Committee (1st Day)
My Lords, I must first announce that if there is a Division in the Chamber while we are sitting, the Committee will adjourn as soon as the Division Bells are rung and resume again after 10 minutes.
Clause 1: State pension
1: Clause 1, page 1, line 6, leave out subsection (2)
My Lords, I should explain to the Committee that a number of amendments that I have tabled to the Bill have been tabled after I have had a fairly lengthy discussion with the pensions officer of the union Unite, of which I am a member. As the Committee will probably know, for many years, I was a national officer of one of the founding unions of Unite, and that is where I come from on pensions. The union has always been very interested in pension provision, and the amendments have been tabled as a result of discussion with large sections of the membership.
This amendment arises because of the exclusion of certain people from the capital altogether. The reform proposed in the Bill has been brought forward at a time when half of all existing pensioners qualify for means-tested benefits and one-third of all pensioners with incomes below the guaranteed credit level for pension credit are not getting the benefits.
I am told that there is huge resentment among today’s pensioners that they are being ignored, and special resentment on the part of those who feel that they might have benefited from the new legislation but have lost out because of the cliff edge presented by the effect of the April 2016 date.
For those reasons, I tabled the amendment that the subsection should be deleted. As I understand it, the policy of the union is that government policy ought to be focused on raising the level of the basic state pension for all pensioners. That is what the union is standing on at the moment. It is for that reason, and to test the feeling of the Government on the issue of the concern of existing pensioners, that I have tabled the amendment. I also fully support Amendment 2, with which it has been grouped, because, again, it is concerned with the poverty of existing pensioners, which is something we should all be concerned about. I beg to move.
My Lords, under my Amendment 2, the deletion of Clause 1(2) would extend the single-tier pension to all pensioners from 2016. My proposed new subsection would require the Government to publish details of measures which would end pensioner poverty. As the noble Baroness said, current pensioners and others due to reach state pension age before 6 April 2016 have been excluded from the single-tier pension. Current pensioners should also benefit from the single tier. A number of options are available to achieve this. For example, the Government could consider extending the single-tier pension to current pensioners. Another approach would see the level of pension credit guarantee increased to the level of the single tier for current pensioners, who will otherwise miss out.
We know that pensioner poverty has fallen over time from 2.9 million in 1998-99 to 1.6 million, of whom nearly 900,000 are in severe poverty, with incomes of less than half median income. Proposed new subsection (2) would make the Government set out a timetable and a strategy for reducing and eventually abolishing pensioner poverty.
My Lords, I have encountered more upset in relation to this aspect of the Bill than what I would hope was support for having a state pension above the level of income support. Quite simply, we are talking about individuals who have paid their national insurance, who are too old to benefit from the 2016 changes, whose pensions are less than that, and who feel somewhat aggrieved that many people who have not paid their national insurance will qualify for the increased pension after 2016 when they will not. I appreciate that it is all about money, but I wonder whether a full calculation has been done of the net real costs of putting everyone who is entitled to a pension on to the new arrangement in 2016; I suppose that is unless they have qualifications that exceed that. However, I can only think that there would be a significant net-off in terms of other welfare payments if people’s pensions were slightly larger. This is a fundamentally good piece of legislation on which there is relatively cross-party support. However, I slightly warn the Government that this issue—that those who are too old to benefit from the 2016 reforms will often be worse off than those young enough to benefit—is rather spoiling the welcome to these changes.
My Lords, I would like to ask a simple question that relates to one of the hopes that some of us had a year or so back. The greatest proportion of those claiming pension credit tend to be elderly widows—when the husband died, the pension died with him—over the age of 80 or 85. I fully understand that to bring all pensions on to this would be a big-ticket item for any Government to contemplate; that is not in doubt, as the previous speaker mentioned. However, what if we were to introduce the pension not just for people reaching pension age in 2016 but for those over 85, and then for the next decade bring the 85s down by a year, with the 65s going up a year, as they will? They would meet in about a decade for men, perhaps slightly later for women. In about a decade or so, virtually all pensions would be covered on an incremental basis. I have not been able to cost that. I was told, teasingly by the Minister in the other place, that he thought it would probably cost half a billion pounds, but whether that was per year or in total was not made clear to me. Have there been any thoughts about how we might progressively increase the coverage?
I would like to make three points. I hope that there will be cross-party support but, if we are now saying that the higher pension should apply to everybody, clearly we need to know the cost. I have to ask the question: why did Labour not do this in its 13 years if it does not cost money? The point has to be made. Resentment could build up among those who see younger people coming forward on larger pensions. We know that there is a problem with women in the 1951 to 1953 age group. We have to understand exactly how much this is going to cost. The noble Baroness, Lady Hollis, is absolutely right: it is not necessary for this legislation, but in the future obviously we should look—as the country can afford it—at how we can phase in for various groups of pensioners the higher rate and get rid of means-testing for them. We need to know about the money but we also have to be realistic. You have to start somewhere on this higher-rate pension, and where the Government have tried in difficult circumstances to start is the best that can be done at the moment, I think. Obviously we should look at the future at some stage, once we are aware of the cost and how we can afford it.
My Lords, I would like to add a more operational note to the questions raised by the important amendment from the noble Baroness, Lady Turner of Camden. She makes a powerful case, but the financial circumstances suggest to me that there is more likelihood of eventually getting into the position that was explained by the noble Baroness, Lady Hollis, than she was suggesting.
The implication of the amendment is that it would extend the single-tier pension to all pensioners. I have some questions about the operational capacity of the system to deliver sensibly some of these significant changes. In the first place, the Green Paper suggested that we should be looking at this by 2017. That has been brought forward; there are obvious advantages to that but it has caused some people to raise questions with me. Some of that is informed by the current controversy about the efficacy of the systems for universal credit, which are of course of a different order in terms of the IT systems. It also has to be acknowledged that the Pension Service has a very good record of implementing some of this stuff; when pension credit came in, it was done in a way that got very high marks from the National Audit Office, as I recall. So it may be that everything is going to be fine, but if the national insurance records are not all clean data then we could be facing some serious difficulties in delivering the payment of pensions on time. There are other operational matters that I am sure are concerning people at Longbenton in Newcastle, as they should be.
Speaking for myself, I would be very pleased to get some kind of assurance at some stage in Committee that with regard to this huge and significant change, affecting a number of very vulnerable households, the department, having regard to the recent reductions in staff and all the other matters, is in place to be able to deliver this efficiently and on time in the way that is proposed.
My Lords, in speaking to Amendments 1 and 2, I look forward to a productive time in Grand Committee. I assure the Minister that there will be cross-party consensus over the direction of travel; this very much carries on the direction that Labour took in government, and I look forward to being able to debate the detail. This first group has already highlighted a number of the issues that we are going to want to explore over the next few weeks. The point about cost made by the noble Lord, Lord Flight, and my noble friend Lady Hollis is an important one, and I hope that the Minister will be able to give us an indication of both the cost of bringing all these people into the system but also the cost drivers that might help us to understand better my noble friend’s point. If he could cost her ingenious scheme before we got to the end of this stage of the Bill, that would also be very helpful.
The point made by the noble Lord, Lord Kirkwood, about operational issues is going to become very important. There are amendments later on in which we will begin to explore how the department will communicate with people, and that will surface many of those issues. The Minister may want to be prepared before we get to that stage.
I, too, have heard concerns from all kinds of people. I know that Age Concern has been very worried; it has been getting letters, e-mails and phone calls from people who are anxious about the fact that they will not get this new pension that they have read so much about. One of the requirements on the Government from a very early point is going to be to try to manage their communication better, as I will say later on when we come to discuss information. The Select Committee found a huge amount of confusion among the public about who would get what and when. It is not surprising, therefore, that people are as anxious as they are.
Will the Minister reassure the Committee that the Government are alive to the concerns of those who have already reached state pension age or will do so before implementation, and will carry on listening? Will they consider the impact on those pensioners as the system is brought in? Will the Government, maybe at the next Committee day, take the opportunity to explain to us the impact of the new amendments tabled in the wake of the autumn Statement? That could be helpful, and we could look at it later this week.
Will the Minister help the Committee to reflect on the position of those who retire before implementation on modest incomes? Will he clarify that those who have saved with the second state pension or its predecessors will find that any amount they get in future which is above the single-tier pension is in fact uprated only by CPI? There is a perception that everybody before the transition gets one thing and everybody after it gets another, when in fact, as we will unfold, it is going to be a lot more complicated than that.
Is the Minister concerned at all about the distributional impact for those in that area of modest earnings? He will know that S2P is distributive because it treats anyone earning between the lower earnings limit of £5,668 and the lower earnings threshold of £15,000 as though they earn £15,000. That distributive element is quite important in protecting those on modest incomes and making sure that they can save for the future.
I also wonder whether the Minister can tell us something about what will happen in the future to passported benefits for those who reach state pension age before implementation. For those who are currently passported to benefits on savings credit, I understand that that will carry on being available to them because they will get there before 6 April 2016. However, can he assure us that both the savings credit and the access to those passported benefits on the back of it will carry on being available to them for as long as they live? That may be a source of assurance to those people as well.
Amendment 2 in the name of the noble Baroness, Lady Greengross, also raises the question of how the Government monitor the impact on pensioner poverty. Pensioner poverty is something that we on these Benches take very seriously. As I indicated at Second Reading, when Labour came to office in 1997 we inherited unacceptably high levels of pensioner poverty and took to addressing it in a range of ways—through the minimum income guarantee, by pegging pensions to earnings, by introducing the very pension savings credit that is shortly to bite the dust, by bringing low earners and carers into the second state pension and also, crucially, by reducing the number of years of national insurance contributions needed for a full state pension. It was 44 years for men and that came down to 30, and it was 39 years for women, which came also down to 30. As a result of all that, pensioner poverty fell to the lowest level for 30 years.
The Government may well accept the amendment from the noble Baroness, Lady Greengross, but, if not, can the Minister tell the Committee how the Government propose to monitor pensioner poverty and what steps they will take to ensure that we do not end up back in the situation in which we found ourselves in 1997?
My Lords, I thank the noble Baronesses, Lady Turner and Lady Greengross, for their amendments, which cut to the heart of the rationale for these reforms and provide an opportunity to discuss how this Government are committed to a decent and secure income for all pensioners.
Clause 1 is a landmark in the history of British state pensions. It creates a single state pension in place of the current two-tier system. It marks a return to the simplicity that Beveridge had in mind in 1942 and a withdrawal of the state from earnings-related pension provision. The fact is that we now need a new pension system to meet the needs of today’s working-age population. We estimate that 13 million people are not saving enough for retirement.
The single tier will provide a flat-rate pension above the level of the basic means test to most people in the future. This goes hand in hand with automatic enrolment and will help to give those saving today for their retirement far more clarity about what they can expect from the state. The reforms will also help to dispel any perception that people’s own savings could be offset by a corresponding loss of means-tested benefit.
The key point here is that the reforms are about restructuring spending to support saving. They are not about spending more or less on future pensioners, and they have been designed to stay within the amount that we were projected to have spent if we had rolled the current system forward. In designing the transition, we have been able to right some historic wrongs, as the Minister for Pensions has often said.
I turn to the question from the noble Baroness, Lady Turner, about what she calls the cliff-edge effect. Around three-quarters of pensioners retiring in the five first cohorts will see a change of less than £5 a week compared with if we rolled the current system forward.
I think that in practice it will be a mean average. However, I will make that absolutely clear.
By withdrawing the facility to build a pension above the flat rate and modernising the system, removing elements such as savings credit and derived entitlement that no longer reflect the needs of the working-age population, we are able to fund the single-tier pension and improve the outcomes of groups such as the self-employed, carers and low earners, who have historically seen lower state pensions. It follows, therefore, that there are two means by which we could apply the new state pension to existing pensioners.
First, we could simply increase the pension of all existing pensioners to the full single-tier rate, if they are currently receiving less. In response to the question asked by my noble friend Lord Flight, we estimate that this would cost around £10 billion.
I think that by the time we have a rolling cohort, by definition that cannot be the case. I realise that we are pressing the Minister for information while he is on his feet. It would be very helpful if, perhaps towards the end, he could pick up points on which we have asked questions.
I will confirm the precise parameters around that £10 billion figure to the Committee as soon as I have that information.
On the question raised by the noble Baroness, Lady Hollis, on rolling together from an 85 base, we do not have those particular costs, as she might imagine. However, we can look at the numbers, although it will be a very complex exercise, not least because some will have a current pension in excess of the £144 base we are using on an illustrative basis.
If we were to take those extra costs they would fall to today’s workers; the risk would be that that would undermine the trust between the generations, which is at the heart of our pay-as-you-go national insurance system.
The alternative would be to assess the single-tier entitlement of this group and pay this amount. If we did this, and fully brought forward the single-tier rules for existing pensioners, this would entail removing some pension already in payment, such as derived entitlement and the savings credit. I suspect that we would all agree that this would be totally unacceptable.
However, this Government are equally clear that it would be unacceptable for today's poorer pensioners to get left behind, and have taken many steps to ensure this is not the case. We have restored the earnings link to the basic state pension. The coalition’s introduction of triple-lock uprating on top means that the level of the basic state pension is now at its highest proportion of average earnings in more than 20 years.
To ensure that the poorest pensioners benefit from the triple lock, this year the pension credit standard minimum guarantee was increased by the same cash amount as the basic state pension, and that will happen next year. These measures have been particularly key in the unusually uncertain economic climate we have seen in recent years. In a time of austere spending decisions, we have protected key benefits for older people, including winter fuel payments.
The noble Baroness, Lady Greengross, is right to highlight the importance of effective monitoring of pensioner poverty and the effects of these reforms on retirement incomes; indeed, her sterling work as the co-chair of the All-Party Parliamentary Group for Ageing and Older People has continued to champion this cause. The latest figures, for 2011-12, show that the rate of relative poverty among pensioners is close to the lowest ever recorded. It is at 14%. I recall with slight irony that when we debated the Child Poverty Bill in 2009, the expression “eradication” was used about bringing the poverty figure for children down there to 10%. The DWP publishes annually the households below average income report, a national statistic which provides a full analysis of the levels of relative and absolute poverty for pensioners, and pensioner material deprivation. In addition, in order to look at the impact of the Government’s pension reforms as a whole, the Government published a framework for the analysis of future pension incomes in September 2013, which provides an overview of projected future retirement incomes.
I will pick up the question from my noble friend Lord Kirkwood, who asked for reassurance on the delivery plans for the single-tier state pension. As noble Lords are all aware, it will be introduced from 6 April 2016. The single-tier programme was set up in early 2012 to undertake early feasibility work and test deliverability of the policy as it was being developed. It is a DWP programme, with changes being delivered by the DWP and HMRC.
We are confident of delivering by April 2016 for several reasons. First, there is broad consensus on the main principles of the reform, which provides a helpful basis to plan for implementation. The main development of systems will commence once the Bill gets Royal Assent, at which point the key legislation will be settled. This will ease the challenge of developing systems while policy is likely to change.
Secondly, the key change needed to deliver single tier is to reform the way we calculate state pension, based on an individual’s national insurance contributions. We have long-standing experience of using national insurance contribution records held on HMRC systems to calculate pensions. Single tier is just a variant of that process. We will, however, aim to use this opportunity to make improvements to the way that we deliver our services.
Thirdly, both departments have the capacity to deliver the programme, have a good recent track record of making major changes to pensions calculations to tight timescales and have successfully delivered previous pension reform changes. The programme will use a process of phased development of systems and processes to minimise any risks to delivery of single tier. Both the DWP and HMRC will use existing staff who have expertise in dealing with NICs and pensions to deliver these reforms. HMRC also has experience of managing the end of contracting out for defined contribution schemes in 2012. This will stand it in good stead for introducing the changes for defined benefit schemes.
