Written evidence submitted by the Citizen's
Advice Bureau (CAB)|
Citizens Advice welcomes the opportunity to present
evidence on the pension reforms, including those in the Pensions
Bill. In 2009-10 the CAB service helped 2.1 million people with
7.1 million issues. These included 26,600 relating to state retirement
pension, 89,000 to pension credit and 13,500 relating to personal
pensions, savings and investments.
We responded to two consultations in August 2010
by DWP on raising the state pension age, and by the Review on
Making Automatic Pension Enrolment Work. This evidence summarises
the points we made then and takes account of subsequent developments.
The Committee has highlighted three topics of particular
interest, and our response follows these.
1. The proposed accelerated increase in the
State Pension Age (and particularly the impact of the change on
We were concerned that the government's consultation
on raising state pension age (SPA) only discussed increases in
average life expectancy. It did not address the socio-economic
distribution of life expectancy, and current trends related to
this. Consequently no account has been taken of the impact that
raising state retirement age will have on those people who are
not fit and well enough to work until current state pension age,
or can expect only a short life in retirement. The Marmot
Review "Fair Society, Healthy Lives" (Feb 2010) showed
that there are significant geographic, income and socio-economic
variations in life expectancy and disability-free life expectancy.
Since poorer people tend to depend more heavily on state benefits
for their retirement income than wealthier people, it is important
that the government considers how raising the state retirement
age more quickly will affect poorer, less healthy and more vulnerable
people, not just the population as a whole.
Our main concern about the accelerated increase in
SPA is the impact that this will have on people who have health
problems that prevent them from working right up to SPA. Not only
will such people have to wait longer before they get their state
pension, they will also have to wait longer to obtain pension
credit, and they are likely to be victims of the government's
proposal to restrict the payment period of the work related component
of contributory ESA to one year.
Without any public consultation or discussion, the
government is proposing to make substantial changes to pension
credit eligibility in the Welfare Reform Bill. For couples it
is currently possible to claim pension credit guarantee at the
couple rate as soon as one of them reaches women's SPA. Single
people can claim as soon as they reach women's SPA. These provisions
are very valuable for people who lose their job in their early
60's, with little prospect of finding another, or who have become
unfit for work. The Welfare Reform Bill proposes that couples
will not be able to claim pension credit until both reach their
SPA. It is unclear what the detailed financial arrangements will
be for a couple claiming universal credit when one of them is
over SPA. For single people, it is not clear if pension credit
is to be restricted to claimants above "their" SPA (rather
than, as currently, anyone over women's SPA being able to claim
PC). This would disadvantage men who are over the SPA for women
but under men's SPA.
We suggest that the Committee should ask the minister
for the rationale for these proposals, why there was no public
consultation, and when an impact assessment will be published.
The CAB service sees substantial numbers of people
who become unable to work before SPA. Typically these are men
who have done manual work all their lives probably from the age
of 15 or 16. They are no longer able to do their usual work and
are unlikely to possess or be able to acquire the skills needed
to do other jobs. Currently, providing they meet the requirements
of the work capability assessment (itself a problematic issue),
they will receive CBESA until they reach SPA, even if they have
a partner in employment. This gives them a modest income in reward
for 40 plus years of national insurance contributions. If they
are in a low income household they can claim pension credit when
they meet women's SPA - currently more than 4 years before they
can get their state pension.
In future, they will lose their CBESA after a year,
and will qualify for no benefits if they have a working partner
or have household savings above £16,000 - modest for a household
approaching retirement. They will be well and truly on the scrap
heap. Then they will have to wait longer and longer as time passes
before they can get pension credit or state pension. They are
unlikely to enjoy a long retirement, and will get a poor reward
for their lifetime of national insurance contributions.
When we commented to the DWP on the proposal to increase
SPA, we suggested that the state pension scheme should be modified
to follow the example of many occupational pension schemes and
include an option for ill-health retirement. The case for this
change has been strengthened by the government's proposal to time
We suggest that consideration should be given to
introducing a state ill-health pension from, say the age of 55,
for people in this situation. This could be based, like the state
pension, on the person's long term National Insurance contribution
record, so recognising the payments these people have made over
their working lifetime. The costs should not be great since these
people will not generally have a high life expectancy.
