HL Deb 15 November 2004 vol 666 cc1249-59

The Secretary of State shall have power to vary the amount of the basic state pension payable according to the age of the recipient."

The noble Baroness said: My Lords, the amendment has been tabled for a particular purpose. The Minister and other noble Lords will be aware that it has been the policy of noble Lords on these Benches that there should be greater weighting of pensions towards those who are older. We believe that the longer someone has not received earnings from a job, the greater their need for an enhanced pension. That is our stated policy which we look forward to defending over the coming months.

The particular reason for the amendment, which was not moved at an earlier stage, is to make an inquiry of the Minister. There are already enhanced payments for the over-80s of 25 pence, or the "bottle of milk" provision, as it is known among pensioners. It was recently suggested to our colleague, Mr Steve Webb, in another place that the reason the Government were averse to greater age-related enhancements of the state pension was because they believed that they did not have the power to do so—they had no power to make a greater enhancement other than the current nominal 25 pence. I wish to ask the Minister at this opportune stage of the Bill whether that is indeed the case. I beg to move.

Baroness Hollis of Heiigham

My Lords, perhaps I may say that I am slightly taken aback by the manner in which the noble Baroness moved her amendment. I thought that she was seeking to argue that older pensioners were poorer and, therefore, that they should have an increased state pension. The noble Baroness is signalling that that is her view. That is the argument I wish to address, rather than her more specific point. I have received some advice on that matter—there is no power to do anything about the 25 pence, except for that. We have no separate powers to go after that 25 pence figure. In other words, my understanding is that that would have to be done by primary legislation. If I have misled her I will come back to her. Time and again I have asked, "Why the heck was that not rolled up into something else?", given that we have been dealing with other matters. I am told that that matter would require primary legislation.

I wish to return to the substance of the noble Baroness's basic position and that of her party, which is to allow the Secretary of State to vary the amount of the basic state pension, presumably to increase it by age. We recognise that pensioners have additional expenses as they get older—in terms of warmth, for example. We have addressed the need for extra income by introducing a number of specific measures which help pensioners at the time that they need the extra income.

Winter fuel payments, for example, which from the age of 60 are worth £200 per eligible household, benefit over 11 million people in around 8 million households. Anyone aged 80 or over gets an additional payment of £100 as part of his or her winter fuel payment entitlement, which helps a further 2 million people. Help also includes TV licences and with council tax for those suffering hardship—where people over 70 benefit by up to £100 or so. This payment will go to over 6 million pensioners. We also reintroduced free eye tests, pensioners do not have to pay for their passports and the Transport Act 2000 helps guarantee that pensioners and disabled people can obtain concessionary services.

So we have done much to meet some of the very real areas where older pensioners find that their costs increase. The major point, in my judgment, is that because they tend to be less mobile and spend more time at home, it is heating costs that most affect what pensioners spend. We have addressed that decently, humanely, properly and appropriately with the winter fuel payments. However, going beyond that and providing an age-related addition to the basic state pension, for example £5 per week to all recipients aged 70 or over, with a further £5 at the age of 75 or so, would require a gross additional cost of almost £4 billion a year.

I do not want to rest my argument primarily on its cost, although that would be substantial. My problem is that that cost would not be well targeted, for two reasons. First, although it is clear that as pensioners get older they become poorer—often because their pensions, particularly for widows, do not keep pace with inflation and so on it is also the case, as the Turner report found, that older pensioners do not spend their incomes. In cash terms, older pensioners actually reduce their expenditure from about £157 per person to about £122 per person. On average, a household headed by a person aged 65 to 74 spends about 90 per cent of its income. From the age of 75 onwards households spend about only 76 per cent of their income. The figures show that there is an average under-spend for older pensioners of about £30 regarding their income.

Obviously, poorer pensioners are much more likely to spend to their ceiling and better-off pensioners are less likely to do that. Whereas pensioners, according to the Turner report, appear not to disinvest themselves of their savings, as one might expect, the reason for the under-spend may be due to concerns about matters such as funeral costs and also that they are less mobile than in the past and are, therefore, not spending the money on transport that they may have done. To give more money to older pensioners when they now under-spend their incomes significantly, compared with younger pensions, would seem somewhat curious.

