First, may I thank Mr. Speaker for granting me this debate on the raising of the pension age?
For various reasons, I am retiring at the next general election at the age of 60—after 44 years of work, I might add—although I am prepared to continue my working life in other ways for a little longer, if I get the chance. However, I have some unfinished business in the House, part of which relates to the proposed raising of the pension age. That proposal went through Parliament with relatively little controversy or debate, partly because the proposal was extended into the future with the promise that it would be kept under review, which mitigated the controversy. The Work and Pensions Minister at the time, my right hon. Friend the Member for Stalybridge and Hyde (James Purnell), said:
“Although I accept that there are limitations on what the current data can tell us, I am confident that our timetable for change will not disproportionately affect those with below-average life expectancy, as compared with their position today. As a further safeguard, we have made clear our intention to commission periodic reviews of the evidence on life expectancy, to ensure that our timetable remains on track. That will include consideration of whether the qualifying age for the guaranteed pension credit should remain at 65 after 2024”.—[Official Report, Pensions Bill Committee, 30 January 2007; c. 223.]
The mood music is now different, as I shall point out, and I think that the process is being driven by factors other than checking the data.
I regret that the proposal went through Parliament so easily because complicated and unfair aspects remain unaddressed. The deal of raising the pension age on the one hand and giving benefits to pensioners on the other will unravel. I believe that the raising of the pension age will be brought forward, and that increase will be further and faster, while the benefits will be reneged on and watered down, if they are supplied at all, and that is why I oppose raising the pension age.
Let me make a couple of factual points. The House of Commons Library points out:
“It is important to stress that the ‘retirement age’ and the ‘pension age’ are not synonymous. The retirement age is the age at which one can be required to leave work. The pension age is the age at which one can start to draw an unreduced pension.”
The current state pension age is 60 for women and 65 for men, but it will rise for women from this year to 65 by 2020. It will rise for both men and women to 66 between 2024 and 2026, to 67 between 2034 and 2036, and to 68 between 2044 and 2046.
The Government’s reforms mitigate the worst effect on women by reducing the time for contributory work from 39 to 30 years. I warmly welcome that, as it means that many more women will get a pension. However, I am concerned about the arbitrary date for eligibility because there could be a huge difference between the positions of a woman born on the cut-off date or just after, and that of a woman born a few days before that date. That seems unfair, and the Government should have been prepared to put a transitional arrangement in place.
The hon. Gentleman will be aware that the Conservative party plans to accelerate the point at which the retirement age for men is increased to 66 to 2016. Does he think that that is about quality of life or helping employers, or simply to raise an extra £13 billion?
I am not convinced and neither is the hon. Member for Castle Point (Bob Spink). We will explore the issue further during the debate.
Other reforms that the Government brought forward included a promise to increase the basic state pension in line with earnings by the end of the next Parliament, although of course that assumes that there is not a hung or short Parliament. The Government suggested that the reform could be introduced by 2012, but the end of the next Parliament could be 2015. I believe that that promise will be reneged on, especially by a Tory Government who are looking to cut public expenditure sharply.
The Government’s other reform was to build up private pensions over time through a state-set-up stock exchange-linked fund called personal accounts, which would cover more people than at present and make them eligible for a pension. Although such schemes can work, as I saw for myself in Sweden with the Select Committee on Work and Pensions, this one has got off to a most unpromising start. It is meant to have contributions of 4 per cent. a year from the employee, 3 per cent. from the employer and 1 per cent. from the Government, but those figures are far too low for the scheme to be effective. Some workers will contribute but gain nothing out of it for their final pension.
The Government cancelled the commitment to the contribution for two years to save public expenditure, and you can bet your life that a Conservative Government would not pay either, as they would be concentrating on budget deficits. The cancellation for two years was an unpromising start.
I will deal with the point about an unpromising start in my main response, but I want my hon. Friend at least to admit that the 8 per cent. contribution he talks about in the national employment savings trust is the minimum. We anticipate that many employers and employees will see the sense in saving, especially over time, and will increase their contributions from that minimum.
I accept that that could be a minimum. Indeed, some occupational pension funds are very good and might well give larger contributions when they transfer across. However, it is more likely that employers will keep the contributions right down and we will not see what the Minister describes.
To follow on from what the Minister said, individuals and companies are trying to cut their costs as much as possible. Does the hon. Gentleman agree that there is a lot of concern that the absolute minimum will be put aside, not the maximum?
That is certainly my fear.
Many of the lowest paid workers, including those with a couple of part-time jobs, will not be in the scheme at all. Many employers will encourage their workers to opt out so that they can save money. Although the scheme is set up by the state, there is no state guarantee to back the fund. If the stock market collapses, the fund could be devastated, as could individuals’ pension pots.
I argued in the Work and Pensions Committee that it would be perfectly feasible and reasonable for the Government to guarantee fund growth of at least 1 or 1.5 per cent. a year. It is claimed that stock market investments grow at a significantly higher rate than that over time, so it would be relatively easy for the Government’s extra commitment in the bad years to be made up in the good ones. However, there is no such guarantee.
This is not the bold scheme that was needed from a Labour Government to replace our overall employer-based set-up. That set-up is very good when it comes to the operation of pension funds, although that is true mainly for wealthier, well-organised workers. As we know, however, occupational pension schemes are collapsing in all sorts of ways and do not cover enough workers by a long way.
The personal accounts fund will be left to wither under the Tories, however much they bluster now. It will be ripped off by consultants and pension fund managers who charge a high rate of interest. At the end of the day, it is likely to be inadequate for many workers.
That, then, is the diminishing of the benefits side of the deal that brought in the raising of the pension age, but we should also look at what the Tories are signalling for the raising of the pension age to 66. As the hon. Member for Castle Point said, they are rushing it forward to 2016 for men and to 2020 for women.
May I reiterate the Conservative party’s position? We have said:
“We will hold a review into bringing forward the rise in the state pension age from 65 to 66, but starting no earlier than 2016 for men and 2020 for women”.
I would be grateful if the hon. Gentleman corrected his statement and pledged to correct his website on this matter.
No, because the hon. Gentleman’s quote says that the Conservatives would be prepared to rush the rise forward to 2016 for men and to 2020 for women. The Pensions Policy Institute, speaking about raising the pension age to 66 for men from 2016, has said that every man under the age of 58 will be affected and will have to save an extra £55 a month to bridge the gap of the lost year of pension. That is the burden that the Tories are prepared to put on men, and it would affect women as well.
I think that the Tories are also prepared rapidly to bring forward the date of implementation of the higher ages and that, although this has not yet been stated, the pension age will become 70 within a short time under the Tories. I ask the hon. Gentleman what the Conservative party will put in its manifesto. If it shirks this issue and is elected, it will have no right to bring in a higher pension age; it has to be specific about its proposals before the election, not after it.
