Skip to main content

Social Security

Volume 605: debated on Monday 8 February 2016

With this we shall take the following motion:

That the draft State Pension (Amendment) Regulations 2016, which were laid before this House on 18 January, be approved.

The order and regulations before us have been laid previously in the House. It is my understanding that there is general agreement on both sides of the House on their contents. I do not, therefore, propose to detain the House any longer than is necessary.

This is the first time I have debated with the Minister at the Dispatch Box, so I welcome him to his place and thank him for his—very brief—explanation of the draft proposals.

I want to use this opportunity to debate, clarify and scrutinise aspects of these important measures. As the Minister has outlined previously, the coalition Government legislated in the Pensions Act 2014 to introduce a new single-tier state pension for persons reaching state pension age on or after 6 April 2016.

A central principle of this legislation has been to maintain the earnings link, which was restored in the Pensions Act 2007, passed by a Labour Government. The coalition Government committed to increasing the basic state pension through the triple guarantee of earnings, prices or 2.5%, whichever is highest, from April 2011. The triple lock is a policy approach that Labour Members support—a position that was confirmed in our manifesto at last year’s general election.

Today, we are considering statutory instruments to implement and update key features of that settlement. For existing pensioners on the current state pension age scheme, the proposed 2.9% increase, which matches earnings as the highest rise of the three measures for this year, is a step in the right direction. A full basic state pension will therefore rise to £119.30 a week—an increase of £3.35.

I welcome my hon. Friend to her Front-Bench position. The triple lock is all fine and well if one is in receipt of the state pension, but she will know that there is a group of women who have been deprived of their state pension, the WASPI—Women Against State Pension Inequality—women who were born in the 1950s. Does she agree that a triple lock on nothing is still nothing and that we need from this Government fair transitional arrangements for those women?

I thank my hon. Friend; I hope to touch on that later. I commend him and my hon. Friend the Member for Worsley and Eccles South (Barbara Keeley) for their campaigning on this issue for those women who feel that they have been let down by this Government.

The increased starting rate of £155.65 for the new flat-rate pension, to be introduced in April this year, is also broadly welcomed by Labour Members, although it is of course an increase of only 5p on the previous minimum guarantee of £155.60. Less welcome are the lack of communication, escalated timescales, poor management and utter confusion caused by what the former Pensions Minister, Steve Webb, said was meant to be “a simplified system”. Several aspects of the new legislation will have significant implications for current and future pensioners.

Under the new single-tier state pension, the Government intend that individuals qualifying for the new state pension will receive it on the basis of their own contributory record. The qualifying period to receive the full flat-rate pension goes up from the former 30 years of national insurance contributions to 35 years. There is therefore some concern about reports over the weekend suggesting that up to 4 million people retiring under the new scheme from April could receive an incorrect amount because their incomes are being calculated using data riddled with errors.

The Government are quick to jump on individuals or families who make errors in relation to tax credit or benefit claims, so it is, equally, incumbent on them to ensure that their own calculations are correct. The Minister has been prepared to set debt collectors on families who have received extra tax credit income because of the Department’s errors, so there will be understandable fear of the consequences where pensioners are overpaid due to any errors. Of course, if they are underpaid, the injustice will be obvious. It would therefore be helpful if the Minister gave us his assessment of the scale of these problems and said whether he believes that the press reports over the weekend are accurate. If the Government are encountering such problems, how does he plan to deal with them? What reassurances can he give to the millions of taxpayers potentially affected that they will get the correct amount that they were promised and are entitled to?

On a matter of equal importance, unlike the current state pension, under the new single-tier state pension an individual will no longer derive entitlement based on the national insurance record of their former spouse or civil partner. Though some transitional protection has been provided, the details are not at all clear. I am sure that Members in all parts of the House have constituents in rather desperate circumstances, trying to knit through the fog. A constituent recently contacted me. Her husband is terminally ill and on his deathbed, and he has expressed fears about what would happen to her under these transitional arrangements when he dies. They have no children, and his wife had stayed at home for many years while her husband provided for them both. She called the pensions helpline, but it was unable to offer any clarity or reassurance.

