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Social Security (Graduated Retirement Benefit) (Consequential Provisions) Order 2006

Volume 685: debated on Monday 16 October 2006

rose to move, That the draft order laid before the House on 11 July be approved [34th Report from the Joint Committee].

The noble Lord said: My Lords, in my view, this statutory instrument is compatible with the European Convention on Human Rights.

The order represents unfinished business fromthe Pensions Act 2004, which introduced new arrangements for people who defer taking up their state pension. Under these new arrangements, a person who defers for 12 months or longer has the option of a one-off taxable lump sum payment instead of a pension increase. The Act did not extend the new arrangements to graduated retirement benefit, beyond providing the necessary vires, and this was to be achieved separately by regulations.

The graduated retirement benefit is the precursor to today’s additional pension payable under SERPS or the state second pension scheme. The graduated retirement benefit scheme ran from 1961 to 1975. People accrued graduated retirement benefit on the basis of earnings-related “graduated” contributions. Rights accrued prior to the scheme being wound up in 1975 are preserved, but they are not preserved in aspic. Over the years, the provisions have been modified to bring rights to graduated retirement benefit broadly into line with those which apply to state pension generally—hence the application of the new deferral arrangements to graduated retirement benefit.

The order amends Section 150 of the Social Security Administration Act 1992. The amendment is required to bring lump sum payments to which a surviving spouse may become entitled where their late spouse had deferred drawing graduated retirement benefit within the scope of the annual uprating order. The amendment also relates to people in civil partnerships. This consequential amendment should have been made by the Pensions Act 2004 alongside the equivalent amendment in respect of mainstream state pension. Unfortunately, due to an oversight, it was omitted, for which I can only apologise.

Where the surviving spouse or civil partner is drawing his or her pension, but the deceased spouse or civil partner is deferring his or her pension at the point he or she dies, the surviving spouse or civil partner can inherit 50 per cent of the deceased’s entitlement to graduated retirement benefit. This includes enhancements arising from the fact that the deceased had deferred claiming. Where the deceased had deferred claiming for 12 months or more from6 April 2005 onwards, the surviving spouse or civil partner has the option of taking a taxable lump sum payment. However, where the surviving spouse or civil partner is not drawing his or her pension when their spouse or civil partner dies, any inheritable graduated retirement benefit—including a lump sum payment—does not become payable until such time as they start to draw their pension. The purpose of this amendment is simply to enable the value of the inheritable lump sum to be protected by uprating it on an annual basis with effect from April 2007.

I should explain that the earliest point at which a person could become entitled to a lump sum payment was 6 April 2006. The first uprating after that point was effective from 10 April 2006. There is therefore a theoretical possibility—albeit remote—that a person who died between 6 and 9 April 2006 was deferring graduated retirement benefit and has a surviving spouse or civil partner who was not immediately eligible for a lump sum payment because they were not drawing their pension. In this scenario, the April 2006 uprating should be applicable although, owing to the lacuna in the primary powers, the 2006 uprating order could not make the necessary provision. I am happy to report that to date no such cases have come to light, but in the unlikely event of such a case arising in the future, I can assure the House that the 2006 uprating will be applied on an extra-statutory basis and the maximum amount involved would be no more than £10. I commend the order to the House.

Moved, That the draft order laid before the House on 11 July be approved. [34th Report from the Joint Committee].—(Lord Hunt of Kings Heath.)

My Lords, I am sure that the Minister would be surprised if these Benches did anything other than support the order. It is clear that the law as it stands is deficient and should be remedied, and we support the order to that extent.

The first question that I was going to ask the Minister related to the number of people who might have been affected in the gap. However, the Minister has answered that fully, for which I thank him.

I should like to take this opportunity to raise some wider issues arising from the need for the order. What went wrong in this particular case and is there something more fundamentally wrong with the pensions system? On the specifics, can the Minister say anything about how this error arose when the original measure went through both Houses of Parliament? It is easy to say that it is a simple case of human error, and we accept the Minister’s apologies. But I assume that the Minister’s department has checking and oversight procedures which are designed to counter a fairly obvious risk in the context of very complex social security legislation. Those systems have failed. Does the Minister know why and have any investigations taken place? If the department did not have oversight procedures that were adequate to deal with the situation, will he tell us whether any learning has been taken from this error in terms of the way in which legislation is handled?

Secondly, is the pensions system just too complicated? I expect that few people have an understanding of how the graduated benefit component of their pension is expected to work. I speak as somebody who has probably accrued a bit from the early 1970s and I freely confess that I have not the faintest idea how it will affect my pension entitlement or that of my husband.