Finally, we will engage users and interested parties in a very practical way, helping us to test each stage of developments to make sure that they work to provide an accessible and easy-to-use service. The new systems will be tested in advance of April 2016, through the advance claims process. Additionally, we are building in contingency to ensure that the existing telephony channel can be used, just in case the digital solution does not work on day one.
A clear governance structure exists to manage the implementation. A DWP programme board, on which HMRC sits, is in place to oversee delivery of single-tier pension and delivery teams have been set up in both departments. Both departments believe that delivery of the single-tier reform is challenging but doable. The main change needed to deliver single tier is to reform the way we calculate state pension and that remains the focus of the programme. We do, however, need to take this opportunity to move to a more efficient and customer-focused business delivery that meets the government commitment to deliver more services digitally. To achieve this, the programme team is working closely with the Cabinet Office. The department is also building its capability in developing digital services through the appointment of a director-general with introduction of single tier as a digital service as his primary responsibility.
To conclude, I agree that reducing pensioner poverty is crucial. The steps already taken by this Government will help to do so and the measures in the Bill will provide for a more secure future for generations to come. I therefore ask the noble Baroness, Lady Turner, to withdraw her amendment.
My Lords, I wonder if I could just follow up on a couple of points. I thank the Minister for that response and I understand that, certainly at a £10 billion a year price tag, this would be a challenging reform to adopt. Could I ask him—I may have missed it and I apologise if I did—to respond to my questions about pension credit and passported benefits? If the Government are not going to able to bring existing pensioners into the new system can he give us a categorical assurance that pension credit will last throughout, and if so that the passported benefits on the back of that will come?
My Lords, I am happy so to confirm. As I say, for existing pensioners we have no plans to make any changes to the way that pension credit works. I have got a little bit more information. The cost of £10 billion is to get everyone on to single tier, and that is the cost to get all current pensioners to the illustrative £144 per week. I can confirm that cost is £10 billion per annum. This is a figure taken at 2016 and clearly that would reduce over time. The other issue that we discussed as we went through this was the 75% of people who see a change of less than £5 a week: this is not an average and most people will see only a small change compared to the current system.
I will first follow up on my noble friend’s point on savings credit. The Minister says that it will remain unchanged, but given that it is going to be CPI uprated, where the guaranteed pension credit is earnings related, at what point does the Minister expect savings credit to no longer exist because the guarantee has caught up with it? Therefore, although it is technically true that there will be no changes none the less it is surely also true that, X period of time on, given assumptions about inflation and so on, savings credit will in practice no longer exist.
I thank my noble friend. I think that when the Minister comes to read Hansard, he may notice that I asked him to confirm that its value would not change and I am sure that he meant to clarify the level rather than the value. One of the reasons is that, since they came to power, the Government have frozen the maximum level at which savings credit can be obtained. I wonder whether they intend to carry that on, in which case would we find that its value did, in fact, diminish.
I am sorry to bother the Minister but is the £10 billion figure what I call gross or net? The key issue is that many older pensioners who would not otherwise qualify will qualify for various forms of income support in whatever is left of pension tax credits, and there really is a need to net all those projected costs off if they are not covered in the £10 billion to see what the actual net extra cost is. If, in that exercise, the Government discovered that the cost was much less than that, then I think this is something that could be thought about.
In particular, my Lords, given that the Government are proposing to remove AIPs for those over 75, there is therefore going to be an annual means-testing of pensioners who, if they were 10 or 12 years younger, would have that £144 as of right.
My Lords, I shall respond where I can. I think that I shall have to write on the future of the savings credit as a result of an earnings increase of guaranteed credit, as it is quite complicated. At this stage, I shall also have to write to confirm exactly where we are on the question of whether the figure is gross or net. In practice, I think that I will end up writing quite often on these figures because they are quite complicated and one wants to double-check them carefully. Offering responses on the hoof may be a little dangerous and I shall be reduced to writing more often than would be the case with some of the other things that we discuss. With those issues raised and with a process to deal with them, I again ask the noble Baroness to withdraw her amendment.
I thank everybody who has participated in this debate, which has been very interesting. It has demonstrated that there really is a bit of a problem here with current pensioners who feel that they have been neglected, and I think that they have some justification for feeling that. I am very interested in what the Minister had to say, particularly on pension credit. I shall look at that very carefully when we have the opportunity to read what he has said this afternoon.
I am surprised that there has not been a rather better reception for the amendment tabled by the noble Baroness, Lady Greengross. Quite frankly, I cannot see what there is for the Government to lose by having an annual review of pensioner poverty. I should have thought that it would be a very good idea, and it would certainly ease some of the concerns that pensioners have at the moment. In the mean time, I shall withdraw the amendment—
I want to make it absolutely clear, if I did not do so in my answer, that that information is provided annually. I was by no means not accepting that amendment; I was just making the point that it was a good idea and, as such, had already been implemented.
I accept that the Government have the information and I am very grateful for that. On the other hand, we were hoping that there would be an opportunity in Parliament to discuss the results of a review annually. That would give us the opportunity, as parliamentarians, to see what the position was annually as far as poor pensioners were concerned. That was one of the aims of the noble Baroness’s amendment. However, I am very grateful for what the Minister has said this afternoon. We will look at it with a great deal of concern because we are still worried about what happens to existing pensioners. We know that some of them are upset and worried that they have been missed out in the pension review, which is what this Bill is all about. Therefore, I will certainly have a look at what has been said not only by the Minister but by everyone else in this very interesting debate. In the mean time, I beg leave to withdraw the amendment.
Amendment 1 withdrawn.
Amendment 2 not moved.
3: Clause 1, page 1, line 8, at end insert—
“( ) Notwithstanding subsection (2), regulations may provide that any woman born between 6 April 1951 and 5 April 1953 and ordinarily resident in the United Kingdom shall be eligible to receive benefits under this Part.”
My Lords, to try to pre-empt any teasing I shall apologise for putting my notes on a stand, but the alternative is to have them in very large font.
I support the equalisation of the pension age, although I think it has been too compressed. However, one cohort of women feel that they have been unjustly treated. I want, in particular, to raise the issue of those women born between April 1951 and April 1953. Women older than them will have retired at a younger age and enjoy their pension for longer. Women younger than them will qualify for the new higher pension. They are caught in the middle. They have experienced up to three years’ delay in receiving their own BSP from the age of 60, only to find that men born in the same year as them will, unlike them, get the new state pension.
Men are sailing smoothly towards the new pension, and for them nothing has changed. Women have faced mounting instability as their pension age is deferred. They have waited longer but got nothing for it, and they cannot afford to defer which, if taken as a pension increment, might bring them to the new state pension level. This is essentially the problem of government introducing a new and very welcome state pension, while being still in the process of equalising the state pension age. I recognise the difficulties that inevitably come with that.
I suspect that the Minister will say that given that women are drawing the old pension for two extra years, and that given women’s greater longevity, they will on average—and I bet it will be another mean average, not a median—be better off than men. There will be a sort of bell curve; they will be better off at the beginning, then not better off, and if they live that long, there will be a crossover point where women who live longer—it could be at 81 or 82—finally draw ahead in this lottery.
Averages, as the Minister knows very well, are deceptive. A working-class woman is likely to live less long than most of your Lordships—male Lordships—in the House at the moment, and therefore those figures will not apply. We will return to that debate obviously at much greater length when debating life-expectancy increases. Therefore any particular women may well be worse off.
However, it was noticeable that the Minister in the other place, while using those arguments in the debate on this issue in the first amendment there, did not draw the Committee’s attention at any point to the pension credit rules. Those rules are very interesting, very relevant, and, I think pretty devastating of the Government’s case. Is it not funny that they were not mentioned?
At the moment, many poorer men who have dropped out of the labour market between 60 and 65 are able to draw full pension credit on equal terms, ages and rates with women who are getting the BSP plus pension credit. In the same way—and this is, of course, part of the European directive on equality—men could get a winter fuel payment or a bus pass at the same age as women, which was at women’s BSP age, from 60 on, not at their own retirement age. The same rule applies to pension credit.
Therefore, when women’s BSP age was 60, men could draw pension credit to top up their IS for five years before becoming eligible for their own BSP at 65. When women’s BSP age rose to 62, men could draw pension credit from 62 until their retirement age—there are no cliff edges for them. They are now effectively getting an income the same as the BSP and the same as women at age 63.
Currently 167,000 men between 60 and 65 draw pension credit. That tops up their income support of nearly £70 to the standard pension credit figure of nearly £140. It doubles it. Incidentally, a higher number of men between the ages of 60 and 65 draw pension credit than the number of men between 75 and 79. To put it another way, just under a fifth of all men who draw pension credit—although some, of course, may be in couples—draw it before their state pension age. That is great for them. However, unlike women, when they reach 65, after 5 April 2016, they move smoothly on to the new and more generous state pension. We did not hear a word of this down the other end but, in other words, men have had a double protection: pension credit on women’s terms, followed by the new state pension on men’s terms. Not only were they not disadvantaged by being male, they were actively protected and, to that degree, favoured.
As I say, I thought it odd that the Minister did not choose to mention that in the other place. Instead, he spent most of his speech comparing this cohort of women with those women younger than them and those women older than them, to his satisfaction. He may well be right, statistically. However, he did not compare them with men, which was the whole point of the discussion, after all. Again, it is curious. By contrast women face a delayed retirement age, with of course no access to pension credit before it, but will then not be able to move on to the new pension when they reach retirement. You can understand why they feel they have been discriminated against—because, compared to men of the same age, they have.
The Minister may remind us of the cost of this amendment—some £150 million to £200 million, we were told down the other end. I remind him that, as the pension age rises for women until it reaches 65, thousands of men will each year drop out of the pension-credit-receiving cohort—they run alongside the women’s increasing pension age—until, by 2018, no man or woman will receive pension credit until they are 65, and then only if they fail to qualify for the new state pension. In 2009-10, 235,000 men aged 60 to 64 claimed pension credit, giving them effectively the same income as a woman on BSP. By May 2013, there were 167,000 men—that is today’s figure—a drop of almost 70,000, because women’s pension age had risen by 18 months. The savings from that drop in men no longer claiming pension credit would go a long way to meeting the cost of this amendment. I do not have enough stats to do a proper calculation; I have tried, but I can only guesstimate: for every year of the BSP age raised for women, the Government make—I think—up to £175 million of savings from men who drop out of the eligible cohort for pension credit. Obviously those savings will end when women equalise at 65, but in the meanwhile those savings could be set against the putative cost of a lower figure—some £150 million—for this amendment.
The Minister may say that those savings are not available as they have already been built into HMRC forecasts. He may not use that argument at all—I do not know—but, if he does, why would he accept that? HMRC has already claimed for itself all the savings from the rise of women’s state pension age, and all the £5.5 billion coming from the NIC changes. If it now claims the pension credit cohort savings from men as well, the pattern seems to be that all savings go to HMRC, so by definition there is never any money available to correct even quite honest anomalies or injustices.
Finally, the amendment applies only to women ordinarily resident in the UK. The Minister will know that there is well established case law on “ordinarily resident”, “habitually resident” and the like. This should ensure that the money does not flow to overseas women with little or no connection to this country, which the Minister in the other place was so anxious to avoid. Steve Webb moved amendments in the other place to that effect on bereavement benefits in July, so it is clearly appropriate to add this new subsection.
I do not accept the Government’s argument. This cohort of women is not gaining a lower pension but for two years longer compared to men, which in government eyes sort of evens things out. On the contrary, the pension credit rules have given protection to men—no cliff edges—which is now effectively denied to women. As that protection for men falls away as women’s pension age rises, it offers savings which, so far as I can tell, would substantially finance this amendment. That is fair, realistic and affordable; I hope that the Minister agrees and will think again. I beg to move.
My Lords, I shall speak to Amendments 4A and 6, which are in my name and that of my noble friend Lord Browne of Ladyton. Amendment 6 is a probing amendment that would require the Government to conduct a review to determine whether all the women born on or after 6 April 1951 should be included in the scope of the new state pension arrangements. Amendment 4A—I apologise for its late tabling—would require a detailed assessment of the impact on those women who benefit as a result of derived entitlements.
We on these Benches will use the device of asking for reviews more than once in this Committee. I have said already that we are very supportive of the aims of the Bill and regard its direction of travel as continuing the work that we began in government. Labour understands the challenges of reform on this scale and the potential fiscal implications of some of the changes that many people will want to see to the system. However, we need to understand precisely what the implications will be and what the impact of these changes will be on different categories of people who will be affected by them. I have been very grateful to officials for doing their best to provide us with information, and I thank the Minister for giving us access to them and to it. However, it has still not always proved possible or straightforward to understand the impact of these changes on particular categories of people, and this cohort of women is a prime example.
It is our role in this House during Committee to try to get to the bottom of the detail of the impact of these Bills, and I hope very much that this review would enable the Government to do that. However, maybe the Minister can give us the information that would make that unnecessary. Despite the goal of a simpler system, there is still a lot of complexity in the system, as we have already heard—often, inevitably, in the transitional provisions. However, we will need to understand what the impact will be.
I have received a great deal of correspondence on this issue, as I am sure other noble Lords have, from individual campaigners and organisations concerned about the position of women born between April 1951 and April 1953, and my noble friend Lady Hollis has set out a range of concerns about their position. The headline concern that has been raised most often with me posits the position of a pair of male and female twins, born on the same date in that window, who are treated differently. The man will get the new single-tier pension and the woman will not, even if both have worked for 35 years or more or even if both of them are still working, with the woman having deferred her pension. My noble friend made the important point that unemployed men are treated effectively as if they are retired and get the equivalent to the amount that the woman would receive in pension. Those women are caught in the equalisation of the pension age. They say that they do not object to the equalisation but they feel that they have lost out in comparison with other women because, unlike women born before April 1951, they could not retire at 60 on a full pension. Those born after April 1953 get the full STP at the age of 63—that is, up to one year and 10 months earlier than men born after April 1953.
At Second Reading my noble friend Lady Donaghy gave a moving account of the life courses of many women of that age and the extent to which the way they are treated by society and the state has changed so markedly over their lifetimes; they really are a transitional generation. Whatever the Government finally decide, it is important that Parliament and the Government listen to their concerns before making a decision that they cannot be included.
We acknowledge that a line must be drawn somewhere but there are some questions to which I have not yet had satisfactory answers. First, as my noble friend Lady Hollis noted, there is the position of men born between 1951 and 1953 who are unemployed and get treated as if they were pensioners. Currently, a man in that situation who cannot claim the state pension, where a woman of the same age would, can get pension credit. Will the Minister confirm that that is the case? If so, the question has been raised with me as to whether these women have a claim in law on equality grounds and, if so, what that would mean. It might be helpful if the Minister could tell us whether the Government have sought legal advice on this matter and, if so, have they been assured that their position is safe? I assume that they were or the Minister would not have felt able to sign the habitual statement at the start of the process, but it would be helpful to clarify that.
The second big issue was the impact on this particular cohort of women. From having read the proceedings in another place, I think that the Government’s case is this: there are always cliff edges; there are always winners and losers and these are just the unlucky ones; these women will already be pensioners and some will have been able to draw their pension before 2016; they can always exercise the right to defer drawing down their pension and get a 10% uplift each year, which would effectively bring them up to the STP level by 2016; and only 70,000 of those 700,000 women born between 1951 and 1953 will be worse off, and the median loss will be only £6 a week.
