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Pension Schemes (Conversion of Guaranteed Minimum Pensions) Bill

Volume 709: debated on Friday 25 February 2022

Bill, not amended in the Public Bill Committee, considered.

Third Reading

I beg to move, That the Bill be now read the Third time.

As I said on Second Reading, the Bill will help occupational pension schemes correct a basic issue of men and women being treated differently in contracted-out defined benefit occupational pension schemes because of the impact of having a guaranteed minimum pension, or GMP. It will help pension schemes to meet their legal obligations and ensure that people do not receive less pension income than they would have done had they been the opposite sex. In other words, it will help schemes to correct a situation that is fundamentally unfair.

I am proud to have brought the Bill before the House. I was delighted to hear the Under-Secretary of State for Work and Pensions, the hon. Member for Hexham (Guy Opperman) announce on Second Reading that the Government would support it. The support that the Bill has attracted from across the House is testament to both its importance and its essential simplicity. It makes a few changes to pensions legislation that will help occupational pension schemes to resolve a long-term issue of unequal treatment.

The pensions industry has itself been asking for the measures in this Bill, and as a result of those measures, schemes will be better able to use the GMP conversion process to correct for the differences in pension outcomes for men and women that have arisen as a result of GMPs. It is very pleasing that hon. Members from across the House have recognised and responded to this need.

For the benefit of those who were not present for the previous stages of this Bill, I will give a short recap of its background and purpose. GMPs are the minimum pension that certain occupational pension schemes must provide to their members. Occupational pension schemes that were contracted out of the additional state pension on a salary-related basis between April 1978 and April 1997 are required to pay their members GMPs as a floor that the occupational pension cannot fall below. The intention was that when reaching the age at which GMPs become payable, the amount of GMP that a member of a contracted-out scheme would have accrued would be broadly similar in value to the additional state pension they would have received if they had not been contracted out. Rather than paying a higher rate of national insurance contributions to build up rights to additional state pension, members of salary-related contracted-out schemes built up rights to a GMP.

However, the way that GMPs were accrued by people means that they differ for men and women, due to historical differences of treatment in the pensions system based on people’s sex. People with the same employment history can therefore have different amounts of GMP depending on whether they are a man or a woman, even if they do exactly the same job for the same length of time at the same salary. Both men and women can lose out on pension income in retirement as a result of their sex: it is not as simple as one sex losing out consistently over the other. I have discussed this issue in this House several times now, and I still find it difficult to believe that people can lose out on even a small amount of pension income purely because of these differences.

Fortunately, successive UK Governments have made clear for over three decades that occupational pension schemes need to equalise pensions accrued since then to correct for these effects of GMPs. The High Court confirmed in 2018 that occupational pension schemes must equalise pensions accrued since 17 May 1990 to address the effects of those differences. Occupational pension schemes are therefore required to undertake a process known as GMP equalisation, correcting people’s overall pensions to ensure that they are not lower than they would have been had the person been of the opposite sex. That is why the Department for Work and Pensions published a suggested methodology based on the overall value of the pension, which relies on the process of converting GMPs to normal scheme benefits. It is elements of this process that the Bill before us addresses.

Unfortunately, correcting people’s pensions in this way is proving a very slow process. There are a number of ways in which the task of GMP equalisation could be approached. One way, for example, would be to look at the pension in each year and compare what a man and a woman would have received, and pay the higher of the two. The problem with this approach is that it would result in members getting more overall than either a man or a woman would have received before the equalisation process. This would have been prohibitively expensive for schemes, and would in itself be unfair.

The DWP, working with the pensions industry, proposed a methodology based on the overall value of the pension, set out in guidance for pension schemes to use. This methodology involved converting the GMP into normal scheme benefits using the existing legislative framework. The industry agrees with that approach, but is worried that the current legislation that supports the conversion process has some gaps that the industry believes will leave it exposed to legal risk or potential accusations that it has not equalised correctly.

