(9 months, 1 week ago)
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The Parliamentary Under-Secretary of State for Work and Pensions (Paul Maynard)
I beg to move,
That the draft Guaranteed Minimum Pensions Increase Order 2024, which was laid before this House on 15 January, be approved.
I feel almost like a Netflix series, in that people can now binge-watch two episodes of me in a row. I hope none the less that this matter is worth equal consideration.
The Guaranteed Minimum Pensions Increase Order sets out the yearly amount by which a guaranteed minimum pension pot of an individual’s contracted-out occupational pension earned between April 1988 and April 1997 must be increased. Occupational pension schemes are required to increase GMPs that were earned during that period and are in payment by 3% for the 2024-25 financial year.
As this is quite a technical matter, I will provide a little background information on GMPs, and what they are and are not. GMPs were created to help make occupational pension provision more affordable and more secure. As many Members present will be aware, 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 funded through the national insurance scheme, and paid the full rate to those with sufficient qualifying years of NI contributions, or pro rata to those with a partial record. The second part of the state pension, the earnings-related additional state pension, was linked to a person’s earnings. The national insurance contributions paid by both the employee and their employer gave the employee the right to an additional earnings-related state pension. That was designed to ensure that as many workers as possible were able to save for their retirement through a work-based pension.
However, many employers already offered their workers a company pension through their own scheme, so many people were already building up an occupational pension, and an earnings-related additional state pension in effect replicated that provision. That was considered onerous and potentially unaffordable for both employers and employees. It was seen as double provision and over-complicated. In order to simplify the situation, the Government of the day introduced in 1978 the system of contracting out, and the provision of guaranteed minimum pensions, which are the subject of this order.
Between April 1978 and April 1997, employers sponsoring a salary-related occupational pensions scheme could “contract out” their occupational pension schemes from the earnings-related additional state pension. People who were members of a contracted-out scheme were taken out of the additional state pension, so as a result both the employer and the pension scheme member paid lower-rate national insurance contributions. In return, salary-related contracted-out occupational pension schemes were required to take on the responsibility for paying their members a guaranteed minimum pension as a part of their occupational pension from the scheme.
The guaranteed minimum pension that the member built up in the scheme would be broadly equivalent in value to the additional state pension that they would have received had they stayed in the state system. The majority of employees would also have built up an occupational pension over and above the guaranteed minimum pension amount, but the scheme pension could never be lower than that guaranteed minimum. The crux of the idea was that, rather than paying additional national insurance to the state in order to build up an additional state pension, people could build up a similar amount of occupational pension through a workplace pension scheme. The system ran in that way from 1978 to 1997. Having set out the detail, which I accept is complicated, let me turn to the order before us.
The order provides a measure of inflation protection for the guaranteed minimum pension part of an occasional pension built up between April 1988 and April 1997. Legislation stipulates that, when there has been an increase in the annual level of prices as measured the previous September, the order must increase the guaranteed minimum pension part of the occupational pension by that percentage or 3%, whichever is lower. As the September 2023 figure was 6.7%, the increase for the financial year 2024-25 will be 3%. The cap of 3% aims to achieve a balance between providing some measure of protection against inflation for members and, crucially, not increasing schemes’ costs beyond what they can generally afford, in order to avoid undermining the viability of some schemes and seeing them go into the Pension Protection Fund.
An obvious question comes to mind: what happens when inflation is above 3%, as it is currently? Most members who reached the state pension age before 2016 will still get the same inflation protection for their post-1988 guaranteed minimum pensions as if they had never been contracted out. That is achieved through an uplift that they receive in their additional state pension. For those reaching state pension age after April 2016, who are therefore receiving the new state pension, there are transitional arrangements in place, which are particularly beneficial for people who are contracted out. These members will therefore still get the 3% increase from their occupational pension schemes.
I recognise that this is perhaps a very complex and technical area, but I am satisfied that the order ensures that the burden placed upon schemes is an appropriate one, but also one that ensures that recipients get an increase in their pensions that gives them some measure of protection against inflation. I therefore commend it to the House.
Alison McGovern (Wirral South) (Lab)
Hopefully, the House will be relieved to know that I do not intend to repeat the explanation of this order that the Minister has just given. As he said, the statutory instrument addresses the needs of a specific group of pensioners. We support the measure and will therefore obviously support the order. I will just take a very short amount of time to raise a few other related issues.
