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He has the opportunity to correct me, but, as I recall, the last increase from the previous Government’s formula was 75p, compared with the largest cash increase in the state pension’s history, made by the coalition Government.
Gregg McClymont (Cumbernauld, Kilsyth and Kirkintilloch East) (Lab): The hon. Gentleman has enticed me from my sedentary position. Can he confirm what his colleague the pensions Minister, the hon. Member for Thornbury and Yate (Steve Webb), said in the Financial Times this morning—that the triple lock is guaranteed only for the lifetime of this Parliament and that neither the Conservative party nor the Liberal Democrat party is committed to it beyond 2015?
Richard Graham: Alas, I was not at the pensions Minister’s meeting with the Financial Times. However, the hon. Gentleman has raised a rather different question from the one I asked; I had mentioned his description of the current triple lock as a triumph of rhetoric over reality. Most of my pensioner constituents would describe it as a triumph of financial reality for their pensions.
Sheila Gilmore: The hon. Gentleman’s history appears to be slightly at odds with reality. The infamous 75p increase—nobody would say that it was particularly happy—was based on certain rules. It happened, I think, in 2000, so it was not the last time that the previous Labour Government raised pensions. The arrangement applied in every year of the Conservative Government after the earnings link had been broken. If inflation had provided for a 75p increase in 1996, doubtless that increase would have been given. Nothing was particularly different from what had been in place during the 18 years of Conservative Governments.
Richard Graham: I read modern history, not ancient history, at university. My clear recollection of recent and modern history is that the hon. Lady’s party contributed three things to the evolution of pensions. First, there was the abolition of the advance corporation tax on dividends, which has been estimated to have cost occupational pension schemes about £100 billion. Secondly, although the hon. Lady’s Government made great play of criticising the breaking of the link between pensions and earnings by an earlier Conservative Government, over 13 years her Governments failed to do anything at all about it.
Thirdly, the contrast between the 75p increase and the £234 that I have just described represents, by any standards, a pretty compellingly disappointing story for the Labour party. I will not dwell on the Labour party’s shame on the matter of pensions, because it is well known to the House. However, the shadow Minister, the hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East, recently described his Government’s approach over 13 years as “evolutionary”. Evolving an approach towards a single state pension over 13 years is different from putting forward a Bill and implementing a single state pension, which is what this coalition Government are doing today.
Richard Graham: The shadow Minister rises again from his place. I welcome him.
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Gregg McClymont: I thank the hon. Gentleman. I note that he did not clarify whether the pensions Minister had indeed said in the Financial Times this morning that neither party is committed to the triple lock beyond 2015.
Let me take the hon. Gentleman up on a specific point. He is a reasonable man, so does he not accept that the breaking of the link with earnings meant that by 1997, when Labour came into office, there was a genuine crisis of pensioner poverty for a significant section of the pensioner population? Pension credit was a significant and substantial response targeted on those most in need. Given the hon. Gentleman’s comments today, that would seem to fit his own approach to pensions more generally.
Richard Graham: The hon. Gentleman is correct. The break between pensions and earnings caused considerable upset across the country and was the reason why the Gloucestershire Pensioners Forum was founded some 30 years ago during that earlier Conservative Government. However, let us imagine the forum’s disappointment that nothing at all was done about the matter in 13 years of Labour Governments. The Gloucestershire Pensioners Forum had to continue into a coalition Government to see the wrong righted. The hon. Gentleman’s party had a great opportunity to resolve that disappointment from ancient history, but, as with so much, it has been left to us.
I move on to other aspects of the Opposition’s response today. Many of us will recall that the shadow Secretary of State has promised us a laser-like approach to public expenditure, but it was not clear today whether he was advocating that the 700,000 women born between April ’51 and ’53 should be given the additional £4.5 billion that it would cost to put them on precisely the same footing as those born later. Perhaps in his winding-up speech the shadow Minister will confirm whether the laser-like approach to public expenditure will revert to the “Sorry, there’s no money left” approach for which the shadow Secretary of State is so renowned.
What we have heard from Members across the House today is an extraordinary amount of unanimity and consensus on the fact that, although means-tested pension credit was well intentioned, it is not the solution and should be replaced. Many Members, including the distinguished Chair of the Work and Pensions Committee, have welcomed the approach of a single state pension and the doing away with the means-tested pension. For many of us, the means-tested pension has caused sad arguments between neighbours, some of whom have small amounts of savings. Someone needs only more than £10,000 not to qualify for the means-tested pension credit; the income generated from £10,000 is tiny in a low-interest-rate environment. The consensus has been encouraging, but some things have clearly not been covered in the Bill today. It is worth touching on those; perhaps the Minister will address some of them in his summing up.
I start in no particular order. In the creation of a new single-tier state pension, it is clear, as always, that there will be losers as well as winners. Some members with private sector pension funds will be affected and it would be interesting to hear more from the Minister on who those losers will be. Then there is the question of the defined ambition pension, which the pensions Minister
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has advocated. We are promised a Government paper on that soon. Will the Minister confirm when it will come? Sometimes “summer” is taken to extend all the way through to November; it would be helpful to have an idea of what stage of the summer is meant.
I understand from some of the professional associations that the business of contracting out requires a statutory override, so there is a question of when that will come in secondary legislation. Will the Minister say something on that? One or two Opposition Members rightly raised the National Employment Savings Trust, the restrictions on it and its competitiveness against other products in the marketplace. None of us would wish NEST to be penalised as the Post Office was inadvertently by the previous Government in respect of private sector competition. NEST must not be prevented from succeeding as we all wish it will.
On the small pots, there is an issue about a cost assessment of bundling them all together. What sort of safeguards might there be in moving from a strong scheme into a weaker one?
On the issue of bereavement, I would like to read a small part of a letter I have received from a constituent. She raises the question of whether the regular income available to widows from the widowed parents allowance, which will be replaced by a bigger but shorter-term amount, could
“leave future widows and widowers worse off than most other single parents who can claim child maintenance from the other parent in the case of a relationship breakdown.”
“It seems so unfair that in future someone like my husband who has worked for 20 years will never claim a state pension but the government would not support his children either.”
Perhaps that issue can be raised in Committee and a discussion had on the potential unintended consequences of the changes for those affected by bereavement.
Lastly, there is the new objective laid down for the pensions regulator
“to minimise any adverse impact on the sustainable growth of an employer”.
That raises the question of the definition of an employer. Charities and non-governmental organisations with pension schemes, for example, do not necessarily focus on growth. Perhaps some clarity on precisely what changes are implied by the new objective for the pensions regulator could be discussed in more detail.
The Chair of the Select Committee and the right hon. Member for Birkenhead—both of whom have huge experience of this sector and the world of pensions—welcome the Bill and I welcome it, too. I think that there should be consensus on pensions and that this is a great opportunity for the Opposition to say, as my hon. Friend the Member for Rochester and Strood (Mark Reckless) has said, that the glass is not half empty, as I mistakenly suggested, but half full. They should be enthusiastically supportive of the fact that there is a lot in the glass and we want more: we want a single state pension and we want it to succeed.
I am delighted that Opposition Front Benchers are wriggling—some more comfortably than others—towards a recognition that this coalition Government are taking the right steps to simplify and clarify pensions and, above all, to enable all our constituents to believe that it
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will always pay to save. The value of that is enormous and it is this Government’s duty to return us to that principle and remind the whole House of why we should endorse this Bill and its objectives.
7.40 pm
Dr Eilidh Whiteford (Banff and Buchan) (SNP): I have followed this debate closely and it is important to say from the outset that simplification of the state pension system is an entirely laudable aim and that I think there is a great deal of consensus throughout the House on the move towards a more inclusive pension system.
It is also important to appreciate, however, that our starting point is one of the lowest levels of state pension provision anywhere in Europe. We have relatively high levels of pensioner poverty and pensions have consistently fallen behind and failed to keep pace with earnings over a number of decades. We also still have deep and persistent inequality not just between women and men, as has been mentioned, but between those who have occupational pensions and those who have not. Far too many people who worked very hard throughout their working lives still end up living on the breadline in later life. Meanwhile, the challenges of an ageing population and increasing life expectancy drive the need for reform.
I have talked in the House a number of times about the dramatic social and geographic disparities in life expectancy and healthy life expectancy, and I do not plan to rehearse those arguments again this evening. The bottom line, of course, is that we need pensions that are affordable and sustainable and fair to pensioners. Our pension system also has to provide us with long-term stability and security. When people look decades ahead, they need to know what they are likely to get back and that the sands will not shift every time we play musical chairs in the House of Commons.
In his opening remarks the Secretary of State made much of his so-called triple lock, but those of us who saw the Financial Times this morning could be forgiven for thinking that the pensions Minister has let the cat out of the bag by acknowledging that the triple lock is a short-term fix and that there is no certainty that it will continue beyond the life of this Parliament or that the value of the single-tier pension will keep pace in the longer term, given that all the modelling that has been done is predicated on the triple-lock guarantee.
Although today’s debate has focused heavily on those people who will gain in the short term—some certainly will gain in the short term, particularly, as has been said, the self-employed and those receiving a pension for the first time—there will be losers as well as winners in the transition. It is extremely difficult to work out which are which, because the side of the line on which an individual will fall depends on a wide range of factors, including how long they live after retirement, which few are able to predict.
We have heard a lot less this afternoon about the longer-term impact of the scheme, yet most commentators agree that it is less generous than that which it replaces and that many people, including most of those born since 1970, will lose out. The most positive claim that has been made for the single-tier pension is that it is undoubtedly less complex than the scheme it replaces, but if the new scheme has the virtue of simplicity, the transition process certainly does not.
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Last week, the Association of Consulting Actuaries, the National Association of Pension Funds and the Association of Pension Lawyers briefed the all-party group on pensions at a meeting chaired by the hon. Member for Gloucester (Richard Graham). One of their chief concerns was the complexity of the transition process and, in particular, the extremely tight time scales within which the Government are seeking to enact the Bill and its attendant regulations. Establishing the foundational amount for everyone with a national insurance contribution record who has not retired by 6 April 2016 will be a huge and challenging project in itself, and there are real concerns about how the end of contracting out will be managed within the proposed time scale.
Dame Anne Begg: I am interested in the hon. Lady’s comments on the complexity of the transition. Will she clarify for those us who live in Scotland what that complexity would mean for the SNP’s plans for the state pension, should there be a vote for independence?
Dr Whiteford: The most important point I can make in response to the hon. Lady is that Scotland is spending a lower proportion of its GDP on social protection than the UK as a whole, and that has been the case for every one of the past five years. Moreover—I have made this point several times in the House—Scotland has lower life expectancy by almost two years, and that is not simply a geographical disparity; it goes across every social class. To my mind that means that we have to look at tailored solutions for Scotland and understand that the scheme will not result in equal benefits for people who are likely to live two years less than the average in the UK.
Dame Anne Begg: The hon. Lady said that it would be complex to find out people’s national insurance contributions in the UK, but surely it would be even more complex for Scotland to negotiate that as an independent country. Does she envisage that happening easily?
Dr Whiteford: I do not think that that is beyond the wit of Members in this Chamber or those in Holyrood. We have a lot of able people who will be able to do that. In fact, as we move into a new system, actuaries and pension fund managers are raising pragmatic questions about how the change will be managed. A new, simpler system will be significantly easier to unravel and manage than the current one, which is why I have said that I welcome the general direction of travel.
On the fundamental issue of uncertainty, the key thing arising from the pensions Minister’s intervention in this morning’s Financial Times is that there is no certainty. We do not know how the modelling will play out or what our decisions will mean for the future.
Mark Reckless: Will the hon. Lady give way?
Dr Whiteford: I will not for the moment, because I have been carried off track from the debate about single-tier pensions and am keen to discuss the consequences of the administrative hold-ups, particularly for defined benefit pension schemes.
