Sixth Standing Committee on Delegated Legislation

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Sixth Standing Committee on Delegated Legislation

The Committee consisted of the following Members:

Chairman:

Mr. Nigel Beard

Austin, John (Erith and Thamesmead) (Lab)
†Cairns, David (Greenock and Inverclyde) (Lab)
†Clarke, Mr. Tom (Coatbridge and Chryston) (Lab)
†Henderson, Mr. Doug (Newcastle upon Tyne, North) (Lab)
†Holmes, Paul (Chesterfield) (LD)
Jackson, Glenda (Hampstead and Highgate) (Lab)
King, Andy (Rugby and Kenilworth) (Lab)
†Lilley, Mr. Peter (Hitchin and Harpenden) (Con)
Maples, Mr. John (Stratford-on-Avon) (Con)
†Moran, Margaret (Luton, South) (Lab)
†Randall, Mr. John (Uxbridge) (Con)
†Robertson, John (Glasgow, Anniesland) (Lab)
†Strang, Dr. Gavin (Edinburgh, East and Musselburgh) (Lab)
†Waterson, Mr. Nigel (Eastbourne) (Con)
Webb, Mr. Steve (Northavon) (LD)
†Wicks, Malcolm (Minister for Pensions)
      
Sîan Jones, Committee Clerk

† attended the Committee

 
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Tuesday 8 March 2005

[Mr. Nigel Beard in the Chair]

Draft Social Security (Inherited SERPS) (Amendment) Regulations 2005

9.55 am

The Minister for Pensions (Malcolm Wicks): I beg to move,

That the Committee has considered the draft Social Security (Inherited SERPS) (Amendment) Regulations 2005.

It is good to see you, Mr. Beard. The regulations were laid before the House on 31 January. In my view, they are compatible with the European convention on human rights. The immediate background to the regulations is the new deferral arrangements that were introduced in the Pensions Act 2004. Some Members will remember the interesting debates that we had about those arrangements in Committee. The new provisions will allow people the new option of taking a lump sum payment instead of a higher weekly pension, if they defer their pension for a year or longer. When a married person dies while still deferring, their surviving spouse will have the choice of inheriting increments or a lump sum. The regulations are concerned with how much of the lump sum accrued in respect of the deceased’s additional pension is inherited.

I do not wish to detain the Committee unnecessarily by retreading familiar ground, but it may be helpful if I recap, albeit briefly, on the changes to the rules on inherited elements of the state earnings-related pension scheme and how they relate to the calculation of survivors’ benefits in cases where the deceased defers his state pension. Before the changes, a widow, or, in more limited circumstances, a widower, could inherit 100 per cent. of their late spouse’s SERPS. Under the Social Security Act 1986 that was set to halve from April 2000, but as we all know that change was inadequately publicised both at the time and for years afterwards and, as a result, many people did not make alternative provision to compensate for the reduced pension that would be paid to their survivor. The changes that the Government introduced have rectified that situation by delaying the start of the new rules by two years and phasing in the reduction to 50 per cent. on a diminishing scale over a period of eight years. That ensures that those who will be entitled to inherit the lowest proportion have the longest period in which to plan for that.

The regulations modify the primary legislation to provide for the phasing in of the amount of SERPS that can be inherited from 100 per cent. to 50 per cent. on a sliding scale. The proportion of SERPS that the spouse will inherit depends on the date when their deceased partner reached state pension age, or would have reached it had they not died before that date. The
 
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same sliding scale applies to the calculation of inheritable increments earned on the SERPS component of the deferred pension. The widow of a man who reached state pension age between October 2002 and October 2004 will therefore inherit 90 per cent. of his SERPS. Were he two years younger, she would inherit 80 per cent.; were he four years younger, she would inherit 70 per cent., and so on. The phasing in ends on 5 October 2010. The spouse of anyone reaching state pension age after that date will inherit 50 per cent. The Pensions Act provides that the spouse will be entitled to a lump sum comprising 100 per cent. of the basic pension and 50 per cent. of the additional pension deferred by the deceased.

