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Baroness Greengross: My Lords, I add my congratulations to the noble Lord, Lord Fowler, on securing the debate. He was always ready to speak with me and listen to my views and ideas when he was responsible for these issues, and I appreciated that very much. I declare an interest as president of the Pensions Policy Institute and vice-president of Age Concern.

Pension reform is essential if for no other reason than that the current system is not fair: it benefits higher earners and creates a huge amount of uncertainty. People do not know what they are going to get from the state; they may rely too much on the private pensions sector; state expenditure on pensions is rather low and the numbers of people over pensioner age, as we have heard, is increasing very rapidly. The Government have recognised that the state is the primary organisation to prevent poverty in later life, and the pension credit is therefore something that is very welcome; but the facts are that a fifth of all pensioners in this country are living in poverty, that women are much more at risk—14 per cent of single men and 21 per cent of single women are in dire poverty—and nearly one-third of those from ethnic minority groups are living in poverty as well. We know that among pensioner couples, women receive 34 pence for every pound received by men, and nearly 70 per cent of older people receive half their income from the state, while 9 million people are estimated to be saving too little for retirement.

I acknowledge that the Government have done a lot, with winter fuel payments, pension credit, help with council tax, local bus travel and so on. Cross-party agreements exist on the fact that pensioner poverty must be eliminated; the problem is to reach a consensus—and we need a consensus—on how best to achieve that. In the interim report of the noble Lord, Lord Turner, last October, he stressed that 12 million people are not saving enough and that their pension
 
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income would be slashed by 30 per cent in 30 years' time. That is an appalling amount. The Pensions Policy Institute says that government estimates for future state spending on pensions are not accurate and therefore should not be used as the basis for calculating the extra cost of reform. In a recent report that the Prudential company produced, it was said that the state pension would no longer provide the majority of pensioners' incomes, and that is going to start from next year. The company's data monitor service said that those who were now under 40 may have to work, if this is to be properly remedied, not until 67 but until 75. That is really unthinkable at the moment.

The PPI has estimated that more than 3.5 million households are now eligible for pension credit. That number is expected to increase by one-third over the next 10 years. The Government assume in those figures that 25 per cent of those eligible will not claim; that is a terrible estimate. They also seem to assume that GDP will be sufficient to pay for state benefits and pensions, but the number of pensioners will increase by 50 per cent over the next 50 years. The Government do not include tax relief on pension contributions of £16 billion a year when they estimate the costs. So I believe that those figures need to be looked at again.

We also know that some groups of older people within our society are particularly vulnerable to poverty and misery in old age. Those include people who are disabled; with the ageing of the population, we must take into account that many more people will suffer from acquired disability. I am very worried, too, about self-employed people—not those running a major business but the little people, the one or two-man or woman businesses, such as window cleaners. We must also think hard about part-time and temporary workers and, of course, low-paid women, as has been eloquently said by the noble Baroness, Lady Pitkeathley, who has always befriended and campaigned for carers. There is a scandalous amount of poverty among older women, and the undervaluing of carers, as the noble Baroness said, continues despite the many improvements in their status that the Government have brought in. After much consideration, I have come to the conclusion that compulsory contributions to state and private pensions are necessary in the longer term, if not now.

I turn for a moment to the Scandinavian system. Although we all say that people there pay hugely higher taxes, they have high concessions for parental leave, flexible work and higher taxation at 50.6 per cent compared to our 36.4 per cent; but all those concessions and taxation are tied very strongly to economic growth and to increased productivity, because it all depends on people being in the workforce. That system has led to huge numbers of women—much higher than here—being in the labour market, and a huge increase in national wealth and higher standards of living. So it is worth considering more closely.