For example, we need to clarify the way in which survivor benefits are treated in the conversion legislation. The industry has pointed out that the legal requirements for survivor benefits when GMPs are converted are not clear enough. Survivor benefits are the benefits paid out to a scheme member’s widow, widower, or surviving civil partner when the member dies. Schemes need legal certainty and a clear framework before they can move forward with this process. This Bill seeks to provide that essential certainty to schemes.

In the last 10 years since it was introduced, the automatic enrolment scheme has enabled 4,000 of my constituents on Ynys Môn to establish a pension. I congratulate the hon. Member on this important Bill. Does she agree that it addresses uncertainties in the current legislation and removes the risk of misapplication?

I thank the hon. Member for her intervention and I absolutely agree. This Bill is set to remove those uncertainties so that these occupational schemes can get on with the equalisation process that they have always known they should be carrying out anyway.

The Bill removes the text in the Pension Schemes Act 1993 that sets out what survivor benefits following GMP conversion must look like, and replaces it with a power to set out those conditions in regulations. When this provision was discussed in Committee, I asked the Under-Secretary of State for Work and Pensions, the hon. Member for Hexham (Guy Opperman) to confirm that the Government would consult on the content of those regulations. I am pleased to say that he agreed to that.

Before converting GMPs, pension schemes are required to get the consent of the sponsoring employer that funds the scheme, which might look to be reasonable, considering that the sponsoring employer has invested a lot of money to ensure that scheme members receive a decent retirement income. Unfortunately, it is not that straightforward, because current legislation does not account for all possible situations, such as where the original sponsoring employer is no longer in business. Again, the Bill removes the requirement for employer consent in the Pension Schemes Act 1993 and replaces it with a power to set out in regulations the details of the relevant persons who must consent to the conversion. I am again pleased to say that the Minister confirmed in Committee that the Government would also consult on the content of those regulations.

Finally, the Bill removes the requirement that pension schemes have to notify Her Majesty’s Revenue and Customs when they carry out a GMP conversion exercise. In Committee, the hon. Member for Reading East (Matt Rodda) very reasonably asked what checks would be in place if HMRC no longer had to be notified that people’s GMPs have been converted into other scheme benefits. I would like to reassure the hon. Member that the removal of the requirement that a scheme must notify HMRC if it converts GMP rights into other rights was requested by HMRC. The notification requirement was not a check by HMRC on whether an individual scheme had carried out a GMP conversion correctly. Responsibility for the accuracy of the conversion lies with the pension scheme’s trustees, and they must take advice on certain matters from the scheme actuary.

The requirement to notify HMRC if a conversion has been carried out is simply a legacy of the time when members of occupational pension schemes paid a lower rate of national insurance if they were contracted out. Because both the employer and the scheme members were paying lower national insurance contributions, HMRC used to need to keep detailed records of all contracted-out schemes. However, when contracting out ended for all occupational pension schemes in April 2016, with the introduction of the new state pension, employers and members no longer paid a lower level of national insurance. HMRC therefore no longer needs to be notified.

As this information is no longer required by HMRC, from 2019 it has said to schemes that it no longer requires them to notify it if GMP conversion has been carried out. However, because it is still a requirement of the Pension Schemes Act 1993, schemes should normally still submit such information to HMRC, despite its having no use or need for it. As I said, it costs schemes time and money to notify HMRC, it costs HMRC time and money to process the notifications, and there is no need beyond the current requirement in the 1993 Act for any of this time and money to be spent.

I reiterate to the House that the Bill does not impose any new costs or requirements on occupational pension schemes or their sponsoring employers. As I said, affected schemes have known that they need to equalise pensions for the effect of GMP for many years, and they should have been planning for equalisation. The Bill will simply help pension schemes that decide to use GMP conversion to do what they need to do to ensure payments are fair. I have engaged positively with representatives from the pensions industry, who have long called for these changes and welcome the Bill’s provisions. I am extremely pleased and proud that my Bill will help schemes that want to use GMP conversion to correct for the effects of this issue, and I am delighted by the cross-party support I have received so far and again today.

I congratulate the hon. Member for Rutherglen and Hamilton West (Margaret Ferrier) on bringing forward this Bill and I thank her for allowing me to participate in her debate.

