Clause
3
Additional
pension: upper accrual point to replace upper earnings limit from
2009-10
Justine
Greening (Putney) (Con): I beg to move amendment No. 9, in
clause 3, page 2, line 29, at
end add—
‘(5) Subject to
subsection (6) below, this section shall not have effect between the
dates 1st April 2012 and 31st March
2015.
(6) The Secretary of
State may, before 1st April 2012 and in each subsequent year until 31st
March 2014, apply the provisions of this section for a period not
exceeding one year, by order made by statutory
instrument.
(7) No order may be
made by the Secretary of State under subsection (6) unless a draft of
it has been laid before Parliament and approved by a resolution of each
House.’.
The
Chairman:
With this it will be convenient to discuss
amendment No. 10, in
clause 3, page 2, line 29, at
end add—
‘(5) This section
shall cease to have effect on 1st April 2012 unless, before that date,
both Houses of Parliament have by resolution approved an order laid
before them by the Secretary of State under section 150A of the Social
Security Contributions and Benefits Act 1992 (annual up-rating of basic
pension etc. and standard minimum
guarantee).’.
Justine
Greening:
The amendments relate to the discussion that we
had, not so much in the evidence session today, but on Second Reading
before Christmas. One of the major points that was discussed
was that the Bill is part of an overall package of pension reform. It is
a key component of a pension reform that achieved cross-party
consensus. We raised our concern that in the Budget and pre-Budget
report, which signalled the Government’s desire to bring forward
the beginning of flat-rating of the state second pension, there seemed
to be movement from the original pension reform package that we had
agreed. That package came out of the Turner commission report and out
of a desire, as the Government said, to try to simplify the national
insurance and income tax system. We supported the pension reform
package. At the time, although we had concerns about taking away the
link between the extra additional earnings contributions people paid
and what they then got back in the state second pension, we recognised
that the pension package was a question of give and take and of what we
wanted to achieve overall. Our concerns related to the fact that this
was the “take” part of that package, and there was a big
question mark over the “give” part, which was the
re-establishment of the earnings link.
These amendments try to tease out
from the Government whether we can make progress on getting some
certainty about re-establishing that link. On Second Reading, Members
raised concerns about the lack of certainty as to when that will
happen. We discussed the fact that the impact assessment provided by
Her Majesty’s Revenue and Customs identified 2.1 million people,
who would have been paying income tax above the upper earnings limit
and who would have been contracted out of the state second pension.
Those individuals
“would
either see a reduction in their take-home pay as they will get a lower
rebate on their national insurance contributions than would otherwise
have been the case or a reduction of the money that goes into their
pension scheme”
There are
clearly many people—2.1 million, to be precise—who are
assessed as losing from these changes. We must know that the gains are
going to happen, and when. The timing of that link was critical, and I
am concerned that we have not had much certainty from
the Government about whether they view
re-establishing the earnings links as being affordable, or when
that will happen.
Based on the evidence session
today, my greater concern is that, at the time that the alignment of
the upper earnings limit and the upper accruals point took place in the
Budget 2007, there was not at all a clear understanding as to what
impact this would have on people. Not only were options still being
discussed as to how to deliver on this 2030 time frame for achieving
the flat-rate state second pension, there was apparently no costing of
the options because they clearly had not been worked up at the time. It
seems the Treasury waded into this national insurance change without a
good enough understanding of the breadth and nature of the impact it
would have, particularly given that many of the people affected will be
the very same people whom the Institute for Fiscal Studies has
identified as losers from the Budget 2007.