Secondly, there is a greater and more substantive argument. I know that the noble Baroness has seen the figures that I am about to give, because I have sent them to her honourable friend Mr Webb in the other place three or four times, but I do not believe that lie accepts the nature of the argument. It is undoubtedly true that pensioners become poorer as they get older, primarily because they are increasingly likely to be widows without a pension. The median income of a couple under 75 is £261 and the median income for those over 75 is £227. The equivalent figures for a single pensioner under 75 are £150 and £143 for those over 75. There is no doubt that single pensioners' incomes will drop over the course of their time as pensioners by about £7 per week. These are median figures. It is undoubtedly true that pensioners become poorer as they become older.

But the noble Baroness did not tell the House that that is considerably overwhelmed by the difference between the poorest quintile and the highest quintile within each pensioner cohort. Among the under-75s, the bottom quintile has an average income of £161 for couples, with £542 for the top quintile. For those couples over 75 the bottom quintile is £143 and the top is £413. Crudely speaking, within each age cohort, between the poorest and the richest there is a 3:1 ratio of about £200 to £300, compared to the difference in income between cohorts, which, for single pensioners is around £7.

If the amendment were passed, one would be giving an awful lot of money to older, richer pensioners and not to younger, poorer pensioners. The discrepancy within each age cohort is very many more times the discrepancy between age cohorts. That is why the amendment is not fair. The sums and the statistics do not bear it out. I have read the statistics for inclusion in Hansard, because I have provided them to the noble Baroness's honourable friend three, four or five times—in Parliamentary Questions and debates. The Liberal Democrats still recycle their argument and there is still no recognition that the facts do not support the amendment; it is not the best way to target the available resources of around £4 billion.

We have done much to help the particular problems facing older pensioners, where the issue can genuinely be that of heat, which we have tackled with the winter fuel allowance. But given my other arguments, I simply do not accept where the noble Baroness is coming from. She is right that one becomes poorer as one becomes older, but the gap within each age cohort between rich and poor is so great that most of her money would go to pensioners who did not need it, at the cost of other younger pensioners who did. Therefore, I cannot accept the argument behind the noble Baroness's amendment and I hope that she will withdraw it.

Baroness Barker

My Lords, I thank the noble Baroness for restating the arguments, some of which I had heard before. I have two comments in response. First, pensioners on a higher income will be paying tax, as those on a lower incomes may not. Secondly, she talked about getting payments to those who need them. I believe that a much simplified system which relies on the basic state pension rather than complex claims would get it to those who need it, but who currently are not getting the income to which they are entitled.

The noble Baroness gave us a long list of additional payments which the Government have made to pensioners. However, she left one out of the list. She may have missed it because she regards it as inconsequential, but it is the one that proves the case—the Christmas bonus. None of these payments is uprated; they are all one-off and fixed. She left off the Christmas bonus because it remains at exactly the same level—£10—as when it was introduced.

I remember when the Christmas bonus was introduced because of one particular reason. I went to visit my great-uncle and he told me about a gentleman who had gone to the post office to collect his Christmas bonus. After picking it up, the man, with an air of defiance, said, "Nobody else is going to get their hands on this". He walked straight into the pub, drank the lot and was carried home. I rather suspect that if he were to do the same thing today, he would have the mildest of hangovers. It does not go very much further at all.

I thank the noble Baroness for answering the question that I really wanted answered, on the Secretary of State's power to vary that. I thank her very much for that and beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

The Deputy Speaker (Lord Tordoff)

My Lords, perhaps this is a convenient moment to announce that, in the first Division on the Pensions Bill, the number of those voting Not-Content was 143 and not 144, as announced. Although it may be improper for me to say so, it may be worth noting that that was not the fault of either the Clerks or the Tellers.

Clause 324 [Extent]:

Baroness Noakes moved Amendment No. 72:

Page 268, line 38, leave out ", 8"

On Question, amendment agreed to.

