28 October 2008
State Pension and Benefits
John Barrett (Edinburgh, West) (LD): At a time when the banking system is in crisis and the future of many jobs, pensions and incomes is under threat, it is right that, in this debate, we are looking at the state pension and benefits for elderly people. Never before have so many people questioned those who are the guardians of their old-age pension, whether it is a private pension or a pension in the hands of the state. Yesterday’s newspapers revealed that workers’ pension pots have had £157 billion wiped off their total value in the last year. In 2007, the value of defined contribution pension assets stood at £552 billion. By October this year, that figure had dropped by nearly a third to £395 billion. That is happening now. What the future holds is anyone’s guess. In the midst of all this, people are still saving for their pension, but are fearful about whether their money is safe. Many of the elderly will continue to rely on benefits for the rest of their lives if they have little or no pension provision.
This debate has already raised a number of key issues. I congratulate my hon. Friend the Member for Teignbridge (Richard Younger-Ross) on triggering this debate and raising a large number of points, for example, on pension credits, unclaimed benefits and the Age Concern briefing. I also congratulate my hon. Friend the Member for Ceredigion (Mark Williams) on his contribution, in which he mentioned ex-servicemen. I welcome the hon. Member for Glasgow, East (John Mason), who raised the important point about the need to scrap the council tax, which has been worked towards north of the border, but in respect of which the potential holding back of council tax benefits by the Government at Westminster causes a major problem.
In summing up for the Liberal Democrats, I am glad to say that my party has a proud tradition in this field—from Lloyd George to my hon. Friend the Member for Twickenham (Dr. Cable). With the state pension being 100 years old this year, it is right that we consider a new pensions Bill fit for the 21st century. For all the talk, the commissions and all the many other people involved it took a Liberal Government to finally deliver the Old Age Pensions Act 1908.
David Taylor: I need a bucket, Mr. Bercow! The fact is that that pension was only paid to those over 70, was means-tested and was dependent on acceptable social behaviour and, certainly, a lack of fondness for alcohol. Is that the framework for a future Liberal Government’s improvement of the pensions system?
John Barrett: I thank the hon. Gentleman for his intervention. However, my next sentence was going to be, “But life has moved on.” Today, our Treasury spokesman, my hon. Friend the Member for Twickenham, continues to be ahead of the field, in his analysis of the current financial issues, the future for pensions and the way forward. This is in stark contrast to the Conservative shadow Chancellor, who has become the Sarah Palin of the Tory party, doing his best but convincing nobody that he has either a grasp of the problem or proposals for a solution.
The majority of today’s older generation now struggle to make ends meet as the gap between pensioners’ costs of living and the basic state pension continues to grow, with pensioners often disproportionately hit by increases in costs. The oldest, poorest pensioner households now face an average inflation rate of approaching 10 per cent., compared with around 5 per cent. for non-pensioners. The number of pensioners living below the poverty line in the UK has risen by 300,000, taking the figure to 2.5 million. Official figures show that first-time pensioner poverty has increased since 1998.
The anniversary of the state pension is rightly celebrated, but from its noble beginnings it has subsequently failed to reflect the growth in our national wealth. The rot set in in 1980, when Margaret Thatcher’s Conservative Government broke the link between earnings and pensions, diminishing the value of pensions in relation to earnings. No hon. Member in this Chamber today could reasonably claim that £90.70 a week is enough for a single person to survive on.
As we have heard, the fact that the basic state pension is uprated only in line with prices means that, as pensioners get older, many also become poorer in relation to the rest of the population. The basic state pension is now worth 15 per cent. of average earnings, compared with 26 per cent. in 1979. We welcome the commitment to reinstating the earnings link, but clarification on the date—2012 or 2015—would be welcome. It goes without saying that, for us as Liberal Democrats, it cannot come soon enough. I hope that the Minister will throw some light on this issue.
Sadly, the most striking similarity with 100 years ago is the presence of means-testing. More pensioners are means-tested now than at any other time. It remains unpopular, demeaning and ineffective at getting help to those who need it most. I was not in Parliament in 1993 when the now right hon. Member for Kirkcaldy and Cowdenbeath (Mr. Brown) declared that he wanted to end means-testing for the elderly, but I cannot help feeling that he was right then and it is right now.
