To ask Her Majesty’s Government what is the effect of the recession on state pensions and the national insurance system.

My Lords, for 2009-10, the in-year National Insurance Fund surplus is forecast to be £2.1 billion. Estimates made by the Government Actuary in January show that even quite substantial alterations in economic conditions should not cause the balance of the National Insurance Fund at that date to fall significantly below its current level. From April 2009, we will see the biggest increase in the basic state pension since 2001: that is, 5 per cent, with the full basic state pension rising from £90.70 a week to £95.25.

My Lords, I thank the Minister for that response, but in the light of the current economic turmoil, which has shown the stock market to be a wholly unsuitable means of saving for retirement for people on medium and low incomes, will the Government modernise and enhance the earnings-related element of the state pension scheme, which is funded by national insurance contributions, to provide better pooling of risk, lower costs and greater stability for ordinary people to save for adequate state pensions? That was suggested in the recently published book 100 Years of State Pension—Learning from the Past.

My Lords, with regard to S2P, we have legislated to go in the opposite direction and gradually reduce its earnings-related component. That is partly to make space for auto-enrolment, and to try to produce more clarity on outcomes for pensioners. It will then be easier for people, when looking at S2P and the basic state pension together, to understand what they will get from the state and, therefore, to build on that through personal responsibility for private savings. Concerning equity markets in the short term, I would simply comment that pensions are about long-term saving: we need to see these things in a wider context.

My Lords, the Government are always telling us that work is the best route out of poverty. When will they get a grip and scrap the mandatory retirement default age of 65, which is forcing far too many people at a pensionable age out of work and into poverty?

My Lords, the noble Lord is straying somewhat from the Question, but I will try to help him. He will recognise that we have promised to review that in 2011. It is not a mandatory feature of our system: it does not have to be adopted, and many departments—including my own—have removed it from their employment policies.

My Lords, the Minister has talked about what the Government are doing for pensioners, but what extra needs to be done now that pensioner inflation is running 4 per cent over national inflation, at 9 per cent? Rather than doing nothing for pensioners, my party is committed to abolishing income tax on savings for basic-rate taxpayers and to raise pensioners’ personal tax allowance by £2,000 to £11,490. Is the Minister saying that that is not necessary?

My Lords, we shall have to see the detailed costings of the noble Lord’s propositions to find out which cuts in public expenditure might have to be introduced to pay for all of that. Regarding the inflation rate that pensioners suffer, long-term analysis shows that the inflation suffered by pensioners and non-pensioners is broadly equivalent, but the Government are conscious of what has happened in the short term to prices, particularly of fuel and food. That is why, last year, we had the one-off addition of £50 and £100 to the winter fuel allowance and the extra £60 paid via the Christmas bonus. The Government are taking action, and have done a lot to combat the dire state of pensioner poverty which we inherited.

My Lords, I am sure that my noble friend will agree that Sir Fred Goodwin is unlikely to be particularly worried about the size of the state pension, but does he share the almost universal sense of outrage that that 50 year-old gentleman, who presided over the worst loss in the history of the Royal Bank of Scotland, can from today draw a pension of £650,000 a year? What is being done to claw back some of that money?

My Lords, again, that question strays quite a long way from the original one but, as ever, I shall try to be helpful to my noble friend. I am not sighted on the detail, I have just seen the reports on the television—like most noble Lords, I guess. I am bound to say that that is concerning and ties into the whole issue of remuneration for senior executives and ensuring that it is tied to proper long-term performance rather than the excessive risk-taking that has brought us to where we are. I will make sure that the appropriate department writes further to my noble friend to say more specifically what measures may be possible to claw some of that money back; it is an outrage.

My Lords, going to the other end of the spectrum and the very poor, the Government have introduced Saving Gateway accounts for working people. If they save, 50p is given by the Government towards it, so it is half and half—it is matched. Why does that not happen for older savers who are on means-tested benefits, such as pension credit? It seems as though the wealthy are doing rather better than the poor, and poor pensioners are doing worst of all.

My Lords, our approach to alleviating pensioner poverty, which was kick-started in 1997, was to concentrate on the poorest first via the pension credit system. That has produced significant improvements in the lot of pensioners overall. We are now spending £13 billion more on pensioners than we would have done if we had simply rolled forward the policies that we inherited. In 1997, the poorest pensioners lived on £69 a week. Now, with the uprating of the guarantee credit, the minimum for an individual is £130 a week and £198 for a couple. Significant progress has been made, but we need to continue to ensure that we build on that.