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Rachel Reeves
I could not agree more. That is a big issue and one that I will address later. For a number of reasons, this group of women are particularly ill-equipped to deal with the changes that the Government are trying to force upon them.
I want to pick up on a couple of points raised by the hon. Members for Argyll and Bute (Mr Reid) and for Mid Dorset and North Poole (Annette Brooke). The proposals go against the coalition agreement, which states:
“The parties agree to…hold a review to set the date at which the state pension age starts to rise to 66, although it will not be sooner than 2016 for men and 2020 for women.”
These changes bring forward the equalisation of the state pension age to 2018, which is not mentioned in the coalition agreement, and they raise the state pension age for women to 66 in 2018—two years earlier than promised in the agreement.
Although there is increasing pressure on the Liberal Democrats to stick with the coalition agreement, there is no obligation on the Minister to support this breach or for coalition MPs to vote for it. No one in the country voted for this at the general election a year ago, and it is not what coalition MPs signed up to when they made their promises in the rose garden. We have heard a great deal from Liberal Democrat Members today. I hope that that means that people who are approaching retirement can feel that their MPs will not support these proposals.
To reiterate points that have already been made, 2.6 million women and 2.3 million men will have to wait longer for their state pension than they previously had been told. Some 500,000 women will have a delay of a year before they get their pensions and about 300,000 women will have a delay of 18 months or more. Unfortunately, 33,000 women who were born between early March and early April 1954 will have to wait another two years before they receive their state pension. I have been lobbied by a huge number of women on these issues, not least by my own mother who was born on 30 March 1954. She very much hopes that the Minister will be listening to every word that I say today.
There is fewer than five years’ notice before these changes take effect. The Turner report says that people should be given at least 15 years’ notice, and the Pensions Policy Institute believes that these changes do not give enough notice. Women need longer to prepare for changes in the state pension age because they tend to become part-time workers sooner than men of the same age.
As of April 2011, the basic state pension is worth £102.15 a week. Pension credit is worth £137.35 a week. Those women who are seeing a delay in their state pension age of two years face a loss of pension income of more than £10,000. For those in receipt of pension credit, that loss is closer to £15,000. That does not take into account the passported benefits that come along with a pension.
Longevity is increasing and Members from all parts of the House welcome that, but we cannot move the goalposts every time an actuary changes his forecast. Six months before the election, the Minister himself said:
“Pension policy needs to be stable and predictable years ahead, not made up on the back of a cigarette packet.”
I agree with the Minister. Although his words are still on his website, he is now making policy up on the back of that cigarette packet and it is hitting women particularly hard. Indeed, the recently published Green Paper on the flat rate pension consults on reasoned mechanisms for increasing the state pension age, which is a recognition of the unfairness that is being imposed on women by the Pensions Bill, which is just about to come to the House. That Green Paper does not include consultation on arbitrary changes with five years’ notice. The reason that it does not consult on those types of changes is because the Minister, his Department and the Government know that they are unfair. So why is he forcing them upon women who are 56 or 57 years old?
My hon. Friend the Member for Sunderland Central talked about the savings of women who are 56 or 57. There is something particularly perverse about targeting that specific group, because those women who are 56 or 57 now have average pension savings of £9,100, compared to the average pension savings of men of the same age of £52,800. At retirement, pension savings of £9,100 work out at £564 a year or £11 a week. The reasons for the difference in the average pension savings of men and women are varied, but the key point is that these women I am talking about are not in a financial position to absorb the changes being proposed at such short notice.
These women have earned far less during their lives than men of the same age. In 1980, the gender pay gap was 28.5%. When these women were in their 20s, they were earning on average almost 30% less than men of the same age. The gender pay gap has been closing since 1980 and it is now about 16%, but the point is that these women have suffered inequality throughout their working lives. They now face a double whammy and are paying the price for getting us there too quickly.
In addition, a lot of these women have worked part-time at some point in their life, particularly when they were bringing up children. In fact, many of them are also working part-time now, to help to care for elderly parents or grandchildren. As other Members have said already, these women are the big society. They are doing the caring work that we value as much as their work in the workplace. Of course, many of them have also had interrupted careers and have not paid full national insurance contributions. The Minister’s own Department estimates that women are entitled to receive £30 less in their basic state pension than men. All those points show that these women are more reliant on the state pension than their male equivalents, first because they have much lower private occupational pension savings and secondly because they are in not such a good position as men to increase their savings in the next five years.
The Minister of State, Department for Work and Pensions (Steve Webb)
The hon. Lady quite properly raises the issue of the big society by talking about volunteering, caring and so on. Under our proposals, the equalisation at the age of 66 will be in 2020. Under Labour proposals, it would be in 2026. In 2026, every single point that she has just made would also be true, would it not?