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About 6,000 defined benefit schemes are still operational in the UK, but half of them are now closed to new members. Even given the proposed employer override, there is a pressing need for the regulations to be introduced for consultation at a very early stage. The ACA estimated the time scale required and it has already brought it forward by a year. It says that it will need time to do actuarial work and consult properly with scheme members. Will the Minister outline the time scale for the introduction of the draft regulations, and will he confirm that the Government remain committed to meaningful consultation with the key stakeholders and those who will have to deal with these issues in practice?
The Government argue that the proposals will incentivise saving. Certainly, it will become easier to save for retirement, but it would be more accurate to say that the proposals remove disincentives for savings. We should scrutinise the claim that there will be significantly better incentives to save and temper our expectations.
On the face of it, the single-tier pension should, in theory, encourage people to save for retirement, but I have a few reservations about how that will work in practice, simply because we have had a succession of pension reforms in 1998, 2002 and 2006, all of which have shifted the goalposts for certain cohorts. The reforms have had a cumulative effect, in that they have eroded some people’s confidence in the value of saving for retirement. That has been compounded in the past few years since the financial crash by extremely poor annuity rates and poor terms for draw-down pensions, while older people trying to derive an income from their savings have been hit on all sides by historically low interest rates and the value of their capital being reduced by quantitative easing. People who thought that they were doing the right by saving are seeing little reward for their efforts. From speaking to people of working age, I know that many are looking at their parents’ experiences and thinking twice about how to save for the future and, indeed, whether it is worth doing so.
I hope the Government are right that people will be encouraged to save for retirement, but we must be wary because my sense is that public trust in state pension provision is at a low ebb. That uncertainty will continue to play out with people who are set to retire many years from now, but who are looking at this reform thinking that there is not an awful lot in it for them.
A number of people have talked about the single-tier pension extending the state pension to more women. It is true that most women will be entitled to the state pension in their own right, but the Bill is far from a panacea for the historical problem of women facing an impoverished old age. Even under the new arrangements, women will be less likely than men to receive the full pension. If the main drawbacks of the proposed scheme are that in the long term, the majority of people will have reduced pensions, the fact that the state pension will constitute a lower proportion of people’s income, will be lower as a proportion of average earnings and will be less money in real terms than pensioners have now means that we risk inscribing existing inequalities into the single-tier pension.
The Government hope that a lower state pension will encourage a greater reliance on occupational pensions. Although there is protection in the Bill to allow those who take time out to look after young children or frail elderly relatives to get credit for the single-tier pension, there is no equivalent protection for full-time parents
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and carers in private pensions. As the value of the state pension erodes and people become more reliant on what they have saved in their occupational pension to maintain a decent standard of living, disproportionate numbers of women are once again likely to be poorer because it is predominantly women who punctuate their working lives with breaks to care for others.
Many women take low-paid jobs so that they can juggle family and work responsibilities. There is also a persistent gender pay gap, so even women who have not taken breaks find that their pay, on average, is lower than that of their male counterparts. That is by no means a new problem, but much of the income inequality between men and women in later life can be attributed to more men having private and occupational pensions. I am far from convinced that the introduction of NEST and auto-enrolment will make much difference to the gender gap in private pension provision or do enough to help women secure a comfortable lifestyle in old age, given that they will be more dependent on what they have saved.
I also have concerns about people who do so-called mini-jobs. Many women with young children work two or three low-paid part-time jobs to support themselves and their family. The Government have encouraged such patterns of work. There is a danger that somebody who works only a few hours a week for a number of employers will miss out on both the threshold for national insurance contributions and auto-enrolment. Again, in the long term, women are likely to be disproportionately affected.
I want to ask the Minister about one last point. Under the current legislation, one way in which full-time stay-at-home parents earn state pension entitlement is by being in receipt of child benefit for a child under 12. When child benefit was a universal benefit, that was a good way of ensuring that mums and dads who took a break from work to care for children did not lose out. Now that child benefit has been withdrawn from higher-income families—often it is higher-income families who have a stay-at-home parent—what mechanism will the Minister use to ensure that a stay-at-home parent in a high-income household does not miss out? With single-tier pensions being unique to the individual and not transferable between spouses, it is more important than ever that such parents are not disadvantaged and are not pushed into total dependence on a high-earning partner.
It is clear that we cannot look at the single-tier pension outwith the context of other changes to the tax and benefits system. The changes will potentially impact on other forms of pension provision. I am aware that many of these matters will be covered in Committee and in regulations that are still to be brought forward. I seek assurance from Ministers that they will heed the concerns of the professional bodies that will have to put the legislation into practice and keep the unresolved issues on their radar.
Jim McGovern (Dundee West) (Lab) rose—
Dr Whiteford: I will not give way because I am just finishing.
Every round of pension reform over the past few decades has been touted as the last for a generation. I am not persuaded that what is being proposed today is
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the final chapter in the pension reform on which we are embarking. I wonder how it will stand the test of time. I fear that in a few years’ time, the goalposts may shift yet again, notwithstanding the reviews that the Government have built into the system. I hope that the Government will look carefully at the equality issues in the Bill and do more to ensure that pensioner poverty for women, as well as men, becomes a thing of the past.
7.55 pm
Jackie Doyle-Price (Thurrock) (Con): It is a great pleasure to speak in support of the Bill and the introduction of the single-tier pension. The simple truth is that our pension arrangements have not kept pace with changes in lifestyles. I commend Members from all parts of the House for their constructive contributions. I hope that the Minister will address their concerns. This is a measure that he can be proud of because it will entrench the welfare state for the 21st century and make it sustainable, but there are some tweaks around the edges that we need to get right.
I commend the Bill for maintaining the principle of national insurance. In recent years, much of our welfare bill has become means-tested or universal, rather than contributions-based, which, as we all know, is not what Beveridge intended. The Bill will entrench the contributory principle, not least by recognising the contribution of self-employed workers and by improving the treatment of women who take time out to raise families.
On the whole, the Bill is very good for women, but I do have concerns that I hope the Minister will reflect on in Committee. The Chair of the Work and Pensions Committee raised the concern about women who will be disadvantaged because they have stayed at home to be homemakers, but have not had children. That group of people has been identified by Age Concern. They are people who have never worked, but who had expected to inherit pension rights on the basis of their husbands’ contributions. It is easy for women of my generation to be sniffy about women who have never worked, but we need to look at what society was like. That was a legitimate lifestyle choice. Those people were homemakers, and we should not diminish that role. Now that we are in the era of the ready meal, encouraging more homemaking might address the rise in obesity and diabetes, but I digress.
We are retrospectively trying to change people’s expectations of how they will provide for their retirement—a fundamental unfairness. People will be affected by this problem if the husband retires under the current system and the wife under the reformed single-tier pension. We are changing the deal that such people have anticipated for many years, and at a time in their lives when they can do precious little to deal with it.
I will illustrate the problem with an example. I have been lobbied by a constituent who is extremely anxious about the changes. Her husband will retire in three years and she in five. She fully anticipated inheriting derived rights from her husband’s pension. She has never worked, has never had children and has struggled with illness all her life. She will therefore not be covered by the transitional arrangements for women with lower contributions. The couple have dealt with the challenges that life has thrown at them with considerable stoicism and with no help from the state. This is the one period in their lives when they have expected the state to
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honour the deal. They have planned for their retirement on the one national insurance record and they now find that the goalposts have been moved.
I firmly believe that putting such people at a disadvantage is not the intention of the Government, but one of the unintended consequences of this significant and positive reform for women generally. Will the Minister look at that group of people?
It has been estimated that 30,000 women will be affected. I notice the Work and Pensions Committee has recommended looking at women who are within 10 years of retirement and at where the current inherited rights could be retained. As I understand it, one reason the Government are not minded to alter the system is that some 70% of women who would benefit from that provision live overseas. I completely endorse their position in not wanting to pay pensions to widows living overseas—particularly those who may never have had any real relationship with this country—but we could look at protecting widowed ladies who are expecting a pension if they are resident in this country. I doubt whether such a provision would be particularly costly because, as we have said, it is a small and diminishing group.
Although lifestyles have changed over time and women tend to work more than stay at home, we should not discriminate against those whose lifestyles do not fit that profile, particularly when we are effectively retrospectively changing their plans for retirement. I make a wider point that much action in public policy is sending out a sign that society does not value women who do not work full time. I consider that regrettable, and I speak as someone who is as much of a feminist as anyone else. We must recognise that running a home is every bit as valuable as anything else a woman might do.
On a more positive note, I give an enthusiastic welcome to the improved provisions for the self-employed, and I was disappointed to hear the comments of the right hon. Member for Birkenhead (Mr Field). I do not know what it is about those on the Opposition Benches, but they are so negative about the self-employed.
Jackie Doyle-Price: I will give way to the right hon. Gentleman because he has been critical in the past of the self-employed.
Mr Byrne: The hon. Lady makes an important argument that I am following with great interest. The Opposition are trying to say that this is an extraordinary deal for the self-employed, who are paying half the national insurance contributions of everybody else but still enjoying 100% of the pension. The key assurance we are looking for from the Government is that this is a deal for the long term. It is not clear that this deal will stick; it is generous and sounds good for the self-employed, but is it there for the long term? We think the self-employed demand certainty.
Jackie Doyle-Price:
I agree that the self-employed demand certainty, and one reason the deal needs to be generous is that the self-employed do not have access to occupational pension schemes. At a time when self-employment is increasing, the role of the self-employed is growing, not least because people have different
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work patterns throughout their life. Some will go from employment to self-employment and so on, and we must allow them to make sufficient contributions.
Let us reward and celebrate entrepreneurism in our economy. It is playing a significant role in creating jobs and growth and should be welcomed—I gather it is now 40.2% of the economy, and I can only see that growing. We must do our bit to nurture and support entrepreneurship, not get in its way. The mealy-mouthed and churlish comments about pork-barrel politics for a group of people who are working hard and doing their best do those on the Opposition Benches no credit whatsoever.
Finally, I congratulate the Government on their determination to continue supporting pensioners more generally, and the Minister on the triple lock. As my hon. Friend the Member for Gloucester (Richard Graham) reminded us, the days of the 75p rise are long gone, and I hope pensioners realise that Government Members are on their side. If people work hard and do the right thing, we will support them. That means that we owe our pensioners who have worked hard and contributed. I hope the protections that we have given them will be recognised, and that we can lay a good foundation for our pension system in the future.
8.4 pm
Mr Iain McKenzie (Inverclyde) (Lab): I will focus my comments on issues raised with me by women from my constituency who were born in the early 1950s and who perceive an injustice in the changes proposed for state pensions. We are all well aware—especially at this time—of the great importance the public place on pensions, as evidenced by the reactions we have seen to any proposed changes. Perhaps we need a requirement that any changes to pensions should give as much notice as possible to those affected, so that they can plan for and address those changes. We can, therefore, appreciate the apprehension displayed by people up and down the country when further changes to pensions were announced, including the intention to introduce a single-tier state pension for future pensioners from April 2017. I support the single-tier pension, but seek to highlight what I believe is an unfair outcome for one group of our constituents.
The problem with implementing the single-tier pension on 6 April 2017 is that a group of women born in the early 1950s will not be eligible for it. Around 700,000 women born between April 1951 and July 1953 will miss out. They will be deprived of many hundreds of pounds a year on average—money they could well do with in these austere times. Women born in this period are, quite rightly, angry at what they see as a dual adverse impact of the increase in their pension age and their non-eligibility for the single-tier pension. They will be forced to wait longer to retire, and will miss out on the new £144 pension. Instead, they will receive around £127 a week. Even the DWP’s own research concluded that that
“could have a significant impact on the state pension received over the course of a lifetime, in comparison to a man with an identical national insurance contributions”.
