Pension Schemes (Conversion of Guaranteed Minimum Pensions) Bill
Friday 26th November 2021
(3 years ago)
Commons ChamberPension Schemes (Conversion of Guaranteed Minimum Pensions) Act 2022 View all Pension Schemes (Conversion of Guaranteed Minimum Pensions) Act 2022 Debates Read Hansard Text Watch Debate Read Debate Ministerial Extracts
Margaret Ferrier (Rutherglen and Hamilton West) (Ind)
I beg to move, That the Bill be now read a Second time.
First, I want to congratulate the right hon. Member for North Somerset (Dr Fox) on the progression of his Down Syndrome Bill, which I very much support.
My Bill makes changes to the legislation governing the way occupational pension schemes can convert guaranteed minimum pensions into other scheme benefits. The Bill is very technical looking, but it is extremely important. It will help occupational pension schemes to correct a basic issue of men and women being treated differently in those schemes because of the impact of having a guaranteed minimum pension. It will help enable pension schemes to ensure that people do not receive less pension income than they would have received if they had been the opposite sex. In other words, it will help schemes to correct a situation that has been judged since 1990 to be fundamentally unfair.
Guaranteed minimum pensions, or GMPs, are the minimum pension that certain occupational pension schemes have to provide to their members. This applies to occupational pensions contracted out of the additional state pension between April 1978 and April 1997. It ensures that members receive a broadly similar amount of pension income in retirement as they would have received had they not been contracted out.
However, guaranteed minimum pensions differ for men and women, reflecting historical differences of treatment in the pension systems based on sex. People with the same employment history can have different amounts of guaranteed minimum pension depending on whether are men or women, even if they do exactly the same job for the same time at the same salary. It is not even as straightforward as men getting higher guaranteed minimum pensions than women; in fact, both men and women can lose out on pension as a result of their sex.
Successive UK Governments have made it clear since 1990 that occupational pension schemes need to equalise pensions to correct for these effects of guaranteed minimum pensions. In 2018, a High Court judgment confirmed that occupational pension schemes must equalise pensions to address these differences. Speaking as someone who has worked and built up occupational pensions of my own, it seems wrong that people can lose out on even a small amount of pension income purely because of these differences. Occupational pension schemes are therefore required to do something called equalisation—going back and correcting people’s overall pension to ensure that it is not lower than it would have been had the person been of the opposite sex.
Tom Randall (Gedling) (Con)
I thank the hon. Lady for bringing the Bill forward. She is talking about the history of this technically complex issue, which goes back to 1990. Does she agree that the changes introduced by the Bill are well overdue and that, by bringing it forward, we will get the change that we should have had a long time ago?
Margaret Ferrier
The hon. Member is spot on; the change is well overdue. I will come to that, and I am sure that the Minister will answer that point too. I think the pension schemes have found some difficulties; as I say, I will come to that.
It is important to be clear that no one will have money taken away from them as a result of the Bill when pensions are equalised. If it turns out that someone is entitled to more guaranteed minimum pension than they would be entitled to if they were the opposite sex, nothing happens; that advantage is not taken away. The Bill seeks only to increase pension income for those already losing out because of their sex due to the nuances of having a guaranteed minimum pension. It is also important to be clear that this is not about giving anyone extra pension that they are not entitled to; it is simply about making sure that no one loses out on pension income as a result of their sex.
If one person has a smaller guaranteed minimum pension than another purely because the first person is male and the second female, their overall pension entitlement needs to be corrected. However, correcting people’s pensions in this way is proving a very slow process, as the hon. Member for Gedling (Tom Randall) said. The Department for Work and Pensions, working with the pensions industry, tried to cut through the complexity by offering a methodology, set out in guidance, for pension schemes to use. The methodology involved converting the guaranteed minimum pension into what I will call normal scheme benefits, using existing legislation already on the statute book.
The industry agrees that this is a sensible approach, but has pointed out that the legislation supporting the conversion process contains some uncertainties that it believes will expose it to legal risk and potential accusations of not equalising correctly. For example, the way survivor benefits are treated in the conversion legislation needs to be clarified. The industry has pointed out that legal requirements for survivor benefits when guaranteed minimum pensions are converted are not sufficiently clear. Survivor benefits are the benefits paid out to a scheme member’s widow, widower or surviving civil partner when the member passes away, and are therefore extremely important.
Equalising someone’s pension to take account of the differences that arise because they had a guaranteed minimum pension is, as I have said, very important, but schemes need clarity and legal certainty before they are able to proceed with this essential process. That is what the measures in my Bill seek to provide. Similarly, before converting guaranteed minimum pensions, pension schemes are required to get the consent of the sponsoring employer that finds the scheme. That sounds entirely reasonable, since after all the sponsoring employer has invested a lot of money in the scheme to ensure that its employees have a decent retirement income.
