Social Security: SERPS (Hansard, 21 July 1998)

§ The Parliamentary Under-Secretary of State, Department of Social Security (Baroness Hollis of Heigham)
My Lords, I was encouraged by my noble friend's Question to read the new pamphlet on pensions distributed by the Department of Social Security. It presents the basic information about a complex matter in a clear, friendly, balanced, accessible and rather jolly way. I was impressed by it.
If my noble friend believes that the information in the pamphlets is in any way incomplete or less than balanced, I shall be happy to ensure that the contents are reviewed in time for the next edition.

§ Baroness Castle of Blackburn
I agree that it is very pretty. But does the Minister agree that pensions contributors, still reeling under the misselling scandal which affected millions of them, do not want prettiness, but precision? Does she accept that it is a grave imbalance to leave out of the picture the fact that only one of the pensions options set out in the pamphlet—namely, SERPS—as against occupational or personal pensions, guarantees by law that the contributions will 710 be uprated in line with earnings during the building up of the pension and that the pension, when in payment, will be price-indexed? Surely that is not a minor omission. Will the Minister kindly arrange for somebody to look at the whole text to see whether or not there is an imbalance in the almost neutrality of the Government between private insurance companies and their state earnings related pension scheme'?

§ Baroness Hollis of Heigham
My Lords, my noble friend is entirely correct that SERPS has many advantages. That is one of the reasons why the Government are proposing to keep it as an option. As my noble friend said, SERPS is fully indexed; it is portable, it is cheap to run and it is safe against misselling. Those are important considerations.
Nevertheless, SERPS faces real difficulties in today's labour market. It does not cover the self-employed, people who are intermittent, part-time or temporary contract workers and, unfortunately, after the adjustments made to it by the previous administration, it is not of sufficient adequacy to ensure a comfortable old age. In forward projections somebody on a state pension of SERPS is likely to be receiving under 10 per cent. of average earnings by the year 2050. That is why those considerations and others will be reviewed later this year. I am happy to reconsider the entry in the leaflets in relation to SERPS and its indexation.

§ Baroness Carnegy of Lour
My Lords, does the Minister agree that the expression of her noble friend Lady Castle "not prettiness but precision" might be a good new motto for this Government?

§ Baroness Hollis of Heigham
My Lords, it is important to be precise and I do my best within this House to be precise. But we also know that information is useful only in so far as it is understood and accessible to people. One of the problems for the DSS—I am sure that I do not speak just for myself when I say this—is that DSS detail is obscure, difficult, complicated and intimidating. That is why so many people, including elderly people, do not take up the benefits to which they are entitled. If "pretty" is a shorthand for making something accessible and friendly, then it should not be at the expense of precision. We need it to ensure that people know their rights.

§ Baroness Castle of Blackburn
Is not the reason why the state pension is due to decline to 10 per cent. of average earnings the fact that the previous government abolished the link for the uprating with the movement of average earnings, which incidentally I introduced when I was Secretary of State, which is no doubt why Mrs. Thatcher abolished it? Is it not worrying that the only thing the Government propose to do in the lifetime of this Parliament is to extend the means-tested benefit—an improved form of income support—to the poorest pensioners when we need to get back to pensions as of right and which are adequate for people to live on?

§ Baroness Hollis of Heigham
My Lords, my noble friend makes two points. The first concerns the 711 adequacy of SERPS. She is right to say that it was sliced away by the previous administration. To restore those slices—in other words, to reinstate the value of SERPS to what it was in 1978 when my noble friend had the pleasure of introducing it into our lives—would, by 2030, cost £29 billion extra a year. That is what we are talking about. That is why the Government do not feel that it is appropriate to go down that road.
My noble friend asked whether income support is an adequate alternative to raising the basic state retirement pension. At this stage we are not suggesting that these are alternatives. We are saying that we have a problem of poorer pensioners now; they are not in the labour market, but already dependent on pension; they are not claiming income support and are well below the poverty line. As my noble friend will know from yesterday's Question, we are seeking to raise their income support entitlement so that they have a basic pension of at least £75 a week from next April. But, for future pensioners, we believe that the right way to proceed is to continue to build the economy in order to produce decent jobs so that people can enjoy a decent second pension in their old age.

§ Lord Skelmersdale
My Lords, perhaps I may take the Minister back to her original Answer. As someone with an acknowledged interest in these matters, why did it take the Question of the noble Baroness, Lady Castle, to prompt her to read this pamphlet?

§ Baroness Hollis of Heigham
My Lords, I read a great deal of literature. This pamphlet came out a few months ago. I was not aware of the new cover or the rewriting of it. The content is the same as the basic DSS pamphlet but it now has the charter mark for the Plain English Award. I think it is delightful. However, if I were to bring to the House all of the literature produced by the DSS, I would need a couple of wheelbarrows or more.

§ Earl Russell
My Lords, while we speak of pensions as of right, will the Minister undertake to look again at the Goode Report on the regulation of private pensions to consider whether enough has been done to implement the safeguards it proposed and, in particular, whether it should be impossible for employer trustees to dismiss employee trustees or pensioner trustees?

§ Baroness Hollis of Heigham
My Lords, that is, if I may put it this way, a hang-over question from the Pensions Act 1995, with which the noble Earl, Lord Russell, and myself and others of our colleagues were very much concerned at the time. In a way we are waiting to see whether the fears we expressed at the time have been realised. I have not been made aware of any such fears being realised. That may be because, although it has happened, I have not been briefed to that effect. However, I will check to see whether my honourable friend Mr. Denham in another place, who has responsibility for that portfolio, has had any information to suggest that our worries, as illuminated by the Goode Report, have come to light and whether we need therefore to review this matter.

§ Baroness Byford
My Lords, the pamphlet refers to a variety of choices for second pensions. Is the Minister aware that great concern was expressed about the effect the abolition of the advanced corporation tax credit would have on individuals, businesses and local authorities with regard to pension provision?

§ Baroness Hollis of Heigham
My Lords, I wondered whether we would be revisiting ACT, as indeed we have. The Government's position has been made clear on several occasions. We believe that the best basis for a secure second pension is the nature of the economy, the quality of its growth and the security of its investment. Since 1992 the value of UK equities has risen by 107 per cent. Two-thirds of that has been capital growth and only one-third dividend growth, In other words, the value of the pensions we receive has depended on the capital increase in growth, which in turn depends on the investment in, the nature and the strength of our economy. What matters for someone's pension is the health of the economy, which in turn determines the investment record of the pensions portfolio, which in turn also reflects whether an individual may have a secure job and can build up that entitlement. It also depends on the investment track record of the individual pensions manager. It is perhaps worth noting that ACT represents just one-tenth of the difference between what a good pensions manager will do and a poor pensions manager will do to the same type of fund.