Small Pension Funds

Baroness Greengross Excerpts

Tuesday 27th November 2012 Lords Chamber

Asked by

[Baroness Greengross]

To ask Her Majesty’s Government what action they are taking to ensure access to good advice for people with small pension funds, and to maximise such people’s retirement income.

[Baroness Greengross]

My Lords, I start by declaring an interest. I head up the ILC-UK and the International Longevity Centre Global Alliance, which look at the impact of demographic change on all our services as we plan the future. I am really pleased that we have an opportunity to discuss what I want to look at—people with small pension pots—and the impact of the Financial Services Authority’s retail distribution review, which will be implemented on 1 January 2013. I support the principles underpinning the RDR; they are excellent. But there is at least one unintended consequence that might well follow, which really results from the fact that advisers will no longer be paid by commission but will charge a fee for the work that they do. I and others think that people on modest incomes will either be priced out of or excluded from the advice market. I have a deep concern that lots of people will not get the advice that they need. There will be an advice gap, with a detrimental effect on their incomes that will continue throughout their retirement, which as we know is likely to last much longer than they think it will last. These tend to be the people who have the least knowledge about what is going to happen to them regarding their pension when they retire.

The DWP estimates that by 2050 there will be 4.7 million pension pots of £2,000 or less, with many more than today expected to reach retirement with these small pots. The National Association of Pension Funds has said that there are currently 1.1 million retained DC pension funds with less than £5,000 in them; collectively these hold £2.3 billion of pension assets. A recent survey by KPMG of more than 3,000 customers found that only 31% would be prepared to pay for financial advice; 54% would pay no more than £50 for an hour’s advice; and only 1% would pay more than £200. There is a big risk here. These are exactly the sort of people who will receive no advice at all. Deloitte has recently found that more than 5 million clients may be left without advice as a result of RDR, as costs are made transparent and independent financial advisers focus, inevitably, on higher-net-worth customers.

Partnership Assurance has given us figures that tell us that 78% of annuities sold in the UK in 2011 were for fund sizes of under £40,000. For people with impaired health or lifestyle conditions, the difference between the best and worst rates can be up to 40%. At the same time, very few people exercise or even understand the benefits of exercising the open market option. Figures from the Association of British Insurers report that while joint annuities accounted for 42% in 2011, up from 29% in 2008, only 46% of annuities were bought via the open market option in 2011, up from 35% in 2008. But more people with larger pension funds choose this route than those with smaller pots—the people that I am really concerned about.

Ways of improving the situation might be to narrow the advice gap so that those with very small incomes have access to advice and do not miss the retirement income that they could have, and avoiding an information overload for people who just do not understand what all this is about anyway. Much more needs to be done to ensure that customer information is developed—and it must be from a consumer, rather than compliance, perspective, because people are just not interested, do not understand and then suffer later on. Urgent steps need to be taken to halt the continued erosion of the culture of saving that we used to have in this country. Inevitably, at the moment, we have lost a huge amount of trust in the industry, which is very sad and adds to this inevitable problem. The Government could also perhaps provide a much clearer distinction between the provision of information and the giving of advice, making it much clearer to what extent providers are able to guide customers without it being deemed advice, and joining up the public policy agenda on financial advice, which would enable saving.

In terms of the industry, I very much welcome the ABI’s recent consultation to increase transparency in the annuity market by publishing annuity rates, as part of its code of conduct on retirement choices. I also welcome the fact that PICA, the Pensions Income Choice Association, is working with other industry participants to build a directory of advisers and shopping around brokers who can help investors, particularly people with small pots, to shop around when they retire. This will help customers to understand the decisions they need to make, the products that are available, and how they can shop around. We know that there are several annuity “interface portals” for people who have sufficient IT skills, but our real worry are those who are excluded from all this, because they just do not have the knowledge that is necessary.

The mechanics of the pensions industry have made it very difficult for retirees to get good annuity rates, as we know. Annuity advisers and providers should explore greater uses for technology in delivering advised and non-advised services to help people understand their options at retirement and help them to make the right decisions.

I will end by sharing a real concern I have that lack of cohesion and policy fragmentation created by silos between the Financial Services Authority, leading on RDR, HM Treasury, with the policy lead on financial advice, and the DWP, leading on retirement outcomes for pensioners, will result in the poorest and least well-off people receiving sub-optimal retirement outcomes. Perhaps something can be done to raise awareness of the challenges and responsibilities that individuals have, particularly those over 50, who need to focus on a multitude of retirement decisions and have far fewer pensions and savings assets at their disposal than they actually need. Nobody really believes that they are going to live for as long as they will, and nobody really calculates what they are going to need over all these years, with the need for care, and so on. Explicit government support and signposting would help to ensure that these people—the small pension pot holders—have as easy a time as possible in getting help with their shopping around. Will the Minister consider creating some kind of forum so that the industry, the regulator, the DWP and HM Treasury can get together to meet and discuss how better to work together to improve customer outcomes?

Unemployment: Older Women

Baroness Greengross Excerpts

Tuesday 16th October 2012 Lords Chamber

[Lord Freud]

My Lords, as my noble friend will know, we are making big strides on pension provision. We have introduced the triple lock and we are talking about introducing a single tier of pensions, which will massively simplify the overcomplex pension provision in this country.

