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Lord Higgins: My Lords, I am asking how much one would need to save in order to get a return that is greater than the amount likely to be provided by the minimum income guarantee. We shall return to that point later, if need be.
At all events, Mr Pickering, who advises the Government on pensions, says that he does not believe that one can have a pensions credit and minimum income guarantee as a basis on which to build a pensions system for future decades. The combination of means-tested benefits in relation to the overall situation is a source of considerable concern.
I refer to the Government's proposals for the publication of forecasts of what people are likely to receive on retirement. That forecast will be based on many assumptions, but to judge the accuracy of such a forecast one has only to compare what people expected to receive a year ago to what they are likely to receive now, given the changes that have taken place in the stock market, the annuity rate and so on. The Government are apparently proposing to have a combined pensions forecast for individuals, for both state and private provision. That forecast is likely to be highly inaccurate. Indeed, it would have been very inaccurate, even in the case of people with an Equitable Life pension, who were already drawing it and had been drawing it for 20 years. They have recently discovered that their expectations have been greatly disappointed and that their pensions have been cut by perhaps 20 per cent. To start forecasting people's pensions on various assumptions seems more likely to mislead than to help them, despite the fact that people engaged in pilot schemes suggested that it had been helpful.
The document is complex and reflects a great deal of thought by the Government, but it does not represent the kind of analysis and proposals that are necessary if one is to reassure people that in 10, 15, 20 or 30 years' time they will have an adequate income on which to live. The pressure will be to put more and more people on to the means-tested benefit level. We see clearly from the latest figures the extent to which the number on means-tested benefit is increasing. The proportion
Lord Higgins: My Lords, I have almost finished. The Statement is complacent, but we shall need to debate the situation in government time in the near future, when we can express our concerns in more detail.
Baroness Hollis of Heigham: My Lords, before the noble Lord, Lord Oakeshott, speaks, I point out that we are allowed 20 minutes for both Front Bench speeches and my reply. That means that if the noble Lord, Lord Oakeshott, takes only eight minutes, I cannot offer a word to the House on the two speeches.
Lord Oakeshott of Seagrove Bay: My Lords, I am of course conscious of the time. Although I sympathise with much of what the noble Lord, Lord Higgins, said, the House is put in a difficult position if one of the two main Opposition speakers takes 13 minutes out of a potential 20 minutes. Clearly, I shall do my best to be brief. Equally, this is an important and long-awaited Green Paper and I hope that the Minister will give substantive replies.
We have had over the past two weeks the most sustained government media operation since they came to power to spin down expectations for the Green Paper. Now we know why. I declare an interest as a cynical old pension fund manager who has seen far too many company chief executives massaging down market expectations before a disappointing announcement. The first thing that one learns in the City is that bad figures take longer to add up. Now we know that in politics bad Green Papers take longer to cobble together.
I start with a serious complaint about a great discourtesy, to put it politely, in the noble Baroness's ministry. I received just before 3 o'clock a copy of the Statement and of the Green Paper. The Statement had large chunks blacked out, as did the Green Paper. I really do not see the point of normal courtesies if that sort of thing happens. Vital sections were blacked out. Does the Minister condone that shabby behaviour? If not, will she please find out who was responsible and give a proper assurance to the House that such behaviour will not happen in future?
The collapse in confidence in pension funds and long-term insurance has seriously undermined savings in the economy as a whole. We used to have a culture of "save for a rainy day" but now it is increasingly "borrow and spend today and let tomorrow take care of itself". As the NAPF put it,
The Green Paper still bangs the drum for stakeholder pensions. We know that the take-up in the market so far has been very poor. The reason is simple: insurance companies are not charities and it is simply not economic for them to sell stakeholders at 1 per cent unless volumes are much higher. We on these Benches support the 1 per cent cap. However, can the Minister see that that will work only when we get the economies of scale that come with compulsory pension provision?
In pensions today, we are seeing a new version of Gresham's law: not bad money driving out the good but bad pension providers driving out the good, as John Lewis said only the other day, as all its competitors were closing down their schemes.
I turn to the announcement. What exactly will be the powers and functions of the new "proactive pensions regulator"? Will he be able to show the yellow card to rogue employers rushing to close down pension schemes without proper consultation? That is a bitter blow and usually means a sharp pay cut in practice. Does the Minister agree that that breaks a moral contract with employees? How will the Government deal with companies such as the Big Food Group, which has a current stock market value of £200 million and a corporate jet costing £400,000 a year to swan around in, but which has just closed its pension fund to existing members? Does that involve fraud, bad governance or maladministration, or simply downright meanness and management with the wrong principles?
The Statement also projects public spending on pensions to remain stable over the next 50 years as a proportion of GDP. The reason for that is simple: we pay such rotten state pensions. NAPF shows us at the bottom of the European league. I have not time to go into figures, but they are publicly available. No wonder we are spending only 5.5 per cent of our national income, compared with much higher figures for other countries, which also have much higher pensions.
