The
Committee consisted of the following
Members:
Chairman:
Mr.
Martyn
Jones
Alexander,
Danny
(Inverness, Nairn, Badenoch and Strathspey)
(LD)
†
Farrelly,
Paul
(Newcastle-under-Lyme)
(Lab)
†
Foster,
Mr. Michael
(Worcester)
(Lab)
†
Goodman,
Helen
(Bishop Auckland)
(Lab)
Hollobone,
Mr. Philip
(Kettering)
(Con)
Hurd,
Mr. Nick
(Ruislip-Northwood)
(Con)
†
Keeley,
Barbara
(Worsley)
(Lab)
†
Laws,
Mr. David
(Yeovil)
(LD)
†
McCarthy,
Kerry
(Bristol, East)
(Lab)
†
Milton,
Anne
(Guildford)
(Con)
†
Moon,
Mrs. Madeleine
(Bridgend)
(Lab)
†
Osborne,
Sandra
(Ayr, Carrick and Cumnock)
(Lab)
†
Purnell,
James
(Minister for Pensions
Reform)†
Singh,
Mr. Marsha
(Bradford, West)
(Lab)
†
Southworth,
Helen
(Warrington, South)
(Lab)
Waterson,
Mr. Nigel
(Eastbourne)
(Con)
†
Watkinson,
Angela
(Upminster)
(Con)
Rhiannon
Hollis, Committee
Clerk
†
attended the
Committee
The following
also attended, pursuant to Standing Order No.
118(2):
Boswell,
Mr. Tim
(Daventry)
(Con)
First
Standing Committee on Delegated
Legislation
Thursday 19
October
2006
[Mr.
Martyn Jones in the
Chair]
Draft Social Security (Graduated Retirement Benefit) (Consequential Provisions) Order 2006
2.30
pm
Sitting
suspended for a Division in the
House.
2.45
pm
On
resuming—
The
Minister for Pensions Reform (James Purnell): I
beg to move,
That the
Committee has considered the draft Social Security (Graduated
Retirement Benefit) (Consequential Provisions) Order
2006.
May I start by
saying what a pleasure it is to serve under your chairmanship,
Mr. Jones, on this important parliamentary
occasion?
I must
report that in my view the statutory instrument is compatible with the
European convention on human
rights.
Today’s
debate concerns the Government’s new arrangements for people who
have deferred their state pension. Legislation now permits a person to
defer receipt of state pension, if, for example, they want to continue
to work beyond state retirement age. In return for that deferral, they
qualify for an increase in their pension, when they decide to claim
it.
In April
2005, following the Pensions Act 2004, we introduced legislation that
enables a person who has deferred receiving their state pension,
including their graduated retirement benefit, which is the subject of
the order, for 12 months or more to have the option to get their
deferred benefit in a one-off taxable lump sum payment, instead of an
increase in their weekly state pension. If a person dies while they are
deferring, their spouse or civil partner may inherit 50 per cent. of
their graduated retirement benefit, including any enhancements that the
period of deferral has conferred. New rules provide that if the late
spouse or civil partner had deferred for 12 months or more since April
2005, the inheritable benefit for this period may be paid in a one-off
lump sum.
If the
surviving spouse or civil partner already gets their state pension, the
inheritable graduated retirement benefit may be paid immediately.
However, if the survivor is under state pension age when their spouse
or civil partner dies, they will not get the graduated retirement
benefit until they reach the state pension age and claim their state
pension. The order is intended to ensure that if they opt for a lump
sum payment, it will have been re-valued since their spouse or civil
partner died.
That
consequential amendment should have been made in the 2004 Act alongside
the equivalent amendment for mainstream state pensions. Unfortunately,
due to an oversight, for which I apologise, it was omitted. The order
amends section 150 of the Social Security Administration Act 1992 and
is required to bring the lump sum payments of graduated retirement
benefit within the scope of the annual uprating order.
As hon. Members know, graduated
retirement benefit was the precursor to the current additional state
pension scheme. The graduated retirement benefit ran from 1961 to 1975,
and people accrued benefit on the basis of earnings-related graduated
contributions. People accrued rights under the scheme, and those rights
have been carried through to the present day. A person may claim their
graduated retirement benefit once they have reached their state pension
age.
