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The Government have been extremely vague about great chunks of the Bill. It is in essence a framework Bill, and the Minister’s attitude, as I said on Amendment No. 130EW, has been one of, “Let’s have it in the Bill, and if necessary we’ll change it by order”. That is no way to legislate. If the Government are unsure of the final format for a particular clause in Committee, they should allow themselves time to think and bring the subject back on Report. As for this amendment, I believe that the Government need to be pinned down on the start date of restoring the link with earnings. For us on these Benches, to allow flexibility is one thing, but it does not extend to a vague promise to change things by the end of the next Parliament. Six months after the passing of this Bill, the Government should know when restoring the link will be possible. Indeed, if my great party had won the 2005 election it would have already happened, as we promised in our election manifesto. So it is time, or rather will be in eight or so months, for the Government to stop their dithering and come to a decision. On this matter at least, it is time for the Government to govern. I beg to move.
Lord McKenzie of Luton: The amendment moved by the noble Lord, Lord Skelmersdale, seeks to make the Government announce in Parliament their intentions with regard to the start date for earnings uprating of the basic state pension within six months of the provisions of this Bill coming into force. Let me begin by stating, as I have done already in earlier debates in Committee, that the Government have clearly set out their commitment to introduce earnings uprating. We gave this commitment in the May 2006 White Paper, which first set out our proposals for pensions reform. I assure noble Lords that we will honour that commitment.
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Restoring the earnings link is fundamental to our forward plans for the pension system. It is the bedrock on which our reforms are built and we recognise that there is interest in finding out when it will happen. Our objective is to do this from 2012, subject to affordability and the fiscal position, or in any event by the end of the next Parliament at the latest. This timing strikes a balance between maintaining affordability of our overall package of reforms, yet tackling the challenges identified by the Pensions Commission. We have said that we will make a statement on the precise date at the beginning of the next Parliament.
The noble Lord’s amendment would require the Secretary of State to make an announcement regarding the timing of the earnings link within six months of the provisions of the Bill coming into force. That would be at least three years before 2012. It would not allow the Secretary of State further time to take account of affordability and the fiscal position before announcing when earnings uprating will start. It is sensible to retain the current arrangements to review the timing of the earnings link with due regard to affordability if the prevailing economic conditions closer to the time look uncertain.
We will make an announcement early in the next Parliament, and the Pensions Act 2007 commits us to making an order before 1 April 2011. Section 5 of the Pensions Act 2007 requires the Secretary of State to make an order identifying the designated tax year—the first tax year in which a review with regard to earnings will take place—and earnings uprating will start the following year. We have legislated to restore the earnings link to the basic state pension to ensure that it happens. We have put that commitment on the face of the 2007 Pensions Act to provide certainty. We do not think that stipulating the timing of an announcement to be made to Parliament about our intention to restore the earnings link in the way proposed by this amendment is necessary. We have given as much commitment on this as is reasonable and prudent, and therefore I ask the noble Lord to withdraw this amendment.
I will say in reply to the noble Lord’s assertion that if his party was in government at the moment, the earnings link would be restored, that I can presume he will give us a precise date as to when in the event, in my view unlikely, that his party returns to government, they would restore the link. Can we have certainty from the noble Lord, if he is seeking to press us on the issue? However, we have made our commitments very clear and I would ask him to withdraw the amendment.
Lord Skelmersdale: Never being one to resist a challenge, I can tell the noble Lord that rather than by the end of the next Parliament, it would be early in the next Parliament, should we win the election. That is why, despite all the assurances and the long timescale of those assurances, I do not think that what the noble Lord has been telling us, not once but several times during the course of our deliberations because the matter has been raised on other amendments, is sufficient. It is one thing to be reasonable and prudent, but it is quite another to be as vague as the noble Lord has been over this.
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Lord McKenzie of Luton: Perhaps the noble Lord will permit me to intervene. He said that his party, given the chance—although I do not think that that will happen—will see to this early in the next Parliament. Would that be before 2012?
Lord Skelmersdale: It depends on when the election is called. I wish to seek the opinion of the Committee.
1.30 pm
On Question, Whether the said amendment (No. 134) shall be agreed to?
Their Lordships divided: Contents, 87; Not-Contents, 115.
Addington, L.
Alderdice, L.
Anelay of St Johns, B. [Teller]
Astor of Hever, L.
Attlee, E.
Avebury, L.
Barker, B.
Bonham-Carter of Yarnbury, B.
Bowness, L.
Bradshaw, L.
Bridgeman, V.
Brougham and Vaux, L.
Burnett, L.