Schedule 1 [The Pensions Regulator]:

Lord Oakeshott of Seagrove Bay moved Amendment No. 73:

Page 271, line 3, at end insert—

"Pension arrangements

The Regulator shall make pension provision for its chief executive and employees by means of a funded defined benefit pension scheme with rates of employer and employee contributions, benefits and indexation of pensions in payment, all broadly comparable to those provided to new members by the 100 pension schemes with the highest number of members for whom levies are payable to the Pension Protection Fund."

The noble Lord said: My Lords, I rise with a great sense of relief which I am sure is shared by other noble Lords as we near the end of our consideration of the Bill. In moving Amendment No. 73, I should like also, with the permission of the House, to speak to Amendment No. 80. The two amendments are substantially the same except that they refer to two different bodies.

The amendments deal with a simple issue of principle which we have discussed at considerable length both in Grand Committee and on Report. Amendment No. 73, which my noble friend Lady Barker and I tabled, takes very careful note of the Minister's detailed account on Report of the Government's intentions for how the pension schemes—the PPF in this case, but I assume that she also means the regulator—would operate. We have very carefully drafted the amendment to reflect exactly what she said, on the assumption that she meant it.

I am grateful that more research has been done. The statistics produced in Grand Committee were, frankly, a travesty. The noble Baroness has now produced information on 50 FTSE schemes. I should add that I believe that quite a small number of those are open to new entrants, which is tile important point if we are talking about having a scheme broadly comparable to those for new entrants into the private sector.

Specifically, the Minister said that the scheme will be contributory, if it is on Civil Service lines; that it will be defined benefit; and that it will be broadly comparable to schemes in the private sector. The problem, with which she did not deal, is what the actual contribution rate will be. A contribution rate of 3.5 per cent from employees is fine, but the Turner report estimates that the implied total contribution rate for schemes with these sorts of benefits is between 22 per cent and 26 per cent. So, knocking off the 3.5 per cent that the employees are contributing, it is a very fair assumption that the total amount that the PPF members will have to pay in the levy towards the pension schemes of those people will he in the order of 20 per cent. We should have a clear provision addressing that in addition to the other provisions which the noble Baroness mentioned.

There is an important principle here. As Adair Turner points out in his excellent report, the public sector employs 18 per cent of the population, comprising 17 per cent of total earnings and 36 per cent of pension rights. He says: In 2000 there were about 4.6 million active members of private sector DB schemes, and a similar number in public sector schemes". He believes that, given current trends, it is unlikely that there will be more than 1.6 million to 1.8 million private sector employees in active DB schemes in 20 years' time. Consequently, in 20 years, about three-quarters of those with good quality pensions will be in the public sector and most of the rest of the country will be out in the cold.

We therefore believe that the Pension Protection Fund is the place to start bridging the chasm between public and private sector pension provision. The staff of the PPF should be the last people to be hermetically sealed in a risk-free inflation-proof Civil Service pension capsule at the expense of the private pension fund members whose pensions they are paid to protect. I invite the House to support the amendment, to start establishing that principle. I beg to move.

Lord Fowler

My Lords—

Baroness Hollis of Heigham

Oh.

Lord Fowler

My Lords, if the noble Baroness does not mind, perhaps I may support the proposition that is being put.

I have sympathy with the amendment. In some ways, I do not think that it goes as far as I would go. In particular, I still find the idea of the chairman having a defined benefit scheme very odd. I do not know of many part-time chairmen in the private sector who have defined benefit schemes. Perhaps the Minister, who is so anxious to reply, can tell us how many of the chairmen in the 50 FTSE companies have defined benefit schemes. I should be very interested to know that. They are paid a fee, and if they want to, they can then contribute to a personal pension of their own. That is the rule.

However, that is not part of the amendment. The noble Lord, Lord Oakeshott—I almost called him my noble friend—has been extremely generous on this. He has raised a very important point, particularly regarding the Turner report. In 2000, there were 4.6 million active members of private defined benefit schemes. It is unlikely, according to Turner, that in 20 years' time, more than 1.6 million to 1.8 million private sector employers will be covered. That, incidentally, is a total reply to the Minister's point in the annuities debate about the destruction of final salary schemes if we went down that path. Much of the destruction has already been done.

I think that the Pension Protection Fund is the place to start, as the noble Lord said, "bridging the chasm" between public and private pensions. I think that an example should be set as far as that is concerned. I think that the noble Lord, Lord Oakeshott, has set that out very well. I hope that he will press the amendment to a Division.

