The Single-tier State Pension: Part 1 of the draft Pensions Bill - Work and Pensions Committee Contents


The Government plans to replace current complex State Pension provision with a simplified Single-tier State Pension (STP). The legislative measures required to implement this reform were set out in Part 1 of the draft Pensions Bill published in January 2013, together with a White Paper setting out the detailed proposals.

The STP will be paid at a rate above the basic level of means-tested support (currently £142.70 per week). The Government's White Paper is based on an illustrative rate of £144 per week (in 2012-13 prices). Full entitlement will require 35 qualifying years of National Insurance Contributions or Credits (NICs). People with fewer qualifying years will receive 1/35th of the full rate for each qualifying year. There will be a minimum qualifying period, yet to be defined, but expected to be between 7 and 10 years.

We agreed to the Government's request that we undertake the pre-legislative scrutiny of this important reform. However, the Government has made it very difficult for us to carry out this task effectively; first, due to the extremely compressed timetable it imposed on us and then by the change it made in the implementation date (from April 2017 at the earliest to April 2016) very late in the scrutiny process.

It is clearly not possible for parliamentary committees to conduct effective scrutiny when the Government makes significant changes to reform proposals after the evidence-taking has concluded and so close to the deadline it has itself set for the scrutiny process to be completed.

We decided to proceed with publication of our report because these State Pension reform proposals are so significant and affect so many people. We believe that our recommendations remain valid and that it is important for our findings to be available to Parliament when it begins its scrutiny of the final legislative proposals for the Single-tier Pension in a few months' time.

We consider it imperative that the Government now carries out a further Impact Assessment of the Single-tier Pension proposals, taking full account of the implications of the changed implementation timetable for individuals, the pensions industry and employers, and that it publishes this assessment at the same time as the finalised Bill is introduced.

We welcome the improvements in retirement income that the STP will bring. It will mean more State Pension in the short to medium term for many people who have already had significant periods of low earnings or employment gaps, particularly women and carers, and who were not well covered by the Additional State Pension (SERPS and S2P). Although the overall impact is likely to be marginal for a number of people, there will be a clear short and long term benefit for certain groups, notably the self-employed.

The greater simplicity that the STP offers should give people more certainty about the value to them of saving into a private pension scheme and should therefore work in combination with the complementary policy of automatic enrolment into workplace pensions, introduced in 2012, to help increase overall retirement income for many people. However, the welcome clarity and simplicity that the new system will eventually bring will necessarily require a long and complex transitional period. It will affect all 40 million or so people of working age at the time of implementation.

The STP is intended to reduce reliance on means-tested benefits. Pension Credit will still be available but the Savings Credit element will be abolished, which in itself will reduce the numbers of people eligible for means-tested benefits. However, there will be pensioners on low-incomes who will still rely on other means-tested benefit, particularly Housing Benefit and Council Tax Support. The way in which the STP will interact with these benefits, and with other passported benefits available from both DWP and other government department, needs to be clarified.

One of the most significant changes the reforms will bring is that contracting-out will also end. This is the system under which employers who offer workplace pensions schemes, and the employees who are scheme members, can pay reduced National Insurance contributions in return for giving up entitlement to the Additional State Pension. This change affects pension schemes, employers and employees.

The pensions industry and employers had indicated to us in evidence that they were broadly satisfied with their involvement in the development of the contracting-out provisions in the draft Bill. However, they were expecting to have until April 2017 to prepare for the changes; they will now have a year less. This may well present them with a more significant challenge and it is vital that DWP continues to work closely with pension schemes and employers on the detailed arrangements for ending contracting-out, which will be set out in Regulations.

The key to the success of this reform is the way in which it is communicated to the public. There are already a number of misconceptions about what the STP will mean for individuals, including who stands to gain, who might lose, and whether individual entitlement that has already been built up might be lost. People closest to retirement understandably have the most immediate concerns. Many of these concerns have been raised with us during this inquiry. It is important that they are allayed as far as possible by the provision of accurate and understandable information at the earliest possible point in the process, particularly now that the implementation date has been brought forward by a year.

It is vital that the Government is in a position to indicate what its overall communications approach will be by the time the Bill is before Parliament in the early summer 2013. This should indicate what individualised information the DWP plans to make available, and how the internet will be used to disseminate information and help people understand the changes. It is particularly important that groups of people who may lose out, or who believe that they may lose out, are given accurate information so that they can assess whether they need to take remedial action, which might include making additional National Insurance Contributions.

It will only be possible for Parliament to make a proper assessment of the effects of the legislative proposals for the Single-tier Pension, and to judge whether remedial action or modification of the proposals are necessary, when it has sufficiently detailed information available to it. In addition to a revised overall Impact Assessment being required to take account of the earlier implementation date, we have indicated the specific issues on which DWP needs to provide more analysis of impacts, and costings of different options, when the finalised Bill comes before Parliament.

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