[Baroness Greengross]

My Lords, have Her Majesty’s Government looked at not just the salaries of those older women who are in work but at the terms and conditions of their employment—for example, the use of zero-hour contracts? Is there full recognition among government inspectors and so on that for many this is the primary, not secondary, source of income in the family?

[Lord Freud]

My Lords, the crude facts of the matter are that more older women are employed than ever before—3.5 million—and the rate of employment is also at an all-time high of 60.6%. Older women are doing extraordinarily well in the workforce and the reason for that is that they are very valuable employees. Even the BBC seems to have got round to recognising that.

Pensions Bill

Baroness Greengross Excerpts

Monday 31st October 2011 Lords Chamber

[Lord Boswell of Aynho]

My Lords, I should like to speak briefly in support of the amendments offered to us by the House of Commons and against any further amendment thereto. In doing so, I speak as one of the instigators of the initial expressions of concern in this House, which were taken up so well by the noble Baroness, Lady Greengross, and others, and have led to the kind of compromise that the Minister has offered us today. It is a compromise; it is not perfect and certainly not what everyone wanted. However, the alternative would be unconscionable and unachievable.

The Minister has had to labour in devising this scheme with the aid of tremendous care and iteration. He has had to operate under two major constraints. The first, which he has set out more clearly than anyone else could have, is that of cost. I shall turn back to that in a moment. The second is the equal treatment directive. Although the measure of generosity or beneficence that he has been able to offer is welcomed by members of the male gender, the directive has attenuated some of the things that he would have done—if he had not been constrained by it—for persons of the female gender, who initiated the element of concern. He has had to live with that.

I say that as the author of an amendment that the Minister briskly dismissed in Grand Committee by pointing out that it would, somewhat beyond my intention, have been likely to incur an Exchequer cost of some £6 billion, which would have been out of court to the expenditure that he has been able to undertake on it. However, the Minister has done the right thing. In particular, I emphasise the importance of having a sound and viable medium-term strategy. It is quite easy for us, even those who are more expert in the public finances than I currently am, to look at issues in the deficit reduction programme without realising or acknowledging that it is equally important that we should have a credible medium-term financial stance; and that we should show that we are prepared to keep a rein on rising expenditure. The Minister has been able to soften that slightly but he has not been able to take away the constraints.

The Minister also had a third area to think about: how we should deal with this. I am very glad that the Government have not come back with a compromise that was a kind of lash-up—another set of discretionary concessions for a limited number. That would have been better than nothing, I am sure. However, as I advocated in Committee, he has come back with what I call an architectural solution: delaying the full impact of these changes, rather than just a series of slightly unfortunate and perhaps awkward-in-precedent changes.

I have one final point for the Minister. In praising him for his measure of controlled beneficence, I also remind him that it will be equally important for long-term assurance—given the longevity factors that are not really in dispute across this Chamber; we understand how people’s longevity is rocketing—that it may be necessary to return to some of the long-term milestones and a further increase in the pension ages. When that happens, future Ministers will not be constrained by the equal treatment directive because we will have got to parity before we start. However, I would not like anyone here to feel that that issue will have to go away unattended indefinitely.

[Baroness Greengross]

My Lords, I thank the Minister, particularly for his amendment. However, I want to emphasise that the real winners here are the half million or so men and women who are going to get their pensions earlier than they would have done without this amendment. I was not the only Member of your Lordships’ House who felt that this was very unjust, but I congratulate the noble Lord because he recognised this with great sensitivity. I agree with the noble Lord, Lord Boswell, that this is a compromise and that there were various constraints. It is not what we all wanted; it has not gone as far as we would have liked, but there were constraints that made that very difficult.

I tried in the amendment that I put forward to do something about what those of us who tried to change things we saw as a tremendous injustice to 300,000 older women—those who found they had to wait an extra 18 months or even more to get their pensions and 33,000 who had to wait an extra two years. Now, because of this amendment, 245,000 of those women, and a similar number of men, will see their pension age reduced between one and six months. It was not all that some of us, including Age UK, would have liked, but I am pleased to support the amendment as a victory for common sense and I thank the Minister for his sensitive approach.

With regard to going further, at this stage I just hope that no further changes will occur without due notice to everybody concerned and appropriate time for people to prepare for a huge change in their circumstances. That is very difficult to cope with at that stage in one’s life—particularly for women, who find it hard to get into the job market at all at that age or even to remain in the job market. I very much support what the Government have done, and thank the Minister again.

[Lord German]

My Lords, I also add my congratulations to the Minister and the Government for recognising what was the most important part of this Bill—certainly the most controversial part. When it left this House it left it unamended but, if one had taken the temperature of your Lordships’ House, it would have been quite clear that the Government had to do something to ameliorate the problem which was so well put in very many amendments. The Government have listened, and taken on board that message. They went away and came up with a compromise for which we have to be grateful. I pay tribute to the noble Baroness, Lady Greengross, who put down the amendment that paved a way, in a sense, for the sort of direction that the Government have adopted; it might have cost another £1 billion, but, as they say in musical terms, it was close enough for jazz.

