Pension Schemes Bill [HL]

Debate between Baroness Altmann and Lord McKenzie of Luton

Ping Pong (Hansard): House of Lords
Wednesday 5th April 2017 Lords Chamber

[Baroness Altmann (Con)]

My Lords, I welcome much of the thrust of the Bill. I am also delighted to see Amendments 3 and 4, which, I hope, ensure that insured master trusts will not be forced to separate from their insurance parent, which would have forced them to face higher costs and reduced the security of their members. I am very grateful to my noble friend for taking on board the comments made during the Bill’s passage through this House.

It strikes me that Amendment 2 should be considered separately from those to which it has been joined. I reiterate my strong concern—notwithstanding the reassurances from my noble friend—about leaving out Clause 9. I understand that there is a view that it is unnecessary and that the new regime will ensure that master trusts have sufficient resources, are financially sustainable and have capital adequacy in place. However, even with new schemes and the best will in the world, capital adequacy tests may prove inadequate. No provision in the Bill would cover members of a very large pension scheme that suffered a catastrophic computer failure and lost member records. The cost of restoring that could be well above the capital adequacy put in place, and nothing in the Bill explains where the cost of restoring those records would be covered. The only place might be the members’ pots themselves, which is not supposed to happen.

I vividly recall assurances given by Ministers on defined benefit schemes during the 1990s, when the minimum funding requirement was supposed to ensure that schemes would always have enough money to pay pensions. No one foresaw the problems evident in the early 2000s, when schemes that had met MFR legislation wound up and ended up without enough money to pay any money to some members on the pensions that they were owed.

Even more concerning than that is that the Bill is being introduced when 80 or so master trusts are already in existence in the market with a huge number of members across the country already saving in a pension. These trusts have not been subject to the capital adequacy test or other tests that the Bill will rightly introduce. What is the protection for members of existing schemes who are saving in good faith? They are not protected at all. That was why I was very pleased that we passed the amendment concerning the scheme funder of last resort. I echo the question of the noble Baroness, Lady Drake: what discussions have taken place with the industry to find a solution to cover the eventuality—we do not expect it and it is, I admit, a small probability—that an existing master trust winds up without enough funding to cover the costs of administration to sort out its records and transfer them over to another scheme? I should be grateful for some information from my noble friend about whether there are ongoing discussions and how the department sees that eventuality being covered: where would the money be found?

On Amendments 5 to 19, I share some of the reservations mentioned by the noble Baroness, Lady Drake, such as the regulatory disparity between a master trust, which would be regulated by the Pensions Regulator—and therefore under its control, if you like —and a master trust transferred under the amendments to a pension scheme regulated by the Financial Conduct Authority. How would the regulatory systems work together when they are under different legislation?

I have other concerns, but I may raise them under the next group.

[Lord McKenzie of Luton]

My Lords, let me start by expressing our regret that the requirement for there to be a funder of last resort—successfully pressed by my noble friend Lady Drake on Report—has been deleted from the Bill. That concern was also expressed by the noble Baroness, Lady Altmann. We of course accept that the whole purpose of the Bill—its protections, including capital adequacy, financial sustainability, systems requirements, scheme funder and transfer regime—is to secure people’s pension pots, militate against scheme failure, and ensure good order when difficulties arise. But as my noble friend asserted on Report, notwithstanding this, it cannot be guaranteed that a master trust will not fail and when it does there will be an available master trust to step into the breach so that members’ funds are protected. The noble Baroness, Lady Altmann, has just expressed similar concerns with vivid potential examples.

In seeking to resist the funder of last resort proposition, the noble Lord, Lord Freud, claimed that it would be costly and a disproportional response to the issue and with moral hazard implications—arguments deployed by the Parliamentary Under-Secretary of State for Pensions in the other place. We remain unconvinced of these arguments when put in the balance against the importance of protecting people’s savings. Nevertheless, we need to examine how the Commons amendments to Clauses 25 and 34 contribute to ameliorating this risk, which at least potentially they do.

We acknowledge the amendments to Clauses 25 and 34 which potentially widen the scope of continuity option 1 and expand the prohibition on increasing administration charges or imposing new administration charges. In particular, they raise the prospect of the accrued rights and benefits under a master trust scheme being transferred to an alternative pension scheme which is not a master trust. No detail is offered in the amendment about the likely characteristics of an alternative pension, other than the fact that it must be a pension scheme under the 1993 Act. This of course will include both personal and occupational pension schemes. Regulations will spell out the circumstances when the alternative might be available, and the characteristics of an alternative scheme. Regulations will also spell out how such an option is to be pursued.

While we can see the benefits of a potentially wider pool of pension schemes which could be available in the event of a master trust failure, it begs a number of questions about how any alternative scheme would be regulated and what protection it would offer members. My noble friend Lady Drake, in particular, as ever has produced some forensic questions to seek at least some clarity on key issues: further actions and discussions that have taken place; whether a receiving alternative scheme is sustainable and well governed; how such a scheme can operate a prohibition on increasing charges and preventing members’ funds from being accessed; and consideration of how bulk transfers would work. The noble Baroness, Lady Altmann, joined in the same sort of inquiry.

It remains to be seen how much these amendments provide a real opportunity to add a layer of protection and whether the market will offer up alternative schemes which can assist. We look forward to the Minister’s reply, but we are not minded to oppose these amendments.

Pension Schemes Bill [HL]

Debate between Baroness Altmann and Lord McKenzie of Luton

Committee: 2nd sitting (Hansard): House of Lords
Monday 28th November 2016 Lords Chamber

[Baroness Altmann]

My Lords, I will comment briefly on my noble friend’s absolutely valid observations. The concerns expressed across the House on this issue are particularly acute as there has been an interdepartmental, cross-government approach to try to clamp down on these issues. Police initiatives such as Action Fraud and Operation Scorpion have all supposedly joined together to fight this issue. The FCA is involved as well. However, in response to Written Questions that I have tabled, my noble friend has said that so far this year, for example, nobody has even been charged and, over the last few years, nobody has been convicted. So this initiative, while very worthy, is not necessarily catching the public’s attention. If you ask those who have been scammed where people should go if they are not quite sure about something or have had a problem, they simply do not know. So we either spend a lot more money advertising the existing initiatives or, preferably, ban cold calling and introduce further measures—as the Chancellor has already indicated is the intention—to prevent or make more difficult the transfer of pension money to one of these unregulated vehicles. If we do that, the public will be better protected.

[Lord McKenzie of Luton]

I will be brief as I do not want to echo the fantastic contributions made by the noble Baroness, Lady Bakewell, my noble friend Lady Drake, the noble Baroness, Lady Altmann, and the noble Lord, Lord Flight. I can see that if an intelligence unit were part of a wider cross-government approach, it could well pay dividends. However, I fear that we would simply replicate arrangements whereby HMRC constantly chases tax avoiders, alights on some and then there is a change, and then somebody draws a line somewhere else and it is a never-ending process. Nevertheless, it may be worth while pursuing that.

The noble Baroness, Lady Bakewell, should be congratulated on bringing forward this amendment, the thrust of which we clearly support—although I disagreed with her on her last amendment. As others have said, events have to a certain extent overtaken it because we heard from the Chancellor last Wednesday the welcome news that the Government will shortly publish a consultation on options to tackle pension scams, including cold calling. It proposes giving firms greater powers to block suspicious transfers and making it harder for scammers to abuse “small self-administered schemes”. So this approach appears to take us a little further than the strict terms of the amendment, but if we are to forgo the opportunity to legislate now, at least on cold calling, we need some reassurance from the Minister on how short is “shortly” and what legislative vehicles will give effect to these conclusions.

I do not seek to repeat a number of the awful situations that noble Lords have identified, of people being deprived of their life savings. We have argued before that insufficient groundwork was undertaken by the coalition Government when they introduced these reforms; my noble friend Lady Drake made that point. One omission was clearly to anticipate the opportunities for fraud which these changes attracted. So if the Government are not able to convince us how quickly they can introduce measures to tackle these problems, we will be minded to support the amendment in the name of the noble Baroness, Lady Bakewell, at least as an interim measure.

