Pensioners: Winter Support
Baroness Altmann Excerpts(3 days, 1 hour ago)
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Baroness Sherlock (Lab)
On bureaucracy, 80% of people now apply for pension credit online. You can apply online, on the phone or on paper, or you can get help from the DWP or a third-party organisation, but 80% apply online. That is by far the simplest and quickest way to do it, not least because you end up answering, at most, 48 questions and sometimes only 35, because lots of things you do not have to go through are taken out. That might seem like a lot, but it really is not—the experience people have is fairly straightforward. If you do not like doing it online, you can phone up and that is the equivalent, because the person on the other end just does it for you—you are on the phone and they are entering all the details. Some weeks, only 5% of people apply on paper.
On how long it takes to process it, as we are expecting an influx of applications, we have redeployed another 500 staff to work on processing. We know that there will be slightly longer times and are warning people who apply that it could take up to nine weeks, but I assure the House that if anyone applies in time, they will get the money. If that means that for a small number of people there will be a cashflow issue, I encourage them go to their local authority to apply to the household support fund to tide them over that gap.
Baroness Altmann (Non-Afl)
My Lords, I encourage the Minister to recognise that the winter fuel payments are being taken away from the very poorest pensioners. Those on pension credit are not the poorest; those who are entitled to it and will eventually receive it will also not be the poorest because they will get thousands of pounds extra, including winter fuel payments. Those slightly above that—it is estimated there could be 1 or 2 million—have no means of receiving the money that they will need this winter. There is no protection for them. The Minister talks about the reduction in fuel costs. Last winter and the one before, those pensioners received one-off cost of living payments. With a Budget tomorrow, it may not be too late to recognise that this is a mistake; it is going to cause serious harm to a number of pensioners and cost the Government and the NHS significant sums.
Baroness Sherlock (Lab)
My Lords, nobody went out thinking that this is where we would like to be, but the noble Baroness knows very well the economic situation that we inherited, and she will know exactly why it was necessary to save money in year. I remind the noble Baroness that, by definition, the poorest pensioners are getting the support they need provided they apply; we will make it as easy as possible for them to do that. For everybody else, the Government have committed to sticking to the triple lock for this Parliament. That means that somebody on the new state pension will find that, over this Parliament, the value of that state pension will rise by £1,700, and the value of even the basic state pension will rise by £1,300. That is where the huge extra support will come from for the pensioners that she is talking about.
Pensions Regulator Defined Benefit Funding Code of Practice 2024
Baroness Altmann Excerpts(1 week, 4 days ago)
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Baroness Drake (Lab)
My Lords, I declare my interest as a DB pension scheme trustee as recorded in the register. I thank my noble friend Lord Davies for securing this debate. This is an important code, and it should not pass without comment.
As the Explanatory Memorandum and my noble friend observe, while aggregate DB funding levels have improved in recent years, financial markets and economic conditions are changeable and funding positions can quickly deteriorate. There is a dynamic in the pensions world related to economic circumstances, whether fiscal policies, investment returns, gilt yields or the impact of technologies on markets, to name but a few.
An intended purpose of the code is to allow TPR to be more proactive in identifying and mitigating emerging risks in a targeted way. There have been significant instances over the past 30 years of regulatory failure to identify or respond quickly to emerging risks in DB pension provision, some with dreadful consequences. What do the Government believe are the most compelling levers in this code that will materially improve mitigating such emerging risks?
The new code sets two key requirements: planning for the length of the scheme’s journey plan to get to full funding at an appropriate pace of de-risking and assessing current funding positions when carrying out valuations. As part of that planning, the code trustees must set a funding and investment strategy—that is, the journey to getting to the planned endgame for the scheme. The strategy must set out how the trustees will transition from the scheme’s current funding position to low employer dependency funding when the scheme is mature. In making that transition, how risk can be supported by the employer and the strength of the scheme has to be made clear.