Rachel Reeves
The point is that these women will have time to prepare for changes if they happen in 2026. Changes in 2026 were legislated for in 2008, which meant that the people we are talking about today had 18 years’ notice of any changes. That is very different from the changes that the Government are introducing because they will start in 2016, giving people just five years’ notice. That is the point that Members are making today. We are not saying that we do not think that there should be any changes to the state pension age, because with increasing longevity it is right that people should work longer, but it is not right to move the goalposts and leave people so little time to prepare for changes.
As I said earlier, the loss of pension income for someone who has to wait two more years for their state pension is about £10,000, or it can be up to £15,000 if they are on pension credit. It is not feasible that that group of people can make up that difference in a five-year period, yet that is what the Minister is asking them to do.
The Minister of State, Department for Work and Pensions (Steve Webb)
I congratulate the hon. Member for Erith and Thamesmead (Teresa Pearce) on securing this debate, and I very much welcome the fact that so many Members from both sides of the House have attended. I agree that the matters we are debating are important, and the hon. Lady has made her points in a measured and thoughtful way. I will try to respond to each of those points in turn, and also to some of the other contributions that have been made.
I shall start with what appears to be an element of consensus, although the more one looks at it the less of a consensus it seems. It has been welcomed that people are living longer, and there is an acceptance that state pension ages need to rise, and as far as I can see that is about the limit of the consensus. The current schedule for raising the state pension age, which is to 66 in the mid-2020s, 67 in the mid-2030s and 68 in the mid 2040s, is incredibly slow relative to the improvements in life expectancy that we are seeing. The Turner commission, which has been mentioned, said that one could look at a principle for raising the state pension age, for example fixing the proportion of life spent in retirement, but the schedule that we have inherited does not deliver on that. We need, therefore, to look at more rapid increases in the state pension age to 66, 67 and 68.
It has been implied that what we are doing is somehow extreme, but if we think back to 1990, for example—before the Pensions Act 1995, which increased the state pension age from 60 to 65—the typical woman retiring at the age of 60 would get a pension for 24 years. Even with our plans, in 2020 the typical 66-year-old woman will get a pension for 24 years. That context is important, because the improvement in life expectancy to which we are responding is astonishing. It is not just that we are all living a bit longer and life will carry on as before. Life will not carry on as before, not for the Government, society, the health service or the pension system. We are moving into a totally different world, to which very gradual incremental change will not respond sufficiently. The previous Government did not grasp that fact, and simply pushed it off into the middle distance.
Rachel Reeves
Is there any evidence that 56 and 57-year-old women’s longevity is going up particularly fast compared with everyone else’s? If not, why is the Minister disproportionately affecting that group of women?
Steve Webb
We had to take a judgment about not affecting people who were within a few years of retirement, those who were 58, 59 or so and were set to get their pensions in their early 60s. We took the view that change for them would be too soon, which is why nothing at all changes before 2016. However, having gone past that initial point, the crucial group—the one-month cohort, which a number of Members have mentioned—will, assuming that the Bill gets Royal Assent this summer, get six years and eight months’ notice of the change. I accept that notice, which has been mentioned by several Members, is the key issue.
Dr Whiteford
The issue is not only the pace of change. It is the context of a lifetime of low pay and inequality faced by many women, and the old-age problems that are a cumulative effect of that. The Government had an opportunity here to tackle women’s inequality in old age, but so far they have, instead, arbitrarily targeted women born in 1954.
Steve Webb
I am grateful to the hon. Lady for raising the position of women in the pension system. Assuming that some of the pension reform proposals in the Green Paper that we published last month go ahead, for example the single flat-rate decent state pension, the group of women most affected by this change would be the first group of women to benefit, and potentially very substantially. At the moment, women draw a state pension of £40 a week, on average, less than men, but under the single-tier pension proposal, which I have been very involved in introducing, many women would be the main beneficiaries.
Various Members have raised the important issue of women whose pension rights have been hampered by time spent bringing up children or caring for relatives, and under the single-tier pension proposal a year spent at home with children or a relative will be worth just as much to a state pension as a year spent running a FTSE 100 company. So much do I take the view—in government as I did in opposition—that the work that men and women do, whether paid work or bringing up a family, is of equal value, that for the first time we are proposing that that be manifest in the pension system, and that will be transformative, particularly for women.
Fiona Mactaggart
Will the Minister agree to publish figures? I am interested in what effect the single-tier pension will have on women, and I am finding it difficult to work out how many women will be affected by the abolition of the state second pension and the cost of their different contributions. I am unaware of any figures working out how many women and men will be affected by the change respectively. I am not as sanguine as he is that all women will benefit. There are many women whose contributions to the state second pension are important to their retirement.
