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Pensions Bill

Volume 752: debated on Monday 24 February 2014

Report (1st Day) (Continued)

Amendment 3

Moved by

3: After Clause 2, insert the following new Clause—

“Pension statement

(1) The Secretary of State may by regulation introduce arrangements for the periodic notification to individuals of their entitlement to request a pension statement.

(2) Such regulations shall not require the provision of such notification before a person has reached the age of 45 nor, subject to subsection (3) below, more frequently than once every five years.

(3) Such regulations shall require notification of entitlement to receive a pension statement in the penultimate year before a person reaches state pension age.”

My Lords, like others, I am delighted that we are introducing a new state pension, based on 35 years of contributions, which will help to float older people off poverty and encourage savings. However, if that is to happen, people have to know where they stand as they go along, especially women who may have acquired credits and young people on short hours-contracts, on which we voted earlier today. They need to know how reliably their state pension entitlement is building up and whether they need to take any action to make good shortfalls.

It seems obvious, does it not, that if we want people to build a pension they must know how they are doing, how far they have got and what they may get? We expect this from the private sector. Most of us get not only yearly but six-monthly statements about our ISAs, for example, and how they and we are doing. Usually—not always—it encourages us to save more. We all agree that we need transparency about charges and better information and guidance about our financial choices. The Government set up a money advice service to help people do precisely that.

Along with my noble friend Lord McKenzie, who regrettably cannot be in his place today, I was again taken aback in Committee to learn that there will be no such service and support in the field of state pensions. On the biggest investment a person may have—their pension—which, for many people, will be worth more than their home, they are working blind. People will be working and contributing, or not, and claiming credits to which they are entitled, or not, without any information and guidance to help them until shortly before they retire, when it may be far too late to change the hours of their job or claim a carer’s credit which might have brought them safely into the NI system.

How many women in their 40s and 50s with teenage children know that if they work 16 hours a week at minimum wage they will not usually be building a state pension, but at 18 hours a week they will? How many women know that by caring for elderly relatives for 20 hours a week they could, and should, get a carer’s credit? Not many, yet it is one of the most important things they need to know. How many women even know that they will not get a married woman’s dependant pension from 2016 on? Very few, I suspect. We do not and will not tell them, unless they have the wit to ask, until it is almost too late to do much about it. It is absurd and shameful. The DWP’s refusal to provide a level of service is unacceptable. None of us would accept this from the private sector. Indeed, the private sector would probably be pursued and prosecuted if it behaved like we do.

What is the Government’s position? They will respond to a query, which is likely to come from the alert, educated and informed, but they will not bother to trouble those who most need advice, information and guidance. Those who do not inquire and those who leave it too late are most likely to retire with a pension shortfall. Who are the people who are most likely to retire with a shortfall and who will not know until it is too late? What a surprise—women, I fear.

In Committee, the DWP quoted the cost of providing annual statements as a deterrent—a cost which, none the less, we expect the private sector rightly to bear. I therefore suggest that we consider the “nudge” theory: that if we cannot afford to provide annual, or even five-yearly, individual statements, at the very least DWP sends out periodically a standard letter, in bright bold print, two paragraphs only—I offer a draft— saying for example:

“You are able to draw your state pension at 65. To get a full state pension you need by 65 to have made 35 years of contributions into the National Insurance Fund which pays out your pension. Pension contributions may come from your job or you may be receiving free contributions credited towards your pension if, for example, you have children under 12, you are a carer, you are on universal credit, you are disabled or in other circumstances”.

Paragraph 2 would say:

“You may want to find out how many years contribution you have already built up. If so, please contact us either by phoning us on “x” or online at “y”. If as a result you think you may not have made enough contributions by the time you reach 65, we can send you a leaflet which tells you what steps you can take to build a full pension”.

I offer this template letter to the Government as a possible way forward. One standard letter—a nudge—telling people what they may wish to know, in bold print, going out to everybody at five-yearly intervals from the age of 45. It is a nudge for people to find out where they stand and if necessary to do something about it, to help people to help themselves. Otherwise why bother with a Pensions Bill—one that is more generous and certainly one that I support—if we do not want or seek to encourage people to build a full state pension at the end of it? Why bother? It must make sense to nudge people. I beg to move.

I support my noble friend Lady Hollis on this amendment. I am sorry that the noble Lord, Lord McKenzie, is not here to second it, The Government have had a long-term policy—they kept telling us about it at every stage of this Bill—of being in favour of people saving for themselves in addition to having the pensions provided in the Bill. They expect people to save for themselves and they regard the pensions provisions that they are making as a kind of platform from which people can then make savings for themselves.