Caithness, E.
Cathcart, E.
Chidgey, L.
Chorley, L.
Clement-Jones, L.
Colville of Culross, V.
Colwyn, L.
Cotter, L.
Crathorne, L.
Crickhowell, L.
De Mauley, L.
Denham, L.
Dholakia, L.
Dixon-Smith, L.
Dundee, E.
Dykes, L.
Elton, L.
Falkner of Margravine, B.
Ferrers, E.
Fowler, L.
Freeman, L.
Garden of Frognal, B.
Hamwee, B.
Higgins, L.
Hooper, B.
Hooson, L.
Howard of Rising, L.
Howe, E.
King of Bridgwater, L.
Kingsland, L.
Kirkwood of Kirkhope, L.
Lawson of Blaby, L.
Lee of Trafford, L.
Lester of Herne Hill, L.
Liverpool, E.
Livsey of Talgarth, L.
Lucas, L.
Luke, L.
McColl of Dulwich, L.
MacGregor of Pulham Market, L.
McNally, L.
Mancroft, L.
Marlesford, L.
Miller of Chilthorne Domer, B.
Montrose, D.
Morris of Bolton, B. [Teller]
Neuberger, B.
Newton of Braintree, L.
O'Cathain, B.
Pearson of Rannoch, L.
Pilkington of Oxenford, L.
Rawlings, B.
Razzall, L.
Roberts of Llandudno, L.
Roper, L.
Selborne, E.
Selkirk of Douglas, L.
Selsdon, L.
Skelmersdale, L.
Skidelsky, L.
Smith of Clifton, L.
Steel of Aikwood, L.
Stewartby, L.
Teverson, L.
Thomas of Walliswood, B.
Thomas of Winchester, B.
Trimble, L.
Trumpington, B.
Verma, B.
Wallace of Saltaire, L.
Walmsley, B.
Walpole, L.
Wilcox, B.
Windlesham, L.
Acton, L.
Adams of Craigielea, B.
Adonis, L.
Amos, B.
Andrews, B.
Archer of Sandwell, L.
Ashton of Upholland, B. [Lord President.]
Bach, L.
Bassam of Brighton, L.
Bhattacharyya, L.
Billingham, B.
Bilston, L.
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Blood, B.
Borrie, L.
Boyd of Duncansby, L.
Brett, L.
Brooke of Alverthorpe, L.
Brookman, L.
Campbell-Savours, L.
Carter of Coles, L.
Christopher, L.
Clarke of Hampstead, L.
Clinton-Davis, L.
Corbett of Castle Vale, L.
Craigavon, V.
Davidson of Glen Clova, L.
Davies of Oldham, L. [Teller]
Dean of Thornton-le-Fylde, B.
Dearing, L.
Desai, L.
Dixon, L.
Donoughue, L.
D'Souza, B.
Dubs, L.
Elder, L.
Erroll, E.
Evans of Parkside, L.
Evans of Temple Guiting, L.
Farrington of Ribbleton, B.
Faulkner of Worcester, L.
Foster of Bishop Auckland, L.
Foulkes of Cumnock, L.
Gale, B.
Gibson of Market Rasen, B.
Gordon of Strathblane, L.
Gould of Potternewton, B.
Graham of Edmonton, L.
Grocott, L.
Harris of Haringey, L.
Harrison, L.
Hart of Chilton, L.
Haskel, L.
Haworth, L.
Hilton of Eggardon, B.
Hollis of Heigham, B.
Howarth of Newport, L.
Howe of Idlicote, B.
Howells of St. Davids, B.
Hoyle, L.
Hunt of Chesterton, L.
Hunt of Kings Heath, L.
Janner of Braunstone, L.
Jay of Paddington, B.
Joffe, L.
Jones of Whitchurch, B.
King of West Bromwich, L.
Kirkhill, L.
Levy, L.
Lipsey, L.
McDonagh, B.
McIntosh of Hudnall, B.
MacKenzie of Culkein, L.
McKenzie of Luton, L.
Masham of Ilton, B.
Massey of Darwen, B.
Maxton, L.
Morris of Handsworth, L.
Morris of Yardley, B.
Moser, L.
Murphy, B.
Ouseley, L.
Patel, L.
Pendry, L.
Pitkeathley, B.
Plant of Highfield, L.
Ponsonby of Shulbrede, L.
Puttnam, L.
Quin, B.
Ramsay of Cartvale, B.
Ramsbotham, L.
Rendell of Babergh, B.
Richard, L.
Rogan, L.
Rosser, L.
Rowlands, L.
