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Social Security and Pensions

Volume 621: debated on Tuesday 21 February 2017

With this we shall consider the following motion:

That the draft Guaranteed Minimum Pensions Increase Order 2017, which was laid before this House on 16 January, be approved.

With the leave of the House, and as you have indicated, Mr Speaker, my remarks will cover motions 3 and 4 on the Order Paper. In my view, the provisions in both orders are compatible with the European convention on human rights.

I will first deal with an entirely technical matter that we attend to in this place each year and that I do not imagine we will need to dwell on today. The Guaranteed Minimum Pensions Increase Order 2017 provides for contracted-out benefit schemes to increase members’ guaranteed minimum pensions that accrued between 1988 and 1997 by 1%.

The Social Security Benefits Up-rating Order 2017 reflects the Government’s continuing commitment to increase the basic and new state pension with the triple lock by 2.5%, to increase the pension credit standard minimum guarantee in line with earnings, and to increase benefits to meet additional disability needs and carer benefits in line with prices. The Chancellor reaffirmed this Government’s commitment to the triple lock for the length of this Parliament in his autumn statement on 23 November last year, ensuring that the basic state pension will continue to be uprated by the highest of earnings, prices or 2.5%. This year, the increase in average earnings and the increase in prices were less than the baseline of 2.5%, meaning that the basic state pension will increase by 2.5%. From April 2017, the rate of the basic state pension for a single person will increase by £3 to £122.30 a week. As a result, the basic state pension will be more than £1,200 a year higher from April 2017 compared with April 2010. We estimate that the basic state pension will be around 18.5% of average earnings—one of its highest levels relative to earnings for over two decades.

Last year, the Government introduced the new state pension for people reaching their state pension age from 6 April 2016 onwards, making the system clearer and providing a sustainable foundation for private saving. The Government have previously announced that the triple lock will apply to the full rate of the new state pension for the length of this Parliament. This is the first year that the new state pension will be uprated. As a result, the full rate of the new state pension will also increase by 2.5% this year, meaning that from April 2017 the full rate of the new state pension will increase by £3.90 to £159.55 a week—around 24.2% of average earnings.

We are continuing to take steps to protect the poorest pensioners, including through the pension credit standard minimum guarantee, the means-tested threshold below which pensioner income should not fall. The pension credit standard minimum guarantee will rise in line with average earnings at 2.4%, meaning that from April 2017 the single person threshold of this safety net benefit will rise by £3.75 to £159.35. Pensioner poverty continues to stand at one of the lowest rates since comparable records began.

On the additional state pension, this year state earnings-related pension schemes, the other state second pensions and protected payments in the new state pension will rise in line with prices, by 1%. The Government will continue to ensure that carers and people who face additional costs because of their disability will see their benefits uprated in the usual way, so disability living allowance, attendance allowance, carer’s allowance, incapacity benefit and the personal independence payment will all rise in line with prices, by 1%, from April 2017.

In addition, those disability-related and carer premiums paid with pension credit and working-age benefits will also increase by 1%, as will the employment and support allowance support group component and the limited capability for work and work-related activity element of universal credit.

This Government will be spending an extra £2.5 billion in 2017-18 on uprating benefit and pension rates. With the guaranteed minimum pensions increase order we continue: to maintain our commitment to the triple lock for both the basic and the new state pension for the length of this Parliament; to increase the pension credit standard minimum guarantee by earnings; and to increase benefits that reflect the additional costs that disabled people face as a result of their disability, and carers’ benefits, in line with prices. That includes increases to the disability living allowance, attendance allowance, carer’s allowance, incapacity benefit, the personal independence payment and disability carer premiums.

I commend the orders to the House.

I will start with some general comments on the Guaranteed Minimum Pensions Increase Order 2017 before turning to the Social Security Benefits Up-rating Order 2017.

Clearly we support the uprating of the guaranteed minimum pension in line with prices. However, I wish to touch on issues raised in last year’s National Audit Office report on the guaranteed minimum pension and the new state pension arrangements that came into effect last year. As we have heard, the Guaranteed Minimum Pensions Increase Order provides an annual increase in the guaranteed minimum pension where there has been an increase in the general level of prices during the period under review.