How are people to save for themselves if they do not have the necessary information about what their entitlement is? The amendment addresses the entitlement to a pension statement and notification of entitlement to a statement. All that is very necessary if people are to make sensible arrangements for their retirement. I am amazed to think that the Government may not accept this amendment. I hope however that they will because it is in line with their own thinking on the Bill. They want people to save. How do they expect people to save if they do not know what their entitlement is? They have an obligation to tell them what it is. Certainly it happens in the private sector; I belong to a private pension scheme and I get a regular statement as to what my entitlements are. Why can that not be the case for people who are receiving state benefits?

My Lords, my noble friend Lady Hollis has raised some significant questions and I look forward to hearing the Minister’s answers. This amendment follows an ultimately rather unsatisfactory discussion we had in Committee during which my noble friends Lord McKenzie and Lady Hollis, along with the noble Baroness, Lady Greengross, and others tried valiantly to get the Minister to explain exactly when somebody would receive a communication from DWP to warn them that the state pension they would get in future would not be the same as what they might have expected. I went back and reread the record. I think the answer we got was that they would get a statement if or when they asked for it and then normally only digitally. The Minister kindly arranged for officials to explain their communications strategy to Peers, and I am genuinely grateful for that. However I think it is fair to say that the exercise did not entirely allay our fears or perhaps fill out all the gaps in our knowledge. I hope the Minister is looking forward to finding a consultancy fee for my noble friend Lady Hollis for her contribution to what will doubtless be the next mailshot from the department.

In Committee I raised comments that had been made during the Select Committee inquiry and elsewhere from quite a wide variety of bodies about this subject. It is worth highlighting a couple. Citizens Advice has been stressing that considerable complexity inevitably remains in the system because of the transitional provisions. It says that,

“a sustained communications programme could improve outcomes, manage expectations, minimise misinformation, promote action on NI contributions, and support personal saving for retirement”.

That last point is one made by my noble friend Lady Turner. The Association of British Insurers had also stressed that adequate communication was essential because it was important that people did not feel unclear about how much they would receive, and it should be clear that they would need to save. That is a crucial drive behind all of these reforms and the Labour reforms that preceded them. People need to understand what they are going to get to make sure they save enough for their retirement.

The Select Committee certainly found that there was a lot of confusion out there. Many people thought that from now everybody would get £144 a week instead of the current state pension. Many people thought that all means-testing would disappear and that if they would have got more than £144 now that they would lose that in future. The committee stressed how important it was that people have full information about their future entitlement.

I reiterate three simple questions which I raised in Committee; they did not get answered at the time but I think the Minister has had an opportunity since then to reflect on them. First, how and when do the Government propose to contact people to tell them of the changes to their entitlement? Secondly, at what point will the Government contact people who have previously requested and received a pension statement to warn them that it may no longer be accurate? Finally, in setting up a communications campaign on this new scheme, what outcomes are the Government seeking and how will they measure them? I look forward to the Minister’s reply.

My Lords, the single-tier pension reforms are designed to simplify the current state pension system, to make it easier for people to understand what they will get from the state in retirement. More so than for other reforms, therefore, communication is critical to success, so I certainly share the interest that noble Lords have shown in this issue. Effective communication requires both the right message and the right channel for delivering that message. This forms the basis for our communication strategy to support these reforms, a summary of which I circulated to noble Lords this morning and which will be placed in the Library.

We will deliver a phased approach to our communications, building from Royal Assent towards the implementation of the reforms and beyond. This will allow us to provide accurate and up-to-date information as quickly as possible before we issue more tailored communications through a range of channels to reach all our audience groups.

State pension statements will remain a key communication with future pensioners and will be an important vehicle for helping individuals understand how they are affected by the reforms. The introduction of these reforms gives us the opportunity to radically transform the way we currently provide this statement service. Our ultimate vision is to provide an online system that is integrated with HMRC’s national insurance data, enabling people to access this information at a time to suit them and in a way that allows them to model the impact of gaining further qualifying years.

In Committee I said that we would provide statements that reflect the single-tier rules once we have the new IT in place and individuals’ NI contribution records are complete up to and including the 2015-16 tax year. Prior to April 2016 our plan was to continue to provide statements based on the current rules accompanied by additional information on the single-tier changes to those affected by the reforms. However, we believe there is trade-off in terms of providing information we have available based on current system amounts while trying to minimise the distribution of information that is potentially misleading or simply begs further questions. Noble Lords may wish to note that we are therefore currently reviewing the information we can provide to customers prior to April 2016 to ensure that it is as accurate and helpful as possible. We will make a decision on this by the end of March when we will make our plans more widely known through discussions with our stakeholders and within our broader communication materials.

The noble Baroness, Lady Sherlock, asked when we might contact previous recipients who will be affected by the changes. We will consider this to be part of the process. It is important to note that our data retention rules mean that our statement IT systems hold only a limited number of historic requests going back a maximum of 18 months, and therefore we cannot contact all previous statement recipients. The statements make it clear that the estimates they provide are based on the current rules and may change if individual circumstances alter or the law changes.