Unfortunately, that is not as straightforward as we might expect because the current legislation does not cover all situations, such as where the original sponsoring employer is no longer in business. As a result of this lack of clarity in the legislation, some pension schemes have held off equalising for these effects of guaranteed minimum pensions. This Bill will help with that by rectifying those uncertainties and clarifying the legislation that schemes will use if they follow the methodology set out in the Department for Work and Pensions guidance.
I should make it clear to the House at this point that the Bill does not impose any new costs or requirements on occupational pension schemes or their sponsoring employers. Affected occupational schemes have known that they need to equalise pensions for the effect of guaranteed minimum pension for many years and should have been planning accordingly. The Bill will simply help pension schemes to do exactly what they need to do to stop people losing out.
I have engaged with representatives from the pensions industry, who welcome the provisions. The industry has long lobbied for the clarifications in this Bill to be made. I should hope that all here recognise the Under-Secretary of State for Work and Pensions, the hon. Member for Hexham (Guy Opperman) sitting opposite me today; I am delighted to say that the Government have decided to support my Bill. It is good to be working with the Government to make things easier for pension schemes.
John Lamont (Berwickshire, Roxburgh and Selkirk) (Con)
I congratulate the hon. Lady on bringing forward this Bill. She is speaking extremely well on a very technical area of pensions law. On the devolution point, she will know that Stormont has agreed to deal with the same issue, which is devolved to Stormont, through this Bill. Does she agree that that is a good example of where this Parliament and the devolved Parliaments can work together to achieve a desired positive outcome?
Margaret Ferrier
I thank the hon. Member; I am not sure I agree wholeheartedly with all his intervention, but the Bill extends to England, Wales and Scotland, and Northern Ireland, as he mentioned, has asked to be covered by it as well. This particular Bill extends to the whole UK and I am happy that it includes Scotland as well, unlike the Bill of the right hon. Member for North Somerset, which only covers England. As I said, it is good to be working with the Government to make things easier for pension schemes in fulfilling their obligations to their members and to ensure that benefits are paid correctly to members of occupational pension schemes.
I will not take up a lot of time, because the hon. Member for Meriden (Saqib Bhatti) is looking to give his Bill a Second Reading as well. But before I finish, there are quite a number of people on the DWP team who I would like to thank as they have helped me considerably: Narinder Clarke, Anna Smith-Spark, Gareth Thomas, Katy Marcus, Maria Burgess and David Brown. Of course I also thank my parliamentary assistant Kim Glendenning, who has helped me considerably in pulling all this together, the Pensions and Lifetime Savings Association and the Minister.
Mrs Natalie Elphicke (Dover) (Con)
I warmly thank the hon. Member for Rutherglen and Hamilton West (Margaret Ferrier) for bringing this issue to our attention today through the excellent proposals in her Bill, and for her clear explanation of this very technical matter, its impact on people and why it matters—particularly to women in the workplace, but also to others who do not experience equity and fairness. Her remarks brought to life the fact that equal pay must also mean equal pensions, and that complexity in this matter must be no excuse for not ending up with the right result for people who are due their pensions.
There have been huge changes in pensions over recent decades—certainly in almost every year of my working life—and it is welcome that compulsory pensions are now part of employment rights. However, because of those changes and people’s changing work practices, which mean that they may be in and out of several pension schemes within their working life, there needs to be even greater focus on securing the best possible protection for any changes to pension calculations before they become due. Buy-in and buy-out schemes and other pensions management processes feature more and more as companies experience increasing pressure on their own accounts, and over their accountability for the management of pensions.
I have a constituent who has an occupational pension, and he has heroically battled with referrals to the pensions ombudsman and the FCA for many years over a matter relating to the conversion of a minimum pension floor. The pension had two elements: a minimum guaranteed pension floor and an assessed projected income, in the usual way of pensions. I recall when my constituent first showed me his original pension statement, which said, in absolutely clear and unequivocal words, that the pension would not be less than a specified amount per year. Separately, the same statement expressed the projected value of the pension. Somewhat surprisingly, in my view, the Pensions Regulator has found that, in essence, because that pension statement did not use the word “guarantee”, the words “the pension will not be less than x” did not represent a guaranteed pension amount. I ask the hon. Lady and my hon. Friend the Minister to look again at the definition of guaranteed minimum pensions, particularly in schemes established before the Pension Schemes Act 1993.
I also made a referral to the FCA about mis-selling, and it said that it did not have responsibility for pension buy-out arrangements. It seems to me that we have made great strides in stopping small-print explanations—such that anyone who looked at the small print would have realised that even if the statement said they would get a certain amount, that might change—and mis-selling in many areas of financial services. There seems, however, still to be a gap in pensions protection that leaves individuals such as my constituent rightly angry and disappointed. There can be nothing plainer, it seems to me, than a formal statement saying “You will receive x a year”. That is not a qualified statement, and we must not let people get away with the small print.