During the consultation a lot of concern was expressed that the new code could weaken an important fiduciary power of trustees to make the investment allocation decisions by requiring trustees to invest in line with the investments set out in the funding and investment strategy that must be agreed with the sponsoring employers. In response to those concerns, although changes have been made to the code to clarify that decisions in relation to the scheme’s investment allocation are not constrained by the notional investment allocations in the funding and investment strategy, an inference remains that, in most instances, TPR expects trustees to align their investment strategy with the funding and investment strategy. Will the Minister confirm unequivocally that the code will not remove the power of existing trustees to decide on the scheme’s investment allocation? It is an important power in addressing moral hazard.
The code places a welcome greater emphasis on the strength of the sponsoring employer covenant, which is of fundamental importance but is often lost in debate, when considering funding and investment risk. The level of cash generated by a sponsoring employer and its future prospects will be key determinants of how much investment risk a scheme should take. The strength of an employer covenant can change very quickly following mergers, acquisitions, restructurings et cetera. Such changes may result in changes to the level of debt in a company, dividend policy, free cash flow, covenant and longevity. The code requires any funding deficits to be repaid as quickly as the sponsor can reasonably afford, but trustees will have to consider the impact on the employer’s sustainable growth. Trustees will need to assess such affordability annually; they will also have to provide evidence for their view of what is reasonably affordable and their opinion on the maximum supportable risk that a sponsor employer can bear.
These are potentially significant areas for disagreement between sponsoring employers and trustees, with one seeking to discharge a fiduciary duty to protect its members and another wanting maximum freedom from the liability of funding a pension scheme, but TPR has still to provide its covenant guidance on the main areas that trustees must consider when assessing the employer covenant. In that sense, there is a significant area of this code where an important point of detail is missing. Can the Minister advise when such covenant guidance will be issued?
The code emphasises a flexible and scheme-specific approach to regulation, taking into account the variety of DB schemes. It contains provisions for schemes that remain open to new members and may not be maturing, such as schemes that are now closed. Again, that is quite a controversial issue in the initial iteration and consultation on the development of this code. The considerations around investment strategy and the ability of trustees to choose how to invest now recognise the different characteristics of open schemes compared to closed schemes; the importance to open schemes of long-term planning; and a more flexible approach to assessing investment risk, which is supportable by the covenant and the scheme.
Finally, the Explanatory Memorandum—I shall pick up with brevity a point that my noble friend elaborated on in more detail—states:
“The approach to monitoring this legislation is that there is no requirement to carry out a statutory review of the draft Code”.
However, as we all know, the previous Government were—and, more so, the current Government are—focused on the issue of wider funded pension scheme consolidation and scheme investment strategies. Although I recognise that the Minister cannot comment on the outcome of such considerations or what may flow from the first pension review, if those outcomes had an impact on the provisions of the DB code, what would be the mechanism and consultation for revising the code as a consequence?
Baroness Altmann (Non-Afl)
My Lords, I congratulate the noble Lord, Lord Davies, on securing this important debate. I agree with the noble Baroness, Lady Drake: the code is an important document that certainly deserves the attention of this Committee. I apologise to the Minister because this debate may well end up lasting more than the half an hour that was apparently expected; I will try to be as succinct as I can.
The overall aim of the defined benefit code is to protect member benefits. The whole point of the code was that, in the past, there had been a kind of free-for-all where employers and trustees could invest and take as much investment risk as they wished. Given other circumstances in the market, hundreds of thousands of members either lost their benefits or were at significant risk of doing so. I welcome the fact that there is now a stronger regulator, the Pension Protection Fund and this kind of code, which is constantly being revised and updated.
However, I stress that I agree wholeheartedly with the comments of the noble Lord, Lord Davies, that this particular document, like previous documents, is rather too prescriptive, with excessive requirements placed on trustees, who may or may not need them. It seems to attribute spurious accuracy to an inherently uncertain outcome of events. The kind of box-ticking and groupthink approach that needs to be revised within 15 months of each new valuation will be costly to the schemes, and it is not clear what value will be added if the long-term strategy is unchanged or not likely to change.
