§ 7.47 p.m.
§ The Parliamentary Under-Secretary of State, Department for Work and Pensions (Baroness Hollis of Heigham)
rose to move, That the draft order laid before the House on 1 February be approved [8th Report from the Joint Committee].
The noble Baroness said: My Lords, I beg to move that the draft Social Security Benefits Up-rating Order 2005 and the draft Guaranteed Minimum Pensions Increase Order 2005, which were laid before this House on 1 February, be approved. I am satisfied that both these instruments are compatible with the European Convention on Human Rights.
As your Lordships are aware, these draft orders are a routine annual event but nevertheless they are an important part of DWP business. The uprating order will, as usual, increase most benefits from April in line with the retail prices index for national insurance benefits and the Rossi index for income-related benefits.
For the 12 months ending in September the retail prices index rose by 3.1 per cent and, in the same period, the Rossi index rose by 1 per cent. The Guaranteed Minimum Pensions Increase Order sets out the amount by which contracted-out occupational pension schemes must increase members' guaranteed minimum pensions which accrued between 1988 and 1997.
Where the annual increase in the retail prices index exceeds 3 per cent, the guaranteed minimum pensions indexation requirement is capped at that level under the primary legislation. This year's order therefore 557 provides for an increase of 3 per cent. The estimated cost of uprating benefits for 2005–06 is £2.92 billion. Of that, £2.1 billion goes to pensioners. Some £440 million is for disabled people and their carers, around £300 million is for working age people and £80 million is for children, of which £60 million is above inflation.
I shall first spend a moment on the subject of pensions. We continue to show our commitment to tackling pensioner poverty. In this order, we are again doing more for older people. We have kept to our guarantee to uprate the basic state pension by the higher of 2.5 per cent or the increase in RPI. Uprating this year is in line with the RPI at 3.1 per cent. This will give an increase of £2.45 to £82.05 per week for a single pensioner, and of £3.95 to £131.20 per week for a pensioner couple. Pensioners have seen a 7 per cent real terms increase in their state pensions as a result of previous above-inflation increases.
We continue to target our resources toward the poorest and the guarantee element of pension credit will increase by 3.8 per cent, in line with earnings. In April, the guarantee will rise from £105.45 to £109.45 a week for a single person, and will increase to £167.05 for a couple. This approach means that by 2008 there will be half a million fewer pensioners in poverty than there would have been if the guarantee had been uprated in line with prices.
The pension credit savings element threshold will increase in line with the basic state pension to £82.05 for a single person and £131.20 for a couple. This savings element ensures that people aged 65 and over who have been able to make modest provision for their income in retirement are rewarded. From April 2005, single people with an income up to £151, and couples with an income of up to £221, may qualify. There are now 2.65 million households—some 3.22 million individuals—receiving pension credit. Over 1.99 million pensioner households are receiving more money as a result of pension credit, gaining on average £17.46 a week. Pension credit is helping over 2.14 million older women, who form around two thirds of the total beneficiaries.
To help older pensioners with living expenses, including council tax bills, there will be an age-related payment of £50 made with winter fuel payments for 2005–06 to households with someone aged 70 or over. Between 1996–97 and 2002–03, the poorest pensioners have seen their incomes grow at similar rates to the richest pensioners. The incomes of the poorest fifth of pensioner couples have grown by 14 per cent, while the richest fifth saw their incomes grow by 11 per cent.
We will be spending £10 billion extra on pensioners in 2005–06 compared to the 1997 system. Around half of this—£5 billion—will go to the poorest third of pensioners. In 2005–06, pensioner households will be an average of £1,350 per year—about £26 a week—better off as a result of our tax and benefit policies than they would have been under the old 1997 system. The poorest third of pensioners will be £1,900 per year better off on average.
558 Let me now turn to children and families. To support parents, standard rate statutory maternity pay and maternity allowance will increase from £102.80 to £106.00. By 2007, the maximum maternity pay and child benefits for mothers at home with their first baby will have risen by £5,000 in real terms since 1997. Non-dependant deductions in income-related benefits have again been frozen. This illustrates our constructive response to criticism that they were too high, and will benefit around 190,000 claimants.
