Oliver Colvile (Plymouth, Sutton and Devonport) (Con): I, too, congratulate my hon. Friend on his work. What impact will the new policy have on fishermen and the fishing industry in Plymouth? Has he estimated the likely size of the fishing stock over the next five years,

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and the likely increase in that stock? If he has not had an opportunity to do that, would he like to talk to experts at the university in my constituency? I am sure they could help him.

Richard Benyon: I am grateful to my hon. Friend for showing me the wonderful marine science hub in his constituency. Amazing work is being done there, demonstrating what a mobile and fluid ecosystem the marine environment is, and important work is also being done on acidification and sea temperature changes. It is impossible to be precise about the number of fish stocks and the trajectory of the rise, but we are already hearing a lot of good news. There is much more work to be done, but I hope that the combination of top-quality science that is respected internationally and the experience of the fishing industry will lead inexorably to greater prosperity for the industry.

Mr Bernard Jenkin (Harwich and North Essex) (Con): I join many other Members in all parts of the House in paying tribute to my hon. Friend for his tremendous efforts. Many people in Brightlingsea, Wivenhoe, West Mersea and Harwich are full of hope for the first time in a generation that they will be able to expand their industry—but is that not the test? Unless the under-10-metre industry expands on our coasts, the policy will have failed, and we shall have to think again. Will my hon. Friend undertake to persist in his efforts, and may I thank him for them?

Richard Benyon: I am grateful to my hon. Friend. He was keen to put me in touch with those in the fishing industry in his constituency, so that I could listen to them and observe at first hand the impact of the industry on the local community, and its intrinsic links with tourism and a community’s sense of place and worth. Nowhere is that more apparent than in my hon. Friend’s constituency.

There is a vibrant marine environment just off the coast of that part of Essex. A variety of stocks are fished in the same waters. The European Union, with its one-size-fits-all common fisheries policy, has never seemed to understand that complexity. Now we have a system that will enable us to try to introduce some common sense that will benefit the fishermen in my hon. Friend’s constituency. We want that to be at the heart of the detailed, technical management of an overarching policy.

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Mr Philip Hollobone (Kettering) (Con): When the history of the common fisheries policy comes to be written, I hope it will be acknowledged that it simply would not have been possible to end discards on this timetable without the leadership, determination and tenacity of the Minister, my hon. Friend the Member for Newbury (Richard Benyon). In his own words, he confesses that the CFP is still broken and flawed, however, so given his expertise, newly acquired, will he give serious consideration to continuing as fisheries Minister when the UK repatriates its fishing grounds and territorial waters after 2017?

Richard Benyon: I know where my hon. Friend is going with this. I am obsessed with an ecosystems management of our fisheries. Fish do not have passports; they do not understand lines on maps, and they may spawn in one country’s waters and mature in another’s. Therefore, whatever our status within the EU, we need to have a system, and that means we have to talk to all the countries who have responsibility for that ecosystem, and some of them in the North sea are not members of the EU, yet we talk to them and we work with them. That is the way to manage conservation properly.

Neil Carmichael (Stroud) (Con): As a firm supporter of the Fish Fight campaign, I take great pleasure in the Minister’s statement and welcome it; I applaud him on his considerable achievement. Does he agree that his success demonstrates that the UK can work constructively with our European partners by seeking allies and making sure that we make a case for reform where necessary, and that that is how the reform of the CFP, first entered into by the UK in 1982, has been done?

Richard Benyon: My hon. Friend makes a good point. Interestingly, in these negotiations I was sometimes the first British Minister in Brussels and would follow a speech by someone from another country who was much higher up the pay grade than me. People in this country were saying, “The UK is going to be marginalised,” but that was absolutely not the case. We were front and centre in driving this reform. We built alliances, particularly, but not exclusively, with big-voting countries such as Germany and the other northern European countries. By being diplomatic and working hard with people, we can reform some of the worst policies the EU has come up with. That bodes well for the future.

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Pensions Bill

[Relevant documents: Fifth Report of the Work and Pensions Committee, Session 2012-13, The Single-tier State Pension: Part 1 of the Draft Pensions Bill, HC 1000, and the Government’s response, Cm 8620.]

Second Reading

4.52 pm

The Secretary of State for Work and Pensions (Mr Iain Duncan Smith): I beg to move, That the Bill be now read a Second time.

We have discussed these matters in the House before, and I sense that there is general consensus that now is the time and this is the right area to address. As this is a coalition, I want to pay particular tribute on the key area, the single tier, to my hon. Friend—[Interruption.] I do not know why I looked to my left. I should be looking to my right—things are definitely moving now—which is where the Minister of State, Department for Work and Pensions, my hon. Friend the Member for Thornbury and Yate (Steve Webb), is sitting. His persistence and work and application have been remarkable, and they have delivered a real reform. Huge credit is due to him, and to the coalition, because we have been able to work together and produce this measure as a coalition. I am enormously pleased that it enjoys some consensus in general terms across the House.

The Bill is about putting in place a welfare and pension system that both reflects the reality of our society now and puts us on a fair and, I hope, sustainable basis for the future. That principle underpins vital changes proposed in the Bill: long overdue reforms to modernise bereavement benefits; bringing forward the increase in the state pension age to 67; and putting in place a mechanism for a regular review of the state pension age, recognising the fact of our ageing population.

Between now and 2035 the number of people in the UK over state pension age is currently set to increase from 12.4 million to 15.6 million, a rise of 26%. With ever more pensioners, sustainable pension provision is ever more pressing, and will always be a priority for this Government—and, I would hope, for all Governments. To that end, the Bill provides for the most important reform for a generation: the introduction of the single-tier pension. This new pension system reflects the fact that working patterns and family life have changed over years, that people need to take personal responsibility for planning and saving for their retirement, and that people are living longer and drawing their state pension for longer than their ancestors would ever have done or, ironically, ever expected to do.

The Bill is a significant change for the future, but it builds on the foundations that we have already laid to ensure that pensioners get a decent income in retirement. We announced the triple lock at the beginning of this coalition—not just linking the state pension to earnings but giving a guarantee, in difficult times, that pensioner income would be predictable and would rise at a faster rate than it had risen before. The average person reaching state pension age in 2013 can expect to receive some £12,000 more in basic state pension over their retirement than under previous policies of uprating by prices. The basic state pension is now a higher share of average earnings than in any year since 1992.

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Through our commitment to universal pensioner benefits in this Parliament, we have maintained support for older people. There were 12.6 million winter fuel payments to more than 9 million households in 2011-12. We have continued free eye tests, free prescriptions, free concessionary bus travel and free television licences for the over-75s, and that is worth hundreds of pounds to individuals each year. Yet, we are still left with an incredibly complex and confusing system—it is confusing for most people who would have to look at it.

Mr Liam Byrne (Birmingham, Hodge Hill) (Lab): I am grateful to the Secretary of State for giving way so early in his speech, which we are following with great interest. Will he clarify—he may not want to at this stage—whether he plans to table any amendments to schedule 12(14), which says that the flat-rate pension will be uprated by earnings?

Mr Duncan Smith: No, that is not our plan, but our commitment is public and stated, and goes throughout the whole of this Parliament. This Bill brings that in, so any further changes would have be made later. I simply say that our commitment to the introduction of this Bill remains exactly as it stands.

The two tiers—the basic state pension and the additional state pension—together with other outdated add-ons, make for this complication, as does the mess and mass of means-testing known as the pension credit. With 11 million people now not saving enough for their retirement, we can and must do more to simplify the state pension system. The right hon. Member for Birkenhead (Mr Field), who is in his place, has gone on about this matter for long enough and there has been consensus across the Floor of the House. Getting more people to save, and to save more when they save, is critical.

The first step, which the previous Government had initiated, was auto-enrolment. We picked that up and are now successfully rolling it out to help up to 9 million people into a workplace pension scheme and to make savings the norm. That big change has, again, been smoothed through and taken through at rate, but we have taken care and consideration, because at this difficult time some companies would encounter difficulties. We have been careful to ensure that the roll-out allows time for people to plan. Significantly, more than 400 of the country’s largest employers have now met their auto-enrolment duties, and more than half a million eligible jobholders were newly enrolled by the end of April 2013. Once this is in a steady state we expect up to £11 billion more in pensions saving every year. That is a very big and significant reform. People from many other countries around the world have been to talk to my hon. Friend the Minister of State and have seen me about doing it themselves. We are not breaking absolutely new ground, but for us and for many others it is a real departure: getting people to save and save from the moment they move into work.

Measures in the Bill will ensure that automatic enrolment works as intended. We need to address some technical issues, clarify the existing powers and provide for the automatic transfer of small pension pots. The last of those is vital, because a quarter of people already lose track of at least one pension, and it is estimated that some 50 million dormant pots will exist by 2050 if we do nothing about this issue. It is confusing, and I say

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with the greatest respect to my hon. Friend the Minister of State that although plenty of people understand pensions, dine out on them, sleep on them and can work them very cleverly—the word “anorak” does not come into my lexicon at all—most people find this a complex and difficult area. People can be left with small pots as they move, and that is now the way of work; people move in and out of different companies, leaving behind these pots. It is vital to deal with that, and my hon. Friend has made a huge move to do just that.

Mr Brian H. Donohoe (Central Ayrshire) (Lab): Perhaps I am an anorak, as the chairman of the pension fund for Members, but one of the issues is the question of contracting out. As I understand it, the Bill does not allow contracting out. Am I right to say that people like us and many others in the public sector will face an increase in national insurance contributions?

Mr Duncan Smith: I fully respect the hon. Gentleman’s knowledge of pensions, and that is the case. We have not shied away from that: there will be an increase in national insurance contributions for a number of people. Some 70% of employees will not pay any national insurance charges, although some 30% do, and overall most of our 10% will get a better pension that will be higher in total than that which they would have had according to their contributions. All, bar a smaller number, will be better off. It is never an easy pill to swallow, but the overall reform benefits the vast majority of people. I accept that there will be that charge, but the vast majority will benefit and even those with higher national insurance charges will benefit, too.

Mr Donohoe: In that case, it will mean a pay cut to a considerable number of people in the public sector.

Mr Duncan Smith: My point was that although, of course, the charge will add to the amount they pay, overall they will get a better state pension over the lifetime of that pension. It is a trade-off, in a sense: they get more, but they have to pay a bit more. Whichever way we cut it, it would be complex and difficult to avoid that. During the passage of the Bill, we will be happy to hear more from the hon. Gentleman and to hear any ideas he has, but our principal position at the moment is to reduce it to the smallest level that we can.

Dr Eilidh Whiteford (Banff and Buchan) (SNP): Another concern that has been raised about the potential problems with transferring small pots is that they could be moved from a well-managed, good-quality scheme into a lower-quality scheme. What assurances and protections will the Government put in place to ensure that that does not happen to people?

Mr Duncan Smith: We plan to head that off. We will have much more stringent quality standards, which will ensure that the process is properly managed. We will keep that constantly under review, to ensure that there is no opportunity for people to abuse the process. It is worth noting that we have already talked about areas where we want to ban and cap. For example, we announced our intention to ban consultancy charges in auto-enrolment schemes and we are considering how to

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do that. The Office of Fair Trading report is due in the summer, I think, and the Government will be consulting after that. We plan to publish our consultation, including on proposals to introduce a charge cap. Defined ambition pensions should also give us greater risk sharing and certainty. I hope that that answers the hon. Lady, and there will be more to come from my hon. Friend the Minister of State.

Nigel Mills (Amber Valley) (Con): Small pots cannot currently be transferred to the National Employment Savings Trust. Will the Secretary of State update the House on the Government’s plans to change that? I cannot see any such plans in the Bill, so might they appear at a later stage?

Mr Duncan Smith: This is obviously Second Reading, but we will have further discussions on that subject. We know that it needs addressing and my hon. Friend the Minister of State is already aware of that. Although we will not cover it on Second Reading, we will, I suspect, tackle it during the passage of the Bill. If my hon. Friend the Member for Amber Valley (Nigel Mills) wants to be on the Committee, now is the time to volunteer. Volunteering in this place is always dangerous, but, none the less, I urge him to do that.

Even with auto-enrolment, it is critical that people understand what they get from the state and are able to save with some confidence. I recognise that that is the biggest area, and it is what the single-tier pension is all about. Auto-enrolment on its own without single tier would be difficult, but single tier underpins auto-enrolment, making it all the more important. The single tier will be all about setting a basic level of pension above the means test.