--- Later in debate ---

[Baroness Altmann]

My Lords, I commend the noble Baroness, Lady Bakewell, on her amendment. I was proud that the Government finally recognised the need to allow people to undo unwanted or unsuitable annuities when that decision was announced and indeed put in the manifesto, which the noble Baroness quoted.

Government rules effectively forced people to buy these products even though they did not want or need them. They had no protection when they were buying but the plans were in place to ensure that they would have protection if they considered reselling them. There was to be mandatory Pension Wise guidance and advice depending on the value of the annuity, and indeed legislation had already been passed to make that happen. As the noble Baroness mentioned, companies have already spent quite significant sums in preparation for this market, which consumers want and in some cases need, as the case studies showed.

In the annuity market it is normal for there to be only a small number of providers, which has never stopped that market operating in the past. For defined benefit pension schemes and bulk annuities, for example, for many years there were only ever two companies that would offer quotes. That should not be a reason to stop people being able to sell their annuity. Indeed, many people with secure defined benefit pensions, and the additional voluntary contributions that they were saving on top of that, were often forced to buy an annuity that they clearly did not need. Very often, because the regulatory system drove people to shop around for the best rate, they did not know that that would not actually necessarily be the right product. If you shopped around for the best rate and bought the single-life annuity, there was no protection for your spouse. In some cases, individuals have bought a product that they do not need and is not suitable for their family circumstances. This measure would have given them an opportunity to undo that. The law currently allows people who have less than £10,000 a year in an annuity to undo it, but if we do not proceed with the plans that were previously in place, they will potentially be doing so without any consumer protection. The plans had been to ensure that there was consumer protection before this happened.

It is not up to the Government or the pensions industry to decide what is best for somebody’s money; they are the ones who know that. If they have bought something that is not suitable, it is right that the Government give them an opportunity to undo that deal. If you buy a brand-new car and it is the wrong car for you, you have the opportunity to sell it in the second-hand market—yes, you have to take a discount; yes, it may be a significant discount; but that is your choice. When the Government have enshrined freedom and choice in the pension system, it is appropriate for us to continue to enable people to access their savings, which they need and to which they were promised access. If it requires a delay to get the consumer protection in place, so be it. That is a shame, but it is at least a rationale for asking people to wait longer. To take away the opportunity altogether seems unfair, as the noble Baroness, Lady Bakewell, said. She is receiving representations; I am hearing from large numbers of ordinary people across the country how much it would mean to them to have the opportunity to undo an annuity that they no longer want, or perhaps never even wanted or needed.

[Lord McKenzie of Luton]

My Lords, we were a little surprised—perhaps we should not have been—to see this amendment seeking the establishment of a secondary annuity market, given the Statement made by the noble Lord, Lord Young of Cookham, just a month ago. I say first to the noble Baronesses, Lady Altmann and Lady Bakewell, that the fact that people may have ended up with an annuity which is not the greatest in the world does not mean that they should compound that problem by doing a bad deal in the secondary annuity market. That is the nub of this issue. You simply cannot equate a transaction on a second-hand car with the sale of an annuity. It is fairly clear what is the market price for a second-hand car; there is a vibrant market out there, as I understand. It is quite different with annuities. That is at the heart of this issue.

An amendment seeking to establish a secondary annuity market was rejected by the noble Lord, Lord Young of Cookham, and we supported him in that. In that Statement, he explained that the Government had consulted extensively with the industry and consumer groups to explore whether conditions for a secondary market in annuities could be established. The conclusion was that, without compromising consumer protection, there were likely to be insufficient purchasers to create a competitive market and that pensioners were likely to incur high costs in seeking to sell. They concluded that the policy would not be taken forward, despite the loss of front-end-loaded tax revenue to the Exchequer. As I said, we supported the Government in that, and we oppose this amendment.

We were sceptical from the outset that this was a sensible policy, and my noble friend Lady Drake and I raised a number of concerns when it first surfaced as part of the Bank of England and Financial Services Act. Indeed, we went on a delegation to see the noble Baroness, Lady Altmann, in her former role. There is of course no pre-existing secondary annuities market to help form a judgment on these matters, but what was proposed was potentially very complicated, with the players including individual annuity holders, potential beneficiaries and dependants, purchasers of rights of an annuity under a specific regulated activity, a further regulated activity for providers buying back annuities, regulated intermediaries, IFAs providing mandatory regulated advice, and authorised entities to check that holders of relevant annuities had received appropriate advice.

No wonder that even the then Pensions Minister, Steve Webb, opined that, for the vast majority of consumers, selling an annuity would not be the best decision. There would be significant costs arising from the necessary regulatory systems. There were further unresolved issues of means-tested benefits and social care and how the income deprivation and capital disregard rules would work in this context. There have been many problems—and, at the end of the day, concerns that there would be insufficient purchasers to make the market work for pensioners. I have not heard any new points raised by the noble Baroness, Lady Altmann, that dislodge this conclusion. Surely there is more for the pensions sector to concentrate on at this time than complicated arrangements that will likely serve only a very few.

Pension Schemes Bill [HL]

Debate between Baroness Altmann and Lord McKenzie of Luton

Committee: 1st sitting (Hansard - continued): House of Lords
Monday 21st November 2016 Lords Chamber

[Lord McKenzie of Luton]

I shall speak also to Amendment 38. Amendment 37 seeks to probe an additional route to continuity. As the Bill stands, where trustees have chosen, or are required, to pursue continuity option 1, they must identify one or more master trust schemes to which members’ accrued rights and benefits are proposed to be transferred. Continuity option 2—an attempt to resolve the triggering event—is a route to be determined by the trustees, and not, seemingly, the Pensions Regulator. It is understood that in some circumstances a route to achieving continuity would be to change the scheme funder at the initiation of the Pensions Regulator as an alternative to transferring out or winding up a scheme. On the face of it, the regulation-making powers of Clauses 24(3)(a) and (b) do not seem to cover the position, but perhaps the Minister will tell us how, or indeed whether, this outcome can be accomplished.

Transferring the responsibility for a master trust to a new scheme funder could provide a quick answer to a collapsing master trust and would fit in with what happens with standard occupational schemes where it is wished to avoid having to wind up the whole scheme if a scheme sponsor becomes insolvent. Changing the scheme funder could be an easier solution that costs less and helps members because it keeps the scheme intact and avoids unnecessary investment transition costs and expenses for the members. Does the Minister agree that this opportunity should be available and, if so, can he put on the record how it might be accomplished?

The purpose of Amendment 38 is to highlight circumstances under continuity option 1 which require a transfer out and winding up and for members’ accrued rights and benefits to be transferred. Notwithstanding regulations which might require transfers to alternative schemes or the right of employers or members to opt out of a proposed transfer, what is the position if the trustees simply cannot identify a transferee scheme? How is continuity option 1 to proceed? It is accepted that the focus of the Bill is just the money purchase component of a master trust but, if other benefits are provided, what is the position regarding these and how are they to be covered by other legislation and regulations? I beg to move.

[Baroness Altmann (Con)]

My Lords, I want to raise an issue which is very relevant to this point. As the Bill will, rightly, require continuity strategies for the event of failing master trusts, I ask the Minister to consider introducing measures that will facilitate bulk defined contribution pension transfers. At the moment, the bulk transfers are governed in a way that would be suitable for defined benefit schemes rather than defined contribution schemes. It seems that we have an opportunity to disapply Regulation 12 of the 1991 preservation regulations and to introduce measures in this Bill to directly facilitate defined contribution pension transfers, which could also cut the costs of transferring across.

Personal Independence Payment

Debate between Baroness Altmann and Lord McKenzie of Luton

Monday 6th June 2016 Lords Chamber

[Lord McKenzie of Luton]

To ask Her Majesty’s Government whether they have any plans to amend the Personal Independence Payment mobility criteria.

[The Minister of State, Department for Work and Pensions (Baroness Altmann) (Con)]

My Lords, there are no plans to amend the mobility criteria in personal independence payment. The Government consulted extensively when designing the criteria, including a specific consultation on the “moving around” activity. The criteria provide a more consistent assessment for claimants with both physical and non-physical impairments, and there are now 22,000 more people on the Motability scheme than before PIP was introduced.