Our fight against child poverty continues. Families receiving income support and jobseeker's allowance will continue to benefit from the increased generosity in child tax credits. The child element of the child tax credit will increase to £1,690 a year in April 2005. This is an increase of £245 since its introduction in 2003, and is £65 above this year's rate. It will benefit over 7 million children in almost 4 million families.
Child allowance will increase from £42.27 to £43.88 and the disabled child premium, which is in addition, will also increase from £42.49 to £43.89. The enhanced disability premium for a child will increase from £17.08 to £17.71.
By 2005–06, total spending on financial support for children will have gone up by over £10 billion in real terms since 1997. Families with children will be, on average, £1,300 a year better off as a result of Government reforms in the tax and benefit systems since 1997. The poorest fifth will be £3,000 a year better off. I am sure that noble Lords will agree that that is significant progress.
In speaking to this uprating order, I have concentrated on the financial situations of pensioners and children. I have not spoken about disabled people because we have only recently completed the Disability Discrimination Bill and I thought that it was more useful to refer to the other groups in our society who have not recently had your Lordships' attention. I hope that your Lordships will welcome the good news in the uprating order and will accept it tonight. I commend the orders to the House.
Moved, That the draft order laid before the House on 1 February be approved [8th Report from the Joint Committee].—(Baroness Hollis. of Heigham.)
§ Lord Higgins
My Lords, the pattern of debates in this House in the past few days has become fairly consistent. The noble Lord, Lord Kingsland, and the noble and learned Lord the Lord Chancellor discuss crucial matters of terrorism, life and death. imprisonment without trial, the Human Rights Act and so on but every so often there is a break—at lunchtime or dinnertime—when the Minister, the noble Lord, Lord Oakeshott, and I come into our own. Indeed, on occasion it has been rather useful because they have managed to work out what on earth is happening about the other Bill. I find the way in which the Government are proceeding in that matter, and the shambles that the procedure has become from time to time, to be of the gravest concern.
Having said that, one must recognise that the orders that we are debating this evening will have an immediate effect on millions of people, whereas the 559 other measure, about which I express grave concern, deals with a comparatively small number of people. Clearly, they are both of great importance but one needs to keep what we are debating tonight in perspective, though I regard the implications of the other matter as fundamental to our way of life.
As the Minister has pointed out, this is an annual festival. It is normal for this matter to debated in a wide context, although this evening the Minister has constrained herself within the narrow limits of the orders. Traditionally, the debate has been very broad.
I thought I ought to look up what the Minister said when I first engaged in these annual debates. I think this is the seventh or eighth debate we have had on this matter. But, inadvertently, I found the debate when the Minister was still in opposition. Interestingly, she said:As a way of capping budget, the Government have tried to target benefit on those financially most in need. And because the Minister and his department did not get their heads around the problem, the Government targeted that budget in the simpleminded way of extending means testing at the expense of insurance-based budget benefits".—[Official Report, 20/2/1997; col. 848.]Well, I suppose one can change one's mind. Certainly, events since then have not been out of line with the approach that that government were taking.
Given that this is a broad-ranging debate, the Minister rather surprisingly did not refer to the Turner report. One of the many interesting comments made by Turner is:The UK pension system appeared in the past to work well because one of the least generous state pension systems in the developed world was complemented by the most developed system of voluntary private funded pensions".But, tragically, that balance has been wrecked. I think that that is the right way of putting it. In significant measure, that was done by the action taken by pension funds following the Chancellor's action on ACT, in conjunction with the concerns that finance directors then had with regard to FRS17. The result is that membership of final salary schemes has halved since 2000. That balance has been wrecked.
Alongside that, we have had the take-over of matters by the Chancellor and the Treasury, who are obsessed with tax credits, although, as we well know, the take-up of tax credits has been very disappointing. This has taken place against a background of three Secretaries of State who might reasonably be regarded as compliant. I therefore take heart from the fact that the present Secretary of State seems to be adopting a rather more independent line on those matters. One might almost say that the Chancellor of the Exchequer and the Treasury are heretical in these matters. A collection should be made of the various statements made by Mr Alan Johnson in the pensions debate on 13 October.
