Baroness Altmann
Main Page: Baroness Altmann (Conservative - Life peer)
Baroness Altmann (Con)
My Lords, I congratulate my noble friend Lord Freeman on securing this debate on an issue that noble Lords probably know I am rather passionate about. I also welcome my noble friend Lady Stedman-Scott—it is a pleasure to see her here—and I send my best wishes to my noble friend Lady Buscombe, who is equally doing an excellent job for us.
Pensions in the UK have a specific characteristic. Our system has always been structured as one that offers an exceptionally low state pension. The recent OECD figures showed that the UK state pension, even with the new state pension, was the lowest for average earners in a developed world, with a replacement rate of just 29%. Within our country the system has relied on private pensions to top up what is a rather low state pension. In the EU, by contract, most countries have a much more generous state pension and have relied less on private pensions. So private pensions are crucial to the financial well-being of the UK population in retirement. Indeed, we have had a very successful defined benefits system and we now have the success of auto-enrolment.
Today, I will spend a few minutes, given that it is International Women’s Day, talking about pensions for women. Women have been—and in many ways still are—second-class citizens. There have been a number of studies and there are a number of ways one can express the disadvantages that women face in pensions. For example, Zurich Insurance looked at four years, from 2013 to 2016, and found that men were estimated to receive an annual average pension contribution from their employer of some £3,500 a year, compared with £2,500 a year for women. That suggested that women, on average over their lifetime, would have £47,000 less in employer contributions than an equivalent male. Prudential has published figures that show that, on average, 21% of women are saving nothing for their retirement, compared with just 9% of men. The Centre for Policy Studies looked at women aged 60 to 65, whose pension pots were less than half those of men. So there clearly is an issue.
Women are losing out for many reasons. Obviously there is the gender pay gap. We have made significant progress but typically women earn less than men. They also tend to work in industries with lower employer contributions than men’s, such as the health sector, social work and education, compared with more men in financial services, for example. This is also compounded by career breaks. So women have a triple whammy: smaller salaries, lower contributions and fewer years of working.
The Government are embarking on auto-enrolment to try to ensure that pension coverage is spread much more widely, and this has so far been a tremendous success. However, there are issues that still affect women. Auto-enrolment does not cover the lowest earners, who tend to be women. Even low-earners who are covered unfortunately are losing out in an issue that I feel needs far more attention across the country.
I hope that your Lordships might join us in highlighting this issue and that my noble friend the Minister might look into it on behalf of so many women—and indeed men—who currently earn less than £11,500 and are entitled to basic rate tax relief on their pension contributions of the equivalent to the 25% government bonus, but are being denied it without their knowledge, often because their employer has chosen a scheme that even the employer does not realise has this impact on them. If their pension operates what is called the relief at source administration system, these workers will get the 25% to which they are entitled, but if the pension provider chosen by their employer is administered under a net pay system, they cannot get that money. They have to pay their own pension tax relief. The taxpayer does not pay it, so they are forced to pay 25% more for their pension than they should.
This scandal has been going on for a long time and sadly the Government have failed to address it. I have tabled numerous Written Parliamentary Questions asking what the Government plan to do about it, but I have received no answer. I have asked who would be responsible for the losses that these women are facing, but I have received no answer. It seems that they are falling through the cracks.
At the moment, the answer that I typically receive is that it is not a lot of money, but we are about to quadruple contributions under auto-enrolment by next March, and the amount of money that these women, and low earners in general, are losing will keep rising as the number of people potentially affected keeps rising. The failure to take this issue seriously means an ongoing risk of undermining the success of auto-enrolment if there is a scandal about these people being denied the money and there being nobody to take responsibility for it. I urge the Minister at least to speak to the Treasury and ask whether a system could be put in place whereby at least the scheme could claim the tax relief on behalf of these people. It knows who they are because it knows their earnings.
Having said that, if we can sort out the problems, we want to focus on making auto-enrolment an even greater success than it currently is. I congratulate the Government on the pension freedoms that have been introduced and the new arrangements for pensions that have the potential to make the system even better than it currently is. I urge my noble friend to ensure that we get default guidance embedded in the system so that the Financial Guidance and Claims Bill will automatically direct people to get the free guidance guarantee which the Government rightly have set up specifically for them. I hope that we will get proper measures that will effectively, as my noble friend Lord Freeman said, ban cold-calling and the use of leads obtained from cold-calling. That is critical so that the companies that might try to use those leads face the risk of being put out of business.
Then, of course, I eagerly await, as, no doubt, do all of us in the Room, the White Paper that we are expecting by the summer, I believe—perhaps my noble friend could update us on progress—on the sustainability of defined benefit pension schemes. I hope that we will look seriously at increasing the regulator’s powers, consolidating pension schemes and merging them so that we can cut costs, and perhaps giving trustees more responsibility for assessing the strength of their employer covenant in a professional manner, perhaps bringing in outside expertise to assess the company. Such outside expertise could have warned trustees and the regulator about the problems looming at Carillion. A number of hedge fund analysts spotted them just by looking at the report and accounts, but they were not apparently something of which the trustees were aware.
My wish for the future is that we help the pensions industry live up to its responsibility to promote pensions and to explain to the public why pensions are so brilliant. It is free money. We want the pensions industry to stop continually calling for the Government to bring it more customers and for the Government to make those customers pay it more money. The pensions industry is getting enormous amounts of taxpayers’ money from the tax relief. It needs to start serving its customers, making the product attractive, explaining why somebody wants to buy a pension and making them more user-friendly by getting rid of the jargon. One of my pet hates is the jargon that says that every pension scheme must have something that people who do not want to choose their investments should use. What do they call that? A default fund. What is the last thing that most people would want to do with their money? Default. Yet that is what everybody is supposed to have. Why not call it “experts’ choice”, or “specially designed for you”? Get people engaged with pensions: have apps; gamification; and user-friendly and popular investment options that are environmentally and socially responsible. Those are all opportunities that we can take.
I congratulate my noble friend on the debate. I look forward to listening to the other noble Lords who will be speaking and to my noble friend’s response.