Another question that the Minister has to answer is whether the Government, in looking for the savings they plan to make by going down this road, have put into the mix the additional costs that might arise in relation to some of these women, some of whom will not be able to work and might claim benefits. Some might claim jobseeker’s allowance for a period and
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others might claim employment and support allowance if they are in ill health, although some of them will find that those benefits are cut off very quickly in certain circumstances because of other Government proposals. They will then be thrown back to spending any savings they may have made towards retirement.
A woman in her 50s or early 60s who finds herself in that position may not be able to claim benefit for very long. If she has a partner or has savings of any sort she will not be eligible for the means-tested benefits that come in after six months in the case of JSA and that, under Government proposals, will be lost after a year even for people who are unfit to work and are in a work-related activity group. They will find themselves eating up—literally in some cases—their savings to make it through to their postponed retirement date. Of course, at that stage, those women will no doubt have to claim additional top-ups to help their financial situation. I would like to be satisfied that the Government have taken those costs into account. The women themselves will have to meet extra costs, and so will the Government. The proposal is ill-thought-out and there has been a lot of time to rethink it. Like all the women who have been campaigning on this, I am extremely disappointed that the Government are not prepared to support our amendment tonight.
7.15 pm
Yasmin Qureshi (Bolton South East) (Lab): This is an incredibly important stage of the Bill, about which I have received hundreds of e-mails. I am sure that Members of the House from across the political divide have received e-mails specifically concerning women aged 58 and 56. We have had a number of discussions about this matter, including a Westminster Hall debate at which the Minister was present.
I know that I may sound very boring if I repeat again the concerns of those women and of Opposition Members about why this particular provision should not go through. Everyone accepts that the state pension age needs to rise in order to pay for a more generous basic state pension. This principle underpinned Labour’s Pensions Act 2007, which continued the 1995 timetable for equalising women’s state pension age with men’s by increasing it to 65 by 2020, and then legislated to increase both SPAs to 66 by 2027, to 67 by 2036 and to 68 by 2046. That was agreed and there was cross-party consensus on that.
The coalition agreement stated:
“The parties agree to....hold a review to set the date at which the state pension age starts to rise to 66, although it will not be sooner than 2016 for man and 2020 for women.”
However, the Bill proposes an acceleration in the equalisation for women by 2018 and increases both men’s and women’s state pension age to 66 by 2020. This will hit women aged between 56 and 58 particularly hard, as they will have very little time to prepare or amend their existing plans. As has been pointed out by my colleagues countless times, those women have worked very hard in their lives but often for not very high pay, so they will not be getting very generous pensions in any event, yet they are going to be hit even harder.
The proposal will affect 4.9 million people—2.6 million women and 2.3 million men. Some 500,000 women born between 6 October 1953 and 5 March 1955 will have their state pension age delayed by more than
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a year, and 300,000 women born between 6 December 1953 and 5 April 1954 will have theirs delayed by 18 months exactly. For the 300,000 women facing an 18-month delay, the loss of income will be around £7,500; for those in receipt of pension credit, the figure will be closer to £11,000. That sudden and dramatic change in women’s expectations regarding their state pension age and retirement income comes with just five to seven years’ notice, which simply is not long enough for them to make adequate alternative arrangements in their retirement planning.
Women are already at a disadvantage in terms of pension provision. The median pension saving of a 56-year-old woman is just £9,100, whereas the equivalent figure for men is £52,800—almost 600% higher. It is not fair to speed up the equalisation timetable because it will hurt women disproportionately, especially those aged between 56 and 58. I know that we hear about the financial constraints, but if the Government can find £3 billion for the completely unnecessary reorganisation of the national health service, which nobody wants—we have not heard any practitioners in the medical field say that those provisions are right—are they really saying that they cannot find a bit of money for women who have worked hard for so long in their lives? The proposal is measly penny-pinching. The Government are hurting the people who are already the poorest in our society and hitting them even harder. If money can be found for the wasteful reorganisation of the NHS, I am sure money can be found for the provision to be deleted.
I urge the Minister to reconsider this aspect of the Bill and think about those women, who have worked hard all their lives. He should think for once about ordinary working people who are looking forward to some kind of pension, although they will retire later than they thought they would, and he should give them time to prepare for their pensions.
Steve Webb: It is a pleasure to support Government amendments 13 and 14 and to ask the House to reject amendment 1.
I welcome the hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East (Gregg McClymont) to his new role. With due deference to the good people of Kilsyth and Kirkintilloch East, I hope he will forgive me if henceforth I refer to him as the hon. Member for Cumbernauld—I hope they will not take offence at that. As he knows, his predecessor, the hon. Member for Leeds West (Rachel Reeves), to whom he referred in his speech, enjoyed a meteoric rise by shadowing me for 18 months. I hope to do the same for his career.
Before I move on to the amendments, I want to place on record my appreciation of one of the Department’s officials, Evelyn Arnold, who has worked for the Department for 36 years. I know that the right hon. Member for East Ham (Stephen Timms) will have enjoyed working alongside her as well. She is stepping down from a legendary career. It is not often that we pay tribute on the record to the officials who make us sound far better informed than we otherwise would, so I would like to do that formally today.
We have heard £1 billion described today as “window dressing”, “a bit of money” and “penny pinching”. That summarises the difference between opposition and
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government. It reminds us how we came to find ourselves borrowing £150 billion a year when £11 billion, which is the cost of amendment 1, is regarded as small change and not worth worrying too much about. When pressed about where the £11 billion would come from, the Opposition said, in effect, “We’ll find it at some point,” but there was no specific answer.
It was revealing that the hon. Member for Edinburgh East (Sheila Gilmore) said, “We keep being asked this question.” They keep being asked the question because they keep making unfunded promises. My right hon. Friend the Chancellor pointed out that last week’s Opposition amendment cost £20 billion. Today’s would cost another £11 billion and, as the man once said, “Soon you’re talking about serious money.”
The Government amendments are, as the Chair of the Select Committee graciously said, a huge achievement, which is to say that at a time when the public finances are, if anything—because of the global economic situation—under even more pressure than they were at the time of Second Reading back in June, to identify £1 billion is an important sign of the Government’s commitment to fairness in pension reform.
Sheila Gilmore: The Minister wants to make a great deal, and some of his supporters made a great deal, of having extracted that sum from the Treasury, but is he not again mistaking the position? He starts talking about the fact that we are apparently in a very difficult situation, worse than a year ago, and then says, “And we’ve managed to find a billion,” but this is a long-term planning issue—it is not about what has happened in the past year.
Steve Webb: I notice that the hon. Lady dismisses the odd billion here or there again as of no great consequence. We have to make these decisions in the context of the real world. That is the difference between government and opposition. The hon. Member for East Lothian (Fiona O’Donnell), who spoke in the debate, said that it would take guts—that was the expression she used—to support an unfunded £11 billion promise, which the Opposition know they will never have to fund and would not implement if in government. That is a very odd definition of “guts”.
Susan Elan Jones (Clwyd South) (Lab): Is the Minister suggesting that the coalition agreement, which is fundamentally different from what is proposed in the Bill, was not made in the real world? That is what some of us suspect, but is he confirming it?
Steve Webb: As the hon. Lady knows, the coalition agreement referred to the possibility of raising the state pension age for men from 2016 and for women from 2020. Obviously, what we have done since that coalition agreement was produced is sought expert legal advice. We were advised that delaying the equalisation between men and women would have been illegal under European law. That comes to the heart of one of the questions that has rightly been asked, which is, why do the changes affect women more than men? The reason is that they are two separate changes brought together.
The first is the more rapid equalisation, and the second is the equal treatment of men and women from 65 to 66. The equal treatment of men and women from 65 to 66, not surprisingly, affects men and women equally, so the thing that affects women more is equalisation.
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That is what the Pensions Act 1995 does. It leaves men’s pension age at 65 and equalises women’s pension age, raising it from 60 to 65. Lo and behold, that Bill affected only women, because equalising the pension age so that women get the pension at the same age as men rather than earlier affects women. Not surprisingly, a change that was happening in any case, which we have speeded up and which affects only women, added to a change that affects men and women equally, produces the expected result.
Hywel Williams: The Minister is making a reasonable case, as ever. I am rather more interested in his justification for the acceleration of the change. I hope that he will come to that shortly.
Steve Webb: Let me address that directly. What is striking as soon as one looks at the evidence on longevity is just how far behind the curve we are. When the male state pension age was set at 65, it was not so much a case of Lord Hutton writing reports on pensions as a case of Len Hutton striding out at the Oval. That was the era that we were talking about. In that almost 100 years, there have been incredible increases in life expectancy, yet the male state pension age will still be 65 for another seven years. That shows how far behind the curve we are.
The views of Lord Turner were cited by the hon. Member for Cumbernauld and by others, with some suggestion that we are breaching the Turner consensus. However, Lord Turner has breached the Turner consensus, if I may say so. He said in a news interview a couple of years ago, and the world has moved on even since then:
“If I was redoing my report I would be more radical, arguing for an even faster increase in the state pension age.”
That is exactly what we are doing, in line with the Turner consensus.
Dr Whiteford: Does the Minister accept that although longevity has increased, healthy working life has not kept pace with longevity, and that there is a serious issue, especially for the particular group of women under discussion, many of whom will not be in the best of health in their late 50s and early 60s? That is one of the reasons why shifting the goalposts twice for this group of women is having such a disproportionate impact.
Steve Webb: The issue of health is certainly important. Almost all the figures that have been quoted through the debate assume that the women whose pension age is being delayed will have no money. If, as the hon. Lady rightly says, they are unable to work because of ill health and the household has no other resources, they will get a significant amount of that money through employment and support allowance and other benefits.
Clearly, there are differences between individual groups and, as the hon. Lady and the hon. Member for Arfon (Hywel Williams) pointed out, between different parts of the country, but if we look at England, Wales and Scotland, for example, in terms of life expectancy at 65, in England for men since 1981 life expectancy has increased by seven years. In Wales for men it has increased by seven years, and in Scotland for men it has increased by seven years. For women, each of those figures is six years, respectively. So although there are differences, there have been substantial increases across the board.
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Yes, there is big variation. I accept that point, but there have been increases across the board and we cannot say that because they have not happened for every individual in every part of the country and in every social group, we will do nothing. That is what got us into the present mess in the first place.
Kate Green: I note that the Minister acknowledges that for some women with no other source of income, instead of receiving their state pension they may for a time continue to receive out-of-work benefits. Can he address two points in relation to that? First, what do the Government estimate will be the cost of those women receiving such benefits for an extended period? Secondly, does he not understand that for women who are at that age and stage in their life, being expected to claim something called jobseeker’s allowance is a tremendous insult or a tremendous concern because they know that they are not genuinely jobseekers? The labour market does not want or need them.
Steve Webb: On the hon. Lady’s first point, we have of course taken account of the fact that there will be some women, and indeed some men, for whom the changes mean that instead of receiving a retirement pension, they receive jobseeker’s allowance, employment and support allowance or another benefit. To give her an order of magnitude on that, without making allowance for that, the Bill would have saved around £33 billion. Taking account of that, we estimate a saving of around £30 billion, so getting on for 10% of the savings is lost through paying other benefits. That is entirely right and proper. In a way, her observation is backward-looking rather than forward-looking. We are moving to a world in which the idea of early retirement and drawing a pension at 60 years old or below, as in some public service schemes, is simply from another era, and the idea that someone should seek work, particularly if they are able-bodied, into their 60s is going to become entirely normal. The idea that it is somehow offensive to say that someone should look for work in their 60s is an idea from a bygone era; it is not the world that we are moving to.
7.30 pm
Malcolm Wicks: I am interested in the arithmetic that the Minister has just presented on how his savings have been adjusted, because some people will not be in work. Given that many people in the year or two before retirement are not in work, will he publish the detailed figures so that the House can scrutinise them?
Steve Webb: As a former Minister, the right hon. Gentleman will know that the figures were published with the Bill in May: they are from the impact assessment.
We have had a number of contributions, and in the short time available to me I shall refer to some of the points that have been made. As I have said, the hon. Member for Cumbernauld stated that his £11 billion should be spent and regarded it as a small sum, because he took the annual equivalent, divided that by the national debt and came up with a small fraction, as though somehow one can make £11 billion disappear. Well, the Labour party did make £11 billion disappear regularly, so he is keeping up that tradition, I suppose.
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My hon. Friend the Member for Cardiff Central (Jenny Willott) asked where state pension reform fits into the measures before us, and I am pleased to tell her that we remain entirely committed to such reform, but one irony of all this is that the very group of women whom we are most concerned about, and whom we have heard most about in this debate, are probably the single group who will most benefit from our ideas on state pension reform.