Pensions are integral to our society; they are a means whereby individuals can reap the benefits of their hard work throughout their life, in old age. When someone reaches an age where they are no longer earning, they need an income to survive, and this is where a pension kicks in. It is a payment that, we hope, allows a retired individual to have economic freedom. It is a point in our lives we should all be looking forward to. People often fall into the trap of thinking that they are able to save enough money to comfortably live when they are no longer earning. Unfortunately, a lot of the time they do not save enough to enjoy the standard of living they hoped for in retirement.

A state pension is a great starting point but if, like me, they want to enjoy the luxuries of old age, they would need to think about investing in a pension scheme. It is a long-term savings plan with additional benefits. There are many benefits of pension schemes such as tax relief, contributions made by the employer and tax-free lump sums when the person retires. If they pay contributions into a pension scheme, some of the money that they would have had to pay the Government in tax is in fact paid into the pension instead. The employer may match or pay more than the person contributes to the pension scheme. That is money that they would not have gained had they put their money into a savings account. Finally, they will usually be able to take up to a quarter of their pension savings as a tax-free sum.

Having expressed the importance of pensions, it is integral that both men and women can benefit from them equally. That is why I am very pleased that hon. Lady has brought this Bill to the House. It is recognised that there were disparities between pensions on the basis of sex, as a result of differences in retirement age. As she mentioned, a GMP is a pension that a workplace normally provides, and it applies only to people who contracted out of the additional state pension scheme. A GMP is usually the same, if not more, than the additional state pension had the person not contracted out of it. Previous legislation required GMPs to be determined on an unequal basis. A woman’s GMP is normally accrued at a greater rate than that of a man, to ensure that there is recognition of a woman’s working life being five years shorter than that of a man.

It is important to understand the terms “revaluation” and “indexation”. Revaluation is an increase in the value of someone’s pension before they start drawing it, whereas indexation is the rise in value of their pension while they draw it. The Government have set a rate of revaluation that schemes can use at 3.5% and there is a minimum indexation rate of 3%. Therefore, some pension schemes’ revaluation rate is higher than their indexation rate. Women used to have an earlier retirement age, and therefore they were getting indexation while men were receiving revaluation. In this instance, a woman would usually get a higher pension rate until they started claiming their pension, which would remove their revaluation rise and replace it with an indexation rise, whereas a male would be entitled to a revaluation rate for a further five years until their rate, too, was switched to an indexation rate.

Schemes are required to remedy that through equalisation, but it has never been clear how to go about that. The Bill seeks to clarify that. The current situation is the perfect example of de facto change but not necessarily de jure change. The Bill clarifies that the legislation is to remedy the disparity as it applies to survivors as well as earners. That is important, because the sad reality is that it is common for individuals to become widowed and it is vital that the surviving spouse can claim the disparity for which the deceased spouse was eligible.

The Bill provides a power to set out in regulations the conditions that must be met in relation to the survivor’s benefits, making it clearer and easier for survivors to claim the remedy. It provides for a power to set out in regulations detail about who must consent to the conversion, giving further clarification on what is needed to claim the remedy. Finally, it will remove the requirement to notify HMRC. I am told that HMRC needs to be notified but may not be doing anything with that information. It therefore makes sense to remove that bit of red tape which, in practice, makes no material difference.

My constituents in Broxtowe will benefit from the Bill, which will allow them remedy on the disparity to which they are entitled. That will be achieved by removing red tape around pension regulation and providing further clarity. Through that, we will ensure that more individuals understand the logistics of their pensions. It should not be necessary to be an expert in finance to understand the rights and responsibilities that come with pensions, and I hope that these changes will go some way towards beginning to make that happen. I congratulate the hon. Member for Rutherglen and Hamilton West (Margaret Ferrier) on introducing the Bill.

This is the second time in a week that we have seen important changes to regulation in insurance and pensions that will have a meaningful impact on the country. Last week, we reformed Solvency II, which will unlock billions of pounds of investment, and now we have this Bill, which is a long-overdue step towards equality between the sexes in occupational pensions. I firmly congratulate the hon. Member for Rutherglen and Hamilton West (Margaret Ferrier) and my good friend the indomitable pensions Minister on this smart and thoughtful Bill.