These amendments are therefore
all the more important in trying to bring some certainty to the process
of delivering the pension reform package. Before I talk about the
amendments themselves, can I ask the Minister to talk about the 2030
time frame
when she responds, and why that particular date is so important? One of
the other ways of achieving flat-rating would have been to make the
changes that were made at the Budget, but then to allow the flat-rating
to continue as planned, aligned with the re-establishment of the
earnings link, and then have that flat-rating achieved at a slightly
later date than 2030-31. Many Conservative Members would like to
understand a little better why that 2030 time frame is so important
that we have to create even more losers than we would have done if the
Government had taken no
action. 5.30
pm
On Second
Reading we were only given limited assurances by the Minister about
when the earnings link for the basic state pension would be
re-established. During my time serving on the Select Committee on Work
and Pensions, the Secretary of State gave us, in the evidence session,
what was I think his annual departmental review. I pressed him on when
he would be able to re-establish the earnings link and he used a phrase
that has been much talked about, that essentially the earnings link
would be re-established at 2012, or at any event by the end of that
Parliament, subject to affordability. I spent what felt like a long 15
minutes trying to get the Secretary of State to say whether he felt
that the affordability aspect of re-establishing the earnings link took
precedence over the 2012 time frame that was clearly the
aspiration—if I can call it that—of the Government. I
also asked him whether, if re-establishing the earnings link in 2012
was viewed as unaffordable given the length of economic cycles, he
thought that perhaps by 2015 the economic cycle and economic situation
would have turned around so much that re-establishing the link would
suddenly become affordable in a long-term
sense.
I
did not make any progress—if anything, the message I got was
that affordability was critical. That is why it is of particular
concern now, given that the Government are obviously concerned about
inflationary effects to the extent that police officers and prison
officers have had their review board pay rises turned down or not
accepted. Perversely, the Secretary of State for Children, Schools and
Families has today accepted the pay review board outcome for teachers.
Conversely, only last week in Parliament the Secretary of State for
Justice said that he had not accepted the report of the prison
officers’ pay review body because of the “exceptional
economic
circumstances”.
It
is very important therefore for the Minister to talk about what her
assessment is, from a Treasury perspective, of the affordability test
that the Government have set themselves for re-establishing the
earnings link. Because of that uncertainty, the amendments are trying
to provide some certainty. If the earnings link is not re-established
and we continue with the debate, we should not allow the Bill to mean
that all that is being delivered for people in this country is
giving—paying more national insurance contributions but not
getting anything in
return.
There are two
alternatives. Amendment No. 9 essentially leads to an annual
reassessment of the Bill, to give the House a chance to understand
whether the re-establishment of the earnings link is on the
Government’s agenda and will happen, or whether
there is simply continued rhetoric with no delivery. That would mean
that in the time frame in which the Government has said that it will
look to re-establish the earnings link—mooted as 2012 to around
2015—we would annually have to reaffirm the impact of that part
of the Bill. In terms of delivering the overall pension reform package,
that would provide a safeguard for those people who are paying
more—that they would not be paying more to get nothing in
return. Amendment No.
10 is harsher in many respects. It says that there is a time frame of
2012. Unless at that point resolutions have been put before the House,
clearly guaranteeing when the earnings link will be re-established, the
Bill would, by definition, have to lapse. The consensus would have been
broken and the decoupling of the changes to national insurance and to
the basic state pension would have been done to such an extent that the
pension reform that we all agreed would not have been delivered. I hope
that the Financial Secretary can use the opportunity to give us more
assurances about the Government’s thinking on when they see the
earnings link being restored. The amendments are designed to tease out
how confident the Government are that they can deliver on the words
that we have listened to in the House about re-establishing that
earnings link.
Rob
Marris:
I welcome you, Mr. Chope, to the Chair.
This is my first speech to the Committee and I do not know if I have to
declare an interest as an earning member of the public who will be
affected by the changes proposed by the Bill—earning only as an
MP and not moonlighting like many Conservative
MPs.
Mr.
Field:
By 2012, moonlighting will be all that the hon.
Gentleman will be
doing.
Rob
Marris:
Though perhaps not as financially successful as
the hon. Gentleman, like him, I was earning more before I came than I
am now, but I do not seek to boost my reduced earnings by moonlighting.