In particular, many women who spent time bringing up children, before either home responsibilities protection came in or the state second pension introduced crediting, would benefit substantially from such reform. So, yes, their pension age will rise, but as our reforms take hold such women will benefit substantially, and my long-term commitment to pensions justice for women will be delivered. That is certainly my goal.
The right hon. Member for Croydon North (Malcolm Wicks) made the point that he has made before about differences in life expectancy and about people who leave school earlier, but his proposal for starting the national insurance clock running at different ages would create different anomalies. He says that somebody who leaves school and goes into a manual job could get their pension earlier, but someone who leaves school and goes to a desk job would also get their pension earlier, and people would then say, “Is that fair?” There are anomalies whichever way we do it.
The right hon. Gentleman did, however, raise the issue of people in the lowest socio-economic groups, but I remind him that over a 20-year period to 2002 men in the routine class, the lowest—as it were—socio-economic group, saw life expectancy at 65 years old increase by 2.5 years, and, given that the Bill increases the state pension age for men by only one year, the improvement in life expectancy for men, even in the group whom he is most concerned about, is running ahead of our proposed increase in the state pension age.
I repeat to the right hon. Gentleman that his points about the differences between groups are an argument for doing nothing. He supported the Pensions Act 2007, which will raise the state pension age to 68 years old, and we need to address health and occupational inequalities, rather than do nothing while we wait. That is the Opposition’s counsel—let us wait another decade—but the trouble is that we have already waited a century to move the state pensions ages, so how long is long enough?
My hon. Friend the Member for Gloucester (Richard Graham) quite properly raised the important issue of notifying people of any changes, so I shall share with the House our plans. I very much welcome the fact that, subject to the House approving the Bill tonight and their lordships approving it in due course, we will be able to write directly to those affected to tell them exactly how they stand, thereby ending a period of uncertainty.
We will write to those women born between April and December 1953, just over 250,000 of them, early in the new year; to those born between December 1953 and April 1954, another 250,000 people, in February; and to another 250,000, born between April 1954 and April 1955, in March. The last group covers all women who would have been affected by the original equalisation timetable.
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Fiona O’Donnell: Will the Minister also advise those women of their right to employment and support allowance? Will he confirm that, if they claim ESA, are turned down, wait seven months—as some have in my constituency—for an appeal, and that period crosses over their entitlement date to the state pension, their appeal will still be heard and any benefits backdated?
Steve Webb: Perhaps the hon. Lady does not understand what I am saying. I am talking about people who will reach state pension age in seven or eight years’ time, so I am not sure that writing a letter, stating, “In the event you are on a certain benefit in seven or eight years’ time, and the delay in tribunals in such and such,” is germane to my point.
The Chair of the Work and Pensions Committee, the hon. Member for Aberdeen South (Dame Anne Begg), in a characteristically balanced contribution—[ Interruption ] —I spotted the balance even if nobody else did. She described the changes we are making today as a huge achievement, then said, “Well why don’t we go the whole hog,” but there are 11.1 billion reasons why we are not going to go the whole hog, and I am sure she understands that point.
The hon. Member for Edinburgh East said, “Well, I wouldn’t start from here”—and so say all of us. I do not think that any one of us would have chosen to inherit an annual deficit of £150 billion that had to be cleared up—[ Interruption. ] Members say from a sedentary position, “This isn’t about the deficit,” but a sequence of deficits creates a debt, which will be £1.4 trillion at the end of this Parliament, and that is both a capital sum and the interest that our children and grandchildren will have to pay, so we should take responsibility for it and tackle it.
The hon. Member for Stretford and Urmston (Kate Green) said that the Work programme does not do anything for older women, but its beauty is that providers do not get paid unless they tailor what they do to the individual in front of them. For example, we find that the biggest barrier for many potential older workers is IT skills; they are entirely job-ready but not necessarily up to speed with technology. So, if that is the barrier, the Work programme provider does not need to come to my right hon. Friend the Secretary of State for approval, as in the old days, asking whether it is on a departmental checklist; they just get on with it, help the person obtain the skills and are rewarded only if they get that individual a job.
Kate Green: I understand how the Work programme proposes to reward providers, but does the Minister not accept that older women are particularly disadvantaged when seeking to access the labour market? Can he tell us, therefore, whether there will be an incentive payment to such providers in dealing with those older women?
Steve Webb: The incentive is clear: the providers do not get any money at all unless they help someone into work.
The hon. Member for Llanelli (Nia Griffith) mentioned grandparents: women in the age group under discussion who by taking care of grandchildren enable their sons and daughters to work. That is an important point, and that is why I was pleased to carry through in office
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proposals that had previously been brought forward on national insurance credits for grandparents—when their daughters are not using them—to ensure that their state pension rights do not suffer.
The hon. Member for Edinburgh East asked why we did not do all that earlier and referred to Second Reading, but I remind her that in that debate my right hon. Friend the Secretary of State said that the basic principle of the Bill is right—that we move to equality sooner and to aged 66 in 2020. We have been entirely consistent with what he said, but he also said that we need to make sure that the transition is fair and that those most adversely affected are helped. That is exactly what we deliver on today with the amendments.
We have identified, notwithstanding the difficult fiscal position, £1.1 billion to ensure that half a million people face a shorter increase in their pension age, and that a quarter of a million women who could have faced up to 24 months will now face a maximum of 18 months. It is worth keeping in context the fact that nine out of 10 people affected by the Bill will see an increase of one year or less in their state pension age.
The hon. Member for Bolton South East (Yasmin Qureshi), who spoke last, said, “Well, it’s only a bit of money,” and, “It’s penny pinching,” and all I can say is that many people think that £1.1 billion is a lot of money. I know that it is a naïve observation, but I am in that category as well.
It was important to allocate to this issue a large amount of time for debate today, but we have simply had a repeat of what we heard in Committee: “Find £10 billion or £11 billion—it’ll come from somewhere, it’s not really a lot of money.” From the Government, however, we have seen a serious balance struck between introducing the fiscal responsibility that was all too often lacking under the previous Government and listening and responding to the needs of those most affected by the Bill—and I commend our amendments to the House.
Gregg McClymont: This been a very important debate. I thank the Minister for his reply, but he has not satisfactorily answered the question repeatedly asked by Labour Members, which is fairly straightforward. Why are these 500,000 women paying a disproportionate price? Why are they having disproportionately to carry the burden?
Our amendments, if accepted, would mean that not one of the half a million women affected by this Bill would have to wait more than an extra year for their state pension, and, importantly, that they would have at least nine years’ notice of the rise in their state pension age. At the same time, the state pension age of 66 for men and women would be brought forward to 2022. That would be a fair package, and it would keep the Government to the promise made in the coalition agreement. I should like to withdraw amendment 1 and test the will of the House on amendment 3.
Amendment, by leave withdrawn.
Amendment proposed: 3, page 1, line 8, leave out subsection (4).—(Gregg McClymont.)
Question put, That the amendment be made.
The House divided:
Ayes 244, Noes 291.
[7.41 pm
AYES
Abbott, Ms Diane
Abrahams, Debbie
Ainsworth, rh Mr Bob
Alexander, rh Mr Douglas
Alexander, Heidi
Ali, Rushanara
Anderson, Mr David
Ashworth, Jonathan
Austin, Ian
Bailey, Mr Adrian
Bain, Mr William
Balls, rh Ed
Banks, Gordon
Barron, rh Mr Kevin
Bayley, Hugh
Beckett, rh Margaret
Begg, Dame Anne
Bell, Sir Stuart
Benn, rh Hilary
Berger, Luciana
Betts, Mr Clive
Blenkinsop, Tom
Blomfield, Paul
Blunkett, rh Mr David
Bradshaw, rh Mr Ben
Brennan, Kevin
Brown, rh Mr Nicholas
Brown, Mr Russell
Bryant, Chris
Buck, Ms Karen
Burden, Richard
Campbell, Mr Alan
Campbell, Mr Gregory
Campbell, Mr Ronnie
Caton, Martin
Chapman, Mrs Jenny
Coaker, Vernon
Coffey, Ann
Connarty, Michael
Cooper, Rosie
Cooper, rh Yvette
Corbyn, Jeremy
Crausby, Mr David
Creagh, Mary
Creasy, Stella
Cruddas, Jon
Cryer, John
Cunningham, Alex
Cunningham, Mr Jim
Cunningham, Tony
Curran, Margaret
Dakin, Nic
Danczuk, Simon
Darling, rh Mr Alistair
David, Mr Wayne
Davidson, Mr Ian
Davies, Geraint
De Piero, Gloria
Dobbin, Jim
Docherty, Thomas
Dodds, rh Mr Nigel
Donohoe, Mr Brian H.
Doran, Mr Frank
Dowd, Jim
Doyle, Gemma
Dromey, Jack
Dugher, Michael
Durkan, Mark
Eagle, Ms Angela
Eagle, Maria
Edwards, Jonathan
Efford, Clive
Elliott, Julie
Ellman, Mrs Louise
Engel, Natascha
Esterson, Bill
Evans, Chris
Farrelly, Paul
Field, rh Mr Frank
Fitzpatrick, Jim
Flello, Robert
Flint, rh Caroline
Flynn, Paul
Fovargue, Yvonne
Francis, Dr Hywel
Gilmore, Sheila
Glass, Pat
Glindon, Mrs Mary
Godsiff, Mr Roger
Goggins, rh Paul
Goodman, Helen
Greatrex, Tom
Green, Kate
Greenwood, Lilian
Griffith, Nia
Gwynne, Andrew
Hain, rh Mr Peter
Hamilton, Mr David
Hamilton, Fabian
Hanson, rh Mr David
Harman, rh Ms Harriet
Harris, Mr Tom
Havard, Mr Dai
Healey, rh John
Hendrick, Mark
Hepburn, Mr Stephen
Heyes, David
Hillier, Meg
Hilling, Julie
Hodgson, Mrs Sharon
Hoey, Kate
Hood, Mr Jim
Hopkins, Kelvin
Hosie, Stewart
Howarth, rh Mr George
Hunt, Tristram
Irranca-Davies, Huw
Jackson, Glenda
James, Mrs Siân C.
Jamieson, Cathy
Jarvis, Dan
Johnson, Diana
Jones, Graham
Jones, Helen
Jones, Mr Kevan
Jones, Susan Elan
Jowell, rh Tessa
Joyce, Eric
Keeley, Barbara
Kendall, Liz
Khan, rh Sadiq
Lammy, rh Mr David
Lavery, Ian
Lazarowicz, Mark
Leslie, Chris
Lewis, Mr Ivan
Lloyd, Tony
Llwyd, rh Mr Elfyn
Long, Naomi
Love, Mr Andrew
Lucas, Caroline
Lucas, Ian
MacNeil, Mr Angus Brendan
MacShane, rh Mr Denis
Mactaggart, Fiona
Mahmood, Mr Khalid
Mann, John
Marsden, Mr Gordon
McCabe, Steve
McCann, Mr Michael
McCarthy, Kerry
McClymont, Gregg
McCrea, Dr William
McDonagh, Siobhain
McDonnell, John
McFadden, rh Mr Pat
McGovern, Alison
McGovern, Jim
McGuire, rh Mrs Anne
McKechin, Ann
McKenzie, Mr Iain
McKinnell, Catherine
Meacher, rh Mr Michael
Meale, Sir Alan
Mearns, Ian
Michael, rh Alun
Miliband, rh David
Miliband, rh Edward
Miller, Andrew
Morden, Jessica
Morrice, Graeme
(Livingston)
Morris, Grahame M.
