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Baroness Turner of Camden: My Lords, I support the amendment. It is an important issue. The amendment proposes that we should proceed towards the desirable objective of equalising state pension ages as between men and women via a flexible decade of retirement. The idea that we attempt to promote is that men and women should be able to retire at any time between the ages of 60 and 70 and should be able to make a choice based on personal circumstances and, of course, as a result of negotiations with the employer as to when they should retire.
As my noble friend Lady Hollis said, there has in this concept to be a pivotal agean age at which full state pension becomes payable. I believe that that should be 63. We have chosen that age because it is cost neutral. That would have a number of benefits. In the first place it would reduce the number of years a man would have to work before he became entitled to the state pension. Women, although having to work longer than now, would not have to work until 65which is the Government's current idea.
Of course, that was not always the Government's position. In 1989it is one of the reasons why I attempt to intervene in the debateI was a Member of your Lordships' committee which produced a report entitled Equal Treatment for Men and Women in Pensions and other Benefits. It was our job then to look at the draft European directive completing the implementation of the principle of equal treatment for men and women in statutory and occupational social security schemes. Naturally, equalisation of pension ages in the state scheme received a great deal of consideration from us at the time.
We took evidence from a wide range of organisations, including the CBI, the TUC and also the DSS and the Minister. It is true that the TUC position was then, as it is now, that there should be equalisation at the age of 60. The CBI, however, was very sympathetic to the whole idea of the flexible decade of retirement. The evidence submitted by the CBI explored a number of options, but concluded:
Not only the CBI, but also the House of Commons Select Committee on Social Security recommended, in its 1982 report on Age of Retirement, that there should be flexible retirement based on a notional common pension age of 63 for both men and women. It is worth recalling that the Government's own Green Paper in 1985 referred to the idea of a flexible decade as being a particularly attractive one, and certainly at that time the impression was widely around that the Government were favourably disposed towards that notion.
Clearly it has its attractions. In the first place, not all employments are the same or make the same demandsparticularly physical demandsupon employees. Everyone who has experience of the world of work knows that some people can hardly wait to retire, while others look upon the prospect with something like dread. Although the rate of possible pension after retirement is a factorpeople with good pension expectations are more likely to want to retire earlier than others (and we should be working towards a situation in which people do not dread retirement because of a rapid possible descent into poverty)there are other considerations. There is a social element in work. Even in employment that does not, to an outsider, appear particularly rewarding, there is the presence of fellow workers with whom the individual may have developed close ties and friendships. Many people approaching retirement do not want to lose those connections. That is one reason why counselling for retirement and pre-retirement coursesencouraged and provided by many good employershave an important role to play.
But, as my noble friend has already said, there has to be an element of individual choice. There are many occupations where the physical labour involved is such that individuals should be encouraged to retire earlier on health grounds and the pension provision available should be such as to make that an acceptable proposition. One can think of a number of industries where that might applymining is an obvious example, or an industry like deep sea fishing, where I understand the industrial injury statistics are particularly high.
On the other hand, there are jobs which involve a high degree of expertise and commitment where the individual may be perfectly capable of carrying on and making a contribution for some time after what we now regard as normal retirement age.
Those were all considerations which weighed with the committee of your Lordships' House which reported in 1989. We strongly recommended that equalisation should be through a decade of retirement between the ages of 60 and 70 and that the pivotal age should be 63 for both sexes. We were advised that it would be
We believed that we were recommending what would represent an improvement for everyone, with a fair system which treated people as individuals, capable of and willing to exercise a choice. We were also heartened by the fact that, judging by the CBI's evidence which was put to us in great detail, after much consultation with CBI member firms, there would be no opposition from employers. Indeed, it appeared to us that employers would welcome it and would be willing to participate in its introduction.