Baroness Noakes

My Lords, I shall speak very briefly. I have every sympathy with the amendment. The principle is right that there should be comparability between those who are employed to oversee these pension funds and the members of those funds. However, I have a problem with the amendment which derives from the currently changing nature of pension provision. There is no doubt that there is a great state of flux in all companies, not only the major companies to which this amendment refers. Although there has been a movement out of defined benefit schemes, companies have by no means settled on any particular method of providing pensions. Defined contribution schemes are shifting all the time even within those companies that are maintaining them.

I suggest to the noble Lord that the amendment might well cause practical difficulties because it implies that pension provision should be changed as we go along. Having said that, I completely support the principle behind the amendment.

6.30 p.m.

Baroness Hollis of Heigham

My Lords, I was in a hurry to answer because I was being pressed on all sides to expedite the proceedings. Through no fault of my own we are running later than expected. I hope that the noble Lord, Lord Fowler, will understand that point.

I fully agree with the argument made by the noble Baroness, Lady Noakes, that to have a pension based on a comparison with other pensions would result in a shifting sands situation. I do not want to take up the time of the House repeating arguments that we have already discussed. However, I wish to make a few points. First, many of the staff who currently work for OPRA will transfer. They will have TUPE protection. Therefore, if this amendment were accepted, there would be a two-tier pension scheme. Secondly, I emphasised on Report that this was already a contributory scheme with, according to our information, rates of contributions broadly in line with those of 50 FTSE schemes. Thirdly, I emphasise that, given the small numbers involved, we would be dealing with very high costs—something like £120,000 to set up the scheme and £50,000 a year to run a separate scheme rather than allow some members to enter the existing Civil Service scheme.

I cannot give the noble Lord, Lord Fowler, the information he wants about chairmen but given that we regard this as virtually a full-time job we think it not unreasonable to include the relevant measure. I could mention the European directive and other matters, but I shall not do so. I simply ask the House to accept that in my view we have not heard any further arguments beyond those we heard on Report. We consider that this amendment would constitute an expensive gesture given the cost involved that might well outpace any savings which might result were we to establish that the premier scheme, which has a contribution rate of 3.5 per cent, was more advantageous. We would be continually comparing that with schemes that were themselves for ever changing.

For those reasons, which I have not had time to explore in greater depth, I hope that your Lordships will not support these amendments.

Lord Oakeshott of Seagrove Bay

My Lords, the hour is late. I accept that not many new arguments have been made since Report. Neither we nor the Conservatives pressed this matter to a Division on Report as the amendment was technically defective and did not apply to the right people. However, in this case it clearly does apply to the PPF and I beg leave to test the opinion of the House.

6.32 p.m.

On Question, Whether the said amendment (No. 73) shall be agreed to?

Their Lordships divided: Contents, 73; Not-Contents, 132.