Some of the issues we are grappling with, in this code and in the defined benefit universe as a whole, are dependent on and the result of the exceptional period of quantitative easing introduced in 2009. It was deliberately designed to drive down government bond yields and, concomitantly, to clearly put a much greater inflation risk on liabilities. That is indeed what happened. Initially, assets did not keep up with liabilities, but the fears of ongoing falls in gilt yields over that subsequent period, as quantitative easing, gilt printing and the driving down of long-term bond yields continued, have made anyone involved in the defined benefit space rather nervous of what are called “non-matching assets”.
We had a reversal of conventional thinking about defined benefit pension schemes. They were supposed to invest to take risk and welcome risk placed judiciously. This thinking became: do not take risk or try to beat the gilt market, because the gilt market may beat you and increase your deficit. So a whole groupthink built up around the idea that defined benefit pension schemes should have as much as possible in so-called matching assets, because you want to match your liabilities. The fact is that, if you want good funding, you need to outperform your liabilities—just matching them is not sufficient—but I am not sure that that is reflected very much in the code for schemes that are not in healthy surplus.
I welcome the Minister’s comments on the fact that we are talking about estimated liabilities based on expected future values, relative to current mark-to-market actual values for the assets, and on whether the risks of attributing that spurious accuracy to the long-term liabilities have been sufficiently considered. In this regard I declare my interests: I work with some defined benefit pension schemes, and have done so in the past, to advise on investment strategy.
It seems to me that part of the thinking going through this defined benefit code is that it is better for all schemes to fail conventionally than for too many schemes to try to do unconventional things that might succeed but incur greater risk. I feel we need more scheme-specific flexibility there, and we need to consider the impact of quantitative tightening and how that will be different for the pension liabilities associated with these schemes.
I welcome the differentiation mentioned by the noble Baroness, Lady Drake, and the noble Lord, Lord Davies, between open and closed schemes. I urge the Government to consider going further in allowing and enabling open schemes to take advantage of investment opportunities from a diversified array of risk assets, even in circumstances where there is, perhaps, some nervousness about the sustainability of the employer.
There is concern about the stability of the gilt market, but there is also an inherent conflict between that desire for stability and the need for outperformance of liabilities that these schemes could be delivering. If capitalism is not at an end—one might argue that it is—then investing in assets of higher risk than government bonds or the supposedly safer assets should, on aggregate and in the long run, deliver better returns. On top of that, we have a Government who rightly want to use more pension assets to boost the economy. There are assets such as infrastructure, small growth companies and equities as a whole, both domestically and internationally, that could deliver that objective, but they entail risk. That is where I hope the funding code may be further refined.
Social Fund Winter Fuel Payment Regulations 2024
Baroness Altmann Excerpts(1 month, 3 weeks ago)
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Baroness Altmann
That an Humble Address be presented to His Majesty praying that the Social Fund Winter Fuel Payment Regulations 2024 (SI 2024/869), laid before the House on 22 August, be annulled because they would significantly reduce state support for pensioners without sufficient warning and without a proper impact assessment, and because they present a significant risk to the health and wellbeing of many pensioners on low incomes.
Relevant document: 2nd Report by the Secondary Legislation Scrutiny Committee (special attention drawn to the instrument)
Baroness Altmann (Non-Afl)
My Lords, I would like to say from the start that I believe the noble Baroness opposite is a very, very good woman and I hope that the House will forgive me in some way for bringing this before your Lordships. But I have spent my life trying to stand up for people who have no voice and trying to do what I believe is right. On this particular occasion, with a heavy heart, I believe I must do so.
Let me read some of the words of those people from whom we are taking away £200 or £300 this winter. These are the poorest pensioners. We will hear that the Government is protecting the poorest. It is simply not the case. I apologise, but that is the reality. “I do not qualify for pension credit. I live on my state pension and one small occupational pension that pays me the cost of a couple of bags of carrots and potatoes a month in an annuity. I receive just a little over the qualifying limit and fall into that group of pensioners who are in limbo. I am 75 years old and not in great health. I will be trying very hard not to turn my heating on this winter. I have only a few pounds a week for food, toiletries, insurance or any other repairs. Why is this being done? I always turn off the lights and am very careful, but I don’t know how I will get through the cold weather this year. I have arthritis and COPD and need to keep warm for my health.”