I assure the
Committee that the earliest a person could become entitled to a lump
sum payment was 6 April 2006. The first uprating after that
point was effective from 10 April 2006. It is theoretically possible,
although unlikely, that a person who died between 6 April and
9 April was deferring graduated retirement benefit and has a surviving
spouse or civil partner who was not immediately eligible for a lump sum
because they were not getting their state pension. The April 2006
uprating should be applicable to that situation, but due to the lacuna
in the primary powers, the 2006 uprating order could not make the
necessary provision. I reassure the Committee that to date no such case
has come to light, but in the unlikely event of such a case arising,
the 2006 uprating will be applied on an extra-statutory
basis—the maximum amount involved would be no more than
£10.
The
amendment is intended to enable the value of the inheritable lump sum
of graduated retirement benefit to be protected by uprating it on an
annual basis from April 2007. I hope that I have explained the
situation to the Committee’s satisfaction, and I look forward to
the
debate.
2.49
pm
Mr.
Tim Boswell (Daventry) (Con): First, I welcome you, Mr
Jones, to the Chair of this Committee. I have already had occasion to
admire your finesse in getting it safely under way. I also welcome the
Minister, who has given a pellucid explanation of a complex and
slightly regrettable matter which arose from a drafting mistake and,
therefore, ultimately, at least in formal terms, from a ministerial
mistake in the 2004 Act. The order corrects that mistake and restores a
sense of fairness.
I
should also share with the Committee that my hon. Friend the Member for
Eastbourne (Mr. Waterson), who normally leads for us on
pensions, is self-evidently not present today because he has another
commitment, so I have come in his stead. I almost said that I have come
to cast a fresh eye on the matter, but perhaps I should conclude my
opening remarks, and there will not be many beyond my opening remarks,
by declaring an interest. I anticipate reaching my state pension
retirement age in just over 12 months’ time—[Hon.
Members: “Surely not.”] That was entirely the reaction
which I was hoping to elicit from the Committee, but nevertheless, it
is true—it has something to do with genes and my hair, I think.
I have an entitlement to
graduated retirement benefit and will no doubt make whatever decisions
are appropriate at the time in my best interests, as I see
them.
One
of the beneficial things about the 2004 Act, even if we may have other
criticisms of it, is that it widened the choice for individual
claimants. At the time, we warned that there were a number of potential
unintended consequences, which were no doubt inherent in the complexity
of legislation, in the way in which the Government set up their
response, and some of those have come to pass. On the strategic
level—I mention it only to pass on from it—one of the
hopes at that time was that the 2004 Act would encourage defined
benefit schemes or at least maintain them. Nevertheless, the opposite
effect is still evident with the number of closures of schemes to new
members and existing members accelerating. That is a wider issue than
perhaps is appropriate for this afternoon, but we should all record it
with some regret. Consequently, in the Government’s recent
pensions White Paper—I acknowledge that the Government are
trying to move forward in a spirit of consensus, which we want to
facilitate—they indicated that they must revisit some aspects of
the 2004 Act. As is probably true in all social security legislation,
it is unwise to legislate in haste. It would be a very bold Minister
who claimed that he had got it absolutely right technically, because it
is such a complex
area.
It
is clear even to me that one of the more sensible provisions in the
2004 Act was to allow those who defer taking their state retirement
pension to have a lump sum rather than simply an increased weekly
pension. We are all looking at a gradual increase in the state
retirement age. That requires considerable thought about and greater
investment in flexibility in working practices for older workers. As I
have said, that is the sort of area that I might have to look at
myself.
When
the 2004 Act was introduced—I think that the Minister has
confirmed this and that my remarks are congruent with his—the
1992 Act was amended to allow for the uprating of lump sums in relation
to a surviving spouse or civil partner, which would become entitlements
on their reaching pension age. However, as the explanatory memorandum
makes clear, due to an oversight the 2004 Act did not make the
necessary equivalent amendment to the 1992 Act, where the deceased
spouse had deferred
entitlement.