It is so obviously unfair that women born between 6 April and 5 July 1953 have been particularly disadvantaged by the changes to the state pension. Not only have they had a second increase in state pension age imposed on them—this time at very short notice—they will now not receive the improved pension.
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The campaigner Louise Fox, born on 23 June 1953, says:
“In principle, I welcome the move to a flat-rate pension because it will bring to an end the poor state pension deal that most women get, but we have been left on the sidelines.”
She goes on to say that the Government could do a number of things such as allow women in that group who retire before April 2017 either to switch to the new single-tier pension after that date, or to delay taking their pension until 6 April 2017 and then enrol in the new single-tier pension scheme.
Steve Webb: I understand the confusion because we did originally propose to introduce these measures in 2017. Since then, however, we have brought forward the start date to 2016, meaning that the constituent to whom the hon. Gentleman refers will get the single-tier pension if she was born in June 1953.
Mr McKenzie: I thank the Minister for that information. Louise Fox is not my constituent, but she will find that intervention very welcome.
One further worry is that April 2017 is still not set in stone as the date for the start of the new system, and we have been told that it has now changed. Women in this disadvantaged group want to know why they have to wait until age 66 to claim their pension, and some cite losses of £30,000. They ask, “Can this really be true? Why have we been so penalised? Why are the Government treating us so badly? What have we done to deserve this?”
The Government claim that they must be “absolutely transparent” about who will lose out, yet they failed to make clear the full consequences of the planned reforms. The Work and Pensions Committee undertook pre-legislative scrutiny of the Government’s proposals, and heard from many women born between 1951 and 1953 who believed that they would suffer. There was concern about some 85,000 women born between 6 April and 5 July 1953 whose state pension age increased a second time under the Pensions Act 2011, and who will just miss out on eligibility for the single-tier pension if implemented in April 2017, although that has now changed.
In evidence to the Committee, Professor Jay Ginn argued that because women in that group were having their state pension age increased and were typically heading for relatively low state pensions, it would not be unreasonable for them to receive the single-tier pension when it is introduced.
Those women must pay national insurance for several extra years and will receive their state pension later than women for whom the state pension age was 60 and they will receive a lower pension than men and women whose state pension age is a few years later. That is a double-whammy for women born at the wrong time. The stated intention of single-tier pension proposals was to reduce gender inequality in state pensions, but it will be magnified.
As men were allowed to receive winter fuel payments at women’s state pension age, it would not be unreasonable for that relatively small group of women to receive the single-tier pension when it is introduced. Age UK has suggested that that they could be given the option of
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being treated equally with men of the same date of birth. My hon. Friend the Member for Aberdeen South (Dame Anne Begg), the Chair of the Work and Pensions Committee, was in favour of ensuring that women caught in the transitional group are protected.
Department for Work and Pensions analysis has shown that most women in the group—85%—would receive more in lifetime state pension and other benefits under the current system than they would receive if their state pension age was 65 and they received the single-tier pension. Obviously, its argument was centred on a long life expectancy, and it ignored the fact that the situation would be different for those who died relatively shortly after retirement. Life expectancy can vary by 10 years from one side of my constituency to the other. We can realistically assume that many of those who die early are among those who were least well paid during their working lives.
A group of women in Inverclyde who are affected by the changes come to see me regularly. They are angry that they will lose out because they will reach pensionable age prior to the proposed date. One such constituent, Mrs Christine Houston of Port Glasgow, told me she was made redundant and experienced economic hardship as demand for her company fell. She managed to find a part-time job but works unsocial hours. Her benefits, which act as a safety net to allow her to live, have been cut, and now she will be unfairly affected by the Government’s pension reforms. Despite having started work at 16 and having paid her share of taxes ever since, she has no idea how she will plan for her retirement as a direct result of the Government’s actions. Another lady, Mrs McKay, also of Port Glasgow, will lose out when the single-tier pension is introduced. She believes the Government are discriminating against her. At least 600 women in my constituency will be affected by that double-whammy. Two wrongs do not make a right.
My opinion has always been that the measures are unfair for two reasons. First, they give no chance for those people to prepare for their retirement and adjust to changes in the state pension age. As I have said, as much warning as possible should be given before any change in pension age. Secondly, the measures disproportionately affect a group of people—women in their late 50s—who are among the least well equipped to bear the brunt of the Government’s failed economic policy. A woman in her mid-50s will have average pensions earnings of just over £9,000, but, on average, a 56-year-old man has more than £52,000.
The women hit by the changes are the backbone of the UK. They are mums who took time off work to bring up children, daughters who helped their parents as they got older, and grans who help their children to have a work and family life by providing child care for grandchildren. Frankly, the measure is a disgrace, and the Government should have regard to that group of women, who have done nothing wrong except to be born in the early ’50s. I call on the Government to play fairly and reasonably with those women. I hope that there is a consensus in Committee and that we can find a way of righting that injustice for those women.
8.13 pm
Mark Reckless (Rochester and Strood) (Con):
Before I come to the substance of the Bill, I want to make one point in response to the Opposition on the supposed
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break in the link from earnings to prices. History is mis-remembered. Labour would like it to be considered that, in 1979, the Conservatives broke a long-established link that had been part of a golden age, but that is not the case. The 1974 to 1979 Labour Government changed the link from prices to wages when wages were not keeping up with prices. In addition, they had a four-month transitional period between July and November 1975 when pensions were not linked to anything. Four months might not sound like much, but in 1975, inflation hit a peak of 27%, so not linking pensions to anything for a four-month period significantly hit pensioners, who did much worse under that Government than they did either in the 18 years of the following Conservative Government, or in the 13 years of the Labour Government, who did nothing to change the system they liked to attack.
I initially approached the Bill from a position of significant scepticism. I am not, in all matters of Government policy, naturally a cheerleader. I was concerned that the Bill was a big redistributive Government policy, and was worried that it might take away from those who had paid in most over their working lives. I have been convinced in part by the knowledge of my hon. Friend the pensions Minister—if I may call him my hon. Friend—and how he has presented the case, and in part by the Work and Pensions Committee pre-legislative scrutiny. In addition, the more I have worked to understand the Bill and as my understanding has increased, so has my enthusiasm. I would like to put on record my thanks to Djuna Thurley of the House of Commons Library, who has answered many of my technical questions, allowing me to respond to constituents’ cases in a bespoke manner, which in most instances satisfied the individual concerned. Her work has helped them and me to understand what is proposed in the Bill.
I wondered whether the Bill would take money away from people who have paid a lot in. Yes, such people are better off, but they have contributed a lot through national insurance, and I questioned whether they would suffer to pay for others and whether there would be a big redistribution from those who have contributed. The answer to those questions must be no, because existing accruals are protected—that is the key protection. It is a pleasure to follow the hon. Member for Inverclyde (Mr McKenzie), but when he mentioned a lady from Port Glasgow, he did not make one important point. Her accruals—whatever she has built up under the existing system, which I understand might not be that great because of the difficulties he described—will be the same under the new system and are protected. It is important to understand that the Bill does not take away from those who have contributed and give it to others.
Another key reason I am in favour of the Bill is that it seems to reverse the usual distributive trend and burden of Government tax and spend initiatives. The losers are always much noisier about their losses than the gainers are publicly grateful for their gains—I cannot be certain that there will not be a reversal of that or a degree of change as the Bill passes. Those who benefit from the existing system do not much appreciate it and very often are not aware whether they will gain or get any pension above the basic state pension, despite contributing under the current state second pension and, previously, the state earnings-related pension.
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On the other side of the equation, it is obvious to those who will gain that the single-tier pension will be higher than the existing one, and that, although it will be taxed, they will be able to keep everything they put aside on top of it, which is a great benefit of the Bill. My concern, if anything, is that there might have been a degree of communications failure, because quite a lot of people believe that, when the transition happens—it will happen in 2016 rather than 2017—they will suddenly get the great benefit of the single-tier state pension and do a lot better than they would have done had they retired a little earlier.
So far—this plays into the usual way of gainers and losers in such things—I have largely had complaints from people who think that they will just miss out on the benefits of the single-tier state pension and that it will benefit those who are a little younger than them. I have been able to explain that that will not be the case—there will not be a cliff edge. When I explain that all it will mean is that the person who is a little younger than them will have the opportunity gradually to build up entitlement under the new single-tier pension over time—for instance, gaining £4 or £5 of accrual per extra year of working—they understand that and think it is perfectly reasonable.
I caution the Minister about the other side of that coin. I wonder whether a lot of constituents think that they will receive a big gain in 2016 and so have not come to us to complain. They may well come to us if, come 2016, they have expected a big gain and it suddenly does not materialise. It would be helpful if Members of all parties, commentators and reporters made that point clearer.
I have one technical question for the Minister, and I have worked hard to understand it. The White Paper was clear, as far as White Papers go; there were a lot of great examples with lovely diagrams so that, by the time I got to the end, at least I thought that I understood. On the transition, for people who currently decide to put off retirement and earn a greater state pension—I am not sure whether every 10 weeks equals 1% or whether the rules have changed, but it is something like that; my impression is that it is a reasonable deal and a good thing to take advantage of, particularly for women with higher average life expectancy. I understand that the opportunity to buy extra pension will still exist, but that there will be a less generous, different system. In his concluding remarks, will he wrap up one point for me? If someone is taking advantage of that system before the transition and is receiving extra pension and wants to continue doing so after the transition date, will the old rules or the new rules apply to that individual?
The right hon. Member for Birkenhead (Mr Field) is not in his place, but I would like to turn to his remarks. I was quite taken aback by them. There was the glass half empty issue, which we have discussed. I think he agreed that the proposals were better for women, but he raised concerns—as others have—about women born between 1951 and 1953. That issue is the product of the equalisation of the pension age, not of the Bill. In addition, as I understand it, the women concerned have lost out most compared with what they may have previously expected—although the coalition Government have mitigated some of the worst of that. However, I believe it is still the case that they will retire earlier than men of the same age, and, on average, they will have longer life expectancy.
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They are losing out relative to expectation, but there are those two positives—one by virtue of nature and medicine, the other by virtue of policy.
The right hon. Member for Birkenhead launched a great attack on our proposals for the self-employed. He seemed to think that it was some kind of—I will not use the word scam—initiative by the Minister to shovel benefits to all self-employed people who, according to the right hon. Gentleman, are almost entirely Liberal Democrat supporters. I am sure that those on the Liberal Democrat Benches would be delighted were that so. In Thornbury and Yate and in Leeds North West they may have MPs who have told us about people who work in that sector. Overall, I strongly welcome what the provisions will do, because of their simplicity for the self-employed. In a sense, a self-employed person runs their own company, yet still pays national insurance through two classes as if they were an employee, albeit at a somewhat reduced rate. The self-employed were not receiving the benefit from the state second pension, which seems inequitable and it is good to reform that in this way.
Greg Mulholland: The hon. Gentleman is making a powerful and informed speech. Does he agree that the right hon. Member for Birkenhead cannot have his cake and eat it? Either we believe in a fair pension for all—including carers, women and the self-employed—or we do not, and he is fudging the situation. Surely, we want a citizen’s pension for all.
Mark Reckless: I agree broadly with my hon. Friend. I am not sure that it is fair to accuse the right hon. Member for Birkenhead of fudging, as he is not in his place to defend himself. Certainly, on some issues he has said things that for many are unpalatable, and he has not been shy of spelling out the consequences in some scenarios. I just disagree with what he said about the Bill and women—the Bill will improve matters; it is not the Bill that is creating the difficulty for those in the 1951 to 1953 group—and with what he said about the self-employed. Mostly, I took exception to what he was saying on the latter.