(Easington)
Mudie, Mr George
Munn, Meg
Murphy, rh Mr Jim
Murphy, rh Paul
Murray, Ian
Nandy, Lisa
O'Donnell, Fiona
Onwurah, Chi
Osborne, Sandra
Paisley, Ian
Pearce, Teresa
Perkins, Toby
Pound, Stephen
Qureshi, Yasmin
Raynsford, rh Mr Nick
Reed, Mr Jamie
Reeves, Rachel
Reynolds, Jonathan
Riordan, Mrs Linda
Ritchie, Ms Margaret
Robertson, Angus
Robinson, Mr Geoffrey
Rotheram, Steve
Roy, Mr Frank
Roy, Lindsay
Ruane, Chris
Sarwar, Anas
Seabeck, Alison
Shannon, Jim
Sharma, Mr Virendra
Sheridan, Jim
Shuker, Gavin
Simpson, David
Skinner, Mr Dennis
Slaughter, Mr Andy
Smith, rh Mr Andrew
Smith, Angela
Smith, Nick
Smith, Owen
Spellar, rh Mr John
Straw, rh Mr Jack
Stringer, Graham
Stuart, Ms Gisela
Sutcliffe, Mr Gerry
Tami, Mark
Thomas, Mr Gareth
Thornberry, Emily
Timms, rh Stephen
Trickett, Jon
Turner, Karl
Twigg, Derek
Twigg, Stephen
Umunna, Mr Chuka
Vaz, Valerie
Walley, Joan
Watson, Mr Tom
Watts, Mr Dave
Weir, Mr Mike
Whiteford, Dr Eilidh
Whitehead, Dr Alan
Wicks, rh Malcolm
Williams, Hywel
Williamson, Chris
Wilson, Sammy
Winnick, Mr David
Winterton, rh Ms Rosie
Wishart, Pete
Wood, Mike
Woodcock, John
Woodward, rh Mr Shaun
Wright, David
Wright, Mr Iain
Tellers for the Ayes:
Lyn Brown and
Phil Wilson
NOES
Adams, Nigel
Afriyie, Adam
Amess, Mr David
Andrew, Stuart
Bacon, Mr Richard
Baker, Norman
Baker, Steve
Baldwin, Harriett
Barclay, Stephen
Bebb, Guto
Beith, rh Sir Alan
Bellingham, Mr Henry
Benyon, Richard
Beresford, Sir Paul
Berry, Jake
Bingham, Andrew
Binley, Mr Brian
Birtwistle, Gordon
Blackwood, Nicola
Blunt, Mr Crispin
Boles, Nick
Bone, Mr Peter
Bradley, Karen
Brake, rh Tom
Bray, Angie
Brazier, Mr Julian
Bridgen, Andrew
Brooke, Annette
Bruce, Fiona
Buckland, Mr Robert
Burley, Mr Aidan
Burns, Conor
Burrowes, Mr David
Burstow, Paul
Burt, Lorely
Byles, Dan
Cable, rh Vince
Cairns, Alun
Campbell, rh Sir Menzies
Carmichael, rh Mr Alistair
Carmichael, Neil
Carswell, Mr Douglas
Cash, Mr William
Chope, Mr Christopher
Clappison, Mr James
Clarke, rh Mr Kenneth
Coffey, Dr Thérèse
Collins, Damian
Colvile, Oliver
Cox, Mr Geoffrey
Crockart, Mike
Davey, Mr Edward
Davies, David T. C.
(Monmouth)
Davies, Glyn
Davies, Philip
Davis, rh Mr David
Dinenage, Caroline
Djanogly, Mr Jonathan
Dorrell, rh Mr Stephen
Dorries, Nadine
Doyle-Price, Jackie
Drax, Richard
Duddridge, James
Duncan Smith, rh Mr Iain
Dunne, Mr Philip
Ellis, Michael
Ellison, Jane
Ellwood, Mr Tobias
Elphicke, Charlie
Eustice, George
Evans, Graham
Evans, Jonathan
Evennett, Mr David
Fabricant, Michael
Fallon, Michael
Farron, Tim
Foster, rh Mr Don
Francois, rh Mr Mark
Freeman, George
Freer, Mike
Fullbrook, Lorraine
Fuller, Richard
Gale, Mr Roger
Garnier, Mark
George, Andrew
Gibb, Mr Nick
Gilbert, Stephen
Gillan, rh Mrs Cheryl
Glen, John
Goldsmith, Zac
Goodwill, Mr Robert
Gove, rh Michael
Graham, Richard
Grant, Mrs Helen
Gray, Mr James
Grayling, rh Chris
Green, Damian
Greening, Justine
Griffiths, Andrew
Gummer, Ben
Gyimah, Mr Sam
Halfon, Robert
Hames, Duncan
Hammond, rh Mr Philip
Hammond, Stephen
Hancock, Matthew
Hands, Greg
Harper, Mr Mark
Harrington, Richard
Harris, Rebecca
Hart, Simon
Haselhurst, rh Sir Alan
Hayes, Mr John
Heald, Oliver
Heath, Mr David
Heaton-Harris, Chris
Hemming, John
Henderson, Gordon
Herbert, rh Nick
Hinds, Damian
Hoban, Mr Mark
Hollingbery, George
Hollobone, Mr Philip
Holloway, Mr Adam
Hopkins, Kris
Horwood, Martin
Howell, John
Hughes, rh Simon
Huhne, rh Chris
Hunter, Mark
Huppert, Dr Julian
Jackson, Mr Stewart
James, Margot
Javid, Sajid
Jenkin, Mr Bernard
Johnson, Gareth
Jones, Andrew
Jones, Mr David
Jones, Mr Marcus
Kawczynski, Daniel
Kelly, Chris
Kirby, Simon
Knight, rh Mr Greg
Kwarteng, Kwasi
Laing, Mrs Eleanor
Lancaster, Mark
Latham, Pauline
Laws, rh Mr David
Leadsom, Andrea
Lee, Jessica
Leech, Mr John
Lefroy, Jeremy
Leigh, Mr Edward
Letwin, rh Mr Oliver
Lewis, Brandon
Liddell-Grainger, Mr Ian
Lilley, rh Mr Peter
Lloyd, Stephen
Lopresti, Jack
Lord, Jonathan
Loughton, Tim
Luff, Peter
Lumley, Karen
Main, Mrs Anne
Maynard, Paul
McCartney, Jason
McCartney, Karl
McIntosh, Miss Anne
McLoughlin, rh Mr Patrick
McPartland, Stephen
McVey, Esther
Mensch, Louise
Menzies, Mark
Mercer, Patrick
Metcalfe, Stephen
Miller, Maria
Mills, Nigel
Milton, Anne
Moore, rh Michael
Mordaunt, Penny
Morgan, Nicky
Morris, Anne Marie
Morris, James
Mosley, Stephen
Mowat, David
Mulholland, Greg
Munt, Tessa
Murray, Sheryll
Murrison, Dr Andrew
Neill, Robert
Newmark, Mr Brooks
Newton, Sarah
Norman, Jesse
Nuttall, Mr David
Ollerenshaw, Eric
Opperman, Guy
Ottaway, Richard
Paice, rh Mr James
Parish, Neil
Patel, Priti
Pawsey, Mark
Penning, Mike
Penrose, John
Percy, Andrew
Perry, Claire
Phillips, Stephen
Pickles, rh Mr Eric
Pincher, Christopher
Poulter, Dr Daniel
Prisk, Mr Mark
Pritchard, Mark
Raab, Mr Dominic
Randall, rh Mr John
Reckless, Mark
Redwood, rh Mr John
Rees-Mogg, Jacob
Reevell, Simon
Reid, Mr Alan
Rifkind, rh Sir Malcolm
Robathan, rh Mr Andrew
Robertson, Hugh
Robertson, Mr Laurence
Rogerson, Dan
Rosindell, Andrew
Rudd, Amber
Ruffley, Mr David
Russell, Bob
Rutley, David
Sanders, Mr Adrian
Sandys, Laura
Scott, Mr Lee
Selous, Andrew
Shapps, rh Grant
Sharma, Alok
Shelbrooke, Alec
Shepherd, Mr Richard
Simmonds, Mark
Simpson, Mr Keith
Skidmore, Chris
Smith, Miss Chloe
Smith, Henry
Soames, rh Nicholas
Soubry, Anna
Spelman, rh Mrs Caroline
Spencer, Mr Mark
Stanley, rh Sir John
Stevenson, John
Stewart, Bob
Stewart, Iain
Stewart, Rory
Streeter, Mr Gary
Stride, Mel
Stuart, Mr Graham
Stunell, Andrew
Sturdy, Julian
Swales, Ian
Swayne, rh Mr Desmond
Swinson, Jo
Swire, rh Mr Hugo
Syms, Mr Robert
Timpson, Mr Edward
Tomlinson, Justin
Turner, Mr Andrew
Tyrie, Mr Andrew
Uppal, Paul
Vara, Mr Shailesh
Vickers, Martin
Villiers, rh Mrs Theresa
Walker, Mr Charles
Walker, Mr Robin
Ward, Mr David
Watkinson, Angela
Weatherley, Mike
Webb, Steve
Wharton, James
Wheeler, Heather
White, Chris
Whittaker, Craig
Wiggin, Bill
Willetts, rh Mr David
Williams, Mr Mark
Williams, Roger
Williams, Stephen
Williamson, Gavin
Willott, Jenny
Wilson, Mr Rob
Wollaston, Dr Sarah
Wright, Jeremy
Wright, Simon
Young, rh Sir George
Zahawi, Nadhim
Tellers for the Noes:
Norman Lamb and
Stephen Crabb
Question accordingly negatived.
18 Oct 2011 : Column 824
18 Oct 2011 : Column 825
18 Oct 2011 : Column 826
18 Oct 2011 : Column 827
7.56 pm
Proceedings interrupted (Programme Order, this day).
The Deputy Speaker put forthwith the Question necessary for the disposal of the business to be concluded at that time (Standing Order No. 83E).
18 Oct 2011 : Column 828
Amendments made : 13, page 2, leave out lines 14 to 18 and insert—
Amendment 14, page 2, line 19, leave out ‘“1960” substitute “1954”’ and insert ‘“5th April 1960” substitute “5th October 1954”’.—(Steve Webb.)
‘(1) Section 16 of the 2008 Act (qualifying schemes) is amended as follows.
(2) In subsection (3) for paragraph (a) substitute—
“(a) administration charges due from J while J is an active member exceed a prescribed amount,
(aa) administration charges due from former active members while J is an active member exceed a prescribed amount,
() while J is an active member, the scheme contains provision under which administration charges that will be due from J when J is no longer an active member will exceed a prescribed amount, or will do so in particular circumstances,”.
(3) After that subsection insert—
“(4) For the purposes of subsection (3) administration charges are due from a person to the extent that—
(a) any payments made to the scheme by, or on behalf or in respect of, the person,
(b) any income or capital gain arising from the investment of such payments, or
(c) the value of the person’s rights under the scheme,
may be used to defray the administrative expenses of the scheme, to pay commission or in any other way that does not result in the provision of pension benefits for or in respect of members.
(5) In subsection (3)(aa) “former active member” means a person who at some time after the automatic enrolment date was both a jobholder and an active member but is no longer an active member.”’.—(Steve Webb.)
Brought up, and read the First time.
Steve Webb: I beg to move, That the clause be read a Second time.
Mr Deputy Speaker (Mr Lindsay Hoyle): With this it will be convenient to discuss the following:
New clause 1—Obligation to inform scheme members about provider and product options—
‘Providers of Qualifying Schemes under section 16 of the Pensions Act 2008 (c.30) must, when informing members of their own range of annuity and similar products, explain clearly that alternative and more suitable options from other providers may be available.’.
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New clause 9—Duty to establish a review into transfers into the National Employment Savings Trust (NEST)—
‘Within two years of the passing of this Act the Secretary of State shall establish a review into allowing transfers into the National Employment Savings Trust (NEST).’.
New clause 10—Duty to review any order on contribution limits in the National Employment Savings Trust—
‘In section 70 of the 2008 Act (Contribution Limits) at the end of subsection (1) insert—
‘(1A) Any order under this section shall be reviewed by the Secretary of State within two years of the Pension Scheme being opened to members.’.
Amendment 18, in clause 6, page 6, line 37, leave out ‘three’ and insert ‘one’.
Amendment 19, in clause 8, page 8, line 1, at beginning insert ‘Subject to subsection (2A),’.
Amendment 20, page 8, line 4, at end insert—
‘(2A) An order made under subsection (2) must not increase the amount in section 3(1)(c) by more than—
(a) the general level of earning; or
(b) in percentage terms by more than the percentage increase in the Lower Earnings Limit for national insurance purposes.’.
Government amendments 15 and 16.
Steve Webb: This is a broad group of proposals relating to private pensions. I shall speak in support of Government new clause 2 and Government amendments 15 and 16. As we have a relatively short time to discuss these issues I will also deal with the other amendments in the group, and do not anticipate making a further contribution to the debate.
Government new clause 2 deals with charges. Obviously, charges are important, as I am sure the whole House will agree, because money that goes on charges does not turn into pensions. The Government are therefore keen to ensure that charges are at a reasonable level and are transparent. For example, following on from the policies of the previous Government, we have gone ahead with the introduction of the National Employment Savings Trust, which will be a low-cost provider designed to ensure that charges across the market are brought down. There is evidence that new entrants to the market and existing providers are already looking at charges significantly lower than many people have experienced on their pensions in the past.