On women's pensions, the state system in this country is more suited to 1945 than now. We need either total reform of the contributory system or a model based on residency. The reform of council tax is
 
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also essential, but not linked in any way to the ability to pay. Only 16 per cent of newly retired women qualify for a full basic state pension, compared with 78 per cent of men. The Government published a Green Paper on pensions in 2003, repeatedly promising action to improve the situation for women, but so far nothing much has happened. Alan Johnson also confirmed his enthusiasm for tackling the issue in October 2004, when he spoke to the Work and Pensions Committee. At the last Labour Party conference the Prime Minister also made similar statements. The solution, as we know, must be a higher universal state system, reducing the need for means testing. An alternative, recommended by Age Concern might be to reduce the years needed to qualify from 40 to about 25, which would bring most women into the system with entitlement to a full basic state pension. The EOC in recent polls showed that fewer than one in 10 women knew the facts of the situation that they face about being eligible for a state pension.

It is vital that the Government follow through on a number of vital commitments that they have made to deliver fundamental reform of the pension system. Muddling through, as up to now, is no longer possible; too many people have suffered, and they will continue to do so if this promise is not kept, and kept soon.

2.38 pm

Lord Desai: My Lords, I congratulate the noble Lord, Lord Fowler, on proposing this debate. I have spoken in previous debates that the noble Lord has introduced on pensions, and I look forward to many more that he will introduce in future.

I must apologise to the House that I shall not be able to be here at the end, not because of any frivolity but because the House of Lords bridge team faces the marauding hoards of the MCC, and I must be there to defend our honour.

As an economist, let me lay down a couple of ground rules. In a fundamental paper about 47 years ago, Paul Samuelson, a Nobel prize winner, showed that in all pension schemes the working generations' savings pay for the retired generations' consumptions. How you do it is your choice, but whichever way you do it, that is a fundamental proposition. So in a sense, while we concentrate quite hard on what I would call the stock of assets and the stock of liabilities, eventually it is the flow payments that are important.

That is for two reasons: first, eventually the payment has to be there, whatever your stock position; secondly, the stock positions are difficult to estimate accurately, especially if they are many years ahead. No more than 15 years ago we were proudly saying how we had the best pension system in the whole world, and we were ahead of everyone else in Europe. Given a stock market slump, the whole situation is reversed.

We have to be careful in claiming either a big shortfall or a big surplus. If there is a shortfall in private schemes and we make existing firms top up too quickly, that may harm their own viability as ongoing profit-earning firms. We have to be careful not to kill
 
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the golden goose. Whatever estimates we have about pension liabilities compared to likely assets must therefore be treated with not just a funnel of uncertainty, but a huge cave of uncertainty.

Having got that off my chest, I congratulate my noble friend on his new bed of nails. He arrives in this position when not only pensions are a problem, but also welfare reform. This is a great opportunity to link the two subjects. My noble friend Lady Pitkeathley pointed out how a silly rule about overlapping benefits actually has the opposite result from what was originally intended: people who are unable to afford it suffer when they move on to a pension from the carer's allowance.

What if we think of pensions, not as pensions, but as senior citizen's income? What if we say that every senior citizen—at a cut-off point of 60 or 65, as you like—is entitled to a state income, regardless of their work record or contribution? What if we roll up the secondary means-tested pension along with the basic state pension, pay women as much as men get, and allow people roughly £100 to £110 a week? That is not a great fortune, but it would avoid abysmal poverty for people in old age. If we do that, we should not cancel the carer's allowance, because they have an additional responsibility, not just for looking after themselves, but for caring—which has no retirement age, as my noble friend pointed out. There is all this fuss over the age of 65 or 67, but that is not a choice open to carers. We ought to look after the worst-off people.

Moving from pensions to a senior citizen's income will cost. Every time I get up, I cost the Government another few billion pounds. But this is the time to do it, and, if it is done, welfare reform for other entitlement incomes might become much simpler. We might think about extending the principle of a citizen's income to other entitlements.

I urge the Government to be cautiously bold in this one respect. If we can do this, at least the danger of poverty would be relieved. As to the retirement age, once again it is hard to forecast how behaviour will change. We are all assuming that in 30 years' time people will behave as they do now, and therefore x, y and z will follow. It is possible, however, that the way people work may change so drastically—working at home might become so much easier—that we may be able to suspend the notion of a retirement age. If we have converted a state pension into a citizen's income that accrues to people regardless of whether or not they are working at a certain age, the pressure to retire at a particular age will become that much less.

2.45 pm

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