The shadow Chancellor has argued that the Conservatives will restore the earnings link by the end of the next Parliament, which will be 2015, and he claims that the money to do that will come from raising men’s and women’s pension ages. However, if men’s and women’s pension ages do not rise under the Tories until some distant point in the future, they will not have the money to restore the earnings link, so they will have to do precisely as the hon. Gentleman has indicated. Does he share my view?
That well-made point explains the situation. I think that the pension age will go up to 70 if the Tories get elected.
Lord Turner, the chair of the Pensions Commission, has set the scene for the Tories, and he is a former bosses’ leader, so we all know that he is sympathetic to them. According to one report, he told the BBC in August last year
“that there were arguments made during his review that the pension age go up to 70 by as early as 2030.”
“If I was redoing my report I would be more radical, arguing for an even faster increase in the state pension age”.
That clearly contrasts with what he said in his report.
We all know that it was a Labour Government. However, Lord Turner also said in his report:
“Some people suggest that this expense should be offset by raising the state pensions age to, for instance, 70. This would however have the disadvantage that the losers would be those on lowest income: both because they will typically have worked for longer and because they have shorter life expectancy in retirement.”
My hon. Friend mentioned the Turner report, which was not purely the property of Lord Turner himself, but the result of a commission. Does my hon. Friend agree that the Turner commission said:
“we do not believe that a rapid increase over a short period (e.g. to 70 by 2030 as was suggested in some submissions to us) is required”?
Yes—that is a good point. I am amazed by Lord Turner’s change of stance; perhaps he is positioning himself in the belief that there is going to be a Conservative Government. I am particularly amazed by that change given that there has been a recession in the interim.
Let us be clear: the Tories now see the raising of the pension age as a budget deficit measure. Deficit reduction drives their policy on raising the pension age. However, why should workers ready for retirement be denied it and have their financial security removed from under their feet to meet the cost of an economic crisis caused by the bankers?
The commission used the “living longer” argument to justify bringing in a longer-term change in the pension age, but that argument is deeply flawed. The situation is not helped by the fact that the actuaries who peddle that position have a vested interest, because insurance companies, big business and the Government, who want to cut bills, are their main clients. Living longer is mixed up with issues related to healthy ageing, but let us be clear about the “living longer” argument.
Recession, with its unemployment and poverty, reduces life expectancy. I am acutely aware of the fact that that was what a report said about people who have insufficient money in retirement, given that it was in the same week that the House unfairly docked my £65,000 resettlement grant. We should just look at the example of Russia’s transformation to capitalism. The economic collapse cut life expectancy by a huge amount. Under the Tories, we had three recessions, at least two of which were incredibly deep, and we have now had an awful recession under Labour, thanks to the bankers. Although it is true that the NHS, which has been well funded until now, has kept many more people alive, it is likely to have to endure a period of cutbacks which, if the Tories are elected, will probably be severe.
As regards employment rates for those aged between 50 and the statutory pension age being on a gradual upward path—I stress the word “gradual”—during good economic times, the first Turner report said:
“The absence of major macroeconomic shocks comparable to the recessions of the early 1980s and early 1990s has meant that fewer workers in their fifties have been made redundant; while for those who have faced redundancy, the general tightness of the labour market has made re-entry into the labour market easier”.
Well, not now, and that should be taken into account.
The Turner commission’s first report said:
“The recently launched English Longitudinal Study of Ageing…will provide a far better evidence base on the impact of ageing, but unfortunately not for many years.”
On health and ageing, it said:
“Analysis on this issue is frustratingly incomplete…From these data we simply do not know what the truth is.”
One key point that the report made was:
“Major inequalities in life expectancy and health between socio-economic groups may make across the board increases in retirement ages infeasible and inequitable, unless those differences erode over time.”
However, there is no sign that they are likely to erode significantly over time.
The report did, however, state that early inactivity for men aged 55 to 59 is concentrated in the lowest two and the highest wealth quintiles, with the lowest two quintiles describing themselves as sick or unemployed. The Pensions Policy Institute pointed out that
“there is a significant transition from full-time or part-time employment into ‘inactivity’ past age 59. Approximately 80 per cent. of men aged 55-59 are in employment, falling to 60 per cent. aged 60-64, and only 20 per cent. aged 65-69.”
Let us say it as it is. For most people over the age of 65, and sometimes earlier, the workplace is an incredibly hostile environment, particularly for those in the lower wealth quintiles. That will not be changed any time soon.
I favour people being able to work longer. That is what the Work and Pensions Committee said in its report, and the law should be changed to make that possible. However, it should be a matter of choice, not a question of forcing people to do so when they are being denied the financial security of a pension.
I agree with the hon. Gentleman’s points and I suspect that his constituency is a bit like mine. With the best will in the world, a lot of men—and women for that matter—who do very physical work and are outside a lot of the time are physically not able to carry on at that level by the time they get to 60. Perhaps another job would be fine, if there was another one that was suitable, but they are just not able to do the kind of job they have been doing for 40 years.
The hon. Gentleman makes a good point, particularly about manual trades and people from lower-income backgrounds.
I agree with the Government’s pension paper of December 2002, “Simplicity, security and choice: Working and saving for retirement”, which said:
“It is important that people have the choice to work beyond age 65, whereas raising the State Pension age would leave many of those on low incomes with no option but to continue working.”
“An increase in State Pension age would also reduce long-term public expenditure”—
that is why it is attractive to the Tories. However, the paper continued to say that that
“would disproportionately affect lower-income people who rely more on state benefits in retirement. The same people tend also to have lower life expectancies, and so, with fewer years in retirement, they would see a disproportionate reduction in their income. The effect might be particularly severe on those who have done manual work for long periods in heavy industries, in which there is a record of low life expectancy.”
That is exactly why I believe that raising the pension age without addressing that structural unfairness would be one of the biggest boosts to inequality in this country for decades.
Here is what the Marmot review, which was published last month, had to say:
“More than three-quarters of the population do not have disability-free life expectancy as far as the age of 68. If society wishes to have a healthy population, working until 68 years, it is essential to take action to both raise the general level of health and flatten the social gradient.”
I have no confidence that that will happen if the Tories get in. The Pensions Commission found that there was a major gap in life expectancy between socio-economic classes, affecting both men and women, and it is not narrowing. I believe that it will worsen with the raising of the pension age.
There has also been change with the introduction of the employment and support allowance, which is what a working-age person who could not draw a pension would have to live on. That is less than the basic state pension, and considerably less than what used to be called the minimum income guarantee for pensioners. That, in my view, makes raising the pension age unacceptable for most workers, but especially those from poorer backgrounds, and I oppose it.
