The Bishop of Chester spoke in favour of Amendment 32 during the Committee Stage of the Pensions Bill. The amendment, proposed by Baroness Hollins of Heigham, sought to retain the option of receiving deferred state pension earnings in a lump sum. The Bishop spoke a number of times during the debate on the amendment. The amendment was withdrawn following the debate.
The Lord Bishop of Chester: My Lords, I support this amendment. The background seems to be one of a general lack of provision for pensions for older people in the future. There is a major shortage of pension savings, and my impression is that that is getting worse rather than better, for all sorts of reasons. My experience of young people—I use the word “young” to include people in their 30s—is that they do not think about pensions as much as they should. Anything we can do to encourage people to take a long-term view and think for the future must be a good thing. The principle, therefore, of deferring taking the state pension until you really need it seems a healthy principle to encourage in our circumstances. My anxiety is that, in the future, a lot of people are going to be very short of money when they are older. It seems fundamentally right to do anything we can to encourage that culture of not taking the pension until you need to.
If you are going to encourage people to do that, maintaining the flexibility so that they can either take additional income when they do take their pension, or a lump sum in lieu of the money they save, seems to be a sensible inducement. If you just look on it as an issue of encouraging savings, one of the lessons of the last decade or so is that we need to encourage the thought of saving in our culture. It may be just as easy to take the pension and put it into a building society account or whatever but why not offer the option of the Government allowing the lump sum to be taken? Another reason for supporting the amendment is the principle that if it ain’t broke, why do you need to change it? What is wrong with the current arrangements that means that we want to change them?
My third reason for supporting this is that, in principle, I think there should be parity with how we relate the state provision of pensions to private provision, which normally allows the option of taking part of the pension as a lump sum. That is an important principle of flexibility and, indeed, defined benefit schemes now typically make that option more available than they used to. There seems to be a simplicity—to use the Minister’s point—in treating state pension and private pension arrangements in broadly similar ways.
The Lord Bishop of Chester: My Lords, I invite the Minister to comment on the more general point as we are getting into specifics, which I recognise are complicated. Do the Government agree that it would basically be a good thing if deferral was encouraged? Is it the Government’s position that in the great scheme of things and income in old age it would be a good thing if the principle of people being encouraged to defer was affirmed?
Lord Freud: I am not sure that parliamentary privilege covers me for giving financial advice. Perhaps the noble Baroness, Lady Drake, could advise me on what I should say on that matter.
Baroness Drake: I think that the Minister is right not to give advice as to whether or not it suits an individual to defer. It depends on their personal circumstances.
Baroness Hollis of Heigham: Personal circumstances to the fore!
Lord Freud: I must thank the noble Baroness for keeping me out of jail. Many a seminar that I have been to would have told me that. It is a matter for people to judge.
The Lord Bishop of Chester: If I may have another little bite of the cherry, I do not wish the Minister or the Government to give any specific advice to any specific person. I am inviting a general comment upon the desirability of people looking to the longer term, given the parameters around old age and pensions in our society. If in some general terms that is a desirable object, without making any comment about specific cases, surely the more flexibility we build in, the better.
Lord Freud: I actually have very strong views on this matter but I think they are personal. I am going to utterly resist putting them on the record in this Committee but I would enjoy having tea with the right reverend Prelate and giving vent to my personal views at full force.
Baroness Drake: Could we come too?
The Lord Bishop of Chester: My Lords, very few people on the Committee will know that the last time that I had tea with the Minister was in his rooms in Merton College when we were both first years in 1969, so it would be good to have another cup. Given the nature of this discussion, I wonder whether the Minister could at least agree to take the issue away and think about it. There are issues here that may need a bit of teasing out other than in the circumstances of this Committee.
Lord Freud: I have to accept that the right reverend Prelate is on a very important and interesting point, on which one could write many a financial essay. I will go back and think about whether there is any generalised approach that we as a Government should take on this. I will resist any indulgence in doing so off the top of my head, though, because this is a huge and difficult issue.
Baroness Hollis of Heigham: My Lords, I am extremely grateful to all Members of the Committee. I am sorry we did not hear from the Lib Dem Benches as we would then have had a full hand. I am grateful particularly to my noble friend Lady Dean, to my noble friend Lord Hutton for raising the debate in the way he did and to the right reverend Prelate for his persistent questioning. Both my noble friends continue to interrogate the Minister, which is really valuable. The right reverend Prelate said, “If it is not broken, why fix it?”. I have seen no evidence at all, apart from the Minister saying this is not such a good buy for individuals as taking it as income, that the system is broken. The Government are relying on having the upfront savings rather than the longer-term costs. That is not, in my view, a prudent way of handling finance.
My noble friend Lord Hutton, along with the right reverend Prelate, stressed that it is no use saying that we have to go for simplicity and thereby remove choice, if choice would be part of the attraction for people to save and defer taking their state pension. We do not have hard evidence on this, but we know from everything that is coming through from auto-enrolment and the pilots—including under my noble friend—that the nudge theory of encouraging people to stay opted-in and having them opt out rather than choosing to opt in was transformative…