the review process should take place and why we do not believe the amendment is necessary.

We are trying to be systematic, not ad hoc—as the hon. Gentleman suggests, we clearly do not want a future Chancellor who is short of a few bob to decide to tweak the state pension age or even, hypothetically, exceed a welfare cap that includes the tweak of the state pension age.

We are trying to be systematic so that people do not face the kind of emergency increases in state pension age that the new Government had to implement in this Parliament. People should have adequate notice—we are talking in terms of a 10-year minimum—and the process should be transparent. The steps in the transparent process are, first, that the Government of the day must identify a proportion of adult life spent, colloquially, “in retirement”—as the clause spells out, by that we mean beyond the state pension age. The Prime Minister was interviewed on breakfast television the other day, and he said:

“I think it’s fair to ask people to work a bit longer given that we’re all living longer…the idea that you should spend about a third of your adult life in retirement seems to me a reasonable one.”

That is the kind of figure we are thinking of.

One of the consequences of that model, of course, is that, as people live longer, the state does not take the whole of that longevity out of their retirement. If, for example, we are talking about roughly a third, for each extra year people are expected to live, eight months goes on working life and four months goes on retirement or drawing state pension. There is already recognition that not all of the improvement in longevity is an improvement in healthy longevity, which is part of the reason why the whole of the growth in longevity is not being snaffled up by working age.

The hon. Gentleman asked how the UK compares internationally. Perhaps encouragingly, of the 27 member states of the EU—as it was when the figures were produced—the UK ranked fifth for healthy life years at 65 for men, and third for women. That is relatively good news, although obviously there is room for improvement. Although healthy life expectancy has not risen as fast as overall life expectancy, it is still going up. For example, in the last decade for which we have figures—between 2000 and 2010—healthy life expectancy at 65 increased by 0.7 years for men and 0.9 years for women. The total life expectancy figure over the previous two decades was 1.9 years for men and 1.4 years for women. In other words, slightly less than half the improvement for men—and slightly more than half for women—was for healthy life expectancy. There is clearly a sharing of the growth in life expectancy.

Photo of Gregg McClymont Gregg McClymont Shadow Minister (Work and Pensions) 4:30 pm, 4th July 2013

The Minister cites some interesting figures, but will he elaborate a little? That is good news, and we are pleased to hear the figures, but is there a possibility that if we dig under that average figure we have a real roaring ahead of life expectancy in some parts of the country, with a much lower rate of growth, if any, in other parts? Is that fair?

Photo of Steve Webb Steve Webb The Minister of State, Department for Work and Pensions

In terms of England, Wales and Scotland, although there are differences in life expectancy, the growth in absolute numbers of years and months is pretty similar in the past decade or so. It is not identical, but it is pretty similar, apart from a few months either way. On the social class gradient, I can give the Committee the evidence for the past quarter of a century—a long run at this, from the early ’80s to 2006—for what the Office for National Statistics calls condensed socio-economic class, which has at one end of the scale managerial and  professional, and at the other routine and manual. The Committee will be encouraged to know that the increase in life expectancy at 65 for men among managerial and professional workers was 22%, the increase for routine and manual workers was 21%—in essence, or as near as dammit, the same number. They clearly start at different levels and so on, but across the social scale we are seeing significant increases in life expectancy and in healthy life expectancy, and that reinforces the feeling that we have to travel in this direction, albeit with some care and caution.

Reverting to the process, as is clear in the clause, a future Government specifies a percentage—this Government think that up to about a third is the right figure—and the Government Actuary then comes back with a report saying, “Simply on the basis of the maths, this is the answer—this is what you have to do for future state pension ages to stay within your target.” The hon. Gentleman may underestimate the checks and balances in the process, because we do not simply take the number we first thought of, but expose the report to the independently led process. He should take some comfort from the fact that a hard-nosed Chancellor might simply have said, “We will take the number we first thought of,” or that the external review might simply have been led from within—the Government tweaked the number—but we have made it clear that we envisage an independently led review.

The model we have in mind is the Hutton review of public service pensions, so someone who commands respect across the political spectrum—in that case, the Government appointed a former Labour Secretary of State. We will not have a great panel that ticks every tick box, but someone whom people respect and who can listen to views across the spectrum and find out what is going on. Rather than putting into primary legislation that we must have a trade unionist or whatever on the panel, we can expect the person with widespread respect to be taking in the breadth of views, including employer and employee perspectives—it is a very not-new-Labour sort of amendment, which forgets the employer side of the equation and only has the employee side. Clearly, the person would want to talk to trade union representative and employers.