The key issue here is that we have to recognise that, though the Government have taken this on board, it will mean a substantial improvement for women who might otherwise have been expected to work for an additional two years. As we have heard, these changes will cost £1.1 billion and affect 250,000 men and just under 250,000 women. I do not regard that as a sticking-plaster solution. It has not been put in place simply to hold the breach in the dam. Another part of the Age UK statement says that it is a big step forward. It states:

“We can’t emphasise enough the great achievement”—

the great achievement—

“that this change represents as it will cost the government £1 billion in lost cuts to expenditure”.

In fact, it will be just over £1 billion.

Welfare Reform Bill

Baroness Greengross Excerpts

Monday 24th October 2011 Grand Committee

Moved by

[Baroness Greengross]

50A: Clause 12, page 5, line 38, at end insert—
“( ) the fact that a claimant has reached the qualifying age for state pension credit.”

[Baroness Greengross]

My Lords, unsurprisingly, this is primarily about people who have reached, or have nearly reached, retirement age. We know that for a long time the means-tested benefit system has supported, and given greater support, to people who have reached retirement age. However, under this Bill, unless couples where one person has reached retirement age receive some additional support, the older person who might be, say, 80, who happens to have a partner of 59, could be worse off financially than someone with a partner of the same age. My amendment seeks to remedy that anomaly.

Not allowing couples, when one has reached state pension credit age, to get working age benefits is an important change from the current rules because the way in which couples have been treated in the past for benefit entitlement has been based on the age of the youngest partner. In the Bill as it stands, one of the basic conditions for entitlement to universal credit set out in Clause 4 is that someone is under the qualifying age for state pension credit, which, by the way, is gradually increasing in line with rises in women's state pension age. However, Clause 12(2) allows for exceptions to that. The Government have said that the age limit will not apply where one of a couple is above the qualifying age for state pension credit and the other is younger. That is necessary because Schedule 2 to the Bill will prevent pension credit claims in the future from couples where one is under the qualifying age.

In some situations, couples where one is above and one is below pension credit age may be better off financially receiving universal credit and I am really pleased about that. That could apply, for example, where one is working, as an important aim of universal credit is to make work pay, and benefits will gradually be withdrawn. However, by contrast, a couple receiving the pension credit guarantee have only a £10 disregard from earnings. After that, any earnings are counted in full as additional income, which will reduce benefit entitlement. If neither partner is working, a couple relying on universal credit will receive a lower level of payment than a couple receiving the pension credit guarantee.

I fully accept and agree with the fact that the Government want younger partners who are claiming benefits to be seeking work, but I believe that when neither partner is able to work or, if able, is unsuccessful in finding work—we know it is rather difficult for people who are near retirement age—the basic level of benefit should reflect the fact that one of the partners is older. The addition of this minor age exception to the list in Clause 12(2) would achieve that aim. I trust that this amendment will be acceptable to the Minister. I beg to move.

[Baroness Drake]

I support Amendment 50A. I am very concerned about the implications of the change of the rules on pension credit because the effect of the proposed change is a severe restriction on the availability of pension credit. The most recent impact assessment which updates that provided in February to take account of a more recently announced policy confirms that the number of households with lower entitlements under universal credit has increased relative to the previous version of the impact assessment. That is primarily due to the announced policy changes to disability payments and the treatment of couples with one partner under and one over the qualifying age for pension credit under universal credit.

I find this change in policy a peculiar form of couples penalty, when the Government are on record, I understand, as being against such a penalty. It is a couples penalty that disproportionately impacts on the poorest of couples because the recent impact assessment reveals that the number of households with lower entitlements under universal credit will increase as a result of this particular treatment of couples with one partner under and one over the qualifying age for pension credit. As a consequence of these changes, although not wholly attributable to this one, 70 per cent of the lower entitlement is concentrated in the bottom and lower quintile.

Although the figures in the impact assessment do not separately show the impact of the pension credit changes, the impact assessment states quite clearly that:

“Some of the heaviest notional losses … are in cases where one member is of working-age and one is currently eligible for Pension Credit”.

I see in response to a question from Stephen Timms in the other place, Steve Webb answered that as of February 2011, 93,200 pension credit recipients had a partner aged below 60. A not insignificant group of people, no doubt in low-income groups, will be impacted by this change.

When one looks at previous impact assessments that the department has released, in many of these couples when one is a pensioner and one is not, the partner below state pension age may well be caring for children or somebody with a disability or who is ill. Now those households would be subject to the new in-work conditionality requirements. We know that older women are less likely to be employed outside the home, so this is another example of a policy that will impact on women—exactly the kind of policy upsetting the Women's Institute according to this weekend's papers. I am sure that it will be onto the case with this one as well

I notice that the Minister, Mr Grayling, commented in Committee in the other place that it should be acceptable to say to someone:

“‘Your household is on a low income, you need more money, get a job’”,—[Official Report, Commons, Welfare Reform Bill Committee, 28/4/11; col. 553.]

as a defence of this change to the pension credit rules. Perhaps he should have reflected on the characteristics of the community affected by this change, such as the number of older women in such households who are undertaking valuable non-wage caring work or the fact that disabled people are more likely to be reliant on pension credit at minimum qualifying age. Those facts and figures are freely available in impact assessments from the department.