It might help if I give an example. Let us assume that a married man reaches 65 in May 2005 and dies after deferring for two years. His weekly pension totals £110, of which £82 is his basic pension and the rest is SERPS—for the sake of simplicity, the example assumes that the person’s additional state pension consists only of SERPS. If he had claimed himself, his lump sum would total £12,229. Breaking that down, the basic pension element of the total would be £9,116, and the SERPS element £3,113. Alternatively, he could have chosen increments, which would have given him an extra £22.90 a week. Unfortunately, he died before he could claim. His widow will be able to claim a lump sum of £11,606, consisting of 100 per cent.—that is, £9,116—of the lump sum accrued on the basic pension and 80 per cent. of the amount accrued on the SERPS, which is £2,490. Alternatively, she could opt for increments which would be £21.70 a week, taking account of the SERPS adjustment. Let us imagine the same scenario, but the man in question reached state pension age after October 2010. His widow would get a lump sum of £10,670, taking account of the halving of the SERPS component. The increments equivalent would be £20 a week.

Having said that the example might help, I imagine that it might have an alternative effect, but it will be a good read later in Hansard where it will help to clarify matters. The regulations amend the inherited SERPS regulations to apply the same phasing-in arrangements to the SERPS component of the lump sum as apply to increments and the SERPS pension itself. Their effect is to modify the Pensions Act so that the 50 per cent. allowed for under the Act only applies in respect of the widow or widower of a person who reaches—or would have reached—state pension age from October 2010.

To sum up, the purpose of the regulations is to ensure that the inheritance arrangements for SERPS are applied fairly and consistently across the state pension scheme and, in particular, between the choice of either increments or a lump sum for a surviving spouse.

10.1 am

Mr. Nigel Waterson (Eastbourne) (Con): Good morning, Mr. Beard. I am delighted to see you presiding over what I hope will not be unduly protracted proceedings this morning.

 
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I am grateful to the Minister for his masterful summary of what this modest little measure is designed to achieve. He fondly imagines that people are going to pick over his words in due course. There might be some American PhD student out there who will one day write a thesis about the Pensions Act, but such a person would certainly need medical attention if they chose that subject voluntarily.

I shall not divide the Committee as there is a considerable measure of logic in the provision. As I understood the Minister’s statement, the Government are carrying forward a Conservative policy dating back to the 1980s and who are we to argue with that?

David Cairns (Greenock and Inverclyde) (Lab): We are telling people about it.

Mr. Waterson: It is helpful that we are ensuring that there is no perverse incentive to opt for the lump sum simply because the rules on the two options are different. It is necessary to make this modest change in the regulations.

Among the positive provisions of the Pensions Act were section 297 and the relevant part of schedule 11. I think that I am right in saying that the possibility of deferring the state pension has existed for a long time, but for the first time it is possible to take a lump sum at the end of that deferral, up to a maximum of five years. In fairness, we broadly supported that in Committee and during the other stages of the Bill. It is eminently sensible. Now, there is a choice between taking increments, which was previously the only option available if there was a deferral, and taking a lump sum.

Clearly, we have to deal with the subject of the inheritable proportion under the relevant regulations. Precisely because there is a reducing scale down to 50 per cent., as the Minister explained, we have to apply precisely the same rules. I hesitate to use the term “level playing field”—whoever wrote my note did not hesitate to use it—but it is the case that one cannot have a situation where there is an unintended pressure to take one of the two options rather than the other. We are simply establishing that there will be total equality in the treatment of the proportion for the surviving spouse whether the lump sum or the increments option is chosen.

We support the regulations; we see the sense of them and we do not want to be churlish—we are saving that for later in the week. We have a festival of pensions regulations this week, which the Minister has kindly laid on for us. My comments today constitute a preliminary clearing of the throat, if I can put it like that. However, I would like to touch on deemed buyback, which is rapidly becoming one of the more exciting issues, because it relates to the SERPS system.