The noble Baroness held forth about the virtues of pension credit. But on 13 October the present Secretary of State said that there were no such plans to continue it indefinitely. At the ABI conference he said that he would be crazy to say pensions credit does not act as some disincentive to savings to some people. On 560 13 October he also said that we should not be talking in euphemisms—it is a means test. The hallmark of the Government's policy has been to move more and more towards means testing.
The noble Baroness quoted some figures for pensions credit. They may be more up to date than the ones I had but no doubt she can correct me if I am out of date. Some 3.75 million people are entitled to pensions credit and 2.65 million appear to have taken it up. So it looks as though 1.63 million of those entitled to it have not taken it up. That is a pretty appalling level of take-up for what is intended to be a comprehensive measure.
The noble Baroness has rightly pointed out that uprating is in line with prices and not earnings. This year we have not had an increase of 75p on the pension as a result of the uprating as we had on a previous occasion. I suspect that that is still in the back of pensioners' minds. The extent of the increase seems to have depended considerably on whether an election was thought to be in the offing or not.
I would like to raise one point on the specific notification to individuals. The notification that is going out to pensioners does not say what the increase is—either as a percentage or a quantity. That is rather strange in a pre-election period.
I have in front of me one such notification which has come my way. It does not say that there is an increase of so much or that this will mean your benefits will increase by so much. Clearly the Government have missed out on an electoral opportunity in doing this. It would be helpful in future if people were told what their benefit is currently and what it will be in the future—assuming that the department computer can cope with this which, given our experience of it, may not be the case.
It would be hard for pensioners to work out whether the statements that are being put through their letterboxes are right or not. For example, at the end of a long list of items it suddenly states, "age addition nil". Most pensioners—particularly elderly ones over 70—would find that hard. The noble Baroness will be able to say that that is the same form which came out under the previous Conservative government and probably the Labour government before that. I was struck by this matter the other day.
I am going on much longer than I intended. The noble Baroness said nothing at all about GMP uprating.
§ Baroness Hollis of Heigham
I gave the noble Lord four sentences on this matter. But I agree that was a modest amount.
§ Lord Higgins
We appreciate the four sentences.
I am puzzled about GMP. It only affects accrued rights up to 1997 and not thereafter. Is anybody affected by this GMP uprating? Ahead of 1997, I suspect that most firms who were giving pensions did not give the GMP at that time, they were probably giving significantly above it. Can the noble Baroness tell us whether anyone is affected by this order? Were 561 the ones pre-1997 all uprated more than GMP and since 1997—when we do not have a GMP—a number of companies have totally failed to make a guaranteed minimum pension because they have gone bust. It is proposed that we should go towards a more scheme-related system of solvency assessment. But this order may have no impact on anyone in the real world.
I am conscious of the time so I will make only one other point. The Government are sending out letters about the financial assistance scheme. To my surprise, they are still saying that they will provide £400 million with the possibility of further contributions from industry. That £400 million is over 20 years. We discussed the issue of contributions from industry when we debated the Pensions Bill. Can the noble Baroness tell us whether any part of industry has decided to make any further contributions? I suspect that they have not.
The letter which is sent out gives hope to people who anticipate getting some of their pension made up by the financial assistance scheme in cases where their company has gone bust. I have received a number of letters pointing that out. A pensioner who was with the Albert Fisher Group says that the situation constantly blows hot and cold. They hope they are going to get something but it will not be for a long while. There is £400 million available but they have no idea if they are eligible—and what does that figure mean given the large number of people who are expected to be covered by what we have always said is clearly an inadequate amount? I hope that the noble Baroness will give us up to date news on the financial assistance scheme.
Instead of putting forward specific proposals on reform, the Government are waiting for the Turner report. Interestingly, it has always been clear that the second report of the Turner commission—which would recommend what might be done—is not going to happen until after the election.