The response of the campaigners to that case is this: some people will lose more than £6 a week, but even £6 a week is a lot of money, especially for 25 years. They are getting their pension earlier, but over their lifetime they will be disadvantaged. I would be grateful if the Minister could confirm that that was the case and, if so, when the break-even point comes, since they could be expected to live for a further 10 to 15 years and in some cases many more, we hope.
Thirdly, the campaigners say that most women spend most of their working lives expecting to retire at 60, so this is a shock to them. Finally, they point out that not many people can afford to defer taking their pensions. The figures that were supplied to us by the department suggest that only 0.9 million people in Great Britain get an increment as a result of deferral, as against 10.8 million who do not. I think that the figure in total was 1.2 million. If that is the case, inevitably it is a minority activity. Effectively, therefore, the right to defer your retirement date is a bit like the right to shop in Harrods: we can all do it but we cannot all afford to do it, so I am not sure that that totally answers the question.
That leaves us with some unanswered questions which I invite the Minister to address. First, there seems to be agreement that 70,000 women from this cohort will lose out. I do not yet understand the Government’s case for saying that they are so confident that the other 630,000 will be better off remaining in the current arrangements. The Government claimed in the other place that most women would be better off under STP. In the Committee there, the Pensions Minister said that, in the first few years, 700,000 women would be better off on STP by an average £9 a week. The impact assessment says that, as a result of the STP valuation, around 650,000 women who reach state pension age in the first 10 years after implementation will get an average £8 more in state pension in 2013-14 earnings terms.
The question then is this: how is the cohort of women born from 1953 to 1960, to whom those figures refer, so different from those born from 1951 to 1953? In other words, if the people who just get in will be better off in the new system, why would the people who just miss out be worse off? I hope that the Minister can explain to me the reason for that.
I want to drill down into this. The only reasons that I can think of come in the form of questions. First, the Government say that 30,000 people will lose from the derived entitlements post 2016. Can the Minister tell us how many of this cohort—that is those 1951 to 1953 women—would have derived entitlements? If not, perhaps he would smile upon our Amendment 4A. Secondly, some divorced couples with pension-splitting arrangements might be worse off under STP. Does the Minister know how many of those are within that 630,000? Thirdly, do most of those women have 30 years’ national insurance credits? Is that a factor? How many of them would have enough to get access to a full single-tier pension? Fourthly, how many of those women are better off as a result of their getting pension savings credit? What might happen in the future given the direction of travel on that?
My final question is about the costings. In Committee in another place, the Minister suggested that the costs for bringing this group into the system would be an initial £150 million a year, peaking at £300 million, and cumulatively costing about £4 billion. I am not an economist so I am not disputing the figures, but I do not understand them. If only 70,000 women are worse off and by a mean £6 a week, I make that—admittedly, using my calculator—£21 million a year. Even if they live for 25 years after retirement, I cannot get that above half a billion pounds. I am not suggesting that that is a small sum, nor offering to spend it; I am just trying to understand why I am so far out from the costings given by the Minister in the other place. I apologise for asking so many questions, but this is a complicated matter. Before we make any decisions and before the Government are to proceed on this, we need to understand the implications.
My Lords, as the noble Baroness, Lady Sherlock, said previously, there is great confusion among the public about the consequences of the Bill. I have to confess that that includes me. I, too, am feeling my way here rather than making authoritative statements.
The noble Baroness, Lady Hollis of Heigham, spoke about the men between 60 and 65 who are treated as pensioners because they are unemployed. I presume that that is a small proportion of men in that cohort and that the overwhelming majority have to wait until 65 to receive their pension, as opposed to those men who are unemployed during that period. Therefore, the statement that all men are treated the same as women applies only if they become unemployed, if I understand the situation correctly.
Of course, there are a lot of unanswered questions, but they work both ways. How can the Government say with any authority how much it will cost if we bring those women with a 1951 to 1953 date of birth into the system? In the same way, how can we say that those women will be disadvantaged? It is so difficult to say because lots of things potentially work in their favour as well as working against them by remaining on the existing system compared with the single-tier system.
For example, there is no minimum qualifying period under the old system, whereas between seven and 10 years’ national insurance contributions are required under the new single-tier system. The existing pension system allows additional payments under savings credit; that will no longer be available for those on the single tier. Those on the existing pension scheme are allowed derived and inherited state pension entitlement from partners, from spouses. That is not available under the new system, although one must accept that there will be a proportion of women in that cohort who have no partner and have never been partnered, so that would not apply to them.
As I said on Second Reading, this is a case of swings and roundabouts, although those women in that cohort do not see the advantages: they see only the disadvantages because that supports their case. For those reasons, what on the face of it appears to be a disadvantage for those women born between April 1951 and April 1953 compared with men of the same age is not necessarily the case.
Secondly, the reason why women born between April 1951 and April 1953 will not be in receipt of single-tier pension is because they will already be eligible for pension under the old system—the argument that the noble Baroness, Lady Hollis, put forward. Women will be able to claim pension under the old system for between two and four years longer than men of equivalent age who are not unemployed. For those men, that could amount to between £13,000 and £26,000 in basic pension payments that the women, under the old system, will receive but that men, under the new system, will not be entitled to.
Thirdly, the previous Labour Government reduced the qualifying period for a full state pension from 40 years to 30 years to help women qualify, but to ensure that the new single-tier pension is affordable it will take 35 years of national insurance contributions to qualify for the full single-tier pension. Those women born between April 1951 and April 1953 will have to have only 30 years’ national insurance contributions to qualify for a full state pension under the existing scheme.
Again, that does not help those women in that cohort who have 35 years’ or more national insurance contributions. As has been said in the other place, yes, there is the ability to buy additional national insurance contributions for those who fall short of the 30-year requirement or for people to defer receipt of their state pension until after 2016, in which case they will qualify for the single-tier pension, but again, there will be women in that cohort who cannot afford to do either of those things.
Taking everything into account, the DWP estimates that 90% of the women born between April 1951 and April 1953 would be better off under the existing system of pension and other benefits but, because of the complexity, it is difficult to understand how that figure has been arrived at and it would be good to receive some clarification from the Minister as to where those numbers come from, to reassure us that that is actually the case.
That still leaves some women in that cohort who will be worse off than men on the single-tier pension, the median difference being £6 a week—again, according to the figures from the DWP. It has to be said that, even for those women, whatever they will receive under the existing system, as a result of the Liberal Democrats in the coalition Government and the triple lock, will be more in basic state pension than they would have planned for under the previous Labour Government. Although they may not be in the 10%, according to the DWP figures, who will be disadvantaged, they will still be receiving more in basic state pension as a result of the triple lock than they would have anticipated receiving previously. We are not talking about taking money away from people; we are talking about people not receiving more than men born at a similar time.
Therefore, there will still be inequalities in the existing system because of the historic situation with women in the workplace taking time off as primary carers or for childcare and not receiving credits until the previous Government brought in changes to provide credits for that sort of situation. However, even under the changes brought about by the previous Labour Government, it would have taken until 2020 for women to receive outcomes from the full basic state pension equivalent to those for men. As far as the state second pension is concerned, it would have taken until 2050. When you bring about these sorts of changes, it is always difficult to decide at what stage they should be brought in, but it seems reasonable to do so at the date that the pension changes for those people who are not currently in receipt of the existing state pension.
My Lords, I wish to comment briefly on this group of amendments as much as anything to apologise for the fact that I should have declared an interest earlier. I am the chairman of the General Medical Council superannuation fund, as declared in the register of interests.
This is an important debate. We are all very familiar with the unintended consequences of different parts of the system affecting people in a way that might not have been fully appreciated, and I want to look carefully at what the noble Baroness, Lady Hollis, has said. However, on a more strategic basis relating to the policy contained in the Bill, no one is denied any accrued rights, and that is a quintessentially important protection in provision. I was concerned that that was not the case but the foundation calculation is based on actuarial calculations with which we are all familiar within the basic state pension. Therefore, of course we need to look at some of these anomalies, and that is what this Committee is for.
In passing, the debates in the other place have all been based on this being a nil-cost reform within its own terms. However, my position is that that does not take account of the substantial savings that the Government will make over a very long period. For my money, I am willing to look beyond the self-contained envelope if the case is made properly, but, for me, the absolutely important and cardinal thing is that accrued rights have been protected.
Amendment 4, in the name of the noble Lord, Lord McKenzie, is very important and well crafted but my real reason for speaking to it is that I think that everybody should be written to. Everybody who is subjected to this change should get a letter from the Pension Service, although obviously that cannot happen until Royal Assent and other mechanics have taken place. I was grateful for the very full answer earlier from the Minister, and I shall study it with great interest. That is the very least that is required. My noble friend Lord Paddick is absolutely correct that there is confusion. We are all slightly finding our way through some of these policy and operational matters. Within the terms of Amendment 4 as it is currently cast, I do not think it is unreasonable to ask for individual letters looking at the foundation costs and calculations that apply to each individual so that everybody knows where they are before this policy takes shape.
My Lords, these amendments centre on the group of women who will receive a state pension under the existing system, while men born on the same day as them may be eligible for a single-tier pension. We recognise that people are concerned about this issue and we have already reviewed the position of this group of women. Having looked at the numbers, our analysis shows that about 90% of the women in this group will receive more in state pension and other benefits over the course of their retirement than a man born on the same day as them with the same national insurance record who will be getting a single-tier pension. To be specific, this comparison excludes pension credit but includes savings credit.
The reason is that those women reach state pension age between two and four years before their theoretical twin brothers. Indeed, almost half the group are already drawing their state pension and, on average, will have drawn up to £26,000 before their male twins have begun to draw their pensions. I am excluding from that the unemployed group to which the noble Baroness, Lady Hollis, drew our attention. This group of women were not affected by the Pension Act 2011 pension age changes; their state pension age was set back in 1995. We are increasing pension age to maintain sustainability and fairness between the generations. These interactions with pension credit are inevitable consequences of introducing single tier at a time of unequal pension ages. We do not want to wait until late 2018, when pension ages will have equalised, before introducing single tier.
In addition, being a single-tier pensioner, especially in the early years, does not necessarily mean people receiving a full single-tier pension. Under the current system, the median average entitlement for the women in this group is projected to be £125 per week. A similar valuation based on single-tier rules results in a figure of £131 per week—a difference of £6. These are median averages; about half the group would see no change in their entitlement at all. To pick up the point made by my noble friend Lord Paddick, these women have benefited from the triple lock. Basic state pension will be £8 higher per week in 2014-15 than if their pensions had been uprated by earnings since the start of this Parliament. Almost half these women already drawing their state pension are benefiting from the triple lock.
It is often assumed that the new system will simply be more generous than the current system but, as the Committee will be aware, and as we will discuss in depth later, that is not necessarily the case. We will put in place a minimum qualifying period and close access to the savings credit. We will also reduce the deferral increment rates and cease the ability to derive pension from a spouse’s record. Many people will gain from single tier but there are those who will receive less, compared to the current rules. In response to the questions on costings from the noble Baroness, Lady Sherlock, we assume that these women could choose the system that is better for them, although that is not necessarily an easy choice. However, that is the basis on which we have got to those particular costings.
I will have to write with that estimate. There is every way of doing these estimates that one can imagine. That brings me to the amendment tabled by the noble Baroness, Lady Sherlock, and the noble Lord, Lord Browne, which is to review how many women in this cohort are projected to derive a pension based on their spouse’s record. We have published a paper on derived entitlement, which covers the projected outcomes for people as a result of removing these provisions. As one may expect, individuals reaching pension age in the few years before April 2016 will have similar national insurance records to those reaching pension age in the few years after April 2016. As such, we can assume that the proportion of women in the cohort under question retiring under the current system who benefit from derived entitlement is broadly similar to the proportion of women reaching pension age just after 2016 who may be disadvantaged.
My Lords, it is now in Hansard. We will spend some time on derived entitlement in later clauses, rather than going through that issue now. We will, I know, spend an awful lot of time on derived entitlement thanks to a certain set of amendments from the noble Baroness, so I have no fear at all that I will not be utterly explicit on this matter before the end of this Committee.
At Second Reading, the noble Baroness, Lady Sherlock, recognised that a line had to be drawn somewhere, but she asked the House to think carefully about whether it is right that twins of different genders should find themselves in different positions. Equally, one could ask whether it would be fair for people who reach state pension age on the same day—for example, the 65 year-old man and the 61 year-old woman—to be in different positions. The noble Baroness, Lady Sherlock, is absolutely right that a line has to be drawn. We have been clear and consistent that only people reaching pension age after the new system is implemented may receive a single-tier pension.
The noble Baroness asked whether these women would lose out. It is not a question of this particular cohort losing out; they simply will not receive a single-tier pension, just like everyone else reaching pension age before 2016. The Government have not changed these women’s state pension age and so there has not been a change in the pension that these women were expecting. Regarding the leading question on discrimination raised by the noble Baroness, I can confirm that any difference in treatment is as a result of the legislation providing for the change in pension age, which is not in this Bill, and we are satisfied that there is no breach of Article 14 of the ECHR on grounds of sex. This is justifiable in helping to pursue legitimate aims and achieving them in a timely way to achieve an equality of state pension outcomes between men and women generally.
That legal advice covers the full gamut of the legal position. On pension sharing, the average number of share orders is currently running to around 100 a year, so there is in practice a negligible impact on the gains and losses. We have written to all the cohorts affected by equalisation—
We will come on to pension sharing later in much greater detail, but I am sure that the Minister will want to confirm to my noble friend that, as I understand it, the number of inquiries is 20,000-odd, compared to the number of take-ups. Secondly, I presume that what he is talking about is pension sharing in future only of the additional state pension, whereas of course at the moment anyone divorced can also take on the existing NI record—the basic state pension—of their former spouse if it is more favourable than their own. There are two sets of preferences or advantages to divorcees in play and only the first of those will continue, while the second will go.
I can confirm what the noble Baroness says: I am talking about the additional pension, not the state pension.
To summarise: the women in this group are getting the pension that they expected when they expected it. We have produced analysis on this group of women as well as on the impact of changes to derived entitlement. We need a clear start for the changes and, in line with the 2010 reforms, believe that that should be based on reaching state pension age. I urge the noble Baroness to withdraw her amendment.
Before my noble friend responds, I think that the Minister has ticked off all my questions and said that in fact these were incidental in terms of differences between the 1951-53 group and the 1953-60 group. Given that, I wonder if he could come back to the question that I posed: how is it, then, that those who retire in the first 10 years after implementation are apparently mostly going to be better off, whereas those in this group immediately before that will actually be worse off if they move on to the new system?
The Minister has been generous in giving us access to his Box, but a lot of our queries and questions came up as we were writing our amendments, after we had talked to the Box. We therefore fully understand that the Minister is not able to give us some of the detail, which requires some fairly elaborate statistical cross-cutting behind the scenes.
I thank the noble Baroness for that. I was going to suggest that we can come back to this. We have run some sessions with the team, who are doing a magnificent job. This is central stuff; all the things that we are covering today and on Wednesday are technical and difficult. One of the things that I could offer would be another session on this area between Committee and Report. I think that on Report we will want to boil down what the real issues are and what the real amendments should be, because otherwise we will spend a lot of time, sound and fury on issues that are not quite the point that anyone was trying to make.
I think that that is prudent. We are dealing with a lot of stats. Certainly, I read the evidence from people who were witnesses to the Committee in the other place, as well as some of the stuff that came out in the Minister’s interrogation and speeches in Committee. Some of the discrepancies between that and what I call the “Apple Green Paper”—as that White Paper is neither white nor green—are because they cut the stats in different ways, and it is very difficult, if you do not have research staff, to recalibrate them to address some of the questions. We are not in any sense trying to put the Minister on the spot; we just want to elucidate, as far as we can, the information, so that we have a shared common body of knowledge on which we can base our estimate and analysis of this Bill. As the noble Lord will agree, that is primarily the job of this House, above all others.