Lord Mackay of Ardbrecknish: My Lords, as the noble Baronesses have explained, this amendment would introduce a flexible decade of retirement. As the noble Baroness, Lady Turner, pointed out, it is one of the options which the Government considered carefully during the period of consultation on the state pension age. We decided that it would not be in the interests of current or future pensioners and workers to have a flexible decade of retirement. The expression of course is not correct: most people can choose when to retire. What is really meant by the amendment is a flexible decade for starting to draw the state retirement pension, but that phrase, while a little more exact, is a little less elegant.
Perhaps I may begin by describing what a flexible decade of retirement will look like. People would choose the age at which they would draw their state pension. The earlier they did so the lower the level of pension they would have for the rest of their lives. That is because the level of pension that they would receive would be set actuarially. The additional years during which the pension is drawn will be paid for by a permanent reduction in pension.
There are two key features to a flexible scheme: the age at which it starts, and the pension level in the first year. The amendment provides the former only: age 60. To set the level in the first year, we shall also need to fix the age at which the full rate of pension can be drawn. This is normally called the pivotal age. The higher the pivotal age, the lower the level of pension in the first year. The noble Baroness in her amendment does not specify the pivotal age. However, I did not have to wait until she spoke this evening, because in the Observer her honourable friend Mr. Donald Dewar
Baroness Hollis of Heigham: My Lords, perhaps the Minister will be kind enough to give way. All of this was discussed at Committee stage when the Minister was glad to be told where our pivotal age had been set.
Lord Mackay of Ardbrecknish: My Lords, I am sorry that I have stung the noble Lady to the Dispatch Box. My point is that the pivotal age of 63 does not figure in the amendment before us. I am just trying to be helpful to those of your Lordships (if there are any) who were not here at Committee stage when the pivotal age of 63 was discussed. It is to be 63 so far as the Labour Party is concerned. It does not have to be 63; it can be 60, which is equalisation by another name. I should remind your Lordships as part of the present discussion that equalisation at 60 will cost £13 billion more of public expenditure by 2030 than the Government's proposal, which is 65.
If the noble Baroness will contain herself, as I have to do during her speeches, I can come to the point. I am just trying to lay the groundwork for the Government's decision on this matter. Unless the noble Baroness is trying to hurry to a vote, I am not entirely sure why she is trying to move me along on this subject. The last vote was all right, and a few more of those will redress the balance.
I am trying to deal with the actuarial position. I take the pivotal age of 63. If one pivoted the present pension arrangements at 63, the actuarial reduction would mean that a person retiring at 60 would receive £46 per week, as opposed to a retirement pension of £57.60. What I find odd about the noble Baroness's espousal of this cause is that she always appears to tell us how poor everybody is in retirement. Her proposition will tempt more people to retire when their pension will be less than the current state retirement pension. It may be as low as £46 a week. That £46 a weekup-rated perhapswill go on for the rest of their lives. When they come to 65, or whatever is another magic age, they will not suddenly be up-rated as if they have retired at that age. They will carry on with that rebated lower pension for the rest of their lives.
Those people who were tempted to take advantage of this age of flexibility will need to augment their retirement income with income-related benefits or other pensions. It seems to me that women, for whom the noble Baroness continually flies the flag, will be at a particular disadvantage. Many will retire at the same age as they do now (60) but at a lower rate of pension. It will also mean a higher start-up cost. For example, the first year cost of a scheme with a pivotal age of 63 introduced overnight is likely to be about £5 billion.
Two other OECD countries have flexible retirement schemes: Belgium and Sweden. A number of others have early retirement benefits, but these are normally limited to those in ill-health or the long term unemployed. Some are subsidised by employers. These schemes do not offer flexibility to individuals who wish to plan an early retirement as they have restrictions of entitlement similar to our own benefits, such as incapacity benefit, industrial injuries benefit and unemployment benefit.
The limited experience of flexible schemes in these countries demonstrates some of the points that I have made. In 1991 Belgium introduced a flexible retirement age. The majority of people now appear to retire at the earliest possible opportunity. That has led to a rapid increase in pensions expenditure, obviously a rapid increase in the number of pensioners and an increasing number of pensioners who retire on less than the full retirement pension.
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