In Committee, concerns were raised about whether the Government should be capping charges. As the right hon. Member for East Ham (Stephen Timms), who is responding for the Opposition, is well aware, the Government do have powers to cap certain pension scheme charges. In considering this issue, we became aware of the anomaly that we do not have that power in relation to people who are no longer active members of pension schemes but who are deferred members, and in particular deferred members of qualifying schemes for auto-enrolment. If we want to cap charges—I will come back to that issue in a second—we do not currently have the power in primary legislation to cap them for deferred members of qualifying schemes for auto-enrolment. The purpose of Government new clause 2 is to give us that power, so that if we want to impose charge caps, we can do so systematically and without unintended omissions.
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Our thinking on charge caps is that in general, we do not believe there will be a problem with charges. Particularly in the early years of auto-enrolment, it will be the very largest firms that come into the system. They will have the resources and time to shop around, they will be able to strike good deals, and they will have the National Employment Savings Trust available to them. We expect that for big and medium-sized firms, relatively low charges will be the norm.
8 pm
However, concern has been expressed about the fact that it will be not the individual pension policyholder but the employer who will choose the provider. That may be a small firm that has little interest in the scheme and is choosing a provider because it has to, rather than because it has an active interest in pensions. It therefore may not put the time and effort required into shopping around, and it may choose a high-cost provider. The members of the scheme, who may not pay much attention to its fine print, may find themselves with above-average charges. If that were to become a problem, we would want the power to do something about it, particularly in the case of deferred members. Once someone has ceased contributing to the scheme or working for the firm, they have even less connection with the scheme and even more vulnerability.
Kevin Brennan (Cardiff West) (Lab): Why have the Government decided to raise the level at which auto-enrolment will come in? By their own figures, that will affect about 600,000 people, mainly women.
Steve Webb: I will come on to that, because Opposition amendments 19 and 20 relate to it. As I said in my introduction, I shall deal with all the amendments in this group, so if the hon. Gentleman will forgive me I will explain our thinking on that matter later.
Glenda Jackson (Hampstead and Kilburn) (Lab): The Minister has referred to the transparency of the current charges in the pensions industry, yet in his evidence to the Work and Pensions Committee, the gentleman who advised the Government on the matter—I regret that I have forgotten his name—made the point, which I am sure everybody in the House would endorse, that existing pensions provision is extremely cloudy. It is extremely difficult to know what the charges are, because the wording is imponderable in many instances. Why is the Minister so sanguine about what will happen in future? It certainly has not happened in the past, and it certainly is not happening now.
Steve Webb:
There are two significant differences between past and future provision. First, we have established NEST, which did not exist before. It has been set up as a low-cost provider, so we have guaranteed that there is such a provider out there, particularly for small firms, which are the least likely to shop around. Secondly, there is a saying that pensions are not bought, they are sold. In other words, individuals tend not to go out and look for a pension but instead have one sold to them. In a world of auto-enrolment, the opposite is the case. Employers have a legal duty to select a provider, and that makes providers’ costs much lower. Rather than having to bear the huge costs of individual salespeople going out and selling to individual policyholders, employers
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will instead seek out providers. The costs of the whole process will be much lower, so that will be a significant step in the right direction.
Glenda Jackson: Will the Minister give way?
Steve Webb: I will not, if the hon. Lady will forgive me, because I am going to try to cover about six topics in not very much time, so as to give everyone else a chance to respond.
Government new clause 2 has been tabled in response to our discussions in Committee, and will give the Government a power that I think previous Governments either thought they had or would have wanted to have. It is the power to cap charges for deferred members of qualifying auto-enrolment schemes. I think that is probably a relatively uncontentious power. Were we to bring it into force, that would clearly be the subject of separate debates and discussion in the House, but I hope the House will be happy that the Government should have that power.
Government amendments 15 and 16 are technical amendments to clause 14, dealing with what would otherwise have been a problem in section 30 of the Pensions Act 2008. Although that section currently allows employers to use a defined benefit, hybrid or money purchase scheme as an alternative scheme, it does not allow them to use a workplace personal pension scheme. Clause 14 corrects that omission, but there is a risk that an individual might be automatically enrolled into a personal pension scheme, and then required to pay contributions immediately for up to four previous years. The amendments protect individuals from that scenario. They correct what we believe to be an error in previous legislation. I hope that the House will find my explanation helpful, although I can go into far greater detail if threatened.
I welcome new clause 1, tabled by my hon. Friend the Member for West Worcestershire (Harriett Baldwin), who serves on the Work and Pensions Committee. I believe that, in a rather intimidating fashion, it has been signed by pretty much all the Committee’s members, so I think I have to give it a fair wind. It is about what is known in jargon as the “open market option”—in other words, the fact that people often forget that when they save for a pension, they are doing two things. First, they are building up a pot of money—the accumulation stage—and then they are turning it into a pension, which is the “decumulation” stage. Those are two entirely separate processes.
All too often, someone can save with provider A—I will not use the name of a company—and think that they have to take their pension from provider A, which they do not. Broadly speaking, as a rule of thumb, it is estimated that the market can be divided into thirds. Roughly a third of people shop around and go somewhere else, a third of people shop around and stay with their original provider, and a third of people do not shop around at all. There is clearly a danger that at the crucial point when somebody sets their income for the rest of their life, they may not be getting the best value. The open market option reminds people that they can shop around, and indeed prompts them to do so. However, as I have just indicated, take-up of that option is not as high as we would wish, or as I believe the insurance industry would increasingly wish, so we need to do more.
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I take new clause 1 as a probing amendment, and it is important in getting the issue on the table. As drafted, it would have one or two problems. It would bring some schemes within its scope that should not be, such as final salary schemes. Those are qualifying schemes for auto-enrolment, but we do not want to give final salary scheme providers a duty to tell people about their right to buy an annuity. That would not be appropriate. The new clause also duplicates some existing duties. For example, the Occupational Pension Schemes (Disclosure of Information) Regulations 1996, as I am sure my hon. Friend is well aware, state that when members have the opportunity to select an annuity, they must be informed of their right to buy one on the open market. They must also be advised that there are different types of annuities available, which may have different features and different payment rates. There are also 1987 regulations that relate to contract-based business. So there are rules about the open market option, but I think we would all agree that they are not working as well as they should. I am sure that is the point of my hon. Friend’s new clause.
The Government welcome the opportunity to discuss the open market option. We believe that it is critical for consumers to think about the shape of annuity that is most appropriate to their circumstances and compare rates across providers. There are comparison websites available, which is a helpful development, but people have to know about them to look at them. They have to consider the option in order to know what questions to ask.
I am pleased to say that, in an example of joined-up government, we are working closely with our colleagues at the Treasury on the matter. I regularly meet my hon. Friend the Financial Secretary, who leads on it, to discuss the open market option, and we have a joint working group examining that very issue. My hon. Friend the Member for West Worcestershire will be pleased to know that earlier this year, we asked that working group to consider what is called a default open market option arrangement—in other words, whether we could make shopping around the default, so that people would have to make an active choice to stay with their current provider. There are practical issues to consider, such as what would happen to someone who failed to shop around, whether there should be a point at which their own provider paid them a pension, and what information people should have. However, the principle is attractive, and certainly my hon. Friend the Financial Secretary is keen to go as far as we can.
Progress has already been made. One might say that a working group is often the last refuge of a scoundrel—not the Financial Secretary, I should add; I meant myself. However, this is a working group with teeth. To give one example, the Association of British Insurers, which has engaged actively with us on the matter, has already said that its members will cease sending out to people, with the letter saying that they can get an annuity, the application form from their own provider. They will stop saying, “You can shop around, but here in the same envelope is a form to get an annuity from us.” Instead, a person will actively have to say, “I want my annuity from you; give me a form.” That is a small step in the right direction, but I believe we need to go further.
I will be pleased to hear the arguments and concerns of my hon. Friend the Member for West Worcestershire, but we are certainly seized of the importance of this
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issue. We do not believe the new clause is quite the way to deliver what is needed, but the Government very much welcome it, and the spirit of what she is trying to achieve.
Glenda Jackson: Will the Minister give way?
Glenda Jackson: I am extremely grateful that the Minister welcomes new clause 1, but with all due respect, he spoke earlier of pensions being not bought, but sold. He is now talking about the buyer being in the driving seat, but as we know full well, and as we see in the papers every day in relation to energy prices, people do not seem to have the capacity to shop around in their best interests. I do not think that the Government have had a great deal of success in encouraging companies to make the situation better. Will he learn from those mistakes, and will there be a better method?
Steve Webb: As I think I said a moment ago, we have asked the working group to look at making shopping around—[ Interruption. ] Before the hon. Lady heckles me, she might like to listen.
Glenda Jackson: I was muttering, not heckling.
Steve Webb: The working group will look at making shopping around the default situation. Somebody who does not actively choose to stay with their current provider will shop around by default. That is the difference between pensions and energy suppliers. Whereas people are stuck with their energy suppliers unless they choose to shop around, people will not get a pension unless they shop around. That is a pretty good incentive to shop around.
Glenda Jackson: Will the Minister give way?
Steve Webb: I hope that the hon. Lady will forgive me if I do not; I have given way to her twice already.
New clauses 9 and 10 relate to the role of NEST, which I mentioned a moment ago. New clause 9 suggests that in a couple of years’ time we should review transfers into NEST, and new clause 10 suggests that we review contribution limits at the same time. It is worth reminding the House why NEST was constrained when it was established. There was a recognition that there is a market for big firms and higher earners—pension providers are willing to provide at a reasonable cost and to go to such firms. However, for small firms and lower-paid workers, there was a market failure. NEST was designed to fill that gap in the market.
First, the Government created a legal duty for firms to enrol people, so we ensured that there was something to enrol people in. That is what NEST is for. Secondly, we could have created NEST and imposed no constraints, and it could have been just another provider, but because we constrained NEST to consider lower-paid workers
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and smaller firms, it has innovated in an impressive manner. The previous Government envisaged such constraints. The Work and Pensions Committee has visited NEST and was positive about what it found. Forcing NEST to focus on lower-paid workers, smaller firms, and people who do not speak “pensions” or who are uninterested in them, has created impressive product, investment strategy and technological innovation, which is entirely welcome. Creating NEST with constraints was the right thing to do, and it has been beneficial.
Dame Anne Begg: If NEST is to work, people must have confidence in the products that are going to be delivered. However, there is a danger that other providers muddy the waters of what is on offer. For instance, a Federation of Small Businesses booklet says that it will offer a comparable pension provider with which firms can auto-enrol their workers. The charge is 0.75% to FSB members and 1% to non-members, but they are not comparable prices. What can the Minister do to ensure that such misinformation does not divert people away from NEST?
Steve Webb: I am grateful to the Chair of the Work and Pensions Committee for drawing my attention to that document, and I am keen to see a copy. Pensions selling is, broadly speaking, regulated by the Financial Services Authority. Claims about pensions need to be accurate. NEST charges are the equivalent—on an average pension—of around 0.5%, as the hon. Lady knows. The suggestion is that a charge of 0.75% or 1% is “comparable”. We can compare anything with anything, but the comparison is not always favourable. She raises an important point, and the pensions regulator and the FSA will seek to ensure that people are given accurate information about pensions.
The right hon. Member for East Ham (Stephen Timms), who speaks for the Opposition, will be well aware that the Government already have a duty to review NEST after the five-year roll-out of auto-enrolment. New clauses 9 and 10 would not repeal the other duty, so they would mean a review in two years and another one three years after that. The earlier review would be premature and unhelpful in the middle of the roll-out. One might want to tweak 1,001 things, but a review in the middle of roll-out would create uncertainty when the next tranche of firms is choosing which provider to go for. Will NEST have its limit lifted? Will the transfer ban go? Those questions would mean yet more turmoil. An element of certainty in the auto-enrolment process, which has been iterated quite a lot, would be welcome.
The right hon. Gentleman will know that the Government had our own review—“Making automatic enrolment work”—last summer. It said that in the end, in 2017, the restrictions should go. I am entirely sympathetic to that proposition, but deciding that today, or reviewing the situation in the middle of the roll-out, is not the best way forward.
8.15 pm
Finally, I shall make some observations on waiting periods and the earnings trigger for auto-enrolment. Just to be clear, the Bill introduces a voluntary waiting period of 13 weeks. The previous Government’s legislation proposed that people had to be auto-enrolled on the day they started. That might not coincide with an
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employer’s pay period, and it might require very large numbers of employees to be enrolled on a single day. That was the legislation that we inherited.