Steve Webb
On how the proposed single-tier pension will work, it is a Green Paper with options, so the sort of detailed figures for which the hon. Lady asks will be produced when we have identified which of the two options we will go for and refined the proposition. That information will be made available when the proposition is refined further.
To clarify, at the moment, many women in the age cohort that we have been discussing will have spent time at home with their children before the state second pension was introduced. Whereas the state second pension offers protection for time at home with children, the state earnings-related pension scheme did not. That set of women is approaching pension age. People have accused me of moving the goalposts. I am indeed moving the goalposts for those women, but in their direction. They will draw a state pension—yes, later, but for an average of more than 20 years. Compared with when we first started debating the changes in state pension age last summer, that is a significant difference.
Angela Smith (Penistone and Stocksbridge) (Lab)
If the Minister is so confident that the changes that he is introducing will be so beneficial, have not the Government failed to communicate that fact? Throughout the election campaign, I met women on the doorstep who were angry about what he describes as the changing of the goalposts, because they felt that it was against their interests, not in favour of them.
Steve Webb
I accept entirely that although what we propose is a lot simpler in a sense than what came before, that is not massively well understood because pensions are so complex. As we refine the proposition, we will have a lot of communicating to do. However, it stands to reason, for example, that paying a flat-rate state pension rather than an earnings-related one will, on average, benefit women. It must, because women earn less on average. Crediting years at home with kids towards the full pension, not just the basic pension, will and must benefit women on average. There can be no doubt that the options presented in the Green Paper would substantially benefit women, on average, out of the overall pensions budget. I look forward to the hon. Lady’s help in communicating that to her constituents.
Nick Smith
Given that the Minister is confirming that the Government are determined to ram through the proposals, what important measures will he take to raise awareness of the measures with that group of women so that they can plan for their retirement?
Steve Webb
I am grateful to the hon. Gentleman for raising that point, and for his self-restraint in making a brief and thoughtful contribution in order to allow others to speak. He is right that we need to make people aware of the changes. Our dilemma is that none of this is law yet. We must tell people that it may happen, but we cannot say on Government websites, “These are the new rules,” because Parliament has not approved them yet. The current website describes the current legislative position, as we are required to do, and then it says, “However, important changes are being discussed in Parliament. Click here if you want to find out what is being proposed.” As soon as the changes go through—this summer, or whenever—we will, of course, publicise them. We routinely write to people before they reach state pension age, and in a time of change we do it more.
I agree entirely that we need to communicate. One frustration of mine is that I get letters saying, “You’ve put my pension age up by six years.” Anyone who is going from 64 to 66 had their state pension age raised from 60 to 64 some 15 years ago, but they did not notice, because when they were 42 or so, they were not interested in pensions. That is our challenge. People close to pension age are interested in pensions and follow such matters; younger people turn off as soon as they hear “pensions”. Communicating to people further ahead is a challenge.
Angela Smith
I thank the Minister for giving way again; he is being generous. Surely the fact is that if the pension generally will improve, as he says, it will improve for everybody. I was born in 1961—I am not afraid to admit it—and my retirement age is still 66 under the proposals, as it was before the election. I will benefit from the more generous pension that he plans to offer, but women born between 1953 and 1960 are still being singled out, in that they will have to wait longer than they planned before getting that more generous pension. They will still lose out, and they are still being discriminated against.
Steve Webb
I suspect that the hon. Lady will not benefit from our proposals, as I imagine that she would have received a full basic state pension anyway, whereas the proposals will help some women who would not have received it. By being employed here, she is also contracted out of SERPS, resulting in a deduction from the £140. I do not actually think that she would benefit.
I do not dispute for a second that that set of women will be affected by the changes, but the pension that they will get under our proposals will be significantly better on average than that received, for example, by women who retired a few years earlier. We can do all sorts of comparisons between this group and that group. Some things will be better for some and some will be worse. What I am saying is that several hon. Members have said, “You used to campaign for women’s pensions, but you don’t care any more,” but I have spent all my time as a Minister working on proposals that will benefit women pensioners specifically.
Alison McGovern
Will the Minister answer a specific point? He made it clear that the reason why he felt compelled to introduce further changes was that what he inherited did not meet the terms of the Turner review. The Turner review advised allowing people 15 years to plan for changes, but women in our constituencies have had much less time than that—barely five years—to plan. That is not fair. Will he explain why his Government are doing that to women in our constituencies?