My constituent was absolutely right to feel angry and disappointed in this case, but it highlights a wider issue of equity and fairness in relation to conversions from one scheme to another, and other pension changes. There must be no possibility of discrimination when it comes to converting such schemes, and greater safeguards are vital in this regard. It is not allowed to dock pay for work already done or to cut holiday or other entitlements, and stronger protection may be required for pension rights. The fact that these accrue in the future does not make them any less important than what people are paid today.
I recognise that company schemes are set up over a long period of time, and many set up a long time ago now need to be dealt with differently. Where they are problematic for companies, some may find themselves unable to operate without making substantial changes to assessing how the pensions are dealt with. Recent changes to the calculation and treatment of future pension obligations in company accounts have created additional and specific responsibilities, but also severe and significant pressures. I hope that the Minister and the hon. Member for Rutherglen and Hamilton West will agree that any such changes to pension rights must have at their heart equity and fairness. It is part of the basic corporate responsibility that we should and do expect of companies operating all such schemes.
Suzanne Webb (Stourbridge) (Con)
As time is tight, I will keep this very short. I wanted to have the opportunity to thank my friend the hon. Member for Rutherglen and Hamilton West (Margaret Ferrier) for all the hard work she has been doing. I welcome the Bill that she has put forward. Experts welcome the Bill, which will clarify and streamline the primary legislation on GMP conversion. It will make the whole process of equalising using GMP conversion easier. For that reason, I welcome the Bill and will be supporting it.
Sally-Ann Hart (Hastings and Rye) (Con)
Today, I welcome the private Member’s Bill introduced by the hon. Member for Rutherglen and Hamilton West (Margaret Ferrier). It is very commendable. On 29 May 1970, the Equal Pay Act gained Royal Assent. With its passing, this House took an important and laudable step towards ensuring the equal treatment of men and women in the workplace and our society more generally. Since the Act’s passing and its later commencement in 1975, even greater strides, both de facto and de jure, have been taken towards gender equality, but as colleagues will know, much work remains to be done to that end. We all have responsibility as lawmakers to strive towards it continuously, through pieces of legislation substantial, modest or otherwise. The Bill can rightly be seen as a means to do that. Specifically, it will help right a historical oversight by making important clarifications in relation to pension schemes and guaranteed minimum pensions.
The historical oversight has been explained comprehen- sively —I will not go into that—but we see that it has its roots in the state earnings-related pension scheme that was introduced in April 1978, as well as the Pension Schemes Act 1993, which required GMPs effectively to be calculated on a fairly unequal and unfair basis. It has ultimately meant that the age at which GMPs could be calculated and the rate at which benefits built up were different for men and women. It is far from clear which sex received the greater total benefit as a result of this discrepancy, primarily as related advantages fluctuate over time. Whether it is men or women who benefit, such equality cannot be considered just.
There have been consultations over time about guaranteed minimum pension schemes and how equalisation in occupation schemes should be looked at. There was a consultation and proposal in 2012, and another in 2016-17. Compared with the 2012 consultation and methodology, the Department for Work and Pensions stated that there was broad agreement that the newer method was a distinct improvement and offered a relatively simple way to convert GMPs into ordinary scheme benefits, thus ensuring equality across the board and assisting the industry to deliver the change without policies being excessively onerous. That development was welcome, but concerns have continued to be raised by the industry that existing legislation is unclear in some areas, including, for example, that it fails to provide for circumstances in which the scheme’s sponsoring employer no longer exists and therefore cannot consent to a proposed conversion exercise as per the methodology.
For the full benefits of the 2016-2017 proposal on methodology to be secured in the relevant regulations, including the positive results for equality of outcomes for the sexes, these concerns must be properly addressed in legislation, and that is what the Bill seeks to do. As I understand it, the Bill will make it clear that the legislation applies to survivors as well as earners; provide for a power to set out in the regulations the conditions that must be met in relation to survivor’s benefit; provide for a power to set out in regulations detail about who must consent to the GMP conversion; and remove the requirement to notify and inform HMRC.
The Bill has been welcomed by industry leaders for covering key areas where clarification is most needed, which will in turn make the important process of equalising benefits using GMP conversion easier. With this positive impact on the industry in mind, and given the broader message that it sends out—that the equality of the sexes is important in all legislative matters, both significant and modest—I welcome the Bill, which is worthy of support from across the House.