When the additional state pension was introduced in 1978, an option was created under which an individual could contract out into another pension scheme on the basis that that other scheme met certain criteria. In that instance, both the employee and their employer paid a reduced national insurance contribution given that they were forgoing the state pension entitlements. Between 1978 and 1997, schemes that took on such new members were required to provide a guaranteed minimum pension—a new test was applied after 1997. Nevertheless, contracted-out schemes still had to provide a guaranteed minimum pension to scheme members for rights accrued between 1978 and 1997.

In 2016, the introduction of the new state pension ended contracting out by replacing the additional state pension with a single tier. Working-age people will now have their existing state pension entitlement adjusted for previous periods of contracting out and transferred to the new state pension scheme. Occupational pension scheme providers will continue to revalue any guaranteed minimum pensions that people have built up.

For people retiring after 6 April 2016, the Government will no longer take account of inflation increases to guaranteed minimum pensions when uprating people’s new state pension. The changes mean any guaranteed minimum pensions accrued between 1978 and 1988 will not be uprated, and the scheme provider will uprate guaranteed minimum pensions built up between 1988 and 1997 only to a maximum of 3% each year.

The National Audit Office was contacted by people approaching retirement age who had concerns that the new arrangements for a single-tier state pension will leave them worse off than they would have been under the guaranteed minimum pension. People also raised concerns about the lack of notice. Where have we heard that before? The NAO investigated and concluded that there would be some winners and some losers under the new arrangements, depending on the amount of time that people were contracted into a scheme. The NAO also commented that, again, there had been a dearth of information for those new retirees.

The NAO suggested that those who lose under the new rules may be able to build up additional entitlement to the state pension. The report recommended that the Government, via the Department for Work and Pensions, improve their evidence and analysis of the impact of these reforms, and provide much clearer, targeted information to the public about how they will be affected. I would be very grateful if the Minister updated us on how her Department is responding to the findings of the NAO report.

The Social Security Benefits Up-rating Order 2017 provides for the annual uprating of social security entitlements excluded from the Government’s freeze to levels of social security enacted in the Welfare Reform and Work Act 2016. This year, the Secretary of State has decided to uprate social security entitlements by inflation under the consumer prices index measure, which is at 1%. As the Minister explained, that covers attendance allowance, carer’s allowance, disability living allowance, the personal independence payment, industrial injuries disablement benefit, bereavement benefits, incapacity benefit and severe disablement allowance, to name but a few. The Secretary of State has also decided to uprate the new state pension in accordance with the triple lock, and pension credit in line with earnings, at 2.4%.

We would not stand in the way of measures to increase the adequacy of the social security safety net provided by those benefits, especially not after seven years in which the system has been under considerable attack. We will therefore support the uprating order, but I must take this opportunity to expand on my real concerns about the inadequate uprating, particularly in the context of the freezing of many social security payments under last year’s Welfare Reform and Work Act, and the real cuts to some kinds of social security support, such as the employment and support allowance, the support for those in the work-related activity group, the universal credit work allowances, and the widow’s pension allowance, which we discussed yesterday, again to name just a few. This is an erosion of the adequacy of social protection for those who are often the most vulnerable in society.

Surely the shadow Minister recognises that our support for those with long-term health conditions and disabilities has increased by £3 billion a year, to a record amount. That shows that we are directing money to the most vulnerable in society—rightly so.

I am grateful to the former Parliamentary Under-Secretary of State for Disabled People. Actually, we know that social security support will have declined by 2020.

The former Minister shakes his head, but these are the Government’s own figures. If we look at spending across Europe as a percentage of GDP, we see that we are below the EU average when it comes to social security spending, just as we are on health spending.

