Social Security Benefits Up-rating Order 2025

Baroness Drake Excerpts

Tuesday 25th February 2025 Grand Committee

[The Lord Bishop of Chelmsford]

My Lords, it is very good to be here today and I am glad to be able to contribute on this important subject. As we consider a proposed uprating of 1.7%, as compared with 6.8% last year and 10.1% the year before, I am mindful of the different backdrop to this year’s decision. We may no longer be in a period of soaring inflation, but costs remain high in just about every area of life. The discrepancy between the inflation rate from September 2024, by which most means-tested benefits will be uprated, and the current rate of 3% will be felt particularly by those who have not benefited from wage growth this year. This is a timely moment to explore social security as the Government set out their wider agenda in this area.

The manifesto commitments to review universal credit as a means of supporting people into work and addressing poverty and to produce a child poverty strategy could give us a basis on which to improve the lives of millions of people in our country. Indeed, bold action is required in both these areas and, like other noble Lords, I await the outcome of these reviews with keen interest.

As the Church of England’s lead bishop for housing, I see the consequences of not aligning housing support with housing costs, with half of private renters on housing benefit experiencing poverty. I suggest that local housing allowance ought to be linked to private rents as a matter of course, especially taking into account research from the Joseph Rowntree Foundation, which shows that 81% of low-income private renters in receipt of housing benefit are going without essentials such as food, heating and warm clothing. I very much hope that the Government will consider the adequacy of social security in their review of universal credit. For the first time since its introduction, we have an opportunity to explore how well the system works and to consider carefully the impact of sanctions, deductions and the five-week wait on the lives and incomes of people who rely on social security simply to make ends meet.

I welcome the introduction of the fair repayment rate, which is an important step towards ensuring that deductions do not cause people to fall below the threshold of what we would consider an acceptable standard of living. Despite this, I still worry about the impact of the deductions. I draw the Committee’s attention to the Private Member’s Bill brought forward by the right reverend Prelate the Bishop of Manchester, which would equalise the standard allowance of universal credit for care leavers under the age of 25. Care leavers have shared their experiences of deductions from their universal credit, which, when taken from an already lower rate, can leave them struggling to afford essentials. This cohort of young adults cannot necessarily rely on the same level of family support as many of their peers.

Even though we have resumed uprating benefits in line with inflation, their real-terms value is low by historic standards. The major issue is that benefits are not calculated in relation to the day-to-day costs people face. One solution could be for benefits to rise in line with wages rather than prices, as advocated by, among others, the Resolution Foundation. Another could be to introduce a minimum floor in universal credit to ensure that people have the money they need to afford the essentials, as advocated by the Trussell Trust and the JRF. It seems eminently sensible to calculate benefits in relation to the day-to-day costs people face. We have a precedent for this, with pensions credit calculated by comparing a person’s income with the amount the Government think necessary to live on. I would be grateful to hear the Minister’s views on whether means-tested benefits could be subject to a similar assessment.

As I close, I reflect on the impact of poverty on our places of worship and wider communities. There will always be a place for voluntary provision, particularly when it comes to support that requires a more human and relational touch; but we must be attentive to the reasons why there is so much demand for food banks, warm spaces, breakfast clubs and the many other activities hosted in church buildings and by other faith groups and charities. We see first hand what the statistics bear out: poverty is deepening in our country. Investment in social security, alongside reforms in other areas, is essential in order to turn the tide on poverty.

[Baroness Drake (Lab)]

My Lords, I refer to my entry in the register of interests as a trustee of pension schemes, and I thank the Minister for her clear explanation of the two statutory instruments before us.

I want to raise an issue concerning the Guaranteed Minimum Pensions Increase Order 2025. Given the pace at which DB pension schemes are transitioning to buyout contracts, this raises the issue of the extent to which, and how, a buyout contract contains liability for a guaranteed minimum pension, and the contractual provision of a promise to provide at least that pension from the age of 60 or 65. Is this a liability that all buyout contract providers must take on when they accept the original transfer from the defined benefit pension scheme? Secondly, does the DWP intend to update its guidance on the guaranteed minimum pension, considering the extent of buyout activity now taking place among DB pension schemes?