I have asked this question before, but I have yet to receive a satisfactory answer: can the Minister confirm that, in an extreme scenario, a woman with no entitlement in her own right who is widowed could end up with no state pension at all, as compared with the expected £119.95 she would have received under the current system? What are the Government doing to ensure that pensioners do not unfairly lose out and that people are given the correct information, so that they know the position they will be in? When asked how the Department was planning to communicate with those affected, the Minister for Welfare Reform, who of course sits in the other place and so is not here today, said, “You can’t foresee who is going to become widowed in future.” I think it is fair to say that that was not exactly a helpful reply. So perhaps the Minister who is with us today could provide some clarity on what action the Government are taking to communicate these changes, particularly to those with gaps in their record who are likely to be directly impacted.

My hon. Friend is making an important point about the need to communicate any changes to social security and particularly to the state pension rules. She will know that one of the complaints of the WASPI women is that they have not been adequately notified or given proper transitional arrangements. Does she think that the Government ought to be doing a lot more to communicate the changes to the new state pension arrangements because some people will not benefit from this scheme?

My hon. Friend is absolutely right: the Government do need to get their act together on communicating these changes. The general population out there expect nothing less than honesty and the frank information that the Government should be providing for them, so that they can make informed decisions about their future.

Will the Minister give a more specific estimate of who will be covered by transitional protection and how many people will lose out from these changes in future years? Once again, the Government’s track record on communicating pension changes falls well short of the standard that the public would hope and expect. When I met members of the National Pensioners Convention last week, they pointed out that many pensioners are now waking up to the fact that only a minority of those who reach the state pension age under the new system will receive the full flat rate of £155.65 proposed today, as confirmed by recent analysis published by the Minister’s Department. It estimates that only 37% of people reaching state pension age in 2016-17 will receive the full amount of the new state pension directly from the state. Millions of people will receive a significantly lower state pension in future, and some of them will be more than £500 a year worse off. The gloss from spinning the top-line full flat rate without the detail is rapidly starting to fade. Indeed, the Minister for Pensions herself has now admitted that the new state pension has been “oversold”.

It is clear that the Government should be doing far more to inform those affected, especially those who are nearing retirement and therefore have the least notice or time to consider the impact. In its interim report on the new state pension published in January, the Work and Pensions Committee reported:

“We heard evidence of a widespread lack of awareness among individuals about what they will receive and when. We were concerned to be told that the statements intended to rectify this were confusing and lacked necessary information.”

Age UK, among others, has called on the Government to do far more to contact people who are likely to be affected. It says:

“There are DWP materials highlighting credits and ways to increase the State Pension, but people need to know they may be affected. We believe the DWP should contact people with gaps in their record individually to highlight the changes and explain options.”

What are the Government doing to properly communicate the impact of the changes?

My hon. Friend is being generous in giving way. We also need to have confidence that the information being communicated by the DWP is correct. She will remember from last week’s Westminster Hall debate that, as recently as last week—I have not checked whether this has been changed yet—the DWP was still communicating that the state pension age for women is 60.

I thank my hon. Friend for making that point, which is central to what the WASPI campaigners have been arguing for some time and with which I have sympathy. The Government are failing to give adequate information and it is not readily available when people require it.

The DWP has produced analysis showing that the majority of people will be better off over the next 15 years, but what about after that? A close look at the figures reveals that, for those aged under 43 now—like me and many others in the House—the probability is that they will receive thousands of pounds less in state pension by the time they retire.

We do not hear much about the impact of the new state pension on the retirement income of future generations, and it is becoming increasingly clear why the Government are keen to keep quiet about it. Analysis that the shadow Secretary of State for Work and Pensions, my hon. Friend the Member for Pontypridd (Owen Smith), has commissioned from the Library shows that those in their 40s now are likely to be £13,000 worse off over their retirement. Men in their 30s now are likely to be nearly £17,000 worse off, while women will lose more than £18,000. For the generation in their 20s now, the loss is likely to be more than £19,000 for men and £20,500 for women. Future generations will clearly be worse off.