I
understand why a regulatory impact assessment has not been prepared for
this order, which is unlikely to have much impact on the cost to
businesses and so on. That is fair enough. In a separate context, we
are debating the Welfare Reform Bill along the Corridor, where I have
just waxed modestly eloquent on the subject of de minimis provisions
which require any benefits of less than 10p a week to be extinguished
if they are not consolidated with another benefit. How much we should
pursue the small print is an interesting issue. I often admire, because
of the integrity of our administrative system, how we go to great
lengths, to some extent at public expense, to ensure that people get
paid their entitlements even when their entitlements are rather small,
and this is an example of
that.
I am happy to
reiterate my party’s support for the order, which, in an ideal
world, might have been unnecessary. Perhaps an ideal world will come
after the next general election, but we will not pursue that now.
It would be more than churlish not to support the
order, which is clearly necessary, and I am happy to do so on our
behalf.
2.55
pm
Mr.
David Laws (Yeovil) (LD): I, too, welcome you to the
Chair, Mr Jones. I am relieved to discover that I was not one of the
members of the Committee that scrutinised this piece of legislation in
2004. I am not sure whether the hon. Member for Eastbourne was, but no
doubt he has other reasons not to be here
today.
I am grateful
to the Minister for his explanation of the order. I have a couple of
questions about the straightforward account that he gave us. First,
will he say when this particular problem was discovered? Was it
recently or some time after the legislation was passed? And will he
tell us how the mistake came to light? Both points would be useful for
the record and to know whether there are any lessons here for mopping
up similar problems in future.
The Minister indicated that no
case relating to these problems has so far come to light. I believe
that the Department has mechanisms to identify the individuals who have
potentially been affected. Will he say whether the Department is still
searching out these individuals, what the prospects are of finding
them, how quickly he will know whether any individuals are involved and
how many such individuals there may
be?
The Minister
indicated that if the change can be made in the near future, there will
be no larger implications for future years. Will he make it absolutely
clear that we are talking about a maximum loss of £10 and that
as of today, assuming the order is passed, there will be no larger
implications for any other
individuals?
2.57
pm
James
Purnell: I can confirm that this was not discovered by my
sitting late at night reading the 2004 Act and comparing it with the
requirements of the 1992 Act. I will provide the hon. Member for Yeovil
(Mr. Laws) with an answer to that question later in my
response. I want to answer his implied criticism of the hon. Member for
Eastbourne, who sat through the Committee stage of the 2004 Act and
never ceases to remind me that the Government tabled more than 1,000
amendments, so he probably gets a long service award rather than
criticism for his failure to scrutinise this
omission.
In summary,
the order merely seeks to correct an oversight in the 2004 Act by
ensuring that any graduated retirement benefit component of an
inherited lump sum payment can be increased in line with other lump sum
components. It is worth noting that the cohort who benefited from the
graduated pension will not reach retirement until 2021, so they could
be touching their pension 50 years from now. This is an example of how
difficult it can be to amend pensions rules. Obviously, simplifying the
future is easy, but one has to deal with all the inherited rights that
people have.
It is
important for us to work through that issue when we introduce the
pensions Bill, which we hope to do in the next Session. I want to put
on record the Government’s thanks for the constructive way in
which both Opposition parties have approached that particular
issue.
To answer
the specific points, the error was discovered just after the 2006
uprating order when the IT system was being implemented. There is a
mechanism in place to recognise when such cases arise and, as far as we
are aware, there are none in the system, although it is obviously
possible that such cases could arise. We stand able to make
compensating payments through this order, although had any cases
arisen, we could have addressed them through extra-statutory powers.
The maximum loss is as stated, but no one will lose out and we can make
good any payment.
Of course, it is important that
people should get their entitlement, as was made clear by the hon.
Member for Daventry (Mr. Boswell). That is exactly what we
seek to do through the order. I thank the Committee for its scrutiny of
this important
order.
Question put
and agreed
to.
Resolved,
That
the Committee has considered the draft Social Security (Graduated
Retirement Benefit) (Consequential Provisions) Order
2006.
Committee
rose at Three
o’clock.