I was astonished that—I assume that he does not speak on behalf of the Labour party on this issue, but perhaps he is doing so—the right hon. Gentleman seemed to suggest that the Bill was terribly unfair because it would not cut pensions further for those in the public sector, compared with those in the private sector. That is a courageous thing for a Labour Member to say. It may be that the National Union of Teachers, from which we have heard, will be writing to him about the policy he is urging for his party.
The Government have undertaken significant reforms to the various state pension schemes which were chronically insufficient under the previous Government. We have taken significant action on a number of different schemes. Like many other MPs, I have met a lot of policemen and policewomen at my surgeries who are very upset about the reforms, but I try to explain to them that their pensions are still far better than those for the vast majority of people who live in my constituency.
The cost of state pension schemes, in particular the extra paid in versus what is coming out to the Exchequer, will continue to increase strongly. Whether that has put
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those schemes in a sustainable position might remain a subject for debate, but people with such pensions have had significant increases in contribution rates. I am not sure that I agree with the right hon. Member for Birkenhead when he complains that the private sector will be able to reduce benefits because of the reduced amount going in, but that the public sector will not, when so much has already been done in the public sector. We have taken the issue of the various public sector schemes separately and we should continue to address it on its merits, rather than through the Bill.
Mr Byrne: The hon. Gentleman is making a compelling speech. Is he as concerned as I am about where on earth the public sector will get £4 billion-worth of new NICs after 2016?
Mark Reckless: I was just about to come on to that point. That is an extraordinary challenge. Public sector workers will have to pay more, as they will not receive the contracted out national insurance reduction. I think that is fair, because they will benefit from the state second pension, and even the NUT realises that they are getting a good deal. In perhaps eight or nine years, they could build up to the whole single-tier pension, despite having a number of decades in their working life when they had benefited from being contracted out. That is a good deal for many of those employees. It will be a significant challenge for employers, however, and will imply a significant further reduction in public spending in these areas early in the next Parliament. I would be interested to know whether the shadow Secretary of State has worked out his proposals for dealing with that if—God forbid!—Labour were in office at the time. Further changes might need to be made, but we can use separate legislation for that, whereas the private sector cannot, so it is right that the Bill provides the opportunity to make adjustments because public sector workers will no longer benefit from contracting-out provisions.
The huge attraction of the Bill is that it will greatly simplify our pension arrangements. The Minister has done well to make even the transitional arrangements, which inevitably add complexity, as simple as possible, although there remains the job of explaining to our constituents how they will work. Overall, however, the Bill will provide for a pension that accrues on a straight-line basis over 35 years of contributions. People will know what their pension is going to be, and it will be above the limit at which people got top-ups under what used to be the minimum income guarantee and pension credit—the system that Labour introduced and which, however well intentioned, effectively punished people who saved and so did not benefit from the measures in place. It dulled, if not destroyed, incentives to save, and that was a terrible mistake. Now we will have a single-tier pension and people will know what they are going to get. It will be taxed, but not withdrawn if people do the right thing and save. That will benefit our constituents, who will know where they stand, and we will have a better pensions system.
8.30 pm
Mr William Bain (Glasgow North East) (Lab):
Increasing dignity in retirement, respecting the contributory principle in our social security system and reducing poverty among the elderly are all marks of a good society. In our consideration of the Bill tonight, some of those
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principles, which were also followed by previous Governments, have been referenced. The previous Labour Government, whom I supported, began the process of auto-enrolment for work-based pension schemes, which will eventually encourage 11 million people to save for a secure second pension. That Government also made substantial progress in halving rates of relative pensioner poverty, with as many as one in six of my constituents seeing significant increases in their living standards as a result of expanding pension credit.
Nevertheless, a great and growing number of our constituents who are approaching the state pension age or are just above it want to continue working. If we are to see an increase in the UK’s employment rate, providing work incentives through the tax and benefit system for this group of people will be essential too. If the current working-age population are not to experience a triple whammy—facing continued weakness in the value of real wages for the foreseeable future while taking most of the burden of fiscal consolidation now and much lower levels of retirement income than they would aspire to—it is vital that we reform the state pension and encourage pensions saving through occupational and other similar schemes.
As the Institute for Fiscal Studies established last Friday in its analysis of the DWP’s data on households below average income, there has been a large improvement since the 1970s in levels of relative and absolute pensioner poverty, with the number of pensioners with incomes in the lowest quintile down from 47% in that decade to just 21% in 2011-12. Most of that improvement came with the changes introduced by the previous Labour Government, which made the reduction of pensioner poverty such a priority. Four decades ago, levels of pensioner poverty were between six and eight times higher than those for working-age adults without children, while 40 to 50 years ago, nearly two in five poor people were pensioners. By 2011-12, the latter figure had fallen to just one in five before housing costs and one in eight after housing costs.
Last week’s IFS research also shows why it is right that the Bill should build on the work of the previous Government by encouraging workplace and other second pension saving. Across the income spread for pensioners, income from second pensions has had a big impact on raising overall incomes. Over the past three decades, it has risen from 18% to 36% as a share of total net pensioner income for the richest fifth of pensioners and increased almost sixfold for the poorest pensioners to 15% as a share of total income in 2011-12. That, alongside the increase in the value of pensioner benefits and relatively lower housing costs in retirement as a result of a large increase in the proportion of pensioners owning their homes outright—now as many as three in four—has driven the major decline in relative pensioner poverty. There is also a large group of pensioners over 75, however, who are still the group most likely to be on the brink of falling into poverty. They must not be forgotten in this debate either.
As was said earlier by my hon. Friend the Member for Aberdeen South (Dame Anne Begg), who is no longer in her place, the recent Scottish Widows annual pensions report shows adequate provision for retirement at an all-time low, with just 45% of people able to save enough for their retirement and a fifth unable to make any savings at all for it. That is driven by the unprecedented
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drop in recent years in real wages and therefore disposable incomes. There is also a gender gap, with women at a bigger disadvantage in pension saving than men. The average worker in the UK wants to retire at 66 ideally, on an income of £25,000 a year, which means savings of £1,000 a month from the age 30—a truly daunting prospect.
In principle, a higher flat-rate state pension set at £144 a week for future pensioners from 2016 is a good idea and reflects the contributory principle. Making some changes to the state pensionable age is sensible, given changing demographics and life expectancy, as well as the changing patterns of people’s working lives, to which I referred earlier. However, the power in the Bill potentially to revise the state pension age upwards every five years is problematic. It has the potential disproportionately to affect poorer communities, which experience lower life expectancy on average, in constituencies such as mine, where there are larger numbers of workers in manual occupations, which are more physically demanding.
There are also problems with how the Bill affects women. Many of my right hon. and hon. Friends, as well as other hon. Members, have referred to the 700,000 women born between 6 April 1951 and 5 April 1953, including around 600 in my constituency, who, under these proposals, will potentially receive a state pension worth £6 a week less on average than that of a man born on the same day. The Government have also been unduly silent about the 100,000 people who will have to work five years extra to be eligible for the full flat-rate state pension, on the back of 35 years of NICs rather than 30 years as at present.
That is an issue for people working part time in more than one job—they are mainly women—who might be earning below the national insurance threshold in each job and therefore not building up sufficient pension rights. There are 8,000 women working part time in my constituency, with the median wage for this group of workers at just above the living wage. They deserve a guarantee from the Government that they will not lose out disproportionately as a result of these changes. The employment rate among women aged between 50 and 64 has increased by 3.5% in the last few years. I welcome that, but it would be remarkably unjust if they ended up with weaker pension rights as a result, having done the right thing and got back into part-time employment.
Future stages of this Bill’s consideration, should it receive its Second Reading this evening, should deal with how we can help women affected by the abolition of derived rights in April 2016, which will mean that women who have been unable to build up sufficient national insurance credits will lose the right to receive 60% of their husband’s pension—or all of it—should their husband die. By 2020 as many as 30,000 women could be affected by this change alone.
Similarly, the Government should address what will happen for people in their 20s, many of whom will face a lower state pension under this Bill. The Government should face up to what the closure of the state second pension scheme will mean for people, who no longer have a state-backed low-cost option for pension savings. It is inexplicable that the Government have set their face against asking the EU to remove further restrictions on people being able to save through the National Employment Savings Trust. What will the Government do about
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individuals who would have built up high entitlements under the state second pension, and how will they look after individuals who have only between seven and 10 qualifying years of national insurance contributions?
What arrangements will there be for passported benefits, currently paid under the guarantee credit? This also involves housing benefit and council tax benefit. Can the Government clarify what the system proclaiming these passported benefits will be should the Bill pass? The Government should also clarify a point in the impact assessment, which makes it clear that rather than the Green Paper’s aspiration that these proposals on the state pension age would be cost-neutral, a key driver now is making savings for the Exchequer.
Given the higher national insurance contributions that both employers and employees will have to make to pay for the new flat-rate pension, I hope that the Minister will be able to share with the House in his response what the long-term projections for pension spending as a share of Government and national income will be, to spell out what the Government’s long-term forecast for national insurance contributions receipts will be, and to provide reassurance to the country that the extra contributions people will be expected to make will not simply result in a long-term windfall for the Treasury and long-term pain for local government.
Clause 46, which deals with the Bill’s territorial extent, is important. The Bill applies throughout Great Britain. In other discussions taking place about the future of the United Kingdom, the future of pensions provision is a central issue. My constituents are deeply concerned that plans for Scotland to separate from the rest of the United Kingdom would lead to instability and insecurity in their incomes on retirement. Occupational and second pension schemes have to be fully funded if they operate over state borders within the EU. The level of shortfall in 5,000 UK occupational schemes running a deficit at the moment is, according to the recent Institute of Chartered Accountants in Scotland report, in the order of £265 billion. More than 11,000 separate occupational schemes are regulated jointly across the United Kingdom and are saved in by millions of people across the UK. People in Scotland deserve answers about the long-term future of pensions.
Mark Reckless: Can the hon. Gentleman be certain that, if Scotland were to become independent, his constituents would receive the pensions they expect, or might they be in a situation that we have seen in the Republic of Ireland, where pensions, including those being paid, have been significantly cut, at least in the public sector?
Mr Bain:
Very sadly, I cannot be sure on that point. As I shall come on to say in a moment, further doubt has been cast on the future of pensions by utterances from the Scottish Government today, and the answers that people in Scotland are receiving from them are precious few. With their public face the Scottish Government are promising people more generous social security, while they are planning the precise opposite behind closed doors at the Scottish Cabinet table in Bute House. Despite their panel of advisers last week producing reasons in favour of a UK-wide social security system
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to share risk even after separation, the Scottish Government said, as reported in
The Herald
this morning, that should Scotland no longer be part of the UK, they could not guarantee to match the flat-rate state pension at £144 a week and that this Bill’s provisions would no longer apply in Scotland from 2016. What further evidence could there be for people in Scotland that if we want to guarantee the pound in our pocket, our deposits in the bank and now the security of our accrued pension entitlements, the only way to be sure of doing so is to vote to remain within the United Kingdom?
The general principles of the Bill are sensible, but it requires a good deal of further scrutiny to ensure that the losers do not outnumber the winners and that young people, women on low incomes in part-time employment and those in low-paid work do not pay a disproportionate cost for a flat-rate state pension. The Bill could go much further in extending the principle of auto-enrolment to those who earn enough to pay national insurance and in capping pension costs levied by providers. I hope that the Government will be generous enough to consider those points in Committee and on Report. People want long-term pension reform that works. There are good ideas from all parts of the House on strengthening this Bill. The Government should be prepared to listen and act on them, should the Bill receive its Second Reading tonight.
8.44 pm
Sheila Gilmore (Edinburgh East) (Lab): I am pleased to have the opportunity to speak in a debate on what is clearly a complex subject. Some of those who spoke earlier suggested that its complexity had reduced the number of Members wishing to contribute, but it is nevertheless hugely important. When we get pensions policy wrong, there are consequences for many years to follow. It is therefore necessary not simply to welcome a Bill such as this, but to make what I hope are constructive comments.