Pensioner poverty is quite extensive. The Select Committee has discussed the fact that, despite a marked decline since 1997, there are still 2 million pensioners in poverty, and 1.1 million who live on less than 50 per cent. of median income, which it describes as unacceptable. The basic state pension is too low, and it falls too far short of removing poverty in retirement for all pensioners. The argument is that many people now have savings and private pensions to supplement their income, but I would add that many do not. The supplementary income argument is used to drive down the relative worth of the basic state pension. I believe that that will continue, especially with a Conservative Government, and that that argument will be used, in time, to break the link with earnings again, if it is ever brought in. I do not approve of that argument by which the basic state pension can be allowed to decline, as it inevitably means extensive pensioner poverty.
Tax breaks and tax credits for the wealthy are enormous. Limiting them, as the TUC suggests, could save £10 billion, and such an approach would be reasonable. For example, the TUC says that
“just 3.1 per cent. of the taxpayer population receive 31 per cent. of all tax relief, averaging £18,750 a year”.
If it were capped to £5,000 for those earning more than £100,000, that would raise £10 billion a year, which could make a significant contribution to closing the deficit. The TUC points out:
“People earning between £70,000 and £100,000 on average claim £4,500 in tax allowances, so a £5,000 limit for those earning more than £100,000 seems a fair limit”.
I agree with that, and it seems to be the right way forward. The basic state pension could be raised over time to an above-poverty level, and tax could be properly applied to overall income so that it could be paid for, including by wealthy pensioners.
I heard the Prime Minister say that the cost of the two wars that we have just had was £18 billion beyond the core defence budget. The Defence Secretary added yesterday on the radio that there is another £5 billion to come next year for Afghanistan. The approach was being described as “money no object”. I believe that with no war, and with a degree of will, proper income for pensioners could be arranged without raising the pension age.
I did not realise that I would be the only other Back Bencher to speak. I think I will probably take a bit less than half an hour for my few comments.
I congratulate the hon. Member for Leyton and Wanstead (Harry Cohen) on securing the debate on an extremely important issue. I do not know his constituency well, although my brother used to live there, and I have been to one of its football grounds. However, I assume that in the east end of London the problems and issues are similar to those in the east end of Glasgow. There are many questions in the debate, and perhaps not many clear answers. Perhaps we cannot expect them, but it is important that we should debate the issues.
The first point I want to touch on is about individualisation and personalisation. We heard those words a lot during the passage of the Welfare Reform Act 2009. We had assurances from Ministers that people would be treated as individuals and that there would be personal care for people. However, the reality that many of us see in our constituencies is that when people go to the Jobcentre Plus office or deal with the UK Border Agency or any of those huge departments, they do not get individualised or personalised care. That is a big concern, as we deal with such a wide range of older people in society.
The health of people when they reach their 60s or 70s—or even earlier—covers a phenomenal range. My mother is 82 and in very good health, but I know many people in Glasgow, East who are worn out in their late 40s or 50s because of ill health, and many other issues.
Although average life expectancy is going up, as the hon. Member for Leyton and Wanstead said, the range of life expectancy is huge. Male life expectancy in my constituency remains at below 70. If we make 70 the pension age, theoretically no one would get there, although I accept that there is a range. Although life expectancy at the top end goes up and up, at the bottom it does not do so to the same extent.
People’s ability to work varies hugely as they approach retirement, as does their desire to work, but it depends on the kind of work that they have been doing. The skills of older people vary, too. They may have used largely physical skills, doing outside work in parks, on the streets or wherever, or they may have done the sort of intellectual work that we are more used to. Another factor that has not been mentioned is that of caring, and the many caring responsibilities that many older people have these days. In the past, they were often quite light—seeing the grandchildren or the great-grandchildren once in a while—but for many they are now quite onerous.
As I said, male life expectancy in my constituency remains at under 70, and in some parts of Glasgow, including in parts of my constituency and nearby, it is well below that. I suspect that that is the case in other parts of the United Kingdom. Yet only a few miles away some people live for considerably longer, as they would in this part of the world.
The hon. Gentleman is making a characteristically thoughtful speech. He will accept, I think, that the differences that he describes have always been there. It has always been the case that the hard-pressed manual worker dies at a younger age than the professional. Those differences will always exist, and whatever the pension age it will always have a differential impact. Is it the hon. Gentleman’s view that those differences militate against ever changing the pension ages; or, if the average is moving up but we still have dispersion, does he believe that it would justify some upward movement?
Yes, but we need to be reasonable. However, there is broad acceptance. The hon. Member for Leyton and Wanstead said that there had not been much debate or controversy about the original changes in the rules. I do not have a problem with the idea, nor do my constituents or society at large, that the pension age will gradually rise. The question is how we are to deal with the wider range of ages.
Although the hon. Member for Northavon (Steve Webb) was right to say that there has always been a range of ages, without going into the statistics it seems to me that that range is getting wider. At the top end, many people are living into their 90s and even beyond 100, yet the increase at the bottom end seems not to be as great. I stand to be corrected on the statistics, but whatever they are, we are dealing with a wide range.
The statistics might cast some light on this. They are clearly projections, and they have to be kept under review, as do all statistics.
On the whole, the increase in state pension age will not result in a reduction in the number of people who survive to pension age. Indeed, it is projected to increase slightly. At the moment, 83 per cent. of men and 89 per cent. of women born in 1955 are expected to reach the state pension age of 65 in 2020. However, of those born in 1978, 85 per cent. of men, which is 2 per cent. higher, and 90 per cent. of women, which is 1 per cent. higher, are expected to reach the state pension age of 68 in 2046. What Parliament did when it legislated to increase the pension age gradually was to keep the percentages fairly similar; but it slightly increased the number projected to be able to retire despite the rise in age.
I thank the Minister for that clarification. I have no problem with what she says. Again, the emphasis tends to be on the average, but I am more than happy to accept the figures. However, we should remember that the average covers an incredibly wide range of people. My point is that we should ensure that the system cares for the individual, whether before or after retirement age. We must emphasise that, and remember that there is a wide range of ages.
I found the Library briefing on the pension age useful. It states:
“An increase in State Pension age would also reduce long-term public expenditure. However, it would disproportionately affect lower-income people who rely more on state benefits in retirement. The same people tend also to have lower life expectancies, and so, with fewer years in retirement, they would see a disproportionate reduction in their income. The effect might be particularly severe on those who have done manual work for long periods in heavy industries, in which there is a record of low life expectancy.”
The reality is that the situation of some of those at the top—that includes people such as my mother, who have increased life expectancy—is not matched across the board. The type of work that one does is clearly a factor. I am an accountant and a Member of Parliament, and I could work until the age of 70. However, those in very physical jobs cannot do so.
Another question is whether people can afford to retire. It is clear that people have not been saving enough, and that things are going to get worse as pension schemes close or benefits are cut. We have already touched on the fact that companies might do the minimum compared with what happened in the past, when many did a lot more than that. The danger for society is that the strongest will grab the most, and the most vulnerable will be left behind. The gap between rich and poor will get wider.