We now have a policy that is discriminating between pensioners on the basis of their spouse’s age and producing some quite arbitrary outcomes with poorer households having significantly different experiences because of what could be quite moderate differences in the age of their partners. Let us be clear: the effect of this policy is to disentitle someone under the current rules who would otherwise receive pension credit and place them, because of the age of their partner, into universal credit.

This policy will impact on a lot of low-income households. The noble Baroness, Lady Greengross, detailed that when she moved the amendment. I know that Age UK is particularly concerned. If, for example, a couple received an amount of universal credit equivalent to the basic level of income-related jobseeker’s allowance that would be just £105.95 compared with pension credit for a single person of over £137 and £209-plus for a couple.

The other point that causes me concern is that pension credit provides an automatic passport to benefits such as health benefits, Christmas bonus, home improvement grants and free school lunches—I was looking the list up—and any cared-for children’s access to school lunches. Will all these fall away now for these couples, even though one of them reaches the qualifying age?

The other impact is that this change in policy will also mean that these older couples, with one at the PC qualifying age, will find that any savings that they have are now subject to the more aggressive capital rules, rather than the gentler rules under pension credit. That strikes me as particularly harsh as a consequence of this change. I feel that this Bill is being used to change the rules on pensions, yet it is not a pension Bill, because the population most impacted on by the change in this policy will be subject to a series of government policy changes, the accumulative effect of which would be quite significant. They face an accelerated increase in the pension credit qualifying age, consequent on the state pension age changes, and the impact of that has been clearly detailed. The savings credit element of pension credit has been frozen until 2015, and now a new policy of disentitlement has been introduced, whereby a qualifying age of entitlement to pension credit will be dependent on the age of the partner. When one stands back and looks at the cumulative impact of this on these individuals, the impact of the rules on their savings and the characteristics of this demographic, one can see that this is a very harsh change of rules. Yet the Government’s own impact assessment for the Pensions Bill shows that women under 55 on low incomes, who are most likely to be the people under the qualifying age, whereas their male partners may be at it, are the hardest hit by any changes in pension credit policy because of caring responsibilities, ill health or availability of work. They are now going to be caught up in the conditionality requirements under universal credit.

Pension credit is a very effective policy for targeting pensioner poverty, which was confirmed by the recent PPI research commissioned by Age UK and launched at an event supported by the Minister, Steve Webb, who came to speak. Here we are, tampering with the rules of pension credit when it is probably the most effective mechanism that we have for immediately addressing pensioner poverty. The effect that it will have is simply to disentitle people who have previously been entitled to pension credit and put them through a discretionary work conditionality process when we know that the characteristic of this particular group should not be subjected to those kinds of policies. The amendment tabled by the noble Baroness, Lady Greengross, will allow the Government to address my concerns on this issue.

--- Later in debate ---

[Lord Freud]

That is the nub of the change. When we looked at it, we thought that the appropriate policy was to put everyone below working age in that category. On looking at the noble Lord’s question of why do it when there is not work conditionality, there we have support in universal credit through the additions and the ability to keep a rather simple set of definitions working. That is the rationale.

[Baroness Greengross]

I thank the Minister for responding. Obviously, I am disappointed because I think that it would work in a society where at the age of 55 one could just go and get a job, but we know that that is not the case. Unfortunately, there is a still a lot of discrimination and barriers to older people who try to get a job. More flexibility would be very welcome. I think that the noble Lord said that he cannot do more but that he is still looking to see if things can be improved for these couples. I have hopes that he will look at this again and try to improve on something that seems fairly minor but which would help a lot of people.

[Lord McKenzie of Luton]

Perhaps I may come back on a point with the Minister to make sure that I understood an answer to an earlier question. In relation to the proposed changes to capital limits for pension credit, did the noble Lord say that that would apply only—I am not sure how it would be worked out—to the housing component or that it will apply to the totality of the package?

--- Later in debate ---

[Lord Freud]

I am happy to send a letter around. We should deal with capital limits in its entirety when we come to Clause 74, which we may get to if we hurry along.

[Baroness Greengross]

My Lords, I apologise for the fact that I am about to chair a meeting on health and rather rudely have got to go. I hope that noble Lords will excuse me for rushing off to Millbank. I beg leave to withdraw the amendment.

Amendment 50A withdrawn.

Pensions Bill [HL]

Baroness Greengross Excerpts

Wednesday 30th March 2011 Lords Chamber

[Baroness Murphy]

My Lords, I am sure that the noble Baroness, Lady Greengross, will be here to speak to her amendment in due course, so I am speaking on her behalf. This is not a filibuster despite the comment I have just overheard. In Committee I spoke to the suggestion that we should have a halfway house and that there should be an amelioration of the difficulties that some people will face. I have today supported the Government in the main thrust of their policy but I think that a modest change to help the few who need it would be very helpful indeed. I am now assured that the noble Baroness is in her place, and no doubt she will outline her amendment in more detail. I beg to move.

