My Lords, I declare an interest: I am the chairman and chief executive of an insurance broking and financial advisory organisation. In principle I support the Bill, in regard to both the changes to the state pension arrangements and the establishment of the Personal Accounts Delivery Authority. Having said that, I am sure that the Minister will anticipate that there are issues which need to be examined further and addressed appropriately.
We need to take a holistic view of pension arrangements, both state and privately funded schemes. The wider perspective is necessary otherwise there will be deficiencies and the Bill will be a wasted opportunity. Our society faces the challenge of a demographic change. In a nutshell, people are living longer and in the future there will be fewer workers to support a larger number of pensioners under our pay-as-you-go state pension system.
I support the provision whereby there is a link between the state pension and earnings. I applaud this principle as means-testing is humiliating; it is also a disincentive for people to save. Her Majesty’s Government should clearly state the plan for the reduction of means-testing, set a target, keep it under review and ensure that further measures are introduced. The pension credit is unpopular and complicated; up to 1.7 million pensioners are not claiming it and a substantial number are living in poverty. In an advanced country such as ours, that is not acceptable.
Some 3.8 million retired women are not receiving a full pension; two-thirds of pensioners are women who are living in poverty. It is therefore necessary to look at the plight of women; what further can be done to alleviate their predicament? There could be 5 million women who have already retired or will retire soon. Will the Minister consider some element of phasing in the reforming process for women?
The other category is people who are ageing. There needs to be a programme providing encouragement, guidance and advice to keep people employed longer, as by 2046 the pension age for men and women willbe 68.
For many years, the Government have encouraged and supported people who would like to contract out of the earnings-related secondary pensions, or SERPS. That was proposed by Mrs Barbara Castle and I arranged one of the first schemes of this type in the country. The Bill intends to abolish contracting out for personal pensions, stakeholder pensions and occupational money purchase schemes. As a result, the Government’s cash flow will be augmented by an annual figure of £1.6 billion, as those who contracted out in the past have paid less national insurance. There will, however, be an increase in the state pension liability in future. People who were previously contracted out will in future receive the state second pension in lieu. In view of that, it is necessary for Her Majesty’s Government to explain and be clear about how the revenue released by the abolition of contracting-out arrangements will be utilised. I ask the Minister to comment on this point.
I turn now to personal accounts, particularly with regard to the costs and how that will be dealt with. It would be unfair for the taxpayer to pay for this; Her Majesty’s Government should look into it further. I suggest that the costs should be met by charges on the personal account holders. Will the Minister comment?
We need to ensure that the Personal Accounts Delivery Authority is run on a sound and efficient basis. The executive needs to be of high calibre, and clear objectives must be set out. We need to ensure that there is good governance and appropriate accountability. Will the Minister comment on the make-up and governance of the authority and how it will be turned into a personal accounts board?
With regard to pensioners who have suffered because their occupational schemes were wound up, I should like to make two points. First, there ought to be provision in full for all pensioners, irrespective of the date when the schemes were wound up. Secondly, there needs to be an efficient way of making the payments. We need to undertake a robust awareness campaign and encourage more people to apply.
Finally, the pension tax introduced by Mr Gordon Brown in 1997 has cost pension funds £5 billion a year. It is estimated that it could reduce the value of pension funds by £100 billion. The tax has had a detrimental effect on pension schemes. Will the Minister clarify the future application of this tax? Is the intention to continue with it?