I turn now to the specifics of the amendment. It sets out an approach for issuing periodic notifications to all citizens over the age of 45 advising them of the state pension statement service. The department has previously undertaken various forms of direct mailing to people in relation to state pensions. Indeed, between 2003 and 2006 the department issued many millions of unsolicited automatic pension forecasts across the working age population. Unfortunately, independent research found no real evidence of any significant response to these mailings. Only 33% of recipients could recall without prompting having received the forecast, and only 31% actually read the mailing. More importantly, the research showed that there was no significant difference in the retirement planning actions undertaken by recipients of the forecasts when compared with non-recipients. This, combined with the operational costs, resulted in the termination of unsolicited pension forecasts.

When people receive something that they have not asked for, it is most likely to be forgotten or ignored. However, when people ask for information, they are ready to get it and do something with it. Our communications approach will sow the seeds of the change, setting out the store in the channels that people read and hear every day, providing them with reasons to seek further information for themselves at the right time for them. It may or may not be that the draft provided by the noble Baroness is exactly what turns people towards wanting to investigate, but we will do the research to find out what actually works. The noble Baroness referred to nudge approaches and the use of behavioural insights. We are absolutely committed to testing such approaches. We believe that there is merit in getting messages to people through the newspapers they read and the magazines they buy. We have already seen the success of such approaches and we can see that they do prompt or nudge people to consider their plans for retirement.

Our past experience is not proof that direct mail will never be an effective method of communicating with members of the public, particularly given the behavioural change we are witnessing as automatic enrolment is rolled out. However, undertaking direct mailings comes at a cost, and an initiative such as that proposed in the amendment could cost in excess of £5 million in the first year of implementation alone. Before committing to such expenditure, we think it is essential to test different approaches to raising awareness of the statement service to understand their effectiveness. Noble Lords will already be aware that I am committed to this type of approach, such as in the support provided for the introduction of universal credit. During 2014-15 we will be undertaking trials of direct mailing alongside other communication approaches. This will allow us to identify how the right balance of timing, message, channel and environment can lead to greater awareness among individuals and encourage them to take action as appropriate. Depending on the outcome of these trials, we will decide which communication approaches are most effective as part of our ongoing communications activity.

Next year we will set a baseline across all our audience group to measure awareness and understanding. This will be remeasured every six months and will be published, which will inform our approach as we refine and improve it. I can assure noble Lords that following Royal Assent we will track levels of awareness about state pensions and the reforms across the population on a regular basis. The research findings will enable us to identify specific groups that our messages are not reaching, or where the messages are not easily understood, so that we can take action accordingly. Our communications strategy is designed to cater for the needs of different audiences. We recognise the need to test our approach as we go, and as part of this we will undertake the trials that I have mentioned. It is right to do this before committing to undertaking full-scale direct mailings, or indeed any other form of communication, which may not deliver any significant increase in awareness or action. In the light of this, I urge the noble Baroness to withdraw her amendment.

My Lords, I should like to thank my noble friends Lady Turner and Lady Sherlock for their contributions. I understand that the Minister is as committed as could reasonably be expected to trying to ensure that people are aware of and fully knowledgeable about their entitlements. I accept and absolutely understand that there is considerable virtue in having an evidence-based policy by building it up on the results of research into the most effective lines of communication. I also agree that a variety of responses may be wanted, including press, mailings and online, but I have to say that I would worry if it was largely dependent on online information, given what we know about many people’s recalcitrance over using online facilities as UC is rolled out. It may be that it is a generational thing and that over the next decade to 20 years the recalcitrance begins to disappear, particularly if places such as Norfolk end up actually having access to broadband.

My difficulty is that the Minister has a policy premised on the fact that those who know that they do not know will make the inquiry. The problem is around those who do not know that they do not know, and I am not confident that he has in place a strategy to make them aware of it. In the past, the people who were most vulnerable would have been married women who had been in and out of the labour market according to their caring responsibilities. They had a very straightforward safety net by the fact that they could have 60% of the husband’s pension as a baseline, and only if their own contributions exceeded that, as increasingly they have begun to do, would they draw on their own contributions. That is no longer the case. So the 60% married women’s pension is being withdrawn without, as far as I can see, ensuring that those women know, first, that they are losing what they would have counted on in the past and which is common knowledge, and secondly, what other benefits—or credits, I should say—they may be entitled to claim because that information is not being sent out to them in lieu.