Some of the figures in a recent report on inequality jump out dramatically, although the report was quite lengthy, and I admit that I did not consume every word of it. It said that the 10th richest percentile of the population have 96 times the wealth of the 10th lowest percentile. That gap has become wider over the last couple of decades. The report states that the top 10 per cent. of the population have average wealth of at least £853,000 and that the lowest 10 per cent. have £8,800 at the most. That is an incredible gap, and it is not acceptable. Society will have to consider whether it is acceptable for the gap to become even wider.
I return to the Library briefing. It cites a review of the Oxford Review of Economic Policy by Professor Nicholas Barr. He said:
“Raising retirement age has analogous regressive effects, since workers from poorer backgrounds typically start work earlier and hence make contributions for longer, but have a shorter life expectancy than better-off workers. It can be argued that pension design alone cannot solve problems of wider inequality, which require a broad range of policies including nutrition, health care, occupational safety, and education and training. But at a minimum it suggests a potential role for other instruments, notably disability pension, to reduce regressivity.”
We must consider how much compulsion there is to save. Other European countries and Ireland have recently said that they are moving in that direction. It would obviously mean employers having to contribute, as well as employees. Some have suggested that educating people to save more would be sufficient—that we should explain to people that they need to save more for their retirement. It seems to me that the reality is different. For example, young people across the board, no matter what their background, have a tendency not to think of retiring. That is human nature. Another reality is that those on limited incomes are not able, even if they are willing, to put much aside.
At this stage, I am simply saying that we need to consider it. Other countries are certainly considering it. My personal thoughts would lean in that direction. However, it would have to be tied in with the minimum wage, which at present is far too low. We cannot expect people to save from such a limited income.
However, some very profitable employers are not contributing to their employees’ well-being both in the sense of the minimum wage and the pension contribution. I am happy that the Government have moved forward in some ways, but, as a society, I fear that we are putting too much emphasis on the individual’s choice. Although, on the whole, I support individual choice, we as a society have to pick up the pieces, and we need to look at how much people are saving.
As life expectancy increases, the spread gets wider, too. Some people in society might retire at 70 and then live for another 20 years, and that would be great. We would all like to draw our pension from the age of 70 to the age of 90. However, many in my constituency and elsewhere could be retiring at 60 and living fewer than 10 years and drawing a pension at that time. We need to work together as a society. We cannot rely entirely on an individual saving for themselves.
Therefore, there are more questions than answers at this stage. A piecemeal approach to pension provision, as is happening, does not seem to be working. Although we all understand that the pension age and retirement age are two separate things, they are very much linked. How do we get more individuality and encourage individual responsibility, yet protect the most vulnerable?
The Pensions Commission report of 2005 stated:
“Faced with the increasing proportion of the population aged over 65, society and individuals must choose between four options. Either pensioners will become poorer relative to the rest of society; or taxes/National Insurance contributions devoted to pensions must rise; or savings must rise; or average retirement ages must rise. But the first option (poorer pensioners) appears unattractive; and there are significant barriers to solving the problem through any one of the other three options alone. Some mix of higher taxes/National Insurance contributions, higher savings and later retirement ages is required.”
That is a very good summary of the position. We need to consider the three options of increased taxes or national insurance, savings and average retirement ages increasing. None the less, the fear is that the first option, which means that pensioners will become poorer, might be where we are heading.
I congratulate the hon. Member for Leyton and Wanstead (Harry Cohen) on bringing this important issue before the House. It is one to which we have not devoted enough attention. Although we are talking about what happens post 2020 when we go from 65 to 68, I strongly suspect that our mailbags will start to fill up very soon with letters from women who did not know that the age was going up from 60. Although that change—I think that I am right in saying this—was contained in a pensions Act in the mid-1990s—
The Minister does not need to be quite so defensive. A Tory Government passed the legislation, so I was not attacking her. When I said a pensions Act of the mid-1990s, I was referring to the 1995 Act. The point I was trying to make is that it can take an awfully long time for people to know about such changes. Given that only those aged 45 or younger would be affected, not many of them were thinking very hard about their pensions in 1995, and that is one of the problems. We need a long lead-in to such changes.
I want to consider issues of both process and substance. The issue about the process is how we make the decision. A number of principles need to be adopted here. In a sense the 1995 Act was right to give 15 years’ warning. It does not surprise people, it gives them the chance to plan ahead and enables them to think about their own personal and private pension arrangements and to mesh the two together in a calm, ordered and measured way. The wrong way to do it is what we saw at the Tory party conference last year when the shadow Chancellor pulled a rabbit out of his hat and announced an increase in the male state pension age. When quizzed on women, he announced that there would be a review. As ever when it comes to pensions, it is as if women are an afterthought. That is clearly not the way in which to change state pension ages. We already have a measured, phased process going through. Women’s pension ages are rising from 60 to 65 because of equalisation. It seems perverse for a potential party of Government to increase the gap—albeit temporarily—between male and female state pension ages. I do not know whether the hon. Member for Hammersmith and Fulham (Mr. Hands) will tell us about the legal advice that was sought either before or since that announcement on whether it is legal to increase the gap between male and female state pension ages in an era of equality legislation. I doubt whether it is legal. If such a measure were put into practice, I strongly suspect that a man would take that future Conservative Government to court for treating him disadvantageously relative to women, and I think that he might win his case.
That is a very good point. Does the hon. Gentleman not think that if the Conservatives are looking to increase the male retirement age to 66 by 2016, they may say that because of the legal challenge to the equality law, they have to introduce it for women by 2016 as well?
That would be even more unreasonable given that at the moment, women’s pension age will have reached only 63 by 2016. We have heard different versions of the Conservative proposal. Last October, the shadow Secretary of State for Work and Pensions, the right hon. Member for Maidenhead (Mrs. May), said:
“We will bring forward the date when the pension age rises.”
The Tory party website says:
“We will review the state pension age, to consider whether the increase…should be brought forward.”
Therefore, it is not clear whether Conservatives will change the date, but the point that I made when I intervened on the hon. Member for Leyton and Wanstead is critical. The shadow Chancellor said, “We are making a tough choice. We are raising pension ages to pay for the earnings link. We are being straight with you; the earnings link costs money. We can’t get money from nowhere, so we will pay for it by raising pension ages.” That was the quid pro quo and it was courageous of him to say that. However, we should look behind the scenes and ask, “If the state pension age is not going to be increased until 2016 or 2022, where does the money come from for the earnings link by 2015?” The sums do not seem to add up, so I hope that we will have an answer to that today.
Going back to process, Professor Nicholas Barr has been quoted once already today. He said something else about process in his evidence to the Work and Pensions Committee in 2006. He was talking about the long-term signalling, and he said:
“If what people hear is that the retirement age will rise from 60 to 65, they think, ‘I’m going to have to work 5 years longer; we are a1l going to have to work 5 years longer.’ If you do it right, as we did it for raising women’s retirement age, you announce the change a long time in advance so nobody is affected in the short run. Thus you do not give people nasty, short-run surprises, but phase in the change gradually.”
