Draft State Pension Regulations 2015
The Committee consisted of the following Members:
† Aldous, Peter (Waveney) (Con)
† Barker, Gregory (Bexhill and Battle) (Con)
† Blenkinsop, Tom (Middlesbrough South and East Cleveland) (Lab)
Denham, Mr John (Southampton, Itchen) (Lab)
Dowd, Jim (Lewisham West and Penge) (Lab)
† Goldsmith, Zac (Richmond Park) (Con)
† Hemming, John (Birmingham, Yardley) (LD)
† Jones, Mr David (Clwyd West) (Con)
† McCann, Mr Michael (East Kilbride, Strathaven and Lesmahagow) (Lab)
† McClymont, Gregg (Cumbernauld, Kilsyth and Kirkintilloch East) (Lab)
† Morris, James (Halesowen and Rowley Regis) (Con)
Paisley, Ian (North Antrim) (DUP)
† Stride, Mel (Central Devon) (Con)
Stuart, Ms Gisela (Birmingham, Edgbaston) (Lab)
† Vickers, Martin (Cleethorpes) (Con)
† Weatherley, Mike (Hove) (Con)
† Webb, Steve (Minister for Pensions)
Wood, Mike (Batley and Spen) (Lab)
Liam Laurence Smyth, Committee Clerk
† attended the Committee
Fifth Delegated Legislation Committee
Tuesday 20 January 201 5
[John Robertson in the Chair]
Draft State Pension Regulations 2015
8.55 am
The Minister for Pensions (Steve Webb): I beg to move,
That the Committee has considered the draft State Pension Regulations 2015.
Good morning. It is a pleasure to serve under your chairmanship, Mr Robertson. I can confirm that the regulations are compatible, in my judgment, with the European convention on human rights. I imagine that you, Mr Robertson, like me and everyone else in the Committee, woke up this morning and thought, “Great—state pension regulations at five minutes to 9.” They are largely technical regulations which replicate existing state pension provisions, although the legal language has been updated. Nevertheless, they are important next steps for implementing the new state pension from April 2016. The regulations cover two key aspects of the new state pension scheme which differ from the current scheme and will be important for retirement planning.
First, regulation 10 sets the accrual rate for increments paid where a person defers claiming their state pension at the equivalent of around 5.8% per year. We announced our proposal for the deferral rate on 22 July last year. The rate is based on advice from the Government Actuary’s Department, which we have published, and is slightly higher than the rate of 5.2% assumed in our original estimates. That accrual rate will offer a broadly actuarially fair return, but not a bonus, if people want to delay claiming their state pension.
Secondly, regulation 13 sets the minimum qualifying period for entitlement to the new state pension. As announced on 13 December 2013, the minimum number of qualifying years of paid or credited contributions required will be 10. That will ensure that entitlement to the new state pension is restricted to those who have a strong connection with, and have made a significant contribution to, the UK. It is consistent with the approach adopted in many other countries. Indeed, the UK itself had such provisions until April 2010.
Regulations 2 and 3 deal with prisoners. Interestingly, the number of prisoners aged 60 or above has increased since 2002 from around 1,500 to close to 4,000 in England and Wales. Although the language of the provisions has changed, the intention is that under the new state pension, prisoners will be dealt with in exactly the same way as now. A person will be disqualified from receiving their state pension if they are serving a prison sentence as a result of a criminal offence or are serving part or all of a prison sentence in hospital. Disqualification also applies where a person is serving a prison sentence overseas, but with the safeguard that it does not apply if, in similar circumstances, the person would not have been imprisoned here in the UK. The basic principle is that a person should be barred from drawing their
pension while in prison and dates back over a century. It is based on the premise that paying the pension would constitute double provision by the state, as the person’s “bed and board” is already being provided.Regulations 4 to 6 deal with the inheritance of old scheme deferral benefits and basically replicate the current provisions governing when and how a survivor can choose a lump sum payment instead of increments, as well as when and how such a choice can be changed. In the same way that the new state pension will not be inheritable, any increase from deferring the new state pension will not be inheritable either. However, deferral inheritance will continue to be available where the late spouse or civil partner had deferred an old state pension. That provides parity of treatment between survivors of people who deferred under the old arrangements, regardless of whether the survivor is covered by the old or new scheme.
Regulations 7 to 9 cover arrangements for people who, having initially claimed their state pension, subsequently decide to “suspend” their entitlement—colloquially known as de-retiring—and, in effect, revoke their claim in order to build up an increase under the deferral arrangements. Although the language has been modernised, the requirements and restrictions imposed by the regulations mirror those applied under the current scheme.