By 2060, when today’s 20-year-olds are nearing retirement, the Government will be spending £28 billion a year less on state pension provision. That is a huge cut, and one that has not been given proper acknowledgement by the Government or, consequently, been properly scrutinised and debated in the House or more widely.

It is interesting to hear the hon. Lady’s comments. She mentions the reduced state pension for those who are currently in their 20s, but how much of that reduction is based on the fact that the Pensions Act 2007 increased the retirement age for those who are my age and younger to 68?

I remind the hon. Gentleman of the coalition Government’s provisions. We had a proposal that worked for pensioners—we had a long-term plan—but the coalition Government speeded it up without any regard for the people affected by it, so I will not take any lessons from Conservative Members.

As I was saying, the £28 billion a year less that will be spent on state pension provision is a huge cut that has not been given proper acknowledgement by the Government. I hope we will debate it further in the House. Will the Minister confirm that the Government’s so-called long-term economic plan involves cutting £28 billion from pensions? What assurances can he give to today’s younger generations—who face higher housing costs, the largest fall in real wages and greater insecurity in the workplace—that they will have sufficient income in retirement?

Labour will continue to ask the Government to be far more transparent about the long-term winners and losers from the new state pension. Withholding that information may be politically advantageous in the short term, but in the long term it serves only to undermine public trust in saving for retirement, which Members on both sides of the House agree is the right course for all our population and is in the national interest.

Members on both sides of the House showed enormous interest in a related debate in Westminster Hall last week, which was triggered by more than 140,000 signatures on the petition by WASPI. There was standing room only, not, I suspect, because it was my first outing on the Front Bench, but because of the significance and importance of the issue to many Members and 2.5 million of our female constituents. Indeed, the Minister might wish to note that they include more than 4,000 women in his own constituency. I therefore hope that he will expand on the Government’s consideration of transitional protections for those women, too many of whom were not given proper notification of the acceleration in their state pension age.

The Government have failed to respond to a number of proposals, including specific solutions for the 1951 to ’53 cohort of women, who will not have access to the new state pension that we are agreeing today; for those born between 6 October 1953 and 5 April 1955, who face a delay of more than a year; and for the women born later in 1953, who have had a double whammy of changes in 1995 and 2011. What assessment have the Government carried out of those options?

Alternatively, it was suggested during the passage of the Pensions Act 2011 that maintaining the qualifying age for pension credit according to the 1995 timetable would protect some of the most vulnerable people. Have the Government reconsidered the issue since then?

Turning to another element of the regulations, I note the proposal to freeze the saving credit element of pension credit, as announced in the autumn statement. For the 438,000 pension credit recipients who receive only the saving credit element of the pension credit, their losses will not be offset by the rise in guaranteed credit. Their pension credit reward will, therefore, be reduced.

Unfortunately, the Government have so far refused to come clean about the impact on some of Britain’s poorest pensioners. According to analysis by the Institute for Fiscal Studies, 1.2 million recipients of pension credit will lose an average of £112 a year from the next financial year. That figure will be significantly higher for many people, including those in the poorest fifth of pensioner households. Will the Minister confirm that some of Britain’s poorest pensioners will be worse off as a result of the measure, and will he commit to publishing a more detailed impact assessment than that produced to date? Will he tell us exactly how many people will be worse off and by how much?

Knowledge is power, and people need to be empowered by knowledge when it comes to their retirement. I hope the Minister can provide some answers today, because that is the least that this and future generations of pensioners deserve.

May I start by welcoming the hon. Member for Ashton-under-Lyne (Angela Rayner) to the Front Bench? I was surprised that the Minister chose to move the regulations formally and that there is so little interest in debating them, not because there are deep-seated, fundamental disagreements about them, but because, given the significant changes that are about to take effect with the introduction and implementation of a brand new pension system in just a few weeks’ time, I would have thought there would be an appetite in the House to debate the issues and, indeed, to raise awareness among the public, who are still very much in the dark about the changes and their significance to their lives.