Let me give an illustrative example: 2012-13 prices would mean a single tier of £144 a week, a basic state pension of £107 and pension credit of £142. Under single tier, every individual would therefore qualify for a pension in their own right. The full rate payable for 35 years of national insurance contribution—the right hon. Member for Birkenhead has made the point about contributing to one’s future wealth—reflects that we are combining both the basic pension, based on contributions for more than 30 years, and the state second pension, based on 49 or 50 years of contributions. We are merging the two together. Yet even as we abolish the whole complicated system of the additional state pension on the one hand and contracting out on the other, we will still recognise people’s existing contributions. This is an important matter which has been raised with us a number of times. For example, someone who reaches state pension age in 2016 under single tier who is due £160 under the current system in whatever form will still get that pension of £160, so it is locked in.

Workers who were contracted out at implementation will start to pay full national insurance contributions, as 70% of those who are in work already do. In return, we believe they can build towards a pension at full single rate. Rather than today’s much lower basic state pension, they will get a reward for that effort to save, as I said earlier, referencing the already existing auto-enrolment. As a result, the vast majority, some 90% in the first two decades, will receive enough extra over their retirement through a single-tier pension to more than offset the higher contributions. Let us take a 40-year-old in 2016

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contributing an extra £6,000 of national insurance before reaching state pension age in 2043. Over their retirement they would receive £24,000 more in state pension—a net gain of £18,000. That is the point that I was trying to illustrate earlier.

We must honour the past and deal with its complexity. That is the key. Going forward, whether previously contracted out or not, people will become entitled to the single-tier pension in the same way. This is an important feature.

Mr Byrne: I wanted to catch the right hon. Gentleman’s eye before he left that point. With reference to honouring the past, can he confirm to the House that going forward under the transitional arrangements, those rights that have been built up in STP will be uprated by the consumer prices index?

Mr Duncan Smith: Yes, I can confirm that to the right hon. Gentleman. Unless there is some reason why he disagrees with that and wants to come back at me, I will make progress.

Pamela Nash (Airdrie and Shotts) (Lab): I thank the Secretary of State for giving way before he moves on. We are talking about winners and losers. Is it not the case that the average payment that a pensioner will receive per week under the single-tier pension is less than the current average payment?

Mr Duncan Smith: No. I am not sure how the hon. Lady arrived at that conclusion. It is not the case. The vast majority will get more in decades to come. We are happy to discuss that further if she has some information that she wants to share with us.

In 2020 three quarters of new pensioners will get the higher state pension, following the introduction of the single tier, particularly benefiting those who have historically had poorer state pension outcomes. There will be better provision for the low-paid, including 60% of the lowest income pensioners who will have higher incomes in retirement by 2040, compared with rolling forward the current system. There will be better provision also for the self-employed—this is a big plus—who for the first time in about 40 years will be treated the same as employees for the purpose of state pension entitlement. That is a genuine gain.

There will be better provision for those with broken contribution records, especially women and those with caring responsibilities. I hope that this will be seen in all parts of the House as part of a rolling process to try to include them in the process and reward them for doing a hugely responsible job in society. More than 700,000 women who reach state pension age in the first decade after single tier is introduced will receive on average £9 a week more. That is quite a significant change. By bringing forward implementation to 2016 rather than 2017, an additional 85,000 women will retire under the single tier. That was a debate that took place previously and I hope the measure will be welcomed in all parts of the House. However, this better provision will be sustainable only if we get to grips with the unprecedented demographic shifts reflecting and affecting our population.

Sir Peter Bottomley (Worthing West) (Con): When my right hon. Friend gets on to that topic, the House will listen with interest. He has talked, rightly, about the

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anomaly of the self-employed, and the measure will be greatly welcomed, as will the attention to some of the women affected, but may I draw his attention to clause 20 which, if it is not passed, would unfreeze the pensions for people in the old dominions? Were I to be asked to serve on the Committee, I would do so with pleasure, with the intention of getting the Government to stop this historic immoral anomaly, to start negotiating bilateral treaties and to give people the prospect that they will not have to live on pensions of £6 a week when others are on £106 or £160 a week.

Mr Duncan Smith: I hear my hon. Friend, and I would simply say to him that that would cost a sum knocking on the door of between £650 million and £700 million a year. Other Governments have considered it. I would be happy to discuss the matter with him, however, and to reflect on it. I am sure that those sitting further down the Bench will have heard his desire to serve on the Committee, although whether my hon. Friend the Minister of State would want that is another matter altogether.

Dame Anne Begg (Aberdeen South) (Lab): If the Secretary of State is not prepared to go as far as the hon. Member for Worthing West (Sir Peter Bottomley) requests, will he perhaps look again at the Select Committee’s recommendation that the anomaly could be changed for those who reach pension age after April 2016? I appreciate that it would be expensive to change the system for those who are historically already in payment, but that might not be the case if the change related only to new pensions.

Mr Duncan Smith: Whenever the hon. Lady speaks, I always want to help her, particularly as I am due to appear in front of her Committee shortly. I really want to be as nice as possible to her, but I am not sure how much hope I can give her. My hon. Friend the Minister of State and I are certainly always happy to look at these proposals, but I come back to the point that it is difficult to do anything about them at the moment, because these things cost significant amounts of money. I recognise the concerns that are being raised, but these are expensive items and, right now, I do not think that we could possibly schedule in such changes. I am happy to discuss the matter further with the hon. Lady, however, as is my hon. Friend.

The regular review of the state pension age will ensure that the issue is considered in every Parliament, which will avoid the necessity for future Governments to have to take emergency action, as we did earlier. Men and women retiring at 67 in 2028 can expect to receive a pension for roughly just as long as those retiring at 65 today. The review will work on the same principle—namely, that people should spend a given proportion of their lives drawing a state pension. By regularly considering the state pension age in the light of changing life expectancy, we can ensure that our pension system remains on firm foundations. That will ensure a continuing and fair social settlement between young and old.

Another long overdue element of reform in the Bill relates to bereavement benefits. As we bring our pension system into the 21st century, we must do the same with our bereavement benefits. They form an important part of our state safety net, but they have remained unchanged

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for too long. They now reflect a time gone by, in which the life of a widow was quite different from what it is today. The conclusion, after long discussion, is that we have an outmoded system of complicated payments and contributions that, at worst, can harm people’s long-term job prospects by distancing them from the labour market.

While protecting existing recipients, the Bill makes provision to simplify the system through a lump sum payment followed by 12 monthly instalments. The new system will help spouses and civil partners to deal with additional costs in the critical time immediately after a bereavement when that help is most needed, as well as giving them the space and time to settle and resolve most of the other issues that require financial support. Those with dependent children will receive a £5,000 lump sum and £400 a month for 12 months. Those without children will receive a £2,500 lump sum and £150 a month for 12 months. This is not a saving measure. I can absolutely guarantee that the money being applied to this will go back into it, although it will be more narrowly focused over a particular time scale.

I believe that the Bill has the general support of both sides of the House, by and large. It is a genuinely good example of coalition politics coming together to find a solution for people who are unable to change their circumstances following retirement and who want simplicity and the certainty of a commitment by whichever Government are in power that their income will remain at a level that allows them to sustain their position in life.

Jeremy Lefroy (Stafford) (Con): I congratulate the Government on the Bill. Does my right hon. Friend agree that it is extremely important that pensions education is provided at a much earlier age? I cannot remember when I first started to learn about pensions, but I must have been about 40. Are the Government looking at introducing that much earlier in financial education in schools?

Mr Duncan Smith: I am interested that my hon. Friend raises that point, because I have been in discussions with my right hon. Friend the Secretary of State for Education on including financial literacy in the national curriculum—it is not completely settled at this point, but we are getting close to a settlement. We on the Government Front Bench today believe fundamentally that financial literacy should be part of the national curriculum. That way, people will be less in thrall to doorstep lenders and those who can bamboozle them with what interest rates and payments are, and when it comes to pensions they will better understand their needs and what they will actually get. That is vital, and I am sure that the coalition Government will bring forward a solution that allows it to go into the national curriculum.

In conclusion, I am really proud of the Bill, and I am particularly proud to be serving with the Minister of State, Department for Work and Pensions, my hon. Friend the Member for Thornbury and Yate, who has brought it forward with his team. I am also proud of the work of the Department’s pensions section. I know that Opposition Front Benchers know just how good that section is and how hard it works. I want to thank them, from the Government side, for all their hard work and

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for overcoming—how shall I put it—the differences of opinion as we have headed towards this point, and in such a way that we are now all unified in one paean of praise for the wonderful single-tier pension that we are about to launch. I thank my hon. Friend for his support. The Bill represents a huge change, but one that has been a long time coming. I believe that it will bring our pensions system into the 21st century, allow security in old age and mean for the first time a firm foundation for the work force of today. I commend the Bill to the House.

5.17 pm

Mr Liam Byrne (Birmingham, Hodge Hill) (Lab): It is a great pleasure to follow the Secretary of State. I shall attempt to do justice to his succinct speech. As he will know, yesterday was a very difficult day in Birmingham, and I know that the whole House will join me in sending thanks and good wishes to PC Adam Koch, who was so badly hurt on Saturday night. His extraordinary courage, together with that of local residents, helped keep worshippers safe at one of our local mosques. He is doing well in hospital. I know that the whole House will want to wish him a speedy recovery.

I am grateful for the note of consensus that the Secretary of State sought to strike in his remarks. As is appropriate for a Second Reading debate, this afternoon I would like to set out the principles on which we agree with the Government and then get stuck into a few of the details of some important matters that we think are still to be settled. We genuinely hope that the Government will listen during this debate and in Committee, not least because many of the issues I wish to raise touch greatly on the need for a comfortable and well-earned retirement for millions of people in this country.

I think that it is fitting to start my remarks with a quick word about history and the road to this afternoon’s debate. One of the chief reasons why the Labour party will not stand in the Bill’s way today is that we recognise the genuine effort to build on the strong foundations that we left. Indeed, our only disappointment today is that we think the Secretary of State is proposing to build only a halfway house on those strong foundations. We think that the Bill is merely half a reform. Therefore, the Opposition’s job during the course of the Bill’s passage will be to ask him not simply to fix some of the deficiencies we can see, but to be bolder and more radical and to seize the moment that we think is there for the taking. I want to set out a number of areas where I think he can do more to seize that moment.

I am glad that we bequeathed the coalition Government a strong foundation—an inheritance very different from what we found in 1997. The link to earnings had been snapped back in 1980, there were pension holidays for employers and the state pension had fallen from 20% of earnings down to just 14%. The pensions Minister himself said:

“Pensioners, rightly, do not trust the Conservatives on pensions.”—[Official Report, 6 November 2000; Vol. 356, c. 34.]

I am glad that he is working so closely in the coalition Government with the Secretary of State on their difficult task.

I have described the legacy that we tried to sort out. We genuinely wanted to leave the Government a different state of affairs. There is no better summary of our work

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than the research published by Her Majesty’s Government confirming that pensioner poverty had fallen to the lowest level for 30 years.

Richard Graham (Gloucester) (Con): The right hon. Gentleman talked about building on the strong foundations left by the previous Government. If my memory serves me correctly, the last increase in the basic state pension was 75p. The coalition Government’s new increase in the state pension was worth £234, building on a new foundation of a triple lock, which will increase pensions by a significant amount. Will he comment on the difference between my interpretation of a strong foundation and his?

Mr Byrne: The hon. Gentleman will be as familiar as I am with the research published by the Institute for Fiscal Studies showing that, under Labour, £11 billion more was spent than if we had pursued the policies that we inherited in 1997. We lifted gross income for pensioners by more than 40%; 2.4 million pensioners had been lifted out of absolute poverty and nearly 2 million out of relative poverty by 2010-11. It was the IFS that confirmed that both the absolute and relative measures of income poverty fell markedly among pensioners. We inherited a tragic and grotesque state of pensioner poverty in 1997 and we set about dealing with it with focus and alacrity. We are proud of the inheritance and legacy that we left the Government.

Guto Bebb (Aberconwy) (Con): Does the shadow Minister accept that over the 13 years of the previous Administration, nothing whatever was done to improve the situation of the self-employed who depend on the state pension system?

Mr Byrne: We are very proud of the reforms that we set in place. They tackled the grotesque pensioner poverty that we inherited in 1997. That is not simply my conclusion; when the pensions Minister spoke in the House back in 2000, he pretty much confirmed the same line of argument and the same thesis. The job we did on pensioner poverty was important and we made great progress. The foundations that we left are those that the Secretary of State has built on.

The purpose of the Bill is, in essence, to address one of the matters flagged by Lord Turner in his report and one for which we legislated in 2007. As the Secretary of State mentioned, the noble Lord recommended a new pension supplement for the 21st century—one that is universal and, crucially, one that reduces means-testing, an important part of the Secretary of State’s argument. As the Secretary of State also rehearsed, the noble Lord recommended a system that provides clear incentives to save.