The Bill creates a 13-week waiting period. Somebody who values their pension rights can still opt in, but the Government listened very carefully to the concerns of smaller businesses. Their judgment was that requiring them to enrol people on day one was a considerable burden. The flexibility of a three-month period strikes a balance. We were being lobbied to specify six months and to exclude small firms altogether, but we judged that a three-month period strikes the right balance.
Stephen Timms (East Ham) (Lab): May I ask the Minister a wider question on auto-enrolment? As he will know because it has been widely reported in the past few days, a report from Mr Adrian Beecroft recommends that the Government postpone the implementation of auto-enrolment altogether. Has the Minister seen that report? If so, what is his response to it?
Steve Webb: The right hon. Gentleman is right that a draft report has been produced and reported in the press, but I can assure him that—as we once famously pointed out—2012 will definitely happen next year. In other words, we do not believe that this important programme should be delayed. Interestingly, the CBI does not believe in a delay, either. It recognises that the biggest firms, which will come in next year, are already planning. In many cases they have already chosen their providers. They are getting on with it, and the last thing we need is new uncertainty about the start of auto-enrolment. We will, therefore, be pressing ahead.
Waiting periods are clearly a trade-off, but today more than ever, we need to realise the impact of what we are doing on smaller firms and businesses more generally.
Mrs Jenny Chapman (Darlington) (Lab): I understand the Minister’s point and the benefits to a payroll department in a small firm, but does he accept that people who change jobs frequently throughout their careers could be disadvantaged? If people change jobs 11 times, they could end up losing about three years’ worth of benefits.
Steve Webb: The hon. Lady raises an important issue. That is one of the arguments against a six-month waiting period, but those things are a matter of judgment. She used an interesting phrase when she mentioned the payroll departments of small firms, but of course a typical small firm does not have a payroll department, and will struggle with those provisions. We are trying to ensure that the scheme has flexibility, so that we take small firms with us rather than have them resenting the scheme. The waiting period is important in that respect.
Finally, on amendments 19 and 20 and the earnings trigger, which the hon. Member for Cardiff West (Kevin Brennan) mentioned, the Bill originally proposed that we auto-enrol at around about the national insurance floor, which is a bit more than £5,000, uprated in today’s prices. There were two problems with that. First, there was no de minimis provision, so employers would have auto-enrolled people for pennies a week. If the floor were £5,000 and a person earned £100 a week—£5,200 a year—they would be enrolled on the £200 above the £5,000. Under the legislation that we inherited, the
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contribution at the start would be 1%—£2 a year, or 4p a week. There might have been the odd adverse newspaper story had we required small firms to enrol people for 4p a week, so we took the view that we had to put the threshold up.
The obvious threshold to use—common thresholds are attractive to employers—is the PAYE threshold. Although we will look at the prevailing situation and make a judgment each year, the broad idea behind aligning with the PAYE threshold is that if businesses have to run PAYE for somebody, auto-enrolment will be a reasonable duty. Below that level, it is inappropriate.
Kevin Brennan: Further to that point, if the Government raise the PAYE threshold, as they have previously announced, will auto-enrolment be triggered at that higher threshold? Would not that deny millions of people—those who would benefit the most—the benefits of auto-enrolment?
Steve Webb: As we have made clear, people still have the right to opt in to auto-enrolment, but obviously the bulk duty will be at the tax threshold. There is a trade-off: we can have a low threshold, but that results in people being brought in for what are technically known as piddling amounts of money, for which the costs are disproportionate. The tax threshold appears to us to be broadly the right level, but as the hon. Gentleman will be aware, we have discretion in the Bill to look each year at the labour market and at what has happened to earnings and prices, and to make a judgment. That is the broad direction of travel, as recommended to us—
Dame Anne Begg: The concern that some of us have is not that the tax threshold will go up to £10,000—although that is the avowed intention of the Government—but that the gap between £7,400 and £10,000 is about £2,500. That group of workers earning under £10,000 might be ruled out of auto-enrolment, when they are the very people who should be auto-enrolled. The situation would be different if the threshold were going up by the rate of inflation, but can the Minister give some assurance that if there is such a leap, he will reconsider the threshold?
Steve Webb: It will clearly vary from individual to individual, but for many people, earning £8,000 or £9,000 is a transitory phase in their labour market experience, and they will move on to earn more than the tax threshold and so come within the scope of the provision. So even if the threshold is not raised, it will not make a lot of difference if someone is not in the scheme for that year. For some people, they or their household will already have pension rights accrued and it might even be right for them to opt out. People will have the chance to opt in to pension provision if it is particularly important for them, and it is right that they should. I accept that there are issues for that group, but for any line drawn one can ask, “What about the people just below?” If we enrol people for trivial amounts of money, we will undermine the whole credibility of the scheme.
We have now had a whistle-stop tour through half a dozen private pensions issues, and I look forward to hearing hon. Members’ comments. I commend new clause 2 to the House.
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Stephen Timms: I welcome new clause 2, but I speak in favour of new clauses 9 and 10, and amendments 18, 19 and 20. I shall also respond to some of the points that the Minister has just made. I shall begin by endorsing the tribute the Minister paid to Evelyn Arnold, who is retiring from his Department this week. I very much valued her advice and the way in which it was delivered.
I welcome the fact that the Government have maintained the all-party consensus on the principle of auto-enrolment, based on the work of Lord Turner’s commission on behalf of the previous Government. I worked closely with Adair Turner in that period, and I pay tribute to him, and to his fellow commissioners—Jeannie Drake, now Baroness Drake of Shene in the other place, and John Hills—for their very important achievement in the commission’s report.
I say “all-party consensus” about auto-enrolment, but—as I suggested in my recent intervention—there has been some discussion in the last few days about the extent of that consensus. I notice that David Prosser, who knows something about all this, wrote in The Independent on Saturday:
“There is a growing fear that the Government is about to announce a postponement of auto-enrolment…every delay in pension reform will mean a more miserable old age for millions.”
I am glad, therefore, that the Minister has reaffirmed that the Government intend to go ahead with auto-enrolment on the timetable that has been announced.
It has been reported that Adrian Beecroft, who has given more than £500,000 to the Conservative party in the past five years and has, coincidentally, been asked to advise the Government on cutting burdens on business, has recommended in an interim report that auto-enrolment should be put on hold and scrapped entirely for small businesses.
No doubt there has been some lively discussion within the coalition about this issue, and it is encouraging to see the Secretary of State in his place on the Front Bench and agreeing with the Minister. The Financial Times quotes a Liberal Democrat official this morning as saying of Mr Beecroft:
“He is an ideological Tory donor recruited to give voice to deeply held prejudices in the Tory party. His report has no evidence base.”
I also noticed that the Liberal Democrat Equalities Minister told The Observer on Sunday that Mr Beecroft’s ideas would be “swept away”. We perhaps heard some sweeping away from the Minister this evening. I am pleased to hear his confirmation—endorsed by the Secretary of State—that there will be no delay in auto-enrolment and that small businesses will not be missed out.
I welcome, therefore, the maintaining of the previous consensus on auto-enrolment, and I hope that the position that Ministers have put to the House this evening will stand. However, I regret the dilution of the previous proposals in the Bill. Our amendments seek to address the watering down of the principle of auto-enrolment that the Government have proposed. The amendments would reduce the proposed three-month waiting period to one month. They would also limit increases to the earnings trigger for auto-enrolment to no more than the increase in either the general level of earnings or the national insurance lower earnings limit. That is to address the concern explained by my hon. Friend the Member for Aberdeen South (Dame Anne Begg), the Chair of the Select Committee in her intervention a few moments
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ago. The new clauses would put a duty on the Secretary of State to establish within two years a review into allowing transfers into NEST, and to review any order he makes on contribution limits in the scheme.
The Labour Government were determined to build cross-party consensus on pensions reform, and, thanks to Lord Turner’s commission, we succeeded. That was very important. We know that people have been under-saving for their retirement. It is estimated that 7 million people in the UK were not saving enough to provide an adequate retirement income. According to Scottish Widows, 20% of people were not saving at all for retirement. Overcoming that problem requires the establishment of a system that people can be confident will endure beyond a future change of Government. I welcome the fact that the principles have indeed survived a change of Government.
The levels of saving among people on low incomes are a particular cause for concern. While 77% of people earning £31,000 a year have savings, that applies to only 56% of people on average earnings and 44% of people on £18,000. The Office for National Statistics has reported that, thanks to the global financial crisis, pension savings fell by £2 billion in 2009-2010. The importance of tackling under-saving has risen even since auto-enrolment was first proposed.
The final report of the pensions commission in 2006 recommended three steps to tackle under-saving: a higher state pension age, restoration of the earnings link for the state pension and the introduction of automatic enrolment—the subject of these amendments. For a long time, inertia had acted against people building up sufficient savings for retirement. My hon. Friend the Member for Hampstead and Kilburn (Glenda Jackson) has commented on the effect of complex products on people’s understanding of the cost of products. Other demands on people’s income mean that people do not get around to saving. Auto-enrolment will harness inertia to the opposite effect by making saving, rather than not saving, the default option. We continue to support auto-enrolment into workplace pensions, and we are keen to maintain the consensus established for it. Partly for that reason, however, we cannot support the watering down proposed in the Bill.
8.30 pm
Amendment 18 would, as I said, reduce to one month the optional waiting period before an employee is enrolled into a pension scheme. As the Minister explained, the Bill proposes to give employers the option of not enrolling their employees for the first three months of their employment. For the employee, in many cases, that will mean the loss of three months’ employer contributions to their pension pot each time they start a new job. Recent research for his Department has shown that people have, on average, 11 jobs in their working lives, and all the indications are that that number is likely to rise. For an average employee, therefore, the three-month window could mean the loss of 33 months’ contributions over their working lives. That is no small sum, amounting, it is estimated, to a 7% reduction in final pension funds.
The effect on some groups will be far greater than on others. Agency workers, for instance, who change jobs more regularly will lose even more months of contributions. They do not save as much as the rest of the population, and a three-month threshold would put them at a
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significant disadvantage. As well as the cost to employees in lost employer contributions, the principle of auto-enrolment would bear a cost from this change. If an employee receives their full wage—without pension contributions being deducted—for the first three months of their employment, they might be less willing to sacrifice their salary when the three months are up and so be more likely to opt out when auto-enrolment is applied to them.
According to the DWP’s impact assessment, the waiting period will also hit disproportionately younger employees who change jobs more frequently. The aim of auto-enrolment is to build up a savings culture, but to do that throughout the work force, we need to start young, yet this change chips away at the effectiveness of auto-enrolment for young people. The saving to employers in administrative costs—the Minister touched on this—which the Government argue is the main reason for introducing the waiting period, will be fairly modest: the Johnson review put it at about 2% of total annual costs to employers. I therefore suggest to the Minister that there does not seem to be a case in principle for why the group of employees likely to be affected disproportionately by the change should lose the employer contributions that they would otherwise receive.
Our amendment 18 would reduce the waiting period to one month. We understand the argument that enrolling someone who is at work for a brief period could be unduly costly, but setting the period at one month would lessen significantly the detrimental impact on savings and reduce the amount of lost contributions from employers to employees’ pension savings.
Steve Webb: This is obviously a balancing act, but one reason for going beyond one month is seasonal workers. Given that the summer lasts longer than four weeks—perhaps not in Britain, but in general—the right hon. Gentleman’s proposals would bring fruit pickers into auto-enrolment. Does that not bother him?
Stephen Timms: No, it does not bother me. The people in that kind of employment might well fall into the category that the Minister mentioned earlier—people who progress later in their working lives, and the earlier that they start their pension saving the better. If they are in a job for more than one month, I would welcome giving them the ability to start saving for their retirement.
Dame Anne Begg: As someone who, in their young days, was a fruit picker in Angus, picking strawberries and raspberries, I think that the only way a fruit picker might end up in auto-enrolment would be if they had other jobs throughout the year that put them above the threshold. However, I can assure the Minister that the three months of the summer for which one would be fruit picking would be unlikely to generate the income that one would need to get over the threshold.
Stephen Timms: I could not have wished for a more effective endorsement of the case that I have put to the House. I am grateful to my hon. Friend.
The Government’s waiting period would incur significant costs through lost contributions for 500,000 employees at any one time and amounting to 7% of an average worker’s fund over a lifetime. Those losses undermine the principle of auto-enrolment and substantially outweigh the benefit from the small reduction in the annual costs to employers.