I will confine my remarks to a few of the key issues, some of which have already been touched on. I will start by addressing the State Pension (Amending) Regulations 2016. Although the new state pension will be set at £155.65 a week, very few people will actually get that amount. Indeed, even though the single-tier pension will be higher than the basic state pension, the net amount that some people will receive may be less than they would have got under the old system, because of the loss of means-tested benefits. Only 22% of women and 50% of men who reach state pension age in 2016-17 will get the new state pension in full. According to the National Pensioners Convention, almost six out of 10 new women pensioners and nearly half of new male pensioners—around 1 million people—will get less than the full amount.

The hon. Lady is making an important point, which is rather pertinent to some of my earlier interventions. Is it not incumbent on the Government and on Ministers to communicate those changes properly? Do we not run the risk of repeating some of the mistakes that have impacted on the WASPI women, because those people will be bitterly disappointed when they realise that they are not entitled to what they expected?

The hon. Gentleman makes an important point. It is worth saying that successive Governments have failed to communicate adequately with pensioners about a system that is, undoubtedly, very complex. The hon. Gentleman alluded to the WASPI women, and they are the best example of the problem at the moment. They have seen the goalposts shifted several times. Many of them are still not entirely sure what they are going to get and when, and they have had contradictory information, even in very recent times, from the Government.

I come back to the new state pension. We are calling it a single-tier pension and making much of that flat rate, but, in reality, there will be many different rates depending on an individual’s personal circumstances. In other words, it is not going to be so simple. Inevitably, the introduction of the new system means that two systems will operate concurrently for several decades. The danger is that the state pension could be seen as a two-tier system, because some existing pensioners would be better off if they were included in the new state pension. I am fairly confident that all MPs will be inundated with approaches from constituents after April once those people work out that they have been short-changed in comparison with their friends, relatives and spouses who are on the new state pension.

We all understand that there will, inevitably, be a cliff-edge with the introduction of a new system, and that it is impossible to predict accurately whether someone will lose or gain from the new pension without a crystal ball to tell us how long they will live in retirement. Given all the inevitable anomalies, which will cause a huge sense of injustice, it is incumbent on the Government to introduce some flexibility in the system by letting people take a bit more responsibility for whether they are in the old or new system, so that at least it is their choice to take that gamble with their own life expectancy.

We need to acknowledge that, over time, the new system will be less generous for most people. Those born from 1970 onwards will mostly be worse off under the new arrangements. Those who have contributed to the system for longer—for example, those who moved into work at an early age and worked continuously—will also lose out significantly. On the other hand, there will be benefits for the self-employed and for those who, under universal credit, start to receive credits to the state pension for the first time. There will be winners and losers, but there will be more losers over time.

The new state pension is being introduced on a cost-neutral basis, but the reforms are eventually expected to reduce expenditure compared with cost projections for the existing system. We must also note that the different indexation arrangements for the two systems have the potential to lead to accusations that the Government are building inequality into the system. After April 2016, the new state pension will be uprated annually at least in line with earnings, as per the triple lock, and we all support that. However, my understanding is that an existing pensioner will have a triple lock on only the first £119.30 of their basic state pension, with a consumer prices index link on any state second pension above that level. If CPI inflation is lower than earnings growth, as it is now, the value of the state second pension will fall in real terms. That gap is likely to widen.

Around 7 million pensioners get some kind of state second pension payment, and the average payment is around £28 a week. Applying the same indexation arrangements to old and new state pensions to the same level would cost a modest sum relative to pension spending, but it would mean that both the basic and state second pension were linked to the triple lock. That would help the Government to avoid some of the disparities that are likely to develop in the coming years, and it would help to create a system that is more likely to be perceived to be fair.