[Baroness Greengross]

My Lords, I start by thanking the noble Baroness, Lady Murphy. I am sorry; I did not realise that people had come back into the Chamber. I hope that my amendments will be seen as both positive and fair. They represent a compromise and would ensure that, if the Bill becomes law, no women born between 6 October 1953 and 5 April 1955 will have to work for more than one extra year before they receive their state pension. This is a particularly vulnerable group which was eloquently described by the noble Lord, Lord German, in his remarks on the previous amendment.

We know that life expectancy is rising much faster than many of us had realised, and during the Second Reading debate on this Bill I accepted the argument that rises in the state pension age must take place. However, I also said that while I understand completely that deficit reduction is a priority for the Government, this legislation could have a hugely negative impact on certain women. It will have a negative impact on many women, but some groups will be particularly affected. The 33,000 who are the worst affected will face a two-year hike in their state pension age. They will not have any possible opportunity—because they will not have had notice—that will enable them, even if they could, to plan financially for this delay in getting their state pension.

This group of women will be particularly and disproportionately hit by the Government’s proposals. It will also be the second time that these women have had their state pension age changed. Many will also be totally unaware of the changes and they will not be in any way prepared for them. Many of these women, as the noble Baroness, Lady Hollis, illustrated graphically, will be single women and women on lower incomes, who face, as we know, lower life expectancy on average. Many of them have not had a chance to accumulate any form of private pension. They will be reliant solely on the state pension. Many of these women care for older parents or younger grandchildren, and sometimes both at the same time.

Furthermore, the timetable proposed in the Bill is faster than that laid out in the coalition agreement, which promised that the state pension age would not start to rise to 66 until 2020 at the earliest. I do not think I am alone in having received many letters illustrating this point from people who are going to be caught out by this change, which would in any case not offer any immediate help in cutting the deficit, because, as we have heard, there will not be any savings until 2016, by which time the Government plan to have eliminated the current deficit.

The figures in the table I have produced have been verified by some key experts in the pension field as dealing with a particularly difficult problem. Many people I know feel very strongly about this matter and by accepting these amendments the Government could—and I hope will—demonstrate that they want to help the people most affected and worst affected by this necessary reform of the state pension age. I very much hope that the Minister will support my amendments.

Pensions Bill [HL]

Baroness Greengross Excerpts

Thursday 3rd March 2011 Grand Committee

[Lord Boswell of Aynho]

Perhaps I may briefly invite my noble friend to consider one particular point about the raising of the threshold. There is no need for a commitment at this stage, although it has been implied that it will be considered. Can my noble friend give some thought to, and discuss with his Treasury colleagues, the way in which this might be introduced annually into the national consciousness? I hesitate to dangle another red herring before the Committee in the shape of the national minimum wage, on which I have some prior form. However, if we are beginning to look at the impact on labour markets of a number of items, and some of the misguided or inappropriate claims that are made, or the fact that people say, “I don’t think I can afford that anymore and I want to pull out”, it would be useful to have a national economic snapshot. Although this is strictly about the labour market and within the Minister’s remit by definition because he is legislating on it, it is part of a national economic snapshot. Some people may have noticed today in relation to the national minimum wage a suggestion with which I do not agree—that we should announce it and defer it for 12 months. I merely make the point that probably on the occasion of a Budget it would be useful to have an annual appraisal that was keyed in and could be related by the commentators to tax rates, take-home pay and so forth. It would add to clarity and transparency.

[Baroness Greengross]

At Second Reading, I stressed the point that one good aspect of the trigger was that it would help prevent employees and employers from making very small contributions. This is still an important point.

[Lord Freud]

My Lords, first, I thank the noble Lord, Lord McKenzie, for leaping into the breach and allowing us to have this debate on the issue about the trigger at which an individual is automatically enrolled being reduced. We are looking at the three amendments, together with the amendment of the noble Baroness, Lady Turner.

The reference to the potential move to the tax threshold is a really important issue that deserves a robust debate in its own right. We have an opportunity to debate it in later amendments. Rather than pre-empting that debate—in which I will make a commitment—I turn to the specific proposals in the amendment. We have committed to alignment with next year’s tax threshold of £7,475. This is the right direction of travel. However, we also need to retain flexibility for the future in order that we continue to target the right groups at the right times. I very much take the point of the noble Lord, Lord Boswell. There are quite a few issues that have to be looked at in the context of that debate. Let me put that to one side because we will be reverting to it. I apologise for the scars that the noble Lord, Lord McKenzie, bears. As a result of the level of uncertainty that exists in the structure of the pension system, we look to have rather more freedom of manoeuvre than he was able to enjoy.

This Government have always supported automatic enrolment into workplace pensions. We believe that it is the step change that will make a critical difference to a boost in retirement savings. However, we also believe that the new automatic enrolment earnings trigger is a significant improvement to the breakthrough in pension reforms that the noble Lord, Lord McKenzie, and so many other members of this and another place work so tirelessly to develop. Automatic enrolment for every individual into pension saving is not always the right thing to do. The key question is, and always has been, whether low earners would benefit from saving, as the noble Lord, Lord Stoneham, pointed out. It makes no sense to require people to sacrifice income during their working life and redirect it into private pension saving, when that saving makes them no better off.