On the more substantive point, I thank the hon. Member for Putney for
making something exceedingly clear to me. Hon. Members on this side of
the House have long thought that affordability for the state bears no
relationship whatsoever to Conservative spending plans and does not
enter the equation. It does with this Government and we are absolutely
right to bear it in mind with whatever measures we propose to improve
our society even further than we have in the past eleven and a half
years.
Mr.
Philip Dunne (Ludlow) (Con): I rise to support the
amendments, because I felt that the evidence given by the Financial
Secretary and her officials at the interesting pre-legislative session
did not cast any further light on the Government’s willingness
to commit themselves to any form of timetable for restoring the
earnings link. The amendments are designed to tease that out, and I
hope that the Financial Secretary will address herself to that point in
her remarks. My near neighbour, the hon. Member for Wolverhampton,
South-West, is being a little harsh on the Opposition in his assault on
our willingness to accept fiscal rectitude and spending diligence. It
is correct that we have been calling for the Government to
restore the earnings link and to come up with a definitive timetable for
doing so. That is, frankly, all we are trying to do in this debate in
relation to these amendments. I look forward to what the Minister has
to
say.
Jane
Kennedy:
I wonder which party disconnected the link in the
first place.
This has
been a useful debate and I will address my remarks to the amendments. I
am conscious that we may be interrupted, but I will try and deal with
the amendments as succinctly as I can. The hon. Member for Putney made
her case in a well argued and reasonable way. She asked why withdrawing
the earnings-related state second pension by 2030 is so
crucial—why that date? It is quite straight forward. The date
2030 was recommended by the Pensions Commission in order to give
defined benefit schemes time to adjust to the withdrawal of
contracted-out rebates. It is part of a costed package of measures. If
we extended past 2030, we would need to revisit the cost. It is also
needed to provide certainty to savers about what their pension position
would be.
Justine
Greening:
I am grateful to the Financial Secretary for
letting me intervene so early. She is cherry-picking a little; that
same Pensions Commission actually suggested re-establishing the
earnings link in 2009-10 and by 2012 at the
latest.
Jane
Kennedy:
I will come to that point shortly when I talk
about the earnings link. I shall deal first with amendment No. 9, which
is concerned only with 2012 and beyond. I am a little confused: it is
bit strange that hon. Members seem to be agreeing with me about the
early introduction of the upper accrual point from 2009, which will
allow us to keep to the timetable for state second pension flat-rating,
but they now seem to be opposing the consensus achieved during the
passage of the Pensions Bill last year by scuppering that same
timetable when we get to 2012. I am not going to make a big issue about
the consensus as I appreciate that, in the context of this Bill, we are
actually debating the matter in a very good humoured way. I am not
going to make big accusations about where people stand on the
consensus. However, the amendment requires the upper accrual point of
£770, as set out in the Bill, to cease to have effect between
April 2012 and March 2015. What it does not do is to give any hint
whatever about what is to happen after that date. Importantly, the
amendment introduces uncertainty for many employers, who need to know
in advance what the upper accruals point will be and who cannot wait
for the matter to be settled by long and unnecessary debates—if
you will forgive me, Mr. Chope—as I believe would be
in this case, in the House.
However, the amendment as
drafted is also fundamentally flawed. The effect of preventing clause 3
from operating in this way would mean reverting to the position as set
out in the Pensions Act 2007. The Committee will recall that that Act
gave us the power to set the upper accrual point from the flat-rating
introduction year at the rate of the previous years’ upper
earnings limit, or any other amount so determined.
Before I turn to amendment No.
10, I want to deal with the point made by the hon. Lady about creating
more losers. We touched upon that this morning, but I want to get it
into the record at this point of the discussion. It is important to
remember that the impact assessment to which she referred looked only
at the national insurance changes in the Budget 2007. Most employees
earning at the upper earnings limit, or above, will be better off using
the 2008-09 tax year, and I gave a detailed example of that this
morning.