Mr Richard Holden (North West Durham) (Con)
I pay tribute to the hon. Member for Rutherglen and Hamilton West (Margaret Ferrier) for bringing this Bill to the House. As she mentioned, it will introduce a well overdue change. As hon. Members have reflected, given the passing of the Equal Pay Act 1970 and the fact that this matter has been highlighted as a major issue since 1990, it is not before time.
The hon. Lady said in her opening speech that the current situation seems wrong. Well, I think it definitely is wrong. I am so glad that she has introduced this legislation, because the subject of pensions is not talked about often enough in this House. The impact that pensions can have on people’s long-term prosperity is immense, especially in old age, and too many constituents in places such as North West Durham really do feel that there is a pensions divide.
Further to what the hon. Lady is doing today, I want to speak more broadly to the Treasury Bench about pensions. The change implemented through this Bill was recommended back in 1990. Several years ago, the auto-enrolment review of 2017 recommended that auto-enrolment be extended to 18 to 21-year-olds, as people are currently auto-enrolled only after the age of 22. That change would be hugely beneficial, particularly to constituents of mine, who start work at 18 at a far higher rate than the national average. Those 45 to 50 years of compound interest on four years of extra auto-enrolment could make an enormous difference to their income in later life.
Auto-enrolment schemes currently kick in only when someone is earning over £6,000 or so a year in a job. Many of my constituents, particularly women, have multiple jobs, and may work only 10 hours a week in them.
The Parliamentary Under-Secretary of State for Work and Pensions (Guy Opperman)
I am grateful to my hon. Friend for making that point. I will answer in a bit more detail in my closing remarks, but let me say that I endorse entirely his argument in favour of the 2017 auto-enrolment review, and the fact that expansion of automatic enrolment will unquestionably assist those in low-income areas, including those who have multiple jobs. With respect, it will be a progressive and good thing to do, but I will address the point more in my closing remarks.
Mr Holden
I thank the Minister for that intervention.
Some of the changes, particularly the lowering of the earnings threshold, could be introduced in secondary legislation, but primary legislation will be required to extend the auto-enrolment to 18 to 21-year-olds; I should let the Minister know that I have a date for a ten-minute rule Bill in the new year to do just that.
I very much hope that the Government will look at lowering the threshold. Low-paid women with multiple jobs in particular could be missing out on many thousands of pounds going into their pension pots. Low-paid women with multiple jobs in particular are potentially missing out on many thousands of pounds going into their pension pots due to issues around auto-enrolment. It is another inequality in the system that, as the hon. Member for Rutherglen and Hamilton West mentioned, tends to affect women disproportionately.
Margaret Ferrier
I just want to clarify that the rules around guaranteed minimum pensions are very complicated, so both men and women can lose out if pensions are not equalised because of indexation and revaluation. I am sure the Minister will cover that in his closing speech, but it is about two people. Sometimes women can have a higher pension and then the man will overtake it, or vice versa, because of the different ages of retiral. I just wanted to make it clear that both sexes can lose out.
Mr Holden
That is an incredibly important point. Both sexes can lose out and that is another element with auto-enrolment. There will be men in part-time work, maybe with caring responsibilities, who will also be in a similar situation.
The Minister has been a real reformer and is reforming an awful lot. I know there is a lot more to do. I encourage him to think broadly and work with Members across the House to continue the great reforming work he is doing. It has been great to see him working with the hon. Member for Rutherglen and Hamilton West. I hope to work with him in the future as I start to push for further reforms.
Tom Randall (Gedling) (Con)
As legislators, we look at the proposed legislation before us when we are preparing to speak in debates. As I was preparing to speak in the previous debate, I picked up the Down Syndrome Bill and, from the face of the Bill, was able to very quickly glean what it was about and understand its general thrust. As I picked up this Bill to prepare, however, I read that
“GMP conversion” means—
(i) the amendment of a scheme in relation to an
earner who was alive immediately before the
conversion date so that it no longer contains the
rules specified in sections 13(1)(a) and (b) and
17(1)”.
I am glad we have got that cleared up. So I congratulate the hon. Member for Rutherglen and Hamilton West (Margaret Ferrier) on not only introducing the Bill, but bringing it to life and explaining it in a way that this pensions layman was able to understand. I feel that I have made much more progress in the last half an hour than I have in the last few days of trying to get to grips with the Bill.
As I understand it—as I say, I claim to be no expert in this field—what we are seeing today is the end of a very long journey towards equality which we should have addressed before now, but better late than never. As I understand it, the old state pension had a number of elements to it, including a contracted-out part where one could obtain an occupational pension scheme that had a guaranteed minimum pension. Because of the way that the guaranteed minimum pension was calculated, there were various inequalities, including differentiation on a person’s sex and age as existed at that time. That has been corrected to some extent following the 1990 court case—it is bizarre that it has taken so long for us to get to this stage—but I understand that the industry has a number of concerns that are still extant with the existing legislation, including how conversion applies to survivor benefits, the element that can be inherited by a member’s widow. It does not provide for circumstances in which a scheme’s sponsoring employer no longer exists and cannot consent to a proposed conversion exercise, and also in terms of requiring schemes to notify HMRC that they have carried out the conversion exercise.