Let us start with rising costs. Traditionally, the link between social security and inflation has ensured that some of the most vulnerable households in our country are not made worse off, year on year, by inflation in the cost of basic goods and services. The adequacy of social security has been heavily eroded over the past seven years. Research by the Joseph Rowntree Foundation demonstrates that the price of essentials has risen three times faster than wages over the past 10 years. When that is combined with the coalition’s initial 1% freeze on uprating, introduced in the Welfare Reform Act 2012, and the complete social security freeze put in place in last year’s Act, it means that low-income households have seen a significant deterioration in the adequacy of social security support since 2010.

Clearly, the historic drop in oil prices and subsequent slow-down in inflation of the price of household goods provided some respite to low-income households, but we know that the impact of the EU referendum on, for example, food and fuel prices is only just starting. People on low incomes spend a much larger proportion of their household budgets on the essential goods and services that have been so prone to inflation, so they are likely to have felt the effects of spiralling prices long after they have slowed down.

The costs of basic household items are beginning to rise again, with last month’s official figures showing inflation at a two-year high of 1.8%. I understand that the actual increase in food prices has been approximately 20%, but that has only just started to be passed on to consumers, so it is going to get worse. That puts real pressure on households that are trying to provide for their basic needs. Indeed, last week the Joseph Rowntree Foundation published a report showing that 19 million people are now struggling to make ends meet and get the basics required for a socially acceptable standard of living.

In the context I have set out, a 1% uprating to some social security entitlements is unlikely to do much for those who are struggling to get by. If the Prime Minister is really serious about helping those people, I urge that there be some reconsideration. As a matter of principle, it seems only fair that social security should rise in line with inflation and should apply to all entitlements, not just the ones that the Government have cherry-picked. Although the economic arguments for a freeze may once have been founded on the slow-down in the prices of the basics that every household needs, now that prices are predicted to rise by 10% by 2020 even that weak economic justification no longer stands up. That is before we even get to the social argument for protecting the incomes of the poorest people in our society, whom this Government have set out to punish over the past seven years.

In last year’s inquiry by the all-party group on health into the effect of the Welfare Reform and Work Act 2016 on child poverty and child health, the freeze on social security support payments was singled out as the most damaging. I remind Members that the Institute for Fiscal Studies estimates that child poverty will increase by around 1 million as a direct result of social security and tax changes, and that will impact on those children’s health and futures. I make an impassioned plea to the Government and the Minister: we are approaching April, when several other disability benefits will be cut; I urge the Government to reconsider.

I shall not detain the House any longer. I urge the Government to review the cap before price inflation begins to pick up again. If they really cared about those struggling to make ends meet, that is exactly what they would do. In the meantime, although we regret the limit on the groups who will benefit from the uprating, we will support the order.

I am glad we are able to debate these orders simultaneously. The Scottish National party will obviously not oppose the social security uprating order, and we certainly welcome the pensions uprating order, but this is an opportunity to put on record, again, our deep concern about the ongoing impact on low-income households of the freeze on working-age benefits. We are particularly concerned about tax credits, which are mostly paid to working families with children, and employment and support allowance, which is paid to those who are not currently fit for work but are in the work-related activity group.

Any of us who regularly pushes a trolley around a supermarket can be in no doubt that the price of basic foods and household essentials is rising, and rising sharply. The depreciation in the value of the pound last year has taken some time to filter through to retail prices, but increases in the price of imported food and other goods is now very visible. The Bank of England has made it clear that it expects inflation to remain well above the 2% target for several years.

Ahead of the Budget and looking further forward, I hope the Government will look again at the benefit freeze and recognise that those on low and middle incomes spend a much larger proportion of their income on essentials than wealthier households and are disproportionately affected by rising food and fuel prices. In that context, a 1% rise in those benefits that are included in the order is unlikely to keep pace with the increase in prices that we expect to see over the coming months. The hon. Member for Oldham East and Saddleworth (Debbie Abrahams) has already alluded to the Joseph Rowntree Foundation assessment of the rising costs of essentials, which should give us all pause for thought. One simple example is that many of the severely sick and disabled people who will receive a 1% uprating—those who receive ESA as part of the support group—have limited mobility and are likely to spend a lot of time at home. Inevitably, they incur high heating costs during the winter months, yet the cost of energy is rising. Some of the big energy companies have already made announcements of price increases, and others have said that they are set to follow. Benefits that will be uprated by 1% include most disability and carer benefits—ESA, carers and pensioners’ premiums, statutory maternity and paternity pay and statutory sick pay. All are paid to people who are likely to be disproportionately affected by rising energy costs, and all are paid to people who are unable to work or who are limited in their ability to work.