[Lord McKenzie of Luton (Lab)]

My Lords, I note the Minister’s reply. As she will recognise, this Question arises from a debate that was led by the noble Baroness, Lady Thomas of Winchester, about a month ago. That was about the qualifying criteria for the enhanced mobility component under PIP—particularly that those who could reliably walk no more than just 20 metres will not qualify, losing £35 a week and vital support to live independent lives. When the Minister responded to that debate, she asserted that claimants who cannot walk up to 50 metres would be guaranteed the enhanced rate. I think there has been some pulling back from that position, which is regrettable. Given that the Minister was clearly content to enunciate the policy relating to 50 metres, will she not now actively join others in seeking the reinstatement of the 50-metre benchmark as a research base measure of significant mobility impairment?

[Baroness Altmann]

My Lords, I have issued a correction of the response to the Official Report. It is indeed possible for those who are unable reliably to walk more than 20 metres to get the enhanced rate, but there is no generally accepted measurement of distance that will be recognised as appropriate. The aim of the enhanced rate is, and always was under DLA, to help people who are either unable or virtually unable to walk. Under PIP, the test is widened so that it is not just those who are unable or virtually unable to walk, but those who have barriers to mobility and who find it difficult to get around. These issues need to be addressed on a case-by-case basis. They are expertly assessed. Indeed, we engaged directly with the noble Baroness, Lady Thomas, subsequent to that debate as we want to get this right.

Personal Independence Payment: Mobility Criterion

Debate between Baroness Altmann and Lord McKenzie of Luton

Wednesday 4th May 2016 Lords Chamber

[Baroness Altmann]

I thank the noble Lord, and I stress again that we were always aware that there would be people who would lose their Motability cars when we changed from a system that relied on lifetime awards and did not assess people’s current circumstances, to one that does. If someone’s is going through a PIP assessment whose circumstances have changed—who previously was not seen face to face, perhaps, and who had a lifetime award—and they are judged no longer to be unable, or almost unable, to walk, they will therefore not be entitled to the enhanced rate component and will lose their car. We knew that that was a result, but that is part of the process.

When making his Statement to Parliament, the Secretary of State said:

“I want to start a new conversation with disabled people”,—[Official Report, Commons, 21/3/16; col. 1269.]

and disability organisations. So I say once again that we are listening; our door is open. We have recently changed the rules, for example, for terminally ill claimants to ensure they no longer have to wait 28 days to receive the enhanced rates of PIP if they transfer from DLA. We are also revisiting our approach to award reviews to make better use of the evidence we already have, so that claimants do not have to give us the same information again if their circumstances have not changed. We are listening to the views of noble Lords; we want their views and those of disability groups; we value the expertise of noble Lords in this House and I say again that we are happy to meet the organisations.

[Lord McKenzie of Luton]

Before the Minister sits down, can we just revert to the discussion about the 20-metre and 50-metre rule, and whether it is a rule or not? As I understand it, she was saying that it is possible for somebody who can walk more than 20 metres to qualify for the highest mobility component. Of the total number of people who qualify, how many qualify on that basis and how many qualify because the 20-metre rule operates?

State Pension

Debate between Baroness Altmann and Lord McKenzie of Luton

Thursday 28th April 2016 Lords Chamber

[Baroness Altmann]

The noble Lord makes an important point; it is one that the Government have already been looking at. The new state pension will give much more clarity and generosity to the base on which the self-employed can build. The new lifetime ISA may be an opportunity for the self-employed to save in a way that they might be more comfortable with, rather than locking money irrevocably into a pension in their 20s and 30s.

[Lord McKenzie of Luton (Lab)]

My Lords, we know, and the Minister has confirmed, that overall expenditure on pensioner benefits is projected to be broadly the same under the new system as under the old until about 2040. Thereafter, expenditure growth is slower, so the Government plan to save money. There will be winners and losers. In particular among the losing category will be those currently in their 20s and 30s. The Government are pocketing some £4 billion to £5 billion extra a year from national insurance contributions because of the abolition of contracting out. Following another Budget disaster this year, the Government were forced to commit that there will be no more welfare cuts this Parliament. Will the Minister confirm that this applies to all existing pensioner benefits and that the triple lock, including that applied to the new state pension, will be applied as now? Further, should the UK leave the EU as the result of the referendum, what route, if any, will the Government take to preserve existing reciprocal pension uprating arrangements?

[Baroness Altmann]

The noble Lord has asked about five questions. However, I can certainly reassure the House that there is an absolute commitment to protect pensioner benefits up to 2020, and the basic state pension and the full new state pension, through the triple lock. As regards the expenditure on state pension, the reason that there are losers, if you like, in the long run—although I would not call them losers—is that we need to make the state pension system sustainable. That is exactly what the new state pension system will do. Indeed, with the introduction of the state pension, 75% of women and 70% of men will get more state pension. In the long term, the aim is for the auto-enrolment private pension to make up for the loss of earnings-linked state pensions.

Automatic Enrolment (Earnings Trigger and Qualifying Earnings Band) Order 2016

Debate between Baroness Altmann and Lord McKenzie of Luton

Monday 14th March 2016 Grand Committee

[Lord McKenzie of Luton (Lab)]

My Lords, I thank the Minister for introducing this order. We support the progress which has been made on auto-enrolment and we should take this opportunity to pay tribute to those who helped to create it. My noble friend Lady Drake was there at the start, or indeed before it, and she has expressed her concerns that the system still does not seem to be dealing adequately with the concerns and needs of low-paid women. It will be interesting to hear the Minister’s response to all that.

In her introduction, the Minister referred to the fact that those between the LEL and qualifying earnings can opt into the system. Do we have any data about how many actually do that? I think she cited that there was equality in 2014, in so far as 63% of eligible men and 63% of women opted in. The trouble is that the numbers of men and women were not equal, which meant that many more men opted in, so her statistic was a bit unfortunate.

As my noble friend Lady Drake has recognised, freezing the earnings trigger for a second year has a modest impact in drawing more people in and will help women, who are of course disproportionately represented among the lower paid and have missed out on auto-enrolment previously. One of the effects of freezing the trigger at £10,000 is a widening gap between the contributions and the income tax threshold, which means that, as a practical matter, those who are on the net pay tax relief arrangements are not actually getting effective tax relief. There are, of course, two ways in which you can get your tax relief: one is through the net pay arrangement and the other, the name of which escapes me—

[Baroness Altmann]

Relief at source.

[Lord McKenzie of Luton]

It is indeed relief at source. I am grateful to the Minister. What is happening to try to ensure that those people who are subject to the net pay arrangements are getting their tax relief? I am not quite sure what the arrangement with NEST is. I think that relief at source, which generally operates for NEST, will obviously cover a good many people, but how many people are missing out? These are people at the low end of the income scale who are not getting their tax relief, which was an important ingredient of the overall arithmetic.

Has there been any progress on aggregating mini-jobs for the purposes of the trigger and qualifying earnings band? If our noble friend Lady Hollis were here rather than in the debate on the Housing and Planning Bill, she would be on her feet extensively.

[Baroness Altmann]

I am sorry—what was the question?

--- Later in debate ---

[Lord McKenzie of Luton]

It was about people with mini-jobs being able to aggregate to reach the thresholds. We understand some of the practicalities, but has any progress been made on that?

I have another question to which I genuinely do not know the answer, about the impact of zero- hours contracts and fluctuating earnings on take-up arrangements. Looking at the varying pay periods, how does this work when somebody is within a pay period and above the threshold for one month but not for the subsequent period, so that they fluctuate in and out of the system? I think those were all the questions that I had. We will obviously not be opposing these provisions, and I look forward to the Minister’s response.

[Baroness Altmann]

My Lords, I thank the noble Baroness, Lady Drake, and the noble Lord, Lord McKenzie, for their excellent contributions. I certainly join in the tribute paid to the noble Baroness by the noble Lord for her role in setting up and being responsible for the successful programme of auto-enrolment.