I thank the noble Lords, Lord Paddick and Lord Kirkwood, for commenting on this amendment. In response to the noble Lord, Lord Kirkwood, I took it for granted that there would be accrued rights. However, if there had not been, the courts would have rather a lot to say about that. In every pensions Bill we have ever done—the 2004 Act, and so on—that has been established. It is good that the calculations, certainly in the paper and all the rest of it, are so clear as to what people can expect. That is very welcome.
To the noble Lord, Lord Paddick, I say that the point that I was trying to make is not that all men were in the same position as all women between the ages of 60 and 65. However, essentially, of men who chose to take early retirement only about 2% or 3% chose to go on to JSA or incapacity benefit in that period. The others went on to IS and were topped up by PC. Those men who chose to take early retirement were effectively retiring at the same age as women. That may, to a degree, have been forced on them by unemployment, but they had a choice. They could have gone on to JSA but, perfectly sensibly, they chose not to do so. Instead they went into effectively a pension regime, originally from the age of 60, which was when the age for women was the same.
Of course, other men, who were in work, carried on building up their pension until age 65, primarily because those between 60 and 65 on PCs still carried on adding to their NI years, as I recall. However, those other men were able to build up their additional pension and thus protect it as they went through—essentially, SERPS. Women of that age would have had little, if any, entitlement to SERPS. They would have had entitlement—as will younger women—to S2P, primarily because of the extension of the credits that apply to them, particularly for childcare. Those were introduced quite late, so those women will not, for the most part, have had access to an additional state pension. Men who continue to work to 65, as most of them will—the noble Lord is right on that—will continue to build up that additional pension, which will be protected after they are 65.
The Government are taking a swings and roundabouts approach on this. I think that 167,000—originally 235,000 in 2009-10, and before that a higher figure—had the choice of the same pension as women, age for age. Women have had no such choice. That is why they face cliff edges in a way that men do not. The problem for us has been about cliff edges. The point that I was trying to push was that men did not face any cliff edges. Whatever their age when they retired after 60, they could have a smooth pension level that was the same as women, then they progressed quite nicely at 65; if that happens after 5 April 2016, they will move on to the new pension. Women have no such choice. If they tick their pension, the same as the men, at 63 the shutters come down and they can never move that next step on to the new state pension, which men could in their situation. Women have a cliff edge, while men have a nice smooth path down to paddling in the sea. That is what I was primarily concerned about.
The problem comes as we recognise that we should try to equalise the state pension age at the same time as the Government are introducing the new state pension. I recognise the difficulty. When I started work on this I took pretty much the Minister’s line—that this was on the one hand or on the other—but the more I worked on pension credit, the more I saw the number of people claiming it and how substantial their numbers were. Not 5,000 or 10,000 but a fifth of all men claiming pension credit claim it before they are 65. That means, in terms of savings and the rest of it, that many of them will have gone on to claim that after 65 under the old system. Given that substantial number, it is worth emphasising that women have had a double hit and men have had a smooth transition throughout. Whatever the Minister may argue—and I understand his stats—if you hold up the gender filter to this issue, you can see exactly, as my noble friend said in her speech, why women, rightly, feel hard done by. They are faced with a cliff edge and have no way of ameliorating it, unlike men have had over the past few years—in some cases the past five years—of their working-age lives.
However, we have gone as far as we can until we get further information from the Minister that may or may not help us to progress on this issue. With the consent of the Committee, I beg leave to withdraw the amendment.
Amendment 3 withdrawn.
4: Clause 1, page 1, line 8, at end insert—
“( ) The Secretary of State shall ensure the timely provision of relevant data to persons who may become entitled to a state pension at a full, reduced or transitional rate.
( ) Relevant data shall include such information as will reasonably enable a person to be aware of state pension accrued at 6 April 2016, the basis of which it may be revalued and the number of further qualifying years, if any, required to achieve a full state pension.
( ) Such information shall be provided as soon as reasonably practicable after 6 April 2016 and from time to time thereafter.”
My Lords, this is a gentle, probing amendment designed to give some respite to the Minister and to explore further the details of what is planned about the nature and extent of the communication strategy envisaged for the introduction of the single-tier state pension. The noble Lord, Lord Kirkwood, touched on this, as did the Minister in responding to the first group of amendments.
We have been provided with a certain amount of information in the various briefing packs and we have had the opportunity to peruse the overarching strategy for communicating the reforms, which has been made available in the Library. I take this opportunity to commend the Bill team. We do not want to heap too much praise on them, as this is just the start of our proceedings, but I think that we have had some genuinely good information packs, which have helped. The problem with good information packs, of course, is that they generate additional queries, so forgive me if I pursue some of them.
One objective of the strategy is, rightly, to inform people about the impact of the reforms on their individual circumstances and the actions that they may take to improve them. That aspect is of particular relevance to the amendment. It seems to me that the state pension statement is to be the key way in which this communication is delivered, so the Minister may wish to comment on the statutory underpinning of such statements, if it exists, and on whether this might be improved.
Although the amendment focuses on STP, it does not negate the need to communicate to those who retire before 6 April 2016, especially in relation to the extended arrangements for paying voluntary NICs and the new class 3A NICs to improve state second pensions. I ask the Minister specifically what is planned in this regard. I suppose, given our earlier debates, that the key communication issue for those who retire before 6 April 2016 is why they are in a separate category, although I do not want to revisit the debate that we have just had.
Issues relating to the new class 3A have obviously not yet been fully developed and those who might be eligible are a definable group of all those who reach state pension age before 2016. The group that are particularly in need of information are those who are entitled to a state pension at the transitional rate. If they are to be encouraged to make rational savings decisions, such information as their foundation amount, any protected payments, the rebate derived amount where appropriate or any derived and inherited entitlement is key. Individuals should be made aware of how the revaluation of the various components is to work and they will need to be alerted to their potentially not meeting the minimum qualifying period, having fewer than 35 qualifying years, as well as not being able to add further to their STP.
It is understood that this information is still to flow via state pension statements, but following implementation of the STP it is not planned to make it proactively available, either as soon as the NIC information is available up to 5 April 2016 or otherwise. A post-implementation statement will be provided on demand and digitally but not otherwise, as I understand it.
A number of questions therefore arise. Can the Minister clarify precisely what is to happen between Royal Assent and in advance of implementation so far as state pension statements are concerned? Will these be made available proactively or will individuals have to ask for them? It is understood why a digital service is to be developed for post-implementation—that is to be welcomed—but there will be some for whom the digital approach will be difficult. That is surely the experience of universal credit. What other support will be available to these people? There is clearly some merit in being able to take stock of one’s state pension provision as close to 6 April 2016 as possible, so can the Minister say how long it is expected to be before the 2015-16 national insurance data will generally be available at individual level? How long does it take for that to filter through to the records?
Given more complex situations, how quickly is it envisaged that individuals will be informed of all their pension components, including the rebate-derived amounts, after 6 April 2016? What, if any, capacity will there be in the system for individuals to query, challenge or even appeal the details that they receive? We are told that there is not the capacity in the system to provide full details to everyone proactively—like the noble Lord, Lord Kirkwood, I think that there is a measure of concern about that. Just what is the capacity to provide such details for those who would likely be entitled to a state pension at the transitional rate? We are told that, post-implementation, state pension statements are to be provided on demand. Those who are clued up and digitally savvy will cope, but what monitoring will be undertaken to see what is happening to those who are not? What particular communication strategies are to be focused on the self-employed, who will be brought more fully into the system than hitherto?
Although the components of the calculation will generally be more straightforward for those who grow up entirely in the new system, they will still need information so that they can be reassured on their likely level of state pension income and the desirability of saving. Of course, some may enter the new system part way through their working life because, for example, they had been working abroad or had just decided to join the labour market. What in terms of communications is planned for those in this position? I accept that much of this will be work in progress, but I do not want to miss the opportunity to get an update on the latest position before we leave Committee. I beg to move.
My Lords, I want to comment very briefly. I declare an interest, which I know is relevant to this amendment, as a board member of the Pensions Advisory Service. TPAS has recently completed a survey of just under 1,000 women on their pensions which makes the point absolutely for my noble friend’s request for an information and communication strategy to go out to prospective pensioners and pensioners. Of that 1,000 women, 36% did not know when their state pension would be paid; 74% did not know how much they would receive; 57% did not know whether there was a shortfall in their NI record; 25% do not know that the age is likely to change again; 54% have made no changes to their retirement plans; 27% wonder whether they will have to work longer; and 76% do not expect to be financially comfortable in retirement. I have before me a lot of quotes, some of which I may choose to use later on. Those figures suggest how wilfully uninformed far too many women are about what will happen to them over the next couple of years. That evidence from a TPAS sample substantiates my noble friend’s points.
My Lords, I shall have to speak very quietly because I have lost my voice, so if anybody fails to hear to me, I will shout a bit louder after a few days. I just wanted to add to the important points made by the noble Lord. I can always remember receiving my state pension statement. It was a bit of a shock, because I always thought that I was so young that I would never receive one, but it did happen.
The most important aspect of this legislation is clarification of the words as they are written out, because this is a very complex set of arrangements and they need to have clarity of language. Those statements which I have seen are quite clear. I do not hold so negative a view as to how people will see the future world of their pensions. Just today, we have heard that we have now reached 2 million people enrolling in auto-enrolment for pensions—that is, 2 million more than there were 12 months or so ago who know about a pension because they have got into it. We have 3,500 employers. I welcome the British Heart Foundation, which has recently enrolled all its staff. So we know that people are becoming more involved and engaged with their pensions.
The second thing relates to something which happened to me last Friday. I was doing Lords outreach with two schools and the pension question came up. I do not know whether it had been planted by a teacher in advance but it came up. It is quite clear that when these matters are scrutinised, young people are beginning to realise that if we do not put those matters right they, too, will be having to pay more. I always save for my grandchildren, who are enthusiastic to hear that they will be paying to sustain me into older life—but, of course, I am not a recipient of the new single-tier pension. However, when we talk about this issue I wonder whether we should also try to include in it education from a younger age, so that when people receive any financial education within their school life, they can understand that pensions are not a matter for tomorrow or for when you are retiring; they are a matter for the day on which you start to pay and earn. This is a probing amendment but it is very important that, along with other measures which are going on, pensions are seen as an issue for all from now on and not one for when you are retired.
My amendment is about a public education programme, which is necessary as so many people are in the same position, as has been outlined in noble Lords’ statements. Amendment 30 seeks to ensure that individuals are made aware of both their responsibilities and expected outcomes here; for example, in terms of state pension contribution years and amounts, and what outcomes they can expect and when. Given longer life expectancy and extended working patterns, it is not unreasonable to increase the number of national insurance contributory years from 30 to 35. People who have contributed for less than 35 years but for at least the minimum qualifying period of seven to 10 years are going to receive a proportion of the pension. However, it is absolutely critical that this change is clearly communicated to all individuals so that they can ensure that any years outside of work—for example, because of ill health or caring responsibilities—are counted as years of contribution and so that they can make appropriate private pension arrangements, should they wish to do so.
My Lords, these amendments relate to the crucial question of information. The Government have stressed at different stages of the Bill the move to reduce the complexity of the state pension to make sure that people understand their likely entitlement and are therefore incentivised to save enough to complement the support that they can expect from the state. This came up a lot when the Work and Pensions Select Committee looked into the matter. Citizens Advice, in its written evidence to the Select Committee, noted that a considerable complexity would remain in the system, mainly as a result of transitional provision. It accepted that as being unavoidable but said that:
“A commitment to a sustained communications programme could improve outcomes, manage expectations, minimise misinformation, promote action on NI contributions, and support personal saving for retirement”.
I think that was nicely put. The ABI said this to the Select Committee:
“Adequate communication of the change will be essential, or the clarity and simplicity of the new system could be undermined … No-one should feel unclear about the amount they will receive—and therefore need to save personally themselves”—
—a common view between the ABI and Citizens Advice.
The Select Committee noted that various witnesses focused on that issue. Sally West of Age UK said that,
“we are finding a lot of people are understandably confused”.
I think that that is an understatement. The Select Committee reported considerable confusion about the reforms. Many people wrongly believed that the introduction of the STP would mean that everyone would get £144 a week in state pension, because they did not understand the eligibility criteria. Others thought that there would be no means-testing at all; others thought that if they were due more under the current system, they would lose all that and get only what was due under the new system. The implications of having been contracted out or of not knowing whether you were contracted out or in was another area of confusion. It was noted that it was therefore important to,
“ensure that people have full information about their own future entitlement as well as a reasonable understanding of the reforms”.
I searched on the internet for some of the headlines at the time and found some that illustrate the point. The Sun had a headline: “Stay-at-home mothers in £144 a week pension boost”. The Mail said: “Almost half a million women to lose hundreds of pounds every year in Government’s state pension revolution”. It is possible for both those things to be true, depending on the people you talk about, but it illustrates that there is understandable confusion out there about what is going to happen as a result. As the noble Lord, Lord Paddick, pointed out, if noble Lords struggle to understand the detail, it is not unreasonable that people who have not had all the documentation with which the Box has so kindly provided us are not yet completely clear.
That puts big pressure on the Government to get their communication strategy right. My noble friend Lord McKenzie has given a characteristically careful and thorough exposition of the nature of the challenge, and I look forward to hearing the Minister’s answers to his questions. There are a couple of specific questions which I should be grateful if the Minister would answer. One is the obvious one, which is to be precise about at what point and in what form someone could expect to be contacted to have explained to them the nature of their entitlement. Do the Government propose to contact people who had previously requested a pension statement to tell them that it may no longer be accurate or that the basis on which it was calculated may no longer apply? At what point will the Government be able to give us more detail about the nature of the communications campaign?
My Lords, I thank the noble Lord, Lord McKenzie, and the noble Baroness, Lady Greengross, for this opportunity for the Government to set out our actions to support people in this area. I need to point out that when the noble Lord, Lord McKenzie, says that he is offering some relief, I am reminded of the song by Tom Lehrer about sliding down the razor blade of life, but there we are.
On the noble Lord’s first question about the new class 3A voluntary NICs, we will have a debate in the new year, and will work with stakeholders to get a clear and simple offer to pensioners, which will include how we publicise that new scheme, so that information will be available.
Including financial education in the school curriculum and increasing young people’s financial capability is an issue of importance to this Government and apposite to the point raised by my noble friend Lord German. In July 2013, the Department for Education published a national curriculum framework with increased focus on financial literacy in both the mathematics and citizenship curricula. This will be taught in schools from September 2014. In 2012, we established the Money Advice Service to help people manage their money more effectively and better understand financial products, including pensions. The Money Advice Service is one of our key partners in providing information to individuals who are being automatically enrolled into workplace pensions. The department has also played an active role in developing the Money Advice Service’s new financial capability strategy to help tackle the knowledge gaps which can inhibit individuals from saving in pensions.
We know that the delivery of information and government policy around financial capability has the potential to build trust and engagement in pension saving, and we are proud of our progress in this area. Our Automatic Enrolment and Pensions Language Guide, developed with partners in the pensions and financial services industry, promotes a consistent and simplified use of language in order to ensure that individuals seeking advice can better understand the information. In October this year the Government published updated regulations setting out the information that occupational and personal pension schemes are obliged to provide to their members, and the frequency with which this is to be done.