I congratulate the hon. Member for Rutherglen and Hamilton West (Margaret Ferrier) on successfully bringing forward this well-considered Bill and for so excellently and comprehensively explaining why we need it.

When the Equal Pay Act gained Royal Assent on 29 May 1970, the House took an all-important step towards ensuring the equal treatment of the sexes in the workplace. It also sent a broader message about the United Kingdom’s societal values. Since the Act’s commencement in 1975, even greater strides have been taken towards ensuring gender equality. However, as I am sure colleagues agree, much work remains to be done to that end.

As lawmakers, we in this House all have a responsibility to strive continuously towards the goal of gender equality through legislation, whether modest, substantial or otherwise, and the Bill can rightly be seen as a means of doing that. Specifically, it will right a historical oversight by making crucial clarifications in relation to guaranteed minimum pensions equalisation and pension schemes.

Madam Deputy Speaker, you can see that I am holding a wonderful speech that I have criss-crossed out because I do not think I need to go through all of that detail—we also have other people who wish to speak and other Bills to consider. However, proposals and methodology brought in during 2016 and 2017 should be secured in relevant regulations, including the positive impact that they would have on the equality of outcome for the sexes. These concerns must be properly addressed in legislation, and that is what the Bill rightly seeks to do. It has also been welcomed by leaders across industry as covering key areas where clarification is most needed, which will make the important process of equalising benefits using GMP conversion easier.

Bearing that positive reception from industry in mind, and given the broader message that it sends about the importance of the equality of the sexes in legislative matters both significant and modest, I strongly welcome the Bill and offer it my wholehearted support.

It is a privilege to follow my hon. Friend the Member for Hastings and Rye (Sally-Ann Hart).

Let me begin by congratulating my friend the hon. Member for Rutherglen and Hamilton West (Margaret Ferrier). I know only too well what a privilege it is to be successful in the ballot, and I congratulate her on guiding this Bill through its legislative journey. It is commendable that it deals with such an important issue, and I am pleased to be able to speak about it today.

I am also delighted that the Bill extends to England, Wales and Scotland, and that Northern Ireland has asked to be covered by it as well. That is another great benefit for our United Kingdom. There were, at the final count in 2015, about 8 million people across the United Kingdom with contracted-out memberships, and the Bill has the potential to benefit those 8 million people. I cannot imagine a reason why anyone in the House would not be in favour of that.

The Bill relates specifically to the issue of guaranteed minimum pensions, but pensions have been on the agenda in the House on a number of occasions in recent weeks. I was pleased to speak in a recent Westminster Hall debate hosted by my hon. Friend the Member for Grantham and Stamford (Gareth Davies), and my hon. Friend the Member for North West Durham (Mr Holden) is leading a sterling campaign to extend auto-enrolment to many more people, which would be a fantastic way to level up throughout our United Kingdom and ensure that trillions more go into our pension pots, thus ensuring that the poorest in society have a more secure future. I would welcome the Minister’s comments on that, as I know he is a champion for pensioners. I also know that he would like an opportunity, when he winds up the debate, to highlight the £1.8 billion-worth of unclaimed pension credit pots out there, which could serve as vital assistance to pensioners in our constituencies. But let me return to the specific issue of the Bill, as opposed to wider pension benefits.

This Bill will make the process of equalising with the use of guaranteed minimum pensions easier, and it is worthy of the support of all of us in the House. I look forward to seeing it pass its Third Reading today, and congratulate the hon. Member for Rutherglen and Hamilton West once again on her efforts.

I will keep my remarks brief, because I know that there are many good speeches still to come. Let me first refer the House to my entry in the Register of Members’ Financial Interests: I am a practising chartered accountant, and also the chair of the all-party parliamentary group on small and micro business.