I am delighted and welcome the fact that the noble Baroness welcomes the decision to freeze the earnings trigger. I am also delighted that she is as pleased as we are with the low opt-out rate and that, so far, this programme has indeed been a real success. All the points raised by the noble Baroness are valid, and are ones that I have raised in the past. However, there is a further reason why we have to be mindful of where we set the earnings trigger, and be very careful as we move forward with this policy not to derail what is already such a success. Part of the reason why it is such a success is that there is widespread consensus among employers as well as the pensions industry that this is the right thing for the country. Employers have accepted—willingly, in many cases—the idea that it is normal, and should be normal, for an employer to be responsible for not only the national insurance and tax of their employees but also a pension for their workforce.

However, as the noble Baroness knows, that consensus was hard won. It was the result of a very long period of negotiation and renegotiation, part of which concerned the costs to the employer. Although the earnings trigger is higher than might have been expected a few years ago, we have put other burdens on employers. Were we to reduce the earnings trigger significantly at this stage, given that we have the rollout of the national living wage, the apprenticeship levy and other elements that will impact on employers’ labour costs, it would be right to be mindful and careful about how quickly we move to include significantly more people in pension saving. However, notwithstanding that, as I said, 130,000 more people will be brought into pension saving—71% of whom are expected to be women—as a result of keeping the earnings trigger at the £10,000 level rather than moving it up, as was one of the considerations.

The noble Lord, Lord McKenzie, also referred to women. I once again confirm that the coverage of pensions for eligible workers is the same for women and men. As most noble Lords are probably aware, I would certainly like to see more women being brought into auto-enrolment. In time, I am sure that we will be able to do that. Of course, they can now opt in anyway if they are earning more than £5,824 a year and receive an employer contribution. That still means that they do not get the same behavioural nudge, but I can report that the latest figures suggest that 5% of those who are not eligible and are earning below the relevant figure are opting into their employers’ pension scheme. It is a start. I hope that, in time, we will go further as we establish this as the norm and as more workers become aware of the fact that this could be effectively free money from their employer, and that a significant extra contribution on top of their own pension savings is on offer if they wish to take it up. Of course, it takes time for those messages to come through.

As the noble Lord may well be aware, the issue of net pay arrangements is something significant that I have raised since I became aware of it a few months ago. Clearly, it is not acceptable that the very lowest earners might be required to pay about 20% to 25% more for the same pension as someone who earns more than them. That is the potential result of their employer choosing to use this net pay arrangement-type of scheme rather than a relief-at-source scheme.

Occupational Pension Schemes (Scheme Administration) (Amendment) Regulations 2016

Debate between Baroness Altmann and Lord McKenzie of Luton

Monday 14th March 2016 Grand Committee

[Lord McKenzie of Luton (Lab)]

My Lords, I thank the noble Baroness, Lady Altmann, for introducing these regulations in such a clear manner. We share the commitment to the importance of schemes being well governed. It is accepted that these regulations are generally focused on several technical amendments following on from governance requirements that were introduced last year, driven in part by the requirement to ensure that the growth of money-purchase schemes flowing from auto-enrolment is fit for purpose.

As we have heard, the thrust of these amendments seeks: to put beyond doubt that multiemployer group schemes are excluded from the additional governance requirements; to remove the chair of NEST from the required appointment timescale, because this is otherwise dealt with in statute; to allow a deputy to sign the chair’s statement when the latter is not in place; to enable a statutory override where scheme rules are in conflict with the trust deed requirements; and to let those schemes established by statute have a limited period to comply with the trustee appointments so that the current exclusion can expire—as well as some other tidying up.

We have no quarrel with those amendments, but seek clarification on just one aspect. In regulation 4, the substituted sub-paragraph (2ZA)(a)(ii), participating employers are “connected” if, inter alia, they are,

“are or have been partnerships, each having the same persons as at least half of its partners”.

The test seems to be a head count rather than being a sufficient commonality of shares of partnership activities. Is this what was intended?

That having been said, I should like to return to some points that my colleague, Angela Rayner MP, raised when these matters were debated in another place, particularly as they received scant response from the Minister in the Commons. Of course, we know that our Lords Minister, particularly being forewarned, will be able to do better. These issues concerned the growth of multiemployer schemes or master trusts. It was said that there is no official list of master trust providers although as many as 70 or 80 could be operating at the moment. What is the Minister’s understanding? My honourable friend cited two pieces of evidence given to the Work and Pensions Select Committee, one from the ABI and the other from the Pensions Regulator. The former pointed out that:

“Trust-based … schemes (including master trusts) … are not currently subject to the same stringent regulatory standards as contract-based schemes, which are regulated by the FCA”.

The latter pointed out that:

“Due to their scale, commercial purpose and design for use by multiple employers, master trusts represent different risks to members and consumer protection … master trusts themselves are not authorised prior to market entry and the regulatory framework is not designed for similar levels of ongoing supervision”,

unlike providers regulated by the FCA.

Does the Minister share these concerns? To what extent if at all has the position been ameliorated by the governance arrangements that we are discussing today? Is it satisfactory that the take-up of the voluntary master trust assurance framework seems to be so low? Does the Minister have an update on the previous figure of just five schemes? Is the Minister satisfied that the fit and proper persons test is being applied rigorously? Is it the case that master trusts are not protected either by the Financial Services Compensation Scheme or the Pension Protection Fund and is this an acceptable position?

The Minister will have read the Hansard record of other concerns expressed in the debate. I will not go over them all. It is understood that the Minister is on record as asserting that legislation is needed, particularly to deal with master trusts given their proliferation and the ongoing progress of auto-enrolment. We will have to wait and see what is in the Queen’s Speech in a few weeks’ time but one way or another, there are substantial issues here that need to be addressed.

[Baroness Altmann]

My Lords, I thank the noble Lord, Lord McKenzie, for his remarks. I am grateful that he shares our commitment that schemes should be well governed and welcome that he has no quarrel with our proposed regulations on these measures. I shall try to respond to some of his questions.

The noble Lord asked if the Minister shares the concerns that have been raised, and I can tell him that the Minister does share those concerns. It is true that trust-based schemes are not subject to the same regulatory controls. The authorisation of master trusts and trust-based schemes is the responsibility of HMRC. There is a “fit and proper persons” test now, but clearly even if that is applied rigorously more protection may be required. That is under active consideration. Such schemes are not, unless they are defined benefit, protected by the Pension Protection Fund, and even if the assets are protected by the FSCS, it is true that the costs of winding up the scheme could be deducted from the protected assets. Therefore, there is still a requirement for us to make sure that we protect as many people as possible in auto-enrolment and protect their pensions. These regulations, however, will ensure that there are improvements in governance standards. They will ensure that multiemployer schemes are better run and will clarify the governance requirements, which of course are such an important part of our pension system, to ensure that trustees are in place who can protect the interests of members.

With regard to the figures, over 90% of members who automatically enrolled into master trusts have been enrolled into those schemes that had signed up to the master trust assurance framework, which ensures that some quality features apply but is not, in and of itself, sufficient as a guarantee. It is a good indication of well-run schemes. There are a number of large master trusts available for auto-enrolment, and the Pensions Regulator is obviously trying to signal to employers that they have been through some quality assurance testing. Again, that is important because the worker who is auto-enrolled into a pension scheme has no control over the scheme chosen for them by their employer. It is therefore essential that we help employers to know how to choose a good pension scheme for their staff that is safe and secure, and indeed that they do so.

Well-run master trusts can and do offer good value for consumers and their employers, and of course we are keen that this market develops in the right way. We are aware that there are some potential issues and, as I am sure the noble Lord is aware, we are working with the Pensions Regulator to improve protection and ensure that the right protection is in place, which is likely to require legislation. We will come back to the noble Lord when the measures can be further elaborated upon.

There are a number of governance requirements that master trusts already have to meet under the current law, and I believe that the voluntary master trust framework covers seven schemes—is that right? I understand that it covers five at the moment, but others are in the pipeline. Still, we need to be sure that we are exploring, and will succeed in achieving, other protections in addition to those that already exist as auto-enrolment moves forward. Currently the contribution levels are extremely low, but numbers will increase—contribution levels will be quadrupling by 2019—so we must ensure that we have protections in place for those who enter auto-enrolment in the coming years.