Financial hardship is an increasing reality for households affected by sickness and disability and, as prices rise, that will only get worse. Even with increases to the minimum wage and personal allowances, large numbers of working parents and disabled people are significantly worse off in real terms and are finding it harder than ever to make ends meet.

When even the Financial Times is highlighting, as it did earlier this month, the strains on household finances that are already apparent and is warning that

“a combination of falling living standards and rising inequality would be extremely dangerous in today’s febrile politics”,

we should really heed the warnings.

I want to turn now to pensions and highlight the proposed increase in the single-tier pension. This has been the first full year that the new single-tier pension has been in effect, but I get the very strong impression that it is poorly understood among the general public.

Although I welcome the 2.5% increase in the single-tier pension, I am not at all clear how many pensioners will actually receive the full benefit of that increase. We know that there are both winners and losers in the transition process and that most new pensioners will not receive the full single-tier pension. Before its introduction, it was estimated that only around 22% of women and half of men reaching state pension age would be entitled to the full single-tier pension. Perhaps the Minister can clarify what has happened in practice and whether those sentiments were right. What proportion of male and female pensioners have received the full whack, and what ongoing impact assessment has the Department undertaken?

Perhaps the Minister can give the House an update on the pensions dashboard. I get the sense that there are real gaps in most people’s knowledge of the new system and that many people coming up for retirement are in for a nasty shock when they realise that they will not be eligible for as much as they think.

In this context, it would be very wrong not to mention the WASPI women, many of whom got insufficient and wholly inadequate notice of the shift in their pension age, and who, as a consequence, will lose enormous sums of money over the course of their retirement.

This week, I had a letter from a constituent who is one of the WASPI women. She did not get proper information about the changes and she has had no time to plan for them. She is facing an uncertain future in more ways than one in that she is currently undergoing treatment for cancer. She says that she does not know whether she will ever receive her pension. She is hopeful that she will make a good recovery—certainly I send her my good wishes. She makes the sobering point that none of us knows what is around the corner. There is a basic injustice here and that is why, even though she is ill, she is determined to fight for a fairer settlement. We can and we must do better by these thousands of women who are losing out.

While we are on the subject of women and gender inequality in pensions, I have to say that I am sorry that, in the past year, the Government have removed savings credits for new pensioners. Around 80% of those who previously benefited from savings credit were women, most of whom will have spent their working lives in low-paid jobs and are unlikely to have had access to an occupational pension scheme. Nevertheless, these are people who have managed to save, against the odds, despite the limited opportunities available to them. There is little enough incentive for people in low-paid jobs to save, and reducing savings credit and abolishing it for new pensioners erodes that incentive even further.

Pensions uprating is a wistful dream for some pensioners. Those who have frozen pensions are left out of the uprating. That is still a very live issue, and one that is likely to be more acute in the months ahead. There are those who are entitled to a UK state pension by virtue of having worked for it and of having paid their contributions but who have, for whatever reason, spent their retirement domiciled abroad. They face very different circumstances depending on whether their country of residence has a reciprocal agreement with the UK for the uprating of state pensions. Those in countries that do not have a reciprocal arrangement with the UK see their pensions frozen at their initial retirement level so, in real terms, the value of their pension falls every single year.