I think that the Minister has a problem here. We are on the same side and I fully accept that he wants to make sure that people are aware of this, but I do not think he really understands what happens when the safety net of the married women’s dependency pension which has existed for 50-odd years is pulled away and women are told that they are on their own. He does not actually know, understand or appreciate what it may be like to find the headspace, resources and capacity to change behaviour in order to build up a pension. I am sure that this is not a gender point, but I really do not think that the Minister understands where women like that may be coming from. In the past, as the Minister will know, we had deficiency notices under NIRS 2. They told you whether you had incomplete NI records. When the computer, on which the Minister is relying so heavily, toppled over in the late 1990s or thereabouts and we could not get it back on its feet for several years, we increasingly lengthened the period during which someone could buy back their NICs or make contributions accordingly to cover the lack of deficiency notices. We were willing to do it then for everybody on an annual basis, as far as I recall, before the computer toppled over, yet the Minister is reluctant to go back to that. I understand the point about mailings and so on, but at the very least I press the Minister to identify in his research the at-risk group. For my money, the at-risk group are women, particularly married women, who had relied on the 60% married women’s pension, who were perhaps unaware in the past of the credits they could have claimed, including carer’s credits, and they are not on the list.

I would like some assurance from the Minister—it could just be a nod if he likes—that the at-risk group in particular can be identified. At 65 or 66, they could find themselves on their own with an incomplete state pension and it is too late to do anything about it because we have failed to keep nudging them. If the Minister could give me that assurance, I would be content.

I would be very comfortable giving the noble Baroness that assurance. Clearly, a generalised mailing out is exactly what we are concerned about. The evidence is that people will get official-looking letters which they do not look at. We have to find a way of getting to the most vulnerable groups, who may take a Rumsfeldian attitude—they do not know what they do not know—and we have to find a way through that. Therefore, I can give the noble Baroness that assurance. I think we are basically agreed around this Chamber about the need to get the communication right, but we need to do the research. There is no point in us making it up without that knowledge.

Amendment 3 withdrawn.

Schedule 1: Transitional rate of state pension: calculating the amount

Amendment 4

Moved by

4: Schedule 1, page 31, line 34, at end insert—

“( ) Where regulations under section 22(5ZA) of the Contributions and Benefits Act have the effect that a person is credited, on or after 6 April 2016, with earnings or contributions for a tax year starting before that date, the earnings or contributions are to be treated for the purposes of calculating the rate under this paragraph as having been credited before 6 April 2016.”

My Lords, in Committee, the noble Baroness, Lady Dean, spoke movingly of the case of a service wife. Her husband, a commanding officer, was stationed in Belize. Travelling abroad with him meant she sacrificed a successful legal career in the UK, but she also gave up the ability to build up her state pension. It gives me great pleasure today to be able to present a means to redress this situation. I need to acknowledge, alongside the contributions of the noble Baroness, Lady Dean, those of the noble Lords, Lord McKenzie and Lord Browne, and I particularly thank the noble Baroness, Lady Hollis, for her forensic analysis of this issue and her persistence in seeking a remedy for this group.

This amendment signals our determination to act. It places a duty on the Secretary of State to make regulations to allow service spouses and civil partners, due to reach state pension age from 6 April 2016, to apply for national insurance credits for periods during which they accompanied their partner on a posting outside the UK. The regulations will make provision to allow credits for periods between 1975-76 and 2010. This will ensure that, even in the rare circumstances that someone has spent their entire working life accompanying their spouse abroad, they will still be able to build the 35-year contribution record needed for the full single tier.

This builds on this Government’s commitment, set out in the Armed Forces covenant, to remove disadvantages that the Armed Forces community may face in comparison to other citizens, and to recognise sacrifices made. We continue to work on the finer details of the scheme, which will be set out in regulations. This will include the manner in which applications will need to be made and the precise start date. From information supplied by the Ministry of Defence, we estimate that up to 20,000 individuals could have a higher single tier pension from these credits.

Key to the impact of these amendments will be how effectively they are communicated. We recognise the importance of alerting people to the scheme to maximise take-up, and this will be incorporated into our wider single tier communications strategy. The MoD also anticipates using the ex-service communities’ charitable network and the Service Personnel and Veterans Agency communication channels. This amendment is also grouped with a small number of technical, tidying-up amendments to Schedules 1 and 12. These are all consequential on either Amendment 9 or provisions elsewhere in the Bill.

In summary, those who support our armed services abroad should not be penalised. The prospective earnings credit introduced in 2010 helped to ensure that single- tier pensioners in the circumstances I have discussed could build entitlement to state pension for years after 2010, but not before. These amendments address this and ensure that people who have accompanied their spouse or civil partner on overseas postings are not unjustifiably disadvantaged. I beg to move.

I will just say a couple of sentences. I am very pleased indeed that the Government are building on the work of the last Labour Government in recognising the particular obligations that go with the military covenant and ensuring that the spouses of service personnel are not disadvantaged when it comes to a full state pension. I welcome this and am very glad that the department and the Minister have been able to meet the concerns raised in Committee.