So the Government appear to have no strategic view. Yet, with the exception of the Chancellor of the Exchequer, a clear consensus is emerging that it is important to raise the basic state pension and reduce the number of people on means-tested benefits. We propose to do that. We think it is the right way to tackle the problem. There is an almost universal view outside this House that that should happen, but it is not implemented by the proposals before us this evening.
§ Lord Oakeshott of Seagrove Bay
My Lords, I feel at some disadvantage in the debate compared with the noble Lord, Lord Higgins, who has received his pension up-rating, very properly looked at it and seen what he has seen. I do not yet receive a pension, but I am sympathetic to the point. It irritates me greatly when I get my car or house insurance renewal and it does not give the previous year's figure and one has to look in one's records. So, in principle, that sounds like a good idea and a good request.
I have two or three separate points and questions tonight. I shall deal first with indexation and the points which we discussed in Grand Committee a few days 562 ago on the indexation of FAS and the PPF. The noble Baroness was kind enough to respond to the questions I raised and in particular to my surprise at the Secretary of State's remark that many financial assistance schemes are not index linked. I am bound to say that the reply confirms my surprise at his original remark. It shows that 77 per cent of active members in DB schemes in 1995 were accruing rights with some pre–1997 indexation.
I shall summarise the reply and hope that the noble Baroness will confirm that I am right. Effectively, it says that it would cost too much to look in and check up on indexation rights accrued since 1997 and pay them. That is not at all the same. I hope that the Minister will accept that and correct the Secretary of State's statement that any scheme would not have been index-linked at all.
On the FAS specifically, does the Minister agree with the assessment by that doughty campaigner for the dispossessed, Dr Ros Altmann, that the effect of this permanent non-indexation of pensions to be paid under the FAS would for some mean a cut of up to half of the total money they receive over their retirement?
I turn now to the question of the citizen's pension, a matter which the noble Lord has already raised. I am struck by the growing consensus regarding the words used by Dr Lynne Jones in the Commons debate on these orders. She said that she had just been to a Pensions Policy Institute meeting and would prefer it if we had a citizen's pension entitlement for all pensioners at £105 per week, which obviously would now be £109.45 per week. It seems to me that this is an idea whose time has come. There is a rapidly growing tide of support for it in the pensions and the political world, but that means nothing until it actually sweeps away the bolted and barred doors of the Treasury.
I say to the noble Lord, Lord Higgins, and Members on his Benches that ill principle we welcome the move towards support of this scheme. Again, it really does not mean very much if pension credit is going to be linked to earnings under the proposal and if the basic state pension at more or less this level is going to be linked to earnings as well. That means that it will be a very long time before the effect of the rises enables pensioners to be taken off pension credit. While we support the principle, we hope the money will be found to move forward faster on that.
§ Lord Higgins
My Lords, I am most grateful to the noble Lord. On his proposal for a citizen's pension, would that effectively mean the end of the contribution principle? If so, does he think that after the change those who have contributed should get more than those who have not?
§ Lord Oakeshott of Seagrove Bay
My Lords, I am happy quickly to clarify that. Yes, it does mean the end of the contribution principle. However, people will all receive the same regardless of whether they have contributed.
I shall summarise the other issue, on which I shall end. Putting the matter in a slightly wider context, I should like to remind the House and indeed the 563 Government of the power of pensioners today. They are the fastest growing and keenest voting age group. As recently as 1992, a quarter of votes were cast by pensioners. Their turnout was similar to that of other groups.
Last time 35 per cent of votes were cast by pensioners because 70 per cent of them voted compared with 55 per cent for the rest of the population. If you add in the over-55 year-olds—the pension generation, if you like—half the votes in the coming election will be cast by pensioners. Women, who will be in the majority, will be effectively moved in giving their verdict by the muddle and mess of the Government's pensions policy.
To end on a positive note, as I look at the Box and the Front Bench, it is refreshing to see the entire government and official position represented by women.
§ 8.15 p.m.
§ Baroness Hollis of Heigham
My Lords, that was an unexpectedly generous tribute from the noble Lord, Lord Oakeshott, which was very nice indeed.