I understand that the Bill will
“Clarify that the legislation applies to survivors as well as earners.
Provide for a power to set out in regulations the conditions that must be met in
relation to survivors’ benefits.
Provide for a power to set out in regulations detail about who must consent to the conversion.
Remove the requirement to notify HMRC.”
It is a technical piece of legislation, but it will, I hope, bring us to the end of a long road. I congratulate the hon. Member for Rutherglen and Hamilton West on introducing it and explaining it so cogently to us laymen, and I look forward to seeing it on the statute book very soon.
Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op)
I congratulate the hon. Member for Rutherglen and Hamilton West (Margaret Ferrier) on presenting this Bill. As the public probably know, Members have huge discretion in respect of what legislation to choose when they are successful in the private Members’ ballot, and I think everyone here today is personally very grateful to the hon. Lady for using her success in the ballot to propose these measures.
We face significant challenges in the world of pensions, whether they relate to the viability of schemes, the future of auto-enrolment—which was mentioned by the hon. Member for North West Durham (Mr Holden)—the threat posed by scams or the recent growth in pensioner poverty, which is a worrying trend. However, while we invest our efforts to confront those challenges, it is only right that, when possible, we seek to take the relatively more straightforward steps that will help us to correct problems in the pensions sector, and work with the pensions industry to deliver the best possible outcomes for our constituents. That is why, I am happy to say, we support the Bill in principle.
This is a sensible Bill, designed to streamline and clarify legislation on converting guaranteed minimum pensions in order to equalise benefits between men and women in accordance with the Equalities Act 2010 and following the High Court judgment relating to the Lloyds Banking Group schemes in 2018. The hon. Member for Rutherglen and Hamilton West made a very good speech outlining that case: it might sound technical to some, but I think that she explained it very clearly.
I know from my conversations with representatives of the sector that converting GMPs into other scheme benefits on a value basis like this is the preferred way of addressing equalisation, rather than the costly and often complex dual-records approaches. However, we recognise that there are problems that have remained unresolved since GMP conversion was first in legislation. As the hon. Member for Rutherglen and Hamilton West explained, they relate to the lack of clarity on whether the legislation applies to survivors as well as earners, and the lack of provision for circumstances in which the scheme’s sponsoring employer no longer exists and is unable to consent to the conversion exercise. Her Bill addresses those problems in a simple and practical manner, and I have noted the support that it has received from the pensions industry. The head of GMP equalisation at Lane Clark & Peacock—a friend of many of us—has said that it will
“make the whole process of equalising benefits using GMP conversion easier.”
The last Labour Government made clear their belief that we needed to equalise GMPs, and the Bill is an important step towards ensuring that everyone enjoys dignity and security in retirement. We should be doing everything possible to help the pensions industry to fulfil what are now its legal duties to deliver GMP equalisation, and that includes supporting the Bill. I see no reason why Members in any part of the House would not wish to see these flaws addressed, and I sincerely hope that the Bill is able to proceed to its Committee stage. I repeat our support for it, and commend the hon. Member for Rutherglen and Hamilton West for choosing to introduce it today.
The Parliamentary Under-Secretary of State for Work and Pensions (Guy Opperman)
It is a privilege and an honour to address the House on behalf of the Government, and to set out our position on this small but very important Bill.
Let me first congratulate the hon. Member for Rutherglen and Hamilton West (Margaret Ferrier) on her success in the ballot, because without the ballot she could not have presented any piece of legislation. It is important for people to understand that. I also congratulate her on the massive support—of which the hon. Member for Stalybridge and Hyde (Jonathan Reynolds) spoke eloquently—that she has managed to garner across the sector for a piece of amending legislation to address a small, discrete but genuinely important measure, and on the way in which she introduced the debate. She is right, and the hon. Member for Gedling (Tom Randall) is right: this is not simple stuff. It is technical, but it matters tremendously. She set out, with great eloquence and fairness, the background to the problem and how her three-clause Bill will address it. She brought to the attention of the House the need for schemes to make progress with the equalisation of scheme benefits to take account of the unequal effect of guaranteed minimum pensions. She set out why this issue is of paramount importance and how the House can help to clarify the legislation, and I can confirm that the Government will support the Bill.