My Lords, we welcome the Government’s amendment, which requires the introduction of regulations to provide for spouses and civil partners of service personnel to gain national insurance credits for periods spent on accompanied assignments prior to 2010. As my noble friend has just said, these provisions build on the reforms of the last Labour Government, who allowed credits to begin from 2010. I thank the Minister for the generosity of his remarks about my noble friends Lady Dean and Lord McKenzie and, indeed, his recognition of my own small contribution to this outcome.

However, it would be remiss of me if I did not express from these Benches that we are in no doubt who is entitled to the greater credit for this amendment being tabled. It is my noble friend Lady Hollis who is the heroine of the hour. There is no question that the Government have acted because she raised the issue so effectively in an amendment in Grand Committee. Before she did so—and I am sure that the Minister will confirm this—the Government’s position was an honourable one, but, as expressed on page 33 of the document The Armed Forces Covenant: Today and Tomorrow, they stated:

“At present the Government has no plans to make further adjustments to the tax and benefits system for Service personnel and their families but will keep this issue under review”.

The Minister indicated in Grand Committee that he would review it and his officials have kept us all informed of that review going on and it is to his credit that it has resulted in this outcome.

The Government deserve significant credit for responding in the way they have done and now at least we can say in relation to this issue that there is no disadvantage and that members of the Armed Forces community have access to the same benefits as any other UK citizen. As the Minister has said, the challenge now is to ensure that, of those potential 20,000 beneficiaries, the maximum number benefit from this opportunity. The current figures for applications for the 2010 credits are disappointing. Either the MoD now needs to build a process for credits to be automated, or it needs to improve its engagement with its own personnel, to inform people of the availability of the credits and to facilitate and encourage take-up.

I accept that the other government amendments are consequential and uncontroversial and we welcome them also.

Amendment 4 agreed.

Amendment 5 had been withdrawn from the Marshalled List.

Clause 17: Effect of pensioner postponing or suspending state pension

Amendment 6

Moved by

6: Clause 17, page 8, line 31, at end insert—

“( ) The weekly rate is not to be increased under subsection (1) if a person has opted to receive a lump sum.

( ) The amount of any lump sum to which a person who has deferred entitlement to a state pension shall be set out in regulations.”

My Lords, we move to a new subject: deferred pension and how it may be taken, whether as income or lump sum. Over the past 15 years, most pensioners have for the first time been lifted out of poverty. In 1997 nearly half of pensioners were below the poverty line. It is now about one in seven: 14%, compared to nearly 50%. Pensions have risen three times faster than earnings, pension credit has topped up their income and now, we are pleased to say, pensioners are no more likely to be poor than any other group in society.

With pension credit for most future pensioners being absorbed into the new, more generous state pension, together with the guarantee of the triple lock, that journey out of poverty continues. Pensioners’ incomes, especially for those with no occupational pension, will be stronger and more stable than ever before. It is good news and I am delighted. I congratulate the Government on it, I really do.

We know, in any case, that most pensioners are very careful and spend up to their income and no more. They cope and they avoid debt like the devil. However, the growing problem is that those pensioners dependent on the state system, who may in future have a more adequate state pension, are also less and less likely to go into retirement with some modest savings as a cushion against rainy days or as a resource to meet lumpy expenditure. Currently, 21% of pensioners—one in five—have no savings whatever; 37%, more than a third, have less than £3,000 in savings; and half have less than £8,000. If the Minister gives us any mean averages, they are frankly a waste of time, as they were in a previous debate about hours.

Pensioners face soaring quarterly energy bills—I imagine other noble Lords, like me, have been slightly shocked in the past week or two to receive an energy bill rather larger than anticipated. The roof may need substantial work, especially after the gales, and may not be fully covered by insurance. Washing machines and boilers pack up. If they live in rural Norfolk, they may need to replace their old car with another, otherwise they are effectively housebound. They may have an outstanding mortgage and want to pay it off. What do the one in five who have no savings at all do when they are hit by a large utility bill? What do the more than one in three who have savings of less than £3,000 do when one of them dies and they face funeral bills?

We have, understandably, concentrated on building up pensioners’ incomes, and rightly so. However, we have largely ignored the issue of accessible pensioner savings for those of modest income. You can always turn capital into income—you just draw it down as you need it for that energy bill—but it is very hard to suddenly find £400 or more to pay the winter quarter energy bill from state pension income alone if you have no savings on which to draw. In other words, pensioners need savings, just as we all do, and too often they do not have any.

We recognised this when we did the deal with what was then Age Concern as we introduced pension credit in, I think, about 2002. The first £10,000 of savings would be disregarded for pension credit, although thereafter there was a high notional tariff rate. We recognised this need for savings when my noble friend Lord McKenzie made means-testing far more light-touch as pensioners became older. That is why, incidentally, I am seriously bothered about the new class 3A contributions, which encourage pensioners to use up capital to buy a year of S2P, taking an unwise gamble on their life expectancy, increasing their income by a bit but heavily reducing their capital. That is very unwise.