I turn specifically to the state pension reforms in the Bill. We are committed to taking action to help people to understand the reforms that we are making and what it will mean for them. As noble Lords know, the current state pension system is fiendishly complicated. In a 2012 survey, in response to a simple true/false question, only one-third of people agreed that it was true that the Government provided a second state pension related to previous earnings. The noble Baroness, Lady Hollis, noted its complexity and gave lots of saddening statistics. That is precisely why we are reforming the system to make it—in principle—comprehensive to as many people as possible. We are tackling this systemic problem by creating a simpler state pension so that everyone can know both what counts towards their state pension and how much they can expect to receive. However, we recognise that the benefits of this simpler system can be realised only if we communicate the changes effectively to the public.
I turn to the noble Lord‘s amendment about the timely provision of individualised state pension information. The Department for Work and Pensions currently offers a state pension statement service, which allows people to request an estimate of how much state pension they may get, based on their national insurance record to date. Last year, 2012-13, over 600 statements were provided.
Six hundred thousand statements were provided. I assure the noble Lord that we intend to continue to provide people with an on-demand state pension statement service after the introduction of single tier in 2016. Our intention is that the service will be predominantly, though not exclusively, digital—
One of the issues here is that we will need to talk, or write, to people who cannot get the information in the digital way that we are planning as our primary way of communicating. Clearly we will be in a position to do that but, until we have the service up and running, it is difficult to estimate what the underlying demand might be.
The more the Minister describes this, the unhappier I get. The people who most need the information are those who least know that they need to know it—they do not know what they do not know. For me, that was the clear result from the TPAS survey: they did not know that changes were happening and they did not know when they were going to retire or how much they were going to get, and they had not done anything about it because they did not know what to do. That is the first problem: that those who request it—the Minister’s 600,000 a year—are those who are probably more alert to pension issues and more capable of responding in that way.
The second point if we are going to do this digitally is that we are talking about a group, particularly women, who may very well not have access to any such digital back-up at all. My housing association is already seeing issues with this in spades regarding the universal credit. I am doubly worried if, first, we are only responsive to requests and, secondly, if we propose to do this digitally, those who most need help will not get it and they will be the ones who suffer an impaired pension, even though, had the Government acted differently, they might have had enough time to turn the situation around.
Well, my Lords, I can just take you through our plans in this area so let me continue to do that. For those who cannot get digital information, we will ensure that they can still get the information they need. Our statements will give individuals their up-to-date state pension position, including their foundation amount, based on their national insurance record to that point. Where appropriate, the statement will tell them how many further national insurance qualifying years they need to reach the full amount of single-tier pension. As noble Lords will appreciate, it takes a few months at the end of every tax year to ensure full consolidation of national insurance records. However, as now, people will still be able to get a statement based on their contributions up to the previous tax year, and we will update our statements to reflect people’s full record for their pre-2016 years as soon as the relevant data are in place.
PAYE records are now mainly electronic but we are working on an assumption that records on account should be ready by October 2016 for the April introduction. As for the timetable for sending out statements, we can give people accurate information on their single-tier position when all their contribution and credits to that point are recorded on their national insurance record. From Royal Assent, we will include simple information about single tier, including the relevance of this estimate in terms of working out their single-tier foundation amount. From implementation in April 2016, our intention is to provide an on-demand, largely digital, statement service.
Regarding the noble Lord’s question on querying the details, in practice relatively few people currently actually do query. However, we want to ensure that the default position is as simple as possible and we will, as now, ensure that where it is required people can get a detailed breakdown of the calculation. For people who are unable to access digital media, we will ensure that they receive the support they require in a non-digital way and we will work that up. To revert to the point on the implied question of issuing everyone with a statement, the issuance of a large number of unprompted statements—potentially millions of statements—would be expensive in terms of IT costs, production costs, postage and staff. Our evaluation of previous unprompted statement exercises show that there has been little, if any, benefit, and solicited statements are a better way of getting information to people.
I turn now to the amendment of the noble Baroness, Lady Greengross. We know that the statement service alone will not be sufficient to inform and educate the public about the simplifications to the state pension system. We are developing a wide-ranging communications strategy, informed and supported by work across government to build financial capability. This will sit alongside the work I described earlier around improving the provision of information across the pensions industry.
To communicate on the single-tier reforms, with HMRC we are already carrying out research, testing language and building on the lessons learnt from automatic enrolment. We are in contact with front-line workers and consumer representative groups. Clearly, it will be important to have an effective mechanism in place for assessing the impact of our communications activity. This will form a key part of our communications strategy. We will publish a detailed update of our communications strategy in the new year, setting out how we will raise awareness and understanding. We will of course communicate that with noble Lords from the outset.
I hope that I have assured the noble Lord and the noble Baroness that the Government are fully committed to ensuring people will continue to have access to information on their state pension position to enable them to plan effectively for their retirement and, as previously stated, we will share our communications strategy with noble Lords.
As ever, I am grateful to the Minister for his full reply. I think that I have ended up slightly more concerned than when I started on this amendment. I also thank all noble Lords who have participated in this debate. First, specifically the Minister referred to the opportunity to challenge a statement to see whether the information was right, which is not routinely done at the moment. I can understand that. Is there technically a right of appeal or does that arise only when the pension falls due for payment?
I do not think that we got an answer to the point made by my noble friend Lady Sherlock as regards at what point someone would receive a communication. I think the answer to that is that it would be only at the point at which they asked for it. I can see that an educational policy, financial literacy, and all those issues dealt with by the noble Baroness, Lady Greengross, and the noble Lord, Lord German, are important and may give an enhanced understanding for people. I am trying to understand what would happen if there is no proactive approach. You could end up with very few people asking for a statement, and the percentage of people in the new system getting an early statement seems to be low. I still do not think that we have the answer to the question about the capacity of the department to respond to queries if there are more than the current 600,000 requested statements. I would have thought that there is at least some prospect of a bit of a flood of inquiries at least at the start when people seek to understand the new position, particularly if the broader education approach is to help and encourage people to understand what their potential provision will be in due course and, therefore, what additional saving they might, if they are able, undertake.
I am grateful to my noble friend Lady Hollis, as ever, about some very helpful data which really underlines the importance of getting these communications right. The noble Lord, Lord German, made the point that this is not just for people who are retired or just about to retire. This is a broader issue about helping young people as well to understand the importance of saving. I had not heard the figure of the 2 million people who auto-enrolled. I am grateful for that. It is a huge achievement and it is great to have it announced while sitting next to my noble friend who was so instrumental in getting that under way.
Obviously, I will withdraw this probing amendment. I hope that the Minister may be able to fill in some of the gaps but I am still left very uncertain as to how most people will get that information expeditiously. I would have thought that most would want it.
Will the Minister think about the possibility of, say, when someone hits the age of 50, a pension statement or whatever being sent out? The whole push of the Government’s programme has been that people should have enough time to be able to make good any shortfall in their record.
They cannot do it six months before they are due to retire. If a statement was sent at 50 and then the usual one was sent a year before retirement when people may or may not be in a position to consider voluntary NICs or something like that, even that would be helpful if a statement cannot be sent out each and every year. I take the point about cost and effort but people need some snapshots so that they know what the position is as they go along at the ages of 50, 55, 60, 64 or whatever. Otherwise, we will find that a hell of a lot of people are going to remain on pension credit and two legacy systems will be running for 40 years.
My Lords, I shall try to consolidate where we are here. We will provide full information on our communication strategy, and noble Lords will see that. We know that how and when you communicate is very important, and having a generalised communication strategy may not be most appropriate. As the noble Baroness said, there are particular points where we might want to get over particular bits of information, as is currently the case where people are informed about, for instance, the number of years of national insurance contributions that they have made when they reach a certain age. I would imagine that a sensible communication strategy, which we will show to noble Lords, will incorporate that kind of thing.
To pick up the point made by the noble Lord, Lord McKenzie, on appeals, people can appeal but not until state pension age, not least because, as the noble Lord will be fully aware, before then the pension is often a guesstimate. We are not able to tell people in advance what they are likely to get because the issue is so fiendishly complicated. The real question, which the noble Lord may ask, is whether, when the matter becomes dramatically simpler, we can provide that information, but then there will probably be no need for appeals.
The department tried automatic statements between 2003 and 2006, when more than 17 million were sent out. We stopped this activity after research showed us that it had a limited impact.
One issue on which we need to communicate is shortfalls and the opportunity to buy voluntary NICs. Rather than generalised information, some very targeted bits of information, particularly around that area, are far more likely to get people to respond and focus their attention on their interests.
Perhaps I may give the noble Lord another example, and this will apply to other amendments later on. You begin to get an increasing degree of ill health among some people at the age of 50. Women are now very often entitled to a carer’s credit, which, as the Minister will know, is much less heavy in its requirements than the carer’s allowance. However, the take-up is very low. Most people do not know about it at all and it is very hard to claim it retrospectively. Only when the Minister says to people at, say, the age of 50, “You’ve got this but the following credits may be available to you under certain circumstances”, will we know whether women, as they approach 63, 64 or 65, have built up an NI record on their own. The Government cannot be passive about this; they have to provide appropriate information to allow people to know both what they need and what they can do about it. It seems that the Minister is basically responding to those who already know that there is an issue and not to those who do not but should.
My Lords, just to wrap up this position, I do not think that any noble Lord in this Room will be under any illusion that we are not utterly determined to drive forward a transformation in both working-age and pension-age systems. One of the guiding principles for both those is simplicity so that people can understand what they are entitled to and there is an automatic process where you do not have to do so much work. It is an example of the kind of chaos that we have at the moment that people do not understand what their entitlement is. I am equally conscious of the figures in universal credit, where you have a clean working-age benefit. Two-thirds of the uplift of more than £2 billion per year that we are able to put through to people is due to giving them benefits that they do not currently claim. I do not think that there is any difference. Clearly, simplification and transformation are right at the heart of the Government’s strategy.
My Lords, before I withdraw the amendment, can I check on two points? The Minister said that it would be possible to go to the previous year’s statement on the normal basis by 6 April 2016. Would that statement include any estimate of what life would be like under STP or would it just be on the old basis? I accept entirely the Government’s intent to communicate effectively on this. It would be crazy to develop a policy like this and then let it fall because there had been inadequate communication, so there is not a challenge on the Government’s intent here. However, how will they spot the difference between those who are digitally able and those who are not? How long will it take for them to realise that there is a group of people here or there who have not accessed the system and that they therefore need to do something else?
I shall take the noble Lord’s second question first. We realise that some people today are not necessarily digitally able or on the net, but this is the way of the future and we are looking to increase digital take-up and access and a lot of investment is going into that. It is interesting that the divide currently seems to be at age 45, with people pre-45 tending to be relatively familiar and people post-45 tending to be less so—this tells us something about the nervousness in Lords committees. However, clearly, as the system moves ahead over the decades, more and more people will take digital involvement for granted. For those who cannot today, we will need to supply other means of support and we have said that we will do that.
Statements before April 2016 will contain information to help people understand what the amount stated will mean if they reach state pension age after 2016—in other words, what the foundation amount that they could expect represents.
I complained about razor blades before. I am pleased to be able to inform the noble Lord that, no, there is not a statutory underpinning. I am not utterly sure as to why there should be one and whether that is a loss to the system.
I should be very interested if the noble Lord can explain why there should be one and to think about that.
Perhaps I could write to the noble Lord. It just seems to me that one would have assumed that the Government were authorising some formal way to produce this information, or have an obligation to. Perhaps that is the difference here: the more we move to a statutory basis, it imposes a stricter obligation on the Government. We might reflect on that, but we have cantered around the issue, so I withdraw the razor blade and beg leave to withdraw the amendment.
Amendment 4 withdrawn.
Amendment 4A not moved.
Clause 1 agreed.
5: After Clause 1, insert the following new Clause—
“Calculation of state pension
Regulations may provide that the state pension shall not be less than the single rate of the standard minimum guarantee pension credit plus 2%.”
My Lords, I hope that Committee will forgive me if just for a second I revisit Amendment 3 and pension credit costs. I pressed the Minister, but he did not give me an answer—I would be very happy for him to write me—about the annual savings from each cohort of men falling out of pension credit and where those savings go to. That was not part of his reply and it would be good to know.
This amendment proposes a 2% head space between the new state pension and what someone would get on pension credit. Obviously, it is a probing amendment, a peg to explore what the future level of the state pension vis-à-vis pension credit will be, and to give us information about some of the winners and losers on the income analysis, on which I am sure that my noble friends will be pressing the Minister.
In particular, I want to focus on the issue of means-testing. As far as we know, eventually only something like 3% of the means-testing in the system will drop out as a result of the proposed changes. One of the great virtues of the new proposed pension was that by bringing together the BSB, S2P and pension credit, it was to leapfrog some means-testing. As my noble friend Lady Sherlock said, we had to use means-tested pension credit when we came into government because pensioner poverty for the bottom third was so acute and the number was so large that we could not financially manage a sufficient flat-rate rise for all. So we targeted our resources, and the policy worked. However, as my noble friend Lady Turner will remember, although we pushed the policy through, it was not without insistent, noisy and continuous haranguing from the late, splendid Barbara Castle, who used to sit right behind me, muttering very loudly to Muriel as I would reach some fancy point in policy, “What’s she trying to say now? What’s she trying to say now?”, to the great amusement and glee of those on the opposition Benches.
That policy removed hundreds of thousands of people from poverty, so pensioners are now less likely than any other group to come within that category of poverty. However, it came at a price. As we know, means-testing is disliked, especially by older people and, no, it is not the same as giving your income details to HMRC for tax purposes. It is highly expensive to administer and open to error—I will not say fraud—for this group.
Above all, as the Minister rightly and sympathetically identified in his previous answer to my noble friend Lord McKenzie, those entitled to pension credit, such as the self-employed unsure of their income or elderly widows whose husbands’ pensions have died with them and who have never handled the financial pension arrangements between them, do not always claim. Unlike lone parents, who are savvy and feisty about their benefits—well, usually—and have very high claim rates, pensioners do not. For example, fewer than half of those entitled to savings credit claim it. In the past, fewer than two-thirds of those entitled to council tax benefit claimed.
Endless studies were undertaken into why, and I congratulate the DWP on its fascinating in-house research published last year by Maplethorpe et al on whether we could get a significant increase in the take-up of pension credit if pensions were made to the department’s random sample of 2,000 entitled non-recipients automatically and a further 2,000 ENRs who were followed through by DWP visitors. That was an imaginative and welcome piece of research.
It is a pity that the results were, for everyone I think, really rather disappointing. The money was welcomed at the point but after the trial period of three months DWP had added only about 10% to the number claiming pension credit, which was useful but not a breakthrough, when pensioners were required to submit their own forms—in other words, take the initiative in a means-testing pension credit. As the research identifies, it is about stigma and difficulty with the forms, but also we have long found that if a pensioner had applied in the past for another means-tested benefit—HB, for example—and been refused, they thought they were ineligible for any other means-tested benefit so did not apply. If a friend or member of their family had been refused after applying, they assumed that the case applied to them too.
Many of them felt that the money they got at the end of a lengthy process was too little to be worth it. They may be right because although the savings credit mean figure is something like a loss of about £34 a week, the median is infinitely lower because it is skewed by a few very high numbers at the end. However, pensioners worried—this is partly the result of some of the problems with tax credits—that if they were wrongly paid they might face having to repay money that they subsequently could not afford. Nor are they clear about income and savings rules; some pensioners with £5,000 tucked away for funeral costs think that that disqualifies them. A few thought that as they could manage without pension credit, although they were entitled, it was morally wrong to claim it.