There are slightly different arguments about Members of the House. Bear in mind that even after the whole process has been gone through, with a recommendation and decisions made, everything requires primary legislation. This Bill does not enable the state pension age to be changed by regulation; there will have to be an Act of Parliament. The people mentioned in amendment 8—

“representatives of the party or parties in opposition at the time”— will have hours of happy fun debating any change. Also,

“representatives of the House of Lords cross-benches” will be giving their wisdom on such matters. They are all entirely part of the process.

We clearly have the Hutton model in mind, and a Secretary of State worth their salt will appoint someone who commands respect across the political spectrum, because the Government will want to get the legislation through and to get the changes done. There is a danger of tokenism, if we are not careful. If we go beyond a respected non-partisan person and stipulate, as in the  amendment, that we have to have the trade unions, we can be pretty sure that the employers will say, “We are paying employer national insurance so we want to be on this.” If we include the opposition parties, it will be, as my hon. Friend said, which and how many. If the Cross-Benches are deemed to be the sole repository of wisdom in the House of Lords, others in the Lords might have something to say about that, and so we go on. The medical profession might be asked, as might a whole raft of other people. Before we know it, we will have an unwieldy panel when what we want is an evidence-based process led by someone who is respected.

We have taken a clear judgment, and the Committee is entitled to disagree with us, that rather than attempt to shackle future Governments we have tried to be clear about what we would do if we were carrying on in office while trying to give future Governments flexibility to respond to the circumstances of the time. We do not want all of this pre-determined because, as we know, this is long-term stuff and, ultimately, we cannot bind future Governments.

Photo of Oliver Colvile Oliver Colvile Conservative, Plymouth, Sutton and Devonport

Does my hon. Friend also agree that it is not just about pensions but about making sure that there is decent housing, good health quality and all of those kind of things? Therefore, to concentrate on just one part of this in the form of pensions is perhaps not the right way of going about it. What we must do is campaign for better conditions.

Photo of Steve Webb Steve Webb The Minister of State, Department for Work and Pensions

My hon. Friend is right that the quality of life for older people is about a whole range of things of which the state pension is an important one but not the only one. Indeed the valuable work on ageing done by the House of Lords Committee on Public Service and Demographic Change in its recent published report encouraged Government Departments to look across the piece at health, social care, pensions and so on and make sure that the needs of older people are being looked at in an integrated way. My hon. Friend was quite right to flag up that point.

The crucial point with regard to the amendment—we will come back to the substantive clause in a moment—is that the proposed process will be transparent. A whole series of reports will be published on this matter. The Government Actuary will tell us what it thinks, as will the independent panel. The Secretary of State will also lay a report. We will have reports coming out of our ears. This will be a far more transparent and inclusive process than we have ever had before. On that basis, the slightly tokenistic suggestion of having a particular group represented or someone who is thought to be particularly knowledgeable and is drawn from a particular bit of the House of Lords seems to be slightly missing the point. I encourage the hon. Gentleman to withdraw his amendment.

Photo of Gregg McClymont Gregg McClymont Shadow Minister (Work and Pensions)

I listened to the Minister, but I do not accept the portrayal of the amendment or the desire for a beefed-up panel as tokenistic. Given that we are discussing very important matters in the context of significant inequalities of health and other things, as the hon. Member for Plymouth, Sutton and Devonport noted, it seems appropriate to try to think a little more carefully about how such a panel  will be constituted. Let us not underestimate the significance that this panel will have. The Minister refers to checks and balances. We know that the report will be portrayed by the Government of the day as independent, fact-based and evidence-based, which is putting a lot of responsibility on one single individual. The Minister says that any Secretary of State worth his salt will be sure to appoint a top-class person. I am always a bit wary of what we might describe as good intentions. I am sure the Minister’s intentions can be so described, but he might be long gone and he might or might not be Secretary of State. [Interruption.] The Minister gestures maybe aye, maybe no. It seems that this model puts far too much focus on one individual. Without knowing who that individual is, what their qualifications are for the job or the biases or prejudices that they may bring to the task—I do not use the words biases and prejudices in a pejorative way because everyone brings to any task their own perspective—a much more reasonable way to approach such an important issue is to have in the room representatives of the various parts of society that will be very much affected by this panel and its decision regarding the retirement age. Our amendments 7 and 8, together, would beef-up the panel’s role and hopefully give people more confidence that a wide range of views will be heard. On that basis, and having listened to the Minister carefully, I intend to press the amendment to a vote.

Question put, That the amendment be made.

The Committee divided: Ayes 4, Noes 7.

Division number 1 Decision Time — Clause 26 - Periodic review of rules about pensionable age

Aye: 4 MPs

No: 7 MPs

Ayes: A-Z by last name

Nos: A-Z by last name

Question accordingly negatived.