Another says, “I am 82 years of age and live alone. I am on £220 a week state pension and therefore £2.85 a week over the pension credit limit. Since the cost of living crisis, I have not been able to afford any central heating for the last two winters. I did not put on my gas central heating and I will not be putting it on again this year. My welcome winter fuel payment went towards my electricity bill, which increased due to the single room heater I used. I work on the ‘heat the person not the room’ principle. I fall into that group of pensioners who do not qualify for pension credit, and I am not sure how I can economise further”.
One more example says, “I am 91 years old and my husband and I struggled to keep our home warm enough last winter. The fuel bills rose so much, and even though our home is small we were spending so much on heating that we only had the heating on in the sitting room and our bedroom. He had Parkinson’s and I have had cancer, but we looked after each other. We spent our time in the one room downstairs and used lots of blankets, as well as often having three cardigans on. We went to bed early so we could turn off the heating, and would try to keep the heating off in the bedroom most of the time, but we would cuddle up together to keep warm. My husband passed away a few months ago and I don’t know how I will manage this winter. I don’t have enough money to warm the house more, and my small pension has put me over the limit for pension credit”.
This is the reality of the statutory instrument we are debating. I agree with the Government’s aim of removing a tax-free payment from millions of people who do not need it. Indeed, I have called for that to be done for a long time, or for it at the very least to be taxed: it could perhaps be rolled into a higher state pension but then become taxable.
I would support this measure if it was dated 2025 instead of 2024, giving time to put in place some mitigation and protection for these poorest pensioners. Those on pension credit are not the poorest as they get extra help—as the Minister herself has said, some get thousands of pounds extra. It is those who are just a few pounds a week above the limit or those who are eligible but do not claim or receive it who are the poorest. Nothing in these regulations will ensure they receive the money they expected, which has been withdrawn from them with no warning or time for them to economise in time for November, when it was due, or for the colder weather this winter.
I believe that the Government do not want to hurt these people. I do not expect that the needs and situation of these very poorest pensioners were really considered when this announcement was made. The aim, which I fully endorse, was to take the winter fuel payment away from the quarter of pensioners who have assets worth £1 million, and from those higher up the income scale, who clearly can manage without it. But that is not the impact that I am concerned about if we pass this measure today.
I am particularly concerned because of the wording in the statutory instrument document itself:
“A full impact assessment has not been produced for this instrument as no, or no significant, impact on the private, public or voluntary sector is foreseen”.
If that had been the expectation, since that publication the voices of Age UK, Independent Age, Silver Voices and the trade unions have all warned clearly that what the Government perhaps did not foresee is indeed foreseeable and potentially about to happen.
The Government’s Explanatory Memorandum says:
“No consultation was undertaken ... Whilst making the necessary Exchequer savings, it retains support for pensioner households on the lowest incomes”.
This is simply not correct, and I am trying to help the Government see that what I believe they do not wish to do, they may not need to do. I understand that there are pressures on the public finances, and I completely support the idea that a universal payment to those who do not need it, especially one that is tax-free, should not be made. Why not work out a system whereby they do not receive it, but the consequence of taking it away is not that we also have to take it away from perhaps 3 million of the poorest pensioners in the land?
The Secondary Legislation Scrutiny Committee has brought this issue to the attention of the House:
“We are unconvinced by the reasons given for the urgency attached to laying these regulations and are particularly concerned that this both precludes appropriate scrutiny and creates issues with the practicalities of bringing in the change at short notice”.
