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Baroness Hollis of Heigham: I, too, should like to support my noble friend Lord Monkswell in his opposition to Schedule 4 standing part of the Bill. I do so in response to the Minister's invitation at an earlier stage in his recent, extremely long speech when he requested the benefit of our thoughts on the flexible decade of retirement. The Minister said that he could not understand why we had not reached the stage where we could explain to him the implications of that flexible decade of retirement. However, now that we are discussing Schedule 4 which would equalise pension ages at 65 and, therefore, remove the possibility of a

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certain degree of choice for men and women, I am sure that the Minister wants to hear the arguments in favour of the flexible decade of retirement that, unfortunately, we were not able to explore in rather greater depths earlier this evening.

As we know, the world of work has changed hugely since the 1960s. Yet, we have a fixed retirement age devised when most men had very similar working lives. They worked continuously from the age of 16 to 65, often with the same employer, while the wives worked without pay at home. However, over the past 20 or 30 years, many events have come together. For example, we have seen growing unemployment with 40 per cent. of all men being unemployed in the past five years. We have seen greater job mobility in that men and women together have, on average, between five and six employers. We have seen a fragmentation of full-time jobs into part-time fragments which, if one is fortunate, can be reclustered into a portfolio. We have also seen men dropping out of the labour market earlier; indeed 57 per cent.—that is, more than half—of all men between the ages of 55 and 64 are not in work, compared to only 8 per cent. in 1977. Moreover, we have seen women joining the labour market both as full-time and part-time workers. While the years spent in child care have reduced, we have often seen increased years spent in caring for the elderly.

Therefore, compared to 20 or 30 years ago when most men worked and expected to work full time until the age of 65 and most women expected to be supported by their husbands' earnings and pension, that similarity of experience has now fragmented for the reasons that I have outlined. Each family is now positioned differently. What we ought to do, what we want to do, what we should all be able to do, and what we should choose to do will vary enormously. Yet while we recognise that increasingly divergent experience from family to family we still persist in a fixed state retirement age which will be even more inflexible when men and women are both required to retire—if this Bill goes through unamended—at 65.

We need to have our pension provision reflect the same flexibility that people now experience in their working lives. Men, for example, may contentedly retire with a decent occupational pension at 55 or 60 if they are in certain jobs such as the Armed Forces, the police, mental health nursing or if they are air pilots. Indeed, 43 per cent. of occupational schemes permit retirement at 63 or earlier. But, equally, they may want to continue to do full-time work until 65. Perhaps if they are an MP, or in another job equally rewarding and not too demanding, they may seek to continue their employment beyond 65 to 70. On the other hand, they may suffer poor health and not be fit to return to manual work. Although a man might be fairly fit himself his partner, or in her case her partner, could develop, for example, multiple sclerosis or severe rheumatoid arthritis and may wish to work part-time or take early retirement. Equally, someone may be made redundant, and, particularly if it is a man who is unskilled or has unsuitable skills, at the age of 57 or 62 he is unlikely to work again.

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Equally, if there are several years disparity in ages between husband and wife—one might be 65 and one might be 61—they might wish to retire at the same time. I have given a dozen different examples of the ways that men and women and their families are now differently positioned from what they might have expected 20 or 30 years ago. Every Member of the Chamber could add several more such instances to the ones I have given. They are all different. Yet with this Bill the Government are trying to shoehorn all of this experience, all of this diversity, all of this variety and all of this need for choice into one common state retirement age. It is absurd. Why should the state make that decision when men and women and their families could and should make that choice—a choice which reflects their circumstances, their needs and their wishes? They may have to leave the labour market earlier than they want; they may want to leave the labour market earlier than they are permitted, but the state is not allowing people to make that choice for themselves.

If we are to have a flexible life of work—as the Government insist is the future ahead of us—why should we have an inflexible year of retirement? Why not allow different retirement choices before as well as after the pivotal year? Of course, families must make that choice in the light of its financial consequences. But if, for example, we supported a flexible decade of retirement but with a pivotal year of 63—that is our alternative to Schedule 4—it would cost no more than present arrangements. The increase in start-up costs would be offset by the fact that men and women now have to have an income when not in work. Whether one calls it income support, incapacity benefit or state pension it still for the most part has to be paid. However, with a pivotal year of 63—the position that certainly we on these Benches and I believe Members on the Liberal Democrat Benches share—and a flexible decade of retirement, if people retired before that date they would have a reduced pension. If they retired later than that, they would have an increased pension.