Above all, we recognised this when, back in 2005, we allowed pensioners who had deferred drawing their state pension to take that saved-up pension either as an income addition to their future pension—which is what most did—or as a lump sum to give them some savings. The Government propose to abolish the choice of taking that saved-up pension as a lump sum; it will be available to people only as an addition to the state pension. They are removing the choice of a savings sum from future pensioners. Currently, of the 1.2 million who defer their pensions, 63,000 take the lump sum, which was, on average, just under £14,000. In future, that option will be scrapped. Why? The Minister for Pensions, Steve Webb, is absolutely clear that he is doing it to “simplify the system”. It is not about costs at all, he says, just about simplicity. What is so difficult to understand about a lump sum of your two years or so deferred pension? It is complex, the Minister says, because DWP needs a 64-page leaflet to explain the choice. The Minister in your Lordships’ House, the noble Lord, Lord Freud, says the same.

As the Minister would expect, I have that 64-page leaflet. It is well written—well done to the DWP—simple to understand and straightforward. I have worked through it. I calculate that if, in the name of simplicity, you removed the choice of a lump sum and allowed only an increase in the pension, you would remove precisely 11 pages in total—I will give him the references if he wishes—so that the 64 pages would come down to 53. The rest of the pamphlet would remain unchanged apart from occasionally deleting the words “or lump sum” from, for example: what happens when I die, if I get divorced or if I am widowed; can I combine them; what if I live abroad; what are the effects on my benefits or on my tax; where can I find out more; what organisations may help me; and so on. That is what the 53 pages are largely about. All that applies to any deferred state pension, whether it is taken as an increment or as a lump sum—the argument of simplicity does not wash at all. It is a complete myth, and if anybody worked through that pamphlet, they would see it for themselves. I am confident that the Minister has worked through that pamphlet and I am therefore confident that he will agree with my assertion that it removes only 11 pages out of 64 in the name of simplicity, thus denying choice to people who want to exercise that choice. Taking out that choice in the name of alleged simplicity is, frankly, laughable—it is absurd. I have never seen such a trivial justification. It takes 11 out of 64 pages and thereby denies the choice of a savings lump sum to 65,000 people. I presume the Minister thinks people can understand 53 pages but that 64 pages is just too much. Really? Because he thinks, without any evidence, that they cannot manage those extra 11 pages, he will take the decision out of their hands and make it himself. He knows better than pensioners what they should do with their money. He cannot trust people who have been working and scrimping for 50 years not to waste any savings—their money—that they may accrue.

Mind you, if you have a private occupational pension and get a 25% lump sum tax-free, that is fine. You can do what you want with it. If you simply defer your S2P element, your additional pension, for two years you can take that as a lump sum. The Minister will not tell you how to spend that either. However, on a state pension, he is taking away the possibility of a lump sum—your money—that you have saved for, because, frankly, he does not trust you with it and is calling it simplicity if he takes 11 pages out of a 64-page pamphlet.

Some people, after two years’ deferral, may want that £14,000 of their money rather than the alternative of £14 a week. I would. They would be better off taking the £14 per week instead of a lump sum only if they live, I calculate, a further 20 years until they are aged 87. Those without savings are also poorer and least likely even to reach 80, let alone 87. Who are we talking about? They may be husbands working longer until their younger wife also reaches state pension age. They may both work longer, and one takes the income and the other the lump sum. They may have a somewhat impaired life expectancy; perhaps one is a smoker and they want the lump sum up front just in case that person does not survive to 87. The unspent portion of the lump sum can be inherited by the surviving spouse and would help cushion her—but if taken as increased income it dies with him.

We rightly spend hours trying to encourage people of working age to work longer. We rightly spend hours trying to get them to save. We know we need to build a savings culture. In a low-paid job, perhaps the only way they may be able to build savings is to defer their state pensions for a year or two, work a bit longer and take it as a lump sum. That may subsequently save them needing to get loans at huge interest rates because they have a lumpy bill, perhaps an energy bill, to meet. It allows them to make choices, which each one of us in this House takes for granted. Having just that extra margin in savings means that they can decide to help a grandchild, buy a washing machine that works, replace the carpet, celebrate a golden wedding anniversary, turn up the heating when it freezes or give a donation to their local church. They cannot do that out of income. They need savings. It is their choice, not ours. Pensioners, as they enter pension age, are moral adults and we should respect that and respect them. They have earned the right to that choice and we—and the Government—have absolutely no right at all to take that choice away. I beg to move.

My Lords, although we gave this a fairly good airing in Committee, I confess that I do not yet feel that I properly understand the nature of the Government’s objections to the taking of lump sums. My noble friend Lady Hollis explained her case for this, and there is no doubt that we have a crisis of savings in this country. Too many people do not have a safety net for a rainy day, and British households generally do not have enough money in savings. That amount has been falling in recent years—unsurprisingly, given the pressures on the cost of living. The case made by my noble friend about why people might need access to a lump sum deserves an answer from the Minister. She described when and why the option was introduced and what people might use it for.