The commission proposed an approach different from that proposed by the coalition. It was in the interests of preserving the consensus that Lord Turner had so assiduously constructed that we chose to follow his approach rather than the one set out by the coalition today. Indeed, at the time Lord Turner flagged a number of risks in the strategy that the Government are now pursuing. The Government have taken an approach different from Lord Turner’s. That comes at the price of some big notional losses for state second pension members. The goalposts on the state pension age have now been

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moved three times in three years. However, there has been some improvement in means testing and potentially something about incentives to save. I want to touch on those.

Let us take means testing first, however, as it was an important part of the Secretary of State’s argument. Today, about 80% of people are free of the pension credit means test; that pension credit is now available for 20% of people. By 2020, that would have fallen to about 16% anyway. Under flat-rate pensions, there will be a further fall of about 8%. If we put savings credit to one side, the improvement is just 2%, and of course about 35% of pensioners will still be eligible to access council tax benefit, which is about 238,000 people, and 12% will be able to access housing benefit—84,000 people. We are still an awfully long way from the end of means testing, but none the less a small step forward has been taken and we welcome it.

The Secretary of State was anxious to stress the point about savings. The judgment of the IFS was that the effect of proposals on the incentive to save were complex and varied. As the Bill reduces the long-run generosity of the pension system—that is one reason why we support it—it should increase the incentive to save. However, although some will see lower effective marginal tax rates when pension credit and savings credit are withdrawn, some will see higher marginal tax rates. The IFS says, therefore, that the direction on the effect of savings is ambiguous.

Under the proposals, some pensioners who have saved absolutely nothing will be better off in real terms each week than those who have saved substantial sums. A pensioner who has saved nothing will enjoy the flat-rate pension of £144 a week and will be entitled to housing benefit and council tax benefit, which is another £94 a week. That is a total of £238 a week, which is considerably more than what someone who has saved £24,000 will receive. They might enjoy a notional income from savings of about 30 quid a week, plus the flat-rate pension, which is a total of £174 a week. That is much less—36% less—than what the pensioner who has saved nothing will get. In fact, the pensioner who saves nothing will be better off than someone who has put £50,000 away in the bank. So there are still problems and disincentives to save, but none the less, we think that, on balance, the Bill represents progress, which is why we support it in principle.

Richard Graham: Did I hear the right hon. Gentleman right when he said that the Bill’s move to axe the means-tested pension credit was a small step forward? This is a huge and significant step forward that recognises that the means-tested pension credit was deeply flawed and was not implemented for many of the people who were eligible for it. A single-tier pension will set our pensions on the right track. Will he confirm that the Labour party now accepts that this is the right way forward and that it is a huge step?

Mr Byrne: I will leave it to the hon. Gentleman to provide his own definition of the word “huge.” He will have read chapter 4 of “The single-tier pension: a simple foundation for saving”, published by the Department for Work and Pensions, which clearly says that under the current system, the number of people reaching state pension age after 2016 who will be eligible for means-tested

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benefits for pensioners will fall to 16%, and that the figure will fall to 11% by 2060. Under the single tier, eligibility for means-tested benefits will fall by 7.5%. The hon. Gentleman will also have read, as I have, Age UK’s evidence, which states, strikingly, that the great bulk of that change results from the elimination of savings credit, rather than from any increase in generosity. If we put savings credit to one side, we will see that the change in the percentage of pensioners eligible for means-tested benefit is just 1% or 2%. If he chooses to define that as huge, that is his right.

I want to flag concerns in three further areas and I hope this will provide us with material for debate and amendments—some probing and some to be voted on —in Committee.

Mr Duncan Smith: I had not meant to intervene, but the right hon. Gentleman has spent the first part of his speech extolling the virtues of what Labour did, and there has been a little bit of to and fro about that. Does he relate to what Ros Altmann said about the ending of the dividend tax credit and does Labour now accept that it made a major error? Ros Altmann was an adviser to the previous Prime Minister, Mr Blair, and she said that Labour “destroyed our pensions system”. Does the right hon. Gentleman regret that attack on the defined benefit system?

Mr Byrne: We were ambitious and wanted to focus our resources on tackling pensioner poverty. I am reluctant to take too many lessons from the Secretary of State. The 1986 cap introduced by Lord Lawson led to a huge drop in contributions to occupational schemes. In fact, the pensions Minister himself said:

“Pensioners have long memories. They remember the Conservatives’ record on pensions…That record is one of not believing in the state pension, of eroding the basic state pension…of attacking SERPS—the state earnings-related pension scheme—and of slashing entitlements.”—[Official Report, 6 November 2000; Vol. 356, c. 34.]

I am afraid, therefore, that I am reluctant to take lessons from the Secretary of State on the inheritance that he has been bequeathed. As I have said, the foundation was strong and that is why we are urging him to be a touch more radical. I think that, in his heart, the Secretary of State will share many of my concerns. I know that he has been trapped in difficult negotiations with the Chancellor and I have no doubt that he would otherwise have gone further than he has in the Bill.

My first question is about universalism. Every generation has to strike the right balance between universalism and targeted benefits. That was true of the post-war Government and it is true of this Government. The Opposition believe that there needs to be a different balance between universal and targeted benefits for older people in the future. We find ourselves in agreement on that not just with the pensions Minister in this morning’s Financial Times, but with the Deputy Prime Minister and possibly even the Secretary of State, although he will keep his own counsel.

Our biggest problem with the Bill is that if the flat-rate pension is so virtuous, its virtue should be enjoyed as widely as possible. It should be a universal pension, but it is not. In particular, we are very concerned

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about the 700,000 women who will reach the age of 65 in 2016 when the flat-rate pension starts but who, because they will have hit the state pension age of 63, will not enjoy the flat-rate pension, even though a man who was born on the same day will. There are many of those women in our constituencies. I know that this matter will be of concern to the Minister and the Secretary of State.

The Minister of State, Department for Work and Pensions (Steve Webb): Will the right hon. Gentleman give way?

Mr Byrne: I will give way in a moment. I will just flag another issue that the pensions Minister might say a word about when he intervenes.

There is an uplift to 35 years-worth of contributions being required before 100% entitlement to the flat-rate pension is enjoyed. That was not the original plan that was presented to the House in the Green Paper. When the Minister gave evidence to the Work and Pensions Committee, he said that the change would save roughly £1 billion. Five years’ more contributions will now be needed before the full pension is enjoyed, so up to 100,000 fewer people will receive the full pension than if the current system had continued. For every year under 35 years, people will enjoy £4.11 less a week. Of course, someone with below about seven or 10 years of contributions will get nothing at all.

We recognise that the minimum income guarantee will remain in place, but we are concerned that the many people who fall short of 35 years and the women to whom I referred will be rather too close to the poverty line for the liking of everyone here.

Steve Webb: The right hon. Gentleman mentioned the position of women born between April ’51 and April ’53. Will he clarify whether the Opposition have a specific proposal? It has been suggested that his view and that of his colleagues is that such women should be allowed to opt into the single tier. Is he aware that the cumulative cost of that over 30 years would be about £4.5 billion? Is that an example of his laser-like focus on public spending control?

Mr Byrne: I suspected that the pensions Minister would want to play politics with this issue. However, I hope that we can engage on it constructively in Committee.

The DWP has published estimates that show that the cost of including those women will be about £220 million a year. I say gently to the Secretary of State that the change that he is taking through the House today will net the Chancellor £5.5 billion in extra national insurance contributions in 2016-17 and £5.4 billion in 2017-18. The Chancellor has obviously spent some of that money for the Secretary of State by funding the proposals for social care, which are scored at £1 billion in 2016-17, and by funding employment allowance, which is scored at £1.6 billion. There is therefore £2.9 billion left. The cost of remedying the position of these women would be about 7.5% of the remaining NICs windfall that the Secretary of State has kindly brought the Treasury and just 4% of the overall NICs windfall. We are looking forward to working with the pensions Minister in Committee to fix this injustice, which I suspect he also feels in his heart.

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Pamela Nash: The pensions Minister gave the figure of £4.5 billion to put this group of women born between April ‘51 and ‘53 on equal terms with men. We have been hearing during the debate that this is about winners and losers, but does that not show that women born between ‘51 and ‘53 are losing out to the tune of £4.5 billion?

Mr Byrne: It is hard to refute my hon. Friend’s argument. I suppose we must look at the position of those women together with the consequences of the reforms that the Secretary of State has authored to auto-enrolment—I know he will do that. One of the first decisions he took in the Pensions Act 2011 was to link the threshold for participation in auto-enrolment to the personal allowance. As the personal allowance has gone up, more and more low-paid people have fallen out of the auto-enrolment system. In 2011-12, 600,000 people fell out of auto-enrolment, and another 100,000 in 2012-12. In 2013-14, 420,000 people will fall out of the auto-enrolment system—1.1 million people have been carved out of that system.

This is an incredibly important part of the pensions saving architecture for the future, and I am extremely concerned that a number of low-paid people—more than 1 million, most of them women—have been shut out of the auto-enrolment system. To that mix we now say to 720,000 women who had the misfortune to be born between April 1951 and 1952, that they will not get the new system either.

Jane Ellison (Battersea) (Con): Will the right hon. Gentleman look at the work of the Work and Pensions Committee and its pre-legislative scrutiny of the draft Bill? We found in our evidence sessions that the situation was a great deal more complex for that group of women. They are by no means a homogenous group and some of the comparisons with men born on the same day are quite misleading. That came through in the evidence sessions, and I caution the right hon. Gentleman to look at the Committee’s report on the draft Bill.

Mr Byrne: I very much hope that the hon. Lady will be on the Bill Committee to ensure that such arguments are fully rehearsed. I am worried that an injustice is being perpetrated on these women, which is why it is incumbent on us all to search every possible option to help ensure that they can be included and not excluded, particularly in the context of changes to auto-enrolment that have moved 1.1 million people out of that future.

Ian Swales (Redcar) (LD): I declare an interest in that my partner was born in exactly this period. In this spirit of equality, is the right hon. Gentleman proposing that these women should have their retirement age equalised with that of men?

Mr Byrne: As the hon. Gentleman will know, many of these women have already been hit by the acceleration of the state pension age at very short notice, so no—we want to search during Committee stage for ways to include these women. I know there will be many women in such a position in his constituency, and I am sure he will want engage in that debate.

Steve Webb rose

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Mr Byrne: No—[Interruption.] I will certainly give way to the Minister in a moment, but I want to underline one final aspect of universalism and the increases in the state pension age to which the Secretary of State referred. The Opposition will not stand in the way of proposals in the Bill to move forward the state pension age, but we want to put it on the record that we are concerned about the proposal to review it every five years. The goalposts on state pension age have already been moved a number of times in this Parliament, which is not good for stability, certainty or long-term planning.

I represent one of the poorest communities in the country and there is a 16-year gap in life expectancy between my constituency and Lichfield, a little way up the road. The mortality figures published by the Library over the past few days show that 1.2 million citizens die between the age of 65 and 69, and 60% of those are in the bottom three income groups. Mortality rates for the poorest in our country are twice the level of the richest, and we must take great care, not just with projections about life expectancy, but also about healthy life expectancy. The Secretary of State is asking for the power—unfettered —to review the state pension age every five years, which we think will promote uncertainty and instability, and damage the pensions savings rate that he seeks to increase.

Steve Webb: I believe the shadow Secretary of State has inadvertently misspoken. Will he confirm that no women born between 1951 and 1953 have had their state pension age changed by this Government, that any changes to their state pension age were made under the Pensions Act 1995, and that they have not had their pension age changed at short notice?

Mr Byrne: The Minister is right. I was referring to the problem that the state pension age has been moved a number of times in the past three years. The Opposition believe that it is unwise of the Secretary of State to ask for the right to review the pension age every five years because it will promote instability.

Jeremy Lefroy: Will the right hon. Gentleman give way?

Mr Byrne: I will move on, but I will give way in a moment.

A flat-rate pension is a good idea and its virtue should be widely enjoyed. It should be a universal system. During the passage of the Bill, the Opposition will look at how we can maximise its inclusivity and universal scope.

Mr Duncan Smith: I am grateful to the right hon. Gentleman for giving way—he is being generous, as ever. I want to confirm that we are not seeking to make the state pension age unstable—quite the contrary. We have talked about setting down a period in which people should expect to be in retirement. The Opposition also know that, after every review, we will require legislation to make changes. There are therefore plenty of locks. If we did not address the matter it would rationally put us out of step with everybody else. Ireland, Australia, Spain, USA and Germany are doing similar things. All Governments need to take such steps.