Royall of Blaisdon, B. [Teller]
St. John of Bletso, L.
Sandwich, E.
Sawyer, L.
Scotland of Asthal, B.
Sewel, L.
Simon, V.
Soley, L.
Stone of Blackheath, L.
Strabolgi, L.
Taylor of Bolton, B.
Thornton, B.
Tunnicliffe, L.
Warner, L.
West of Spithead, L.
Whitaker, B.
Wilkins, B.
Williams of Elvel, L.
Woolmer of Leeds, L.
Resolved in the negative, and amendment disagreed to accordingly.
1.40 pm
[Amendment No. 134ZA not moved.]
Baroness Hollis of Heigham moved Amendment No. 134ZB:
(1) The trivial commutation limit shall be raised as prescribed and shall not fall below a minimum level of £25,000.
(2) All pension sums trivially commuted shall not be included in the assessment of capital, income or notional income for income related benefits.”
The noble Baroness said: I declare an interest as a trustee of TPAS, The Pensions Advisory Service, which tells me that this is a regular problem on its helpline and one that it is concerned about. The amendment is obviously a probing one, unworkable and unaffordable as it stands.
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I had intended, but time does not permit it, to raise other interconnected issues such as risk, means-tested benefits and trivial commutation and, in particular, to press my noble friend on the issue of stranded pots. In brief, the risk is that older, poorer women may not have a big enough pot to float them off means-tested benefits. For them, as the PPI has identified, it may not pay to save. The best way to overcome that risk is to help her to increase the size of her pot, ideally to cover her earnings below £5,000, but also to consider increasing the annual or lifetime sum so that it can go into personal accounts. One other option, the purpose of today’s amendment, is to allow the transfer of small pots into personal accounts or, if the personal account is the small pot because there are only a few years of savings in it, to allow a transfer out into a larger alternative existing pot.
I know that the industry is concerned about destabilising the existing annuity market, but the effect on it would be trivial and would overcome the very real injustice—I might go so far as to say “theft”—of small stranded pots. Take the hairdresser who has been self-employed and more recently employed, perhaps over the past decade, in a larger salon, who, along with her employer, is now paying into a personal account. She ends up with a personal account pot of, let us say, £18,000. That is too large to trivially commute because it is above the £16,500 limit, so she must annuitise.
However, that hairdresser also has three small personal pensions of £2,000 each, with different providers from different times in her life when she was self-employed and thought that she had enough resources to build up some modest savings for retirement. If she acquired those three small pots as an employee working in a salon for another employer, and therefore with an employer’s contribution so that she had paid in only half, she would be able to cash them in; since last year’s Budget, such pots are going to be ignored by HMRC, which is a sensible and generous provision.
If, instead, those three little £2,000 pots are personal pensions, then although she has paid for every penny in those pots without an employer contribution, she cannot trivially commute them because her personal account is above the trivial commutation limit. They are too small to be annuitised, as pots below £5,000 are too small for the industry to bother with. I am told that the industry will not normally bundle them up if they are from different providers. She is not allowed, for at least five years and maybe not even then, to transfer them into her personal account and build her pot. So what happens? She cannot access those three £2,000 pots at all. They are stranded. They are in limbo. One-quarter of her lifetime savings is completely lost to her.
Why are those pots not ignored, like small occupational pots with an employer contribution? Because of HMRC’s fear that large personal pots could then be fragmented and the system manipulated. We could avoid that by capping the total sums. I get fed up sometimes with our apparent willingness to accept that in order to avoid one rich person’s theoretical manipulation of the system, 100 people will lose their savings, like our hairdresser. That money is lost: £6,000 of £24,000 is gone; it is inaccessible. That is shocking and unacceptable.
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I hope that my noble friend will get agreement from the industry that in this situation, where the industry does not want to annuitise, it will raise no objections to the transfer in of those small pots to personal accounts and that, likewise, if the personal account is the smaller pot, it could be transferred out so that the PA pot is not lost. That might take place at retirement only, although it would be more attractive if it could be done earlier when the pot might seem more worth while. I hope that my noble friend can come back, either today or on Report if we need amendments—perhaps he could tell me if that is the case—with a way forward on this. If he does not, I shall—with your Lordships’ support, I hope—return to the matter.
I had been proposing on this amendment to raise the issue of trivial commutation. If the cap were raised from £16,000 to £25,000, that would also help the problem of stranded pots by providing more headspace for trivial commutation. All such proposals have implications for pension credit, however, and, given the pressures of time, I do not propose to explore those issues today. If, instead, we could move forward to resolve the issue of the hairdresser’s stranded pots, I would be content and I suspect that your Lordships would be as well. I beg to move.