As we all know, there are 13 days a year on which we consider private Members’ Bills. Some of those days are interesting, to put it charitably, in that the Bills will not necessarily be supported by the Government or even the Opposition on many occasions. Points of great importance are raised but the Bills do not go forward with the will of the House. However, that is not like today. Today is a very special day, and I cannot overstate the sense of genuine achievement that Members across the House should feel about the progress of the Down Syndrome Bill. Anybody who was in the Chamber to hear what was said will have been utterly moved and taken away by the wisdom and significance of the speeches and the differences that that Bill will make. We have now come to a very different Bill, but it is no less important.
I am now—I believe—on my fifth pensions Bill, Madam Deputy Speaker. As a former Pensions Minister, you were one of the architects of automatic enrolment, which my hon. Friend the Member for North West Durham (Mr Holden) so eloquently—
Sally-Ann Hart
My hon. Friend said that he is on his fifth pensions Bill. Is it right that pensioners are better off now than they were 10 or 15 years ago?
Guy Opperman
In a whole host of ways, the answer is yes. The state pension, by reason of the triple lock, is now £2,050 higher than it was prior to the introduction of the triple lock in 2010. There is automatic enrolment, and it would be fair for me to give a quick history of that because we have the esteemed former Minister in the Chair. Automatic enrolment was conceived by the Labour Government and the Turner commission. It was introduced by the coalition Government in 2012. Without a shadow of doubt, it has been utterly transformational. For example, 6,000 constituents of my hon. Friend the Member for North West Durham are saving the 8% thanks to the 1,580 employers in his constituency who support that. He made a very telling point about the 2017 automatic enrolment review, and given that he raised it—not for the first time— I will finish this point on automatic enrolment and the importance of this change before I go on to GMPs.
I am proud to say that the success of the provision now means that 10.5 million employees have been automatically enrolled into a workplace pension by more than 1.8 million employers. It was specifically designed by the Labour Government and brought in by various other Governments to help groups who historically have been less likely to save, particularly women, low earners and young people—this goes to the point made by my hon. Friend the Member for Hastings and Rye (Sally-Ann Hart). It has helped many in those groups to begin to save into a pension for the very first time. Workplace pension participation among eligible employees has grown to 88% overall compared with 55% in 2012. The proportion for women and young earners was less than 40% in 2012; it is now above 80%.
There is more that we can do, and we very much hope we will, and we recognise that challenges remain. Our ambition, as my hon. Friend the Member for North West Durham set out in relation to the 2017 review of automatic enrolment, is to enable people to save more and start saving earlier. Abolishing the lower earnings limit for contributions and reducing the age for being automatically enrolled to 18 in the mid-2020s will benefit younger people, the low-paid and part-time workers as they will receive contributions from their employer from the very first pound earned. I want to stress that as a Government, we remain utterly committed to those measures. I have been clear that the implementation will be subject to the learnings that take place from the 2018 and 2019 contribution increases. That is significant and it is important that that is done.
Mr Holden
The Minister is being generous with his time and in his remarks about me too. The Government have said that they will bring forward legislation to make sure that that happens. Does he have a timetable for that?
Guy Opperman
My hon. Friend tempts me to make commitments that I am unable to make. The Government have said that they will introduce the measure by the mid-2020s. It requires primary legislation and there is no doubt that there have been issues in its introduction because of the 2018 and 2019 increases. The impact of Brexit and the pandemic also clearly makes it more complicated to introduce such changes for employers.
It is still several years until the next general election, perhaps as much as two and a half years. My hon. Friend will be aware that the Government have to go through various processes to bring forward future legislation, including a Queen’s Speech setting out the Bills that will be brought forward in the third and fourth Sessions. He makes an eloquent point, however, as he always does—I assure the House that he is a massive improvement on the previous occupant of North West Durham, my neighbouring constituency—which I am certain will be heard not just on the Treasury Bench by the assiduous Whip, who is noting down his every word, but all the way in the Treasury, where I know he is making the case.
The practical reality is that the Bill of the hon. Member for Rutherglen and Hamilton West proposes a technical change. I will try to set out the position, which genuinely dates back to the 1970s and the last days of the Callaghan Government. Guaranteed minimum pensions were introduced to help employees to save affordably for an income in retirement, which is clearly a great concept. The state pension used to be made up of two parts: the flat rate basic state pension and the earnings-related additional state pension.
The flat rate state pension was simply funded through national insurance and paid at the full rate to those with sufficient qualifying years of NI contributions or pro rata for those with a partial record. The earnings-related additional state pension, also known as the state second pension or state earnings-related pension scheme, was linked to a person’s earnings. National insurance contributions were paid by an employee and their employer and gave the employee the right to an additional earnings-related state pension.
Many employers, however, were already offering their workers company pension schemes, so many people were building up an occupational pension and an earnings-related additional state pension. That was rightly thought to be overly onerous and potentially unaffordable for employers and employees. In effect, it was seen as a double provision and immensely overcomplicated.
