Pensions Bill

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The Committee consisted of the following Members:

Chairmen: Mr. Roger Gale, †David Taylor

† Bailey, Mr. Adrian (West Bromwich, West) (Lab/Co-op)

† Banks, Gordon (Ochil and South Perthshire) (Lab)

† Brown, Mr. Russell (Dumfries and Galloway) (Lab)

† Burt, Lorely (Solihull) (LD)

† Creagh, Mary (Wakefield) (Lab)

† Heppell, Mr. John (Vice-Chamberlain of Her Majesty's Household)

Hillier, Meg (Hackney, South and Shoreditch) (Lab/Co-op)

† Keeble, Ms Sally (Northampton, North) (Lab)

† Lancaster, Mr. Mark (North-East Milton Keynes) (Con)

† Laws, Mr. David (Yeovil) (LD)

† Penrose, John (Weston-super-Mare) (Con)

† Plaskitt, Mr. James (Parliamentary Under-Secretary of State for Work and Pensions)

† Pritchard, Mark (The Wrekin) (Con)

† Purnell, James (Minister for Pensions Reform)

† Selous, Andrew (South-West Bedfordshire) (Con)

† Smith, Ms Angela C. (Sheffield, Hillsborough) (Lab)

† Waterson, Mr. Nigel (Eastbourne) (Con)

Alan Sandall, Committee Clerk

† attended the Committee

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Public Bill Committee

Thursday 25 January 2007

(Morning)

[David Taylor in the Chair]

Pensions Bill

Written evidence to be reported to the House for publication

PEN 1 AEGON UK

9.10 am

Mr. Nigel Waterson (Eastbourne) (Con): On a point of order, Mr. Taylor. Today is a very important day in the pensions universe. This morning, the European Court of Justice is handing down its judgment in a case brought by Amicus on behalf of former members of the Allied Steel and Wire pension fund. That is massively important, first, for the 125,000 people who have lost their pensions, secondly, because of the estimated £6 billion compensation bill that the Government might be ordered to pay and, thirdly, because the Pension Protection Fund might have to increase its levies on industry by 500 per cent. Has the Minister indicated to you whether he intends to let us have copies of the judgment or to make a statementon it?

The Chairman: That is not a matter for the Chair or for the Committee at this stage.

Clause 5

Up-rating of basic pension etc. and standard minimum guarantee by reference to earnings

Ms Sally Keeble (Northampton, North) (Lab): I beg to move amendment No. 69, in page 5, line 24, at end insert—

‘(aa) the amounts of the additional pension that different persons are entitled to receive;’.

This is a probing amendment to find out the Government’s thinking not only on this matter, but on how the total pension package will look over time. The amendment would include the state second pension in the general index-linking to earnings of the state pension.

Clause 5 has been profoundly welcomed. It is seen as righting a wrong done by the previous Conservative Government by ensuring that the value of the basic state pension keeps pace with the increase in earnings. However, the one thing that seems to be missing from the list of items covered is the state second pension, so the amendment would add it to the list. The state second pension will be index-linked to earnings and accruals and will keep pace with the rises in them as people pay in during their working lives. However, in terms of paying out, it is not listed as one of the items that will be linked with the rise in the level of earnings.

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I should make a couple of points about that. First, I hope that the state second pension will be a substantial part of people’s income during retirement and I have recently tabled several questions to find out how many people receive it. I have not heard people talking about it much in my constituency, but it is obviously relatively new and its impact has perhaps not been fully felt. When it first came in, it was dubbed the carers pension because it would particularly help people with lower earnings and interrupted work patterns.

I believe, in fact, that the level of state second pension will be quite substantial. My hon. Friend the Minister will correct me if I am wrong, but I think that it will be about 40 per cent. of people’s income in retirement, where they get both the basic state pension and the state second pension. For an awful lot of other people, the real issue may be what is in their personal accounts, occupational pensions and other pension schemes. However, for those on lower earnings who get the carers credit, the state second pension will be a really big component of their income after retirement

The other point that I want to stress to the Minister is that women are particularly interested in the state second pension, and it is important that their income in retirement is maintained. Of course, women live longer than men, so it is even more important that a pension that is designed for women should retain its value over a longer period. As we have seen with the erosion of the value of the state pension, if a pension is not linked to the rise in earnings, over the longer time that women live during retirement, it will actually lose value. In addition, the effect of a lack of index linking would, for women, be more substantial.

The total package in the Bill is extremely goodand the difference made to the income of women pensioners will be important. However, it is also important, not just that women retire on a decent income in their own right, but that they continue to have that during retirement. Many women do not have access to personal accounts, but we also know from the work of the Turner commission that women do not have the same access to occupational pensions. Therefore, the kind of package that is in the Bill will be particularly important for them and the state second pension will be a vital part of their retirement package. Will the Minister set out what the thinking is on that issue? First, why was the decision taken not to add additional pensions—the state second pension—to the list in clause 5? Also will he set out what he expects the pattern of women’s income during retirement to be and how their package will be made up?

When talking to women in my constituency, I am struck that it is not simply a matter of saying, “You have had your income and that’s it,” or “You have your occupational pension.” While they are working, women receive a package of income made up of different things and in retirement they have a package of retirement income made up of different bits of pension and benefits. How is it envisaged that that package will be made up and, as the value of the state second pension goes down, what will be brought in to get that income up again? It is generally accepted that costs increase as people get older because they need more fuel and they do not have mobility. As this is a probing amendment to find out how the Bill will work in practical terms, could the Minster say whether

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the Government will monitor the gender issues surrounding the state second pension? Also, over time, will they look at the impact of not having the same index linking for the state second pension as for the basic state pension and, in particular, would they consider a gender impact assessment on that issue?