Amendment proposed: 8, in clause 26, page 13, line 35, at end insert—

‘(5A) The panel shall include—

(a) representatives of the party or parties in opposition at the time;

(b) representatives of trade unions; and

(c) representatives of the House of Lords cross-benches.

(5B) The panel shall take evidence by way of evidence sessions to be held in public. It shall have power to determine its own terms of reference for evidence taking, which may include matters such as disparities in lifespan and life expectancy between sectors of the population.’.—(Gregg McClymont.)

Question put, That the amendment be made.

The Committee divided: Ayes 4, Noes 7.

Division number 2 Decision Time — Clause 26 - Periodic review of rules about pensionable age

Aye: 4 MPs

No: 7 MPs

Ayes: A-Z by last name

Nos: A-Z by last name

Question accordingly negatived.

Question proposed, That the clause stand part of the Bill.

Photo of Steve Webb Steve Webb The Minister of State, Department for Work and Pensions

We have covered the main elements the clause. The Secretary of State will ask the Government Actuary to produce a report on the state pension age, which will be required to maintain the proportion of adult life in retirement below a set threshold. That threshold will be set by a future Government, but we envisage that that will be up to about a third.

That report will be published and a review, led by an independent person, will comment on that and report to the Secretary of State. The Secretary of State will then make a decision, which will form the basis of primary legislation. Those reviews will have to take place at least every six years. That may seem odd in a world of five-year Parliaments, but that is because if the first review is done early in a Parliament, we would not want the next one to be rushed in the early days of the next Parliament. That provides a bit of flex in the system, but we have covered all of that.

The statistics on longevity are pretty startling. In the 1950s, a man could expect to spend about 12 years, or a fifth of adult life, in retirement. Today, that figure is 21 years, or nearly a third of adult life. There are many more examples besides that. Similar things are being done in many other countries. In Denmark and the Netherlands, the state pension age is linked to life expectancy through a formula that keeps the number of years spent in retirement constant, so the Danish and Dutch approach is more draconian than the British one. It is important to remember that we are not taking every year of enhanced longevity out of retirement, whereas some countries are doing so.

Photo of Sheila Gilmore Sheila Gilmore Labour, Edinburgh East 4:45 pm, 4th July 2013

While the Minister has the opportunity, will he reflect on whether the system being created is flexible enough to enable a future Government to consider having some flexibility in retirement ages? We have debated at length about differential life expectancies and the fact that some people spend a considerable time out of employment at an early age. Although life expectancy has continued to improve, those differences have proved quite stubborn. Does the system encompass such a possibility?

Photo of Steve Webb Steve Webb The Minister of State, Department for Work and Pensions

I am grateful to the hon. Lady for her question. If we allowed people to draw the single-tier pension early at a reduced rate, for the reasons she gives, that might fatally undermine the whole point of the exercise, which is to set the rate of the single-tier pension above that of the basic means-tested pension. We would find that people drew their pension a bit earlier and were then within the scope of means-testing, which would undermine the savings incentive and add great complexity to the system.

Photo of Sheila Gilmore Sheila Gilmore Labour, Edinburgh East

The fact is that many people who are out of work at such a stage of their lives are already embroiled, to a greater or lesser extent, in means-tested systems, and one of the issues is the loss of savings. For example, people in a particular group now lose their employment and support allowance after 12 months of being out of work, which can lead them to having to use up their savings.

Photo of Steve Webb Steve Webb The Minister of State, Department for Work and Pensions

The evidence from around the world is that where people are allowed to take their pension early, that rapidly becomes the norm. For example, in America, people can draw a reduced state pension from 62, and the average of retirement age in America is 62. That would run completely counter to what we are trying to do, which is to encourage, enable and support people to work for longer—that is very often in their interests—and to enable them to enjoy a prosperous retirement that does not put an excessive cost on the national insurance system. To be fair, the hon. Lady’s proposal does not directly relate to the mechanism in the clause, which is simply about setting the state pension age. In a sense, there is upward flexibility, of course, because people can defer and then enjoy a higher pension, but there has to be an age at which the pension is payable.

I have some very exciting information about how that age is set in Finland, Portugal, Sweden and Norway, but I will spare the Committee the benefit of all that and simply say that what we are introducing a modest mechanism that will allow people to retire for longer, but also recognises that the system needs to made sustainable. The clause represents a systematic, fair and reasonable approach to this important issue, and I commend it to the Committee.

Photo of Gregg McClymont Gregg McClymont Shadow Minister (Work and Pensions)

I largely set out the Opposition’s view in the debate on amendments 7 and 8, and I have nothing further to add. I certainly do not intend to divide the Committee on the clause.

Question put and agreed to.

Clause 26 accordingly ordered to stand part of the Bill.