That is absolutely right, and is clearly not what the Conservatives did last October. Moreover, they claimed spurious amounts of revenue from the change. The National Institute of Economic and Social Research had done some research into the long-term Exchequer flow-backs of a phased increase in retirement ages. The Conservatives lifted the figure from that report and said, “If we put up the pension age by one year for men, we will get so many billion pounds back.” The institute said, “That is not what we said.” It had talked about a much longer term process whereby people’s behaviour has time to change, and its research was about raising retirement ages. The point has already been made that pension ages are not retirement ages. If we simply jack up the age from 65 to 66, there will be a lot of men to whom we pay another benefit—whatever it might be—instead of a state pension. We will not save money because they will not magically go on working; many of them have already stopped working by 65. It is easy to wave around a large number and sound impressive and claim that it is based on complex economic modelling, but, if we want an answer, we have to ask the same question as the researchers.
We need stability and a transparent process. The Turner Commission was right to say—and the Government have not accepted this—that there should be a standing body. By that I mean an ongoing body, separate from the cut and thrust of party conference speeches, which reviews not just average life expectancies but, as the hon. Member for Glasgow, East (John Mason) reminded us, the dispersion of life expectancy—that is very important. I made the point to him that any pension age is unfair in the sense that some people will not reach it and others will live long past it, so there is a regressive element to having a state pension age. I suspect that the statistics that the Minister cited when she intervened reflected a narrowing of the differentials. It is true that someone who has slogged their guts out in heavy manual labour will tend to die young, but the number of such jobs are gradually diminishing for all sorts of reasons.
Although that change takes a very long time to work its way through the system, over time it will do that. I would therefore imagine that the proportion of the constituents of the hon. Member for Glasgow, East who retire after a lifetime of heavy manual work is declining every year or, if not, it will decline soon. So I hope that this issue of dispersion will diminish, but, like the poor, it will always be with us. There will always be dispersion and he is right to remind us of that.
My feeling is that, if people are slogging themselves into an early grave through heavy manual work, we should not fix that situation through the pension system but through what we do about the labour market, including the terms and conditions of work, occupational health and so on. As the hon. Gentleman said, this issue is not just about pensions; it is about everything that we do about working lives, life expectancies, neighbourhoods and so on. It is a big issue. Again, that is why I think that a standing commission, which would examine this issue and consider which groups will gain or lose through the changes, is the best way forward, taking the matter out of the daily cut and thrust of politics.
We cannot do nothing; we cannot stand still. I suppose that I slightly part company with the hon. Member for Leyton and Wanstead at this point. I do not know if this statistic is entirely accurate, but it is said that every 10 years, average life expectancies rise by two years. Alternatively, for the 90 minutes that we will spend in this debate, we will all live 18 minutes longer, or it might just feel like it—I do not know.
Therefore, the question is what we do about that increase in average life expectancies. The Government’s current plans are from 2020 and they are to raise the state pension age for men and women by three years over a 25-year period. At an increase of two years per decade, however, standing still would imply that the state pension age should be raised by five years, as a rule of thumb. So, even the rises that are in the pipeline will probably fall slightly further behind the advance of life expectancy. That is probably where Adair Turner is coming from when he says that perhaps he should have gone further. I have a feeling that if we asked a standing body to look at this issue again and to keep looking at it, it might regard an increase of one year per decade until 2044 as slightly too slow. Consensus is changing on this issue and I have a feeling that we will end up moving faster than that. However, the plans for the seventh Lib Dem term of Government are still a bit fluid at the moment, so I am not making a policy pledge for 2045.
The only caveat about that change is that, of course, actuaries notoriously get these things wrong. I once said to a senior actuary, “Look, isn’t an actuary’s job in life just one thing, which is to work out how long we’re all going to live, and don’t you keep getting it wrong?” He replied, “No, we get lots of other things wrong as well”, which was not the most reassuring answer that I had ever heard. So we cannot just assume that life expectancy will go on rising inexorably. Childhood obesity, or a similar problem, could lead some generations to live for less time than their predecessors. Personally, however, I do not think that we are anywhere near that point.
Therefore, we need to keep this issue under review, but in a way that is measured, incremental and independent, so that there are no sudden surprises and no expressions of, “Ooh, there’s a hole in my budget; I want a fancy policy commitment but how can I pay for it? Oh, I’ll jack up the pension age”. We want none of that sort of nonsense; we want measured, steady progress on this issue, so that people can plan ahead.
I thought that the hon. Member for Glasgow, East made a very interesting suggestion when he quoted Nicholas Barr about an early retirement disability pension. Perhaps we could call it the invalidity pension or something similar—I do not know. In a way, that suggestion may be part of the answer to the situation of a male manual worker who retires early in poor health. If we cannot govern the entire pension system for 10 million pensioners—eventually 15 million—around a particular group of such manual workers, perhaps we can have some type of targeted support for that group that is not grotesquely expensive, because it will not be paid to everybody, but that recognises the fact that, if we are not careful, any changes in retirement ages will prejudice some groups.
That is a very helpful point, which I will take away from this debate. The hon. Gentleman’s suggestion might be one way of squaring the circle. If there are particular identifiable groups who will lose out from a general rise in the state pension age, some tailored measure of that sort might be the most nuanced policy response.
The state pension age is, of course, only part of the story. The state pension is now a much smaller part of people’s income in retirement than it was in the past. The whole package of income in retirement is important. So it is not just a question of when someone can get the state pension, but how much they can get.
There are trends in the labour market that I think are particularly detrimental to women pensioners. Not only will women now have to wait until they are 65 for their state pension, but when they draw a pension it is increasingly likely not to be a final salary pension but a money purchase pension of the sort that the hon. Member for Leyton and Wanstead commented on in his contribution. Of course, money purchase pensions tend to be based on life expectancies. So, instead of a woman getting a final salary pension based on what she used to earn, which would be the same as for a male counterpart who earned the same amount, she will now get a money purchase pension that is lower for women than for men, because it must be invested and because women tend to live longer than men. That seems perverse. It seems to be a rule of pensions that women tend to lose out and there is a risk that, after making so much progress on women’s pensions—as the Minister knows, I welcome the 2010 changes—we are now going backwards, because of a greater reliance on money purchase pensions. Women will not only not be able to draw those pensions until later than they do now, but, when they finally draw them, they will be lower their male counterparts’ pensions.
I want to draw these threads together. I think that it is inevitable that state pension ages will rise, and my hunch is that they will rise somewhat faster than has been pencilled in. However, in my view the decision should not be partisan, party political and short-term, but taken one step away from party politics, along the lines that the Turner commission suggested. Furthermore, people will need plenty of warning of any rise in state pension ages.