Dr. Ros Altmann, that doughty campaigner for pensioners and former adviser to the Government, has calculated that the Government’s obligations under the promises made in 1978, when SERPS was introduced, could be worth up to £2 billion. That estimate has been backed up by at least two firms of actuaries. Given the inadequacy of the financial assistance scheme that helps people who are in
 
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difficulty having lost all or most of their pension rights, there is a slightly esoteric, but, on another level, down to earth, debate about whether that £2 billion could be used for that purpose, in effect, through deemed buybacks. In a recent debate—there are so many, I forget which one—the Minister disclosed that only eight of up to 80,000 potential claimants were receiving deemed buyback pensions, although another 800 cases were in the machinery. A spokesman for the Department has said that it is aware of the issue. She said:

“We are looking at how deemed buybacks and GMPs”—

guaranteed minimum pensions—

“should fit into FAS payments. Final decisions have yet to be made.”

Although the regulations are sensible and practical, there is another potential pot of money that could be used to help people who have lost their pension rights. The issue matters in the real world. I would be grateful if the Minister dealt with it in his winding-up speech.

10.6 am

Paul Holmes (Chesterfield) (LD): When the regulations were debated in the other place last week, the comments made by Lord Oakeshott, a pensions expert, were commendable for their brevity. Broadly speaking, my noble Friend said, “In so far as I understand the regulations, I support them.” I was tempted to emulate him and make the shortest speech I have made in my four years in this House. However, the comments of the Minister and the hon. Member for Eastbourne (Mr. Waterson) tempt me to comment on one or two points.

As the hon. Gentleman pointed out, the regulations are a tidying-up exercise at the end of a long process, which began in 1986 when the Conservative Government introduced the legislation of which the regulations are the end product. As the hon. Member for Greenock and Inverclyde (David Cairns) said from a sedentary position, it is a shame that people were not told about the change in regulations for 10 years. That left a considerable mess that had to be cleared up. As the Minister said, the Government rectified the problems with the initial legislation.

It was a shame that in Committee in April 2000, when my hon. Friend the Member for Northavon (Mr. Webb) moved some amendments to tidy up the mess in the legislation, he was told that his proposals were impracticable and far too costly. However, a few months later, in November 2000, the then Secretary of State for Social Security made a statement in the House that implemented those proposals more or less exactly.

Having voiced those two comments on the history of the legislation of which the regulations are the end product, I return to the admirable brevity of my noble Friend Lord Oakeshott. The Liberal Democrats support the regulations and the intention behind them.

10.7 am

Malcolm Wicks: I am sure that somewhere in my draft speech it says that this has been an interesting and useful debate—which it has been. The regulations
 
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are about the meeting of two things—SERPS and the position on inherited SERPS and how that interfaces with our new proposals for state pension deferral, including the new option of taking a lump sum.

As has been noted, the regulations are perfectly logical and bring some consistency to the arrangements. I do not think that I should follow the hon. Member for Eastbourne, who talked about deemed buyback, but only for the old-fashioned reason that deemed buyback is not relevant to the regulations. I could comment on Chelsea’s chances this evening, but I do not think that that is relevant either and we do not need to fill up time. There are
 
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issues relating to deemed buyback. It is a serious matter and we are trying to speed up the process. I am not dismissing the seriousness of that issue, but on the tedious ground of relevance, I shall refrain from commenting on it on this occasion.

I thank the hon. Member for Chesterfield (Paul Holmes) for supporting the regulations and for the brevity of his remarks. I pay tribute to the brevity of his remarks by keeping mine brief. I commend the regulations to the Committee.

Question put and agreed to.

Resolved,

That the Committee has considered the draft Social Security (Inherited SERPS) (Amendment) Regulations 2005.

Committee rose at nine minutes past Ten o’clock.

                                                                                           

 

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Prepared 9 March 2005