One problem, which may be partly of the Government’s own making—the hon. Member for Rochester and Strood (Mark Reckless) alluded to it—is that the Bill has been sold on the basis of it being a great leap forward. I would describe it as a step forward, but not necessarily as great a leap as others may think.
Many of our constituents have expressed, in their correspondence, the fear that they will miss out substantially, and that they face a cliff edge. The other side of the coin is that once the new system has been introduced, Members of all parties will be approached by people saying “Hang on a minute! I thought that we were all going to receive £144 and keep all the pension that we had built up in the meantime, but now you are telling me that that will not be the case.” Of course it will not be the case.
Anyone who observes that all this will be contained in the existing cash envelope—and, possibly, in an envelope containing a diminishing amount of cash in years to come—will conclude that there must be some explanation. The explanation is that many of the building blocks that allowed this step forward to be taken are already there, in terms of Government expenditure. I would argue, and indeed did argue in an intervention earlier, that much of this Bill has been built on an existing platform, consisting partly of the development of an additional state pension over the years.
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It is many years since the only provision available from the state was the state pension. Initially there was the state earnings-related pension scheme, which has been described as one of the great legislative achievements of the 1974-79 Labour Government. I am a great fan of SERPS, which was pushed through by Barbara Castle. If it had been allowed to mature, it would have had very beneficial effects. It offered the prospect of greatly improved pensions—not far short of half pay—for those who were not in an employer’s scheme. The aim was to close a gap that had existed previously and that, sadly, has existed subsequently.
Mark Reckless: I am puzzled by the hon. Lady’s suggestion that the Government are building on some great platform left by Labour. Surely we can either have a system with a single decent pension, or we can have the system developed by Labour, involving separate types of pension and complex arrangements whereby people pay in various sums and possibly receive more. I do not see how the former can be building on the latter; it is clearly moving in an entirely different direction.
Sheila Gilmore: In financial terms, it is clearly building on that platform. Had the previous system not been in place, if any Government had come along and said “We will create a flat rate pension for everyone”, the expenditure involved would have been huge. It would not have been possible to achieve this if all the other bits and pieces had not been there already. That is why many people will find that the amount they receive is not hugely different from the amount that they might have received before.
Mark Reckless: Surely we would otherwise have had a single state pension that would already have been a great deal higher, and nearer to the level for which we are aiming now.
Sheila Gilmore: I think the hon. Gentleman is suggesting that all parties—and I am not sure this had come from his party any more recently than quite recently—suggested that should be the case. What then happened was that the state earnings-related pension scheme was dismantled under a previous Conservative Government. In my view at least, the worst thing that happened was that people were given the freedom to opt out of SERPS and go into personal pension provision. In many respects, that has proved to be a disaster for a lot of people. It was an illusory freedom. I suspect that a lot of people who took that path now regret that they were ever given the freedom to do so. Although SERPS was a very good scheme and will have left people in a much better position than anything suggested since, it was dismantled.
That was one of the changes in pension provision that the then Government made, but it was not the only one. From 1995, the state scheme stopped underwriting contracted-out schemes, for example, whereas previously it had provided preservation and inflation-proofing of the guaranteed minimum pension. There are lots of ways in which pensions have been interfered with and changed, therefore. I do not think any Government have a monopoly in being able to say they have got this right or the changes they have made have been helpful.
The much-maligned—by certain people, certainly—pension credit system is another relevant measure. A considerable amount of Government expenditure has
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been laid out on that. The debate at the time and subsequently on pension credit was not for the most part—there were exceptions—about saying, “Everyone should get a flat-rate pension credit level.” The big debate was about the link to earnings being restored. The incoming Labour Government in 1997, faced with very severe pensioner poverty, took the route of concentrating on those in most need, and they succeeded in quickly alleviating pensioner poverty. That would not have happened if there had simply been restoration of the earnings link, as that would have taken many years to alleviate that level of pensioner poverty, nor would it have happened even in relation to the introduction of a flat-rate pension, because the pension credit system applied to all pensioners whenever they had retired, which a lot of the prospective reforms, including this one, do not do. That is why a lot of people will still be receiving means-tested top-ups for many years to come.
The last Government also introduced the revised additional state pension through the state second pension, which was particularly beneficial to low earners, and which did build in credits for people with caring responsibilities, as, indeed, did SERPS, as it was based— or would have been, if it had ever gone through to maturity—on the best 20 years of people’s earnings, which would have been particularly beneficial not just for those with caring responsibilities, but for other people with interrupted work patterns, perhaps through illness or unemployment. That issue has not been resolved by any other proposal.
I would argue, therefore, that much of what has made this step forward possible has been done already, and that this would not be financially viable otherwise. That is not to say that a means-tested top-up is the best system to go forward with for ever. When I was campaigning for election prior to 2010, there were complaints and issues about pension credit, with people feeling that those who had saved or contributed to a pension scheme were relatively disadvantaged, even if they were not actually disadvantaged. That and the work capability assessment were two issues I picked up strongly from constituents, and I came here determined to argue for change, whoever won the election. I, for one, would certainly have been seeking to move us towards a system that was not so dependent on means-testing. We have to accept, however, when we look at all the impact assessments carried out by the Government, that there will still be a substantial element of means-testing even with the changes that are proposed. That will go on for many years and we have to take it into account.
Reference has been made to some, but not all, of the issues of detail in the Bill, which are important and we have to get them right. Constituents have contacted me about the changes to bereavement benefit. I know they were flagged up some time ago, in a White Paper and so on, but it is often only when these things get close that people realise they are really about to happen. The concern is that 90% of claimants of this new bereavement benefit would be worse off under the reforms and, in particular, that parents who have the misfortune to lose their partner while their children are young will be particularly badly affected. The feeling is that the current system gives parents an opportunity to be there for their children, who have already been through the trauma of losing a parent, and to resettle them without the stress of having to go back to full-time work quickly or to enter the labour market, where previously they had not
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been there. Although people will be able to get universal credit in that situation if their income is particularly low, it has been pointed out that the conditionality requirements could be difficult for families going through a trauma.
One thing that I had not picked up on—perhaps the Minister will say this is wrong—is that kinship carers have been promised a relaxation of the conditionality requirements for a year after taking on the care of their grandchildren, whereas widows or widowers would have only six months’ relaxation of the conditionality. If that is the case, why are widows and widowers not being dealt with in the same way as kinship carers? That is a good question to ask.
There are also issues to deal with in relation to the changes being made to contracting out, some of which have been referred to—I am not sure this one has, although it has been brought to the attention of the Select Committee. Some people who were previously in the public sector but now work in industries no longer in that sector had been told that there would be protection for their position, and they are concerned that that will change. Private sector employers have the ability, through the override provisions that are part of the Government’s proposals, to make changes, either to contributions or to benefits, to counteract the impact of having to pay higher national insurance contributions. This particular group of former public sector workers are concerned about promises made to them previously—indeed, until fairly recently—that their protections under the protected persons regulations would never be interfered with. They fear that those may now be interfered with because of this change and they are asking for clarification from the Government.
There are other worries about the change from the contracted-out situation and the national insurance contributions. Some people have referred to the issue of public sector employers—including the NHS—facing these higher levels of national insurance contributions and the promise the Government have made that there will be no ability to change the benefits or contributions. How that will be paid for? What effect will that have on public spending in general? Are we, perhaps, simply robbing Peter to pay Paul? Will it have an impact on services in the future?
The other issue is the speed at which some private sector employers have to make changes to take all the provisions into account. I am not sure whether the Government changed the date from 2017 to 2016 simply, as has been suggested by some speakers, to allow them to understand the needs of some of the women affected by the changes or whether it was something that the Treasury wanted. The Select Committee had previously been assured by the Minister that it would not be possible to make the changes until 2017 and that it would not be practical to have an earlier start date, but suddenly an earlier start date has been put in place. The more cynical take the view that that might have had as much to do with generating additional income for the Treasury as it had to do with compassion for the women affected by the changes to their pension.
The matter is serious because the one thing that nobody wants to see is any further diminution in the provision of defined benefit pension schemes in the
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private sector. There are concerns that some employers, rather than going through the changes that would have to be made even with the benefit of the override, might simply decide that the time has come to close their defined benefit schemes entirely. That would mean that even fewer people would benefit from such provision and we must be clear that that should not happen. The industry is looking for some reassurance—including through early sight of regulations and of how all this will be organised—that we will not look back on these provisions, as we sometimes do on others, as another nail in the coffin of defined benefit schemes.
On the subject of concerns about raising the pension age, the hon. Member for Arfon (Hywel Williams) mentioned the contributions made to previous debates by the late Malcolm Wicks, who paid considerable attention to the problems of people who had had to leave work early and who were not always able to build up their pension contributions. The Joseph Rowntree Foundation has pointed out in some of its most recent work on poverty among different groups that one group in which poverty remains unchanged is those aged between 55 and 64. Pensioner poverty among the over-65s is down from 25% 10 years ago to 15%, but in the 55-to- 64 age group the figure has stayed static at 20%. The report from the foundation states:
“For some older working-age adults, the best hope of escaping poverty is to wait for state retirement age, an age which is set to rise steadily.”
One in three people between 50 and 64 is economically inactive and a fair number either have poor health or are caring for somebody with poor health or a disability. Those people are already out of the labour market, are not contributing towards pensions and might not have the opportunity to contribute. We must consider their problems, especially as the pension age is going up. The assumption that everybody will be fit and able to work, not just to 65 but to 66, 67 and potentially beyond that, is belied by reality. A substantial group of people are already unable to remain in the work force up to that point. Provision must be made for them and thought must be given to them. They should not be left in a limbo land, as they often are at present.
The hon. Member for Aberconwy (Guto Bebb), who is not in his place at present, viewed the measure as a companion to welfare reform and suggested that it would ensure that people benefited from savings made through their lifetime contributions to pensions in the same way as universal credit would make work pay, but the irony is that at the same time as saying how good it is that means-testing will be reduced for older people, the Government have been pursuing a path that increases means-testing for those of working age. The taper in universal credit is set much higher than the current taper for tax credits, which means that people lose benefit much more quickly. One of the groups who will not benefit at all from universal credit are those who work full time but are not necessarily on high incomes and who, because of the taper change, will lose benefit much more quickly.
Working households with some capital will be subject to a test. This is again a change from tax credits. People who have relatively low incomes but have some savings will not be eligible for benefits. That is means-testing. The restriction of employment support allowance to one year for those in the work-related activity group
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also exposes a group of people to means-testing who were not previously exposed to it. Somebody in that situation who loses their contributory ESA after a year, who has savings, who has a working partner or who has an early retirement pension is subjected to means-testing in a way that did not happen previously. So we need to look at the different ways in which people are treated, and we should not take comfort by saying, “We’re dealing with means-testing here”, when in fact means-testing has been expanded for other groups.
Some of those people are the same people that I have already described as being in limbo when they reach the age of 55 or 60 and are unfit and unable to work. They are precisely the people—the Secretary of State seems to think this is extremely amusing—who are likely to find themselves hit by the loss of contributory benefit and the means test that is applied. Those are the sort of households who may find that they have to use up their savings in order to get to retirement age, and they will require a means-tested pension in due course. [Interruption.] It is relevant because these are the same people, and they may still end up in retirement dependent in a way that the Government say they are trying to prevent.
Will the new system help people to save and stop them feeling that it is not worth saving? The issues associated with saving for retirement are wider than simply means-testing. I am not entirely convinced that people now in their 30s and 40s are sitting at home and thinking, “If I don’t save, I’ll get pension credit so I’ll be fine. That’s why I’m not going to save.” There are many other factors involved in pension saving or the lack of it. One of those is a lack of trust in the financial services industry and concerns that saving in pension schemes in particular has not been well rewarded in recent years.