However, as the hon. Member for Glasgow, East said we must also look at dispersion and not just at the average ages of retirement. There are probably tailored solutions that will enable us to deal with that issue, while recognising the welcome fact that we are living longer and that the pensions system—
I am sorry to interrupt the hon. Gentleman’s peroration. However, I was just wondering what sort of tailored solutions he had in mind to deal with the question of dispersion. I ask that because there is an issue of the class or socio-economic bias of longevity and I wondered whether he had anything particular in mind when he talked about tailored solutions.
I have two specific ideas in mind. The first was the idea that I mentioned of exploring the role of disability pensions as a kind of early retirement pension for a very specific sub-group, so that we might say, “If we push the pension age up for everybody, there is a small group who will be left behind who may have had a particular life experience—for example, ill health or early retirement—and we may need a specific mechanism of support for that group”.
The second, and wider, idea is also related to something that I mentioned earlier: these socio-economic inequalities have pretty deep roots and there is a raft of social policies that one could think of to deal with them. As I have said, this is not just a pensions issue and it is not just a DWP issue, and our policy making needs to reflect that.
I congratulate the hon. Member for Leyton and Wanstead (Harry Cohen) on securing this debate. I also congratulate him on a very well crafted speech, as well as giving him my best wishes for his retirement.
Like the hon. Member for Glasgow, East (John Mason), I have visited the football ground in the constituency of the hon. Member for Leyton and Wanstead. I must say that it was a particularly memorable day, not for the game of football—the score was Leyton Orient 0, Plymouth Argyle 0—but for the meeting afterwards of the Plymouth Argyle Supporters Association. The guest speaker was the late Michael Foot and it was a particular pleasure to see him then. Indeed, that Plymouth Argyle event was the last time that I saw the former leader of the Labour party alive. I must say that he gave the most exhilarating speech. It was one of the best speeches that I have ever heard, although it was about Plymouth Argyle’s 1928 FA cup run. There were certainly no interventions from the assembled supporters during that speech.
[Hugh Bayley in the Chair]
I also wanted to congratulate the hon. Member for Leyton and Wanstead on making his case so robustly. Shall we say that he made it from a characteristically left-wing viewpoint? His stance was pretty much to ignore this country’s gaping £175 billion deficit, as if it did not matter. Also, I noticed from his website, which I studied yesterday evening, that he has actually taken to praising the Prime Minister, which I am sure has not happened before, for his conversion to Keynesian policies. That says something about the leftwards lurch in the Labour party. Mr. Bayley, I welcome you to the Chair.
Unfortunately, the hon. Gentleman slightly ruined parts of his speech by getting just a little too enthusiastic in talking about deep recessions in the 1980s and 1990s, casually ignoring the fact that the deepest recession of all since the 1930s has been, of course, the one that we are just coming out of, and that has taken place under the Government whom he professes to support.
The hon. Gentleman also made some slightly bizarre comments. For example, he suggested that Lord Turner was trying to curry favour with the Conservative party. If that is the case, he does not seem to be doing it very successfully, given the fact that we are pledged to abolish his organisation, the Financial Services Authority.
The hon. Gentleman raised several interesting points, with which I will deal in detail. One was the possible effect of any rise in the pension age on inequality, which I think that we would all agree has increased under the current Labour Government. However, I doubt whether his proposals would make much difference. I will discuss the meat of his arguments in due course.
The hon. Member for Glasgow, East made some similar points and mentioned the important factor of differential life expectancies, with which I am familiar, as my constituency includes large estates ranking among this country’s bottom 1 per cent. in terms of deprivation, literally next door to some of the country’s wealthiest people. Differential life expectancies are an issue in my constituency. He was right to say that in debates such as this, the focus is inevitably on average life expectancy rather than the range of life expectancies. As was said in interventions on his speech, it would be difficult to design a pension system that took into account the range of life expectancies, but we would be interested to consider any proposals of his. He also made some valid observations about wealth inequality.
The hon. Member for Northavon (Steve Webb) made several interesting points. He kicked off by discussing the need for a long lead-in before any changes, citing the 15-year lead-in of the Pensions Act 1995. That is a valid point—we would all like as long a lead-in and warning as possible—but we must also consider what is affordable. Getting the balance right is the key question before us today.
The hon. Member for Northavon made a number of points without setting out any policy of his own, as far as I could tell, about what the retirement age should be. He attacked the Conservative party’s proposals, including asking whether we had taken legal advice. I am not aware of any Liberal Democrat policy that has come with legal advice attached. Perhaps he would like to attach legal advice to some of his proposed policies on this issue and others.
The hon. Gentleman must admit that there is an issue with equality and the requirements in European law to equalise pension ages, to which the previous Conservative Government responded by passing the 1995 Act. Perhaps he can give us at least an indication. Surely Conservative Front Benchers took some kind of legal advice on their proposal to increase the male retirement age in 2016—that is certainly what the shadow Chancellor appeared to be saying in his speech—and the female retirement age either straight away in 2016 or in 2020. If the Conservatives propose the latter, they would be legislating to make the retirement ages unequal again, which is clearly against European law.
I thank the Minister for that lengthy intervention. To correct her, our policy is to raise the pension age at some point after 2016. It is important to do that. In terms of some of the details of the implementation, we will have to wait and see. She can argue the issue during the coming general election campaign.
The hon. Member for Northavon discussed the need for measured, steady progress, with which I think we would all agree, but he did not say towards what, in terms of a retirement age. He said that he departed somewhat in his conclusions from the hon. Member for Leyton and Wanstead. To be fair to the hon. Member for Leyton and Wanstead, his conclusion was absolutely clear, but the hon. Member for Northavon rather left the impression that he was still on the same vehicle, having failed to outline any idea of what he thought the retirement age should be.
I urge the hon. Member for Leyton and Wanstead to correct his website, which says that
“the Shadow Chancellor George Osborne has said that he would save £13 billion a year by raising the retirement age for men and women to 66 by 2016.”
Most parts of that sentence are untrue, as I have explained. In fact, his website is riddled with untruths about Conservative policies. He says that
“900,000 children would miss out on Child Trust Funds which the Tories have said they will scrap.”
That is utterly untrue. We have said that they will be restricted to poorer families, not scrapped. I would be grateful if he corrected that reference as well. This debate gives me the opportunity to set the record straight.
In his article “Pension Justice” on the Poptel website and again today, the hon. Member for Leyton and Wanstead discussed the widening gap in life expectancy between the rich and poor. We all agree that that is a concern, but maintaining the status quo on pensions will not do anything to address it. If we accepted his line of reasoning, the logical outcome would be different retirement ages for different professions or those from different socio-economic groups. I am not sure whether he would necessarily advocate that, but it certainly follows from what he and others have said.