I accept that those seeking to retire earlier may be the neediest who would then have a proportionately lower state pension—but that is the case now—while the great majority of families under such a proposal would instead be free to make the choice of when to retire as best suits them, their health, their wealth and their family circumstances. A further advantage to a flexible decade of retirement, and another reason for agreeing with my noble friend that Schedule 4 should not stand part of the Bill, is that such a proposal is attractive to employers. That is why the National Association of Pension Funds also supports a flexible decade and a pivotal year of 63 because it gives flexibility not only to employees but also to the employer who can agree with staff individually the retirement arrangements that suit them both. The NAPF has suggested it would expect an 8 per cent. to 9 per cent. compound discount below or addition above the pivotal year to be financially cost neutral.

Such a proposal would not be especially complex to administer as that principle is already in place for those who stay on in work past 65 and add to their basic state pension. I repeat that with a pivotal year of 63 the

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proposal is certainly financially neutral and may even generate modest cost savings. It is fair as between men and women. It is flexible. It places the choice back where it belongs, with the families, the men and women who have earned their pension rights.

That is why I join with my noble friend in believing that Schedule 4 should not stand part of the Bill and instead the Committee should be considering a flexible decade of retirement.

9.45 p.m.

Baroness Seear: The Liberal Democrats have long had a policy of a flexible decade of retirement. We are delighted that the Labour Party has caught up with us on yet another item of policy. We therefore support the proposal.

Lord Mackay of Ardbrecknish: I am grateful that the noble Baroness, Lady Hollis of Heigham, has come off the fence and told us what the Labour Party's policy is in this regard. It is a pity that she did not do so in the form of moving an amendment which would have provided us with a proper debate on that proposition instead of telling us about it when we debate the Motion that Schedule 4 stand part of the Bill and the option of 65.

Baroness Seear: Had she done so, we would have had an even longer speech from the Minister, because he had to fill the time.

Lord Mackay of Ardbrecknish: I advise the noble Baroness not to tempt me. As I said in the first debate today, yield not to temptation. That is easier in this case but I had a great many words to say about flexible decades of retirement and retirement ages of 63, 65 and the like.

I turn to the point at issue; namely, Schedule 4. I could reasonably assume that opposition to Schedule 4 standing part of the Bill indicates some disagreement with some of the detail of Schedule 4, but I am pretty certain that it does not indicate that at all. It indicates a desire for a general debate. In fact, a more relevant point for a general debate is Clause 114 which introduces the proposition of a common retirement age of 65. Therefore, I may resist the temptation—although I shall leave it in front of me in case I decide that I ought not to resist it —to explain in some detail what Schedule 4 actually does. However, it is tied in with Clause 114 which introduces the retirement age of 65.

Clause 114 answers the question, which came about due to the fact that, as a result of the changing face of society, we have all decided that the different retirement ages for men and women of 65 and 60 are no longer relevant in today's world and that men and women should retire at the same age. There are as many propositions as one likes.

The noble Lord, Lord Monkswell, in a welcome intervention—I had thought that he had taken a vow of silence this evening—suggested that 70 ought to be a possibility. We do not have a retirement age of 70 in front of us. If the noble Lord could give guarantees that we would all reach 70 hale and hearty, we might all sign

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up to his proposal very quickly. However, as I suspect that he is unable to give that guarantee, we shall have to stay with the options which are in front of us.

The options are to fix on the age of 60, to fix on 65, to fix on something in between or to fix on something called a flexible decade of retirement. An important part in that argument is where one places what is called the pivot. I shall not go into the interesting actuarial proposition at great length, but it is one of the problems. One cannot merely say that we shall have a flexible decade of retirement without looking at the question of the pivot. The noble Baroness has helped me and suggested 63 would be the pivot. I was listening to her with some interest. I do not wish to become diverted too far because the proposition before us is whether we agree or disagree with the age of 65. The option of debating those other choices in some detail really has passed us by. As I explained already, I am deeply sorry that it passed us by. However, the fact is that wherever one makes the pivot—whether at 65, as one could do, or at 63—there is the choice that the person who retires earlier than at the pivotal point will have his or her pension abated not just for the two or three years between 60 or 61 to the pivot, but for the remainder of his or her life.

We are all concerned about pension provision over the whole of retirement. I believe that the flexible decade, with the pivot at 63, has drawbacks for the individual who decides to retire at 60. There is some evidence from other countries that flexible decades mean that people retire at the earlier age without thinking about the consequence. If the pivot is at 63 or 65, one does not have one's pension restored to what it would have been if one had retired at that point. One loses every year for the rest of one's life. That is the situation.

I am glad to see that the party opposite has managed to put out a press release already about the small victory it had earlier this evening. If I need to do so I might even read out the noble Baroness's words. I wonder whether it was prepared before the event; I do not know.