People see the low product of many of the private pensions that people join, and the defined contribution schemes that many people are in do not yield particularly good results. People are aware of that and they are not particularly trusting of the financial services industry after its recent history. Some parts of the Bill—I would argue not enough—ensure that if people are saving into private pensions, they are well protected and get a good result at the end. That means that the Government consider putting a cap on pension charging. There is still an opportunity to amend the Bill to include that. The Government have indicated recently that they are coming round to looking further at the issue. We must ensure that people are not paying into schemes where too much of what they contribute is taken out by way of fees and charges, and they end up with much less than they thought they were going to get.
There are also issues about the annuity market, and about what happens when people get their defined contribution pot and go out into the market to get an annuity. Do they know enough about where to get an annuity from? Do they have enough information to make comparisons? Is there enough control over the level of annuities that people are getting? These have been major factors for people who get their private pension pot and try to create an income from it on which they can live. That is the other side of the coin. If people are going to have enough faith and trust to save towards a pension, we must ensure that that pension will protect their interests.
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I hope that the Government will take the opportunity of having the Bill before the House to expand that part of it and to put in further elements to improve the situation for many people. People would then be more willing and able to save for their retirement, which is what we all want them to do.
9.11 pm
David Mowat (Warrington South) (Con): Like many other Government Members, I strongly support the Bill. My hon. Friend the Member for Aberconwy (Guto Bebb) described it as bringing simplicity and fairness. He also described it as a “brave” Bill, although I assume that he did not mean that in the “Yes, Minister” sense. It will reduce complexity and regularise the treatment of women, but I want to talk about the way in which it will interact with the private sector pensions industry. I also want to build on some of the comments made by the hon. Member for Edinburgh East (Sheila Gilmore).
There is an elephant in the room when we talk about pensions provision in this country. The fact is that, even when the Bill has increased the basic state pension, that provision will not be enough for most people unless it is supplemented by the private pensions industry. Broadly speaking, pension provision in this country can be divided into thirds: one third of people are in public sector pensions, one third are in the private sector, and a third have no pension provision at all. For that middle third who are in the private sector, it is almost certain that their pension pot will not be large enough.
We have heard Members talking about the comparison between private and public sector pensions, and Parliament has debated public sector pensions endlessly. We have probably ended up in a good place in that regard. Someone cashing in an inflation-proofed pension of £15,000 a year—a self-invested personal pension, for example—at the age of 65, would have a pot of £400,000. For most people in the public sector, the value of their pension is likely to be higher than the value of their house.
The size of the median pot in the private sector is about £10,000. That is partly due to poor savings ratios. This matters, because our country has chosen to go with a pension system that is different from those in most of Europe, where there is higher basic state provision and no assumption that, by paying out tax relief, the private sector will somehow come through. The fact that the private sector has failed in this country represents a time bomb, and I shall analyse why that is the case. We need to look at that time bomb, even though there are some good things in the Bill.
One reason that people are not saving is that there is massive distrust of the industry. I have many colleagues in the private sector who would almost cut their arms off than invest in the pensions market. They would do anything to avoid doing that. They would buy houses to rent, for example. Perhaps that is a rational response to a market that has failed. I am a free marketeer. I sit on this side of the Chamber and I believe in markets. If they work, they get rid of supernormal profits and unfair advantages, and all that goes with that. However, they will not do that when there is an asymmetry of information in the market, and when that market has failed. I would contend that the market for private sector pensions falls into that category.
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We have the highest pension charges in the world, according to Cass business school’s pensions institute. I know that we are coming out of a period of relatively low returns and that the numbers are therefore suspect, but someone could be spending 50% of their pension pot on charges, and 2.5% compounded over a few years does that to someone unless things are going up. There is absolutely no evidence of economies of scale in our larger funds, which is completely unlike the situation in the United States, where charges come down as the size of funds goes up.
We have too many pension funds. When I open the Financial Times,I see that there are more funds than there are equities, which is extraordinary. That is indicative of a market that has not had to consolidate because it has not been put under pressure by market forces. We also have exploitative techniques. I will not go into that in great detail, but the fact that active member discount has gone on for so long—there are now proposals to get rid of it—is extraordinary.
The way to make a market work better is to make it transparent. I have spoken with the Minister about the industry and I know that he is trying to make it move in that direction, and I respect that. The industry—I used to work in business, and in fact in the same business as the shadow Secretary of State—in my opinion is doing what we sometimes did: playing it long. It knows that it is making unacceptable profits and that that will have to change, because eventually this place will get around to fixing it. In such a situation, it plays it long. It is beginning to regularise charges and to talk about annual management charges, but of course that is different from total expense ratios. There are entrance fees, exit fees, churn fees and trailing commissions. I have a double maths A-level, an engineering degree and I am a chartered accountant, and I can just about understand this stuff. The idea that most people who are having to buy pensions could be educated to such a degree that they could make the market work is ridiculous. The market knows that and the result is a median pension pot of £10,000. It is a crisis, even with the welcome response that Government Front Benchers are putting forward tonight.
Auto-enrolment is clearly the right thing to do, but it makes it even more important to fix this issue, because we are now semi-making people invest their money in a market, and if the market is not working because we cannot be bothered to fix it, that is a moral issue. I talked earlier about NEST. I think that a low-cost passive tracker is exactly what is needed. I do not have a particular liking of state-based solutions, but I return to the fact that the market has failed. I understand that the Office of Fair Trading is conducting an inquiry into fund charges—the Minister nods his head—which I welcome. By my remarks I am not implying that we are doing nothing; I am implying that this remains an issue. The words I used—I would like them to be remembered—is that the industry is playing it long and that this is now a moral issue.
There is new stuff coming out, and I think that the Association of British Insurers has said that the charge is 0.54%, and that that is reasonable. It would be reasonable if it were not for the fact that so many people are being auto-enrolled into old funds that have much higher profit ratios. I really wonder what that 0.54% even
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means. Is it a total expense ratio or an annual management charge? How many of the other millions of charges that generally are not included are counted within that figure? The whole thing needs to be fixed.
What would I like the Government to do? Well, we should strengthen NEST. As I have said, I would prefer the private sector to come up with solutions to make the market work, but it has failed to do so and the time has come to act. Denmark has very low charges on pensionable assets, and it has achieved that through something very similar to NEST, and other countries are moving in that direction.
I have not yet talked about the portability of pensions. I read the Select Committee report on the issue. I am surprised that we have gone for the solution of having the pension follow the employee into their next job. I have not done the analysis, and the issue requires a lot of that, but that does not feel to me to be the optimum solution for the employee.
I do not often agree with the TUC, but I believe that its representatives have said that, based on their analysis, an aggregator would appear to have been a better solution. If we have done what we have done because of the survey cited in the Select Committee report and other sources, that is not a good reason. If we ask 100 people, 98 of whom might understand the fundamentals, whether they would like to take their pension to the next job or to an aggregator, I really doubt that they would understand.
If the survey is the basis of the analysis that has been done, it is a cop-out. That said, if there is analysis out there that says that what has been chosen is the right way, so be it.
David Mowat: The Minister is nodding, so I will not push the point. However, we are in the new world of portfolio careers, where people change jobs eight, nine or 10 times, with entrance and exit charges every time. I find the point hard to see, but okay.
I have four suggestions for the Bill Committee; if any Whips are listening, I should say that I will not be a part of it. I think there is a case for a cap. The industry sometimes says that a cap would drive down innovation, but we do not need more innovation—we need solid, passive investments that we leave and let go for a long time.
I would like there to be more enforced simplicity. We should look at what the Department of Energy and Climate Change has done with electricity and gas charges. It has insisted that bands should be brought in so that there is comparability and consumers can say, “I’ll go with them” rather than being swamped in a myriad of complexity. Pensions are massively more material to the well-being of most people than utility bills, yet they are massively more complex. Perhaps we could consider standard charges and standard comparisons of the annuity market, so that when people choose an annuity they are much more able to make a reasoned decision. The Cooper reforms in Australia are an example of that, and I would like us to move down that route.
I have given annuity transfers a great deal of thought. I know that the market is saying that people will be sent letters to ensure that they have checked out the market
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before they go with their base supplier. Personally, I think there is a case for saying that the base supplier should not be allowed to provide an annuity. If we really want to force the market to work, we should do something such as that. If we are going to leave the matter with the base supplier or the organisation that the person has saved with, we could ensure that they register so that we know that people have properly considered the option of going elsewhere.
Finally, I turn to tax relief. I said at the start that our pension system has a structure different from that of a lot of countries in Europe. We have smaller basic provision; we then give a lot of tax relief and hope that the private market will take care of the situation. We spend about £30 billion a year on tax relief.
David Mowat: I am told that the figure is £44 billion: a lot of money. It behoves us—it behoved the last Government, as well—to ensure that that money is spent effectively in a targeted way. My concern is that that money is part of the reason why the charge rates in our market are higher than in other countries and that effectively, our tax relief, whether £30 billion or £44 billion, is going into property prices in Kensington and Chelsea and not into people’s annuities and pension value.
Before I sit down, I want to reiterate that auto-enrolment, which I have been going on about for the past couple of years, has made it even more important for us to fix the situation. The industry cannot be left to play it long and hope that we take a long time to do something about the abuses.
9.24 pm
Gregg McClymont (Cumbernauld, Kilsyth and Kirkintilloch East) (Lab): I endorse almost everything that the hon. Member for Warrington South (David Mowat) has just said. In fact, I do not think it would be unfair to suggest that he has thrown a grenade into this debate, because for all the Bill’s positive aspects, he has hit the nail on the head. In order for a single flat-rate state pension and auto-enrolment to work, we must have a private pensions industry that delivers value for money for every saver.
This speaks directly to the general thrust of the contributions of other Government Members. The hon. Members for Gloucester (Richard Graham), for Aberconwy (Guto Bebb), for Thurrock (Jackie Doyle-Price) and for Rochester and Strood (Mark Reckless) were right to focus on the Bill’s importance in encouraging incentives to save, but the question that went unasked until the powerful contribution of the hon. Member for Warrington South was: save into what? That is why we have been telling the pensions Minister for 18 months, as we will continue to tell him in Committee and further stages, that although there are very good things in the Bill, the danger is that it will represent only half a reform unless the Government take on the series of reforms referred to by the hon. Member for Warrington South. Let us be clear: this is not just a state pension Bill; it is also a Bill for auto-enrolment and private pensions.
Pensions are an issue where the devil is in the detail, and the detail in this Bill demands analysis. In principle, the introduction of a flat-rate state pension is a positive move that, as my hon. Friend the Member for Edinburgh
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East (Sheila Gilmore) has made clear, builds on a Labour platform. In order for auto-enrolment and the new workplace pensions—as the Secretary of State has generously stated, these build on Labour’s work—to work, we must have a private pensions industry that delivers value for money for every saver.
Much of the debate centred on the pensions legacy with which we all grapple, in opposition and in government. I do not think that it is possible to understand this Bill unless we consider two consequences of the Thatcher revolution for pensions. The first is the breaking of the link with earnings, which led to enormous growth in pensioner poverty, to which pension credit was the Labour answer. [Interruption.] The pensions Minister speaks from a sedentary position. I am sure he would agree that pension credit attacked a significant and real problem with pensioner poverty in 1997. He is now building the flat-rate state pension a pound above pension credit, which is why this is a Labour platform.
More or just as importantly, we continue to grapple with the legacy of the Thatcher Government’s policy on occupational pensions. Simply put, in order to promote a brave new world of personal private pensions the Thatcher Government did things—not deliberately; I am sure they were unintended consequences—that undermined the UK occupational pension system, which was at that time the envy of the world. The result was the mis-selling scandals of the 1980s and 1990s, the collapse of confidence in all non-state pensions and the flight from high-quality workplace pension schemes. That is the context in which we proceed.