The progress made for women pensioners has been astounding. I know that the Opposition do not like the pension credit, but it has been incredibly important for women to maintain their income during retirement. The carers credit and the state second pension have also been important additions and the carers credit that is set out in the Bill will transform the situation for many women. The arrangement in the Bill will last decades, and as we move forward it is important that we do not see an erosion of what should be a good and secure package for women pensioners.

Mr. Waterson: I am grateful to the hon. Member for Northampton, North for tabling and moving this amendment. I am equally pleased that she confirmed that it is a probing amendment. She made some interesting points, particularly about the effects of the Bill on women, and I am sure that her comments were right. I do not want to steal the Minister’s thunder, but I suspect that the answer to her fundamental question is that it would cost too much. However, I am particularly keen to hear what he has to say about the cost of going down that road.

May I correct one small thing? The hon. Lady said that the Conservative party does not like pension credit. It is important to put on the record that we would not have introduced it, but have no intention of scrapping it. However, we want fewer pensioners subject to it as time goes on. As she well knows—she follows such things closely—about 1.5 million pensioners do not claim pension credit who are entitled to do so. I hope that that is clear.

There is a real issue here: the state second pension is an important lifeline for many people and can makeall the difference to their standard of living during retirement. There is a double whammy because not only are the Government not proposing to uprate the S2P with earnings, as the hon. Lady’s amendment points out, but they are going to flat-rate it, which will particularly affect medium and higher earnings. We will debate that at greater length later, hence I have kept my remarks rather short. She is approaching that from a different direction, but it is important that we hear from the Minister the Government’s justification for leaving out the additional pension from this important uprating move.

Mr. David Laws (Yeovil) (LD): I welcome you back to the Chair, Mr. Taylor, for today’s debate on clause 5, which I think is probably the most exciting part of the Bill—if excitement is the right word to use. The hon. Member for Northampton, North has got us off to an interesting start by raising some important points about how the state second pension will be uprated in the future and what the implications will be.

Obviously, my party would prefer a better universal state pension at a higher level earnings link. We have not, therefore, put down a probing amendment like that of the hon. Lady. However, she has raised an

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important point that deserves discussion and a response from the Minister. Her point is that we will still have a very low basic state pension compared with other major developed countries and will be flat-rating the state second pension. At some stage there mightbe an aspiration to bring the two together. In the meantime, we are moving away, philosophically, from the idea that the state should provide a second pension related to earnings and towards the assumption that people will have personal accounts and be encouraged to save.

The Minister for Pensions Reform (James Purnell): I am very interested in what the hon. Gentleman is saying. Will he clarify something? His party’s policy is to abolish the state second pension. Through the state second pension, millions of people receive about £135 a week, which is more than the guaranteed pension credit of £115 a week. So would his party reduce the amount that those people receive to £115 a week? If not, how is his party’s package affordable?

Mr. Laws: The Minister knows very well that there are many ways in which to implement a citizen’s pension, including those put forward by the National Association of Pension Funds and the Pensions Policy Institute, that do not involve the type of losses about which he is concerned. However, there is a legitimate concern, which the hon. Member for Northampton, North raised, that many vulnerable pensioners such as women who might not have a full work history, whom the Government might once have intended should rely on a state second pension, will not be able to do so on one that is earnings uprated. Further problems might arise as a consequence of the extent of means-testing in personal accounts. So she has raised legitimate concerns about whether the pensions architecture that we are putting in place, without the earnings link to the state second pension, will serve those vulnerable groups. This preliminary debate has, therefore, been useful.

James Purnell: It is a pleasure to serve under your chairmanship again, Mr. Taylor. I am grateful to my hon. Friend the Member for Northampton, North for tabling the amendment, because it allows us to have what is an important debate about the state second pension and our uprating proposals. It has also flushed out a couple of interesting points about Opposition policy.

On the Liberal Democrat policy on a state second pension, I notice that the hon. Member for Yeovil ducked the question again, but he will not be able to duck it for ever, because I think that about half of pensioners receive more than £115 from the pension system. They may receive that through premiums on pension credit for being disabled or being carers. The hon. Gentleman is not saying whether he would abolish those. Those pensioners also receive more through the state second pension. Would the hon. Gentleman set the citizen’s pension at a level that was higher than what all those people get—at perhaps £170 or £180 a week? Just going to £115 for everyone would mean£5 on income tax, so if the hon. Gentleman proposes a citizen’s pension that involves no losers at all, there would need to be a significant hike in public spending. I suspect that he does not propose that, so he would have to take some money off some people.

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We look forward to him telling us how he will explain to the millions of pensioners who receive£130 or £135 a week from their combination of basic state pension and state second pension which premiums he would abolish on pension credit. We have asked him that question a number of times, but he has failed to answer it, and as long as he does not answer it, we will assume that he would take money away from people.

Andrew Selous (South-West Bedfordshire) (Con): The Minister said that the proposal would mean an extra £5 on income tax. Did he mean an extra 5 per cent. on income tax?

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Prepared 26 January 2007