I turn to
amendment No. 10, dealing with the earnings link. An unintended
consequence of removing the cap on state second pension accruals would
be that all earnings above the lower earnings limit would count for
state second pension purposes. That would also have a knock-on effect
on contracted-out rebates, which are paid on the same band of earnings
as that on which state second pension accrues: that is, the rebate will
be paid on all earnings over the lower earnings limit. The purpose of
amendment No. 10, and in part amendment No. 9, as we have accepted, is
to bring about a discussion on the timing of the up-rating of the basic
state pension with earnings. I am delighted to cross swords with the
Opposition on that. During the next Parliament, we will link the
up-rating of the basic state pension with average earnings over the
long term. Our objective is to do that in 2012, but in any event, we
are required by the Pensions Act 2007 to do it by the end of that
Parliament at the latest.
Justine
Greening:
I have a sense of dÃ(c)jà vu because
I remember asking this question to the Secretary of State for Work and
Pensions. What the Minister is saying is that if there is an assessment
in 2012 that re-establishing the earnings link is unaffordable, and
that assessment persists to the end of that Parliament, a possibly
outgoing Administration would re-establish the earnings link, knowing
full well that it was unaffordable for the country, and that that
commitment to re-establish at any event takes precedence to
affordability. Which is the most important driver: is it affordability,
or is it this commitment at any event by the end of the Parliament to
re-establish the earnings
link?
Jane
Kennedy:
We made clear that our commitment is subject to
affordability and the fiscal position. However, we in this party are in
a better position to look forward and say that, given the way that we
have had success in managing the economy to date, we believe that we
can introduce the earnings link in the next Parliament. Our proposals
give people a legislative guarantee that that will happen and they have
been costed on that basis. We do not make spending commitments such as
this, certainly not Treasury
Ministers—
Mr.
Field:
The Minister is talking to the lot behind her in
regard to that, rather than to those on this side of the Committee.
Does she not accept that she has used the word
“guarantee”? This is anything but a guarantee. There is
uncertainty in the system, not least because we do not have fixed-term
Parliaments and have no idea whether 2012 will be at the end of a
Parliament or at the start of one that might lead all the way through
to 1217, at which point the affordability trigger comes into place. She
used the word guarantee,
but this is anything but a guarantee. There is a great deal of
uncertainty, and the amendments tabled by my hon. Friend the Member for
Putney tried to add a level of certainty to that uncertain
picture.
5.45
pm
Jane
Kennedy:
We have already committed to make an announcement
at the beginning of the next Parliament, specifying well in advance of
2012 the date for introducing the earnings link for the basic state
pension. We basically have a straightforward disagreement here. We
believe that we will clearly be in a position to take forward the
re-establishment of that link.
Mr.
Browne:
The Minister keeps talking about the next
Parliament, but we do not know whether there will be a general election
this year, followed by a subsequent election in 2012. It might be that
2012 is arrived at not in the next Parliament, but in the one after
that.
Jane
Kennedy:
I remember an enjoyable by-election campaign in
Eddisbury in Cheshire, which the current hon. Member for Eddisbury of
course won. Our campaign, however, was based on a creative slogan,
“Vote Labour or the fox gets it.” I distinctly remember
the debate, which was a flagging up of our commitment to a totally
separate issue, which I do not intend to debate today. I mentioned it
because, given the degree of concern that the Opposition clearly have
about whether their policies would allow them the affordable
environment within which to re-establish the link, we could well
approach the next general election with a clear campaign.
We are
committed to doing that and have demonstrated our ability to deliver an
economic environment within which it would be possible to do it. As far
as the Conservative party is concerned, all we have is the fact that it
was that party that decoupled it in the first place. I would be keen to
let the British people make their choice about that issue, based upon
the history.