Mark Reckless: Will the hon. Gentleman give way?
Gregg McClymont: I am sorry, but much time has been taken up by the important contributions of other Members and I know that the pensions Minister wants, rightly, a reasonable amount of time to wind up this debate on a Bill of which he is the architect.
I have described the Bill’s context, but what is the detail? Even on its own terms, the Government’s case demands testing. First, the Government claim that the Bill will simplify pensions, thus encouraging individuals to save privately on top of their flat-rate state pension. My hon. Friend the Member for Aberdeen South (Dame Anne Begg) and the hon. Member for Banff and Buchan (Dr Whiteford) have noted the complexity of pension reforms generally and of the transition process in particular. Put simply, we will have two systems running in parallel for the next 30 years. That is not a case against the reform, but it is worth considering when we are thinking about the simplicity of this pension proposal.
Secondly, the Government claim that the Bill will substantially reduce means-testing, but the DWP’s own impact assessment reveals that means-testing will be reduced by just 4%. Any reduction in means-testing is welcome. There is no debate about that. Government Members must recognise that pension credit was a necessary and significant reform to reduce pensioner poverty and Opposition Members must accept that reducing means-testing is a good thing. The question is by how much means-testing is being reduced.
Thirdly, the Government claim that the Bill is cost-neutral, but we know that billions of pounds will fall into the Treasury coffers every year because of the increased national insurance contributions in both public
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and private sector defined contribution schemes. That point was made eloquently by my hon. Friend the Member for Glasgow North East (Mr Bain).
Most importantly, the Government claim that the Bill will encourage saving. I can only refer Government Members to the analysis of the hon. Member for Warrington South on the failings of the private pensions industry. The incentive to save is important, but I say again that we must look at what people are saving into. [Interruption.] There is no point in Government Members laughing at me. They should speak to their colleague, who set out clearly the problems with the private pensions industry.
More widely, the Government claim that the Bill is fair. However, we have to be aware that the fast-tracking of the single-tier state pension has created steep cliff edges and inequities, to which a number of my hon. Friends and other hon. Members have referred. The Government’s pension changes have consistently hit working women. They have denied more than 1 million women the ability to build retirement savings via auto-enrolment. Now, their flat-rate pension will short-change 700,000 women. My hon. Friend the Member for Inverclyde (Mr McKenzie), who is not in his place, referred to 600 women in his constituency who will not get the new state pension, while a man of precisely the same age will.
I will give the Minister a case study. Catherine Kirby is nearly 61 and was born on 1 October 1952. She has worked for 41 years that qualify for national insurance contributions. At today’s rate, her basic state pension is £110 per week. She receives £20 in SERPS and S2P, so the total amount that she gets each week is £130. That is £15 less than the single-tier amount will be. Catherine had to leave school at 16 because her parents could not support her any longer. She had caring responsibilities and in later years, due to health constraints, had to reduce her hours of work and her already low income. She is unable to afford a private or other pension arrangement and is unable to defer taking her state pension as she has no other income. She has chronic, deteriorating health conditions. Every pound is important to her, as it is to many women close to retirement.
That is the personal story behind the rather abstract 700,000 women to whom Ministers refer. Catherine simply asks to receive the improved pension that a man of the same age will receive. We accept that there are many significant advances in the Bill, so in that spirit of co-operation, I ask the Minister to look again at the issue of women such as Catherine.
The Work and Pensions Committee raised the issue of those who are close to retirement and who had planned to retire based on their partners’ contributions. Those people face a difficult transitional situation. We believe that the Government should consider offering those individuals something along the lines of the 15 years’ transitional protection that the Select Committee suggested.
Another issue is the rise in the national insurance contributions required to get the full state pension from 30 years’ contributions to 35 years’ contributions. One of the many excellent things that the previous Labour Government did was bring down the years of contribution to ensure that there was greater eligibility for the full state pension. We ask the Government to make up the
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difference, especially for those who are close to retirement and who have had letters saying that they need only 30 years’ contributions. From the look on the Minister’s face, he is not keen on that idea, but I ask him in a spirit of constructive engagement to look at that matter.
Another critical aspect of the Bill that has not received enough attention this evening concerns what the abolition of the second state pension will mean. The hon. Member for Rochester and Strood explained that he is now convinced of the merits of the Bill because it is not redistributive, but it would be worth his looking at who are the losers from the abolition of the second state pension. For many people in private sector employment, on both low and higher earnings, the abolition of the second state pension means losses. More generally, Government Members might consider that one way of looking at the new pension scheme is that it puts a cap on state pension savings because no one can get more than £144 a week. Previously, under the second state pension one could get significantly more than that.
Gregg McClymont: As I said earlier to the hon. Gentleman, it is important to give the Minister enough time to wind up on his Bill. I am happy to oblige on that, so it is important that I proceed. If the hon. Gentleman wants to try again in a couple of minutes I may be more amenable.
Let me return to the heart of the Bill and the laser focus placed on that issue by the hon. Member for Warrington South. The Bill is predicated on the Government’s assumption that it increases the incentive to save. It is about what people will be saving into under the new workplace pensions and private pensions more widely. Public confidence could be finally restored if the Minister grasped the nettle with the Bill, and did not what I am telling him to do, but what his Back Benchers are saying. Auto-enrolment is under way. We give credit to the Government for continuing with Labour’s auto-enrolment policy, but the success of the revolution is not ensured. [Interruption.] The hon. Member for Bedford (Richard Fuller) laughs, but the Secretary of State generously put that matter on the record in his earlier contribution. Getting auto-enrolment right is crucial.
Gregg McClymont: Given the hon. Gentleman’s persistence, I will happily give way.
Mark Reckless: I am grateful. Could the shadow Minister not perhaps recognise some fault in Labour’s past, particularly with the £5 billion-a-year tax rate through the removal of the dividend tax credit, and will he listen to himself building up into a great rhetoric of peroration? Does he support the Bill, or is he about to lead his troops into the Opposition Lobby against us?
Gregg McClymont:
I do not think the hon. Gentleman has been listening to what I said. To recap: the flat-rate state pension is a good idea in principle, and I refer him to his hon. Friend the Member for Warrington South, who is sitting behind him and who explained—even more clearly than I managed—that for the Bill to work, the private pensions industry must deliver value for
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money for every saver. As the hon. Gentleman and Opposition Members have said, that must be the other half of this Bill. I cannot be any clearer than that.
Let me return to what the Minister should do, bearing in mind that I want to give him time to wind up —[Interruption.] He is telling me how long I have now, but I will be the judge of that while also being fair to him. The opportunity is there for the Minister. The stated aim of the Bill is to ensure that people have confidence in saving for their future and in putting money aside for their retirement. Members have made the point repeatedly, but simply reducing state pension provision—that is what the Bill does in the long term—and hoping that will act as an incentive for people to save into private pensions is not enough. The Opposition have set a direction of travel, which the Government have finally begun to follow, to ensure that saving pays into private pensions. We set out the way to ensure value for money for every saver in the UK occupational system, and we called for the Office of Fair Trading investigation into costs and charges that is now taking place. We called for the Government to deal with consultancy charges and auto-enrolment practices, and we welcome moves in the Bill to give the Secretary of State the power to do that. He could go yet further in the Bill and clarify precisely what he will do.
Why is the Minister asking the House to agree to the abolition of the second state pension before imposing quality requirements of the kind outlined by the hon. Member for Warrington South on auto-enrolment pensions? Why does the Bill contain a clause—clause 34 —drafted so widely that it would allow the Secretary of State to exempt employers from auto-enrolment on the Beecroft model, which no one else would applaud? Why, unlike the proposals on savers, do regulations to exempt employers from auto-enrolment not have to be passed by a resolution of both Houses? I could go on.
Pot follows member, which the hon. Member for Gloucester mentioned, will be discussed in great detail in Committee. Most of the industry takes a different view to the Minister, so I look forward to discussing it with him. He can do no better than listen to the hon. Member for Warrington South on a swathe of policy issues on private pensions.
The Opposition believe that the principle of the flat-rate state pension is a good one. We will not stand in the way of the Bill today, but unless the Minister grasps the nettle on the private pensions industry, the Bill will remain half a reform.
9.40 pm
The Minister of State, Department for Work and Pensions (Steve Webb): We have had five hours to talk about pensions—what could be better? The debate has been unusual in the sense that the Government have had support for the Bill and its principles from Members on both sides of the House. That is vital, as the Chair of Work and Pensions Committee and others have said. Pensions reform that will last and that will not be blown about by changes of Government—in the long term, obviously—is a good thing. I welcome the fact that hon. Members on both sides of the House have welcomed the Bill and its central measure, the single-tier pension.
My right hon. Friend the Secretary of State began the debate in characteristically statesman-like fashion and in a non-partisan way. Unfortunately, that was not
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immediately followed. This reform deals with fairness, gives decent pensions to women, and tackles the poor pension position of the self-employed, which is vital. The right hon. Member for Birkenhead (Mr Field), who is no longer in his place, set hares running. He seemed to believe that assisting the self-employed is pork-barrel politics because, apparently, the massed ranks of the self-employed are all Liberal Democrats, which I was pleased to hear.
I am pleased that my coalition colleagues and my hon. Friend the Member for Leeds North West (Greg Mulholland) welcomed the measures on the self-employed, who for many years have been excluded from the full state pension. The previous Government recognised that there was a problem and did a research report. I am not sure whether the right hon. Member for East Ham (Stephen Timms) was the Minister with responsibility for pensions at the time or which of my 10 predecessors was, but I found the report on the top shelf when I moved in. It had been put in the “too difficult” box, which was overflowing. This Government have grasped the nettle and provided for the self-employed to be full members of the state pension system. I have never heard a Government measure described as too good to be true, as that measure was described today, but I can assure the House that the deal is that the self-employed are full members. Low-earning self-employed people pay more national insurance than their low-waged counterparts. It therefore is not a freebie—the self-employed pay national insurance, and they should be part of the system.
I shall try to address the specific issues that arose during the debate. Several members of the Work and Pensions Committee spoke. I am grateful to the Chair of the Committee, the hon. Member for Aberdeen South (Dame Anne Begg), my hon. Friend the Member for Amber Valley (Nigel Mills), the hon. Member for Edinburgh East (Sheila Gilmore) and their Committee colleagues for their pre-legislative scrutiny of clause 1. They suggested a number of amendments, including putting the start date of 2016 in the Bill, which we have done, and making 10 years the maximum minimum for a pension, which was welcomed by my hon. Friend. He pressed me mercilessly when I gave evidence, and we were pleased to give him what he wanted. I was keen on having him on the Public Bill Committee, but went a bit cool on the suggestion when he said he likes to table amendments.
I will address a number of the substantive issues raised in the debate in turn, the first of which is the move from 30 to 35 years. To be clear, 30 years currently gets people a basic state pension of £110 a week, and 35 years gets people a full single-tier pension of £144 a week. We are therefore not comparing like with like. As my right hon. Friend the Secretary of State has said, the Government are merging a basic pension for which people work for 30 years with a second pension, for which people might work for 50 years. Thirty-five for the merged pension is therefore hardly ungenerous. If people who have already retired on the expectation of 30 years would have got more under the old rules than they will get under the new rules, they will get what they would have got under the old rules, so nobody in that situation will get less than they were expecting.
That brings me on to women born between 1951 and 1953. To be clear, they will receive their state pension on the day they would have got it if Labour had continued
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in office. We have not changed their state pension age. They will receive the pension they would have got had Labour continued in office. We have changed, with one exception, neither their pension age nor their pension amount. To hear Opposition Members talk about this group of women, one would think we have ripped them off, taken money off them and created losers. They are getting the pension they were going to get on the day they were going to get it.