Further to the debate that we had on the previous order, Madam Deputy Speaker, you will remember that under Labour we saw an historic fall in pensioner poverty. Unfortunately, that has been rising recently, which is alarming after nearly two decades of decline: one in six pensioners are now living in poverty, with the figure rising to one in four among those who are single. I hope the Minister agrees that Britain should be one of the best countries in the world in which to be a pensioner, so the fact that many are still spending their later years in poverty does not reflect well on us.
Labour in power introduced pension credit, ensuring that pensioners’ weekly income reaches a minimum guaranteed level while offering a whole host of benefits, such as free dental and optical treatment. However, as we have discussed many times across the Dispatch Box, despite highly publicised campaigns, statistics released in October show that 40% of those eligible to claim pension credit are still not doing so. Given that I am sure the Minister shares my concern about this matter, will he confirm what more the Government are doing within their powers to make people aware of their potential pension credit entitlements?
Since we have just rehearsed all of the arguments about the cost of living, I thought the Minister might like to take a moment to reflect on what more the Government can do. As we know, social security systems cannot perform their most basic function if entitlements are eroded by inflation or, worse, not taken up at all. Further to the debate that we have just had, we also need to end the speculation about uprating. Pensioners should not be put through that, any more than anyone else should.
As we all know, the key to a good retirement starts in the workplace, when retirement can often seem like a distant concept. We need people to consider their future early on, which was the logic behind automatic enrolment —a massive policy success started under the last Labour Government, which has driven up the number of people saving. However, too many people are still falling through the net.
In September, the Pensions (Extension of Automatic Enrolment) Act 2023 received Royal Assent with cross-party support, giving Ministers the power to abolish the lower earnings limit for contributions, and reducing the age for being automatically enrolled from 22 to 18. At the time, the pensions Minister, the right hon. Member for Sevenoaks (Laura Trott), said:
“We will consult on the detailed implementation at the earliest opportunity”.
We have not had further information about that implementation, and I wanted to give the Minister the opportunity to share any information about what is happening with those powers. I hope that all Members across this House will agree that the extension of auto-enrolment is a good thing, and that we should crack on with it.
I will make one final point: the roll-out of collective defined-contribution schemes, which provide an income for later life while giving members greater certainty about retirement outcomes that they could achieve, is certainly to be welcomed. However, more needs to be done to ensure that the proper framework is in place for companies that express an interest in CDCs, while ensuring that those who can still join a defined-benefit scheme do so. I would be grateful if the Minister commented on that.
Wendy Chamberlain (North East Fife) (LD)
Very briefly, the Pensions Minister will know, because there was a Westminster Hall debate on this a couple of weeks ago, about some of the issues experienced with defined-benefit pension schemes with companies such as BP not applying the limits that have been recommended by the trustees. Does the shadow Minister agree that we need to ensure that companies that have made promises to pensioners actually pay out?
Alison McGovern
I am not entirely sure whether that intervention was for me, so I will let the Minister respond when he winds up. However, on companies keeping their promises, that seems like one of the basics to me.
As I said before, we support these measures and will not oppose the Government’s proposals, but I would very much welcome the Minister’s comments on the questions I have raised.
David Linden (Glasgow East) (SNP)
When the Minister was making reference to a Netflix series earlier, I did think that the pensions uprating debate would be an unusual backdrop for Netflix and chill. I do not know whether that is the first time “Netflix and chill” has been referred to in Hansard—I am at risk of getting myself into trouble now, so I will move on quickly.
As with the previous order, my party will not oppose this order. In the previous debate I focused my remarks on poverty more broadly. Now I want to speak about the number of pensioners in poverty, which rose between 2020-21 and 2021-22, with pensioners on low incomes among some of the hardest hit by the cost of living crisis. The Joseph Rowntree Foundation’s report, which I cited earlier, revealed that 2.1 million pensioners were living in poverty in the UK in 2021-22, with the poverty rate for single pensioners almost double that of couple pensioners and about one in six pensioners overall living in poverty. I know this is felt acutely in communities such as Carmyle and Sandyhills in Glasgow’s east end.
The reality, according to Age Scotland, is that 9% of over-50s are skipping meals due to financial pressure, and 65% of people aged between 60 and 64 are having to dip into savings to meet unexpected rising costs. I met the Trussell Trust just this morning, and it is certainly seeing a larger number of pensioners using its service than before. This is of course the case for many WASPI women, given that the ombudsman found that there was indeed maladministration in the communication from the Department for Work and Pensions, with the cost of living crisis certainly making matters much worse for women born in the 1950s.