There is a blatant inconsistency in the hon. Gentleman’s argument. If it is unfair in his terms to raise the retirement age for all when the rich live longer than the poor, how can it possibly be fair to maintain a lower retirement age for women when women live longer than men? I would be grateful if he explained that. If life expectancy is the touchstone of fairness, the hon. Gentleman ought to advocate a retirement age well in excess of 65 for women that is phased in as quickly as possible. That would take his argument to its logical conclusion. I do not think from his demeanour that he is in favour of doing so. Most people accept that differentiating state pensions according to life expectancy would be unfair and unworkable. On the same grounds, continuing to differentiate according to sex cannot be right in the longer term, particularly when life expectancy suggests the opposite case. That is a matter of common ground between the Opposition and the Government.
To return to the matter in hand, it is the Labour Government who have destroyed pensions in this country, contrary to what is said on the hon. Gentleman’s website. Labour’s first welfare reform Minister, the right hon. Member for Birkenhead (Mr. Field), summarised Labour’s record on pensions when he said on Radio 4 in September 2004 that
“when Labour came to power we had one of the strongest pension provisions in Europe and now probably we have some of the weakest”.
In my contribution to this debate, I will stick to a simple plan, outlining first the Labour Government’s failures on pension provision and then the Conservatives’ plans in the short and long term to do something about it. According to the Office for National Statistics, the number of people in private sector pension schemes fell from 6.2 million in 1995 to 3.6 million in 2008. As the right hon. Member for Birkenhead said, we had one of the strongest private pension systems in 1997, but not any more.
The Prime Minister himself, as Chancellor, raided pension funds, taking £5 billion a year out of people’s savings. Occupational pension schemes have closed down under the ever-increasing weight of regulation and bureaucracy, while Labour has allowed a pensions apartheid to grow up between the public and private sectors.
Yes, partly. The excessive extra regulation piled on in that area is certainly part of it. I think that the general climate under this Government for pensions has been extremely unhelpful.
Under Labour, more and more pensioners have been dragged into the web of means-testing. The means test is an insult to the dignity of older people. Government figures show that the poorest pensioners are getting poorer, while many are not claiming the benefits to which they are entitled due to the complexity of the system. Not surprisingly, therefore, recent polls have shown that 51 per cent. of people would not trust the Government to act in their best interests on pensions. That was published in a document entitled “Trust and confidence in pensions and pension providers”, issued by the DWP itself in October 2007.
Where do the Conservatives stand? We recognise that we need to tackle the debt crisis, which will also affect many pensioners, while ensuring a decent standard of living in old age. That is why we are calling—
Thank you for your guidance, Mr. Bayley.
We are calling for a review of the state pension age coupled with the re-link of the state pension to earnings growth to provide a larger pension for all. We believe that the Government should announce an updated review of the state pension age, as recommended by Adair Turner’s Pensions Commission.
Parliament has legislated to re-link earnings and pensions within the lifetime of the next Parliament. The hon. Gentleman is saying that that will be coupled with an increase in the state pension age. Even according to the rather muddled speeches of the shadow Chancellor, that will not happen until 2016, which is after the lifetime of the next Parliament. Can the hon. Gentleman explain the inconsistency?
There is no inconsistency. We have said that we will restore the earnings link by the end of the next Parliament. There is also the question of how that will be funded, which the Government are ignoring. We believe that a review should consider whether the rise in the pension age from 65 to 66 should be brought forward from 2026, but start no earlier than 2016 for men and 2020 for women. I look forward to seeing the corrections on the website of the hon. Member for Leyton and Wanstead in relation to Conservative policy.
Saying that we will review the provisions shows a clear intention. We have also talked about dates, whereas the hon. Gentleman has not mentioned any ages or dates. It is not on for him to criticise the Conservative party for not being clear on this matter when he has provided nothing on Liberal Democrat policy. He has merely suggested that he disagrees with the hon. Member for Leyton and Wanstead, whose position is clear, without proffering any alternative.
In conclusion, we believe that raising the pension age should be combined with a renewed commitment to re-link the state pension to earnings growth in the next Parliament to ensure a decent standard of living for all in retirement, halt the spread of means-testing and restore the incentive to save. Through a new office for budget responsibility, an incoming Conservative Government would carry out a full review of public sector pension liabilities and other questions that are before us. The Government should find ways to cap the biggest Government pensions, including those of senior civil servants. The shadow Chancellor outlined further proposals at the Conservative party conference last year. Our biggest ambition is to reverse the effects of the Prime Minister’s tax raid on pensions, which can be fulfilled only once we have got on top of the deficit. That may take more than one Parliament to achieve, but we are determined to get Britain saving.
The Government have an astonishingly bad record in this area. I will be interested to hear the Minister’s explanation of where we go from here. I have outlined the position of an incoming Conservative Government—we look forward to implementing it.
The debate has been revealing and interesting, and I congratulate my hon. Friend the Member for Leyton and Wanstead (Harry Cohen) on securing it and on his speech. Although I did not agree with every aspect of his analysis, as ever he showed great insight. He has a great record of pursuing issues of pensioner well-being and poverty through the Work and Pensions Committee, of which he ought to be proud.
My hon. Friend spoke about the unpromising start of the national employment savings trust. This is a landmark pension reform and its size and complexity should not be underestimated. It deals with the biggest gap in pension saving, which concerns those on medium and lower earnings in the private sector. When it is up and running, it will give up to 10 million people—including 7 million to 9 million new savers—guaranteed employer and Government contributions to a workplace pension for the first time in many years. At present, the default option is no saving at all, and that has been happening since the previous Conservative Government made the changes to personal and private pensions that destroyed pension provision in this country.
This landmark reform has been achieved through consensus across the board. Although my hon. Friend does not agree with all aspects of it, I hope that he supports the use of inertia, which means that people will be enrolled automatically. This is the best chance that there has been for a long time to improve the saving and retirement prospects of many people who currently have no savings to call on.
The state pension age was set at 65 for men and women in 1925 and was reduced to 60 for women in 1940. As hon. Members have said, the only change since then has been through the Pensions Act 1995, which legislated to equalise the state pension age in phases starting from this year, with the pension age for women rising to 65 by 2020. That gave a 15-year warning that equalisation would take place. One reason for that legislation was to ensure an equalisation of benefits, which is required under European law.
In the shadow Chancellor’s speech at the age of austerity conference—if I may call it that—he announced dramatically that he would be straight with the British people and that he would put on record exactly how he would pay for the desirable aim of re-linking the basic state pension to earnings. It is nice when a sinner repenteth, as it was the Conservatives who broke the link 30 years ago. He announced dramatically that, in this age of austerity, he would bring forward the increase in the state pension age to 2016—he did not mention the gender of those who would be due to retire and nor did he speak of a review—and he then announced the amount of money that would be saved, as the hon. Member for Northavon (Steve Webb) said.