Steve Webb
The things that Turner recommended are not consistent with each other. We cannot, for example, have a consistent percentage of income during life in retirement and give 15 years’ notice at the same time, because longevity is increasing much faster than that. Something somewhere has to give.
One point that has been missing during this debate—the only time that it was mentioned was when an hon. Member quoted me from last week’s debate—is that if we delay till 2020, as the hon. Member for Leeds West (Rachel Reeves) proposed, we will have to find £10 billion. My hon. Friend the Member for Argyll and Bute (Mr Reid) raised an important point, and he is analytically correct: that does not help us in the comprehensive spending review period or help the long-term structural deficit, because the age would have been 66 anyway. However, it does do one thing: it takes £30 billion—or rather, £10 billion; the whole change amounts to £30 billion, but the difference between the two of us is £10 billion—off the national debt. As he knows, servicing the national debt is one of the most crippling things that this Government must do. That is why such difficult decisions must be made.
Our changes will take £30 billion off the national debt. I do not know what the interest rate on the national debt is, but let us say 5% for the sake of round numbers. That is just to make the numbers add up; I do not suppose for a minute that it is 5%. That is £1.5 billion extra every year to spend on services or whatever rather than on the national debt. I think that that would be the hon. Lady’s preferred solution.
Julie Elliott
In those calculations, has the Minister taken into account the number of women who will end up on benefits to cover the shortfall during the time when they had planned for a pension, as in the examples that I quoted?
Steve Webb
Yes, we have. All our costings make assumptions about the proportion of people who would find themselves on benefits. Hon. Members have asked what people will live on between 64 and 66. Clearly, there will be a range of responses. Some people will go on working longer. Seven out of 10 people in the cohort that we are discussing—those born in 1953 and 1954—are in work at the moment.
Several people raised the important issue of different socio-economic groups. Across the socio-economic scale, life expectancies are rising. We cannot use the fact that there are differences between different groups—as there have been probably for ever, and certainly for the past century—as an argument for doing nothing. That argument would apply under the proposals of the hon. Member for Leeds West. If we raised the age a year to 66 in 2020, it would have exactly the same impact on the different socio-economic groups. Her proposal would have exactly the same impact on the numbers of carers and volunteers aged 64 to 66. Many of the points made by hon. Members in this debate about the impact on that age group would apply exactly, only four years later, or six years later under her proposals. We need to make a distinction between things that will be inevitable as the state pension age rises and the consequences of doing it more rapidly, which has been the focus of this debate.
Members have asked about caring responsibilities. We might not have expected this, but it is striking that the number of women within this age cohort who say that they have caring responsibilities is falling, partly because of social and demographic change. In 1993, of the women who are now in the 55 to 59-year-old age cohort, 15% had caring responsibilities, but, in 2010, the figure halved to 7.1%. Again, that suggests significant changes and that people are living longer and working longer. I suspect that caring responsibilities are being taken on, but that that is happening later in life than it would have previously.
Teresa Pearce
Does the Minister agree that it is possible that the percentage of those with caring responsibilities is falling because they already have to work longer to get their pension? It is not because their lifestyles have changed or because they are different types of people, whether older or younger. The fact is that they cannot take on that responsibility, because they already have to work well into their 60s.
Steve Webb
That does not apply to the figures I quoted, which relate to the difference between 1993 and 2010. All of the women in 1993 had a state pension age of 60, but all of the women whom I was talking about are under 60—they are currently in their late 50s. A diminishing proportion of the women about whom we have been talking have caring responsibilities, although that may change.
The issue of moving the goalposts has been mentioned and I think that one Member said that we are happy to change the pension age at the last minute. We have set out in our Green Paper a consultation on how we should do this beyond 66 in the longer term. In other words, what is the right balance between notice, keeping up with longevity, and fairness for those who have to pay national insurance for the increased longevity? There is a dilemma. Ideally, we would give people huge amounts of notice.
Steve Webb
That is not what the previous Government did. We would love to be able to say to people who are 40 or 45 years old, “This will be your pension age.” However, if we said that to 45-year-olds, who have another 20 years or more before they retire, and another 20 to 25 years of life in retirement, we would be locking in what we know about longevity now for pensions that we will still be paying in 50 years’ time. That is just not viable.
Steve Webb
In a moment. The pace of improvement in longevity is breathtaking. Between 2004 and 2008—the longevity projections of 2004 are, I think, what the previous Government’s legislation was based on, and those of 2008 are what we have now—life expectancy at pension age increased by well over a year in just four years. It is almost like a runaway train. We can always say, “Let’s wait another decade,” but one of the problems is that there is a trade-off, because, as I have said, what has been missing from this debate is the people who have to pay.