This research, which builds on two previous pieces of research that the DWP has done over the past 15 years on pension credit that I am aware of, suggested to me that means-tested benefits are almost inherently troubled by the failure of a substantial number of pensioners to claim, and that the new state pension is absolutely the right way to go for the future. It has to be on an automated basis. Whatever may happen to other means-tested benefits, we hope that at least pensioners’ basic income in the new state pension will be safely delivered and in full. However, means-testing will continue for the 25% of future pensioners who are not owner-occupiers but who are on housing benefit in the rented sector, or for those with incomplete NI records. The reduction in means-testing is mainly because the new pension incorporates the means-tested guaranteed credit while abolishing the means-tested savings credit. That is actually why the numbers fall.
However, if the new pension is to reduce means-testing, as we hope it will do—though at the moment the statistics do not suggest by as much as some of us had hoped—it must, to use the phrase, put clear blue water between it and the new pension. At the moment, the difference between what a pensioner would get under the three tiers of state pension, possibly some additional pension and pension credit under the new state pension, could be less than £1 a week, although the triple lock for the pension, unlike the earnings link for pension credit, should widen that gap over time if the triple lock remains. Age UK has provided figures showing that means-testing will have fallen by just 3% by 2014 from what it would have been as a result of this. However, as my amendment suggests, 2% would provide a rounder figure—a £3 gap, I guess.
I am hoping that the Minister will give us some guidance on the difference in income for each path that a person registering for the new pension will take, and the winners and losers as a result, so that we can work further on those stats before Report. The Select Committee recommended such a clear space, although it did not suggest a specific sum. The Government’s response was rather interesting. They agreed it was necessary to establish,
“a firm foundation for saving”,
but believed that it was not necessary to put that in the legislation. I do not think that is good enough. Put very crudely, there is not much point in having a massive and welcome reform of pensions structure if at the end of the day many future pensioners, mainly women, lose derived rights, and many other pensioners, mainly women, are no better off than they would have been on pension credit because the new state pension is financially not sufficiently distinctive. I beg to move.
My Lords, I shall take advantage of the helpful peg of this amendment moved by my noble friend Lady Hollis. I completely accept that moving more rapidly to a flat-rate pension will bring losers and gainers. However, we need to have some confidence about the initial value of the single-tier pension and how its value will be maintained over time, in order to have confidence about the assessments of gainers and losers.
The figures and statistics that we have are based on the assumption of triple-lock uprating, which is far from assured over time. We know that the single-tier pension has to produce a series of outcomes: it has to be above the guarantee credit to address the disincentive to save; it has to be set at a level which reduces reliance on means-tested benefits; and it has to provide a firm foundation for private saving. However, whether it achieves those intentions depends in part on the starting value of the single tier and how its value moves over time. The White Paper therefore suggested that a single-tier pension should be worth £144 in 2012-13 earnings terms, but the extent to which the single-tier pension figure is to be set above the pension guarantee credit is very unclear.
At the time of the White Paper’s publication in January 2013, the illustrative £144 was only £1.30 higher than the guarantee credit—less than 1%—which was lower than the figure in the Green Paper, when the £140 illustrative figure was £7.40 above the guarantee credit, which is nearly 6% higher. In 2013-14 earnings terms, £144 would be worth £146.30—just 90p above the guaranteed credit of £145.40. We therefore have a lack of confidence about what the level of the single-tier pension will be at its introduction, what its uprating is likely to be over time and what its relationship with the guarantee credit is likely to be.
The rate of the new state pension will be set in regulations, and it is important to have some confidence about government thinking. The Delegated Powers and Regulatory Reform Committee commented that,
“we draw to the attention of the House that, for the first time, the rate of the state pension will be specified only in subordinate regulation”.
The Government’s impact assessment assumes uprating by the triple lock, but the assumptions about gainers and losers and pension adequacy could be significantly different if the triple lock were not applied. I also note that, when it comes to assessing gainers and losers, the notional figures include the previously contracted-out individuals. In one of the very helpful briefing sessions that we have been afforded, I asked whether we could see the notional figures for gainers and losers, excluding those contracted out at April 2016, in the hope that we could get a clearer picture of winners and losers. I was particularly interested in understanding more clearly who the winners and losers were from the base of the actual amounts that contracted-in individuals receive. I was interested to read a report this weekend, albeit in the Corporate Adviser. I quote from the article:
“The figures for mean gross state pensions, which give the clearest official picture of the level of combined basic and secondary pension of contracted in workers, have been omitted from the ONS’s 2013 Pension Trends paper”.
I understand that the reason for that is information provided by the DWP. For the sake of debate and for clarity, net state pension figures are only those payments paid directly by the state, whereas gross state pension figures are estimates of the total entitlement to additional state pension, which include those elements paid by private pension schemes that are contracted out.
The most significant paragraph in the article states:
“But the 2013 Pension Trends paper only shows net figures, meaning contracted-out and contracted-in individuals’ benefits are combined, giving no clear picture of winners and losers. It shows net state pension payments of £145.52 per week and to women of £111.95 per week, but these figures do not include payments made to pensioners that were contracted out of the additional state pension, and therefore do not show the actual amounts contracted-in individuals are receiving”.
It would be helpful to have the Minister’s comments on these observations, because I am concerned that we should understand how the analysis on gainers and losers relates to the base of the actual amounts that contracted-in individuals are receiving.
I shall make a point almost as an aside, but do so because it is something that I will probably come back to in a later debate. If private sector employees are going to meet the high national insurance contribution costs of both the employee and the employer through lower private pension benefit accrual, then what we are seeing is a transfer to the state system of pre-funded private saving rather than an actual gain for the individual. I accept that it is transferring a liability to the state and will reflect in the level of state pension that an individual gets but, in motive terms, I think that for some individuals overall it will not necessarily be seen as a gain. I would certainly be interested to hear the Minister’s comment on this use of gross and net state pension figures, and how that impacts the analysis of gainers and losers.
My Lords, I shall say very little. I am so keen to hear the answer to that last question that I shall race through my contribution even more so than normal.
My noble friend Lady Hollis has done the Committee a service by opening up the question of the level at which the single-tier pension will be set at introduction. Both she and my noble friend Lady Drake have drawn attention to the rather dusty view taken by different bodies of the Government’s refusal to do this.
The Work and Pensions Select Committee was very clear about the fundamental importance of the principle that the STP should be set above the level of pension credit. That is primarily about means-testing, and I was grateful to my noble friend Lady Hollis for making the point that, contrary to what one would think from some of the headline messages, the percentage-point reduction in means-testing is really very small, being somewhere between 2% and 3%. That is not very surprising. One of the notes that we were given explaining means-testing and single tier confirmed what I think a number of us had expected, which is that, while there is a small reduction in the number of pensioner households claiming guarantee credit—pension credit—a considerable part of the reduction in means-testing on pension credit relates to those who would have received savings credit. It has always been very easy to reduce the number of people involved in means-testing: just make benefits less generous or take them away faster. You simply reduce the level at which you can get them. Taking a benefit away from people may reduce means-testing; it is not in itself an achievement. More interesting is what the combined effect is.
The Government’s response to the Select Committee was to confirm that it was indeed a principle of the STP that it should be set above the standard minimum guarantee and would be thus set, and that Parliament would be able to debate it as the regulations would be affirmative. However, as my noble friend Lady Drake said, the Delegated Powers Committee pointed out that this is the first time that this is being set not in primary legislation but simply in regulations which cannot be amended. I confess that this is not an area of expertise—along with many things that I talk about—but I presume that the reason for this is that, when Parliament is debating the introduction of a new system, it is impossible to understand the implications for anybody involved unless one knows the level at which it will be introduced.
I spent the entire weekend, apart from a brief outing to the marvellous Durham Johnston Christmas concert, going through all the details trying to understand the impact on different people of all these changes. They are all predicated on the assumption that this will be set at £144. If that assumption proves to be untrue, or indeed if the triple lock proves not to be the case, then I have no idea what the impact will be or who the winners and losers will be, and all our debates today and in the many joyous weeks that we have to look forward to will be rather academic. Can the Minister be tempted to give us some level of clarity, at least about what the minimum level might be, in order that we can understand better the assumptions that the Government are making? I raised this question at Second Reading and, I have to say, got a rather dusty reply. The Minister said simply:
“We will need to decide that closer to implementation when the level of the pension credit standard minimum guarantee for 2016-17 is known. I am afraid that I cannot reveal all tonight”.—[Official Report, 3/12/13; col. 192.]
So I confess that it is not with a hopeful heart that I await the Minister’s response, but I await with fascination his response to my noble friend Lady Drake.
I shall start with the question from the noble Baroness, Lady Hollis, referring to the previous amendment regarding men coming off guarantee credit. I commit to write to her with the data on the numbers coming off.
The central principle that these reforms represent is that the full amount of the single-tier pension will be above the basic level of the means-tested support for a single person. This provides a clear foundation for both private saving and automatic enrolment, and it builds on the broad cross-party consensus that has characterised the debate that there has been on pension reform: people need to save more, and to do that they need to know what they are going to get. The reforms are therefore not so much about spending more or less money on future pensioners but about restructuring the system to provide clarity and confidence to help people today to plan for their retirement.
In the White Paper, published in January 2013, we used an illustrative start rate of £144, which was above the minimum guarantee and forecast to stay within the projected spending on the current system. Every extra pound added to the start rate increases annual costs by £500 million in the 2030s. A start rate of 2% above the standard minimum guarantee would incur significant additional costs.
On the question from the noble Baroness, Lady Drake, on the narrowing of the gap between the standard minimum guarantee and the start rate of the single tier, the Green Paper said explicitly that the precise value of that start rate would need to be set at a level that met the affordability principle. The start rate that we will fix will need to be set closer to implementation, when the Government will be able to factor in both the 2016-17 level of the standard minimum guarantee and the latest economic and forecasting data.
The Committee will note that the regulations to set the start rate will be subject to affirmative resolution and will therefore be debated in this House. The noble Baronesses, Lady Drake and Lady Sherlock, asked why this is being done by affirmative resolution as opposed to in the Bill, as is the existing position. The different approach was flagged up by the DPRRC, although, interestingly, it did not recommend that we changed our legislative approach. That approach is consistent with recent legislation, such as establishing both the ESA and universal credit, and it is driven by not currently knowing what rate to use, given the enormous costs involved of getting that rate out even by a small amount from what it should be, relative to the means-tested level.
On contracting out, there is not a clear distinction between the people who are contracted in and contracted out. We estimate that even by the 2030s about 80% of people will have been contracted out at some point. The analysis we have done in the IA, as the noble Baroness, Lady Drake, pointed out, is based on the net state pension outcome, not the gross.
The stated intention of the Government is that the start rate should be above the standard minimum guarantee, and it is the Government’s intention that it should remain above the standard minimum guarantee into the future. That is why the Bill sets out that the single-tier pension will be uprated by at least earnings growth. There is flexibility in the legislation for discretionary above-earnings uprating, depending on the fiscal circumstances at the time.
I point out to noble Lords that where a couple both receive the full amount of single-tier pension, as a household they will receive almost a third more under the new system than the couples’ rate of the standard minimum guarantee. To promise a single-tier start rate at 2% above the basic level of means-tested support would mean that we could not guarantee that the reforms would be cost-neutral. With these reforms, we aim not to increase the amount spent on pensions but to provide clarity to support private saving.
On the question from the noble Baroness, Lady Sherlock, on the decrease in the numbers of those who are means-tested being driven by the end of savings credit, clearly the answer is yes, in part. However, that money is being used to provide the flatter state pension that is central to these reforms and it allows us to provide the single tier in a cost-neutral package, while simplifying the system. Although there is no Baroness Castle to barrack us from in front or behind, or wherever she did it, it clearly makes sense to go to a system that is less—or as little—reliant on means-testing as possible. This is the way to do that and I urge the noble Baroness to withdraw her amendment.
Was I correct in understanding that the noble Lord confirmed that the figures that we have show that notional gainers and losers are based on the net state pension figures, not the gross, and that a certain category of payment was therefore excluded in that analysis? Those net figures will not include total additional payment entitlements.
That prompts the obvious question: why not? However, will the Minister write to us on why the net rather than the gross figures are used, and why the gross figures cannot be used, so that we can fully understand the implications of the gainers and losers analysis with which we have been provided? Certainly I had not realised that there was that distinction. I was scrabbling at or delving into trying to understand this issue when I asked some of my questions at the briefing. However, I think the distinction between net and gross is quite significant, and it would be helpful to have an understanding of those two issues.
It would be very helpful if the Minister could write and confirm that it was net. It would also be helpful if he confirmed that the gross figures were not available to him and explain why not. It would be helpful if he could simply clarify why they are not available or why he does not have them.
For the noble Baroness’s sake, I shall repeat what I just said. I will write to confirm that they are net, although I hardly need to do so. I will write to say what the position is with gross analysis at this particular moment. I do not know whether that is to say that they are available, not available or whatever. I will just write to let the noble Baroness know the position.
I am sure that the Minister will understand our need for clarity on some of these issues—whether it is net or gross; mean, median or average and so on—because they completely reshape the statistical base on which some of us are trying to base some of our contributions. The Minister is patient in taking our comments on this point, but we really need to know and we have not always had the statistics in ways that have allowed us to read across in a straightforward and simple form. This is not the fault of the Box; it is simply because that is the way in which, classically, statistics have been collected.
I am grateful to my noble friend Lady Drake, who emphasised both the need to deliver the Green Paper promises of a substantial headspace between the pension credit regime and the new state pension, and the way in which this is becoming narrowed. As my noble friend Lady Sherlock said, it is becoming very hard to calculate. I was checking back on what the Select Committee on Work and Pensions actually called for, and I really do not understand why the Minister cannot do this for us. The committee said in paragraph 34:
“There is no certainty about how long the triple lock will be in place and we believe that it is important that there is as much clear water as possible between the rate of the STP and that of Pension Credit. There appears to be scope for a bigger differential (either at the outset or over time) given the increased National Insurance revenue that the Government will derive from the ending of contracting-out and the overall long-term savings which will be made on”,
“expenditure as a result of the introduction of the STP. We therefore recommend”—
and I do not understand why the Minister cannot go along with this—
“that, when the Bill is before Parliament in the summer”—
that is, in the prior discussions at the other end—
“the Government publishes an analysis of (a) the cost of setting the STP rate at a range of higher levels; and (b) the level at which the STP could be funded if the additional NI revenue was used for this purpose”.
The Minister says that the whole of this project has to be cost-neutral. Yes, to an extent, but of course it is cost-neutral within a growing demographic population. When he talks about it being cost-neutral, I am never sure how much he is looking at the rise in life expectancy and so on and therefore at the number of claimants coming through, particularly for the post-war bulge. After all, the GDP figures show a drop for this group in going to pensions of something like 8.9%—I think I am right; I am doing this from memory—or about 8.23%. That is a significant drop in projected GDP going to a cohort that will actually have increased in number. When the Government say that this has to be cost-neutral, therefore, it seems to me that in practice, unless I have misunderstood the Minister, that could be achieved only by allowing the real value of the new state pension to fall simultaneously with the real value of pension credit. Perhaps he might like to write to us to confirm whether that is the case. However, as I have said, I do not understand why he cannot respond to what seems to be an entirely appropriate piece of analysis that was recommended by the Select Committee. Perhaps he could write to us and explain why it cannot be done.
Before my noble friend sits down, does she agree that the drop in the share of GDP would have been even greater had the uprating been by way of earnings rather than by the triple lock? It is maintained even at that 0.6% drop because of the triple lock assumption, which is far from guaranteed, as I understand it.
Clearly, a quote done at that time would be using the money of the day. We would not be doing it in cash terms; we would be doing it in today’s money, or the money of that day. Yes, it was 2013-14 money.