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Mr Byrne: The Secretary of State and I have no difference of opinion on the need regularly to review the state pension age. My point is that we have introduced a number of changes in the past three years and an environment of instability and risk has been created. The Opposition worry that reviewing it every five years will foster more uncertainty and risk. The Government and Opposition share the objective of increasing the level of savings. However, I am anxious to ensure that there are safeguards against, or fetters on, not only this Secretary of State, but future Secretaries of State, to constrain how they make decisions on accelerating or advancing the state pension age if they decide to do so in years to come.

The second Opposition challenge to the Bill during its passage will be a pressure test of the financial assumptions that underpin it. As I said a few moments ago, those who were contracted out are now contracted in, which is great news for the Chancellor—in fact, it is £5.4 billion-worth of good news. In theory, that will mean that the system will become more affordable over the long term, and that, over the very long term, the fraction of gross domestic product and national wealth that we spend on the pension system will come down.

The Opposition believe that that is wise, but we are worried about a number of short-term risks. First, how on earth will the national health service, local government, teachers and the police find £4 billion-worth of national insurance contributions from 2016 onwards? When the Chancellor presented his Budget, he was clear that there would not be an awful lot of help for those in public services, but two thirds of the money in the NICs bill comes from the NHS, teachers, the police and local government. The Secretary of State has not said much today, and we have not heard much from the Chancellor, on where on earth our hard-pressed public services, particularly the NHS, will find £4 billion from 2016 onwards.

During the Bill’s passage, the Opposition would like the Secretary of State to confirm the deal that is being offered in the Bill to the self-employed. Currently, the self-employed pay lower NICs than anybody else— 9% of profits in national insurance, whereas an employee’s contribution is 12% of earnings, and an employer’s contribution is 13.8% of earnings. However, under clause 2(4), the self-employed get 100% of the new pension. They therefore pay less, but get the same, which sounds too good to be true. Experience tells us that, when something sounds too good to be true, it often is. The self-employed deserve long-term certainty. Although there is nothing on the precise NICs number in the Bill, we hope the Secretary of State and the Chancellor will say more about the long-term plan for funding that measure in the spending review. I note in passing that the Institute for Fiscal Studies states:

“The current way of treating the self-employed…is a huge open invitation to tax avoidance, because it is so much lower than you pay as an employee.”

The Institute of Directors is not a hotbed of radical left-wingers and many of its members are self-employed, but even it says that the most reluctant would recognise that given the improvement we are about to get from the single-tier pension, it is only fair that everybody is asked to do their little extra bit. We hope that the Secretary of State can put beyond doubt the long-term bargain for the self-employed.

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Nigel Mills: I note the points the right hon. Gentleman is making, and I can see that they have some sense. Does he recognise that a low-earning, self-employed person on £10,000 a year would be paying more national insurance than an employed person who is being paid £10,000? The position is not quite as simple as he is making out.

Mr Byrne: The hon. Gentleman makes an excellent point. My chief concern in this debate on principles is for the long-term bargain to be put on a secure footing. It would be wrong to lead the self-employed up the proverbial garden path by offering a great deal, clapping everyone on the back and voting it through only to see it collapse because it is literally too good to be true.

The final point on which we will press the Secretary of State during the passage of the Bill is probably the most important issue that our constituents will put to us: will the new flat rate pension offer them a comfortable retirement after they have worked so hard for so long? We are concerned that parts of the Bill fail that basic comfort test. Let us be clear that the hard wind-up of the state second pension will create a notional loss for many people under the age of 59. For example, 190,000 people in their 50s could lose between £30 and £35 a week, compared with what they would have got if S2P stayed in place. Someone who has been contracted-in for all of their working life and is aged 55 when the pension is introduced, would in theory have been able to accrue additional state pension for the remaining 11 years of their working life, amounting to £24 a week in additional state pension. That will no longer be possible under the single tier. They will continue to contribute 12% NICs for the rest of their working life, but there will not be an additional S2P entitlement.

The situation is even more grave for those who are just starting work: those in their 20s who will not retire until after 2060. By the Department for Work and Pensions’ own calculations, the majority of them will have lower pensions under the single-tier system, as the income replacement rate will fall from 38% to just 30%—a big drop that points us to the gaping hole where reform of the private pension system should be.

The Government have been clear, as they rehearsed the arguments in the past year, that they want personal accounts to pick up some of the slack for the fall in income replacement rate. There was a degree of consensus on the auto-enrolment system that the Government are now taking forward. We are concerned that the measures to link membership of auto-enrolment to the personal allowance mean that too few people will be involved in the new personal accounts, and that not enough people will be saving for the future.

We are also concerned that the effective shut down of S2P means that workers now lack a state-backed, low-risk option in which to save, which is why we think that now is the time to remove many of the fetters and constraints that were initially constructed for the National Employment Savings Trust, the national pensions mutual created under the Pensions Act 2007. We need to allow transfers in from other schemes, end the upper ceilings on contributions—this is what employers are telling us—and legislate harder for transparency on costs and charges, which is why we have called for an investigation by the Office of Fair Trading into workplace pensions. We want to see a simple and comprehensive declaration of

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the costs of saving in a pension, so that savers can see precisely what is being taken away from them and the long-term impact on the size of their pension pot.

We are concerned that there is a structural problem that needs to be grasped: the fractured and small-scale nature of the offer for many pension savers. Too few funds have the scale to offer savers the best investment decisions or the lowest charges. The Government must look much harder at how to foster an industry of bigger, simpler and cheaper funds.

We can learn many lessons from countries such as Australia, particularly on the establishment of a low-cost default pension fund; trustee directors for every pension scheme with statutory duties to work in the interests of savers; and requirements to publish a detailed charging structure and past performance to ensure transparency. To deliver this kind of industry for the future, we should be considering a legal requirement that all pension schemes prioritise the interests of savers over those of shareholders. We should also be considering obligations on trustees to assess whether schemes have sufficient scale to deliver low costs, and if the assessment is that a scheme is too small to deliver this, trustees should be empowered to investigate merging with other schemes. Finally, we should consider whether regulators should be empowered to mandate small schemes to merge, as is done in Australia.

In conclusion, the Opposition have always believed that matters as serious as those in the Bill should be approached in a spirit of national consensus, and I say again that I am grateful to the Secretary of State for how he has approached the debate, but the House must ask whether the new pensions provision is sustainable, comfortable and genuinely universal. I am afraid that we believe the answers are no, no and no again. We agree on some of the principles, but now is not the time for a failure of nerve; this is half a Bill, half a reform, and as the Bill goes through the House, I urge him to be more radical, to build on his inheritance and to give us a long-term scheme that will deliver a better standard of living for pensioners who have worked so hard for so long.

5.51 pm

Nigel Mills (Amber Valley) (Con): It is a pleasure to be called in this debate and to welcome this much-needed reform. I served on the Work and Pensions Select Committee when we conducted pre-legislative scrutiny of the Bill, so I have already gone through the detail once. The Secretary of State issued an open invitation to Members to serve on the Bill Committee, and I sense that I might be so honoured.

Steve Webb indicated assent.

Nigel Mills: It is unusual for Ministers to welcome that, given my record of moving amendments, so the Minister might want to be a little careful, before he gets too excited. [Interruption.] Yes, it might spare me.

We all share the Government’s vision for pension reform. We want predictable, non-means-tested state pension provision, so we know roughly what we will receive when we retire; then we want to encourage private saving in high-quality, fair, low-cost schemes and to know what we will get for our money when we pay into such schemes and how that will convert into retirement income when we reach retirement age, whatever

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that might be—being 38, I dread to think what mine will be: I suspect it might begin with a 7, which seems an awfully long way off.

The Bill addresses some of those aspirations—it will make it much clearer what state pension some will get when they reach the happy age and it will improve the private pensions system—but will do nothing to improve the final part of the journey and make it clear what will happen when someone reaches that happy retirement age and is told they need to convert their pension pot into a pension income. There remains a big weakness in the system around how fair a deal someone gets when they default into the annuity their pension provider offers them—that was something the Select Committee raised in our pensions governance report. Action is needed. In my view, we should not allow a pension provider to provide an annuity to the same customer. That might be too radical a market restriction for most people, but there is a real problem if people, having saved for years, see their retirement income reduced because they do not know that they can shop around and choose their annuity.

The Bill is clear that people who will retire a good few years after 2016 will get £143 plus indexation, whatever that is, but it is less clear for those retiring in 2016 or the first few years thereafter. For them, there is a complicated calculation involving what they built up under the current scheme and how that is added to under the new one. We need to educate people about the pension they will get and what the change means. In my surgeries, I hear many concerns and fears from people who thought this was some kind of big bang—that if they retired on the new date, they would get a much bigger state pension than those retiring the day before—and did not want to miss the start date. I suspect that for many people the difference will not be huge, however, so those concerns should not be there.

Mrs Madeleine Moon (Bridgend) (Lab): I appreciate that the hon. Gentleman has been honest in saying that his retirement is some way off, but many people—especially women—who thought they were approaching their retirement have now been told they must work extra years and pay more in, without feeling that they will get an awful lot extra out of it? We have to acknowledge that there will be losers. Does he agree?

Nigel Mills: I think we recognise that in any change some people will lose out—it was particularly difficult to explain that point to those women whose retirement age increased at the start of this Parliament—but sadly these things are necessary in our financial situation.

Ian Swales: I recognise the hon. Gentleman’s expertise on these issues. Does he agree that we have a big job to do on communication, not just around the new flat-rate pension, but around how various groups will be affected? For example, MPs are already getting representations from existing pensioners who feel that the new arrangements are unfair on them. Communication is key.

Nigel Mills: I agree wholeheartedly. I think we have all had people come to us with calculations saying, “What will I get under this new pension? What would I have got?” When trying to talk them through it, there is an especial problem with people who do not understand

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that those who have contracted out for most of their working life will not get the full £143. They think a bonus is coming—that they will be £35 a week better off—whereas they might just miss out. We need to write to people before the change, saying, “Here’s what you’ve accrued”, “Here’s what will happen after the change”, “It looks like you’ll get your full £143 a week”, “It look like you won’t get the full £143 a week”, “Here’s what you can do”, “Are you due any credits for periods spent caring for children or other things?”, “Have you missed any years’ contributions?” We have to communicate all that clearly so that people have the information in time to make those decisions.

Dame Anne Begg: Does the hon. Gentleman agree that a remarkable number of people do not know that they have been contracted out or qualify for credits through the home responsibilities protection and other things and that it will come as a surprise to them that they might have more credits than they had anticipated?

Nigel Mills: I absolutely agree. The system is so complicated that it is hard for any of us to know exactly what we are entitled to. It is scary when a constituent says to me, “You were on that Committee. Explain how this will work.” From my days as an accountant, I know how to write lots of caveats, so I e-mail them back saying “I think it might be this, but I’m not an adviser, I don’t know your actual circumstances,” and so on. Key to this reform being successful and retaining support, therefore, is how we tell people what they are entitled to, what they can do, what they need to do and when to do it by.

There are some useful things in the Bill, including the tweaks to auto-enrolment, which I think we all welcome. It is right to cap consultancy fees for auto-enrolled schemes, because if the state is, if not quite forcing people into a savings system, certainly encouraging them strongly to do so—through the opt-out—the auto-enrolled scheme must be a fair and decent one, and that means not being ripped off by excessive charges. We should be saying, “This is the most you can charge people. You cannot add unnecessary and expensive consultancy fees”. Therefore, the provisions in the Bill are a welcome change, even to a free-market, non-regulatory person such as me. It is the right direction to head in.

The provisions on the transfer of dormant pots are also a step in the right direction. When starting to think what retirement might bring, one wants to know how much pension income has been accrued, but that can be hard. If someone has changed jobs a few times, they will have lots of small pots, which means they will get those strange, complicated documents once a year that they do not understand. Even if they read them, they will not be able to work out the income it will equate to in retirement. If those pots were moved into a single pot, they would get only one statement. If we made that information clear, they might find out that they have accrued only a third of what they want and that they need to take action several years before retirement.

That is a welcome step. I asked the Secretary of State earlier whether we could use this Bill to make changes to the National Employment Savings Trust so that those who choose to use the scheme or their employers who use it can make those transfers. I am not quite sure

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what the situation will be for those who think they can transfer their pot but cannot, even though their employer might have chosen one of the best schemes out there. We need to get that clear in the system as soon as we can, so that people understand how that will happen. As the Bill proceeds in Committee and on Report, I hope those changes to NEST can be sneaked in, once the consultation ends. I suspect that some attempts to table amendments to that effect might be made in Committee, if the Government have not quite got there—not that I am saying I will draft them or am in any way qualified to achieve that, which I suspect is well outside my skills.