Your Lordships have been brief, so I shall try to be, too. I shall take the points as they were raised. The noble Lord, Lord Higgins, asked about waiting for Turner and he gave his usual critique on the failure of the Government, given ACT—of course. it had nothing to do with ACT—and what he would regard as the £5 million, which actually cost us £3.5 billion, withdrawal of dividend tax credit from pension schemes as responsible, along with FRS 17, for the collapse of DB schemes. The noble Lord knows that that is nonsense.
I do not doubt that pension companies would be financially better off were they to continue to have that £3.5 billion, which represents that they got double payments on top of reclaims on tax paid. The reason why DB schemes failed to continue as expected was to do with the stock market collapse. As a result, the yawning deficits that opened up were compounded by the fact that even as late as 2001–02 many companies were still continuing to take contribution holidays. That is the core of it—that, and the failure of actuaries properly to predict what we now know are more robust longevity figures.
The combination of under-funding, stock market collapse and underestimated longevity produced a structural problem for DB schemes that will take time to remedy, but which may, as the stock market recovers, help to float some of those companies into a better situation. Certainly, the latest figures suggest that there is no longer the flight from DB schemes, but that is not to say that many of them will not continue to struggle until, if, or when the stock market possibly floats them off.
To blame it on a government policy that sought to rectify a tax distortion, while at the same time reduce corporation tax to about the lowest in Europe—about 30p in the pound—is a political point that does not gain in relevance or acuteness the more it is repeated. It is simply daft. We know what collapsed DB schemes, and that was not a significant element.
564 On the more substantive points, the first being basically a debating point, such as pension credit, means testing, and so on, the noble Lord was right to press me about the number of people claiming. As suspected, his figures are a little out of date but not by much. The latest figures I have are that 3.2 million pensioners are claiming pension credit. We cannot he absolutely sure how many people are entitled but not claiming, but our best estimate is that possibly 1.7 million may be in that position. Many of those 1.7 million will be failing to claim very small sums of money. They were part of the wave of people who were brought in when pension credit was made more generous, and are at that end of the wave on the beach.
The significant point is that 3.2 million people are claiming, and it has transformed their living standards. As for the dig about what has been happening to means testing, I am sure that the noble Lord would like to know that in 1994–95, 38 per cent of pensioner households were on income-related benefits, and in 2002–03, the latest figure is 32 per cent. Under this Administration the percentage of pensioner households on income-related benefits, including pension credit, has fallen, even though we have made pension credit more generous, thus bringing in more people. That should be acknowledged.
Some of the earlier claims of pensioners to income-related benefits were in terms of their dire poverty, but we are now seeing that with pension credit—in particular, the pension-savings credit—there is an increase in comfort. People no longer see a pound for pound withdrawal of their savings because they are no better off than were they on income support.
On the point about forms, I shall review that matter. The noble Lord is right that it does not say that. The noble Lord, Lord Oakeshott, also confirmed that. It is a fair point and I shall see whether there is anything that we can or should do about that, so that people know what the old figure was. People who kept last year's paper will know, but I agree with the noble Lord.
§ Lord Higgins
My Lords, can the noble Baroness remind us what the qualification is for the age addition?
§ Baroness Hollis of Heigham
My Lords, it is over 80. It is the measly sum of 25p a week. In my view, it should have been rolled in with other payments long ago.
On the GMP figure, I do not know any better than the noble Lord, Lord Oakeshott, how many companies were affected. It ensures that companies that produced contracted-out schemes before 1997 could contract out only if a portion of that scheme—we will call it GMP—matched the level of benefit that someone would have got in SERPS. The core aim was to ensure that, by contracting out, people did not find themselves inadvertently in a misselling situation in which they would have been better off remaining contracted in. That was the point of it, hence the increase. I cannot give the noble Lord the figures for 565 how many people would have been covered by that. I shall see whether they are available; if so, I shall write to both noble Lords.
§ Baroness Hollis of Heigham
Yes, my Lords, but the noble Lord asked how many people this would apply to. Obviously it is a matter for companies. I shall see whether I can find him that information.
