PENSIONS CRISIS – TIME FOR THE GOVERNMENT TO GET A GRIP

Speech by Professor Steve Webb, Liberal Democrat Shadow Secretary of State for the Department of Work and Pensions delivered to House of Commons on Wed 4th Jun 2003

There are those who might feel that our motion today is unduly critical of the Government. Therefore, in a constructive spirit—the way in which we always approach these issues—I want to offer an olive branch to the Government, and to say that, given that the Prime Minister has clearly been seeking unsuccessfully for the last eight weeks to find a suitable candidate for Minister for Pensions, I am today prepared to step into the breach.

I should say that I have not yet cleared that with my right hon. Friend the Member for Ross, Skye and Inverness, West (Mr. Kennedy), but we shall have negotiations later on.

Someone needs to get a grip on pensions. The word "crisis" appears in the motion for almost every Opposition day debate, but in few cases can there be a better fit than the pensions crisis. The House need not take my word for this. The chairman of the occupational pensions advisory service—an august body—Malcolm McLean OBE said only last month:

"Although the Government...seem to want to play it down, there is from my and an OPAS perspective, something of a crisis in pensions at the moment."

He continues with a whole litany, of which this is an excerpt:

"The pensions system we have is ridiculously complicated"

—it is certainly that—

"and not easily understood by the majority of the population. Trust in pensions has been eroded| employers are closing down good . . . schemes . . . and replacing them with often inferior . . . schemes . . . Is it any wonder, therefore, that some people might be starting to lose heart?"

That is the backdrop for this debate—and it makes it all the more lamentable that the Government have failed, in eight weeks, to appoint a Minister to take responsibility for pensions.

A Green Paper on pensions was published shortly before Christmas. It assumed that the state pension scheme was sorted out, and tried to bolt on to it a new private pension system. That is like trying to fit together two pieces from different jigsaw puzzles: no matter how hard you try, without the right basis a fit will never be possible. The problem is that it is not just the private pension regime that is flawed; the state pension regime is fundamentally flawed.

The basic state pension is woefully inadequate. Its value is just three quarters of the level of the means test. Who would have thought that the basic pension described by the Government as the foundation of income in old age would be allowed to sink so low? No one would accept a building constructed on such an insecure foundation.

Women are hit particularly hard. A typical man with a basic pension under the state earnings-related pension scheme receives £92, while a typical woman receives £66. One might imagine that this is some relic of previous generations, but in fact the gap has not closed one jot in a decade. Successive Governments have failed to address trends that are long-term features of the pension system. The Green Paper contains a whole chapter on the position of women and a raft of descriptions of the problem, but the Government have not advanced one practical solution.

Things need not be like this. The basic pension could be the foundation of income in old age, if the Department for Work and Pensions took a lead from the Chancellor. As I often say, the Chancellor has got it exactly right. He has said that poor pensioners tend to be old pensioners, and he gives free television licences not to all pensioners but to the over-75s. In his most recent Budget, deciding that he wanted to help poor pensioners, what did he do? Did he put extra money into the means test? No, he increased the winter fuel payment—for whom? For the over-80s.

It is not just the basic pension that is inadequate. The basic pension was so useless that the Government invented a second pension, which is useless as well. It is called, imaginatively, the state second pension, and it takes 40 years to be completely useless, because the first people to accrue a full pension under it have just left university. If they work for 40 years and receive the basic pension and the state second pension at the full rate, they will be so poor that they will need a means test. That is how good the state second pension really is.

The Government have had some problems with their credits recently. The computers have not worked, but help is at hand. The new pension credit scheme will be introduced not on a new computer—so we can relax—but on the existing computer. The only problem is that the previous Secretary of State described, in a rather appropriate way given the nature of the benefit, the computer that will be used in October as "very decrepit". If that does not fill hon. Members' hearts with horror in the light of the credit system, I do not know what will. That computer will have to bear the burden of millions of pension credit payments. I suggest to hon. Members that they get those hotline numbers ready—they will be needing them.

It is not just administrative chaos that we are going to face. The Public Accounts Committee has said:

"we have repeatedly expressed concerns about the Department's computer systems and the impact of their weakness on customer service".

This is not techie stuff. It is about real people who need real money and who may not get it because the computer is too old to do the job properly. The system is not merely going to be run on a dodgy old computer, it is also extraordinarily complex. The House will be aware—I apologise for going over ground with which hon. Members will be familiar—that the new pension credit has two components: a guarantee credit and a savings credit. Obviously, pensioners will be looking at that and calculating their entitlement to savings credit, but they will need to be aware of the full complexity of it, so here we go.

The savings credit is available to pensioners, but not to women aged 60 to 64; although they are pensioners, they can get the guarantee credit but not the savings credit. Therefore, there are two bits to the scheme: one applies to some pensioners but not all. The reward one gets for saving is 60p in the pound for any private pension above the basic pension level but below the income support level—except that that will be called the guarantee credit level, except that, if one does not have a full basic pension, part of one's private pension has to fill up to the basic pension before the 60p in the pound award cuts in, and above income support levels the 40p in the pound taper cuts in until one ends up with zero.

That was the shortened version. When hon. Members read the transcript, they will find that that was a succinct summary of how the system will work.

The serious point is: who will claim the thing? Who will know, if they have not previously been entitled, that they may be entitled? We can relax, because the Government will write to everyone. The Government will write to all pensioners not currently on income support, except because the system is being introduced in October they do not have time to write to everyone. Therefore, they will write to one in five pensioners randomly. Presumably, one pensioner will have the letter, and they may understand it and apply. The next-door neighbour, I assume, unless particular villages will get one and the next village will not, will not have the letter, so they will not hear of the thing, unless they read the newspapers.

Some 10 million retired pensioners, and 20 million workers, feel increasingly insecure about their pensions. It is time that the issue was top not only of the Liberal Democrats' agenda, but of the Government's agenda.