I want to express disappointment about the fact that the Government are not uprating savings credit. Instead, it will fall in April from £14.82 to £13.07 for a single person, and from £17.43 to £14.75 for a couple, and it will no longer be available to new pensioners. The Government announced in November last year that savings credit would be further reduced for current recipients, but that reduction is not included in the order. I would be interested to hear whether Ministers have decided not to reduce the amount of savings credit, or when they intend to introduce regulations for that measure.

Savings credit supports pensioners on low incomes who have managed to save a small amount towards their retirement. The vast majority—around 80%—of those who receive it are women, many of whom will have spent their working lives in very low-paid jobs. They have had limited opportunity to save, but they have done so nevertheless. It seems to me that reducing savings credit, and abolishing it for new pensioners, sends exactly the wrong signal to people in low-paid jobs who feel as though they should be trying to save but who have little incentive to do so.

Before I conclude, I want to devote some attention to the part of the statutory instruments relating to the uprating—or rather, the non-uprating—of state pensions paid to those living overseas; this is the issue of so-called frozen pensions. Such state pensions are paid to people who have spent their working lives in the UK paying contributions towards the state pension, but who, for whatever reason, spend their retirement domiciled in countries that do not have a reciprocal arrangement with the UK for the uprating of state pensions. Those UK pensioners find that every year, while UK-domiciled pensioners and those living in other parts of the EU or countries with reciprocal arrangements receive an uprating, their pension remains frozen in cash terms at the amount it was when they retired. The value of their pension therefore falls every year in real terms, causing real hardship to those affected.

According to the explanatory memorandum attached to the order, more than 500,000 people are in that position. Most—more than 90%—live in Commonwealth countries such Australia, Canada, New Zealand and South Africa, and also in India, Pakistan, parts of the Caribbean and Africa. In other words, they live in countries that have deep cultural and familial ties to the UK. Some have dual citizenship and others are UK citizens who have retired overseas to be close to family, but they all paid their contributions in good faith. The International Consortium of British Pensioners points out that a pensioner aged 90 who has lived in, say, Canada or Australia throughout their retirement will get a basic state pension of just £43.60 a week. If they had stayed in the UK, they would be receiving £115.95, which is due to go up as per this uprating. I just do not think that that is right. We are doing very badly by those people.

Those who are affected by frozen pensions had no choice about whether to pay national insurance contributions —doing so was mandatory. We must remember that many of them lived and worked in a rapidly changing and globalising world in the post-war era, when few would have paid much attention to the small-print of their state pension arrangements. It seems to me wholly unfair that a pensioner who retires to the USA will get their full uprated pension, whereas a pensioner in Canada will continue to receive their pension at its original level. Clearly, there would be a cost attached to uprating, but the Government must offset that against the costs that would have been incurred if those individuals had chosen to remain in the UK. The Government estimate that every pensioner who lives abroad saves the public purse on average around £3,800 each year in health and social care costs alone.

It is hard to measure the deterrent effect of frozen pensions. Pensioners who would like to retire close to their children and grandchildren in other parts of the Commonwealth are prevented from doing so by the knowledge that a key component of their retirement income would not keep pace with the cost of living. A partial uprating such as that advocated by the all-party parliamentary group on frozen British pensions would cost around £30 million and represent a tiny 0.03% of pension spending, but it would signal that those pensioners were not forgotten.

We all want fair and sustainable pensions that provide enough support for our elderly population to enjoy a dignified and comfortable old age, but the arrangements must be fair, and must be seen to be fair, if we are to maintain confidence in the system for future generations. I hope that the Minister will consider and respond fully to the points that I have raised.

May I take this opportunity to welcome the hon. Member for Ashton-under-Lyne (Angela Rayner) to her new position? I look forward to discussing and debating various issues with her over the coming months. I thank her and the hon. Member for Banff and Buchan (Dr Whiteford) for their contributions. In the short time that we have, I will try to address as many of their questions as possible. I also thank the hon. Member for Denton and Reddish (Andrew Gwynne) for his one or two interventions. I am grateful to the hon. Member for Ashton-under-Lyne for welcoming the triple lock and to her party for its support for that initiative.