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Amendments 19 and 20 would link the earnings trigger for auto-enrolment to the increase in either earnings or the lower earnings limit for national insurance. As the Minister set out earlier in his exchange with my hon. Friend the Member for Aberdeen South, the Bill will link the level of earnings at which people are auto-enrolled to the higher income tax threshold, with the level reviewed in future according to a number of factors. However, like the three-month waiting period, this measure will exclude a significant number of people from auto-enrolment. Those people will by definition be lower-paid workers, who we know already save proportionately less than others. We also know that they are disproportionately likely to be women.
Earlier the Minister touched on the aspiration that the income tax threshold will in due course rise to £10,000. As my hon. Friend said, there would be a worry if all those earning less than £10,000 were in due course excluded from auto-enrolment as a result. The National Association of Pension Funds has pointed out that that would exclude 17% of all employees and 27%—more than a quarter—of women employees. Adrian Beecroft might be pleased about that, but the Minister should not be. Pension contributions would remain payable on earnings above the national insurance threshold under the plans in the Bill. The TUC has pointed out that moving to that scenario would create a big cliff-edge, so that people would get to, say, £10,000 and suddenly find a large chunk of their earnings deducted, having previously not had anything deducted automatically. That would create a significant disincentive, which the Bill ought to avoid, to enrolment.
We have heard about the basis on which the Government intend to raise the earnings trigger. Their worry is that saving will not deliver sufficient benefits in retirement to be worth while for many people earning below the income tax threshold. However, the Government’s own report shows that most people earning around £8,000 to £9,000 a year will not be earning consistently or permanently in that range, as the Minister underlined, but will move up the income scale.
Stephen Lloyd (Eastbourne) (LD): Does the right hon. Gentleman not agree that the danger of starting when incomes are too low is that the amount in the pot might be so risibly low that it would undermine the obvious advantages that auto-enrolment will deliver over the next 20 years or so?
Stephen Timms: The hon. Gentleman has a point—the Minister also made that point—which is that if the threshold was down at the national insurance threshold, the amounts involved could be tiny. What I am suggesting in our amendments is that the way in which the higher threshold that has now been agreed is subsequently uprated should be constrained. If it is not, a large number of people could be undesirably excluded from auto-enrolment at a time when it might be very much to their advantage to be included, particularly if the threshold goes up to £10,000.
The Minister will tell us—indeed, he already has —that people whose earnings are between the contribution threshold and the earnings trigger can opt into the scheme if they feel they are missing out. However, people have always been able to opt in; the problem is that they have chosen not to. That is why we have
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auto-enrolment. The point is that opt-ins have not worked. We need a step change. It is unfair to exclude people on lower wages, because they need to be part of the scheme too.
Our two new clauses would place a duty on the Secretary of State to review allowing transfers into NEST and the contribution limits on the scheme. The limits on transfers in and annual contributions were a factor in creating consensus on auto-enrolment—the Minister was right about that. They were correct at the time, and helped us to focus the scheme on where it was needed.
The Johnson review that the Government commissioned was clear about what ought to happen next. It made the point that the Government needed to review those two areas before the planned 2017 review. Paul Johnson said:
“Government and regulators should review as a matter of some urgency how to ensure that it is more straightforward for people to move their pension pot with them as they move employer, so that by the time of the 2017 review the more general issue of pension transfers has been addressed and NEST is able to receive transfers in and pay transfers out.”
The Minister suggested that to do two reviews would muddle things, but that is precisely what the Johnson review calls for, and I think that it does so with good reason. The report argues that that will be
“critical to the success of the reform”.
If this review does not occur before 2017, savers will spend years with fragmented savings in numerous pots that they are unable to combine. They will lose out on the benefits of being able to purchase an annuity on better terms as a result of having one, larger pot of money rather than several small ones. In some circumstances, they might also lose out due to higher management charges or as a result of deferred member penalties.
The Minister has offered some encouragement on this. I notice that he told a pensions conference last month of his vision that people will end up with what he described as “one big fat pot” instead of lots of little ones. However, no provision to review transfers in before 2017 appears on the face of the Bill, which means that people will continue to have lots of little pots, and his vision will remain unfulfilled.
It is right that contribution limits are in place while NEST is being established, but we should look again at whether those limits are necessary sooner rather than later. The Johnson review recommended that the Government legislate to remove the cap in 2017, which would be difficult if the review were commencing only in that year. The amendment therefore provides for a review in 2014. We remain wholeheartedly on the side of the consensus over auto-enrolment, but we believe that some changes are needed.
I shall also be listening with great interest to the speech of the hon. Member for West Worcestershire (Harriett Baldwin) in favour of her new clause 1. I was pleased that the Minister sounded well disposed towards it, although we shall need to know precisely what is going to happen to make its aims a reality. I hope that we can make progress in that area, as well as in the others that I have mentioned in my speech.
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Harriett Baldwin: I should like to discuss auto-enrolment in general, and new clause 1 in particular. The new clause has been tabled in my name and those of my colleagues on the Work and Pensions Select Committee and several other hon. Friends. This part of the Bill enjoys much greater cross-party consensus than the matters that we were discussing earlier.
Auto-enrolment will improve the pensions landscape in this country for ever. For the first time, millions of ordinary workers will be brought into personal pensions. Between 3 million and 4 million women will begin pension savings, and a total of 10 million pension savers could be created by the massive nudge that they will get from this part of the Bill.
For a typical worker on an average income, the expectation is that, from the age of 22 until their retirement at, say, 67, there is much more likely to be a persistency of saving. For example, a woman earning £25,000 who is saving 5% of her income would save £100 a month. Her employer would make up a similar amount and, with tax breaks over her working lifetime and reasonable investment growth, that regular savings habit could create a pot worth some £200,000 in today’s money. Pessimists have said that that would provide an income of only about 45% of that person’s earnings in retirement, but I say that that is 45% more than they would have had without this enormous nudge. I welcome this step, which I believe will, in the fullness of time, reduce the number of my constituents who as pensioners really worry about making ends meet.
8.45 pm
Albert Einstein described compound interest as the eighth wonder of the world, but sadly too many Britons have learned only about the negative effects of compound interest on their credit cards. However, with auto-enrolment in pension savings, many more will learn of the plus side for their personal balance-sheets.
New clause 1 was tabled because many of us are concerned about the point at which individuals retire and convert their pot of money into their retirement income. According to the Minister earlier, about 60% of people with such a retirement pot do not move to another provider at the time they take their retirement income. Just as auto-enrolment is designed to nudge a person out of inertia about their pensions savings, so new clause 1 would give a person a great big nudge to prevent them from failing to shop around for a better retirement income.
Dame Anne Begg: Does the hon. Lady accept that there might also be a nudge to the pension providers? If they know that they will not automatically get the business from those who have saved with them throughout the lifetime of their pension savings scheme and that that group of people is likely to shop around, those pension providers might improve the annuity on offer to individuals.
Harriett Baldwin:
That is an excellent point, and I hope we all fervently agree that competition in this area would be an excellent improvement. Locking in your retirement income is the second most important financial decision that you will ever make. I apologise; I do not mean you, Madam Deputy Speaker, but an individual.
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Unlike buying a house, however, it is a completely irreversible decision—one that will last for the rest of the individual’s life.
The different rates offered by different providers could mean one’s retirement income being as much as 20% lower if one does not shop around. If we are unlucky enough to suffer from high blood pressure, diabetes, a heart condition, kidney failure, certain types of cancer, multiple sclerosis or chronic asthma or if we smoke, the one bright side is that a 40% higher retirement income could be achieved by shopping around. People who have enjoyed good health in their career but been in a hazardous occupation such as mining might find someone who will offer them a better retirement income. The right hon. Member for Croydon North (Malcolm Wicks), who is no longer in his place, knows that this does not apply to the state pension, but for the pensions we are talking about that involve the insurance market, those factors do apply. My fellow Select Committee members and I thus feel strongly about the value of this particular approach.
Kate Green: I am pleased to welcome the hon. Lady’s new clause. Does she agree that many people are reluctant or even in denial when it comes to facing decisions about their pensions and that there is a real opportunity here to spread a good news message about both the value of saving and making positive decisions about how to invest the product of that saving, thus providing an opportunity for the pensions industry to get on the front foot in engaging people in their long-term financial security?
Harriett Baldwin: I welcome that sensible intervention. I think this will completely transform the landscape. I spoke about an individual with a £200,000 lump sum at retirement. If we multiply that by the up to 10 million additional savers that we could be looking at, it shows how this country’s savings culture is going to be transformed. The scale of the issue to which new clause 1 refers will get much bigger over time.
The Minister reassured us in his earlier comments that there is a cross-departmental working group. I certainly hope that that group will move quickly to come up with some firm recommendations. I know that all who are signatories to this particular new clause look forward to that. We look forward, too, to seeing the action that will come about as a result.
Teresa Pearce (Erith and Thamesmead) (Lab): I strongly support the principle of auto-enrolment. As was pointed out by the hon. Member for West Worcestershire (Harriett Baldwin), it means that from 2012 onwards, millions of people will save for a pension for the first time. We need a low-cost, trustworthy system in the United Kingdom if we are to begin to lift future generations out of pensioner poverty.
I fully support the establishment of NEST, as currently only 50% of employees contribute to a private pension, and for many of those on lower incomes the current system is poor. Research has shown that if a typical British and a typical Dutch person save exactly the same amount for their retirement, the Dutch person will end up with a 50% larger pension under the current scheme. I believe that that is because in the UK it is often not clear how high pension charges can be. For instance,
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a person who is sold a pension and charged at 1.5% per annum may not realise that over the lifetime of the pension, 38% of their possible income could be lost to fees.
In the past, pension companies were unwilling to provide the low-cost pensions of the type needed under auto-enrolment, as they felt that the ordinary low-paid workers had what the industry deemed “unattractive lives”—a somewhat derogatory term which simply meant that it was not easy to make money out of those policies. Indeed, it was because of the failure of the current structure to provide such pensions that it was necessary to establish NEST.
I welcome auto-enrolment, I welcome NEST and I welcome new clause 2, but three points cause me concern. My concern about auto-enrolment was prompted by some of the evidence given to the Work and Pensions Committee relating to a lack of regulation. I was troubled to hear that there would be no restrictions on how workplace pension savings are invested, and no record-keeping requirements for providers. The meeting between the Select Committee and the Pensions Regulator gave me very little reassurance. It appears that during the drafting of the Bill, many interested parties gained concessions. Employers, whether large, small or micro—along with the pensions industry—have been pleased to note that restrictions will be placed on NEST, but not necessarily on other alternative providers.
I believe that the restrictions placed on contributions to NEST, a vehicle for workers whose employers have no pension provision, may push some employers who are new to the pensions arena towards less scrupulous pension providers, I realise that NEST is aimed at lower earners, but some of the restrictions placed on it may nudge employers who are baffled by the choices facing them towards a pension provider that does not have such restrictions, but may well provide an unattractive pension scheme for the employee. It appears that the industry and employers have been around the negotiating table, but that the employees’ voice has not yet been heard.
If employers reject NEST because of the contribution limit, or other limits, they may place employees in schemes with unfairly high charges. I am deeply concerned about the apparent lack of a quality test for schemes that would be deemed to be a qualifying alternative to NEST. We know from past mis-selling scandals that too few people understand how charges, and pensions, work, and that—as in the case of the mis-selling of endowment policies—it can take many years for such practices to come to light. I ask the Minister to consider, with the benefit of hindsight in regard to previous mis-selling problems, what measures he intends to take to ensure that we do not store up similar troubles with auto-enrolment outside NEST.
My second point, which the Minister has touched on, relates to the ban on transfers to NEST, which resulted from lobbying from the pensions industry and which will benefit that industry at the expense of employees in the scheme. Under the current rules, people who are auto-enrolled in a scheme and go into NEST will not be able to move existing pots into the scheme. Such a ban cannot benefit the very employees and future pensioners whom we are trying to assist; it can only support the industry. I believe that a modern pension in a modern age should be portable, and that provisions for transfers
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in and out of NEST should be included in the Bill even if they cannot be implemented immediately. I welcomed some of the reassurances given by the Minister in his opening remarks.
My third reason for concern is the three-month waiting period. Although I understand the need to balance the administrative burden for businesses, it means that half a million fewer people will be automatically enrolled. As has been pointed out twice already today, nowadays many people have 11 different employers over their lifetimes. I would support a reduction to one month. Nevertheless, employees are currently able to opt in to the system from the first day of their employment, but they need to know that they have that right. I urge the Minister to amend the measures to require employers to ensure that employees are aware from when they start their employment that they can opt in from day one and receive employer pensions contributions.