That is the problem I have, the short notice. It is not the aim of the policy that I query: there is no time to prepare, no time to increase pension credit—although that is a worthy aim, and I hope a few extra people will claim it. According to the Government’s own figures, more than 800,000 households are eligible but not claiming. The idea that they will receive the money this winter, having gone through the 243 questions on the application form, be approved and start receiving it, is simply fanciful. With the best will in the world—and I believe the Government have the best will to try to increase take-up—even if half the households were to receive it, the savings the Government say are so essential to make will be wiped out. This argument does not make sense. It is not logical to say that we have to take it away from the poorest because we want to take it away from the well-off.
Taking this money from people is, effectively, a 3.4% state pension cut this year. For anyone on the old basic state pension who is over 80, £300 is 3.4% of the money they received from the Government last year. This measure was introduced in 1997 and it has been an essential part of the state pension support package for pensioners ever since. No Government have said it will be removed; indeed, that was suggested and rejected time and again. I believe there could, and will, be a way of dealing with this. For example, to save money, you could tax it rather than axe it; or you could just say that anyone paying higher rate tax will have their tax coding adjusted and the money will be taken back from them. If you pay 40% or 45% tax, of course you do not need it.
Baroness Stowell of Beeston (Con)
My Lords, I commend my erstwhile noble friend the noble Baroness, Lady Altmann, on her powerful opening of this debate. I agree with the arguments she put forward, as well as those of my noble friend on the Front Bench. There is very little for me to add to what they have already said about this decision that the Government have made and for which they have no mandate. They have not even had the respect to set out a proposal in a Budget in a much more rounded way, as put forward by my noble friend Lady Altmann.
I want to make a bigger point. What a lot of people find quite hard to take at the moment is that, alongside this decision, the Prime Minister has the gall to say that his Government are acting in a way which will restore public trust. He seems not to understand that all of us in the political class over the last few years have lost public trust—himself included—because of our disregard and disrespect for what the electorate have been demanding from us. For this Government now to take decisions that affect people so directly without any notice—believing that such decisions can be justified because the Prime Minister and his Chancellor are convinced that they know best—damages public trust further.
Of course, the impact of this politically on the Labour Party is a matter for it, but I urge the Minister and the rest of her Government to accept the arguments put forward by my noble friend Lady Altmann today. I hope that she does not mind me calling her my noble friend; she will always be “my noble friend” to me.
Baroness Stowell of Beeston (Con)
I also urge the Prime Minister to drop his misplaced belief that he and his Government are somehow morally superior and are acting in a way which will restore public trust. On the basis of this decision, they are not.
Baroness Altmann (Non-Afl)
My Lords, I too welcome the noble Baroness to her position on the Front Bench. She brings huge expertise and value to that position. I hope that we can work together in the future on other pension-related issues—but on this issue, I have listened carefully to all noble Lords who have spoken and I have not heard any reasonable justification at all for the hurry to take this money away from the poorest pensioners this year. I have heard a marvellous case for changing it, and about the excellent work that is being planned to try to improve the take-up of pension credit and maybe to help people get the support fund, but none of these off-sets the loss for the possibly 3 million of the poorest pensioners—I repeat, the poorest pensioners, who are not the ones who are already on pension credit or might have a chance to receive it with the current take-up increase plan. This year they are at risk in their homes. This is the last chance to protect them and help them keep warm this winter.
For me this is about policy, not politics. I do not welcome any of the undertones or overtones that have tried to look at politics in this. There is none for me. My whole pensions policy life’s work has been about the idea that pensions are about not just money but people and giving them a better life in retirement. On that basis, I have not heard how the Government can possibly protect the poorest this winter.
We have heard about the triple lock. A triple lock increase of 4% on the basic state pension next April will give pensioners—many of whom, demographically, will not survive that long, regardless of the winter fuel payments—an extra £6.80 a week. They will not recoup a £300 loss until about February 2026. They need the money for their bills this winter. As I said, if the Government were to talk about this for next year, I would not be here—and believe me, I wish I was not here.
I know how hard it is to defy a Whip. I also know, though, as the noble Baroness, Lady O’Loan, said, that the conventions of this House are just that: conventions. We are the only mechanism left to protect the poorest pensioners and help them keep warmer this winter. With a very heavy heart, I believe that I must now test the opinion of the House.