In Government, we were confronted with the problem of equalising the state pension age. There was some suggestion creeping into the speech of the noble Baroness, Lady Hollis, that somehow the state was compulsorily retiring people at whatever age the state chose. That is not the case. People can go on working, as indeed they do in your Lordships' House, long after the state retirement age. Currently one can retire at 60 or 65 and be eligible for the retirement pension. It is important that we differentiate in the terminology. Although we are all guilty of shifting between one and the other, I am sure that we all know exactly what we mean: that people can work on after the normal retirement ages of 60 and 65.

However, in our splendid document, Equality in State Pension Age, we address the problem. In December 1991, we put forward the options. We looked at the ages 60, 63, 65 and the flexible decade. In December 1993 after consultation and careful consideration of all the options, with the publication of the White Paper we announced our intention to equalise the state pension age at 65. The change will be phased in gradually

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between 2010 and 2020, allowing people, we believe, plenty of time to alter their pension and retirement plan. That is what Schedule 4(1) provides for. It states that pensionable age is 65 for men. It is 60 for women born before 6th April 1950, 65 for women born after 5th April 1955, and, according to a table which is laid out, for every two months that passes one month is added to the retirement age. During that decade, women will gradually move from 60 to 65. That is a 10 year phasing which starts in 15 years' time.

We believe that 65 is the right choice. The consensus of opinion is also moving towards that view for the only realistic option for the future. Both the Social Security Advisory Committee and—dare I mention it?—the Commission on Social Justice set up by the party opposite recommended a retirement age of 65. Equalising the retirement age at the age of 65 recognises women's changed role in the workplace. I discussed that briefly when I was responding to the last amendment. Women represent a large and increasing share of the labour force; they are able to make their own provisions rather than relying on their husbands.

It is also true that we are all living longer and healthier lives. People who are now drawing their pensions do so on average for four years longer than in Beveridge's time. That leads me to the argument about the demographic effects of two factors coming together, not just in our population but in the population of most of the economically advanced countries in the world and certainly all our European neighbours. There is an increasing proportion of elderly people who have to be supported by the working population of the day. That working population is declining. If we do not take these measures then the cost of pensions would rise from just under the £30 billion now to over £66 billion in 2030. That reflects the real growth in pension value through the maturing of the state earnings related pension, as well as increased numbers. Equalising at the age of 65 will save £5.2 billion in benefit expenditure by 2030. I believe that that is an important aspect.

If that were all and we had a population which we thought could afford to fund that, then we might be prepared to accept that increased expenditure. I discussed it during the last debate, but the simple fact is that the number of people over the state pension age is increasing. The population of working age is decreasing. What is called the support ratio—the number of people of working age per pensioner—is declining. For example, I give as base figures the current scheme if we did nothing. In 1991, four years ago, there were 10.3 million people of state pension age. That increases slowly until it reaches a peak in 2040 of 16.3. By 2050 it falls back a little to 15.8. If we reduce the state pension age to 60, then the position is that the figures increase from 10.3 million at the beginning of this decade to 15.3 million in 2020, 17.9 million in 2040 and then it falls back to 17.5 million in 2050.

With the age at 63, the same trend is quite apparent, although at a lower level as the age has increased. At the age of 65—which is what we propose—the number

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of pensioners rises in each decade: 10.3 million, 11.7 million, 11.6 million, 13.7 million in 2030, 14.7 million in 2040 and 14.0 million in 2050.

The population of working age moves in the opposite direction. Without any change in the retirement pension age, in 1991 it was 34.4 million, in 2010 it will be 36.2 million; in 2030 it will be 33.7 million; and in 2050 it will be 32.0 million. If we reduce the age to 60, in 2030 it would be 31.6 million people of working age and in 2050, 30.2 million.

Our proposals would bring about 35.8 million in 2030 and 33.8 million in 2050. A quick calculation will show that the support ratio—the number of people of working age per pensioner—if we do nothing, would move in each decade from 3.3 at the beginning of this decade to 3.1 in 2010, 2.7, 2.1 and 2.0. If the age is decreased to 60, then by 2030 it is 1.8 and by 2050, 1.7. The age of 63 is naturally better, but even that is not what is proposed and it would be 2.2 and 2.1. The age of 65 keeps us in the middle between 2.0 and 3.0 in 2030 and 2050. Thus there are compelling demographic reasons for shifting the pension age to 65. Those, taken together with the financial ones, are the first two arguments. There are other arguments to do with our competitors. But I do not want to get a reputation for making long speeches.


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