On the noble Lord’s question about the head-count issue in partnerships, the purpose of the definition of “connectedness” is to help schemes to establish the degree of connection within a corporate group or partnership. If they are sufficiently connected, it can be exempted from the requirements. The partnerships definition is designed to ensure that two employers that are partners share a sufficient number of partners—that is, at least half—in order to be connected. This is about not just numbers but connection. As long as the multiemployer scheme is multiowner only because of connected employers, it is treated more like a single-employer scheme, but if a scheme promotes itself to bring in other employers rather than just being within the group then it is a multiemployer scheme, and we are trying to clarify that with these regulations. We hope that that will be clear.

[Lord McKenzie of Luton]

I will perhaps expand a little on the question, although maybe we should follow it up outside this session. I understand the thrust of employers needing to be “connected” for these purposes and, so far as partnerships are concerned, connection looks to be driven by a certain commonality of numbers of partners. However, numbers of partners may not tell you very much about where the weight and financial interest of any particular partner is. It would have been quite easy to construct something where you had a sufficient number of partners but all the clout and financial substance was with just one or two partners. I wonder how the “connected” rules would operate in those circumstances. I am afraid that this is a bit of a nerdy issue, and maybe we should deal with it outside this session if the Minister is not able to cover it fully today.

--- Later in debate ---

[Baroness Altmann]

Regarding these regulations, as I have just described, if employers that are outside the group can fit within these corporate scenarios—that will include where an employer was part of the corporate group but has now left the group and continues to participate in the scheme—they are considered a corporate group scheme.

[Lord McKenzie of Luton]

If that is the end of the exchange, I thank the Minister for a very full and quite frank response. It is very helpful to get that on the record.

[Baroness Altmann]

I thank the noble Lord. I am grateful for noble Lords’ careful attention and scrutiny of these draft regulations. We believe that good governance is fundamental to securing good member outcomes and these draft regulations will help ensure that schemes are better run, in members’ interests. The regulations that we have put forward today will make amendments that will help to clarify the scope of the governance provisions. I am grateful for Members’ contributions to this debate. I hope I have set out the need for these regulations, and have responded as best as I can to the matters raised. If necessary, I will continue to answer any further questions that noble Lords may have. I commend these draft regulations to the Committee.

State Pension Age

Debate between Baroness Altmann and Lord McKenzie of Luton

Wednesday 2nd March 2016 Lords Chamber

[Lord McKenzie of Luton (Lab)]

My Lords, I start by thanking the noble Baroness, Lady Altmann, for repeating the Statement delivered in the other place. One of the matters that has characterised this Government’s approach to pensions—changes to both the state and private pensions—has been the lamentable approach to communicating change. This has manifested itself in the frustrations of the WASPI group; the misunderstandings over why only a minority of those retiring after 5 April this year will receive the full rate of the new state pension of £155 per week; and issues arising from the so-called new flexibilities.

What assurance will the Minister give about not repeating the mistakes of the past when the review that is being undertaken brings forward its recommendations? The terms of reference require consideration of what a suitable state pension age is in the immediate future and over the longer term. However, the government press release states—this is what the noble Baroness said—that the review will be focused on the longer term and will not cover the existing timetable to April 2028. So can the Minister please reconcile these two positions? It is a classic case of confused communication which fuels speculation about the Government’s true intent.

Do we take it that there is no intention of revisiting with some transitional relief the position of those in their mid-50s who are adamant that they received inadequate notice of the rise in their state pension age?

The review has to take a view on how changes to state pension age rises support affordability. I ask therefore whether the triple-lock is within its scope.

We accepted the 2014 provision which required a periodic review of the pension age. We know that life expectancy is generally increasing, but we know that this does not always equate to healthy years of life. We know also that health inequalities remain stubbornly persistent. How does the Minister consider that these factors should be reflected in a fair approach to the pension age? Can the review cover an assessment of the adequacy of social security arrangements for those who cannot sustain work before reaching an extended pension age?

We wish John Cridland well with his review: transparency, consultation and a clear recognition of the need for long-term notification of any changes will be vital.

[Baroness Altmann]

I thank the noble Lord for his comments. I would like to request and invite all noble Lords to be in touch with the review, so that we can ensure lessons are learned. If noble Lords have any observations on issues relevant to the consideration of long-term changes to the state pension age and state pension age policy, this is the opportunity to do that. It will be an independent review which will consider all the relevant factors, and the reviewer will welcome such evidence. The review is about the state pension age. It is also about the longer term. I repeat that it will not consider any changes to the state pension age timetable that is already legislated for up to 2028.

[Lord McKenzie of Luton]

If the Minister will forgive me, could we just clarify that point? The terms of reference—I have a copy here—say that the review will consider:

“What a suitable State Pension age is, in the immediate future and over the longer term”.

[Baroness Altmann]

The Government have made it clear that this is about the changes for the longer term and the appropriate framework for state pension age policy. No changes will be considered and the reviewer will not be looking at making or recommending any changes to the timetable before 2028.

State Pension (Amendment) Regulations 2016

Debate between Baroness Altmann and Lord McKenzie of Luton

Monday 22nd February 2016 Grand Committee

[The Minister of State, Department for Work and Pensions (Baroness Altmann) (Con)]

My Lords, I shall speak also to the draft Social Security Benefits Up-rating Order 2016. In my view, the provisions in the order and the regulations are compatible with the European Convention on Human Rights. Together, these statutory instruments demonstrate the Government’s continuing commitment to support those who have worked hard all their lives, paid into the system and done the right thing to provide them with dignity and security in old age.

Let me first address the issue of those social security rates which are linked to the rise in prices. This includes the additional elements of the current state pension, working-age benefits, carer’s benefits and benefits which contribute to the extra costs that may arise as the result of a disability or health condition.

Last year, the relevant headline rate of inflation, the September consumer prices index, stood at -0.1%, which means that price-indexed benefits have retained their value in relation to the general level of prices. These benefit rates will therefore remain unchanged for 2016-17 and have not been included in the uprating order this year. For the same reason, the Government have not laid a draft guaranteed minimum pensions increase order.

I add that the Government intend to bring forward additional secondary legislation to adjust rates and thresholds within certain social security benefits that would usually be covered by an uprating order. These include adjustments to pensioner premiums within working-age benefits, pensioner amounts in housing benefit, the level of savings credit and non-dependent deductions. We will be laying these regulations, which will be subject to the negative procedure, before Parliament in due course.

As for those rates that are included in the uprating order, this Government continue to stand by their commitment to the triple-lock guarantee, by which the current basic state pension is uprated by the highest of earnings, prices or 2.5%. This year, the increase in average earnings has been 2.9%, more than inflation and more than 2.5%. This means that from April 2016 the rate of the basic state pension for a single person will increase by 2.9%—that is, £3.35, to £119.30 a week, the biggest real-terms increase of the basic state pension since 2001. Therefore, from April 2016 the full basic state pension will be more than £1,100 a year higher in 2016-17 compared to the start of the previous Parliament. We estimate that the basic state pension will be around 18.1% of average earnings, one of its highest levels relative to earnings for more than two decades and in contrast to the low of 15.8% which it reached in 2008-09.

This Government continue to protect the poorest pensioners. The pension credit standard minimum guarantee, the means-tested threshold below which pensioner income need not fall, will rise in line with average earnings at 2.9%, so that from April the single person threshold of this safety-net benefit will rise by £4.40 to £155.60 a week and will be the biggest real-terms increase since its introduction. Pensioner poverty now stands at one of its lowest rates since comparable records began. Despite the difficult economic decisions that we have had to take, I am pleased to say that this Government are spending an extra £2.1 billion in 2016-17 on supporting pensioners who have worked hard and done the right thing while continuing to protect the poorest pensioners.

The state pension regulations set the new state pension full rate that will apply from April 2016 at £155.65 per week, equivalent to more than £8,000 per year. This will mean that the new state pension will therefore stand at 23.6% of average earnings, and I am pleased to confirm that the triple lock will apply to this full rate for the remainder of this Parliament. Our reforms will see the complicated state pension system become clearer and fairer, providing a solid foundation on which people can build up their retirement savings. They will lift many more pensioner incomes above the basic means-tested threshold for the pension credit standard minimum guarantee.