To clarify the situation, the Callaghan Government introduced the system of contracting out and the provision of guaranteed minimum pensions in 1978. At that time, although I realise it may be hard to believe after hearing the description in the opening speech, that was considered a simplification. How they work is not simple, but I will attempt to explain it to the House to put it on the record, particularly for usage in Committee.
Employers who sponsored a salary related scheme were allowed to contract out their occupational pension schemes from the earnings-related additional state pension. Because employees in contracted-out employment were taken out of the additional state pension, the employer and pension scheme members paid lower national insurance contributions. Salary related contracted-out occupational pension schemes were required to take on the responsibility for paying their members the GMP as part of the occupational pension from the scheme.
The intention was that, on reaching retirement age, the amount of guaranteed minimum pension that the individual member would have built up would be broadly equivalent in value to the additional state pension that they would have received. However, the guaranteed minimum pension was literally that—a minimum.
Most employees would also have built up an occupational pension, but the scheme pension could not be lower than the guaranteed minimum. In addition, widows, widowers and surviving civil partners of members with a GMP received valuable survivor benefit rights—this goes to the point raised by several colleagues about ongoing survivor rights. Some of the technical details are complicated, but the crux of the idea is simple: rather than paying additional NI to the state to build up additional state pension, people built up a similar amount of occupational pension through a workplace pension scheme. The workplace pension scheme ultimately, of course, became automatic enrolment, as the Deputy Speaker, the right hon. Member for Doncaster Central (Dame Rosie Winterton), knows. The system ran in this way from 1978 to 1997.
Although the basic idea was simple, the technical details were extremely complex. I will not take the House through all the complexities, but, for example, GMPs can be subject to both revaluation and indexation. They are revalued before coming into payment to ensure they are protected against inflation, but once in payment any GMP accrued between 1988 and 1997 must also be protected against inflation, through indexation. Although revaluation and indexation are both intended to protect against the effects of inflation, the rates of revaluation and indexation are not the same, and, as the hon. Member for Rutherglen and Hamilton West set out, the reality is that men and women with the same employment history could receive different GMPs. That is what we seek to address.
So the GMPs were abolished in 1997. The whole system of contracting out was finally ended in 2016, with the introduction by the Conservative Government of the new state pension. But of course many of the people who worked between 1978 and 1997 still have a right to a GMP. We are talking about a significant number of our constituents—this is a very large figure. Some will already be retired, but some are still working. There have been a variety of court cases on this, which I am not going to go through in copious detail, but the first key one was something that has affected this House and all matters of state pensions dramatically since 1990. I refer to the European Court of Justice ruling in the case of Barber. It ruled that pensions were deferred pay and, as such, must be treated and paid equally to men and women. The Barber judgment was not specifically about GMPs but it meant that the impact of the differing rules for men and women had to be corrected. When we have come to a decision, as we have in his House on multiple occasions, about the state pension age correction exercise and the increases from 60 to 65 and 66, it can be traced back to the Barber judgment and the equality legislation that followed thereafter.
The House has already heard that the ECJ subsequently made the Allonby judgment, which enables schemes to use a scenario to work out whether someone has lost out or not, rather than being dependent on having a member of the opposite sex in the scheme to compare against. The Government are clear that in light of the Barber judgment, and subsequent decisions, including the Allonby judgment, occupational pension schemes need to equalise pensions, taking account of the effect of GMPs. Subsequently, the UK passed the Equality Act 2010, which also requires equal treatment between men and women for all pension accrued from the date of the Barber judgment. As has been said on several occasions, the Department for Work and Pensions has attempted, under successive Governments, to try to fix this problem without primary legislation. It is totally right that that there was a consultation, following which guidance was published. However, as the hon. Lady rightly set out in opening, it is simply not the case that all schemes can proceed on the basis of the guidance that has been prepared. The reality therefore is that schemes need to equalise the amount of pension their members receive to correct for the problems caused by the complex rules and the differences in retirement income these rules produce. This process is known as “equalisation”. How an occupational pension scheme corrects members’ pensions is up to the individual scheme, provided it is done properly. There are various methods of equalising that occupational pension schemes can use. However, the process can be very complicated and is specific to the individual scheme, and there are a lot of schemes. Some schemes have already felt very nervous and they have been concerned not just by the costs and the complexity, but by the judicial process that could follow and the perceived uncertainty about exactly how to undertake the process and be sure that they have met their legal obligations. As a result, as she set out, many schemes have still not equalised for the effects of GMPs.