The pensions cap combined with the three-month opt-out and the inability to transfer into NEST will prevent casual workers and part-time workers—mainly women—from building a decent pot, even though that is our aim. I ask the Minister to consider these concerns and in his closing remarks to give the House further assurances as to how they can be addressed.
Glenda Jackson: I rise to speak in support of the new clause of the hon. Member for West Worcestershire (Harriett Baldwin). I also strongly endorse everything my hon. Friend the Member for Erith and Thamesmead (Teresa Pearce) has just said. I, too, strongly support auto-enrolment. It offers a genuine breakthrough in attracting those people who presume that saving has nothing to offer them, which is not infrequently because their wages have been extremely low.
This scheme requires greater Government support, however. I was concerned by the Minister’s somewhat sanguine attitude towards what the established pensions industry is going to do. As the hon. Member for West Worcestershire said, millions of people will for the first time feel encouraged to begin to save for their future.
Those people have always been out there, but the existing pensions industry has done absolutely nothing to attract them into savings. If it is suddenly interested in this new market, I wonder what it finds so attractive. The Minister referred to the CBI, which is a confederation of major employers. However, from my point of view the real silver lining of the scheme is that it will attract employers who employ only a few staff and their employees.
I am not making a party political point here, but we are currently in a period when people’s standards of living are falling. The most recent report from the Institute for Fiscal Studies found that most people’s standard of living has fallen by 7%. That will serve only to reinforce the existing reluctance of small business men and their employees on low incomes to see any benefits in saving for the future, and the pensions industry does not seem in any way geared up to make it attractive.
My hon. Friend spoke about the mis-selling scandals of the past. I need only refer to payment protection insurance. The mis-selling of that was conducted by bankers, and at that time they were considered to be rock-solid people, although that assessment has now
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changed dramatically in this country and the entire world. There have been far too many examples of excessive charges. I have also referred to the impenetrable documents issued to us by our pension providers. The problem is not simply their length or the smallness of the print; they are completely incomprehensible.
I understand that the Government cannot simply say to everybody, “Listen, the only scheme you should go into is this new scheme, NEST.” However, as that option is not available to them, they must work with the existing pensions industry to ensure that safeguards are in place.
The Government have attempted to make some changes in another supposedly competitive industry: the energy industry. They have markedly failed, however. There is no genuine competition in that industry. We, the people who have to pay the bills, know that, and Which? has said it, as have Ofgem and the Government.
This measure is a major step forward and, as I have said, I absolutely endorse it, because it genuinely seems to be a way of ensuring that people can have a more secure future for themselves. Not only that, but we also hope it will relieve the tax burden for generations to come and it should give people a greater sense of being in charge of their own destinies. However, that is not possible if they are not absolutely satisfied and guaranteed that the pensions being sold are actually transparent and honest, and that the detail is specific and clear to them—
9 pm
Debate interrupted (Programme Order, this day).
The Deputy Speaker put forthwith the Question already proposed from the Chair (Standing Order No. 83E), That the clause be read a Second time.
New clause 2 accordingly read a Second time, and added to the Bill.
The Deputy Speaker then put forthwith the Questions necessary for the disposal of the business to be concluded at that time (Standing Order No. 83E).
Amendments made: 15, page 11, line 40, leave out
‘In section 30(5) of the 2008 Act’
‘( ) Section 30 of the 2008 Act is amended as follows.
Amendment 16, page 11, line 41, at end insert—
‘( ) In subsection (6)(b) omit “(in accordance with section 20(1))”.’.—(Steve Webb.)
‘(1) In section 181 of the Pension Schemes Act 1993 (interpretation), in the definition of “money purchase benefits” in subsection (1), for “which are not average salary benefits” substitute “which fall within section 181B”.
(2) After section 181A of that Act insert—
“181B Money purchase benefits: supplementary
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(1) This section applies for the purposes of the definition of “money purchase benefits” in section 181(1).
(2) A benefit other than a pension in payment falls within this section if its rate or amount is calculated solely by reference to assets which (because of the nature of the calculation) must necessarily suffice for the purposes of its provision to or in respect of the member.
(3) A benefit which is a pension in payment falls within this section if—
(a) its provision to or in respect of the member is secured by an annuity contract or insurance policy made or taken out with an insurer, and
(b) at all times before coming into payment the pension was a benefit falling within this section by virtue of subsection (2).
(4) For the purposes of subsection (2) it is immaterial if the calculation of the rate or amount of the benefit includes deductions for administrative expenses or commission.
(5) In this section references to a pension do not include income withdrawal or dependants’ income withdrawal (within the meaning of paragraphs 7 and 21 of Schedule 28 to the Finance Act 2004).”
(3) In section 99 of the Pensions Act 2008 (interpretation) in the definition of “money purchase benefits” for “which are not average salary benefits” substitute “which fall within section 99A”.
(4) After that section insert—
“99A Money purchase benefits: supplementary
(1) This section applies for the purposes of the definition of “money purchase benefits” in section 99.
(2) A benefit other than a pension in payment falls within this section if its rate or amount is calculated solely by reference to assets which (because of the nature of the calculation) must necessarily suffice for the purposes of its provision to or in respect of the member.
(3) A benefit which is a pension in payment falls within this section if—
(a) its provision to or in respect of the member is secured by an annuity contract or insurance policy made or taken out with an insurer, and
(b) at all times before coming into payment the pension was a benefit falling within this section by virtue of subsection (2).
(4) For the purposes of subsection (2) it is immaterial if the calculation of the rate or amount of the benefit includes deductions for administrative expenses or commission.
(5) In this section references to a pension do not include income withdrawal or dependants’ income withdrawal (within the meaning of paragraphs 7 and 21 of Schedule 28 to the Finance Act 2004).”
(5) In paragraph 1(2) of Schedule 10A to the Building Societies Act 1986 (disclosures about directors etc), in the definition of “money purchase benefits”, for “which are not average salary benefits” substitute “which fall within paragraph 1A”.
(6) In that Schedule, after paragraph 1 insert—
1A (1) This paragraph applies for the purposes of the definition of “money purchase benefits” in paragraph 1(2).
(2) A benefit other than a pension in payment falls within this paragraph if its rate or amount is calculated solely by reference to assets which (because of the nature of the calculation) must necessarily suffice for the purposes of its provision to or in respect of the director.
(3) A benefit which is a pension in payment falls within this paragraph if—
(a) its provision to or in respect of the director is secured by an annuity contract or insurance policy made or taken out with an insurer, and
(b) at all times before coming into payment the pension was a benefit falling within this paragraph by virtue of sub-paragraph (2).
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(4) For the purposes of sub-paragraph (2) it is immaterial if the calculation of the rate or amount of the benefit includes deductions for administrative expenses or commission.
(5) In this paragraph references to a pension do not include income withdrawal or dependants’ income withdrawal (within the meaning of paragraphs 7 and 21 of Schedule 28 to the Finance Act 2004).”
(7) The amendments made by subsections (1) and (2) are to be regarded as having come into force on 1 January 1997.
(8) The amendments made by subsections (3) and (4) are to be regarded as having come into force at the same time as section 99 of the Pensions Act 2008.’—(Steve Webb.)
Brought up, and added to the Bill.
‘(1) The Secretary of State may by regulations make transitional provision in relation to the coming into force of the amendments in section [Definition of money purchase benefits].
(2) That provision includes in particular—
(a) provision disapplying the amendments in section [Definition of money purchase benefits] in relation to an occupational or personal pension scheme which is wound up before the coming into force of that section;
(b) provision disapplying the amendments in section [Definition of money purchase benefits] to any extent, or as regards any period, in respect of an occupational or personal pension scheme in relation to which those amendments would otherwise have applied on the coming into force of that section;
(c) provision modifying the application of an enactment in respect of an occupational or personal pension scheme in relation to which the amendments in section [Definition of money purchase benefits] apply on the coming into force of that section;
(d) provision requiring trustees or managers of an occupational pension scheme in relation to which the amendments in section [Definition of money purchase benefits] apply on the coming into force of that section to obtain an actuarial valuation of a description specified in the regulations.
(3) In subsection (2) “occupational pension scheme” and “personal pension scheme” have the meanings given by section 1 of the Pension Schemes Act 1993.’—(Steve Webb.)
Brought up, and added to the Bill.
‘(1) The Secretary of State may by regulations make consequential or supplementary provision in relation to the amendments made by section [Definition of money purchase benefits].
(2) In section 307 of the Pensions Act 2004 (modification of Act) in subsection (2) after paragraph (b) insert—
“(ba) Part 3 (scheme funding),”.’—(Steve Webb.)
Brought up, and added to the Bill.
‘(1) The Secretary of State may by regulations amend for any purpose the definition of “money purchase benefit” in the Pension Schemes Act 1993, the Pensions Act 2008 or Schedule 10A to the Building Societies Act 1986.
(2) Regulations under subsection (1) may in particular amend the provisions inserted by section [Definition of money purchase benefits] above).
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(3) Regulations under this section may include transitional, consequential or supplementary provision.’—(Steve Webb.)
Brought up, and added to the Bill.
‘(1) Regulations under this Part may—
(a) make different provision for different cases (including different provision for pension schemes of different descriptions);
(b) provide for a person to exercise a discretion in dealing with any matter;
(c) amend Acts (as well as other enactments);
(d) have retrospective effect.
(2) Regulations under this Part must be made by statutory instrument.
(3) A statutory instrument containing regulations under this Part which amend an Act may not be made unless a draft of the instrument has been laid before, and approved by resolution of, each House of Parliament.
(4) A statutory instrument containing any other regulations under this Part is subject to annulment in pursuance of a resolution of either House of Parliament.’—(Steve Webb.)
Brought up, and added to the Bill.
Amendment made: 17, page 22, line 1, at end insert—
‘() sections [Transitional] to [Regulations];’.—(Steve Webb.)
9.1 pm
Mr Duncan Smith: I beg to move, That the Bill be now read the Third time.
I welcome the hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East (Gregg McClymont) to his place. Notwithstanding our earlier little exchanges, I unreservedly welcome him. I am sure that he will be a great asset to his party, and I look forward to other clashes and debates that we may have as time goes on. I thank the Members on both sides of the House who served with distinction on the Public Bill Committee for their help in scrutinising the Bill. They have had to hang around for quite a long time, but we are where we are now. I also thank the Opposition for their approach to many of the positive debates on the Bill’s clauses. May I also extend my appreciation to my hon. Friend the Member for Altrincham and Sale West (Mr Brady) and the hon. Member for North Ayrshire and Arran (Katy Clark) for chairing the Committee sittings through those longer moments?
It is also right that I pay tribute to my hon. Friend the Pensions Minister for his commitment to taking this important legislation through this House. If there is anybody in government who has championed the cause of the low-paid in pensions, it is him. It is a privilege and pleasure to work with him in this coalition—a very firm coalition in our case. On a departmental point, may I back him up on what he said about one of our civil servants, Evelyn Arnold, whom the right hon. Member for East Ham (Stephen Timms) knows? She is retiring after a long time and has seen so many of these things go through, and it is right for us to thank those who
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serve us without normal comment. So, without question, I thank her for the time she has spent, on behalf of all parties in government, getting this sort of legislation through.
Over the past few months, a number of amendments were made that I believe have improved the Bill, and I shall run through them. With the blessing of the House, I do not intend to spend much time on them because we have been through them a lot. Amendment 1 related to the consumer prices index underpin, where we have listened to concerns and responded by ensuring that schemes that use the retail prices index will not have to uprate by CPI in the years when it is higher. We have heard the issues raised on deferred member charges and, having listened, we have extended an existing reserve power to cap charges to also cover deferred members. That enables the Government to protect all scheme members from high charges regardless of what might come in the future, which is an important feature. Thirdly, we have also made an amendment to clarify the definition of money purchase benefits in light of the Supreme Court’s recent judgment in Houldsworth v. Bridge, ensuring that schemes and members continue to have adequate protection.
The House will be aware that we have listened and responded to concerns about the women most affected by the accelerated rise in the state pension age. Last week we announced that no women will see their state pension age increase by more than 18 months. We have always been clear that our policy will not change and we will still equalise the state pension age by 2018 and increase it to 66 by 2020. We have, however, honoured the commitment I gave on Second Reading to ease the transition process for those who are most affected. I listened with interest to the debate, but the point that is sometimes missed is that the adjustment means that nearly 250,000 women will have a lower state pension age as a result of the change, as will a similar number of men: 500,000 people at a cost of just over £1 billion in the next spending period. We should not sniff at that.