I thank the hon. Member for Rutherglen and Hamilton West (Margaret Ferrier) for introducing an excellent Bill which will achieve a great deal. As a practising accountant who had to live through the introduction of auto-enrolment, I have a love-hate relationship with it, and with pensions, although of course I see the fantastic benefit that they bring. Recent figures show that in my constituency alone, more than 22,000 employees in 1,830 businesses across Meriden have automatically enrolled. That scheme is a great achievement, providing security and a pot of money for people to rely on when they retire. Hopefully they will look back at us for many decades to come, and thank us for taking the measures that we have taken.

Speaking as the chair of the APPG, I hope the Minister will assure me that, as pension changes occur—I am sure he has already envisaged them—there will be consultation with businesses, because small and micro businesses often feel that they are not part of the conversation. That said, when auto-enrolment was introduced, the SME sector was quite relieved by the consultations that took place. That also showed that the Government can introduce good legislation with good IT systems behind it, as we have also seen recently with the furlough scheme, in respect of which I was involved in getting my clients on with real-time information.

The Bill is excellent and is what I call an equaliser Bill, quite rightly bringing women on a par with men. There are many other things to achieve on that journey but I wholeheartedly support this legislation. I congratulate the hon. Member for Rutherglen and Hamilton West on her cross-party thinking. As we have seen in recent week, great things can be achieved when the House comes together in unity. I thank her and the Minister for all their work.

I congratulate the hon. Member for Rutherglen and Hamilton West (Margaret Ferrier) on introducing the Bill, which the Opposition are pleased to support, as we were at previous stages. As the hon. Lady and others have said, it will help occupational pension schemes to correct the basic issue of men and women being treated differently in those schemes because of the impact of a guaranteed minimum pension. It will also help pension schemes to ensure that people do not receive less pension income than they would have received had they been of the opposite sex. As the hon. Lady and others have said, the legislation has been welcomed throughout the industry and there is broad consensus that it is the right thing to do.

We should do all we can to help the pensions industry to fulfil what is now its legal duty to deliver guaranteed minimum pension equalisation, which includes supporting the Bill. In Committee, my hon. Friend the Member for Reading East (Matt Rodda) made clear our support for the Bill while making some general points and asking questions about the Government’s approach to communications in respect of this legislation and pensions more generally. He gently pointed out that the Government do not have an unsullied record when it comes to communication and he wanted to know a bit more about the Minister’s plans in that regard. I think the Minister was going to write to him but am not sure whether that has happened; perhaps the Minister could say a couple of words about the Government’s plans to ensure the effective communication of the message.

I reinforce our view that there must be a commitment in the Bill to a full and timely consultation with experts, the industry and others before the introduction of regulations. That consultation should address the conditions that must be met in respect of survivors’ benefits and the details about who must consent to the conversion. We asked in Committee what kind of instrument will be used to introduce the regulations and sought reassurance that parliamentarians will be able adequately to scrutinise the changes. We also asked about the requirement to notify HMRC, about which we have now heard more, which has helpfully clarified that point.

On the wider issues of gender inequality, GMP equalisation is only one way in which imbalances between men’s and women’s pensions need to be addressed. We need reassurance that the Government will commit to continuing to ensure that all aspects of gender inequality in pensions are looked at, because we know that the pensions gender gap is around double the pay gap and that small changes at the early stages of somebody’s pension career can have large repercussions.

In summary, we support the efforts in the Bill to tidy the legislation and make it easier for schemes to convert guaranteed minimum pension rights into ordinary scheme benefits. The Minister may wish to address the few important issues to be resolved, but they certainly do not distract from the Bill’s overall value and we look forward to it passing swiftly through its final stages.

The Government propose to transform United Kingdom pensions. We are making them safer, better and greener and the Bill is a further way forward. I am grateful to the hon. Member for Rutherglen and Hamilton West (Margaret Ferrier) for introducing the Bill and for the support of the official Opposition and other political parties.

Let me briefly address the three points raised by the hon. Member for Westminster North (Ms Buck) on behalf of Her Majesty’s Opposition. I assure her that there will be full consultation on the legislation. There will also be broad communication, but I will write to her on that point and place a copy of the letter in the Commons Library and the House of Lords Library so that all peers and Members can see it.