The noble Lord, Lord Higgins, is right that FAS involves £400 million over 20 years. As he suspected, there have been no contributions from industry. I hope that that will change, but my understanding is that so far it has not.
As for giving false hopes, we are already, through a Statement to the House—I did my best to ensure that the noble Lords, Lord Higgins and Lord Oakeshott, had a copy—beginning to establish the contours of FAS, such as de minimus, a cap and so on. We have made clear that, as a result, we expect to be able to protect pensioners and those within three years of their scheme retirement age with a figure from FAS that will ensure that their pensions are 80 per cent of the full amount. Obviously it is less generous than under the PPF but it is none the less a substantial form of protection assistance given that the Government have no legal obligation—but, in my view, possibly a moral obligation—to help. We expect in three years' time to review the appropriateness and adequacy of funding and the reach of FAS.
§ Lord Higgins
My Lords, a lot of concern is expressed by people affected by something that the noble Baroness has not mentioned: the fact that the amount is to be capped, even for those in the period immediately up to retirement.
§ Baroness Hollis of Heigham
My Lords, money is tight. It seems not unreasonable that FAS is capped at £12,500, which represents a 50 per cent pension before things such as entitlement to S2P, SERPS or the basic state pension are included. That represents a 50 per cent replacement income on average earnings. If money is tight, as it is, it does not seem necessarily appropriate, as the Secretary of State put it, that we should increase the money for those much better off—first, for those who are possibly in a position to make savings for themselves, and, secondly, for the particularly well off, who frankly may have contributed to the failure of their scheme. If money is tight, as it clearly is under FAS, it is reasonable, first, not to have indexation, because if you index you reduce the amount of money available now, and secondly, to cap it at what would be effectively a replacement income of around 50 per cent of average earnings and 80 per cent of what your pension would have been at that point.
On top of that there is the basic state pension and in some cases SERPS or S2P moneys. That should produce on average, up to average or possibly slightly above that, replacement rates of 60 per cent or so—50 to 60 per cent when you take into account the 566 80 per cent cap. I do not think that that is ungenerous. I wish that it could be more but we are dealing with a situation of tight finances.
We have two considerations on indexation. First, some schemes that we are covering have indexation and others do not, and there is a question about whether we should treat schemes even-handedly. Secondly, there is a cost constraint. The noble Lord, Lord Oakeshott, picked up the point from Dr Ros Altmann about inflation cutting the value of pensions in half over members' lifetime. That depends on what you assume the level of inflation to be. It is certainly true that, during the previous administration under the Tories, had inflation been running at something like 15 per cent, then it would have halved the value of that pension in nine years. If inflation was running at about 10 per cent, it would have halved the value of that pension within about 14 years. If inflation was running at about 2 to 3 per cent, it would have halved in value over about 29 to 30 years.
There are obviously implications for the reduction in its real value if it is not indexed. Yet, as I am sure the noble Lord is well aware, what happens in DC schemes—when people take annuities, up to age 75—is that not only do three-quarters of them go for single life, nearly all of them go for flat rate. They do so, understandably, because they prefer the money up front. In that sense, FAS is making that same decision. Had we gone for indexation, there would have been less up front in order to have produced an inflation-proofed increase later on. FAS is thus operating in exactly the same culture and climate as nearly all of those who have to turn their DC money pots into an annuity. They choose a level scheme.
§ Lord Oakeshott of Seagrove Bay
My Lords, I agree with the noble Baroness that the principle of capping benefits is right, in a situation where money is clearly tight. However, there was no need to make a cheap political point, at the Conservatives' expense, as to what she might think the rates of inflation would be. The noble Baroness and I will both remember well that under a Labour government, in the 1970s, inflation actually reached nearly 30 per cent. It would be better not to be political with such a long-term thing.
If someone is on a modest pension—of £6,000, or £8,000, or £10,000—being paid by the FAS, over 20 or 30 years it is a serious cut in that pension. The argument for not indexing at all is not nearly as strong as the argument for a cap.