Chris Stephens (Glasgow South West) (SNP)
I am grateful to my hon. Friend for mentioning 1950s-born women such as my constituent Kathy McDonald. Does he not agree that there could have been plenty of time today for us to discuss the plight of those 1950s-born women, and to see what justice and compensation we should be delivering for them?
David Linden
My hon. Friend is right. I know Kathy McDonald, one of the 1950s women, who is a force of nature and does an incredible service for women born in the 1950s. It is frustrating that we can have these debates about 1950s women, but I am clear that what 1950s women want is not necessarily words from this place, but action from this place. I think that challenge will be put to the two main parties at Westminster as we come towards the election, and I encourage all those 1950s women to press their candidates on the need for fair and fast compensation, as well as for wider action to tackle the unacceptable gender pension gap that is so pervasive.
As Age UK highlights, the state pension is the largest single source of income for most pensioners, so retaining the triple lock is the very bare minimum. I was glad to hear the comments in the previous debate from the hon. Member for Amber Valley (Nigel Mills) on that. The British Government must urgently address the shockingly low state pension levels, as they are already providing a lower state pension than, frankly, most other advanced economies relative to average earnings.
As with the issues we face with the social security system, the only way I can see our bring truly able to protect pensioners and treat older people with the basic dignity and respect they deserve is through the powers of a normal independent nation, where we can both improve state and occupational pensions, and set the state pension at an appropriate level within a Scottish context. That is the most crucial point I want to finish on, because constituents in communities I represent, such as Sandyhills and Carmyle, know one thing: for as long as Scotland remains within this Union, the state pension age will continue to climb and the state pension itself will remain pitifully low, leading to more pensioners being placed in the invidious position of choosing between heating or eating. That says everything people need to know about this Westminster Government, who the people of Scotland did not vote for.
Paul Maynard
With the leave of the House, let me thank those who have responded to this debate. There has been a bit of speculation about uprating, but does that start from those on the Government Benches and come from nowhere else? It does not; it starts on the Opposition Benches and it is sheer political opportunism, nothing more. It will happen year after year, just as the sun shines and the rain falls.
The shadow Minister made some interesting points that I want to try to respond to, particularly on pension credit, where I know there is a shared desire to make sure that we always maximise take-up. Through the things we have been trying to do lately, besides the television campaign we have been running involving footballers such as Harry Redknapp and so on, every time we write to people about state pension uprating—we are still legally obliged to do so, to 11 million pensioners—they get a piece of paper about pension credit as well. We are trialling writing to pensioners on housing benefit to ask them to apply, to see whether they also are eligible. We have not seen the outcome of that work yet. I am really interested to see it, because it will be a good indicator of whether we can use other datasets to get more people involved. We are seeing much higher claims levels—80% higher than a year ago—so a lot of what we are doing is generating more interest. That does not always feed through to a successful claim, but it is showing that there is more interest.
David Linden
There is no disagreement on this point about pension credit. I just gently ask the Minister to go back to his officials and re-examine the paper form for pension credit, which runs to some 232 questions. Given the nature of the demographic dealing with pension credit forms, there must be a way of trying to simplify them. Does he agree that it might be possible to slim down 232 questions, so as to get more people their pension credit?
Paul Maynard
I very much take the point. I was sitting down today with people from a range of charities to discuss that very point: how do we get access to those who are least inclined to apply at the moment and what groups in society are we missing? The discussion was very much about how an overreliance on IT can often be a barrier and so this is very much part of our thinking.
The shadow Minister also asked about the 2017 reforms, and the extension of auto-enrolment, investing from the first £1 of income and so on. Those things are a personal priority to me. I would love to give her a date for when she will see that; “in due course” is never a good answer to give at the Dispatch Box, but I am afraid that it is the answer at this stage. However, I am pursuing this within the Department, so she has my personal pledge that I am pushing it is as hard as I can. I am also enthusiastic about CDCs, as I know she is. She will be aware that Royal Mail already has a scheme “ready cooked”, and I am keen to see how it progresses, but I want to make sure that other businesses that are also showing an interest can input into the formulation of the more sustainable regulations.
Finally, I come to the point about BP made by the hon. Member for North East Fife (Wendy Chamberlain). Unfortunately, commitments given in the Chamber do not always align with ministerial diaries as to when I am due to meet people, so on all the things I promised I would raise, I have yet to have a chance to meet the pensions regulator to have that fuller discussion. This is still a case of “watch this space”, but I stand by everything I said in Westminster Hall and it is still on the agenda. On that note, I commend this order to the House.
Question put and agreed to.