On the question of neutrality, the reforms would cost no more than the current system overall and will not be more generous to future pensioners, so the additional national insurance revenue will not be recycled within the state pension system but will contribute to other reforms such as the cap on social care costs and the employment allowance, as announced in the Budget 2013.
Amendment 5 withdrawn.
Amendment 6 not moved.
Clause 2: Entitlement to state pension at full or reduced rate
7: Clause 2, page 1, line 13, at end insert “including any additional years that person may have bought back either on his pre 6 April or on his post 6 April 2016 contribution record”
My Lords, Amendment 7 is another probing amendment so that we understand the buyback rules. By virtue of the Bill raising the number of qualifying years from 30 to 35, there will be some people, mostly women, who will come to retirement age with an incomplete NI record. I should emphasise here that in terms of buyback I am not talking about class 3A—the new proposals for the additional pension. Some of those missing basic years may have occurred before 2016; some may occur afterwards. It is crucial that we help people to have a complete record, otherwise many will need topping up by pension credit.
Buyback, as members of the Committee will know, comes through making class 3 contributions—what we call voluntary NICs. They cost around £13 a week, which is about £700 for the purchase of one year, and add £3 to £4 to your pension, for life, so that you get a payback within three to four years. That is a return of more than 25% on your capital, so it is a very good deal if the arrangements stay the same. Obviously, the class 3A proposals are meant to be actuarially neutral, so I imagine that they will not be as attractive. You can buy those extra years in the year that you are missing a class 1 contribution—husbands have sometimes bought them for their stay-at-home wives and rich kids have sometimes had their parents buy them for them—or you can revisit the record of your NI contributions close to retirement and see how many more you need to get a full state pension. If you can afford to, you can then buy back contributions for the missing years.
In the past, you were allowed to buy back your missing years either as you went along, so that they were current, or to buy back the last six years, especially at retirement. If you had missed a year, say 15 years before, it meant that you could not retrospectively cover it by buyback. That was changed after 2006 so that you could buy back any six years. That was particularly useful to women who might have taken a year or three off, say 10 years before, when they accompanied their husband to his new job in a new city or because her working life had, for a couple of years, been interrupted by caring responsibilities for which she could not then have been credited.
The Government have said, as I understand it, that up until April 2023 you can buy back missing years to 2006, which is good news. I have some questions. First, will that happen if you have already retired? In other words, could someone retiring in 2021 decide to buy back additional missing years? Or must, as in the past, that purchase take place within a year of retirement? Secondly, are you limited in the number of years you can retrospectively purchase to, say, six years within those 16, or could you in theory purchase up to 16 years at or after retirement—for example, if you are lucky enough to have a legacy, or something?
Thirdly, are you still able to purchase up to six missing years in any years before 2006, or has that now been wiped out? That is key. Those were the years for which women particularly suffered before the credit system was made more generous. I think that I am right to say that women who gained NI credits for their children up to 16, which is now reduced to 12, should be okay, given buyback to 2006, but what of the situation of a woman carer not eligible for the carer’s allowance but who today would be eligible for carer’s credit, which did not exist before 2006? If she were caring for a couple of elderly relatives, between, say, 2000 and 2004, she might well have lost several years of NI credit. Can she buy those years back?
As I said, I am not referring to the new class 3A. I would be grateful if the Minister could clarify that and put the rules on record. I beg to move.
My Lords, I am grateful to my noble friend Lady Hollis for opening what appears, from the expressions of those in the Minister’s Box, to be an unexpected line of engagement in the complex issues with which we are dealing.
The issue of buying back national insurance contributions has been engaged with most recently, as the Minister will realise, in 2006, when the six-year buyback was relaxed in certain circumstances of some complexity. I am conscious that we are moving inexorably towards the clauses in the Bill which in the House of Commons were described as being the complex clauses, which deal with transition. Clauses 2 and 3 deal with entitlement to single-tier pension where the national insurance contributions are all close to 2016, because of the provision in Clause 4(1)(c), but this seems as good a place as any to deal with this issue, which may well have been properly engaged with under a later clause because it lies within the years that my noble friend is interested in—more in the transitional phase than the projected phase of post 2016.
It is none the less a valuable issue. It allows me to take advantage of a completely coincidental e-mail which I received at exactly 4 pm today. With the permission of the Committee, I will read this set of personal circumstances to the Committee. I think that it illustrates the real challenge that the limitations generate for real people. I cannot imagine that this woman who has written to me and, probably, to other Members of the Committee, is unique. I will protect her identity by anonymising her, but will read just a couple of paragraphs to the Committee, if I may.
“I am writing to ask your help for those women who, like me, will lose our right to a basic and widow’s pension with the new bill. I have been married for over 30 years. For many years I worked, but my work was part-time, poorly paid, and only available during teaching terms, so I never built up my own record of NI contributions. I was still in education when the married-woman’s stamp ended. We thought about making up the shortfall in my NI contributions but money was tight and we always knew I would be able to claim on my husband’s contributions, particularly if I was widowed. We never imagined this would change. When I was unemployed I did not claim benefits (and therefore credits) because my husband was working.
I did have three years full-time work, which necessitated me working 200 miles from my home. My husband then became chronically ill with heart failure, and I gave up own work to help him remain working for as long as possible. It was hard for me to lose the chance of a career of my own but it was a sacrifice I had to make to help my husband facing this devastating illness. We felt we could manage without claiming carer’s benefits (which again would have protected my NI record), but when he did eventually have to give up work as his condition worsened we made sure that he claimed incapacity benefit, purely so that his NI contributions—and therefore, we thought, my pension—would be protected.
Again, we thought of buying me extra years, but were assured when we looked for advice from the Department of Work and pensions that I would be better off claiming on my husband’s record. My husband will reach pension age under the present system, with a full 35 years contributions, which we were always promised would cover me. At 59 I find that the pension promises which we trusted our entire lives are going to be torn up. If we had known this would happen of course I would have bought more contributions, signed on when unemployed, applied for carer’s allowance—but I can’t go back and change the past. The retrospective nature of these changes is terribly unjust and causes us both huge anxiety and fear for the future, particularly for when, as is likely, I am widowed, and lose three-quarters of our income”.
I am not arguing from these Benches for this particular relaxation of the rules at this stage. Engaging with these circumstances and this consequence of the operation of the rules relating to national insurance contributions in the circumstances that my noble friend so clearly laid out, gives us in this House a responsibility for people just such as my correspondent. I hope that the Minister will give me the opportunity at the very least to write back to her and refer her to the official record of today’s Committee to say, “There is an answer to your problem and that is what it is”.
I thank the noble Baroness, Lady Hollis, for this amendment on voluntary national insurance contributions. Of course, I register what was a very moving excerpt from the letter that the noble Lord, Lord Browne, received today. A number of noble Lords may remember the significant concession that the noble Baroness, Lady Hollis, secured—or introduced —during the passage of the 2000 Act to smooth the cliff edge resulting from the reduction to 30 years of the number of qualifying years needed for the full basic state pension.
The 2008 Act.
My Lords, I must have swallowed my “eight”. I apologise for my grammar. I add that there is no cliff edge with these reforms.
I welcome the opportunity to put on the record that single-tier pensioners will continue to be able to fill gaps in their national insurance record by buying back qualifying years of voluntary national insurance contributions. These will be taken into account regardless of when they are paid. If they correspond to a pre-2016 tax year, they will be included in the calculation of a person’s foundation amount. If they are paid in respect of a post-2016 year, they will count towards their total single-tier amount.
Given that we are in the process of reforming the state pension system, the Government have recently made changes to the arrangements for voluntary contributions to ensure that people can wait until they are able to request their foundation amount after implementation, before making decisions on buying additional years. We have adjusted the rules for people reaching state pension age under single tier to extend the time limits for paying voluntary contributions to 5 April 2023, for the tax years from 2006-07 to 2015-16. Usually, contributions are paid at a higher rate if more than two years have elapsed from the year in which they were due, but this rule will be suspended until 6 April 2019. This will mean that a person retiring after 2016 will have had a considerable amount of time, up to 17 years since the relevant gap occurred, in which to decide whether to pay voluntary contributions.
So people will be able to buy after the state pension age point. They can buy back as many as they need, right down to 2006, so if someone reaches their state pension age in, for instance, 2018, they can buy 12 years. I hope that I have addressed the noble Baroness’s points, and ask her to withdraw the amendment.
My Lords, what the Minister has said is what I expected to be the case. However, he has failed to say whether the changes that we made in 2008 will be sustained—that is, whether, either before 2016 or after it, you can buy back years that were missed before 2006. I am perfectly well aware that you can go back to 2006 and carry on buying back to that date right up until April 2023, and I am pleased that the Minister was able to confirm that for us, but can you buy back years that were missed in, say, 2000 or 2003, up to 2006, which was sustained as a result of the 2008 Act? This all came into being in the first place because NIRS2 was flaky, and we turned mechanical failure into a moral virtue.
No, let me provide clarity. The system does not let people buy back years before the 2006-07 point. We have relaxed the time limits because of the uncertainty around the new system. However, it is an insurance system, with the basic principle that you cannot insure after the event.
I may need to go and do some research, but my understanding of the 2008 Act was that there were circumstances in which you could buy back beyond the six years for a further six years, under very limited circumstances. It was open to married women in particular, I think, though I am not entirely sure and I will need to go back and check all this. However, maybe the Minister may just conclude this debate on the point at which the six-year limit is fine.
My Lords, I wonder if I could help my noble friend Lady Hollis here, although on this issue I am not sure why I should, as I was the Minister dealing with this and she was on the Back Benches giving me a hard time. My recollection, although I have not gone back over the detail, is that there was the opportunity to buy back outside of the six years, but you had a limited period in which to do that. I have forgotten what the deadlines were and I do not know whether that time has expired now; maybe it has and we are therefore back to the usual six years, with the extension that the Minister has explained. There were two systems and there was a limited opportunity to go back—for any length of time, as I recall—and you had to go back within a fixed period of time.
Without indulging in too much nostalgia, particularly as I was not present in 2008—or was not present here—that relaxation was because of the change from 39 qualifying years to 30. That was specifically introduced to exclude the cliff edge, and the concession was only for people reaching their state pension age before 2008. As I said, I do not think that we need to get over-nostalgic. As they move through into the new single-tier system, both before and afterwards, people now have a broad ability to purchase extensive voluntary national insurance contributions, and of course we are adding to that capability with the new class 3A voluntary contributions. Therefore, there will now be a substantial opportunity for people to buy state pension.
My Lords, I am sorry but I really disagree with the Minister on this. My noble friend Lord Browne showed rather movingly how losing the 60% dependency pension along with a failure to claim credits and the limitations on buyback that will continue to happen interlock to ensure that a woman who has done “the right thing” by her family at every point that she has been asked to make a decision, putting her family interest ahead of her own, will end up with an inadequate, incomplete and pretty minimal basic state pension. That was why we fought quite hard in those years to enable people to buy back missing years. I can see no moral difference between a rich kid living in Antibes having the money paid for them by their father as they sail around the place and a woman who failed to complete a year’s contributions because she accompanied her husband when he moved jobs or because she was caring for somebody and was not eligible for carer’s credit and is not allowed to buy back. The time limit of six years or so is entirely arbitrary to suit the convenience of the DWP and to try to impose this measure on people’s very different and complicated lives.
I still think that our position was right and that the position taken by the department and the Minister is wrong. By 2030 or so this will not be an issue, but a lot of people are going to retire in 2016 and their missing years will not be from 2006 to 2016 but from 1995 or 2000. The Minister is now telling us that those people cannot buy back the missing years, even at an appropriate price, although it will be no problem for somebody 10 years down the road to buy back years from 15 years beforehand. That inconsistency, as well as a failure to recognise the problems that many women have had in the past—which have bedevilled pension issues—in building up a coherent NI record, will remain with us if the Minister is not able to move on this front.
Perhaps I may respond to a clearly impassioned speech by pointing out that we have announced the introduction of the purchase of voluntary national insurance class 3A contributions, and that is there precisely for the reasons that concern the noble Baroness. There will now be an opportunity to buy voluntary NICs and we will give full details of that.
Forgive me, but class 3A is for the additional state pension and not for the BSP. It will also be actuarially neutral, which means that it is going to be infinitely more costly. Nor have we heard any details. Unless I am mistaken, I do not think that this addresses the fact that a diminishing cohort of women will have spotty NI records by virtue of putting their family first at key points in their lives, just as my noble friend so eloquently described to us. The Minister has made no provision for them at all.
My Lords, I need to point out that we have a comprehensive means-tested system. People who have fallen through the net will be supported by that system. That is the way in which we have devised the support network for people who do not have a contributory record.
My Lords, I shall withdraw the amendment, but I would have thought that the Minister would do everything possible to reduce the number of people having to fall back on pension credit as a safety net as opposed to getting them into the new system provided they pay their way. They have taken on these family responsibilities and are willing to pay for it, and the Minister is saying no.
My noble friend may wish to take this opportunity to have recorded the apparent inconsistency between the new policy, which allows class 3A national insurance contributions to be paid in an unlimited fashion—or if not entirely unlimited then in an extensive fashion—and the restriction of six years on class 3 national insurance contributions. She may wish to consider whether there is some indication of a relaxation of the clear policy until now of restriction in relation to national insurance contributions.
My noble friend is absolutely right, but we have probably pushed this matter as far as we can tonight. However, I am simply very unhappy about this. It is an unnecessary abatement of the possibility of allowing women who have done the right thing and put their family first at difficult points in their lives to make good their deficit in the NI record, whereas if she were wealthy, well informed, stayed at home and bought a year every year, she would be okay. That is not only a failure to recognise her family responsibility but a failure to recognise the position in which low-income women have always been placed in relation to pensions. We can do better than that. I hope that the Minister might want to see whether he can meet us on this in any way. I beg leave to withdraw the amendment.
Amendment 7 withdrawn.
8: Clause 2, page 1, line 17, leave out “35” and insert “30”
My Lords, this amendment is about the 35-year qualification period to get the full-rate single-tier pension—of course, that also applies to the reduced rate pension. I have tabled the amendment because a lot of concern has been expressed to me. Presently, there are 30 qualifying years for the basic state pension. That period of 30 years has been achieved after a fair amount of agitation in the past, and people are anxious to retain it. The Government, however, apparently argue that the 35 years is associated with a higher benefit, but this argument ignores the fact that most people will also have established some rights to the second-tier pension at that stage.
Under the present framework, a low-paid employee can establish an entitlement to a level of state pension equal to £144 if they have 30 qualifying years’ contributions or credit for the basic state pension, and of course they have to have 22 years for the second state pension. Putting in 35 years instead of 30 seems to a number of people simply to be going backwards. It is obvious that other people feel like that as well because my noble friend Lady Sherlock has tabled Amendment 16, with which my amendment is grouped and which again raises doubts about the 35-year provision. That amendment suggests that there should be a review to determine costs and benefits and so on.
I would be in full support of that if my amendment was not accepted. I would prefer of course to have 30 years rather than the 35, but my noble friend’s amendment at least suggests a review and would ensure that the matter was thoroughly discussed and a report issued to both Houses of Parliament. I would be in support of that as well. I beg to move.
My Lords, I am grateful to my noble friend Lady Turner for her amendment, which, as your Lordships will have noticed, is grouped with an amendment in my name and that of my noble friend Lady Sherlock, which calls for a review of the phasing.