However, having gone carefully over the record and the correspondence since, I did not get answers to some of the questions which I put to the Minister in Committee. Those answers would help me because I would like to understand two things. First, are the Government confident that they have worked through who will be affected by this, what the impact will be and what the alternatives are? Secondly, can they explain clearly why they are doing it? On the first point—and I did ask this—we know that 75% of those who are deferring are women, but do we know why?

My noble friend suggested in Committee that those people are waiting until their partner retires to claim their pensions. Have the Government been able to confirm whether that is why they are deferring, or are they deferring because they are still working and have not saved enough to feel able to retire? What do we know about the wealth of those who are deferring their pensions? These questions matter because they would go to the points made by my noble friend Lady Hollis about whether people without savings are going to end up accessing other forms of credit, which we would not want them to do as they may be problematic.

Most of all, I would like to understand what the Government’s objection is. We have had a few arguments made: the argument of simplicity was made and has been pretty well dispatched, so I will not revisit it. Another argument raised was that significant numbers of people deferring and claiming a lump sum are living overseas. However, we know from the data given to us that more than three-quarters of those people are living in the UK, so that is probably not the issue. Is it the administrative burden? Perhaps the Minister could tell us whether it is that or simply the cost.

If it is the cost, I understand that. If the Government’s argument is that the costs are significant, the House, I am sure, will listen carefully. However, it would be helpful at this point if the Minister could simply come out and say whether he would like to do this but cannot afford it or whether the Government think for some reason that it is a bad idea, in which case my noble friend Lady Hollis has laid down a strong challenge which the Minister really should answer.

My Lords, in designing the single-tier reforms our overriding aim has been to deliver a flat-rate pension above the basic level of the means test without increasing spending, and to do so in a way that recognises people’s contributions under the current system. This is not easy to do and it involves difficult trade-offs. Some elements of the transition necessarily generate costs in the early years, particularly the “better of” calculation, which means that people with low amounts of additional state pension, such as carers, receive a boost. There is also the fact that those with high amounts of additional state pension, which take them over the full amount of the single-tier pension, are able to keep the surplus as a protected payment. Nevertheless, we have been able to stay within 1% of projected expenditure until 2040, which is fair to current pensioners and to future taxpayers.

In answer to the blunt question of the noble Baroness, Lady Sherlock, removal of the lump sum option for those who defer their state pension has played a key role in flattening expenditure. The early-year savings that this delivers have been ploughed back into the single-tier design. We are, however, still keen to preserve some flexibility for single-tier pensioners who, by choice or accident, claim after they reach state pension age, so people will still be able to build up an increase to their state pension that is paid on top of their single-tier entitlement for the rest of their lives. As discussed in Grand Committee, there remains the option of backdating a claim for a single-tier pension. By backdating their claim to a state pension, someone who has delayed claiming for whatever reason—either unintentionally or as part of a planned retirement—will be able to get up to 12 months’ arrears when they make their claim for a pension. This would provide someone who has qualified for the maximum weekly amount of £144 with arrears of almost £7,500 at 2012-13 prices.

Can the Minister help me with a technical point? With arrears, is the assumption that interest will be paid on the deferred money?

What happens is that the amount is repegged to the year in which it is taken. If, for instance, someone’s delay in claiming exceeded a year, they would get an increment on top of the single-tier entitlement.

I am sorry but I still do not understand. This is a very simple point. At the end of the year in which you have not drawn your pension, do you get the equivalent of a return on capital—in other words, an interest payment—over and beyond the direct addition of 12 months of state pension?

No, you do not get interest on arrears, but let me take the example of someone who delays claiming the maximum amount for two years and wants to backdate their claim for the 12 months. If we take the £144 example, they would get an increment of around £7.50 to £8 a week, depending on the value of the uprating, which would be added to their weekly entitlement. It would also include the calculation of arrears due to them for the backdated period. That would boost the overall arrears payment to more than £8,000, so that is the mechanism through which the delay works.

On the question from the noble Baroness, Lady Sherlock, about why women in particular are deferring, one of the main reasons is that women have a lower state pension age than men, although of course the reasons will vary with individual circumstances. I am loath to go too deeply into the simplicity argument because we will have a row which will go on for ever. However, to conflate complexity with the number of extra pages in a particular pamphlet is, bluntly, a somewhat bizarre argument. The difficulty for individuals is in making the decision on what option is best for them in the longer term and what is best for their surviving spouse.

I must confess that I have not counted up the pages or gone through it in detail. I suspect that I have gone through it but I cannot remember it and have not done the counting job on pages that clearly I should have. I knew that I should not have said this. However, I am not going to back down and I will stay with my “bizarre” comment.