1.45 pm
Baroness Dean of Thornton-le-Fylde: I am pleased to lend my support to my noble friend’s amendment. It is a small but important change that would be helpful to a number of low-paid, low-income women. When I was listening to the example that was given, the words “daylight robbery” came to mind. We have people on low income who, at a time in their lives when they feel that they may be able to save for a pension, put money into a pensions pot but then, due to lifestyle changes, cannot continue to pay and never feel the benefit of that hard-earned money. As it stands, that is extremely discriminatory. It is discriminatory in another way, too: if the individual had been an employee in an occupational pension scheme, they would have been in an entirely different position and would have felt the full benefit of their contribution into the fund.
The amendment impacts on some of the poorest people in our community who want to do the right thing. They do not want to fall on the state. When they have been able to afford to pay something into a pot for retirement, they have done so. Yet in that process, because of their life circumstances, they could lose hard-earned money. They would have been better off putting it in the bank, for instance, than into a pensions pot.
I have great pleasure in supporting the amendment. I will listen with interest to the Minister’s reply. I hope that he gives us some reason to hope that, when we return to the Bill later in the year, this is one area on which we will be able to get a yes.
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Lord Kirkwood of Kirkhope: I add our support to the amendment so ably introduced by the noble Baroness, Lady Hollis. The key thing that she said is that there are pots of money that the industry wants nothing to do with. She has done the Committee a great service in reminding us of that, as the problem is getting worse. It affects the lowest-paid households in our community and it needs to be addressed. It cannot be beyond the wit of man for the Government to come to some accommodation with the industry, which self-confessedly does not want to get involved in de minimis—so far as it is concerned—levels of money that are none the less hugely important to the people who have these stranded hairdressers’ pots, as was so eloquently argued by the noble Baroness. For the life of me, I cannot see any reason why, with a bit of effort and good will, we could not get some kind of solution along the lines that the noble Baroness has suggested.
Lord Skelmersdale: I, too, have sympathy with the noble Baroness’s amendment, which would move the pensions savings regime in this country a little closer to the flexible model that we would like to see. Giving pensioners more control over their retirement would add an incentive for them to save more over their lifetime and would benefit many as the concept of working life becomes less clearly defined, especially as one approaches retirement age, whenever that is.
The Committee may remember that the Minister answered a Question on that subject on Monday. The Pensions Act 2004 allows anyone over state pension age to continue paying national insurance contributions up to the age of 70 and thereafter to commute this extra sum into a lump sum as an alternative to an increased weekly pension. I am sure that the noble Baroness remembers discussing that. Therefore, for the noble Lord to say, as he did at Question Time on Monday, that the Government encourage people to work beyond 70 is somewhat erroneous. Be that as it may, the interesting thing about commuting a full five years of the end-of-life state pension is that it amounts to about £25,000. I wonder whether that is why £25,000 is mentioned in the noble Baroness’s amendment.
We have discussed numerous times the impact of a more fragmented working life on people’s pension pots. The inconvenience and unnecessary administration costs of multiple small pots rather than fewer large pots are, I am sure, fully appreciated by the Government. If they are not, they jolly well ought to be. The changes over the past few years to increase the portability of small pensions were very welcome and I see the possibility of raising the commutation limit in much the same spirit. However, I would have preferred it if the noble Baroness and the noble Lord had not mentioned hairdressers’ small pots in connection with £25,000; I think that they would rarely have such a large pot.
Baroness Howe of Idlicote: I support the amendment. I was attracted by the idea when it was raised earlier. Given that more and more people of both sexes now take jobs for short periods and then move on, this would be a fitting measure. If a female hairdresser manages to put aside a quarter of her pension savings, even before she has children or has to look after a grandparent or a parent, that is even more reason to think of all the money that the state saves through
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Lord McKenzie of Luton: I thank my noble friend Lady Hollis for raising this important issue, which is clearly supported across the Committee. I shall confine my remarks to stranded pots, which is the substance of the issue to which she spoke.
We have made clear our commitment to banning pension transfers into and out of personal accounts. As the Committee will be aware, this prohibition is designed to minimise the impact on the market caused by the scheme’s introduction in 2012 and to ensure that the scheme remains focused on the target market of low to moderate earners. The transfer ban is designed to promote simplicity for employers, individuals and the personal account scheme, as transfers can involve complex financial decisions and processes for all parties. We recognise, however, that some personal account members at the point of retirement may wish to consolidate their pension savings into a single vehicle and that the transfer ban could complicate their arrangements.
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