In that age of austerity speech, the shadow Chancellor implied strongly that the two things would happen at the same time and that one would pay for the other. He cited that as an example of a Conservative Government-in-waiting who would take tough choices, and set out that they would give a little bit with one hand and pay for it by taking a little bit away with the other. It was only when he was questioned following the speech that the policy began to unravel and look slightly messy. The Conservatives had clearly forgotten that the women’s pension age was due to rise to 65 over the next 10 years under legislation passed by the previous Conservative Government so that it would be equalised with that of men by 2020.
Moving on to the implications of the shadow Chancellor’s dramatic announcement on state pension age at the age of austerity conference, it appeared that the policy could cost men who are now six years away from retirement £8,000 a year because they would have to work for longer. Women would have to make a similar sacrifice and it could cost them up to £15,000. Conservative central office realised that the shadow Chancellor might have misspoken, to use a popular term, so the Conservatives then said there would have to be a review. The default option, following that bold, dramatic announcement, was therefore a review, and that was the position to which the hon. Member for Hammersmith and Fulham (Mr. Hands) attempted to stick doggedly this morning, even though what would happen under that review seems already to have been decided.
That review, however, would get us into a messy situation and give rise to questions that the hon. Member for Northavon and I have sought to bring to the fore. Under European law, the state pension age has to be equalised—that is the view of the EU Commission. I know the shadow Chancellor and many of his friends on the Conservative Front Bench try not to take much notice of that institution but, nevertheless, we are signed up to the basic rules that it promulgates, one of which is that there should be equal access to pensions and other such benefits across the genders.
Those of us who remember the introduction of winter fuel payments will know that the disparities in the pension age meant that men over 60 took the Government to court so that they would be allowed to access those payments, even though they were not retired, and they succeeded under European law. Since 1995, the British Government have said that they will equalise the state pension age gradually to give people the appropriate time to plan for their retirement so that they know exactly when they will be due to retire. It is hard to imagine that the EU Commission would be happy to be suddenly confronted with a new non-equal pension age that was clearly against European law and that had been promulgated on a whim at a Conservative party conference in an age of austerity speech. I suggest that the hon. Member for Hammersmith and Fulham get his party’s lawyers to take a much closer look at what seems to be the mess of Conservative policy on the retirement age.
One thing is absolutely clear: Conservative policy is in a terrible muddle. Even if it were not, it would certainly cost all men who would have to work a year longer and were six years away from retirement in 2010 an extra £8,000 a year in forgone pension. In addition, if the policy could be put in place in the way in which the Conservatives intend, which I doubt would happen, it would cost women who were due to retire in 2020 at least £5,000, and perhaps an average of £15,000.
The Conservatives need to have a closer look at what on earth they are doing. Clearly, however, people in their 50s who are looking forward to retirement will know that, should there be a Conservative Government, they would certainly lose out as their retirement age would be changed in a fast and arbitrary way. I agree with the hon. Member for Northavon that making such sudden changes to the retirement age in a short space of time would be less than helpful. Such a policy would not allow the people who were caught up by the changes to plan for them appropriately, and would create uncertainty about the retirement age in the future.
The hon. Lady’s argument does not wash. Obviously, in a perfect world, we would want notification of the state pension age to be given as early as possible, but we are talking about dates such as 2016 and 2020 at the earliest. I contrast that with the Government’s £5 billion a year raid on pension funds that was announced with absolutely no notification whatsoever.
I am afraid that the hon. Gentleman will have to stop believing his own myths about so-called raids on pension funds. After the changes to the tax law to which he referred, the balance of profit in pension funds rose substantially over the next three years. It was only when the dotcom bubble burst that pension funds went into deficit. He needs to consider cause and effect before he pontificates in front of hon. Members.
I was about to agree with the hon. Member for Northavon about the sudden changes to retirement plans that were put before the electorate in the age of austerity speech made by the shadow Chancellor. Such sudden shifting can make people unsure about what their retirement age will be and whether it will be arbitrarily changed, and they then get worried about whether it is worth saving in pensions at all. It is difficult enough to get people to save into pensions. They often think of reasons why they should spend their money now, which is not surprising in a very consumer-orientated society in which mass advertising campaigns encourage instant consumption rather than saving. Those of us in government who wish to encourage saving must fight against that. However, when arbitrary changes in the state pension age are announced on a whim at a Conservative party conference for dramatic effect, it does not give people confidence that things will not be changed again.
We are in the middle of putting into effect the biggest landmark pension changes for probably 60 or 70 years, which involve automatic enrolment. That is the nearest step short of creating a compulsion to save, in that it tries to work with the idea of inertia to encourage people to save. In other words, people will have to opt out of automatic enrolment if they are active in the workplace. The most sensible approach is to put the Pensions Commission’s proposal in place, establish a national employment savings trust, and have automatic enrolment.
The hon. Gentleman will know that there will be re-enrolment every three years. We will have to see how that works. We always have to keep these things under review, but we have not yet seen this landmark pension reform working, so it is far too early to consider what levels of opt-out there might be, how we can encourage people to stay in the scheme and to value pension saving on top of the basic state pension, and how to remind people that they might be living 20 or 30 years after their retirement ages, even following the rise in retirement age that we are discussing thanks to the debate initiated by my hon. Friend the Member for Leyton and Wanstead. We must keep such matters under review.
Part of the difficulty with pensions policy is that it is very long term but, in our Parliament, we love to do new things and to change and switch about. We have to get the new system bedded in, see how it works and identify the levels of opt-out before we consider the idea of compulsion again. We must make it as easy as possible for people to save. We must encourage and reward them for doing so, particularly when they have medium or lower earnings.
The hon. Member for Hammersmith and Fulham also talked about pensions apartheid, which I thought was very telling. He said that 85 per cent. of people in the public sector have access to an extra workplace pension when the proportion in the private sector has gone down because of employers’ lack of willingness to offer extra pension saving. What he did not say when he used those alarmist words and talked darkly about another review—he would not say this before an election—is that that review will no doubt consider what his party could do to destroy public sector pension provision.
I suggest that everyone who works in the public sector take close account of what the hon. Gentleman has been saying about their pensions. He did not mention that the average public sector pension payment is between £4,000 and £5,000. We are talking about part-time women workers, porters, cleaners, people who work in schools and those who do not have huge earnings. It has always struck me as odd to say that we should try to make pension savings in the private sector by destroying pensions in the public sector.
I congratulate my hon. Friend the Member for Leyton and Wanstead on securing the debate. The Government’s view is that the increases in the state retirement age that have been legislated for are appropriate at the moment. The state retirement age has to be kept under review, but clearly we do not wish to make sudden and dramatic changes that will destabilise people’s confidence and mean that they will approach retirement age only to have that arbitrarily shifted away from them with minimum notice—we will not do that.