2. The impact of the change to using the Consumer
Price Index to uprate workplace pensions
We are concerned that the government's eagerness
to switch to CPI indexation for most benefits, additional state
pension and for most workplace pensions is driven more by a desire
to reduce costs than by any careful evaluation of the appropriateness
of making the switch from RPI. We suggest that the Committee should
invite the government to undertake an assessment of the impact
of this change on the standard of living of workplace pensioners,
and upon recipients of state benefits which have been similarly
switched to CPI indexation.
3. The plans for auto-enrolment into workplace
pension schemes and the establishment of the National Employment
Savings Trust (NEST)
We are concerned that, in the absence of good quality,
readily available, preferably free advice, significant numbers
of employees will allow themselves to be auto-enrolled when they
are likely to face high Marginal Deduction Rates (MDRs) from the
private pension they will receive because of the impact on their
means tested benefits in retirement. The Pensions Policy Institute
has carried out a great deal of work on this topic. For example,
PPI Briefing Note Number 44 (March 2008) suggests that 20% of
people are likely to face an MDR of over 80%.
The people who are likely to face high MDRs will
be people on low incomes, including those with significant periods
out of work. Such people will be living in relative poverty during
their working life and may well have better things to do with
their earnings than to put 4% into a private pension offering
a very low rate of return.
Similar considerations will apply to people who have
high levels of debt and are struggling with their repayments.
With the recession, there has been an increase in the number of
people with debt problems - 2.4 million people sought advice on
debt issues from CABs in 2009-10a 23% increase on 2008-09.
People with debt problems need to consider carefully how they
use their income. For example, it may be better to pay off loans
and credit card debts, both of which charge high rates of interest,
rather than to pay into a private pension. For people with mortgage
arrears, it will clearly be better to use income to avoid losing
their home than to invest in a private pension.
While it may be possible to give some general pointers
to all employees about the circumstances in which they may wish
to opt-out of auto-enrolment, we think that everyone should have
the opportunity to access good quality advice to help them to
decide whether to opt out. For most people this advice will need
to be free to them, and consideration needs to be given to how
such advice can be provided and funded.
We are concerned that people who are employed on
pay which is at or near the minimum wage may struggle to find
the employee contribution to the scheme their employer must offer.
The phasing-in arrangements will soften this impact initially,
but for many people it will be a challenge to sacrifice 4% of
their wage. We do not think the answer is to discourage such people
from saving for their retirement. For those on tax credits, the
pension contribution is deducted from the person's gross income
to assess their income level, providing partial compensation for
their pension contributions for people with low household incomes.
It is unclear whether such compensation will be retained in Universal
Credit. It should be.
Further compensation could be provided to the lowest
paid by adjusting the national minimum wage to recognise that,
with auto-enrolment, most people will be sacrificing current income
to contribute to a pension.
We believe that it is sensible to phase in the new
scheme in the way proposed. We should like to see an explicit
commitment by the government to monitor the scheme during this
phased introduction, so that necessary improvements can be made
in the light of early experience.
We have two concerns about employer aspects of the
plans. The first relates to micro-employers, particularly frail
and disabled people who employ carers. It is government policy
to encourage local authorities to provide assistance to people
with social care needs by offering them direct payments or personal
budgets, rather than directly providing care. We support this
policy, but have become aware through casework, both with cared
for people and their paid carers, that some people with social
care needs are struggling to fulfil their responsibilities as
an employer. For example, CABs have seen cases where carers have
not been paid on time, or have not been given statutory holiday
entitlement, or where disciplinary and grievance procedures have
not been followed. Having to make private pension provision for
paid carers will be a further responsibility for this group of
micro-employers. We would like to see DWP work with DH to ensure
that social care local authorities are obliged to make support
on employer responsibilities, including the new pension responsibilities,
available to all their clients who are receiving direct payments
and individual budgets. We believe that a number of local authorities
already do so - for example, Hertfordshire County Council contracts
with Leonard Cheshire to provide such a service. It would be desirable
for such support arrangements to also be accessible to self-payers,
who do not qualify for local authority support.
Our second concern is that there should be effective
policing to ensure that employers, particularly small employers,
do not seek to encourage their employees to opt out of auto-enrolment.
Employers have a financial incentive to do this, and the nature
of the employment relationship in small firms, which is likely
to be relatively informal, will give them ample opportunities
to do so. CABs see many employees whose employers appear to have
scant concern or knowledge of their responsibilities towards their