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Standing Committee Debates

Draft Social Security (Graduated Retirement Benefit) (Consequential Provisions) Order 2006

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.
That the Committee has considered the draft Social Security (Graduated Retirement Benefit) (Consequential Provisions) Order 2006.
Committee rose at Three o’clock.

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