The new state pension will see many groups better off than they would be on the current system. Around 650,000 women who reach state pension age in the first 10 years can expect to receive, on average, more than £400 a year more than under the current system. Around three-quarters of those reaching state pension age will be better off under the new system by 2030. Carers, lower-earners and self-employed people will also benefit under the reformed system. However, we are ensuring that the reforms in the new state pension cost no more than the present system.

In conclusion, these measures demonstrate the Government’s overall commitment to support current pensioners by increasing their basic state pension through the triple lock, to protect the poorest pensioners by raising their guaranteed minimum income and to reform the state pension system so that it is clearer and fairer for future pensioners. Despite the tough and difficult decisions we have had to take, the Government are rewarding pensioners who have worked hard by providing them with a secure and dignified retirement. On that basis, I beg to move.

[Lord McKenzie of Luton (Lab)]

My Lords, I thank the noble Baroness, Lady Altmann, for her explanation of these regulations and the uprating order. I thank the Minister also for the follow-up communication dealing with some outstanding points from earlier regulations and note the efforts to be made to publicise the availability of national insurance credits for spouses and civil partners who accompany Armed Forces personnel on overseas postings.

As we have heard, the regulations set the full rate of the new state pension at £155.65. I will say more about this later. The uprating order covers the obligation under Section 150A of the Social Security Administration Act 1992 for the Secretary of State to review certain benefits and uprate by reference to earnings if they do not maintain their value. We are advised that the annual growth in average weekly earnings for the quarter ending in July 2015 was 2.9%. This is therefore applied to relevant benefits.

As far as Section 150 of that Act is concerned, we are advised that the uprating order does not need to include any benefits because these benefits have maintained their value in relation to prices, given that the CPI for the 12-month period ending in September 2015—which was available from mid-October, I think—showed a marginal negative growth rate. This seems to overlap with the benefits freeze in the Welfare Reform and Work Bill, a freeze that extended for four years the previously announced two-year restriction on certain working-age benefits. The Minister will be able to confirm that not all the benefits that are not uprated in this order have been the subject of the freeze provided for in the Bill. These include—I think the Minister referred to them—attendance allowance, carer’s allowance, DLA, ESA, statutory adoption pay, statutory maternity pay, statutory paternity pay, and PIP.

When we discussed these matters the Government made much of certain disability benefits being outside the freeze. The briefing note provided to us when we were considering the Bill—at a time when the CPI rate must have been known—nevertheless stated:

“To continue to ensure we protect the most vulnerable we are exempting benefits for pensioners, benefits relating to the additional costs of disability and care and statutory payments”.

In the event, many pensioner and disability costs are not to be uprated, for 2016-17 at least. Can the Minister tell us what assessment has been made of the appropriateness of using CPI as a measure of the additional costs incurred by those with a disability, so that the Government can be satisfied that the vulnerable are being protected?

--- Later in debate ---

[Baroness Altmann]

My Lords, I thank the noble Lord, Lord McKenzie, for his observations, and I would like to help set some of the record straight or clear up any confusion. He asked about what he called a “freeze”. The fact that some of the benefits are not changing is purely a reflection of the fact that they are linked to prices and prices fell. I assure him that uprating will continue as inflation picks up, so that these benefits will continue to increase in line with any rise in prices in the coming years. This is not a freeze on these particular benefits.

[Lord McKenzie of Luton]

It is not a freeze on these particular benefits, but they are not being uprated. How would the Minister describe that? That is the first point. On the perhaps more substantive point, which I recognise does not include the specific freeze in the Bill, what judgment have the Government made about the impact of not uprating and the extent to which CPI is relevant to the extra costs of those who claim DLA or PIP, not the generality of benefits?

[Baroness Altmann]

As I have said, benefits such as PIP, DLA and attendance allowance will be uprated in future years, when there is inflation, but prices have fallen over the past year. I can confirm, by the way, that SERPS, S2P and the other benefits are included in this. The official measure of inflation is CPI, and that is the measure required to be used for uprating benefits. CPI fell last year, so there is a 0.1% real-terms increase in these benefits, and as and when inflation increases in the future, these benefits will be increased to take account of the rise in prices, as is required. Earnings-linked benefits will rise in line with earnings or the triple lock, depending on the requirements of the benefit.

[Lord McKenzie of Luton]

I am sorry; I do not intend to get up again, unless really provoked. I think the Minister said that the benefits had to be uprated in line with CPI. If the Government judged that to be an insufficient uprating—zero, in this case—because of what had happened to the costs of those concerned, is she saying that the Government would be precluded from uprating further or beyond the zero? Are they bound by that?

[Baroness Altmann]

As the noble Lord is aware, the Government would have discretion to increase by more, but the judgment is that the appropriate requirement this year is that these benefits be changed in line with inflation, or slightly above the movement in prices over the past year. I reiterate that this is not a freeze. It is not part of any benefits freeze; it is purely a function of the fact that these particular benefits rise in line with the change in the price level, as measured by CPI, which is the Government’s official inflation measure. On his particular question, Section 150A of the Social Security Administration Act does not allow for inclusion of these rates in the order, so the rates that will be increased will be taken by alternative powers. There is nothing untoward or underhand in any way; it is merely a function of how the legislation is framed.

Turning to the new state pension, the noble Lord is absolutely correct: communication is very important. One of the big communication challenges we all face is the perception that if people are not getting what is called the full rate of the new state pension, they are losing out. That is a misperception, and it is important that we try to help correct and overcome that. It is important that we help people understand that the new state pension is a totally new system. The full rate will apply to those who are only in the new system, but for those who have built up state pension under the previous system—the existing system—an allowance will be made for years in which they did not pay full national insurance because they were building up a private pension with some of the rebate for national insurance they received.

--- Later in debate ---

[Lord McKenzie of Luton]

Will the Minister tell me what happens after 2030? What are the projections?

[Baroness Altmann]

I am coming on to that because it is important to understand that these reforms are designed to make the state pension system affordable and sustainable over the long term. We have an ageing population and an increasing number of expected future pensioners, which is good news. The proposal and the overall framework of our pension reforms, taken together, are to ensure that the state pension system is sustainable. Over the years from 2030 and certainly from the 2040s onwards, the general level of the state pension will be set at a base of around £8,000 a year in today’s money. On top of that, people will be expected to have built up a private pension under the auto-enrolment reforms. It is true that in the 2030s and mainly from the 2040s onwards, the general level of the state pension will not be as generous as it would have been if the current system had been sustained. However, the current system is not sustainable. That is expected to be combined with a better private pension to ensure adequate pension provision—indeed, better pension provision—for more pensioners in future because the state pension system will not penalise private savings in the way it currently does for those who are going to end up in the bottom half of the pensioner income distribution in later life.

The new framework, with a base level of state pension that is not earnings-linked, topped up by a good private pension that comes from auto-enrolment, with help from the employer, which will be earnings-linked, is meant to make our system more sustainable and affordable. Having said that, as the noble Lord rightly said, there will be people who will need a safety net; for example, because they do not have the full 10 years required for any state pension and so end up with no state pension, or for other reasons. They will still have access to the means-tested pension credit, but that will be set below the full rate of the new state pension to maintain the incentive.

The question about the 5p differential between the pension credit minimum guarantee and the full rate of the new state pension was relevant to this point. We are committed to ensuring that the new state pension is above the pension credit standard minimum guarantee, but it is also important to remember that the 2012-13 illustrative rate for the new state pension was £144 a week, while the pension credit standard minimum guarantee for a single person was expected to be £142.70 a week. Since then, we have increased the pension credit standard minimum guarantee by the full cash increase given to the basic state pension, so that the poorest pensioners benefit from the triple lock as well. That means that the pension credit standard minimum guarantee has grown faster than the new state pension illustrative rate.

As far as the savings credit is concerned, it is true that the savings credit maximum rate is being reduced, but this should be more than offset by the increase in the basic state pension, and the triple lock. As well as being catered for, depending on what happens to each individual element of a pensioner’s income, the fact that the maximum savings credit is falling by approximately £2 a week will be more than offset by the £4 or £3.35 increase. Our forecasts are that pensioners will, on average, still be £2 a week better off in cash terms. I am assured that there will be absolutely no cash losers from this. The expectation is that the poorest pensioners will still see an increase in their overall income.