David Taylor: Does the hon. Gentleman agree that one of the most straightforward ways of reducing the means-testing of pensioners would be to make the basic state pension payable at the guaranteed credit level of £124 a week? Of course, there are cost implications of doing that and it would need to be phased in, but it could be funded readily by two sources: first, through access to the national insurance fund and the surpluses in it and, secondly, and more substantially, by tackling more effectively the tax evasion and tax avoidance that is so prominent in the commercial sector in this country.
John Barrett: As the hon. Gentleman rightly mentions, there are a number of ways to get our pensions up to a decent basic level. I have no doubt that there is a substantial amount of money in the Government’s Budget that has not been used—it has been set aside for pension credit, and so on, and is earmarked for pensioners—but which the pensioners do not receive. So any way forward is a good idea.
The Government have admitted that their public service agreement target set in 2004 to increase pension credit take-up to 3.2 million pensioner households is unachievable and they have quietly abandoned that target. The latest figures show that the take-up of pension credit was about 65 per cent., or 2.6 million. In total an estimated 1.7 million people eligible for help are missing out. Often, the Government say that pension credit goes to those who are most in need, but those most in need are those who are entitled to pension credit but who are not receiving it.
We can argue about whether the low take-up rate is down to the complexity of the forms, the perceived degrading nature of having to apply for benefits or to people not knowing that help is available. However, make no mistake: whatever the reasons why individuals do not claim, it is not because they do not need the help.
As a result of over-reliance on means-testing, people are not only falling through the net in respect of pension credit. The take-up rate of housing benefit among pensioners, according to the latest figures, was 87 per cent., leaving up to 310,000 eligible people not claiming. Similarly, the take-up of council tax benefit among pensioners is languishing at 58 per cent., or 2.5 million, leaving up to 2.1 million eligible people not claiming. To put those two figures into perspective, this is even worse than under the previous Conservative Government.
Constituents have often told me that the Government are good at collecting taxes, but much less efficient at delivering help when people need it most. The pension credit is a case in point. It is difficult for me as a constituency MP to assure pensioners of the need to apply for pension credit when one in three awards is incorrect. All hon. Members will have had first-hand experience of the impact of that. The credibility of the whole pension system is called into question when fraud and error rates are so high.
Another concern about means-testing in the light of the Government’s proposals for personal accounts and the emphasis on encouraging saving is that there is no escaping the fact that extensive means-testing will erode the returns from savings, and reduce the incentives to save.
Richard Younger-Ross: Does my hon. Friend accept that with the current reforms, pensioners are receiving advice on whether to buy extra years, but if they are entitled to pension credit, they are, perversely, better off if they do not buy extra years and, instead, rely on that benefit? The way to get people to save is to simplify the system and to provide a basic pension without the complications of credits so that there is an incentive to save, and that they keep their savings when they retire.
John Barrett: We must have a system in which it makes sense to make provision for years ahead, instead of the alternative of making no provision and hoping that the benefits system will pick up the slack. We cannot afford any more reasons for people not investing in pensions. The list is already long enough.
Among the many victims of the 10p tax fiasco were elderly people on low incomes, and hot on the heels of that was the news that pensioners now stand to miss out on hundreds of millions of pounds in benefits because the eligible backdating periods for pensioners claiming pension credit, housing benefit and council tax benefit have been cut from 12 months to three months, and for working-age claimants the period is being cut from 12 months to six months. Clearly, both are unjustifiable, given the additional lengths that people must go to to justify a backdated claim, but pensioners seem to be particularly harshly treated.
The group most failed by the current system is undoubtedly women. Like those a century ago, the poorest of today's pensioners are women, the vast majority of whom receive less than a full state pension. Many were badly advised about paying the small stamp or were unable to pay national insurance contributions, perhaps because they were caring for their families, or were in low-paid or part-time employment. We have had some welcome concessions from the Government this week, but there is still no help for women who have already retired and who are not receiving a full state pension, or those who have made less than a quarter of the full contributions and who currently receive no basic state pension at all.
As we see the failure of means-testing, I am confident that conventional wisdom will swing behind the idea of a citizen's pension at a rate that can genuinely deliver security and dignity in retirement for every citizen, and yet which is simple enough for everyone to understand. Such a pension system would be equitable and would not discriminate between men and women.
Of course, many of the issues raised today will be picked up as the Pensions Bill makes its way through the other place. It is vital that it is correct, because we cannot afford to get it wrong. At a time when hundreds of billions of pounds have been found to protect banks and bankers, it is time that the Government provided the same level of concern for our pensioners.