As the
Committee knows, our first priority has always been to tackle pensioner
poverty. As a result, more than 2 million pensioners have been lifted
out of absolute poverty and more than 1 million have been lifted out of
relative poverty. Over the past 10 years, we have increased the amount
of money received by pensioners faster than earnings have increased
year on
year.
The
Chairman:
Order. I hesitate to interrupt, but does that
strictly relate to the terms of the
amendment?
Jane
Kennedy:
You are absolutely right, and thank you for that
guidance, Mr. Chope. With regard to the amendment, we have
already put into legislation, as I have said repeatedly, the commitment
to up-rate the pension credits standard minimum guarantee in line with
earnings. Earnings up-rating is part of a package of complementary
reforms that balance affordability with fairness, and that includes the
abolition of contracting out on a defined, contribution basis and
simplifying the state second pension. Trying to unpick the timing of
this element with those reforms fundamentally changes that
package.
We are bringing forward the
introduction of the upper approval point only to keep us within the
pension reform timetable. I accept that we have had a rousing debate on
our commitment to restoring the link, but other issues have been in
there as well. I hope that this has been helpful and that my hon.
Member for Putney will not press the amendment to a
vote.
Justine
Greening:
I am grateful to the Minister for running
through her arguments, particularly those relating to
the 2030 time frame, which I found especially helpful. I feel that, in
picking out that date, she has cherry-picked from the Turner
commission’s proposals with regard to time frames for when
particular things should happen. As I said in my intervention, the
Turner commission proposed re-establishing the earnings link much
sooner than will possibly happen.
I feel that we have not made
any progress on understanding the certainty with which we know the
earning link will be re-established and am disappointed by that. I
clearly understand the Minister’s argument. The phrase about
re-establishing the earnings link by the beginning of 2012, but in any
event before the end of the next Parliament, subject to affordability,
is intellectually inconsistent, for the reasons that I have laid out.
Something that is not affordable in 2012 may well not be affordable in
2015, so putting that in place may be irresponsible for a Government
that may be calling an election
shortly.
Jane
Kennedy:
To deal with the issue now—it is about the
delay to implementation, which is what the hon. Lady is talking about.
The Pensions Commission’s judgment was that a short delay beyond
2010 would not seriously undermine the overall direction of the
proposed reform, although a five-year delay probably would. Should her
amendment not be considered in that
light?
Justine
Greening:
I take the Minister’s point, but a
five-year delay for Turner would take us up to 2015, which is one of
the dates when the earnings link could possibly be re-established. I
remember that at the time the delay was flagged up by many people,
inside and outside this place, as one of the possible problems with the
pensions reform—that it was not happening fast enough. I am
still not clear on the affordability test and how important that is
vis-Ã -vis the term used of a “guarantee” for the
earnings link.
I am
not going to press the amendments to a vote, because I am sure that the
debate about re-establishing the earnings link and when it will take
place will continue in this place and in the other place. My objective
with the amendments was to see if we could get any more certainty. We
have not managed that, but I beg to ask leave to withdraw the
amendment.
Amendment,
by leave,
withdrawn.
Question
proposed, That the clause stand part of the
Bill.
Rob
Marris:
We have all grasped the broad direction of the
Bill. If the changes proposed were not made, some people, because of
the accumulating effect, would get higher rebates as the thresholds
went up. That would benefit the wealthy in society, who would be
getting those higher rebates from opting out of the state second
pension. Alternatively, if not opted out, they could be getting a state
second pension based on a greater amount of earnings than
intended.
My question
to my right hon. Friend bears in mind not only her current position but
her previous one as a Minister for Northern Ireland. Another
distinguished Member, my right hon. Friend the Member for Streatham,
was also a Minister for Northern Ireland and is with us today. My
understanding is that clause 3 and the schedules consequent upon it do
not apply to Northern Ireland. That is in contradistinction to
Scotland, where national insurance contributions are reserved
matters—similarly in Wales. In Northern Ireland, under the
Northern Ireland Act 1998, they are in a different category. Therefore,
such issues fall to be dealt with by the Department for Social
Development in Northern Ireland—I stand to be corrected, but I
think that the Minister is Margaret Ritchie. What discussions have my
right hon. Friend or her officials had with the people in Northern
Ireland, including the Minister for Social Development, as to whether
they propose, within that jurisdiction under the devolved powers, to
bring in an upper accrual point similar to the one that will certainly
be introduced for England under the
Bill?