§ Baroness Hollis of Heigham
My Lords, I accept the point and I have not tried to challenge in any way the contention that if you fail to index, depending on the rate of inflation, the value over time will diminish in real terms. While I do not want to make a cheap point about open purses, the point is that if you were to index within the same financial envelope at around 2.5 per cent instead of going for 80 per cent, you would almost certainly have to opt for a substantially lower figure. I cannot do the sums in my head, but it could be as low as 60 per cent. I do not know, but it would be of that order. 567 When people who are annuitising their money purchase pots make the decision, they choose to go for level rather than an inflation increase. All I am saying is that they make such choices and it is the choice the Government have made. It is not wrong. Basically, you are taking a punt on both inflation and longevity. It means that if we had produced a lower level of FAS in order to provide indexation protection, those who do not enjoy relative longevity and die before they reach the age of 80 would be much worse off. I suspect that the crossover point would not be reached until the age of about 85. As I have said, this is not the choice that other people make.
We are dealing with a financial envelope and, given the financial constraints, this seems to be the right decision. As a result the poorest in our society with the shortest life expectancy receive more money than they would have done if they had taken a punt on longevity and therefore the need to protect against it through inflation proofing. We may disagree about it and I can see the arguments on both sides. It is an honourable dilemma. On balance, however, I think that the Government have it right.
The noble Lord. Lord Oakeshott, went on to talk about the citizen's pension of £109. He was absolutely right to criticise the Tory policy of having an earnings-linked basic state pension while pension credit would be largely linked to RPI. It would mean that the poorest among us, mostly women, would see their standard of living fall back relative to earnings while men qualifying for the full basic state pension would see their incomes increase. I cannot think that such a whammy on women is something that the noble Lord, Lord Higgins, in his more contemplative moments, would wish to support. Perhaps I may say that I think it is a profound mistake on the part of the Conservative Front Benches.
The problem with the proposition set out by the noble Lord, Lord Oakeshott, for a citizen's pension of £109 per week is that in order to keep it within reasonable cost constraints, it presumes the rolling into the basic state pension of S2P. That would be the only way you could afford to fund a basic state pension of £109 per week across the board.
§ Lord Oakeshott of Seagrove Bay
My Lords, that is not the position. We have made it quite clear that we would finance the citizen's pension by making savings in government expenditure elsewhere. We would not find the money from the state second pension.
§ Baroness Hollis of Heigham
My Lords, I shall not develop the argument any further, but while I am sure that the noble Lord is no party to it, I think that this is Alice in Wonderland finance. Certainly, outside of this House, the usual suggestion made by organisations considering the financing of the £109 basic citizen's pension is to roll S2P into it. The result of that would be the effective end of contracting out for DB schemes, which in turn would destabilise them. So there are real problems about how to pay for such a pension without ending S2P, offsetting that with the end of contracting out for DB schemes and thus further destabilising final salary pensions.
568 The noble Lord has reminded us, as if anyone needed reminding of it, that the pensioner vote is 35 per cent, of which around 70 per cent are women. That is right, but that did not lie behind government policies. Over the past few years this Government have introduced pension credit, of whom three-quarters of the recipients are women; they have introduced stakeholders, a very considerable number of whom are women; and have introduced the state second pension which ensures that even if you earn only £5,000 or £6,000 a year, you receive a state second pension as though you were earning £11,600 a year. Again, the bulk of those beneficiaries are women.
Throughout our policies we have sought to address the problems of poverty among women pensioners today. I hope that we can achieve consensus on trying to ensure that the poverty currently faced by so many women pensioners is now being successfully overcome for the first time. The Institute for Fiscal Studies has said that if two people are considered at random, one of whom is a pensioner and the other not, the pensioner is no more likely to be poor than the other person. We have made huge strides, but we have to ensure that the problems of poverty faced by women pensioners over the past 10, 20, 30 and 40 years will not recur in the future. Part of that is ensuring that women can enter the labour market and build up a pension. Another part is to encourage the building up of a good second pension. A further part is to ensure that the basic pension is reviewed to ensure that it works fairly for women as well. I hope that, with those remarks, noble Lords will feel able to accept the orders before us.
On Question, Motion agreed to.