There are thought to be more than half a million people with frozen pensions, mostly in Commonwealth countries such as Australia, Canada, New Zealand and South Africa, but also in countries with strong family and historical links to the UK such as India, Pakistan, parts of the Caribbean and Africa. The issue will only become more acute in the months ahead as the UK leaves the European Union and European economic area. UK pensioners who retire to sunnier parts of the continent—there are thought to be 400,000—currently get their pensions uprated throughout the EEA as normal, but reciprocal arrangements will need to be put in place when we leave the EU if those pensioners are not to find themselves in the same difficult situation as those living in Canada and Australia. I hope that the Minister will be able to share the Government’s thinking on that issue, and tell us what steps they are taking to protect UK pensioners who live in other parts of Europe.

We need to deal with the fact that many of those approaching pension age, who have lived through an era of globalisation, will have worked in several EU countries and may have accrued pension rights in several parts of Europe, with wee bits of pension in several systems. That is true for many people who have worked in global industries or for multinational corporations. It is a bit of a minefield, and it would be immensely helpful if the Minister offered reassurance to UK pensioners living in EU countries that those issues are on the Government’s radar and will be addressed. I hope that the Minister will take the opportunity to address all the issues I raised as she closes the debate.

I thank the hon. Members for Oldham East and Saddleworth (Debbie Abrahams) and for Banff and Buchan (Dr Whiteford), speaking from the Opposition Front Benches, for their contributions. I will attempt to address the specific points raised in full.

The Government did respond to the National Audit Office report outlining the online Check your State Pension service, which now delivers personalised information to people many years in advance. The report also acknowledged that the aggregate impacts of the reforms need to be taken into account. Taking account of all elements of the reform, about 75% of people will receive more from the new state pension by 2030 than under the previous systems. There is no statutory requirement for formerly contracted-out pension schemes to increase for those accrued between 1978 and 1988. The Government do not intend to introduce legislation requiring those schemes to index pre-1988 guaranteed minimum pension rights. This needs to be set in context with the changes to the overall pensions landscape. Other aspects of pension reform may offset the loss of indexation—for example, maintaining the triple lock in this Parliament. Since 2011, the basic state pension has risen by £570 a year more than it would had it been uprated by earnings.

Work, not welfare, is the best and most sustainable route out of poverty, which is why our tax and welfare reforms are designed to ensure that work pays and that increased earnings are rewarded, rather than penalised. However, we remain committed to supporting people who cannot work and those with additional needs, which is why the orders provide for an additional £2.5 billion in 2017-18 to increase benefits for pensioners, carers and the additional costs of disability. We have had to make difficult decisions on spending. To protect those with additional needs, we are increasing the ESA support group component in line with the consumer prices index, and will also increase the enhanced disability, severe disability, carer and pensioner premiums.

The Government are committed to building a country that works for everyone, which is why the forthcoming Green Paper will identify and address the root causes of child poverty, building on the new statutory indicators of parental worklessness and children’s educational attainment, which were set out in the Welfare Reform and Work Act 2016.

The hon. Member for Banff and Buchan will be aware that the current policy regarding overseas pensions is a longstanding one of successive Governments that has been in place for almost 70 years. Many Commonwealth countries, including Australia, Canada and New Zealand, have pension systems that take account of overseas pensions as part of their means test. That means that a significant proportion of any increases in the UK state pension would go to the respective Treasuries of those countries. The hon. Lady is, of course, right to point out the issue of British overseas pensioners in other EU member states. Let me reassure her that their rights are part of the negotiation process. The Government are committed to getting the best deal for those pensioners.

The Government will be spending an extra £2.5 billion in 2017-18 on uprating benefit and pension rates. We will be spending over £2.1 billion more on state pensions and pension credit; nearly £0.3 billion more on disabled people and their carers; and £100 million more on people who are unable to work because of sickness or unemployment.

To conclude, the Government are continuing their commitment to the triple lock for both basic and new state pension for the length of this Parliament. We are increasing the pension credit standard minimum guarantee by earnings, and increasing benefits to meet additional disability needs, and carer benefits, by prices. I commend the order to the House.

Question put and agreed to.



That the draft Guaranteed Minimum Pensions Increase Order 2017, which was laid before this House on 16 January, be approved.—(Caroline Nokes.)