Division No. 3
CONTENTS
Addington, L. Falkland, V.
Alderdice, L. Falkner of Margravine, B.
Alliance, L. Fearn, L.
Avebury, L. Fookes, B.
Barker, B. [Teller] Forsyth of Drumlean, L.
Beaumont of Whitley, L. Fowler, L.
Bonham-Carter of Yarnbury, B. Garden, L.
Bowness, L. Goodhart, L.
Bradshaw, L. Hamwee, B.
Carlile of Berriew, L. Harris of Richmond, B.
Clement-Jones, L. Hooson, L.
Dykes, L. Inglewood, L.
Eden of Winton, L. Jacobs, L.
Elis-Thomas, L. Laird, L.
Livsey of Talgarth, L. Redesdale, L.
McAlpine of West Green, L. Rennard, L.
Macfarlane of Bearsden, L. Roberts of Llandudno, L.
Mackie of Benshie, L. Rodgers of Quarry Bank, L.
Maclennan of Rogart, L. Roper, L. [Teller]
McNally, L. Russell-Johnston, L.
Maddock, B. Scott of Needham Market, B.
Mar and Kellie, E. Sharp of Guildford, B.
Methuen, L. Shutt of Greetland, L.
Michie of Gallanach, B. Smith of Clifton, L.
Miller of Chilthorne Domer, B. Stern, B.
Stoddart of Swindon, L.
Monson, L. Sutherland of Houndwood, L.
Naseby, L. Swinfen, L.
Neuberger, B. Taverne, L.
Newby, L. Thomas of Gresford, L.
Northover, B. Thomas of Walliswood, B.
Oakeshott of Seagrove Bay, L. Thomson of Monifieth, L.
Palumbo, L. Tope, L.
Peyton of Yeovil, L. Tordoff, L.
Phillips of Sudbury, L. Walpole, L.
Plumb, L. Watson of Richmond, L.
Razzall, L. Williams of Crosby, B.
NOT-CONTENTS
Acton, L. Gilbert, L.
Ahmed, L. Golding, B.
Alli, L. Gordon of Strathblane, L.
Amos, B. (Lord President of the Council) Gould of Brookwood, L.
Gould of Potternewton, B.
Andrews, B. Graham of Edmonton, L.
Archer of Sandwell, L. Greengross, B.
Ashton of Upholland, B. Griffiths of Burry Port, L.
Bach, L. Grocott, L. [Teller]
Barnett, L. Harris of Haringey, L.
Bassam of Brighton, L. Harrison, L.
Berkeley, L. Hart of Chilton, L.
Bernstein of Craigweil, L. Haskel, L.
Bhattacharyya, L. Haworth, L.
Billingham, B. Hilton of Eggardon, B.
Blood, B. Hogg of Cumbernauld, L.
Bragg, L. Hollick, L.
Bramall, L. Hollis of Heigham, B.
Brooke of Alverthorpe, L. Howie of Troon, L.
Brookman, L. Hughes of Woodside, L.
Burlison, L. Hunt of Chesterton, L.
Campbell-Savours, L. Hunt of Kings Heath, L.
Carter, L. Janner of Braunstone, L.
Carter of Coles, L. Jay of Paddington, B.
Chorley, L. Jones, L.
Christopher, L. Judd, L.
Clinton-Davis, L. King of West Bromwich, L.
Cohen of Pimlico, B. Kirkhill, L.
Corbett of Castle Vale, L. Lamont of Lerwick, L.
Craig of Radley, L. Layard, L.
Crawley, B. Lea of Crondall, L.
David, B. Leitch, L.
Davies of Coity, L. Lipsey, L.
Davies of Oldham, L. [Teller] Lockwood, B.
Dean of Thornton-le-Fylde, B. Lofthouse of Pontefract, L.
Desai, L. McDonagh, B.
Dixon, L. MacKenzie of Culkein, L.
Drayson, L. McKenzie of Luton, L.
Dubs, L. Mason of Barnsley, L.
Elder, L. Massey of Darwen, B.
Evans of Parkside, L. Morgan, L.
Evans of Temple Guiting, L. Morgan of Drefelin, B.
Farrington of Ribbleton, B. Morris of Aberavon, L.
Faulkner of Worcester, L. Morris of Manchester, L.
Filkin, L. Palmer, L.
Fyfe of Fairfield, L. Patel of Blackburn, L.
Gale, B. Pendry, L.
Gavron, L. Pitkeathley, B.
Gibson of Market Rasen, B. Plant of Highfield, L.
Giddens, L. Prosser, B.
Randall of St. Budeaux, L. Thornton, B.
Rendell of Babergh, B. Tomlinson, L.
Richard, L. Triesman, L.
Rooker, L. Truscott, L.
Rosser, L. Tunnicliffe, L.
Royall of Blaisdon, B. Turnberg, L.
Sawyer, L. Turner of Camden, B.
Sewel, L. Uddin, B.
Wall of New Barnet, B.
Sheldon, L. Warner, L.
Simon, V. Warwick of Undercliffe, B.
Slim, V. Whitaker, B.
Smith of Leigh, L. Whitty, L.
Snape, L. Wilkins, B.
Symons of Vernham Dean, B. Williams of Elvel, L.
Taylor of Blackburn, L. Woolmer of Leeds, L.
Thomas of Macclesfield, L. Young of Norwood Green, L.