One issue leading on from auto-enrolment and NEST is the fact that the regulator responsible for auto-enrolment is the Pensions Regulator, yet most auto-enrolment is into contract-based defined contribution schemes, for which the Pensions Regulator has no responsibility. We are in a slightly strange situation. Everyone out there thinks, “There’s a Pensions Regulator,” yet most people’s pension schemes are probably not caught by it. They have no redress to that regulator and instead have to go to the Financial Services Authority, or the Financial Conduct Authority or whatever it is called now—the organisation that did such a good job with the banks that we entrusted it with pensions as well.

I am not entirely convinced that that is the right place, partly because when the FCA gave evidence to us, it did not seem to be giving pension schemes quite the focus that such an organisation ought to give them, as I suspect members of the Committee who were present would agree. There is real confusion out there about who does what in the pensions regulatory system. There is an attraction to having the role of supervising individual pension schemes all in one place—that place being the Pensions Regulator. I accept that the Minister recently replied to the Committee with some sensible reasons why he comes down on a different side of that line, but this issue is worth exploring, to ensure the right protections as more and more people move into contract-based defined contribution schemes, which is a hugely important sphere.

While we are on the Minister’s response to the Select Committee, may I welcome the fact that the start date for the change has made its way into the Bill? I questioned him quite strongly about that on the Committee, because this is a fundamental change to the pension that millions of people can expect, and to have the date slip by some accident or change of policy after the election would be hugely disadvantageous. If the date changes by even six months, that is six months’ worth for people who retired thinking they were getting £143, but who would then drop back into the old system. That would be disastrous, and all those women we have taken out would be dropped back in. I suspect that none of us would fancy that, so having the start date firmly in primary legislation in this Bill has to be right. I welcome the fact that the Minister listened, although I also hope that his power in the Bill to change the date by order is not one that he plans to use. I would have thought that the power should lapse—maybe in March 2015—so that it cannot be changed once we are a year from the start date. It would be awful if less than a year’s notice was given of a slip by six months or something like that.

We also welcome the fact that the Government listened and capped the minimum qualification period. We all accept that it is not right for our taxpayers to provide

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pensions to people who had a short stay here or to spouses who have never come here and who, by the time they retire, have had 40 years in a different state and have a pension there. It is not right to give them a small state pension that we have to administer. It is right to say, “If you haven’t paid in for this number of years, then you get nothing.” For that period to be more than 10 years would have been unfair—someone who has paid into a system for 10 years probably deserves something back out. It is right that the Bill has a cap at 10 years and we will see whether the Government choose seven years, 10 years or somewhere in between as the process continues.

I have had a gentle canter through what is in the Bill and some of the things I might have liked to see in it to improve things for people paying into private pensions. I am sure we can explore those as the Bill proceeds.

I am reluctantly content with the idea of increasing the state pension age—I suspect that future Governments might be grateful for this one. However, some kind of mechanism should be put in place to force a review every Parliament or every five or six years to see what the decision has to be. Increasing the state pension age by another year will never be politically popular, as a few hundred thousand people will then be retiring later than they wanted to. However, it would be right and fair to have a transparent mechanism—or transparent-ish: it would only force a review, not be a real power—so that we said to people, “As life expectancy increases, we have to accept that you retire later, and we have to try to keep a sensibly fixed proportion of your life that you can expect to be in receipt of a pension.” If people can understand that principle—“This is the proportion of your life for which you will receive a state pension”—or if it is at least there for them to try to understand, that will be powerfully clear. Rather than suddenly saying, “Actually, we’ve got a big financial problem again; let’s make a change that no one was expecting,” let us set that within some kind of trend.

I welcome the Bill and look forward to it passing through this House. There are some questions about the detail that I am sure we will all want to understand, such as how precisely the calculations will be made, how people will know when they have been contracted out and where people who have been contracted out for part of their working lives will fall between £108 and £143. That will be difficult to understand, but it is important that the Government make that clear. There is clearly a huge role to play outside this place in making people understand what pension they will receive and what they can do about it, which will probably be more important than the debates we have in this place or the agonising over commas and full stops that is to come. I welcome the Bill and look forward to the chance to serve on the Public Bill Committee.

6.6 pm

Dame Anne Begg (Aberdeen South) (Lab): It is important that any pension reform has support in all parties across the House, because the last thing we want is for pension reform to keep changing every time a new Government come in. Up to now, the reforms introduced by the Labour Government in 1997 and later have not been changed by the present Government—I will talk about pension credit later. The proposals we are discussing in this Bill build on a number of those reforms, particularly auto-enrolment and changes to the occupational or second-tier part of a pension.

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It is right that we should support the principle of this Bill. It is crucial that people know what pension they can expect from the state; I am glad that they will be able to expect a state pension in future. There has been a lot of debate in various media and elsewhere about whether future Governments will be able to sustain the whole principle of a single-tier pension or even the first tier of a state pension. I pay tribute to the Government for nailing the fact that this is what the future will hold. There will be an element that is not quite universal, because people will have to pay in, but everybody who has lived, worked and cared in the UK for more than 10 years—and up to 35 years—can expect a basic pension from the state, and everybody will know how much it will be.

There is a huge mismatch between what people expect on their retirement and what they are saving. The Scottish Widows report published the other week showed that most people want an income of around £25,000 in retirement, yet less than 20% of the population are saving at a level that would take them even remotely close to that. Even with the reform of the state pension and the introduction of auto-enrolment, people’s income in retirement will still not come close to the £25,000 that they might expect or aspire to. However, it will come a bit closer as a result of these reforms, because establishing a single-tier pension—a flat-rate pension—will make it easier for those giving advice to people saving for their retirement to say that it will always pay to save.

My right hon. Friend the Member for Birmingham, Hodge Hill (Mr Byrne) provided an example of where savings might not necessarily give someone a larger income in retirement, but the measures in this Bill will generally make it easier for those kind of calculations to take place and will make it easier and more understandable for people to realise just how much they are going to have to contribute to get an income that comes close to what they desire.

The introduction of the single-tier pension will also reduce means-testing, but only if the flat-rate pension is set above pension credit level. One of the Select Committee’s recommendations in our pre-legislative scrutiny report was that there should be clear blue water between the level of the single-tier pension and the pension credit—a bit more than the £1 and something that is there now. We had hoped that that principle would be built into the Bill and we are disappointed that the Government did not see their way to doing that. The principle is important —that the single-tier pension will always lift someone out of the basic means test.

Pension credit has come in for some criticism today, but at the time, it was absolutely the right thing to do, because the biggest issue that needed addressing in 1997 was that of pensioner poverty. Thanks to a level of success, the pension credit has managed to lift 2 million pensioners out of poverty. It means, too, that pensioners are not generally living in poverty; being old no longer equates to being poor. There are still people who are old and poor, but not in any different proportion than can be found in the general or working-age population.

Ian Swales: Does the hon. Lady regret the fact that two out of every five people who qualify for pension credit do not claim it, and does she welcome the measures in the Bill that will reduce the number of people who have to face the issue of means-testing?

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Dame Anne Begg: I welcome the reduction in means-testing, but the hon. Gentleman should be aware that there are two different types of pension credit. There is the savings credit, which the Bill is abolishing completely; that means that someone with savings but no other income might be worse off than someone who has no savings. The savings credit tended to be more complicated, and people found it difficult to judge whether or not they qualified for it. The people eligible for savings credit were generally those who had a little saved or were a bit above the minimum, but those people tended to believe that they did not qualify for anything because they had never qualified for anything before. The take-up among those who qualified for just the minimum income guarantee part of pension credit, on the other hand, was well over 90%. I do not want the hon. Gentleman to be confused over the fact that large numbers of people were not claiming what they were entitled to in pension credit. Very often, the savings credit might have qualified people for only about 50p a week, so they thought that it was not worth going through the bureaucracy. I know this from conversations I have had with my constituents.

The hon. Member for Amber Valley (Nigel Mills) mentioned that the Work and Pensions Committee undertook pre-legislative scrutiny, but we scrutinised only part 1 of the Bill. That was our remit. I shall say no more about the fact that the start date was accelerated, as I recall laying into the Minister for that when we last debated the issue on the Floor of the House. We took no evidence on the later parts of the Bill, the most controversial of which is probably the issue of raising the pension age. The many briefings I have received from various organisations have focused their criticisms mainly on that issue.

The impression has been created that, if there is to be a review every five years, the pension age will increase every five years, which has frightened quite a number of people, as it seems to underpin a never-ending increase in the pension age. That is why my hon. Friend the Member for Amber Valley—I call him my hon. Friend because he sits on our Select Committee—was wondering, given his present age, how old he will be before he receives any kind of state pension. I know how he might feel. I have said here before that as someone born in 1955, I have been hit by all the increases. I was of the generation of women who, under the Pensions Act 1995, would not receive a state pension until 65. I had accepted that and was planning for that, but the Government then introduced an acceleration up to 66 for 2020, so I can well understand why some women feel that they never seem able to reach their state pension age because the Government are continually moving the goalposts. That thinking may well be behind some of the anxieties expressed in many of the briefings I have received on the pension age provisions.

Other issues concerning not just the state pension but the pensions landscape are not covered in the Bill, even though the Select Committee produced reports on them. The hon. Member for Amber Valley mentioned that we published a report on the governance of pension schemes, in which we recommended that the Government should consider making a single regulator responsible for pensions. He has also set out some of the Select Committee’s concerns about the present regulatory framework, particularly regarding the gaps or confusion about exactly which body is responsible for which parts of the regulations.

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Ultimately, pensions must be well regulated, because we have to rebuild trust in them so that people know that if they invest in a pension they will get a good income from it and not be ripped off by a pension company. They want to know that the charges they pay for their pensions are fair, that there are no hidden charges and that nothing pertaining to their pension has not been properly explained to them. It is really important for people to have that faith in the pensions industry and for the pensions industry to step up to the plate and ensure that it offers very good, well-regulated products that are not overly expensive.

We also produced a report about the lifting of restrictions on the National Employment Savings Trust. If the Government are to make sense of auto-enrolment and if indeed they are to get rid of what was the state second-tier pension in SERPS, or S2P, it is crucial that a state-backed second-tier pension is available, and that default option should always be NEST. In saying which restrictions should be lifted, we said only that the transfers in and out and the cap should be lifted; we did not say that the restriction on NEST always to have a public service duty should be lifted, as we thought that was absolutely right. There has to be a default scheme that cannot turn anyone away. If NEST is to undertake that important work, it will be unfair if some of the restrictions have not been lifted. I hope that, as the Bill goes through its stages here and in the other place, the Government will come up with some proposals to change the present restrictions that are hampering NEST’s ability to do business.

The Government have accepted some other elements of the Select Committee’s report. The implementation date is now in the Bill and it has also been specified that the minimum qualifying years should be no more than 10 years. It was the hon. Member for Amber Valley again who argued for exactly that, and we were happy to accept it as one of our recommendations.

During today’s debate, it has become clear that a good communications strategy is crucial. There is no doubt that when the single-tier pension was first mooted, everyone thought that those who were born on the day before the relevant date would receive £107 a week, while those who were born the day after would receive £144. I think that people still have that impression, and that it is still felt that the new system will be more generous to everyone. Well, it will be more generous to some—the self-employed will probably do slightly better out of it—but those who have assumed that all their second tier of pension will be covered by the state earnings-related pension scheme or by the state second pension may be worse off in the long term.

It is incumbent on the Government to try to deal with some of those misunderstandings. I assume that they have sent a letter to every woman who is within 10 years of pension age, because I received such a letter, but the letter that I received was very vague, and—as has already been pointed out today—not everyone knows how many years of credit they have in their state pension, because not everyone understands what work qualifies for credit and what work does not.

It is crucial for us to warn people who are close to retirement that they must have made national insurance contributions for 35 years rather than 30. Some have already retired under the misapprehension that they have contributed the full amount. It must be made clear

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to them that they can buy back national insurance years, they must be told how they can do that, and it must be ensured that they do not buy back years that will give them no extra income.

David Mowat (Warrington South) (Con): I have been reflecting on what the hon. Lady said about the National Employment Savings Trust. It is clear that NEST is directionally right and that a passive, low-cost investment vehicle is needed, but there are a great many restrictions that will prevent it from competing fairly with the existing industry in the marketplace. Did the Select Committee give any thought to what could be done about some of those restrictions?