The noble Lord also asked about the rebate savings from contracting out. It is true that the additional national insurance revenue raised by the withdrawal of the contracting-out rebate will be received by the Government. However, it will be received by the Treasury; it will not flow to the DWP. It is not expected to be spent on the state pension; otherwise, it would mean that significantly more would be spent on new, rather than existing, pensioners, which was never the intention of these reforms. It is a matter for the Treasury how it allocates the departmental funds that it raises after the removal of the rebate and how that revenue is subsequently spent.

I think that that covers the points raised, if I am not mistaken.

[Lord McKenzie of Luton]

I am grateful to the Minister for a very full response on most issues. Unless I missed it, I do not think she dealt with those who may have no entitlement to the equivalent of the basic state pension, or with transitional protection. We touched on those paying reduced national insurance contributions before 1977, which might be one category, but is that it? Is that all the transitional protection that will be available?

[Baroness Altmann]

I apologise. I thought that the noble Lord had, in a way, answered his own question by saying that there is transitional protection for those women who have paid the married women’s stamp—the reduced rate election. There is also protection for Armed Forces spouses, who will get credits in the system. It is also the case that some people might have inherited a pension from a spouse but no longer will under the new system because the new state pension will treat individuals in their own right. It is very difficult for us to predict who will become widowed. However, as the noble Lord rightly said, this will form an important part of the communications on the new state pension: to explain that in future most people—as I say, there will be exceptions for the Armed Forces and the married women’s stamp—will be treated for state pension purposes on the basis of their own record, rather than being assumed to be able to inherit or transport an entitlement from a partner.

[Lord McKenzie of Luton]

Just to be clear on that point, my understanding is that the Government have estimated that up to 2030 some 290,000 people will be affected by the withdrawal of that opportunity. I understand what the Minister has said about those who paid reduced national insurance contributions before 1977 and those accompanying armed services personnel, but how many of those 290,000 people does that cater for? What is the level of the transitional protection likely to be for those who paid reduced national insurance contributions before 1977?

[Baroness Altmann]

I do not have the breakdown, but I am happy to write to the noble Lord with whatever figures we can give him to satisfy him on that particular request. Pension credit remains for anybody who does not have sufficient income to bring them up to the £155.60, which is usually far more than the pension that one would have inherited. Under the new state pension, widows or widowers will also inherit the protected payment that their previous partners would have been able to build up under the new state pension system rules.

I thank the noble Lord for his contribution to this important debate. This Government are taking the necessary steps to protect pensioners, many of whom have worked hard all their lives and are no longer in a position to increase their income through work. Our triple lock, our protections for the poorest pensioners and our new state pension reforms mean that we will be able to provide pensioners with dignity and security in their retirement.

Pensions Act 2014 (Consequential and Supplementary Amendments) Order 2016

Debate between Baroness Altmann and Lord McKenzie of Luton

Monday 8th February 2016 Grand Committee

[Baroness Altmann]

My Lords, I am grateful to the noble Lord for his contribution to this technical debate. He has raised several questions, and I will attempt to answer some of them. If he requires further answers, I will of course write to him.

It is indeed the case that the analysis conducted by the department shows that the majority of those reaching state pension age between now and 2013 will receive more from the new state pension than they would have done under the old system. In the long run, the aim is that the rollout of automatic enrolment will provide a supplement to that state pension for future generations of retirees. Therefore, in the long run, the overall amount paid out by the state may reduce, but that is to be offset by the impact of automatic enrolment.

Women will get more state pension, on average, under the new system than they would have done under the old one. Notwithstanding the equalising of state pension ages, over their lifetime women will on average get 10% more state pension in total than men of the same age. The idea that women are losing out needs to be modified by some of the data that we have already produced.

[Lord McKenzie of Luton]

I was not suggesting that women were going to lose out. My point was that there is movement towards equalisation with men, although that is some time in the distance—I think that the 2040s has been the calculation.

[Baroness Altmann]

The equalisation between men and women of state pension payments may come in the future but, in the mean time, notwithstanding whether they get slightly less than men—the gender gap will be much narrower—over their lifetime they will get more, because the average woman lives longer than the average man. Once equalisation occurs, the gender favour to women will be even greater. In the mean time, the new state pension will put women in a much stronger position under the new state pension rules relative to the old ones. This is a significant improvement in the position of state pension payments for women on average, who, as we all know, have lost out in the past; we are remedying that to a large degree.

The noble Lord asked about contracting out. The idea of removing contracting out is not so much about cash flow or increasing the amount of money that comes to the state, because contracting out merely replaces what the state would have otherwise paid out in the state pension. By ending contracting out, the national insurance payments that are increasing will be offset over the long run. Indeed, depending on the average life expectancy, it could perhaps end up meaning that the Government pay out more in state pension as a consequence of ending contracting out than they do under the current system, where part of the state pension is contracted out to an employer who promises to replace the additional state pensions.

Therefore, it is not clear to me that there is a cost saving. It is clear to me that it is absolutely essential that we move to a simpler state pension system, which people can understand and deal with, because currently they cannot do so. At present, the existence of contracting out means that part of people’s state pension builds up in a private pension, which confuses the messages and the planning. Therefore, the principle of the new state pension is that everybody pays the same type of national insurance without some people being able to pay less than others because they are in a particular type of private pension scheme, and that everybody, regardless of their earnings, the type of credit they have or the type of national insurance contribution they pay, will be able to build up the same state pension each year as they accrue another year on their contracting-out record.

[Lord McKenzie of Luton]

In relation to the year we are just about to enter—2016-17—is the Minister saying that there will not be extra net revenue in the system that year from the abolition of contracting out?

[Baroness Altmann]

Of course that is not what I am saying. I am saying that we have to look at the state pension over the long term. National insurance is paid now but it relates to liabilities that will be paid over a long period of time, and Governments, quite rightly, have to plan for that with regard to the money flowing in now and the liabilities that will ensue from that over the longer term. As we know, the new state pension is expected to be cost-neutral to the taxpayer. Given that, I am not convinced that it is appropriate to consider contracting out as a money-saving exercise.

I am delighted that the noble Lord supports Regulations 4 and 5. Most of the measures that are being put in place here are indeed technical in nature and try to maintain the principles of the new state pension as well as protect people when we move from the old system into the new system—in particular, as we said, widows or widowers who inherit parts of the state pension entitlements that they would be able to inherit today.

The noble Lord also mentioned the importance of communications, and I completely agree with that sentiment. Indeed, as he alluded to, we are engaged in a widespread campaign to inform people and improve communications around state pensions. An enormous amount of time, effort and money has been put into this exercise, and we will continue that over the coming period. I assure the noble Lord that we have very much adopted the idea of communications being particularly important and will continue to work in that way.

The noble Lord also mentioned the complexity of the new state pension rules and some of the issues that have arisen with the drafting of the regulations. Of course it is a matter of regret that we had to come back with an affirmative regulation, which should have been done in the appropriate way in the first place. However, the debate is now taking place, as required.

We must not forget that the old state pension is what is so complicated. Dealing with past complexity is imposing difficulties when moving to a new state pension system. We have not been able to just sweep away the old system; we have to carry people into the new state pension system. That means carrying with it the complex rules and the many adjustments that were made over the many years for which it has existed. Once that new system is in place, the scale of complexity will be vastly reduced. For most people, it really will be a simple system, but we have to get from the old system into the new one, when it is fully up and running, and that will take some time before we can reconcile all the records as at April 2016 to know what everyone is starting the new system with.

As for national insurance credits for spouses and partners of people in the Armed Forces, we will be providing data when we bring forward those regulations. As the noble Lord said, we plan to have that debate on 22 February. We believe that we have reliable data that we can put before the House. Unfortunately, as I explained, the old system is very complicated. We need to bring in a huge number of moving parts from the current system to try to ensure that people do not lose out.

The noble Lord mentioned inheritance. In the new state pension system, widows will be able to inherit the additional pensions of their late spouses or partners. That inheritance currently exists and will be carried forward. I can reassure the noble Lord on that matter.