Mr Duncan Smith: Before I give way to the right hon. Gentleman, let me make a small point. I understand why the Opposition want to trumpet a great deal about this. Having sat in opposition, I understand that getting self-righteous about such things in defence of others who raise them is exactly what Opposition Members do. As some of my hon. Friends said earlier, however, unless the Opposition can guarantee that they will reverse the measure if and when they come into government, in essence they are doing something quite cynical by raising the hopes of women outside, knowing only too well secretly that they will never make the change. If I give way, I would like to hear that the Opposition absolutely plan to reverse this measure and change it in government.
Stephen Timms: One thing the Opposition are entitled to do is ask the Government to explain why they are doing what they are doing. At a time when the Government are increasing the state pension age by one year for many people, what is the justification for picking out 500,000 women and treating them more harshly than everybody else?
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Mr Duncan Smith: I think the right hon. Gentleman knows the answer to that question. It is wholly part of the process of equalisation and of moving everybody on at the same time for the extra year’s increase. That answers his point, but, as he knows in his heart of hearts—I consider him a reasonable man in his dealings most of all—the real point is that had Labour been in government, I suspect that they would have done almost exactly the same things.
The generation below my generation is likely to retire on a lower income in retirement, the first generation to do so, as a result of all the problems we have had with the economy—which the previous Government left for us and for which we never get an apology—and the reality that not enough people have been saving. We are about to condemn a generation of people who will struggle to save for their pensions and who will have to pay off elements of the debt that we—this generation going through Parliament—have overseen while at the same time paying for those who are already in retirement, and we must do something to help them rid us of that debt so that they do not pick up such a large proportion of it and are not saddled with it as they attempt to bring up their children and earn a living at the same time.
Stephen Timms: The Secretary of State is explaining why the state pension age needs to be raised and our amendments did not oppose the increase of one year. We are still waiting, however, for some justification why this particular group of 500,000 women must wait more than a year—longer than everyone else—to reach their state pension age.
Mr Duncan Smith: I think I have explained that. As I said earlier and as the right hon. Gentleman knows well, the acceleration is about reaching equalisation in time to move the age to 66. We can bandy this subject about, but the point remains that the Opposition must come to terms with something quite important. The hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East, who opened the debate on Report, suggested that £11 billion—he insisted on saying £10 billion, but I must tell him that the figure is £11 billion—was no great problem and not an issue in the great scheme of things. That is, in a sense, the problem. I remind him that to save £5 billion in real terms today straight off, we would have to cut the education budget by 10%. That is the nature of how we would have to find the money.
I simply say to the Opposition that I understand the rules of opposition—goodness gracious, we spent enough time in opposition ourselves—and the temptations that come with opposition, but realistically they should be saying to all those women that we have made a major move. We are prepared to spend an extra £1 billion to make sure that those who were excessively caught in that trap are not any more. I think that is fair and reasonable and that the Opposition need to explain to women up and down the land why they are making a big fuss about this when they know, cynically, that they would not overturn this if they came to government. That is a very cynical position to be in—to whip up this emotion outside and then calmly and quietly say, “Of course, we can’t change it.” I am afraid that is bad politics and bad decision making.
Glenda Jackson:
Perhaps the Secretary of State would like to hear what some of the women in my constituency think about the Government’s changes regarding their
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pension age. Their view is that the Government have made this very small change—it is a very small movement—which has nothing whatever to do with a concern for those women in their old age, because they are losing the women’s vote––and my constituents are not by nature cynical.
Mr Duncan Smith: After listening to the Opposition tonight, they ought to be. One thing I will be certain to tell them whenever I encounter them is that at least I am being honest about what we are trying to do. We inherited a major economic problem, with a deficit that was out of control and burgeoning debt—the two are linked just in case the Opposition do not remember that. The reality is that, on both counts, we are charged with reducing the amounts. That is not something that is given to just a few Ministers—it is ultimately about taxpayers and about those who get pensions.
We have listened and we have done something quite significant—not small—to give way. To cap this at 18 months and spend £1 billion is, as my hon. Friends have recognised, a big step. Of course, in a perfect world, as the hon. Member for Cardiff Central (Jenny Willott) said, if all things were equal we would have loved to be able to do more, but the reality that we face is that this country has to get its debt under control. As I said earlier, the real burden is not going to fall on the shoulders of the hon. Member for Hampstead and Kilburn (Glenda Jackson) or on mine but on those of our children and grandchildren if we do not do something about that debt. I am not prepared to think to myself, “I must charge around and say that I am worried about this group or that group.” I have to say to them honestly, “All of us, together, recognise that we must do the best for the next generation coming through,” as well as doing our best, as the Pensions Minister said, for those who are due to retire.
With the amendments in place, I believe that the Bill has reached Third Reading with its fundamental principles firmly intact. I have repeatedly said that the Bill is, in large part, about the next generation—a generation who will have to pay for their parents’ retirement while footing the bill for their own savings and also for the debt.
I want to discuss auto-enrolment which, as the right hon. Member for East Ham rightly said, was started by his Government. We committed to continue it and I like to think that we have done that in the best spirit possible, taking into account the difficult financial considerations. The key will be getting many more people into saving. As he knows, some 9 million to 10 million people will be eligible under the new system. That is why we are taking forward plans for automatic enrolment into pension schemes—plans that were debated and widely supported across the House.
The Bill refines some of the parameters of automatic enrolment legislation and ensures that we take forward a model that will work for the individual, I hope, as well as for the employers who will be our key partners in delivering these reforms. There was a question about the three-month point and I wanted to make a point about those who are in work for three months in these firms and then move on—90% will move on, so the issue we are dealing with concerns a much smaller group than people have been leading us to believe. I do not agree with those who say categorically that this is a
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problem for growth. Auto-enrolment is good for the country, good for people who save and, ultimately, good for growth because it puts the economy on a firm footing, based on savings. I stand here today categorically prepared to take on anybody on that basis, and I will continue to do so, as will the Pensions Minister and, indeed, all of us. Others who support us on this include the TUC, the CBI and the National Association of Pension Funds. I hope that, as a consideration, we will move forward on this together.
Finally, I want to touch briefly on the consumer prices index uprating and judicial pensions. I know that everybody in the House is worried about the judicial pension scheme that is going through in the Bill, but none the less we will press on. As I made clear on Second Reading, the Bill makes a few relatively minor changes to the legislation governing the uprating of occupational pensions. It amends references to the retail prices index to read instead the “general level of prices” to ensure consistency with the rest of the legislation. It does not specify the measure for the general level of prices. I am pleased to see that the Opposition support us in all of this, although after talking to some Opposition Back Benchers, I do not think they were aware that the Government and the Opposition are apparently as one on CPI.
On judicial pensions, I will simply say that this is a key part of building a more responsible pension system, and I am pleased that the provisions have received the widespread support of the House.
I shall conclude, as others may want to speak. When we introduced the Bill, we were clear about the principle behind it: a desire to secure a better deal for our children through incentivising saving and sharing the costs of retirement more evenly between the generations. I hope there are more changes to come, with the other pension reforms that my hon. Friend the Minister spoke about, which will incentivise saving and give people a base income in retirement that they can understand and calculate. These changes should be seen in the light of all those wider reforms. We are currently working on that state pension design and consulting on the option of a single tier. All this will, I hope, provide a better deal for many women and self-employed people who have historically tended to suffer poorer pension outcomes. The changes that we are making to our retirement system are designed to put it back on firm foundations, establishing a new and fairer settlement between young and old.
I return to one point. It is a challenge to any Opposition, I guess, to have been in government and created something of which they are justifiably proud—auto-enrolment. We wanted to continue with it and we have done our level best to do that. That is the most important and powerful part of this Bill of reform. Given the importance of auto-enrolment, and notwithstanding all the heat and light generated by the Opposition’s arguments today about the level and the speed at which the state pension retirement age has moved, when they sit down and consider what is in the Bill that we are about to pass—automatic enrolment to improve the savings and outcomes for people in future years—I hope the Opposition will do the right thing and support the Bill. On that basis I commend the Bill to the House.
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9.17 pm
Stephen Timms: The Bill certainly has some welcome features, as well as some very regrettable, unwelcome features. I shall touch on both aspects in my contribution.
The recommendations of the Pensions Commission chaired by Lord Turner were broadly accepted across the House. As Pensions Minister at the time, I was extremely impressed by the energy and commitment brought to their task by Lord Turner and his fellow commissioners, John Hills and the now Baroness Jeannie Drake. They were successful in putting together an all-party consensus, which has endured. We will continue to work consensually with the Government as far as we can for the strategy that was developed in the review.
The first element of that was auto-enrolment into a low-cost national scheme. I agree with the Secretary of State about the significance of that change and I welcome his confirmation that the Government will not move away from their commitment to auto-enrolment. The second element was an increase in the state pension age, and re-linking the level of the state pension with earnings was the third.
But it is not fair for the costs of this trinity of measures to be borne disproportionately by any one group in society, whether that group is defined by age, occupation or gender. The Bill would unfortunately affect some groups far more than others. We have just had a debate touching on the fact that young people and agency workers, who move jobs more frequently than average, are likely to lose many months of employers’ contributions because of the changes, as well as the chance of building up a savings habit, because of the introduction of a waiting period in auto-enrolment. Up to a million people on low wages would be left out of auto-enrolment owing to the increase in the level of the earnings threshold. But most significantly of all, and this is what gives us a real problem with the Bill, half a million women aged 56 and 57 will find themselves waiting up to 18 months longer for their state pension, and a third of a million will be waiting a full 18 months extra, with too little time to plan for the change. That is a serious problem.
We welcome the Government’s recognition that the original Bill was wrong, and what we have now is certainly a welcome change. I make no bones about welcoming the change that has been made, the concession in response to the big and entirely proper campaign that took place, but the Bill still leaves half a million women in the lurch. My hon. Friend the Member for Leeds West (Rachel Reeves) led the argument against the original ill thought-out plans, and I welcome the change that has occurred, but, with so many women still affected, Ministers cannot claim that they have solved the problem.
We understand why the state pension age is being increased by one year for many people, because the Secretary of State set out why and our amendments did not oppose the increase, but what has struck me about tonight’s debate is that no Government Member supporting the Bill has provided any justification why it is being increased by more than one year for half a million women—and not for a single man. What is the justification for picking out that group of half a million women and treating them more harshly than everybody else?
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Why are those women being picked out for worse treatment? We have been given no justification at all, except that it will save a lot of money. No doubt it will, but the Secretary of State has a responsibility to develop a policy that can be defended, that has some rationale to it, not simply telling us, “Well, this is going to save us a lot of money.” There needs to be some justification for the change that is being made, and no justification—at least none that I can understand—has been made at all for picking out that group of half a million women.
The Pensions Policy Institute recommends that 10 years’ notice be given for people to plan for a change in their pension age, and the Turner report recommended a longer period, but the plans in the Bill still give some women as little as five years, and that is simply not enough. It is just not fair to those affected to impose on them such a big change with so little notice.
Those women have relied on an implicit contract of reasonableness and fairness between government and citizens when planning their retirement, and, if the truth is that government cannot be trusted to keep its side of the bargain, how are people expected to plan for pensions saving at all? Pension saving is inherently long-term in character, but it simply will not happen if the Government make a habit of sudden policy lurches that undermine the assumptions on which people have been encouraged to build in the past, so it is no wonder so many women feel so badly let down by what the Government have done.
We are talking about a 10-year period beginning in 2016. Under the coalition’s plans, unless they are to continue the current effectively zero-growth policy indefinitely, those savings are about the long-term sustainability of the pensions system, and we support, as our amendments tonight supported, the proposal to find further savings, if necessary, by bringing forward the date at which the rise to 67 years old occurs, as long as people have time to organise their affairs and to plan accordingly. The sudden unpredictable lurch, not mentioned by either coalition party in the general election campaign or in the coalition agreement, has caused the problem.
As my hon. Friend the Member for Cumbernauld, Kilsyth and Kirkintilloch East (Gregg McClymont) stated on Report, our objection to this part of the Bill is that it achieves these very large savings solely at the expense of one age cohort of women, apparently on a wholly arbitrary basis. The data are very clear. Women have substantially lower savings than men, yet a group of women—older women who have the least time to plan for the change—are being asked to bear the cost. The Bill simply fails the fairness test, and for that reason, in particular, we cannot support its Third Reading. We understand that Ministers are worried about rapidly plunging popularity among women voters and we are told that they are puzzled about why that is happening. They should just take a careful look at the unfairness in this Bill, and they will find a ready explanation there. We will not support that unfairness in the Lobby tonight, and no one else who values fairness should do so either.