Dame Anne Begg: We did indeed. We did not consider it during our pre-legislative scrutiny, because the issue is not covered by the Bill—there is some regret about that—but we did consider it in our governance report. We also published a separate report recommending the lifting of the cap on NEST and the removal of restrictions on transfers in and out of it. If the Government’s “pot follows member” proposal—which is in the Bill—is to work, the restriction on transfers must go, because otherwise anyone who has or is about to have savings in NEST will not be able to be followed by their pension pot when they move from one employer to another.

David Mowat: The “pot follows member” proposal interests me as well. Did the Select Committee give any thought to the use of NEST as a vehicle for aggregation? That strikes me as a natural way of going down a different route.

Dame Anne Begg: We did indeed. In fact, that was the favoured option of many of our witnesses. The Government did not listen, and opted for “pot follows member”, but we, and a number of witnesses, thought that NEST would be ideal as the source of an aggregated fund.

The communications strategy must also make it clear that savings credit will end when the single-tier pension is introduced. However, one of the main issues dealt with by the Select Committee was the issue of women—for it is usually women who are affected—who currently depend on the pension contributions of a partner or husband and whose pensions are therefore based on derived rights, because that system will end. The Committee recommended that women within 10 years of pension age should continue to enjoy those rights, because in less than 10 years they would not have time to build up a contribution record that would enable them to receive any kind of state pension in their own right. That, we thought, was very unfair, given that all the household planning might depend on the assumption that the wife would receive 60% of the husband’s basic pension.

Jackie Doyle-Price (Thurrock) (Con): I share the hon. Lady’s concern. In their retirement, a group of people who have depended entirely on a single income and have not imposed any burden on the taxpayer are now being robbed of what they had every legitimate expectation of receiving.

Dame Anne Begg: Indeed. We talk a great deal about how women’s lives have changed. Younger women may have built up contributions in their own right, either through caring responsibilities or through their own

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work, but there is a generation of women who may not have retired or reached pension age, who have stayed at home throughout their lives, and who expected at least to receive that 60%, although they did not expect more.

I accept that, ultimately, that system should probably end, but I think it unfair to take the 60% away from people who are too close to pension age to build up contributions in their own right. I also accept what the Government have said about people who do not live in the United Kingdom, but some of those affected will be living here, and that group may include a number of people who have been in work but have not qualified for national insurance credits, because their income has been too low to register, or because they have had a number of very small jobs and have therefore not made NI contributions that would have covered those years.

We have already discussed the group of women who were born between April 1951 and 1953. Some of their fears have been allayed—I think they initially believed that they would suffer a major change in their pension income—but some issues still need to be addressed, partly through the communications strategy. The Government must deal with that group first, and give them the information that they need.

There will be cliff edges, as there are bound to be when any change is made, and there may be some groups whose cliff edges will be worse than the one facing that group of women, although we have not spotted them yet. I hope that those who give evidence in Committee will make the Government aware of any other cliff edges, because the last thing we want is to discover in April 2016 that there are unexpected problems affecting certain groups. There will also be a great deal of complexity in the new system. Nothing will be simple, particularly the migration from the old system to the new system and the calculation of accrued rights. That was never going to be easy, which may be why it has taken the Government so long to come up with a solution.

We know that in the long term the Government will be spending less money. There obviously cannot be more winners than losers overall, because the pensions bill will be lower in 30 years’ time—which, I suspect, is why the Government managed to get the legislation past the Treasury. I hope that that will make the situation more sustainable, but I believe that this will be an election issue in years to come. The level at which the single-tier pension is set will be in the gift of Governments, and it will be up to them to decide whether to increase it or not.

However, overall the Bill is to be welcomed. It is the right step in the right direction, and it will build on the good work that is already being undertaken. It is also important that people realise that the subject of pensions affects not just those of pensionable age, but everyone, and especially those of working age, because if they do not start making provision for their pensionable age now, they will find that they do not have enough money to be able to have the quality of life they expect in retirement.

6.30 pm

Greg Mulholland (Leeds North West) (LD): It is a pleasure to follow the hon. Member for Aberdeen South (Dame Anne Begg), Chair of the Work and Pensions Committee. I had the pleasure to serve alongside her throughout the last Parliament when we were both

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members of the Committee. Together with our Committee colleagues, we wrestled with many issues, including pensions. I am delighted she is now in the elevated position of Committee Chair and is continuing to demonstrate to the House the importance of the Select Committee system. It brings expertise to bear on subjects, both through the members who take a particular interest in a set of issues and the staff who support Select Committees so well and provide them, and therefore the House, with real expertise and analysis. I hope that that continues throughout the passage of this Bill.

I am delighted to welcome the Second Reading of this hugely important Bill. It is hugely important for both now and the future, and also for the country as a whole, not just our older citizens. The state clearly has an obligation to our older citizens; that is something that, despite our political differences, each and every Member of this House strongly believes. I concur with the hon. Lady’s comments about the continuation of a state pension for all in this country, and I am delighted that, across the political spectrum, we continue to believe in that.

That is not only an obligation, however; it is also financially sensible. It makes financial sense to have a simple state pension that gives people not only a fair basic level of income in retirement provided by the state, but certainty as to what the state will provide in their retirement. That entails certainty about what they need to do in respect of their income throughout their working life, which will, of course, fluctuate, in order to add to the amount and get to the levels of pension income they would want. The simple reality is that the current system is not sustainable financially, is far from universal and in many ways is simply unfair.

I am delighted that Members on both sides of the House with an interest in pensions issues have welcomed the principles of this Bill, and that many have welcomed the practical details, too. I must say, however, that I am proud that my party, the Liberal Democrats, have championed this for a long time. The pensions Minister, my hon. Friend the Member for Thornbury and Yate (Steve Webb), has led us to this day and the publication of this Bill, and he knows, as I do, that the Liberal Democrat party as a whole passed our policy of a citizen’s pension back at our federal conference in 2006, and that that has become the blueprint for the single-tier pension presented in this Bill.

Such a pension was also at the heart of our manifesto in 2010 as one of the key things we would want to introduce if we were in government, as we now are. Our manifesto said we were committed to

“immediately restore the link between the basic state pension and earnings”,

as well as moving towards the kind of pension we have today.

I am glad other Members have paid tribute to my hon. Friend the Member for Thornbury and Yate, and I join in those congratulations. He has shown his dedication, remarkable intelligence and expertise throughout the introduction of this reform, and I hope he will continue to lead on it. It is notable that he is already by some margin the longest-serving pensions Minister we have ever had in this country, and I hope he manages to add

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to that record with at least another period of the best part of two years as we take this important reform through.

Why are the Government doing this? Indeed, why are Members on both sides of the House aware that we have to make changes, as the Committee Chair, the hon. Member for Aberdeen South, made clear? I shall tackle the controversial issue first: we have not grasped the simple reality that for some time there have had to be changes to the retirement age. That has been ducked, which is understandable, as it is never going to be easy or popular, but it can be ducked no longer. The state pension age has been 60 for women and 65 for men since the 1940s. There has also been a strange and institutionalised form of unfairness between the sexes, and it is right to tackle that, particularly as we have known for some time that men have a slightly lower average life expectancy than women.

The reality is that our population is rising most quickly in the oldest age groups. The pensioner population is projected to increase from 12.2 million in 2010 to 15.3 million in 2035 and 18.3 million by 2060. Cohort life expectancy at age 65 is projected to increase from 21.0 in 2010 to 24.0 in 2035 for men, and from 23.7 in 2010 to 26.6 in 2035 for women. The Government estimate that even now almost 11 million people in the current work force face inadequate retirement incomes. The number of people currently saving in an occupational pension scheme has fallen from a peak of just over 12 million active members in 1967 to 8.2 million in 2011.

On unfairness, under the current pension system, the self-employed cannot get any more than £107.45 in basic state pension, despite the means-tested threshold being set at £142.70. More significantly perhaps, as this applies to everyone, at present some people—130,000 people in fact—get as little as £7 a week or less in basic state pension, while the same number of people get £230 or more a week. It is complex, it is not fair and it is not sustainable.

Let us look at the key groups and the need for reform. The first and most obvious change, and in many ways the most welcome, is what the reform will do for women. The single-tier pension will give a better pension to women, and it will clarify for them—as it clarifies for all pensioners—what they will receive from the state. The terrible reality is that under the current complex state pension system, on average women receive £40 less per week than men. The single-tier pension is, at its heart, devised to address that inequality, and also to count fully time spent out of work caring for children, which applies predominantly to women.

Secondly, I have mentioned the self-employed; across the political spectrum, we pride ourselves on recognising the importance of our self-employed and applauding the contribution they make to our country. They drive the local economy, contribute to the national economy and pay tax, yet they are so disgracefully discriminated against in the current pensions system. I warmly welcome the fact that that is being rightly recognised.

One healthy thing about the broad consensus on the need for reform and on the principles of that reform is that we can—I hope—have more thorough, positive and helpful scrutiny of the Bill. I echo the Select Committee Chair’s comments about the need for support from across the House to enact changes of this nature. At the same time, we should rightly ask the difficult questions

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and challenge every clause. The hon. Lady and her Committee have started that process, doing so at the pre-legislative stage, and it needs to happen throughout the passage of the Bill, with expertise and dedication coming from all who serve on that Committee.

Constituents have come to me to discuss the issue affecting women born between 1952 and 1953, which has been mentioned by hon. Members. I have spoken to the Minister about it, and I know that he and colleagues have examined it. I urge for much better communication on the issue so that we can ensure the Bill is as fair as possible. Perhaps the most telling thing that the Chair of the Select Committee said is that this matter will continue to be complicated; it will be all the way from now until we get to the stage at which citizens of this country know, from now, “I will have this pension when I retire.” All the other people in between will, by definition, have to go through the transitory arrangements.

I warmly welcome the work that the Minister, his colleagues and the civil servants have done to tackle the enormous complexities of dealing with the different systems and the transitional arrangements to make sure that what we have is fair, so that people who have contributed in different ways and have certain reasonable expectations of income will not be penalised. This will get simple in the end, when we reach the stage at which every citizen in this country knows precisely what the state will provide for them in old age, so they know exactly what they have to do. They need to be signposted to the correct advice on how they build up other forms of pension. I warmly welcome the work on auto-enrolment.

Ian Swales: My hon. Friend is making a powerful and persuasive speech. Does he recognise the point I made earlier about communication? Does he also recognise that certain cohorts need to be given clear information very quickly, as there are women born in 1952 who will be pensioners by the end of this year?

Greg Mulholland: My hon. Friend was right to raise that point, which was echoed by the Chair of the Select Committee. I am slightly worried that the letter she received sounds not to have been as clear as we would hope—that might be a euphemism. Given that all this good work has been done by civil servants and Ministers, we need to ensure that the communication to citizens of this country is better than it sometimes can be; things can be let down at that stage. There must be proper communication with all the different cohorts of people in their different situations, and that needs to take place as soon and as clearly as possible.

In conclusion, this is a historic day. I warmly welcome the principles of and measures in the Bill, and the way in which it has been handled. I look forward to contributing throughout the passage of this historic Bill, which will give people in this country the certainty, simplicity and fairness that all in this House would demand of a state pension system.

6.43 pm

Mr Frank Field (Birkenhead) (Lab): I am immensely pleased to be able to contribute to this debate, and I shall do so briefly.

The Bill marks a decisive change in the policies of Governments since the 1950s. It is a change I hoped the previous Labour Government would make, but they did

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not. This Government have made it, under the careful stewardship of the Minister of State, the hon. Member for Thornbury and Yate (Steve Webb), in particular. I congratulate him unreservedly on this success. The objective of having an insurance-based minimum pension that attempts to take people off means-testing is something that voters have long asked for but that Governments have long denied them. On that score alone, I congratulate him.

I also congratulate the pensions Minister on this being the one single move the Government could have made to make an honest man, woman or person out of the National Employment Savings Trust, as we were in real danger of having an auto-enrolment scheme that would automatically enrol people and mis-sell to them the pensions that they would thereby be buying. On those two scores, the Government are to be congratulated.

Let me now enter some caveats. Clearly, objectives are immensely important for any Government, as they give us the direction of travel, but they do not necessarily mean we will reach the desired destination. I wish to discuss those who will regard this scheme as unfair and the costs. First, it is clearly unfair to the group of women in respect of whom the pensions Minister was actively defending his stance: those born between 1951 and 1953. He said that they will not be worse off than they would have been, but of course they feel that they will be worse off than they would have been because the Secretary of State and the pensions Minister are changing the pensions that males born during that period will get. I seriously question whether the Government will be able to maintain their line on that issue. It was a good debating point in this House, but I do not think we can take an annual cost—the shadow Work and Pensions Secretary was talking of that—and equate it with the cost over decades. The annual saving the Government will get from cancelling the contracted-out rebate is £5 billion to £6 billion, and that comes in every year—the cost of doing justice to this group of women is a very small proportion of that.