How will the new £1.4 million single lifetime limit work? We are told that it will be assessed at the point of retirement. But will that involve what one puts in or what one takes out? How will one know, when one is investing, how much it will roll up to? The basic problem is not that of people saving too much, which the scheme appears to address, but that of people on moderate incomes saving too little.
Finally, we are to have an independent pensions commission under Adair Turner to report on whether the voluntary system can save our pensions. Who will be the members, how will they be chosen and will they really be independent? What will be the balance
Baroness Hollis of Heigham: My Lords, I shall be as telegraphic as I can, given the decision of the House to confine the two Front Bench speeches and the Minister's reply to 20 minutes where possible. Rather than going into any of the more descriptive stuff, I shall try to answer questions as briefly as possible.
The noble Lord, Lord Higgins, asked whether it was still the Government's intention to move from 60:40 to 40:60. We are travelling in that direction and we seek to continue to do that. The noble Lord also asked about figures for stakeholders. Nearly 1.2 million have been sold, 40 per cent of them to people with incomes of between £10,000 and £20,000; 97 per cent of those people are of working age. We are indeed meeting some of the target audience whom we were seeking to help to build up a second funded pension.
The noble Lord also asked about S2P and why we were not following the advice given to us to build it into the basic state pension. Behind that is a question about what one's national insurance entitlement brings. Putting additional money on to the basic state pension is opposed to our targeted approach, including access to a state second pension. One does not have to be in the national insurance system to earn thatone can get it as a carer or disabled person. Targets help with those who most need it.
Noble Lords may well be aware that 90 per cent of men have full basic pension by virtue of a complete national insurance record. The figure for women having a basic state pension on their own NI record is 15 per cent. Any increases in the basic state pension would not be enjoyed by those women except through the sadness of bereavement. In other words, unless one targets, one does not help those who do not have a complete NI record. That may change over time but the gender discrepancy is huge. That is why it would be regressive, not progressive, to amalgamate S2P with the basic state pension.
The noble Lord asked when we might expect that to go to a flat rate. That will depend on our assessment of when we believe the time is appropriate. We have not yet made a decision. He also said that we were having a crisis in DB schemes. It is certainly true that last year about 1 per cent of DB schemes closed. However, the latest figures that I have seen show that of those in occupational pensions, 4.6 million are in DB schemes and less that 1 million are in DC schemes. They still remain the major pension form of occupational pensions. I suggest that what matters is not so much whether someone is in a DB or a DC scheme; DB schemes reward late career salary progressionthat
The noble Lord asked whether the lump sum on deferring the state pension would be tax free. No, my Lords. We are saying that if at the moment, as a single person at the age of 65, one has a state pension of £100, by deferring for five years one will be able to draw a state pension with S2P of £150 but that one might prefer to take that increment as a lump sum instead. Those are the proposals.
The noble Lord raised the issue of annuity rates. He knows the Government's arguments. We believe that an annuity is pooled risk and ensures a reliable flow of income. It is worth emphasising that the average annuity pot in this country is £25,000. Two-thirds of people have pots of under £25,000. That is skewed by a figure at the top. Half of all annuity pots are under £10,000. So the rules at 75 years simply do not come into play. They are small sums and we need to make sure that people invest them wisely for their old age.
The noble Lord asked at what point people would be better off on pension credit. The bigger argument at the moment is that someone who has, for example, a small pension of £100 per month is no better off with that pension than they would be on MIG. Under pension credit, they will keep £60 of that £100. Therefore, every additional £1 over the basic retirement figure£75 per week at the momentis available to come into pension credit. So one will keep 60 pence of every additional new pound one earns up until the taper ends. So at £1 it is worth saving. It is a very directly targeted reward for small savers. I hope that, as a result, it will be welcomed, and particularly so by the noble Lord opposite.
The noble Lord queried pension forecasting. From the pilots that were quoted, we find it valuable. It led to 30 per cent of those who took part in the pilots seeking additional information and 8 per cent taking up further provision. While I accept some of the provisos that the noble Lord attaches, none the less the pilots show that pension forecasting can give people an early warning that if they wish to have a more comfortable old age, they need to make further provision.
Finally, the noble Lord gave us a critique of means testing. If one does not means test and one gives the flat rate to everyone, about one-third of the population cannot need it and one-third of the population will be
The noble Lord, Lord Oakeshott, referred to the blacked-out line. I queried it myself. I was assured that this was conventional where one is dealing with financially sensitive information coming from the Exchequer. It is common practice when dealing with Budget information. That is confirmed by the noble Lord, Lord Higgins. Therefore, no disrespect is suggested to the House; it is common procedure to protect information until it has been reported to MPs. I am grateful to see that the noble Lord, Lord Higgins, who has been a Treasury Minister confirms that.
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