Ann McKechin MP

Labour Member of Parliament for Glasgow North

Pensions Bill - 16 January 2006

The overriding message from today’s debate has been that neither the issue of pensions nor the Bill can be seen in isolation. The Government need to adapt to people’s increasingly complex work and social lives, and to develop a new approach to preparing our citizens for making financial decisions appropriate to their needs. My hon. Friend the Member for Amber Valley (Judy Mallaber) has mentioned the need for a continuing effort to address the pay gap between the genders. Other hon. Members have mentioned the issue of those who suffer from long-term low pay, and their ability to make their savings work for them.

I congratulate the Department for Work and Pensions on the way in which it has carried out the pre-consultation process, including the work of Lord Turner’s commission. This is a good example of the Government doing the necessary ground work for an ambitious programme that will affect people’s lives for the next 30 to 40 years. Building a robust and thorough consensus is very much part of that. Despite the very long speech by the hon. Member for Yeovil (Mr. Laws) on behalf of the Liberal Democrats, I am still somewhat confused as to what his proposals are. He seemed to suggest that he would be part of the consensus this evening, however. The Scottish National party has indicated its agreement in principle to a personal account system, and I shall be interested to hear how it envisages such a system operating under its own policies. No doubt its representatives will table amendments on Report, and it will be interesting to flesh out the debate at that stage.

On the major points, the Government have achieved the consensus correctly, although there obviously had to be an element of compromise involved. The commitment to restore the earnings link is essential and, like many other Members, I would urge the Government to make that reconnection sooner rather than later. We need to ensure, as far as possible, that the real value of the basic state pension is at least preserved, and to encourage people to come on to the personal accounts system.

In my opinion, the most important feature of these proposals is the automatic opt-in provision. Most people are aware that it makes sense to save for their retirement, but as I found out when I worked as a solicitor before coming into the House, persuading them to do so is like trying to get them to draw up a will. They know that it is the right thing to do, but many people, especially the young, have an inbuilt resistance to giving the issue serious thought leading to a definite decision. Death and retirement planning remain the modern social taboos.

There is no doubt that this is a complex issue, however, and many people lack the knowledge to make an informed decision, or even to know where to go for proper advice. Poor awareness often translates into unrealistic expectations, particularly for those on the lowest incomes. I welcome the comments made on Monday by the Minister for Pensions Reform and the Economic Secretary to the Treasury about the need to improve people’s understanding of their financial affairs in general. This must involve tackling the great deal of misinformation that exists and which, unfortunately, in many cases targets the most vulnerable and least knowledgeable in our society. This measure must also be part of a wider effort to persuade more people of the value of saving regularly to deal with emergencies when they arise and to control their personal debt and keep it at a sustainable level. Otherwise, we shall face the possibility of people deliberately opting out of the scheme for short-term emergency reasons and losing out in both the short term and the long term.

A number of hon. Members have rightly mentioned the fact that we need to restore confidence in pensions. Again, this is particularly true for those on the lowest incomes. Although the financial services industry has been perfectly capable of dealing with people on higher incomes, it has never truly been able to offer stand-alone pension products for those on the lowest incomes. The level of administrative charges remains one of the most crucial factors in determining the worth of the scheme. That is why the reduction of the administrative charge for the proposed personal accounts to a much lower level than those charged on the open market will be significant for those on the lowest incomes. Given that at least one third of the adult population are not saving for their retirement at all, the need for such change is urgent.

It is also true that the nature of work, our health as a nation and social changes such as the fact that 25 per cent. of us now live alone, make it difficult to imagine what is going to happen 30 to 40 years hence. The circumstances when our parent’s generation entered the workplace had changed radically by the time they retired. My mother, who is 79 years of age, received a dowry from the civil service when she left to get married in lieu of her benefits; in fact, she has received no pension for her years’ service. When she returned to the workplace, she was not allowed, for the first few years, to join the local authority superannuation scheme.

Thankfully, those circumstances are now gone and past. The current adult population, however, are seeing rapid changes and much more variety in how people work, how long they expect to work and the type of jobs that they enter. Those who are entering the job market now will see even more change. We cannot just park the issue for 20 years at a time; we must be prepared constantly to review and alter arrangements to suit changing lifestyles.

We have spoken about the raising of the pension age. Given that I represent a city that is routinely quoted as having the lowest life expectancy rates in the UK, the Minister for Pensions Reform will not be surprised that while I understand the Government’s motivation, I am also concerned that that must be met by a visible, firm commitment to address the health inequalities that bedevil cities such as Glasgow, and by an equally firm undertaking to keep the matter under review. Obviously, it is possible—I hope that it is less rather than more likely—that life expectancy rates will stall or decrease as new health problems emerge. Again, we must build flexibility into the system and keep it under regular review.

Clearly, addressing the gender gap, reducing the number of years of qualification and reducing the number of hours for carers are important for our female population. We must be mindful, however, that affordability is much more likely to be a constraint for women than for men, with only 37 per cent. of women working full-time, compared with 60 per cent. of men. Women need to know that the new scheme will work for them and adapt to their life changes. As some of the problems experienced in relation to the tax credit scheme showed, we all underestimated to an extent the complexity of people’s working patterns. We need to address that. The thoroughness of the gender assessment carried out was welcome and helpful.

However, as my hon. Friend the Member for Aberdeen, South (Miss Begg) mentioned, we must ensure that the issue of trivial lump sum commutation is dealt with effectively. People will therefore be able to save with confidence, and even if their savings are low, which is likely for those who are over 45 when the scheme starts in 2012, they will get some value from them, even if only in the form of a lump sum. It is not, as the hon. Member for Yeovil said, that the scheme itself is at fault. Women’s median average earnings are much lower than men’s, which we should continue to address—the minimum wage has improved the position—but we should also remember that women currently live longer, so their annuity values will be lower. We must therefore ensure that they manage to escape the means-testing trap.

I agree with many of my hon. Friends that we need to consider the issue of carers. With 120,000 carers caring for 20 hours-plus a week who will apparently miss out under the current regulations, we must test the issue against the effect on carers and ensure that they are relieved of a burden. Yes, as the Secretary of State mentioned, there are additional costs, but we are still providing 50 per cent. of tax relief to the highest earners in society, the great majority of whom are male. If the Government are to follow through the gender assessment impact process as thoroughly as I am sure that they want to do, they should consider whether continuing that form of benefit is justifiable given the proven needs at the other end of the spectrum, where most of those affected are female. Will the Department keep that in mind in ongoing negotiations with the Treasury?

This is a good Bill that will deliver substantial benefits, particularly for women and carers, who are currently not covered properly by the pensions market. It is a major step towards encouraging confidence in long-term savings. However, it must be met with a firm commitment to tackling the other problems that I have mentioned, which have an impact on both pensions and income more generally.


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