The nub of this issue is about getting the right people saving. We, therefore, commissioned an independent review to ensure that the scope proposed for automatic enrolment by the previous Government was right. We wanted to look again at the point at which people should be auto-enrolled to ensure that we capture the right group.

Pensions Bill [HL]

Baroness Greengross Excerpts

Tuesday 15th February 2011 Lords Chamber

[Baroness Greengross]

My Lords, I declare an interest in that I head up ILC-UK, one of 12 organisations across the world that look at planning for the future in the light of demographic change. I agree with the Minister that, while we all celebrate the incredible changes in life expectancy and we all hope to benefit from them, they present us with enormous challenges that we all must try to meet in a fair, just and realistic way. I am therefore pleased to take part in this Second Reading debate.

I am sure that all of us in this House would support the aim of getting more people to save for their old age. I particularly welcome the fact that NEST is designed particularly to meet the needs of people who are largely new to pension saving. I am certain that NEST will be a valuable addition to the pensions landscape and I welcome the incorporation into the Bill of the recommendations of the 2012 review team to widen pension provision and to help to keep existing schemes open.

One good aspect of the earnings trigger of £7,475, which the noble Baroness, Lady Drake, was worried about, is that it should help to prevent employees and employers from making very small contributions. However, while welcoming the Bill, we must be alert to the possibility of unintended consequences. Unless we deal with them, there could be a lot of losers as well as winners, as other noble Lords have pointed out.

I will make brief comments about the three key areas of the Bill: auto-enrolment and its particular relevance for older workers; raising the state pension age and, in particular, the impact on older women, as has been mentioned; and the move from RPI to CPI and its impact on older people.

The Bill introduces an optional waiting period for auto-enrolment so that an employer can give an employee notice that their auto-enrolment will be delayed by up to three months. However, to ensure that those workers who have their auto-enrolment deferred are aware of their rights and to encourage consumers to take personal responsibility for their pension saving, it is important that the notice should state clearly that the worker retains the right to opt in to the pension scheme at any time.

The full implementation of auto-enrolment throws into sharp focus some of the remaining unresolved issues surrounding the NEST proposition. Any amount saved in a personal pension has to be better than nothing and even a small pot may make a difference at the marginal level, where most people are. A minor issue that immediately springs to mind is the fact that transfers to NEST are currently heavily restricted. Allowing an employee to transfer pension pots—especially small ones—into NEST would encourage better pension savings and take away the burden of administering small pension pots from the employer and the pension scheme. I hope that the Minister will consider this point.

Personal accounts may not be suitable for all employees, particularly for low-earning individuals of 50 and over, as the charging structure of NEST and the phasing in and staging of auto-enrolment and the employer contribution could significantly reduce the size and value of savings pots for those close to pension age, particularly single people. At the same time, depending on overall household income, they could lose their entitlement to means-tested benefits. It is worth considering whether these people would get better value from devoting their funds to other forms of saving, such as ISAs, during their working life. Perhaps the noble Lord will consider that.

In order to manage expectations and to reduce the risk of disappointment at retirement, would it not make sense to impose the simple requirement on the employer that at enrolment the jobholder would be provided with an annual pension benefits forecast based on their statutory retirement age, which would include the impact that such benefits could have on any entitlement to state means-tested benefits? Such a forecast would complement any state pension forecast obtained from the Pension Service. The jobholder would then have the option to seek further advice and, if appropriate, to opt out of a personal account and consider alternative savings arrangements.

The raising of the state pension age was due to take effect between 2024 and 2026 but, because it is being brought forward, the timetable in the Pensions Act 1995 will be accelerated so that the state pension age for women will reach 65 by November 2018. The effect is that, although no men will have to work longer than an extra 12 months, half a million women will have to work at least a year longer, as the noble Baroness, Lady Drake, said. Three hundred thousand of those are going to have to work an extra 18 months, while 33,000, born between 6 March and 5 April 1954, will have to work two extra years.

I understand that deficit reduction is a priority for the Government, but the legislation is discriminatory against women born in 1954. I do not expect that I am alone in having received several letters illustrating this point from people who are, or feel, caught out by this change. It will hit them very harshly but make no impact on the deficit reduction in this Parliament. My concern is that those who will suffer are the most vulnerable women. Many are single; they have not had a chance to accumulate a private pension and will be reliant solely on the state pension. Many will also be unaware of the changes and will not be prepared. We need to give people time to order their affairs. For those who are going to have to work an extra two years, this is very unfair. The changes seem to be contrary to the coalition agreement, which said that any rise to 66 would not start sooner than 2020 for women. Therefore, could Her Majesty’s Government consider leaving the increase in the state pension age to 66 until 2020, when under the current timetable women’s state pension age will reach 65? I do not know whether the Minister can give me any reassurance on that.