[Baroness Janke (LD)]

My Lords, I, too, thank the Minister for her presentation. I also support very strongly the Government’s commitment to the triple lock, despite the loud and frequent calls for it to be abandoned. It is worth repeating that those who call for it to be abolished often do so from a position of financial security, conveniently ignoring the fact that large numbers of pensioners are dependent on the state pension, which is still one of the lowest in Europe.

I also welcome the capping of automatic deductions on debt from universal credit that leave people far below the amount they need to live on. But over the last year there have been reports of record levels of deductions from universal credit, and I wonder if the Minister could comment on the reasons for those.

The 1.7% uprating for other benefits will be of little comfort to the growing numbers in poverty. The Joseph Rowntree report has been mentioned already; it tells us that one in five people in the UK—21%—are in poverty. Of these 14.3 million people, 8.1 million are working-age adults, 4.3 million are children and 1.9 million are pensioners. Children, as we have heard, have higher risks of poverty overall, at 30%, versus 21% for the whole population. But larger families with three or more children have consistently faced a higher rate of poverty: 45% of children in large families were in poverty in 2022-23. That is an appalling indictment of this policy, which Labour Oppositions have criticised so much, as the noble Baroness, Lady Lister, acknowledged. I wonder how long it will take for the Government to abolish it.

Today’s uprating means that we are looking to approve a basic rate of universal credit of £92 a week for a single person aged over 25, and £145 for a couple. Yet the Joseph Rowntree Foundation and the Trussell Trust have estimated that at least £120 is needed for a single person, and £200 for a couple, in order to afford even the basic essentials—a shortfall of around £30 a week on the bare minimum needed to survive. Shortfalls in the benefit system are key drivers of poverty, depriving people of the basic necessities for survival. Specific features have been found to increase the numbers in poverty, including the benefits cap and the two-child limit, and the erosion of the value of universal credit means that its standard allowance is now at around its lowest levels as a proportion of average earnings. I too support the Joseph Rowntree Foundation on having a basic minimum floor for universal credit.

Another feature is that the capital cut-off for universal credit has been frozen since the benefit was introduced. This is a form of taxation by stealth of the least well-off, and it hits hard people in their 50s and 60s who are on benefits, having saved something for later life. For example, if they have more than £16,000 in non-pension ISAs, they are disqualified from universal credit. I wonder whether this needs to be looked at again.

The House of Lords Select Committee report Hungry for Change recommended that:

“The Government should embed consideration of the cost of the Eatwell Guide into calculations of benefit payment rates”.


Many of us were very surprised to hear that this is not factored into the calculation of the amount of benefits needed to live on. The report continued:

“The cost of the Government’s dietary guidance should be built in as a reference point to consideration of government interventions, including those relating to welfare and public food provision”.


It also cited, horrifyingly, that

“the poorest decile of UK households would need to spend 74% of their after-housing … income on food just to meet the cost”

of the Government’s Eatwell Guide, as

“compared to just 6% in the richest decile”.

With individuals and families denied the means of buying bare essentials, will the Government undertake a proper assessment of the adequacy of benefit payments to pay for the cost of essentials, including food?

The uprating today, as others have said, is not realistic in the face of ever-increasing poverty in the UK. A far-reaching and radical review of the benefits system is needed to tackle some of the fundamental problems. I know that we all look forward to the forthcoming benefit review, and the child poverty strategy, which we very much hope will address some of these desperate issues that continue to condemn families and individuals to a life of insecurity, hunger and misery, and children to a childhood of deprivation that will stay with them for life.

Pensions Regulator Defined Benefit Funding Code of Practice 2024

Baroness Drake Excerpts

Monday 21st October 2024 Grand Committee

[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.