For the sake of some chronology in our thinking, a similar amendment to this was considered in the House of Commons after Clause 4. That was to the benefit of the debate in relation to it. The call for a review really belongs with Clauses 3 and 4 because it relates to transition whereas, as I have indicated earlier, Clauses 2 and 3 relate only to people whose qualification in terms of contributions has been achieved post-2016. In the words of the Pensions Minister, that makes it much easier and simpler to understand Clauses 2 and 3 than it does Clauses 3 and 4, which are significantly complex. However, my noble friends will be pleased to hear that I do not intend to go into the detail of all the elements of the transition. There are complexities there, some of which it would be helpful if the Minister explained to the Committee so that we had an understanding of the complexity and the consequences of it for individuals.
I will first address the amendment in the name of my noble friend Lady Turner, which challenges the imposition, as it were, of a qualifying period of 35 years so soon after we changed the law to reduce the qualifying period for the state pension to 30 years. It would be to the benefit of the Committee’s understanding of the Bill and the policies that instruct it if the Minister addressed himself, as I am sure he will, to the way and the processes by which that figure of 30 years was arrived at. It was probably best explained by the Pensions Minister at col. 141 of the House of Commons Committee stage on 2 July. He set out broadly that the existing state pensions structure had two elements to it: the basic state pension, for which there was a 30-year qualifying period, and then the additional pension—as we have come to know it in terms of the Bill, but which has different elements depending on which years one looks at—which could be built up from rights that have been built up over as much as 49 or 50 years of a working life.
The Minister then explained that in arriving at a period of contributions that should entitle one to an amalgamation of these two rights, he looked for a “weighted average”. He was challenged, probably correctly, as to why in earlier consideration of where it should lie he had favoured or indicated—at least in his evidence to the Select Committee—the figure of 30 years as opposed to any later figure. He was asked pointedly by my colleague Gregg McClymont whether there was a financial consideration as opposed to just some broadaxe approach at trying to work out somewhere that was appropriate, and which could do justice to those two elements as they were brought together.
The advantage that my noble friend Lady Turner gives the Committee is that she gives the Minister an opportunity to explain in more detail how the 30-year figure was arrived at and how it can be justified, as opposed to some broadaxe, weighted average-type judgment. If it is just a judgment that had to be made for speed and efficiency, the Committee ought to know that it is about the right figure and there is nothing more to it than that. That is the strong implication of the way in which the Pensions Minister approached his explanation in the debate in the House of Commons.
We on these Benches support the single-tier pension and recognise that at some stage, judgments have to be made, but it is much easier to support judgments if there is an explanation of the reasoning behind them to convince us why it should be 30 years rather than 32, 33 or whatever. Those figures are very important.
I do not think I will detain the Committee for nearly as long as my honourable friend Gregg McClymont engaged the Committee in the other place on the amendment that now stands in my name and that of my noble friend Lady Sherlock. However, in introduction, I want to tease out one or two observations about the amendment that I think should properly lie in our discussion after the debate about Clause 4, to explain why a review is necessary. Once one gets a sense of the complexity of the transition and the interaction of different calculations, one begins to realise just how important it is to have a review informed by reality. Of course, a part of that reality is the level at which the single-tier pension is fixed so that one knows who are the losers and who is being affected
What really instructs the review is a defeat of expectations. The Pensions Minister engaged with the perception rather than the reality. I am not keen on trying to argue policy changes on the basis of perception. That is principally because for two years I was a Minister in Northern Ireland, where I was repeatedly told, “In this country, Minister, you have to understand that perceptions are much more important than facts”. No matter how good my arguments were, I was told, “But that is not how it will be perceived” in one community or another, and that perceptions were much more important than facts—so much so that I thought for a period of having one of those famous signs on the desk that Ministers and executives often have made, reading, “In this office, facts are more important than perceptions”, but I thought that that might have been provocative and decided that it would not be a good idea.
Greg McClymont argued, and I support him, that there is a significant group of people who have a similar experience to that expressed in the e-mail that coincidentally I received this afternoon—people who have a set of expectations that are defeated. Unless there is engagement with those issues and some sense of fairness, the fairness, simplicity and other measures that the Government have set for these changes will not be met.
In this case, there is a group of people who have an expectation that they will get the full rate of whatever the state pension is after 30 years of work or 30 years of national insurance contributions. They will be met with the reality that it now requires 35 years. I will come to this in some detail—I am not going to take that long about it—but I know that one can say to them that 30-35ths of this figure is more than 30-30ths, or more than 100%, of the figure that they were expecting. However, they are retiring into an environment in which other people are getting not 30-30ths of the figure that they were expecting but 100% of what the new figure will be. That is an important point to make.
When we engaged with this issue earlier in the Commons, the Minister suggested early on in his contribution that this matter was easy to deal with and that this challenge of moving to the new system while honouring the past could be dealt with without any sense of grievance, if we all went out and said this:
“You used to need 30 years for £110 plus something else”—
an interesting phrase—
“and now you need 35 years for £144”.
If we just keep using that phrase to people, the Minister said,
“there would be no confusion”.—[Official Report, Commons, Pensions Bill Committee, 2/7/13; cols. 164-65.],
assuming that everybody knows what “plus something else” means along with £110. The fact of the matter is that people do not.
We have already heard a considerable number of noble Lords in Committee this afternoon saying that the complexity of this is beyond some of them. I pick out the noble Lord, Lord Kirkwood, because he engaged with the complexity of it, but he served for many years in distinguished fashion as the chair of the very Select Committee engaged with all of these knotty issues. If he is struggling to be comfortable immediately with all this, what expectation can we have for people who, as the Minister suggests, do not even engage with this normally to ask the DWP for a statement of their pension entitlement?
We have an obligation to engage with these issues in a way that at least gives us the opportunity to get on record words of reassurance, rather than just of assurance. We should not just assert that everything will be fine when it may not for individual people who have an expectation. The debate was engaged with in that fashion and we were told that there was no need for confusion: it was a matter of perception, when the facts would be entirely different. I have no doubt that the Minister has a long speaking note in which all this explanation is set out. However, what has happened since that point of the debate in the Commons is extremely interesting. First, the Committee there was engaged for about one hour and 15 or 20 minutes in debating it. It started off as being relatively simple but it took about an hour and 30 minutes to debate it, when almost everybody in that Room understood that 30-35ths of £144 is more than 30-30ths of £110. However, there were complexities there.
Much more importantly from our perspective in dealing with this, since it was debated in the Commons—indeed, since our Second Reading—the Bill team and the Minister have, very helpfully, provided us all with this interesting briefing paper. It is headed:
“The move from 30 to 35 qualifying years and the transition to the single tier”.
Its introductory paragraph starts by saying:
“Some people have interpreted the move from 30 to 35 qualifying years as potentially disadvantaging individuals reaching State Pension age after 2016 and who may only have 30 qualifying years and were expecting a ‘full state pension’. This note sets out why people cannot be disadvantaged by the change in qualifying conditions”.
I will not go on, as others can read it. We have all got it.
So I picked this up with an expectation that it would solve all my problems for me and leave me with no confusion, no concern and no sense that anyone out there could have any degree of grievance. I have to say that it is well written—it flows and it is logical—but it is very difficult to keep up with. It is not straightforward. It is a bit like reading a Russian novel, where you have to keep going back to the first couple of pages to see who the characters actually are because they have so many names. The Joes, the Bills and the others in the worked-through examples that we are given are slightly difficult to keep up with, and there is a substantial non sequitur on page 3 or 4, where you have an expectation that you will turn the page and it will all be resolved, but that is it—you are not getting any more information about these two related people and you have to make up your own mind as to whether one is better than the other.
I do not want to go into this in any great detail, but I just point out this eight-page explanation followed the Minister saying, “All you really need to say is that the 30-35ths of £144 are more than 30-30ths of £110. There is no confusion and no need for a review, because it is already clear”. People who really know what they are doing, and who to a degree instructed this policy, set out to try to explain it. Eight pages later, they have done a very good job but what they have not done, which is extremely interesting, is engage with the one example provided by one of my colleagues in the debate in the House of Commons, about a constituent of hers whose working circumstances had left her in a situation where, like my correspondent today, she had a shortfall of national insurance contributions and no apparent way of making it up because she believed that she could not afford to buy them, but she was not poor enough to be on some form of benefit that would give her credit. I do not need to go into the detail of all that—I know that the Minister’s officials and he will be well aware of it—but in eight pages of engagement, the one example put to the Minister in the Commons could not be engaged with.
I share all that with the Committee for this purpose: to say that if, from the information that we have, we cannot answer these questions being put to us by others’ constituents or people who we engage with about how to bridge the gap and get into the position where you are no worse off, when you fundamentally believe that you are; and if we cannot reassure these people, who are not insignificant in number and are approaching this deadline—this cliff edge—knowing that they have fewer years than they need to qualify for what everyone else would consider the state pension, whatever we call it, then there is an argument for some other mechanism. That other mechanism should be a review. It does not really matter how it is done, but it should be a review.
For the reasons that came out clearly in the engagement between the Minister and my noble friend Lady Drake, such a review cannot be done until somebody fixes this pension rate because it is not easy to see. It is perfectly clear that the pension rate is not going to be fixed until very near the date of April 2016. It could perhaps be done by anticipation to some degree, but it seems at least arguable that it is best done as a review of the effects of phasing of the transition and the requirement for 30 years. Then one can see whether we should all be satisfied that there will be no confusion and that nobody will lose out because everybody is at least as well off as their expectations should have encouraged them to be.
I have one slight hesitation about that. That is that at one stage in the debate, the Pensions Minister said: “The problem with a review in this phasing is that if it makes recommendations, there will be an expectation that they will be implemented. If they are to be implemented, that will issue a degree of uncertainty into a system that we have spent a lot of time making much simpler and trying to get certainty into because it is to be the base for pensions income going forward and to encourage saving”. That makes me believe that he may think that a review might recommend change. Why would he deploy that argument otherwise? If he is as certain as the briefing paper that we received and his simple explanation of no confusion suggest that there is no reason for anybody to be confused, they should all just be satisfied that they will be as well off as they were entitled to expect to be.
With respect to the noble Lord, it is slightly unfair to criticise this document for being so long and then not get the point that the pension for 30 years is £110, and the pension for 30 to 35 years will be £123. That means that somebody is better off. That is the point, is it not? It was unfair to attack civil servants for writing that long brief to make that point, when I am not sure that the noble Lord got it. They will be better off under this system.
I should like to make two other points. If we set it at 30 years now, there is no going back. We might like it to be 30 years, but the fact is that if we set it at 30 now there will be no going back if it does not work out. If we cannot afford it, it will not go up to 35 and we will have to stay with it; whereas, if it is at 35, there is the possibility of review and it could come down.
Clearly, my carefully constructed argument was utterly wasted. I just want to make two points to the Minister, who may well not have been intending to look at me. I am not arguing for 30 years; I am arguing for a review. I was commenting on an earlier amendment, which is not in my name and which I do not support, for a reduction to 30 years, suggesting that it opened up an interesting debate about why it is 30, not 32 or 35. That is not for me to explain. The noble Lord can be reassured that I understand the mathematics, or the arithmetic, on this. I am just arguing for a review for reasons to do with the expectations of people whom I think are entitled to have those expectations.
I am sorry if I lost the noble Lord’s argument in not realising that he was arguing for a review; I thought he was arguing to reduce it to 30. I think that makes my point, actually: it is easier to have the higher figure to start with and then review it down than to start with something lower that you then cannot afford.
My other point is that the additional contributions are very beneficial in their rate of return. Under the scheme, we are trying to encourage people to save. That is one of its main merits and motives.
My Lords, under the single-tier pension we will be merging two schemes: the basic state pension, which requires 30 qualifying years for the full rate, and the state second pension, which you can contribute to for up to nearly 50 years.
Requiring 35 qualifying years for the full single-tier pension strikes the right balance. It will enable the majority of people who contribute to achieve a full state pension through either work or the comprehensive system of credits available to people unable to work, while still retaining the contributory principle. This leaves considerable leeway for people to have gaps of up to around 15 years in their working life and still qualify for the full rate. In 2020, the significant majority of single-tier pensioners—around 85%—will have 35 qualifying years or more. Our analysis suggests that in 2020 around 90% of male and 80% of female single-tier pensioners will have 35 or more qualifying years.
There is a simple response to the point that the noble Lord, Lord Browne, raised about expectations. In the existing system, we have no such thing as a full state pension. We have £110 basic, plus who knows how much additional pension. It is complex and people do not know what to expect. That is exactly the point that the single-tier pension will address.
In the early years after implementation, people in Great Britain with between 30 and 34 qualifying years are just as likely as those with 35 or more qualifying years to have a higher state pension under single tier than under the current system. The transition calculation provides for a “better of” comparison at April 2016 so that the person receives the higher of their national insurance valuations based on old and new scheme rules, with the old rules being based on 30 qualifying years.
That will, in fact, advantage some people because, where someone does not have the 35 years needed for the full level of single-tier pension, they will receive a pro rata amount according to the number of qualifying years that they have built up, provided that they meet the minimum qualifying period. Someone with 30 qualifying years would therefore get a single-tier valuation of 30-35ths of the full rate, or around £123 per week, as my noble friend Lord Stoneham pointed out, less any adjustment for contracting out based on the illustrative single-tier rate of £144. In many cases, the single-tier valuation will be higher than the valuation that people would get under the current system, as 30 qualifying years of basic state pension gives an income of £107 a week in 2012-13 terms.
Furthermore, where someone’s foundation amount in 2016 is below the full single-tier rate, people will have the opportunity to increase this amount by gaining additional single-tier qualifying years before reaching state pension age through work, paying voluntary contributions or receiving national insurance credits. The current broad range of credits will be mirrored under single tier, and when universal credit is in place, it will extend credits to an additional 800,000 people who do not receive them under legacy benefits.
These arrangements recognise people’s contribution records in the existing scheme and allow people to have significant gaps in their national insurance record while still ensuring that 80% of new single-tier pensioners reaching state pension age by the mid-2030s receive the full rate of the single-tier pension.
The amendment tabled by the noble Baroness, Lady Sherlock, and the noble Lord, Lord Browne, would require the Government to conduct a review of a phased transition for the move between 30 and 35 years for a full pension. I hope that I have reassured noble Lords that there is little evidence that such transitional arrangements are needed. However, I need to point out that, if a review were to recommend a single-tier pension based on a 30-qualifying-year requirement, this would carry with it cost implications. The estimated cost of such a system, compared to a 35-year model, would be around £700 million per annum in 2030 and £2.9 billion per year by 2060.
Furthermore, to reinforce the point about uncertainty raised by the noble Lord, Lord Browne, a delay in defining the qualifying requirements for the new system, which a review would necessitate, would introduce uncertainty for those closest to retirement. The period following Royal Assent will be a crucial time for the delivery of single tier, and making fundamental changes at that point might well delay implementation. This moves back to the amendment raised by the noble Lord, Lord McKenzie, about the importance of communicating the reforms and a clean communication. The point on the move from 30 years to 35 seems more of a communications issue than one of principle. To this end, helping people to understand how they may be affected, we have been conducting field work on communicating the impacts of the policy. I therefore ask noble Lords to withdraw these amendments.
I thank everyone who has participated in the debate because it has been very interesting. However, I have listened very carefully to the Minister and I remain unconvinced. Many people will wonder why on earth there is the change to 35 years when they were used to 30 years for the basic state pension that they have in operation now. They do not understand why there should be this difference and neither, in fact, do I. The Government have produced some information about costs, as has the Minister this evening, that seem quite fantastic to me. I will look at them very carefully because I will probably want to come back again, perhaps in a different way, when we look at the whole thing on Report. I will look carefully at what everyone has said in the debate because it is an issue that is of interest and concern to many people, otherwise I would not have put it down. However, in the mean time I beg leave to withdraw the amendment.
Amendment 8 withdrawn.
Committee adjourned at 7.22 pm.