Although the removal of a default retirement age will be welcomed by those who would prefer to continue working beyond 65, the recent Marmot report on health inequalities in England—mentioned by the noble Lord, Lord German—highlighted the fact that around 75 per cent of the population will not be healthy enough to work until the age of 68. Such figures are a clear argument in favour of more investment in preventive healthcare. If the Government are to succeed in extending the working age without creating inequitable outcomes, they need to place more emphasis on job quality, support for people with care responsibilities and the creation of transferable skills among the older workforce. In addition, not only is ill health a major factor in early retirement but it is more likely to affect lower-skilled workers, who tend to have less generous pension arrangements. We wonder what will happen to those who are forced to retire before the state pension age because of ill health but who do not have access to private or personal pension income to tide them over until they receive their state pension at this later age. Perhaps the Minister can elaborate a little on that.

Lastly, I wish to make a brief observation on the decision to use CPI rather than RPI as the measure for inflation indexation. As we know, the major difference between them is that CPI does not include housing costs—the effect of mortgage rates or council tax being part of that. Last week, the DWP published an impact assessment of the costs of the Government’s decision for members of defined benefit pension schemes. The effect of the move from RPI to CPI for protecting the value of future pensions is to reduce the value of benefits over the next 15 years by £83 billion. As the DWP puts it:

“The main cost of this policy is to members of private sector DB pension schemes who will see the anticipated value of their pension rights reduced and the value of their total remuneration package reduced in the short term”.

The value of this reduction in pension rights and total remuneration equates to a significant £5.7 billion per annum. For 2 million relevant active members of pension schemes, the reduction in their annual rate of pension accrual is broadly the same as a pay cut of between £2,250 and £2,500 a year on average. That is the implied fall in their total remuneration, including the value of the pension promise made to them by their employer. However, they will not feel it until they retire, when their pensions will be up to 12 per cent lower than would otherwise have been the case in real terms in 2027 and 20 per cent lower in 2050. This is a reduction in the value of pensions to pension scheme members and is a transfer from them to shareholders.

The changes in inflation indexing that will occur as we move from RPI to CPI will impact older pensioners in particular. According to Age UK’s silver retail prices index, the impact of inflation on those in later life is far greater than estimated by official measures. For example, since the beginning of 2008, those aged over 55 have experienced price rises at almost two percentage points above that suggested by headline RPI figures, rising to four percentage points for those over 75. The gap between real and headline inflation over that period has cost the average 60 year-old £620 a year, rising to over £700 for someone aged between 65 and 69. This is mainly down to the different impact that fuel and energy price increases, reductions in savings rates, increases in mortgage interest payments and so on have on older people’s, versus younger people’s, spending power.

The Government have said that CPI is a more appropriate measure of pensioners’ costs than the RPI but they have not given any detailed explanation of that. I do not agree that it is a better measure. Since 1997, the CPI has, on average, been around 0.8 per cent lower that the RPI. One important reason for this is that it excludes housing costs, as has been said. I believe that the Government should retain the RPI as the main measure to be used where pensions and state benefits are linked to price increases. I hope that the noble Lord can assure me on some of those points.

Poverty

Baroness Greengross Excerpts

Thursday 22nd July 2010 Lords Chamber

[Baroness Greengross]

My Lords, the Government have made a strong commitment to fairness, but there are some grave concerns about certain groups among us who were already suffering from poverty and whose situation will be worsened following the Budget announcement. Careful attention needs to be paid to those people who are most affected.

In 2007-08, 13.5 million people in this country were living in households below the low-income threshold of 60 per cent or less of the average income. This is about a fifth of the population and an increase of 1.5 million compared with three years previously. We know that the UK has a higher proportion of its population in relative low income than most other EU countries. Of the 27 EU countries, only four have a higher rate than the United Kingdom.

We know that health inequalities associated with socio-economic status are pervasive and can be found in all aspects of health, from infant death to the risk of mental ill health. We also know that life expectancy is closely related to this. The difference in life expectancy between the leafy suburbs of the south-east and the inner-city deprived areas of the far north can be as much as 17 years. This is a death sentence and is totally unacceptable.

I turn to disabled people, who were movingly described by the noble Lord, Lord Touhig. About a third of working-age disabled adults live in low-income households, which is twice the rate of that for non-disabled adults. The gap between the two is markedly higher than a decade ago.

In the Budget, many entitlements were scaled back. The Work and Pensions Secretary admitted that the decision of the Cabinet to scrap free school meals for working parents’ children and reduce the number of people who get tax credits made his own long-term goal to alleviate unacceptable levels of poverty and social exclusion difficult.

An issue which particularly affects older people—although not exclusively—is that of excess winter deaths. In 2008-09 the number of winter deaths increased by 36,700 compared with the average for the non-winter period—a 49 per cent increase compared with the number in the previous winter of 2007-08. The elderly population experiences the greatest increase in deaths each winter. In 2008-09 there were 29,400 more deaths among people aged 75 and over as compared with those in the non-winter period. In contrast there 7,300 among those under the age of 75. That is a terrible differential.

On fuel poverty, in 2007, 2.8 million households in England alone were classified as being in fuel poverty. In 2004, 5.9 per cent of households were considered to be fuel poor, but that rose to 7.2 per cent in 2005; 11.5 per cent in 2006; and it went up to 13.2 per cent in 2007. Fuel poverty is increasing mostly because of the continued significant increases in fuel prices, and VAT increases will be passed on directly to the consumer, making the situation of people suffering fuel poverty even worse.