The issue of communication has come up repeatedly. I just want to say that there is an awareness campaign, which is particularly targeted at those aged 55 and above. They will receive a letter—their addresses will be obtained from payroll and benefits data—providing details of their own state pension. The first phase of our communications campaign aims to build awareness among those in that age group, who will be the first to reach pension age after April 2016, and we are encouraging them to get a personalised statement. Between September 2014 and October 2015, we issued nearly 500,000 personal statements. We have factsheets, infographics, videos, calculators, YouTube videos, toolkits for stakeholders and weekly stakeholder bulletins. We will continue to do whatever is necessary and whatever we can to ensure that people are made aware of what is coming. I urge all colleagues on both sides of the House to do their bit, as Members of Parliament with access to media and to local communities, to make sure that people are aware of this very important change.

It is our intention, and it will be the case, that the new state pension will be a lot simpler and clearer for people than the previous situation, when there were opt-outs in relation to the state earnings-related pension scheme and additional pensions, as well as private pensions, occupational pensions and so on. The hon. Member for Ashton-under-Lyne said that not everyone will qualify for the new rate of £155.65, and she is absolutely right, because the new state pension is based on people’s national insurance contributions. In recent years, some people have not paid full national insurance contributions to the state because they have opted out or contracted out. Some of those people contracted out into a second, additional pension, and that has to be factored in. Alternatively, the national insurance contributions that they had contracted out of were used for an occupational pension or a private pension. If the two pensions are added together, the total will in many cases be more than £155.65.

I hope that the hon. Lady and her colleagues appreciate that if we have a system in which people’s pensions are based on national insurance contributions, they cannot, if they have not paid such contributions, be expected to get the full payment due notwithstanding the fact that some of their national insurance contributions have gone to another pension. I hope she will reflect on that point.

I gave the Minister a specific example of someone who had not contracted out because of a second pension. Will he address that point and the fact that some people have not been given adequate notice of the changes? I appreciate the point he makes about contracted-out contributions, but some people have not been given such information. I am asking for people to be given that information so that they can make alternative provision.

The hon. Lady will appreciate that I cannot give advice on individual cases at the Dispatch Box. As for communication, I have read out a whole list of measures we are putting in place to make sure that people are communicated with. If we were not doing our job properly, we would not have issued nearly 500,000 personal statements between September 2014 and October 2015. We continue to make sure that people are aware of the change. As I have said, she has a role to play, as do others. I am sorry that she expresses such disappointment, given that in the forthcoming year the Government will spend an additional £2.1 billion more than we are spending at present. There is also the pension credit standard minimum guarantee, which will ensure that the minimum threshold must be met. The state is there to assist people.

The hon. Member for Banff and Buchan mentioned frozen pensions. It has been the policy of successive Governments for the past 70 or so years not to uprate pensions for everyone. The issue is complex, but she will be aware that uprates are made in some countries where there is a legal obligation to do so. It should be remembered, however, that the pensions people get in some countries are based on a means test: if we gave everyone from Britain who is now resident in another country an uprate, our contribution to that uprated pension would be taken into account by their new home country and they would therefore be given less by the new home country.

The hon. Gentleman is shaking his head, but I assure him that some countries make pension payments on the basis of means.

This Government take the rights of pensioners very seriously, and we are doing all we can to protect them. From April, the rate of the basic state pension for a single person will go up by the biggest real terms increase since 2001. We will continue to protect the poorest pensioners. The means-tested threshold below which pensioner income need not fall—the pension credit standard minimum guarantee—will also have the biggest real terms increase since its introduction. The full basic state pension will be more than £1,100 per year higher in 2016-17 than at the start of the last Parliament. Our triple lock, our protections for the poorest pensioners and our new state pension reforms mean that we can provide pensioners with the dignity and security that they deserve in retirement. I commend the order and the regulations to the House.

Question put and agreed to.

Social Security

Resolved,

That the draft State Pension (Amendment) Regulations 2016, which were laid before this House on 18 January, be approved.—(Mr Vara.)