The second area where injustice has been created is between the employers and employees of public and private pensions. Why have the Government allowed employers in the private sector to have the right to adjust the pension of their employees, given that less money will be going into those schemes and given that they will get a better state pension, but not allowed that for the public sector as a whole? If there are real problems in the health service—leaving aside other public services—the near £1 billion the NHS would have to pay in additional pension contributions will play its part. Unless one wants another period of contracting out of state schemes, what is the Government’s game plan behind the inequity they are creating?

Thirdly, I wish to congratulate the pensions Minister, because I have rarely seen such pork barrel politics in my 30-odd years here in Parliament. We know that at the cornerstone of the Liberal vote are the self-employed, and they will be cheering all the way to the bank because of what he has delivered them. He dresses it up in this language about putting aside unfairnesses, but the rest of the population will not think much of his definition of “fairness” because this is an unbelievable, God-given gift to the self-employed. [Interruption.] Conservative Members are saying, “Hear, hear”, but they have not realised what the electoral ploy is vis-à-vis

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the Tory vote and Lib Dem candidates. The pensions Minister is still blindly leading the coalition on this issue, even when what he is up to has been spelt out, and I congratulate him on that. I do not believe the settlement he proposes for the self-employed—as opposed to that for the employed, with their contributions and their employers’ contributions, which are part of the wages settlement after all—is sustainable.

My last point was touched on by the Chairman of the Select Committee, my hon. Friend the Member for Aberdeen South (Dame Anne Begg), and concerns the losers from the Bill. One might have thought that the Bill offered milk and honey for everyone and, indeed, when the Secretary of State was introducing it I could not but think that it was almost like Moses was leading us into the promised land of milk and honey for everybody. During that journey, however, quite a few people will drop out. We know that the Government’s own data show that 22% of contributors will be worse off and that the average income replacement ratio will be lower. It all comes back to the key point of the £5 billion to £6 billion that the Government are taking out of the scheme and the price that the pensions Minister paid to get this important reform past the Chancellor.

I give the Government credit for having the nerve to get up and criticise the previous Government for taking £5 million to £6 million out of the pension scheme every year and saying that that does not lead to better pensions when this Bill proposes to do exactly the same. This is the second whammy for pension schemes in this country and if people outside think they will get a better, sustainable deal with that sort of financing, they have another think coming.

6.51 pm

Guto Bebb (Aberconwy) (Con): It is a pleasure to follow the right hon. Member for Birkenhead (Mr Field). I welcome the Bill as warmly as he did in his initial comments, but I suspect that my comments will carry on being positive throughout.

It is important to put the changes in context, because the truth is that we have a coalition Government, without a majority in this House unless the two parties work together, making significant proposals on the welfare state and changes to the state pension system. Every Opposition speaker so far has welcomed those changes before moving on to criticise various specific individual points that will, I suspect, be addressed in Committee. The important point is that, despite the terrible financial background, these changes have been taken on by the coalition Government after three years, whereas for 13 years under the previous Government we saw precious little change that would have allowed people to save for their own well-being in retirement.

Sheila Gilmore (Edinburgh East) (Lab): I am, perhaps, risking making the debate more political than it needs to be, but cannot this reform be introduced now only because a lot of the platform is in place thanks to steps taken by the previous Government and, to a lesser extent, the Government before that?

Guto Bebb: That is a very interesting comment. As I saw it, the previous Government dealt with the worst circumstances faced by some pensioners, but only by

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creating the view that the only way to deal with people in retirement was to ensure that the state could provide through a means-tested system. The worst thing about the previous Labour Government was that those individuals in pension schemes within businesses who were saving up for retirement were punished for trying to do the right thing by ensuring that they provided for themselves in retirement. Yes, the previous Administration offered some benefits in dealing with the worst aspects of poverty for pensioners, but at the expense of the concept of self-reliance.

Sheila Gilmore: The platform I was trying to describe did not simply include the introduction of things such as pension credit, which has helped to finance the Bill by a considerable amount. The Labour Government introduced the state earnings-related pension scheme; a Labour Government introduced S2P. Those elements were part of the platform that makes it possible to move forward.

Guto Bebb: They were certainly part of the platform that created the degree of confusion and complexity that has resulted in people not saving up for their retirement. Yes, there was a state system imposed on the British public by the previous Administration but in many ways that was at the expense, I would argue, of the simple concept of a basic state pension that meant that anything and everything that a person saved above it would be beneficial to them. It should be noted that the only people who suffered significantly as a result of the changes introduced by the previous Administration were many of the self-employed and many of those in schemes operated by companies that stopped operating because of the tax charges that resulted from those changes.

The context is that this is an important and significant change. These changes to the pension provisions go hand in hand with what we are trying to do as a Government with the welfare state. All our welfare reforms are trying to ensure that work pays. In the current circumstances, it is not easy to make the changes as radical as we would like, but their implication is clear: the more someone works, the more they will benefit from that work. If they take on added hours, they will be better off. If they manage to get a promotion, they will be better off. That message is key to our proposed changes.

Sheila Gilmore rose

Guto Bebb: No, I will not take another intervention for the time being.

We need to send out the same message about pension saving. We need to ensure that people understand that they will be offered a basic level of state pension as a result of the changes, but—this is where the communication issue highlighted by so many Members needs to come into play—that that basic state entitlement will not be sufficient for most people to have the standard of living that they anticipate. People will understand that that basic state level of support will be there, regardless of any further savings they make towards their own retirement pots. Anything and everything above the basic level will be additional and that, in my view, will change people’s behaviour, simply because they will no longer feel that they will be punished for trying to do the right thing.

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The shadow Secretary of State, the right hon. Member for Birmingham, Hodge Hill (Mr Byrne), gave some examples of where there would still be an element of means-testing in the system. We all regret that, but the truth is that we are moving significantly away from means-testing for pension provision. We should all applaud that because we want to ensure that people in work are encouraged to do the right thing, to do more for themselves and, at the same time, to save towards retirement. These are crucial changes that will change how the British public view the support offered by the state.

Hywel Williams (Arfon) (PC): I agree entirely with the hon. Gentleman about the virtue of making the system less complex and more understandable and about the requirements for better information that have already been mentioned by Members on both sides of the House. Will he concede, however, that there is a regional element? As a Welsh Member, he will know of the long-term mass unemployment in parts of our country that means that some people will just not have had the opportunity to amass the national insurance contributions required to qualify for the pension. That is a regional effect.

Guto Bebb: That will need to be considered. As I am well aware, parts of north Wales have long-term unemployment issues that might have an impact on the changes. We need to consider the detail, but the changes should still be welcomed. As I conceded in my opening remarks, some issues will need to be considered in Committee, but the overall direction of travel should be warmly welcomed, whether one is a Member in Wales or in any other part of the United Kingdom. A key point that should be mentioned is that there has been no mention from Government Members of a regional level of state pension. Having heard some of the comments from Opposition Members in recent weeks, I shudder to think what the Labour party might propose in due course on a regional level of basic state pension.

Mark Durkan (Foyle) (SDLP): The hon. Gentleman has made the point that he wants work to pay and for people to know that doing the right thing will not cost them. Does he accept that we must take care with the transitional arrangements in that regard? People could find that they lose out in the tight transition, not least because of the costs that could be imposed on schemes that might force their closure—for example, those schemes that were contracted out would now have to be contracted in. The opportunity to simplify those schemes does not really exist, as such direct benefit schemes are notoriously complicated and some people could find that their schemes close as a result of the costs imposed.

Guto Bebb: I will come back to some of the important points about the transitional changes, but I suspect that I will have to allow the hon. Gentleman’s specific points to be debated in Committee.

In introducing pension changes, this Government have tried to deal with the excessive level of support offered to public sector workers. At the time we were constantly accused of wanting to level down pension provision in this country, but it is clear that with auto-enrolment being brought forward by this Administration and with the single-tier state pension, we are trying to ensure a more level playing field between those people who are doing extremely important work in the public

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services and those who are earning a living differently. We are trying to make sure that there is a more equitable system for both.

It is interesting to note that the vast majority of people whose employers might need to pay more in national insurance contributions as a result of these changes are in the public sector. Only today I received a briefing on the issue from the National Union of Teachers. For the National Union of Teachers to state that it has no real concerns about the impact of these proposed changes on its members says a lot about the fact that the changes are very beneficial. I had not previously seen a single press release from the National Union of Teachers that had not attacked this Administration. Despite the 1.4% average increase in national insurance contributions that would have to be made by those who are currently contracted out of the system, there is an acknowledgement that a higher level of pension will then be enjoyed. That comment was made clearly by a union.

I want to emphasise how extremely welcome this change is for the self-employed, and express my amazement at the comments from the right hon. Member for Birkenhead (Mr Field). If it is said that the pensions Minister is introducing these changes for the self-employed because he believes there are votes in it for Liberals, long may he continue to bring in changes that will benefit the Liberal vote. In my constituency of Aberconwy and in many parts of rural Wales, a significant percentage of the population are self-employed, and a significant percentage of the population were paying their 9% class 4 contribution and did not know what they were getting for their money. The class 2 contributions made by the self-employed ensured that they got the basic level state pension. Anything that they paid into class 4 was deemed to be on top. That could amount to a significant sum and there was no feeling that anybody was getting anything for that contribution.

In an area such as mine, where about 27% of the population are self-employed, it is imperative that they feel that the state is treating them fairly. It is not their fault that they have had to create their own job in order to stay employed in their own community, and it is unreasonable to argue that because there is no employer making a contribution on their behalf they should be treated worse than other employees. If the self-employed are contributing on a par with or at a similar level to the employed, we should not bring into the equation the employer contribution, because the employee, the worker, the person making an effort to pay their way, support their family and ensure a future for themselves should have the confidence that when they come to retire, they will be treated by this Government in the same way as any employee.

Mark Reckless (Rochester and Strood) (Con): My hon. Friend is right to note that some people who are self-employed might prefer to be in employment. Others do it because they are entrepreneurial and it is what they want to do, but the problem at present is the complexity of the system. One great benefit for those who are sometimes self-employed, then employed and then go back to being self-employed is that they will now have clarity.

Guto Bebb: I agree with that point. It is an important consideration, especially for people who, because of family connections and so forth, after a period of

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unemployment decide to take the option of self-employment as a means of staying within their community. They will value greatly the certainty that there will be a basic level of support in the future. A divide exists between those working in the public sector in parts of rural Wales and those working in a self-employed capacity. The change will not make it a level playing field, but it will reduce the inequalities.

There are a few other points that I would like to make. There has been some comment about the increase from 30 to 35 in the number of years of contributions required. That must be seen in the context of the significant increase in the state retirement age that has been accepted reluctantly by hon. Members on both sides of the House. Somebody starting work at 21 would be expected to work for the next 44, 45 or 46 years, depending on their age. Therefore to expect 35 years of contribution is not unreasonable and should be considered.

Another issue that I would like to touch on is the fact that, despite the changes being comparatively cost-neutral, the savings implied may not be as significant as stated by the right hon. Member for Birkenhead. We are moving from 8.5% to 8.1%. It is a reduction, but not a huge one. In that context, to come up with a system that is better for the worse-off or the less well paid in society, and which is better for women and carers than the current system, is not a bad record for the Government. The Bill is moving in the right direction. It tries to protect and enhance the support for those who are less well treated by the system, and that should be welcomed.

On the subject of transition, there has been some discussion about the issue of women born between 6 April 1951 and 5 April 1953. When I started receiving e-mails on the issue—I have now received a couple of dozen—it appeared on the face of it to be a very unfair situation. But we need to bear it in mind that this could be an issue of communication rather than of the change in the legislation. Making a comparison between a woman born between those two dates and a man born between those two dates takes out of the equation the fact that they will be retiring at different times.

If women born between those two dates decided to defer their retirement, about 85% of the women affected should be able to retire with a level of pension support equivalent to that enjoyed by a man born during the same period. There is therefore a message to be conveyed. Does somebody retire before the age of 65, which is the relevant age for men at that point, or do they opt to retire a couple of years earlier and accept a slight reduction in their pension? We need to ensure that the DWP takes that type of communication into account so that when people see what they perceive to be an unfairness, they see the issue in context rather than on the basis of a campaigning e-mail.