Delaying for 10 years, which is what I think the hon. Member for Leeds West is suggesting, does not mean a free lunch. It would mean a £10 billion national insurance hit on today’s workers and today’s firms. If she were wearing another hat, the hon. Lady would be saying, “The recovery is fragile and we need to do more for jobs and to boost the economy,” but what she is saying is that we should levy another £10 billion of national insurance on today’s workers, including low-paid women who do not have much pension, and today’s firms, which may have to lay off people who will not then be able to build up decent pensions. There will be no free lunch if we delay.
Steve Webb
There is a queue. I shall give way to the hon. Member for Wirral South first.
Alison McGovern
If, as figures last week suggested, the Government fail to meet their own target to balance the books over the course of this Parliament and we still have a deficit for which the Government have not planned in 2015-16, will we have more pensions Bills to push people’s pensions further back in order to incorporate what the Minister has said about being fair to those who are paying now?
Steve Webb
We have made it clear that the age-66 changes are in the present Pensions Bill, which will be legislated for long before the end of this Parliament. We are also consulting in the Green Paper on a systematic mechanism for going beyond 66 that takes account of all the factors that we have talked about. That will try to strike a balance between notice, which is important, and fairness for those who bear the cost of increased longevity. The intention—this is something that no previous Government have done—is for the further changes to do it in a more systematic way. The 60 to 65 equalisation was a response to a legal case. The previous Government’s plans for 66, 67 and 68 were not ad hoc exactly, but there was no mechanism in place to respond to subsequent improvement in longevity. What we are trying to do as part of our reforms, which we are consulting on at the moment, is give people the certainty that future Governments will not just pass a law and change things, but that there will be a structure in place and that they will know how it is going to be.
Angela Smith
I was on the Committee for the Bill that became the Pensions Act 2008, which, as the Minister has said, set out the changes recommended by the Turner report. He says that the approach that he wants to introduce is systematic, but does it not mean a constant shifting of the goalposts that will leave most people, however much notice they are given, with a constantly changing picture of when they should expect to retire?
Steve Webb
I hope that the hon. Lady will respond to our consultation on the right process. She raises the important issue of how we strike a balance. The fact is that one in six of us alive today will live to be not 88, but 100, and that figure is increasing all the time. How do we strike a balance between that and giving people notice? We could have a principle of always giving people x years’ notice, which would mean that it would not matter if longevity improved dramatically after that point. That is part of what we are consulting on and there are trade-offs. I hope that the hon. Lady will respond to that.
We are moving into a world in which pension ages will not be the rock-solid certainty that they have been in the past, because they cannot be. The hon. Member for Bolton South East (Yasmin Qureshi), who has left the Chamber, said that this is like someone starting a job but having their contract changed halfway through. On that basis, people start paying national insurance at 16, have a guaranteed pension age for the next 50-odd years, and have another 20-odd years after they start drawing a pension. Therefore, the second that they are in the system at 16, nothing can change until 70. That is economic madness. There has to be some adjustment, but I accept that it has to be done in a measured way, which is why we are consulting on an appropriate mechanism.
Rachel Reeves
I fear that, at this rate, the Minister will start sending pensioners back to work if they live too long. Returning to the review, would it not have been better to have done it and find out what the right trade-off is before increasing the state pension age for 57-year-old women with such little notice?
The Minister says that Labour is saying that we have to find another £10 billion or £30 billion for these changes. This is about cutting spending—the Government are cutting £30 billion of spending. I do not want additional spending. First, Labour wants to halve the budget deficit in this Parliament. Secondly, our proposals would cut £20 billion-worth of spending, so we are not asking for additional spending. I would like that put on the record.
Steve Webb
Unless there is some free money to be had somewhere, delaying for 10 years must cost somebody something. It is fantasy economics to think that we can get 10 billion quid from somewhere. The hon. Lady must agree that that £10 billion would have to be paid by today’s workers and today’s firms. It has to come from somewhere—perhaps the hon. Lady thinks that it could be magicked from the air—and there is a trade-off between today’s workers and today’s pensioners.
Time is short, so I will conclude my response to the debate. I welcome and recognise the point that, ideally, we would give people more notice than we have. I fully accept that. The difficulty is that delay, which is always the easy option, has a huge impact on the state of the nation’s finances and on our response to a world in which people are living substantially longer. Our goal is to strike a fair balance. I will certainly reflect further on the contributions of my hon. Friends and other Members. As has been said, throughout my career I have campaigned for a fairer pensions system for women. I believe that some of the proposals that we are talking about for the next generation of retiring women will make a huge difference to their quality of life. Some of the points that have been put on the record today have been made forcefully and effectively.