In respect of gender inequality, the hon. Lady will be aware that successive Governments have concluded that the way ahead on that is automatic enrolment—that is the greatest change. There is no doubt that automatic enrolment has transformed saving in this country. For example, in terms of workplace pensions, women were at less than 40% in 2012 and are now at more than 80%, and young people aged between 22 and 29 were at less than 40% and are now at 80%.

I agree with the Minister and welcome the Bill from the hon. Member for Rutherglen and Hamilton West (Margaret Ferrier). It is a great Bill and part of the reforms to pensions that the Government are making. As the Minister mentioned auto-enrolment, can he enlighten me on the Government’s position on my Bill, which is scheduled for later today, on expanding auto-enrolment to under-22s and part-time workers, particularly women as he just mentioned?

I will deal with that point, because it is relevant to this Bill and to the consideration of the House later. As my hon. Friend will understand, we are in the latter part of this parliamentary Session. It is the end of February and the Queen’s Speech will come, in all probability—obviously I cannot commit, but it is usually—on the second Wednesday in May, so the House has a relatively limited period of time.

The hon. Lady’s Bill had its Second Reading in November. It required a Committee stage in the House of Commons, then it had to come back for Report and Third Reading. It has not even gone to the other place for consideration. It will only just get under the line, although I am sure that the other place will be keen to accept it. The reality is that there is no real way for my hon. Friend’s Bill to get through this House and the House of Lords in the time allowed, and that is the requirement of private Members’ Bills of the nature of his and all others, to be fair.

I can confirm, however, that the Government remain committed to the 2017 automatic enrolment review. It remains the case that we will, in the fullness of time, bring forward or support legislation to take the matter forward. My hon. Friend will have to bear with me. He and I have had ample conversations. I am so pleased that he is my neighbour—a great improvement on the previous one. He is a doughty campaigner for his constituents and he is right to make this particular case.

I thank my hon. Friends the Members for East Surrey (Claire Coutinho), for Broxtowe (Darren Henry), for Hastings and Rye (Sally-Ann Hart), for Darlington (Peter Gibson) and for Meriden (Saqib Bhatti) who all supported the Bill and spoke extremely well and eloquently about these matters. I will not repeat my entire Second Reading speech, which lasted for, I think, nearly an hour, and of which I know all hon. Members enjoyed every word.

The greatest hits of pensions are often underrated in my experience, but the points that I made then should be repeated as if I were to speak for the next hour. We are correcting a simplification that was brought in by the last days of Mr Callaghan’s Labour Government in 1978. It is an utterly vital piece of legislation that addresses everything from survivor benefits to reforms in relation to HMRC and the need to get proper equalisation. To be utterly clear, all parties will benefit from this and there is no loser by reason of the Bill.

It is absolutely to the credit of the hon. Member for Rutherglen and Hamilton West that she has successfully brought the Bill forward on a cross-party basis and navigated its passage. She should be very proud of her work. I am delighted to restate that the Government support the Bill. We continue to support it in this House and will support it in the House of Lords. I wish it every success as it travels on to another place.

With the leave of the House, I thank the Minister for his support today and throughout each stage of the Bill. I also thank all hon. Members who have spoken and who have intervened on Third Reading including the hon. Members for Ynys Môn (Virginia Crosbie), for Broxtowe (Darren Henry), for East Surrey (Claire Coutinho), for Hastings and Rye (Sally-Ann Hart), for Darlington (Peter Gibson) and for Meriden (Saqib Bhatti).

I also take the opportunity to thank the team at the DWP for all their assistance throughout to get to this stage and for their expertise in helping me to understand more of what I was talking about. It has been a privilege to have the opportunity to take a private Member’s Bill through the House, and I encourage all hon. Members to enter the ballot when it comes round again. A private Member’s Bill slot is highly sought after, and it has been a great experience. I look forward to watching the Bill pass through the other place and into law, and I greatly look forward to seeing some of my constituents, and constituents across the UK, finally receive the equalised pension income to which they have been entitled for service since 1990.

Question put and agreed to.

Bill accordingly read the Third time and passed.