We know that one of the reasons for the bad take-up statistics in pensions credit is the complexity of the system. It is so complicated that it was not surprising that the Pensions Commission concluded that 9 million pensioners were not saving enough for their retirement. The Government recently introduced something they called pensions simplification, but anyone who has had to wrestle with the Finance Act provisions and the volumes of regulations needed to underpin them will know that it will not result in simplification for a very long time.

I could go on at length about the complexity of public and private pension provisions, but today is not the time for that. I freely concede that this is not a feature merely of the past nine years but has a much longer pedigree under Governments of all parties.

The Government’s recent White Paper referred to a possible pensions law rewrite project. It would be helpful if the Minister could update the House on that. Rewriting the law, as has been found with the Tax Law Rewrite Project, does not reduce its volume or its underlying complexity. Simplification is a different mindset. Is there any hope that the Government would start to address a reduction in complexity in any meaningful way in our pensions system?

My Lords, we on these Benches also support the order, but I have two or three short and simple questions. Ironically, the original proposals for the introduction of the lump sum payment were contained in the Government’s Green Paper Simplicity, security and choice. Sadly, they have not proved simple enough for the Department for Work and Pensions to get them right first time.

How was the oversight or lacuna, as I gather it is now called, spotted? As one of probably not all that many people who did Latin and learnt what a lacuna was, I suggest that “gap” or “hole” are perfectly good words that it might do no harm to use in future. In any case, why did it take two years to come to light? For my own information, why is equivalent provision for Northern Ireland made by statutory rules, while it is done by order for Great Britain?

Finally, and perhaps more significantly, this will be uprated in line with the retail prices index. Will the Minister take on board the fact that the retail prices index is proving a very unreliable measure of the real cost of living as it affects pensioners? Essentials such as housing, fuel and light in particular are now rising in price much faster than the general retail prices index. Indeed, I estimate that for the average pensioner the cost of living has risen something like6 per cent over the past year, which means that if we just stick to the retail prices index uprating it will be a real cut in the standard of living for the average pensioner. Could he comment on that, as it is also relevant to this order?

My Lords, I am grateful for the overwhelming support that I have received tonight for this order. In response to the noble Baroness, Lady Noakes, we think that very few people are likely to be involved, if any, but we are enabled to make extra-statutory payments to any person affected, and the change that the order will make will enable us to ensure that that cannot occur in future. So we hope that no one has been affected, although the sum involved is of course relatively minor.

I did prefer the word “lacuna”, although I had to give up Latin after one year due to not being very good at it. In the course of the work of officials in the DWP, the oversight was identified, which is why the order was brought here today. Noble Lords will know that I have taken a lot of Bills through this House, though not a pensions Bill, and I have had considerable contact with officials who have dealt with pension legislation, so I can say that they are a first-rate group of people who are extremely thorough. Clearly it is regrettable that this oversight occurred, and we need to do everything to ensure that oversights are sorted out before legislation is brought to the House. I have no hesitation in accepting the responsibility of ensuring that that is to happen.

The noble Baroness, Lady Noakes, and the noble Lord, Lord Oakeshott, made rather more general points about the complexity of pension legislation, and implied that because it is so complex mistakes are more likely to happen. There is no question but that pension legislation is very complex. Something that I have discovered in the work of the Department for Work and Pensions in relation to not only pensions but benefit legislation is that there will clearly always be a trade-off between simplicity and fairness. One reason why the existing state pension legislation is extremely complex is because of a wish to make changes to the state pension system that are equitable, to meet social obligations. For that, additional rules are often introduced. The graduated retirement pension benefit is a case in point, owing to its preserved nature.

I would always want to see the legislation simplified—and, as I can tell the noble Baroness, Lady Noakes, we are continuing to work on that matter. But the key outcome is not so much to the legislation but in helping the public to understand the rules and trying to ensure that they are as simple as possible. I hope that one outcome of the pension White Paper following the Turner commission leading to legislation will be a system that the public understand much more clearly than the current system. When simplification in the law can help that, we need to look at that—and we shall continue to do so. The efforts that my department has made to provide statements to members of the public who are coming closer to receiving their state pension have been extremely helpful, and clearly we need to build on that. It is also clear that in relation to deferral or the potential receipt of a lump sum as a result of the changes made in the 2004 Act, a considerable effort has been put into advertising through leaflets and phone lines the availability of this option to the public. Again, I accept that we need to do better in future and shall continue our efforts to ensure that the benefit of this change is made known to as many potential recipients as possible.

As for Northern Ireland, my understanding is that the reason why it is being treated in this way is the suspension of Stormont. Let us hope that we see progress in that area.

Finally, I do not think it is the first time that the noble Lord, Lord Oakeshott, has raised the matter of the RPI with me. We are following current practice. At this stage we have no plans to change it, but we will keep the matter under review.

On Question, Motion agreed to.