The noble Lord asked me about digital state pension statements. At the moment, they are in testing. The testing will be carried out over the next few weeks, and we will then be gradually rolling out the new digital statements, which will be much clearer and more helpful, so that people can see forecasts of what their new state pension will be able to give them.

As for the issue of deferral, as I said, the regulations will correct an anomaly that exists. The new state pension will ensure that the deferral for those who live in overseas countries which do not have a reciprocal arrangement with us, and those countries in which pensions are not uprated at the moment, will apply only to the pension at the date at which the person reached state pension age. That is the increment that will be added for deferral, rather than adding an increment to an increased state pension, which would otherwise give them a double benefit.

The debate has ranged rather widely—probably more widely than the provisions—so it may be helpful if I remind the Committee of what the regulations do. They enable a widowed person whose late partner was in the old state pension scheme to inherit the graduated retirement benefit. They provide for increments from state pension deferral to be based on the amount of new state pension the person would actually have been entitled to if they had been receiving their pension instead of deferring it. They maintain the long-standing policy of not uprating the state pension for people resident in certain countries overseas. They replicate a provision relating to survivor benefits that was in an old set of regulations in the new set that replaces them. The order simply makes consequential amendments that result from the introduction of the new state pension. I therefore commend the regulations and the order to the Grand Committee.

[Lord McKenzie of Luton]

Would the Minister mind looking at the record after this and perhaps writing where she has not been able to cover matters this afternoon?

[Baroness Altmann]

Yes. As I said, I am more than happy, if there are issues that have not been covered, to write to the noble Lord.

State Pension: Equalisation

Debate between Baroness Altmann and Lord McKenzie of Luton

Monday 23rd November 2015 Lords Chamber

[Baroness Altmann]

My Lords, the policy of merging and transferring pension pots will be addressed but, at the moment, there is a significant amount of increased regulation and changes in legislation for the pensions industry to cope with. By 2018, when auto-enrolment is fully rolled out, we will know much better what are the appropriate and required measures for automatic transfers.

[Lord McKenzie of Luton (Lab)]

My Lords, the Minister will doubtless recall one of her contributions to Saga magazine where she wrote:

“A group of older women are very angry. Many of them have written to me, some have written to their MPs, and others say they don’t believe it is worthwhile writing to their MPs, as the Government will not listen to them anyway. They remember that it was the Conservative Government in 1995 who increased their pension age, which they quietly accepted, but they now feel taken advantage of and treated like a ‘soft target’ because they have been given such short notice of another major change. They feel the move is discriminatory and manifestly unfair”.

She went on:

“The plans demonstrate a lack of understanding of the realities of many of these women’s lives. They feel betrayed that the Conservatives have hit them a second time and by far more than men”.

Does the Minister stand by those words?

[Baroness Altmann]

My Lords, as I have said, this matter was properly and thoroughly debated by Parliament. All those arguments were put to both Houses of Parliament and a majority voted for the legislation more than four years ago. This afternoon, I checked quite carefully and it is clear that this issue was missing entirely from the Labour Party’s manifesto before the general election. No party committed to doing anything about the billions of pounds that it would cost to change any of these plans.

Employment

Debate between Baroness Altmann and Lord McKenzie of Luton

Thursday 19th November 2015 Lords Chamber

[Baroness Altmann]

My Lords, there have indeed been concerns about disparities but they are reducing significantly. The plans for the northern powerhouse will make a difference. The latest figures from the Recruitment and Employment Confederation and KPMG show that the Midlands and the north led a broad rise in demand for permanent staff, with salaries rising as well.

[Lord McKenzie of Luton (Lab)]

What evidence do the Government have that docking £30 a week from half a million disabled people in the work-related activity group will act as a work incentive and help close the disability employment gap?

[Baroness Altmann]

It is indeed the aim of this Government to halve the disability employment gap. The reforms to the employment and support allowance are designed to ensure that we have the right incentives in place to help people in the work-related activity group, of whom 61% do want to move into work, to do so.

Health and Safety at Work etc. Act 1974 (General Duties of Self-Employed Persons) (Prescribed Undertakings) Regulations 2015

Debate between Baroness Altmann and Lord McKenzie of Luton

Wednesday 22nd July 2015 Lords Chamber

[Lord McKenzie of Luton]

The Minister referred to the 1.7 million people who will be taken outside the scope of the Health and Safety at Work etc. Act. What estimate has been made of the number of those people who would have to undertake a risk assessment in the first place to determine whether or not they pose a risk to others?

[Baroness Altmann]

We would expect that if they are exempt they would not need to undertake a health and safety risk assessment. The idea is that it will be made clear to them if they are working in such conditions that they pose no threat to the public. As I described, if you work from your own home and you do not come in contact with the public, you will not need to do a health and safety self-assessment, and somebody will not come along and say, “Oh, by the way, everybody has to conduct a health and safety assessment”. However, of course, if you are employing other people, that will still be required. I hope that that answers the question.

I understand that it is difficult to imagine how this will work until it is actually working, but the guidelines and the guidance will be available six weeks before the regulations come into force. There will be an extensive campaign to publicise this change and to explain it to the public. Our estimates have been made and we are accepting the recommendations of an independent review. We are talking only about someone who is self-employed so our expectation is that this will save both time and money; it will also save those self-employed people who are now exempt from having to keep up to date with any changes in health and safety regulation, which in itself can take time or cost money.

We are aiming to help businesses. We expect that more new businesses will start up as a result of this. Again, one cannot demonstrate precisely how many—

[Lord McKenzie of Luton]

I am sorry; I promise not to interrupt again. Is the Minister seriously saying that an estimated 15 minutes a year has been prohibiting self-employed businesses from starting up and flourishing; or that the minuscule savings that, in aggregate, even on these estimates, are expected to accrue will affect the growth of self-employed businesses? There have been some 200,000 new businesses in recent times in any event. They do not seem to have been inhibited by overburdensome health and safety regulations.

[Baroness Altmann]

I accept that it is impossible to prove but that is the expectation of the department. At the margin—these decisions are often important at the margin—some people will be reassured to know, if they are intending to set up only as a self-employed person working from home, that they are not included in the health and safety requirements they are now being exempted from. It is impossible to say, as with all such things, but we certainly have been advised that, and it is the view of the independent reviewer that, this will make a difference. Therefore, we are recommending these changes.

[Lord McKenzie of Luton]

I said that I would not intervene again, but I want to stress to the Minister that the statement made that those working at home can be outside the Health and Safety at Work etc. Act is very dangerous. To make blanket assertions in such a bold way—that no one in that situation will pose a risk of harm to others or need to undertake a risk assessment—is highly dangerous. I apologise for interrupting. I will not do it again but we have to stress the importance of not going down that path of encouraging people to think that they are outside the provisions of this very important legislation.

[Baroness Altmann]

I absolutely share the noble Lord’s view that this is very important legislation. The advances we have made in health and safety and the consequent reductions in accidents, along with the measures introduced all those years ago, are a significant achievement and success. However, I am suggesting that certain businesses can be exempted from this provision because they pose no risk to the public. I certainly would not wish to give the impression, and I hope I have not, that everybody who works from home is exempt. One million self-employed people will still be covered by the regulations. They will apply only to certain types of activity and they will be made clear. They will be clarified by the guidance and by the campaign that will be launched six weeks before these measures come into effect.

[Lord Hodgson of Astley Abbotts (Con)]

Perhaps my noble friend might like to explain to the noble Lord, Lord McKenzie, and the party opposite that what is actually needed here is common sense, not risk assessment. Risk assessment is a formal legal process. People should use their common sense to make sure that they look after themselves. I think that is what my noble friend is trying to drive at and it must be the right way to proceed—to avoid paper form-filling and unnecessary diversion of effort for people who, with common sense, could work it out for themselves.

[Lord McKenzie of Luton]

But is risk assessment not a matter of common sense?

[Baroness Altmann]

I thank my noble friend Lord Hodgson for his comments. I would certainly be of the view that in the cases one could imagine these regulations applying to, it would be common sense to identify whether you pose no risk to the public in the work you are doing. You would therefore not need to carry out a health and safety assessment on yourself or your place of work if you do not pose any risk to anybody else. As I have said, a self-employed person who is an employer will continue to have duties under the Act; so will anyone who carries out high-risk activities.