Resolved in the negative, and amendment disagreed to accordingly.

6.41 p.m.

Lord Skelmersdale moved Amendments Nos. 74 to 79:

Page 271, line 36, leave out sub-paragraph (5) and insert—

"(5) By virtue of subsection (2) of section 9 (non-executive functions), the function conferred on the Regulator by subparagraph (4)(b), so far as it relates to the terms and conditions as to remuneration, is exercisable on its behalf by the committee established under that section."

Page 273, line 32, leave out paragraph (a) and insert— (a) the committee established under section 9 or any of its sub-committees, or

Page 273, line 38, leave out "Non-Executive Committee" and insert "committee established under section 9"

Page 275, line 3, leave out from "which" to end of line 4 and insert ", by virtue of subsection (2) of section 9, must be discharged by the committee established under that section),"

Page 276, line 18, leave out "Non-Executive Committee" and insert "committee established under that section"

Page 280, line 11, leave out "Non-Executive Committee" and insert "committee established under section 9"

On Question, amendments agreed to.

Schedule 5 [The Board of the Pension Protection Fund]:

[Amendment No. 80 not moved.]

Lord Skelmersdale moved Amendments Nos. 81 to 87:

Page 294, line 28, leave out sub-paragraph (6) and insert—

"(6) By virtue of subsection (4) of section 113 (non-executive functions), the function conferred on the Board by sub-paragraph (5)(a) is exercisable on its behalf by the committee established under that section."

Page 295, line 1, leave out sub-paragraph (4) and insert—

"(4) By virtue of subsection (4) of section 113 (non-executive functions), the functions conferred on the Board by sub-paragraph (3)(a) and (b) are exercisable on its behalf by the committee established under that section."

Page 295, line 18, leave out "Non-Executive Committee" and insert "committee established under section 113"

Page 295, line 20, leave out sub-paragraph (6).

Page 295, line 32, leave out "Non-Executive Committee" and insert "committee established under section 113"

Page 295, line 37, leave out from "which" to end of line 38 and insert "must, by virtue of subsection (4) of section 113, be discharged by the committee established under that section)"

Page 299, line 33, leave out "Non-Executive Committee" and insert "committee established under section 113"

On Question, amendments agreed to.

Baroness Hollis of Heigham

My Lords, I beg to move that this Bill do now pass. I shall say only a few sentences. The Bill is in a very different shape from when it entered the House. The changes have been made with consent all around the House, apart perhaps from on annuities. I am very appreciative of the active work of those on the Liberal Democrat and Conservative Front Benches; the work has been done in a spirit of co-operation and non-partisanship that shows the House of Lords at its best.

Apart from thanking my own team, I want to recognise on behalf of us all, I am sure, the work produced by the officials in terms of briefings, meetings, information and the like. I have never dealt with a team of officials who have shown such unrivalled good humour and intelligent industry. The Bill is better not only for your Lordships' work, but also for the work that the officials have continued to exhibit. The House and I have been fortunate in that work.

Moved, That the Bill do now pass.—(Baroness Hollis of Heigham.)

Lord Higgins

My Lords, it is increasingly clear that the time restraints under which the Commons operates with Programme Motions make it extremely difficult for it to do the job properly. I agree entirely with the noble Baroness; an enormous number of government amendments has gone through. There have been many government concessions, which have been entirely justified. We have divided the House on certain issues, all of which have involved amendments that ought to be accepted in another place.

The noble Baroness has done a remarkable job in improving the Bill. We have had great support from those on the Liberal Democrat Benches, and the House of Lords has operated as it ought to. We have carried out our task as best we can, and the Bill is a great deal better as a result of that. I join her in expressing thanks to officials.

Lord Oakeshott of Seagrove Bay

My Lords, we join in those expressions, particularly those addressed to the officials. It is fair to say—they have been the first to admit it—that they have been on a very steep learning curve for much of the Bill, and we have greatly appreciated their help. I also thank the noble Baroness for her kind remarks. I am not sure about the "nonpartisanship"; she will be interested to see when we start getting partisan. However, we have greatly enjoyed our proceedings and hope that we have improved the Bill.

On Question, Bill passed, and returned to the Commons with amendments.