My Lords, I am most grateful for having a superb staff, some of whom have not only read the document but written it, so I am confident in the statement that I have just made.

The removal of the lump sum is not because we do not trust people; in fact, it is quite the opposite. We believe that people can make savings decisions for themselves. If they can afford not to claim the state pension, they can choose to save it.

Let me go to the figures on pensioner capital. We do not recognise the figures quoted by the noble Baroness. The figures I can quote—which are not averages, which I know the noble Baroness would scorn—are that almost three-quarters of the pensioner population already have more than £5,000 in capital, and more than half of all pensioners have more than £12,500 in net wealth.

I am not sure why that was the point precisely, but those are the figures I have. The proposed amendment would allow for regulations to introduce a lump-sum payment into the new scheme. That would bring costs forward and would undermine the cost neutrality of the single-tier package, as well as the simplification.

Bringing costs forward may sound like a technical concern, but the timing of expenditure is vital. Without making offsetting savings elsewhere in the single-tier package, Governments in the early years of single tier would be forced to divert more spending towards the state pension system than under the current scheme, which means more government borrowing for future generations to shoulder, or less to spend on today’s priorities. We simply do not believe it is right to make this trade-off to enhance the personal financial management options for a relatively small group of people who do not need to draw the income from their state pension and are therefore able to exercise their option to defer.

We understand that a one-off payment can help people build up capital, and the backdating option can provide flexibility in this respect. However, we question whether there is a widespread problem of low capital for those in retirement. Introducing a lump sum would require us to make alternative savings from elsewhere in the single-tier package, most likely by reducing coverage. We simply cannot agree to that, and so I urge the noble Baroness to withdraw her amendment.

My Lords, that was a very interesting reply. I only wish we were in Committee so we could show up more of the thinness of the Minister’s reply. For somebody who is so evidence-based—which is something I greatly respect about the Minister—he was dismissing it rather wildly out of hand.

The Minister pushed the argument that this is about cost and said that this removal played a key role in “containing expenditure”. That is very interesting. I had a discussion with his right honourable friend something like three weeks ago on precisely this point. He assured me most emphatically and vigorously—I am sure he would confirm the conversation, and there were witnesses—that this had nothing to do with cost but was only about simplicity. May I at least suggest that the Minister talks to his right honourable friend and agrees a common line on this? At the moment, one says it is all about cost and the other says it is nothing to do with cost but is all about simplicity. I suspect that the Minister in our House is probably correct about the cost argument, but that is not the position presented by the Minister responsible for pensions, who assured me emphatically to the contrary.

As to the point about simplicity, frankly, it is absurd. I checked my pages again. Pages 11 to 17 are a table showing the cost value of a lump sum compared with increments, and pages 26 to 29 are on taxing the lump sum. That makes 11 pages in total, and probably only three of those, on taxing the lump sum, would be regarded as any form of challenge beyond a reading age of seven and a quarter—so the Minister’s argument about simplicity is frankly absurd, patronising, condescending, lacking evidence and without any factual basis whatever. Frankly, we expect rather better from the Minister.

As for pensioner savings, as I suspected, the difference between us is that my figures are based on individuals, and I stand by them, and his figures are based on households, which does not help the argument very much. He seems to think that 64,000 people denied a lump sum is such a small number that we do not need to bother about them. It is three times the number of service spouses, if I remember correctly, that he is going to help through the military covenant, and no one said they were too small a number to bother about—yet the figure for a lump sum possibility which is three times larger is too trivial to be worth troubling ourselves with.

Frankly, I do not think the Minister believes a word of his argument. I think he does believe his argument about cost, but I do not think he believes anything else about it. He knows and understands that pensioners need savings. He knows that this may be a way for those who take this lump sum to exercise that choice. He knows that it is not difficult to understand. It could not be simpler. Do you want to take this two years’ worth of pension as a lump sum or do you want to add it on? If you are taking away the increment, that would be complicated to explain. A lump sum is the easier and simpler of the two options, and that is the one the Minister is taking away, to the pain of the individual who I calculate will reach their cross-over point—I asked the Minister for this figure, but it has never come to me—at about 87: I stand to be corrected if the Minister thinks I am wrong.

We are left with backdating—fine. All I can hope, and I am sure others do as well, is that we will keep up the pressure on Ministers to ensure that people are aware that they can take their pension lump sum in arrears, as a form of saving, after 12 months and get £7,500 or £8,000 for that sum, which will still keep them below any risk that other benefits, if they are necessary, including housing benefit, will be lost.

I am disappointed by the Minister’s reply, and I think that the Minister is disappointed by the Minister’s reply. He knows that it does not stand up to a scrap of scrutiny—not one scrap—but there is nothing much we are going to do about it at this time of night, so I beg leave to withdraw the amendment.

Amendment 6 withdrawn.

Consideration on Report adjourned until not before 8.47 pm.