The Fuel Poverty Advisory Group has estimated that 4.6 million homes across England could now be in fuel poverty. It added that investment in energy infrastructure and measures to reduce greenhouse gases were essential but that the cost of these was largely passed on to consumers and that bills could soar by a further 50 per cent. Both overall and among those in low-income, single-person households, many people are more likely to be in fuel poverty than other household types by 2020.

On the issue of decent homes, in 2008 about 7.4 million homes were described as non-decent—that is one-third of our homes. Overall, homes in the social sector were in a better condition than those in the private sector, where most poor older people live; 27 per cent are non-decent compared to 34 per cent previously. For vulnerable groups, 24 per cent of private homes had at least one category 1 hazard; 13 per cent in social rented homes; and 31 per cent in private rented homes. The National Audit Office examination of the decent homes programme concluded that while good progress has been made there are risks in terms of completing the target to eliminate non-decent social rented homes—originally by 2010—and of a new build-up of a repairs backlog if a new programme is not put into place. Such a new programme seems remote in the current circumstances.

By capping housing benefit nationally, the Budget creates real issues in London and the south-east particularly. That, together with the regressive nature of VAT, means that the Chancellor has got his work cut out to prove that he is putting fairness first, particularly in the longer term. I hope the Government will consider these issues.

Disabled People: UN Convention

Baroness Greengross Excerpts

Monday 5th July 2010 Lords Chamber

Asked By

[Baroness Greengross]

To ask Her Majesty’s Government what steps they are taking to implement the United Nations Convention on the Rights of Persons with Disabilities.

[Baroness Greengross]

My Lords, I beg leave to ask the Question standing in my name on the Order Paper. I declare an interest as a member of the Equality and Human Rights Commission.

[The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud)]

My Lords, this Government are committed to the Convention on the Rights of Persons with Disabilities and to using it as a driver to achieve equality for disabled people. The Office for Disability Issues is co-ordinating implementation, monitoring and reporting across government and the devolved Administrations to ensure that they are aware of the need to take the convention into account in developing policies, and that they involve disabled people and their organisations in doing so.

--- Later in debate ---

[Baroness Greengross]

In thanking the Minister for his reply, I recognise the huge resource challenge we all face and I welcome the Government’s commitment to ensure that fairness is at the heart of any financial decisions that will be made. In light of the recent announcements around welfare reform, including incapacity benefit and disability living allowance, and the possibility of a delay in implementing the Equality Act, can the Minister assure the House that every step is being taken to make sure that spending cuts do not impede the implementation of the UN convention and that full equality impact assessments are carried out so that the impact on disabled people is actively and appropriately considered?

[Lord Freud]

My Lords, I am grateful to the noble Baroness for her informed questions, which I know come from her interest in and passion for equality issues. I can assure her that we will treat this convention with great seriousness and will push ahead to make sure that it does not slow down. Next July, we are due to report on progress in this area. We will be pushing to make sure that we do so to time. I can also assure her that in our welfare reforms we will look precisely at making sure that those who need support the most continue to receive it.

Pensions: Automatic Enrolment

Baroness Greengross Excerpts

Thursday 10th June 2010 Lords Chamber

[Baroness Greengross]

My Lords, I declare an interest as president of the Pensions Policy Institute and head of the UK International Longevity Centre. I, too, congratulate the noble Lord, Lord Kirkwood, on securing a very timely debate. He has raised some important issues and asked some significant questions. I also congratulate the other speakers today, who have been quite exceptional. I know that those who follow me will be the same, so my comments will be brief.

I am supportive of auto-enrolment but above all of the important consensus that has emerged about long-term pensions issues. Personal accounts may not be suitable for all employees due to their interaction with means-tested benefits. This particularly applies to workers over 55 years of age, who will always have insufficient time before retirement to accumulate a significant fund under the scheme. However, they may have just enough pension to reduce any benefit entitlement, including passported benefits, such as council tax relief, pound for pound. As I have said previously, this does not mean that people should not be auto-enrolled, but it implies that people will need, as the noble Lords, Lord Kirkwood and Lord Fowler, said, clear information and generic advice to help them to make informed decisions about whether they should stay in or opt out of personal accounts

The noble Lord, Lord Fowler, pointed to the extraordinarily awful levels of ignorance among the general public. The issues are who pays for the information and who will provide the information and advice, particularly down the line at the decumulation stage when employment has ceased. An important test of the personal accounts policy will be whether it is possible to design information and generic advice in a simple and easy-to-understand way to help people to decide whether they should opt out of personal accounts.

There are policy options that the Government could consider to improve the incentives to save for some groups, particularly those who are heavily at risk. I hope that the Minister will be able to indicate some of the thinking along these lines. Increasing the trivial commutation limit or introducing a limited pension income disregard could improve the returns from personal accounts for some individuals at a cost of increasing government expenditure on means-tested benefits.

I know that these are difficult decisions for the Government to make. I agree with the noble Lord, Lord Kirkwood, that a working group of experts to consider some of the important issues that have been raised today might be helpful in taking things forward. We must get this right in the long term as well as the short term.