There is one exception to that. We have changed something for this group: we have given them a bigger pension, because of the triple lock. If the Labour Government had continued in office, their pension would have been price indexed. We introduced the triple lock, so each one of those women born between 1951 and 1953 will receive a bigger pension under this Government’s policy than under the continuation of the previous Government’s policy.
Mr Byrne: The Minister is making a powerful winding-up speech. He told the Financial Times this morning that he has not set triple-lock policy for the next Parliament. Is that still the case?
Steve Webb: Let me be absolutely clear: the triple lock, as a concept, was in the 2010 Liberal Democrat manifesto. It was agreed and implemented by the coalition, and I want it to carry on after the next election. There is no question about it. I should add that all the figures in the coalition’s impact assessment on the Bill are premised on the assumption of the continuation of the triple lock.
Mr Byrne: Is the Minister saying to the House tonight, and will the Chancellor confirm in the spending review, that the triple-lock policy will apply to this pension for the next Parliament—yes or no?
Steve Webb: Just to be clear, the single tier comes in in 2016, which is not within the scope of the spending review, as the right hon. Gentleman probably knows. I was interested in what he had to say about pension spending, because apparently pensions will be included in the cap on welfare. As I understand it, if a Labour Government had a bad year on housing benefit, they would take some money off pensions. How would they do that? We were told this week that they would not undermine the triple lock, so what is left? They are in favour of raising the state pension age. As I understand it, if they have a bad year on housing benefit they will jack up the state pension age in the next year to make up the shortfall—that does not make any sense.
Mr Byrne: Will the Minister give way?
Steve Webb: I have given way to the right hon. Gentleman twice already, so I will make some progress.
A number of hon. Members raised matters of detail. I thank my hon. Friend the Member for Rochester and Strood (Mark Reckless), who said that he had approached the Bill in a spirit of scepticism. He is right to have done so. We should approach all new pension reforms in a spirit of scepticism, because there have been so many of them. One of the nicest things anyone has ever said to me is that the more he found out about the Bill the more he liked it. I am grateful to him for that.
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My hon. Friend the Member for Rochester and Strood asked a specific question on whether someone who defers under the current system past 2016 will continue to receive the current generous terms after 2016. He also paid tribute to the staff in the House of Commons Library—he mentioned Djuna Thurley specifically—who have to wrestle with complex legislation. I echo that tribute. A lot of legislation is complex and difficult, and I think all of us accept that the Library provides us with great support.
My hon. Friend the Member for Thurrock (Jackie Doyle-Price) asked about another group and the whole issue of derived rights. The single-tier pension is designed for the future, whereas the current state pension system is rooted in the 1940s when men had jobs and women had husbands. We cannot go on like that. We have introduced a lot of transitional protection. For example, there was an option for women to pay something quaintly called the married woman’s stamp. If they did that at any point in the 35 years up to their pension age, we would protect them and pay them the pension they would have got. There is extensive transitional protection.
My hon. Friend raised the question of what she described as homemakers. People who are not in the paid labour force can still receive protection for their pension rights in a number of circumstances. If they are at home with children, caring for an elderly or disabled relative, or are unemployed and looking for a job, they receive credits. If they are too sick to work, they receive national insurance benefits credits. So a whole raft of circumstances are covered.
My hon. Friend mentioned a specific and narrow group of people—childless homemakers. Interestingly, at the start of her speech, she said how important the contributory principle was—I agree with that—and she was right that in many ways the Bill reasserts that principle. To reassert it, however, and then say that someone who has paid no national insurance, not been a carer, not been looking for work and not been too sick to work should none the less get a significant pension creates a tension. I can reveal to the House that she and I discussed this issue in the Tea Room before we got here, and she said, “But aren’t you changing the rules late in the day?”, as she also said in her speech. We have to strike a balance between moving to a new system and protecting people as we move, and not setting in aspic every single corner of the old system.
The hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East (Gregg McClymont) said, “You can’t go on running two separate systems”, and then demanded that we keep various bits of the old system going for another 15 years while running two separate systems. I would say to my hon. Friend the Member for Thurrock, then, that there is extensive protection. If the lady in question were widowed, for example, there would be pension credit of £145, so if she had nothing else she would be brought up more or less to the same level. Extensive protections are in place. I cannot promise that every single person will be protected in every single respect, and nor should I, but there is extensive protection.
Gregg McClymont:
I want to correct the Minister. I did not suggest that we could not run two systems in parallel; I was merely pointing out that when we talk about the simplicity of this new pension, we have to take it into account that two systems will be running in
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parallel. I did not say it was an argument against the Bill in toto, but it is a point that we must all bear in mind when considering a simple pension system.
Steve Webb: The hon. Gentleman raised a lot of questions, which it is his job to do obviously, but did not offer any solutions. He gave a case study of someone born between 1951 and 1953 and said how unfair the system was. I want to stress that the person he gave an example of will get exactly the pension she was expecting on exactly the day she was going to get it, so we have not changed anything about that person’s pension. We have, however, triple locked her pension, which is better than she might have expected under the last Government, so I think we have done the right thing.
Opposition Members drew a comparison between women in that age group and men born on the same day. Let us try a thought experiment: if we were to impose a sex change on all 700,000 women in this group, 95% of them would not thank us—financially at least, although perhaps for other reasons as well. Getting on for 95% of them would say, “Why did you do this to me? Yes, I might get another six quid a week, but I’ll have to wait two or three years longer for it.” That is not a good deal. We have worked out that it would take many of these women 30 years of retirement to recover what they lost through waiting longer for their pension.
The hon. Member for Glasgow North East (Mr Bain) mentioned people with short life expectancies, as did the hon. Member for Inverclyde (Mr McKenzie). People who do not live long after pension age want to have their pension as early as possible, and again the last thing these women want is to get their pension when men do, because if they are not going to live long past the pension age, they will want their pension straight away, not later. The comparison with men born on the same day, therefore, is a false one. Overwhelmingly, these women will do better than a man born on the same day.
The hon. Member for Banff and Buchan (Dr Whiteford) made a thoughtful speech. I was impressed with almost all of it, expect the bit when she was pressed by Scottish colleagues about independence, at which point she became shifty and evasive. [Laughter.] I think that is just about parliamentary. It is clearly that independence would mess up pensions big time. The whole debate today has been about simplification and people knowing where they stand. How on earth would we splice together different countries’ national insurance records, cross-border deficits—
Steve Webb: Just a minute. I am enjoying this too much.
How would we splice together different countries’ national insurance records and cross-border deficits? It would suddenly be an international scheme, so we would have to fund it immediately. This is a classic case of where we are better together. It is a simpler system and one where people know where they stand. Reinventing another system north of the border and then trying to splice it back together, particularly when so many people work north and south of the border, would create a great deal of disruption for people. We have spent the last five hours saying how we need to make things simpler.
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Dr Whiteford: Does the Minister accept that Scotland is currently spending a smaller proportion of its GDP and revenues on pensions and social protections than the rest of the UK, so there is no question of the affordability of pensions? Does he also accept that on average people in Scotland live two years less than those in the rest of the UK?
Steve Webb: The hon. Lady raises the issue of pension spending in Scotland. She will know that Scotland is ageing at a faster rate than the rest of the UK, so the long-term spending pressures there are greater, and that would need to be addressed.
On the important issue of differences in life expectancy across different areas, clearly there are differences. I accept that, but across the board we are seeing a rising tide that is lifting all boats. For example, over the last quarter of a century, life expectancy at 65 has risen for men in the least privileged class by 21% and for those in the most privileged by 22%. In other words, we have seen significant increases across the board. Therefore, although we absolutely have to tackle the causes of differences in life expectancy, that cannot be a reason for paying pensions at a rate that was set a century ago.
My hon. Friend the Member for Warrington South (David Mowat) got great praise from those on the Opposition Front Bench, which I hope will trouble him. He asked whether there is any analysis that underlies our decision; I can assure him that there is. He asked why we do not shunt all those with small pots to NEST—that was the proposition. We are talking about a pot limit of £10,000, so if all the small pots in a single year went to NEST, it would be become enormous and unbalance the market. Unless we wanted NEST to become huge, we would have to have a low pot size limit to make it work, with NEST becoming the home of small lost pots. However, if we did that, we would end up with significant fragmentation. In other words, with a low pot size limit, people might have something in NEST, a few thousand pounds they can do nothing with in another provider, their current pension—[Interruption.] What I can suggest to my hon. Friend, if I may—I have only a few minutes—is that he looks at our Command Paper, Cm 8402, which provides the analysis that underlies this, and if he is not satisfied after that, I am happy to have a coffee with him.
A number of other issues were raised in this debate. The hon. Member for Edinburgh East made an exhausting—sorry, exhaustive—speech. To be fair to her, she made some quite important points. She said that the single tier was not a windfall or a great leap forward. When she quizzed me in the Work and Pensions Committee, she said—and I quote—that it is not exactly “fandabbydosey”. She is right: it is not fandabbydosey; it is a simplification. It is about spending the money that we were going to spend, but better. She also said that SERPS was great and asked whether it would not have been better to continue with it. However, the fundamental problem is an unfunded pension promise. We already have a very large unfunded basic state pension, which will represent a rising share of national income even with these reforms. If we had added a massive unfunded SERPS to that, those promises would not have been kept. It is nice to think they would have been, but they would not. Future generations of working
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taxpayers would have had to pay so much tax to meet all those unfunded promises that the system would not have survived.
What we are doing in this Bill is being responsible for the long term. This system will cost more as a share of GDP than we spend now—significantly more—but the rate of growth will be slower. Crucially, given the long-term health, social and pension costs in the decades to come, a Government who are acting now—taking difficult decisions about things such as the state pension age, but giving people time to plan—are doing the right thing for the long term.
On the private pension side of things, automatic enrolment has started incredibly well. For example, McDonald’s—just one employer—has found that the opt-out rate among some of its low-paid employees is as low as 3%. From memory, that means that 10,000 lowly paid employees at McDonald’s are now in pensions, with fewer than three in 100 opting out. That is a real achievement. One of the reasons for that is the communications work we have done—the “I’m in” adverts that we see on the tube, on television and so on.
Communications was a key issue. We absolutely have to communicate this change effectively. We are doing fieldwork over the summer on how best to communicate it and to whom. We are working with partners such as Age UK, the Money Advice Service and the Pensions Advisory Service. The one constraint we have is that we cannot presume exactly what the scheme will look like, because the House will consider it. We cannot write to people now telling them what will happen, because it might not happen—it might be changed by the House. That is a frustration for us, but as soon as this is determined and settled, we will be out there.
I have long looked forward to the moment when I can say with pleasure, along with my right hon. Friend the Secretary of State, that I commend this Bill to the House.
Bill accordingly read a Second time.
Pensions Bill (Programme)
Motion made, and Question put forthwith (Standing Order No. 83A(7))
That the following provisions shall apply to the Pensions Bill:
Committal
(1) The Bill shall be committed to a Public Bill Committee.
Proceedings in Public Bill Committee
(2) Proceedings in the Public Bill Committee shall (so far as not previously concluded) be brought to a conclusion on Thursday 11 July 2013.
(3) The Public Bill Committee shall have leave to sit twice on the first day on which it meets.
Consideration and Third Reading
(4) Proceedings on Consideration shall (so far as not previously concluded) be brought to a conclusion one hour before the moment of interruption on the day on which those proceedings are commenced.
(5) Proceedings on Third Reading shall (so far as not previously concluded) be brought to a conclusion at the moment of interruption on that day.
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(6) Standing Order No. 83B (Programming committees) shall not apply to proceedings on Consideration and Third Reading.
Other proceedings
(7) Any other proceedings on the Bill (including any proceedings on consideration of Lords Amendments or on any further messages from the Lords) may be programmed.—(Mr Syms.)