Regulations 11 and 12 deal with, respectively, the periods during which increments or extra pension do not accrue and the treatment of part weeks in the calculation. The provisions in regulation 11 largely mirror those that apply under the current arrangements by preventing a person from being able to accrue increments or extra pension while they are drawing another payment out of public funds, such as pension credit. Regulation 12 simply provides for any odd days to be counted as a full week when the total number of weeks for which a person’s state pension has been deferred is totted up to calculate the value of the increments or extra pension.
Regulation 14 and the schedule deal with the sharing of state pension rights on divorce. Currently, additional state pension can be included in the assets considered for sharing in divorce proceedings. From April 2016, only protected payments will be shareable. We expect pension sharing arrangements to affect only a few people, as around 150 pension sharing orders are currently implemented a year. We expect the number to reduce over time as the number of people with protected payments declines. The regulation and schedules introduce the concept of old and new pension sharing arrangements to distinguish the two and to assist the courts and the Department in administering pension sharing. I hope that that is helpful to the Committee in clarifying the contents of the regulations, and I commend them to the Committee.
9 am
Gregg McClymont (Cumbernauld, Kilsyth and Kirkintilloch East) (Lab): It is a pleasure to serve under your Chairmanship, Mr Robertson. I do not have anything particular to say about the substance of these technical changes. I think it is worth pointing out, though, that it is apposite that we are discussing the state pension because, since the new year it has become increasingly clear that the Minister and the Government more widely have been guilty of over-egging the pudding when it comes to the new state pension.
I was struck by the Minister’s comments in the Daily Telegraph early in the new year, in which he confessed:
“I think I may have been guilty of oversimplifying the new flat rate state pension”.
Oversimplifying pensions is easily understandable, given their complexity, but the Minister’s confession to the Daily Telegraph shows that he is clearly aware that he has encouraged the perception that everyone will be on the new flat rate state pension from 2016. That, of course, is not the case. Indeed, according to the freedom of information papers released just after Christmas, 55% of people will not be on the new flat rate state pension. While people in the pensions world, which is a significant but none the less minority occupation, will be aware of this, the vast majority of people out there coming towards retirement age or, indeed, retired, have at the very least been given the impression that they will be moving on to the new flat rate state pension. The Minister has some questions to answer there.
The Government have failed to be straightforward about the winners and losers in the shift to the new flat rate state pension. They have certainly been straightforward about the winners, but there are also losers. We saw, with the uprating of social security and pensioner benefits, that in reality the £2.85 rise in state pension turned out, for more than a million pensioners, actually to be an 87p rise in state pension income, because savings credit was being flattened out as part of the move to a flat rate state pension. We all know that there is a strong case for moving to a flat rate state pension, and it is going to happen now, but it is incumbent on us all, and particularly the Government, to be as clear as possible with people about what is actually happening.
The Minister went on to tell the Daily Telegraph—I have some sympathy with this—that the more context one gives, the harder it is to get a simple message out. However, in the context of such an important reform, it is very important that people actually know what their circumstances are going to be under the new state pension. Of course, people can apply for a state pension income statement, and that is something that I encourage everyone to do, but the reality is that many people are not going to apply for one. Whatever the complexion of the next Government, there will be a big task to make the public aware of the reality of the new state pension, because even by 2030, only 80% of people will be on to
the new flat rate. I ask the Minister to take those observations on board and think about the importance of being absolutely straightforward about what the new state pension means.9.3 pm
Steve Webb: I am grateful to the hon. Gentleman for his comments. He said frankly that his comments did not relate to the detail of the regulations. I entirely agree with his wider point about the importance of communicating accurately about the new state pension. That is why we have recently launched a publicity campaign; we have posters up on bus shelters, we are doing direct mail and we are issuing very large numbers of statements. So far we have issued more than 60,000 statements to people. We are already able to give a personalised statement to anybody who is within five years of the new system coming in and we intend very shortly to extend that to anybody who is within 10 years: essentially, anybody who might reasonably be expected to be interested can get a personalised statement telling them exactly where things stand. Under the new pensions freedoms coming in in April, we will encourage people to get information about what their rights are before they make decisions about their pensions. That will include getting a state pension statement and, through that process, we anticipate that many thousands more people will find out where they stand.
One of the challenges in communicating all this is the fact that the impact of the reforms will be different for everybody, depending on their contributions history, the sorts of jobs they have had and so forth. Therefore, a single message that is accurate for everybody is almost impossible. A simple summary message is important, but the crucial thing, as the hon. Gentleman says, is for individuals to find out where they stand, and we are trying to make that as easy as we possibly can.
So I am grateful to the hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East, who I do not think disagrees with the details here, and I commend the regulations to the Committee.