The Bill is a huge step forward in ensuring that people understand that the state is there to support them, not to be responsible for them. That is a crucial difference. People need to be aware that the state will ensure that they have the basic level of protection. More importantly, the state should make sure that it provides the focus for an individual to make decisions that will allow them to help themselves. That is what we are doing throughout our welfare changes, and I am glad to say that it is what the Bill does. Yes, there are some

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details that need to be looked at in due course, but in general the House should welcome this brave and ambitious proposal to make sure that the state’s pension system is fair to the vast majority of the people who pay their national insurance contributions.

7.7 pm

Hywel Williams (Arfon) (PC): First, I should declare an interest: I am a man born before 6 December 1953—just.

Like others, we in Plaid Cymru give a guarded welcome to the proposals for a single-tier pension. This will benefit key sectors of society who have been excluded in the past. Pensioner poverty is unfortunately an all too common feature of the society that I live in as well as across Wales and the UK. For us in Plaid, the hon. Member for Aberconwy (Guto Bebb) made a very pertinent point. We share his view of the potential advantage for people who are self-employed. I speak as someone who has been employed by one employer and then by another and who had a couple of pots going. I was then self-employed for many years before being elected to this place. I have some direct experience of the complexities and the disappointments that that might bring in pension provision. In my own area, small enterprises and companies are overwhelmingly the most common model, run by self-employed people working either as sole traders—one-man bands—or in partnerships. This is therefore an extremely pertinent issue for rural Wales. It has already been noted that there are questions about the level of contributions that will be required, but that is a matter for further debate.

We agree with the aim of introducing a fairer, simpler and more sustainable pension. Who would not, after all? For too long, pension provision and the system of income maintenance for older people in general has been seen as fiercely complicated, incomprehensible to the ordinary person, unpredictable and open to various legal but doubtful scams. Since at least 1980, the state pension has often been perceived as being of diminishing value. An adequate state pension is therefore critical for providing individuals whose ability to make private provision is limited with a decent income in retirement, and to give everyone certainty and clarity on what to expect from the state at that time of their life.

Such certainty should create a platform for saving while in work, but that can be something of dream for some people in my constituency, given the levels of income there. That was certainly the perception at the turn of the last century when my predecessor but three as Member for Caernarfon, Lloyd George, was undoubtedly influenced by his boyhood observations of his very poorest neighbours in Llanystumdwy. Alas, life for many pensioners today remains unfairly hard, and is a matter of just getting by, even if it does not quite involve the hand-to-mouth existence that so influenced Lloyd George.

Plaid Cymru supports the aim of a single-tier pension, particularly in respect of the simplicity involved. In general, those who will benefit will be people with low lifetime earnings and those who have taken time out of the labour market due to unemployment, caring or disability. I made this point in an earlier intervention and, as I said, the self-employed are a key group.

I am sorry to be predictable, but in the second half of my speech I must mention some of our concerns. Some are of a general character, and others are of particular

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importance to Wales. Most importantly, the crucial question is the level at which the new pension will be set and maintained so that it can fulfil the stated aim of providing people with a level of income that will keep them out of means-testing. That will be one of the best features of the Bill.

In respect of the single-tier pension, those with fewer than 35 qualifying years will receive a pro rata amount, subject to their having a minimum number of qualifying years. However, in Wales we have an appalling legacy of de-industrialisation and subsequent long-term worklessness. Thousands of people have suffered persistent unemployment since the early 1980s and have severely broken employment records. In some areas, people in their 50s, particularly men, have little prospect of any further employment before reaching the age of 65 or 66. We are concerned that there will be a disproportionate number of such people who might not qualify. In addition to that being a personal blow to them, it will sharpen the burden for communities as a whole. It is in no one’s interest to have whole communities in which old age, and particularly older old age, are characterised by poverty and by people just scraping by. Last winter, for example, people were having to choose between heating and eating.

The Bill will also raise the state pension age. People in general are living longer, but that is not true of all economic groups. The Minister might recall our late colleague Malcolm Wicks making this point in a moving speech that I think marked one of his last appearances in the House. He said that the better-off live longer than the worse-off, and that the worse-off work more years because they start earlier. Even when the state pension age is generalised, poorer people will still work longer before they can claim their pension, and they will still die earlier. The disparity will therefore be perpetuated, and they will continue to receive a pension for a shorter period of time. It was noted earlier that they could receive a pension for up to 16 fewer years than their better-off counterparts. That long-term inequality will still exist.

Wales has the lowest gross valued added of all the UK nations and regions, and life expectancy there is lower than in England. These effects will therefore be even more marked in Wales. I understand that the Government intend to review changes in life expectancy as frequently as every five years. I think that the figure of six years was also suggested. Some would argue that that will simply reinstate the very uncertainty that the Minister has been so anxious to quell. I am not sure whether that will be the case, but I would say that a period of five years is fairly short, in terms of pensions provision. Lord Turner recommended seven years, but even that seemed shortish. However, if life expectancy is thus to be reviewed, it is essential that those undertaking the review have the confidence of all involved, including those who start work earlier, work longer and have a shorter post-retirement life. I would therefore press the Minister to give an undertaking on the independence of any such review panel. That point has already been raised a number of times.

I referred to Malcolm Wicks a moment ago. He suggested that certain pensioners who had done years of manual work and whose life expectancy was therefore shorter should receive the pension after 49 years. He suggested that that particular group should work for

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that set period. The Minister replying to him put forward a number of counter-arguments, mainly involving practicality. He asked how such people could be identified, for example, and noted that the pre-1970 records were incomplete and unreliable. However, as the body reviews successive cohorts who began work after 1970, that will not be the case. Perhaps we can therefore hope that the review panel will also consider the plight of this particular group in due course.

In November 2012, pension credit was claimed by 2.5 million people. The Minister intends that the higher level of the single-tier pension will move many people out of that dependence, but for those who remain, the value of pensions credit is vital. I am glad that he has secured the triple lock on the value of the single-tier pension, but I understand that no such lock can be extended for those pensioners who do not qualify. This again is particularly important in Wales, given our lower average GVA and the number of people with broken contribution records.

I shall turn briefly to the funding implications of the proposals. Contracting-out is to be abolished and the Government are planning to increase national insurance contributions. It seems reasonable that those who get more out should pay more in, and I will be interested to see how that pans out. It was a matter of particular interest in Wales that, on 11 February this year, the Health Secretary announced that these revenues would help to meet the cost of the Government’s proposed changes to the funding of social care and support. He noted that the reforms would cost the Exchequer £1 billion a year by the end of the next Parliament, and that that would be met in part by freezing the inheritance tax threshold at £325,000 for a further three years from 2015-16. He also noted, however, that the Chancellor and the Chief Secretary to the Treasury had agreed that the remaining costs over the course of the next Parliament would be met from public and private sector employer national insurance contributions revenue associated with the end of contracting-out as part of the introduction of the single-tier pension. Aha! So that is where some of the money is actually going!

Freezing the inheritance tax threshold for three years from 2015-16, rather than uprating it in line with inflation, will yield some £20 million for the Exchequer in 2015-16, £80 million in 2016-17 and £170 million from 2017-18. That might not be an issue for this Minister, but people in Wales are asking what the Barnett consequentials from that will be for Wales. Inheritance tax and national insurance are levied on a UK-wide basis, but social care is a devolved issue. We would argue that pensions and care are two sides of the same coin. The issue here is the need for fair funding for Wales on the basis of need.

7.19 pm

Richard Graham (Gloucester) (Con): It is a great pleasure to speak in this debate. The Bill is a major piece of legislation that is ready to make us more fit to face the challenges facing pensioners in the 21st century. Of course, the complexity of the subject is responsible for the reduction in the normally large number of Members in the Chamber—it also baffles most of our constituents. Therefore, the major goals of this Bill must surely be to make pensions simpler and clearer, to reduce the amount of means-testing, which is responsible for much of the complexity, and, above all, to implement

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the pledge that it always pays to save. That mirrors the other important work of the Department for Work and Pensions: implementing the promise that it will always pay to work. Those two pledges, I believe, are the two most important things the Government are trying to achieve. It is a great shame that the Labour party, which was in power for so long, contributed to a system in which it certainly did not always pay either to work or to save. Surely the major goal of this Bill is to put that dire situation right.

I welcome the entirely new state pension system outlined by the Secretary of State, which has a single state pension that is much easier to understand, and the contracting out of defined-benefit pensions, which takes away one area of complexity that is potentially open to abuse. I also welcome the new state pension age, which incidentally is lower than those of four other European Union countries and a great deal closer to the reality of life expectancy, which is that we all need and expect to work longer.

That raises the interesting issue of intergenerational fairness, which has not yet been mentioned in the debate. As many of us here draw closer to retirement age, and access to a pension, than to our time at school, college or university, it is vital that we do not inadvertently preside over a system that is grossly unfair to our children and to the next generation. It is also valid to remember Age UK’s response when the new state pension age was first raised in the House, which was to focus on the opportunities available to older people as well as the reassurance needed by those who feared that they would have to work longer in demanding occupations.

Another aspect of the Bill that I think deserves a brief comment is the new framework on the retirement age for the state pension, which gives clarity. Some Members have asked whether that inadvertently raises an expectation that the retirement age will be increased every five years at the reviews, but I am sure that that is not the intention of the provision. Perhaps the Minister will clarify that.

The Bill also covers bereavement, focusing more on short-term support and the 40,000 recipients—those with children—who will benefit from a one-off payment of £5,000, following an injection of £120 million. There is a longer-term issue in that regard that I will return to later when I will refer to a letter from a constituent.

On the consolidation of the so-called small pots—the defined-contribution pots—I think that many people will welcome the auto-transfer proposed in the Bill. Clearly some of the bodies representing pension schemes fear that some of their members might lose out as a result of being transferred into weaker schemes, but it seems to me that, in general, that provision, which is broadly welcomed by the National Association of Pension Funds, the Association of Consulting Actuaries, the Association of British Insurers and the CBI, will benefit many of our constituents, because at the moment there are too many pots that are unlooked at and unknown. The provision will make it easier for our constituents to engage with the whole business of saving and to have a greater understanding of what their savings really are.

The Bill also provides for the abolition of refunds for short-service membership of defined-contribution funds, which means that someone who has been in a scheme

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for less than two years will not be able to demand that the employer refunds their contributions. I think that that will be welcomed, because it reduces complexity for future pensioners and ties in with the consolidation of the small pots that I mentioned earlier.

The details of the Bill’s provisions complement the earlier introduction of the auto-enrolment scheme, which in itself should be responsible for introducing an additional £11 billion in savings and between 6 million and 9 million new savers. The object of the exercise is clearly to widen the pool of those constituents who are saving and make it easier for them to have savings that they can later draw on in their retirement. The Bill complements that earlier work in helping to meet the challenges of a century in which we will all live significantly longer than our parents, let alone our grandparents.

An important point that I would like to highlight, in particular, is the improved situation for many women. The right hon. Member for Birkenhead (Mr Field) suggested that those born between April ’51 and April ’53 appear to be disadvantaged. I would be grateful if the Minister could confirm some of the figures, because they are complex and, as several Members have mentioned, need to be communicated. My understanding is that there are currently 2.8 million women receiving less than £80 a week in pension—the comparable figure for men is 474,000—so there are huge numbers of women on low pensions. My understanding is that 750,000 women who will reach pension age in the decade after the introduction of the Bill—after 2016—will get an extra £9 a week. Over a lifetime, that is a significant amount of money. I would be grateful if the Minister could confirm that.

Will the Minister also confirm that 90% of the women born between April ’51 and April ’53 will actually get more than the “men’s deal”—men at the moment reaching retirement age later—and up to £26,000 more over the average retirement period? Those are quite difficult figures, but I would be grateful for confirmation. I think that the point made by right hon. Member for Birkenhead was that a group of women appear to be worse off, but actually they are being considerately treated, not least as a result of the coalition Government’s earlier amendments, and that needs to be communicated, particularly through bodies such as Age UK.

Today we have heard what I would describe as a “glass half full” response from the Opposition, and about an issue on which it should surely have been possible to achieve consensus.

Mark Reckless: Does my hon. Friend not mean that we have heard a “glass half empty” response?

Richard Graham: My hon. Friend is probably right, in the sense that the overwhelming response from the Opposition was one of ambiguity. It was ambiguous because they would neither oppose, nor strongly support. It was ambiguous because the shadow pensions Minister, the hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East (Gregg McClymont), who is in his place, said in February 2013 that the triple lock

“was a triumph of rhetoric over reality”

and that, three years into its operation,

“the increase in the state pension is less than it would have been if the uprating method used by the previous Government was still in place.”—[Official Report, 13 February 2013; Vol. 558, c. 1002.]