What the Bill does is key. It makes it clear how the conversion legislation applies to people who are survivors, as well as to the earners. It also gives the Government the ability to set out in regulations the details of how survivor benefits will work for surviving spouses or civil partners of people with guaranteed minimum pensions. As my hon. Friend the Member for Berwickshire, Roxburgh and Selkirk (John Lamont)—who represents a constituency across the Border from me that includes Jedburgh and Galashiels—said, it is a piece of legislation that applies throughout the United Kingdom, and clause 2 includes specific regulations in relation to Northern Ireland that were requested by the Stormont Government.
Clauses 1 and 2 both clearly state that converted schemes must provide survivor benefits. One of the key purposes of the Bill is to make it easier for pension schemes to know the right amount that survivor benefit schemes using the conversion legislation must pay. The Bill also gives the Government the ability to set out in regulations details about who must consent to the conversion of guaranteed minimum benefits. Finally, the Bill removes the requirement to notify HMRC once a scheme has converted its guaranteed minimum pensions.
I opened by saying that debates on private Members’ Bills can be significant and serious days, and I genuinely appreciate the contributions that we have heard from a variety of colleagues. I thank my hon. Friend the Member for Stourbridge (Suzanne Webb) for her enthusiastic but pithy support, and my hon. Friend the Member for Hastings and Rye for an eloquent speech that set out in great detail her grasp of the issue. As always, my hon. Friend the Member for North West Durham is never backwards in coming forward on so many different issues, including his passion for automatic enrolment.
My hon. Friend the Member for Dover (Mrs Elphicke) raised a number of points and spoke with great experience. I am not of the view that this very specific Bill on very specific points would address the individual problems that she raised regarding her constituent, but I am happy for her to write to me about the issue and I will give her a detailed reply to confirm whether it is within the scope of the Bill. I suspect that it is not, but I want to be absolutely sure when I reply to her, which I will do prior to our entering Committee so that the House can be clear.
I cannot stress what a wonderful campaigner and asset to the House my hon. Friend the Member for Gedling is. He has made a tremendous impact through the work that he has done. It is great to see him here, and an honour and privilege to answer some of his points.
The hon. Member for Stalybridge and Hyde and I have clashed before—I think that this is our fourth Bill—but it is great that he and the House are in full support of this one.
The Department for Work and Pensions is attempting to make pensions safer, better and greener. We are doing a huge amount, including: the Pension Schemes Act 2021, with collective defined contributions, which will provide the third way of pensions; the pensions dashboard, which will be like a banking app that brings our pensions to our mobile phones, iPads and laptops, so that we have total access and knowledge of what we have; the reforms and support of defined benefit; action to prevent the investment scams that we know are out there and are trying to stop; the huge work that we are doing to develop on the environmental, social, and governance reforms that we introduced after the 2017 elections; and putting pensions at the heart of climate change by building on the work of COP26, and being the first country in the world to introduce climate-related financial disclosure, giving consumers—all our constituents —full understanding of what is being invested in on their behalf through pensions.
With respect, although this is a smaller Bill than the 125 clauses of the Pension Schemes Bill that we took through the House earlier this year, it affects a significant number of our constituents and I am genuinely keen to progress it. I can therefore confirm that it is with pleasure that I give the Government’s backing to the hon. Member for Rutherglen and Hamilton West, her Bill and the work that she has done. Excellent points have been made in debate that I will discuss in more detail in Committee. If I have missed any particular points, I will endeavour to write to colleagues in the intervening period. The Government support the Bill. We wish it well in Committee. I want to take the time to thank the hon. Lady, because it is not easy dealing with a highly technical and difficult Bill such as this. She should be very proud of the way she ensured that she got cross-party support and then introduced the Bill and outlined its provisions with great eloquence. I thank her for all the work that she has done.
Margaret Ferrier
I thank the Minister for his support in this important matter. He touched on the ballot for private Members’ Bills. I was delighted to be one of the successful 20; I am sure any Member who puts in for the ballot is keen to come out as one of those 20. I am grateful to all Members who have spoken today for their valuable contributions: the hon. Members for Stourbridge (Suzanne Webb), for Hastings and Rye (Sally-Ann Hart), for North West Durham (Mr Holden), for Gedling (Tom Randall), for Dover (Mrs Elphicke), for Stalybridge and Hyde (Jonathan Reynolds) and for Berwickshire, Roxburgh and Selkirk (John Lamont).
Correcting this basic issue of men and women being treated differently in these schemes because of the impact of having a guaranteed minimum pension that affects their hard-earned pension income is important. Although the Bill is small and technical, we should not underestimate its value. It should help schemes to use the guaranteed minimum pension conversion legislation to provide equality for affected pension scheme members by bringing much needed clarity for the industry that administers them. I am heartened and grateful that there is clear cross-party agreement on this issue, and I very much look forward to taking the Bill through its remaining stages.
Question put and agreed to.
Bill accordingly read a Second time; to stand committed to a Public Bill Committee (Standing Order No. 63).