If
they do not do so—they have power not to, as I understand
it—we could have in the United Kingdom individuals who are
higher rate taxpayers getting more rebates in Northern Ireland for
opting out of the state second pension and/or a higher state second
pension in due course. In Northern Ireland we could have no flat
rating, as we call it, until 2035, rather than 2031, which would be the
import of the Bill in England were the changes to go through. I
foresee, perhaps wrongly, that we might have all kinds of complications
for people who work in England and then get a job in Northern Ireland
and start paying or opting out or whatever at different levels and so
on, or somebody who works in England for a lot of their life and then
retires to Northern Ireland, perhaps because of family connections,
with a different state second pension regime. I would like to know from
my right hon. Friend what kind of liaison there has been with Northern
Ireland because we could get into a situation where, perhaps without
having thought a great deal about it, we would have two-tier provision
within the UK. That seems to me, with regard to pensions, a somewhat
surprising position to be in, with the full jurisdiction that we have
within our country.
Jane
Kennedy:
I do not intend to go into too much detail on the
clause, but the question that my hon. Friend asked is a useful one. He
is right that the upper accrual point relates to the state second
pension, which is a transferred matter under the Northern Ireland Act
1998. It is therefore a matter on which the Northern
Ireland Assembly can legislate. Although Northern
Ireland has a separate body of social security law, it operates in
parity with the rest of the UK. It is anticipated that provision to
introduce an upper accrual point for Northern Ireland will be made by
the Northern Ireland Assembly.
My hon.
Friend asked me specifically what liaison there has been with the
authorities in Northern Ireland. Obviously, officials in HMRC and the
Department for Social Development in Northern Ireland have discussed
the matter in detail, including in the autumn, but I am hoping to pay a
visit to Northern Ireland to discuss one or two issues relating to
HMRC. I have not had an opportunity to discuss the matter with Members
in Northern Ireland, but it may be that if I can arrange a date for
that visit, I will do so as a result of his prompting today, for which
I am grateful.
Question put and agreed
to.
Clause 3
ordered to stand part of the
Bill.
Clauses
4
to
7 ordered to stand part of the
Bill.
Schedules
1 and 2 agreed
to.
Question
proposed, That the Chairman do report the Bill to the
House.
Jane
Kennedy:
May I quickly say thank you for chairing this
short Bill, Mr. Chope? I thank all hon. Members and right
hon. Members who participated for their scrutiny and the humorous way
in which the debate has been held.
Mr.
Ian Davidson (Glasgow, South-West)(Lab/Co-op):
Before the Minister stops, will she tell us what
actually happened to the
fox?
Jane
Kennedy:
I am afraid that the other party
won.
Mr.
Gauke:
I think that that was the second by-election that
my party had won in about 15 years, so perhaps it was not the best
slogan. I thank you, Mr. Chope, and the Clerks for your
guidance today. I thank the Minister for her openness and co-operation.
The Committee has been conducted with good humour and we have been able
to draw out one or two interesting points. I hope that it will be
informative for those who study these issues
closely.
The
Chairman:
I am sure that those kind remarks will be much
appreciated. I thank members of the Committee for their co-operation
and the Hansard writers, who had quite a difficult problem this
morning. I also thank the police, the messengers and everybody else who
was involved in ensuring that this Bill, the first that I have chaired
from start to finish, made progress.
Question put and
agreed to.
Bill
to be reported, without
amendment.
Committee
rose at one minute to Six
o’clock.
| 
