Pension Schemes Bill [HL]

Debate between Baroness Hollis of Heigham and Baroness Drake

Report stage (Hansard - continued): House of Lords
Monday 19th December 2016 Lords Chamber

[Baroness Hollis of Heigham (Lab)]

My Lords, I hope that my noble friend will pursue this point because, unless the Minister can give a categorical assurance, this is the only way to ensure that the Government take the issue seriously and pursue a remedy that is appropriate to the risk that she has outlined.

[Baroness Drake]

I thank my noble friend for her support. I am not coloured by the defined benefit experience at all because I am quite capable of distinguishing between the two. I am sure that I understand the risk posed in this draft legislation. However, I come back to the point. The Government may wish to assert that the costs of winding-up and transferring could be considerable if the records are in disarray, if no master trust is willing to pick up the pieces, or if other problems occur. The Government can assert as a matter of policy that the costs will not fall on the member, but there is nothing in this Bill to copper-bottom that they will not. I feel that the Minister has not answered that question. I am not proposing a sledge-hammer and I am not tying the Government’s hand, but they must introduce a provision which states that if the policy is to prohibit increasing members’ costs when a wind-up after a failure occurs, in extremis if there is regulatory failure that provision will come into effect. I am not persuaded by the Minister’s reply and on that basis I wish to test the opinion of the House.

Pensions Bill

Debate between Baroness Hollis of Heigham and Baroness Drake

Wednesday 8th January 2014 Grand Committee

[Baroness Drake (Lab)]

I think that the Minister is right not to give advice as to whether or not it suits an individual to defer. It depends on their personal circumstances.

[Baroness Hollis of Heigham]

Personal circumstances to the fore!

Pensions Bill

Debate between Baroness Hollis of Heigham and Baroness Drake

Wednesday 18th December 2013 Grand Committee

[Baroness Hollis of Heigham]

My Lords, this is an amendment about multiple jobs below the lower earnings limit, LEL. There are about 40,000 women and 10,000 men who we know about with two or more jobs each, each of which is below the LEL but which, aggregated, bring them above the LEL and should, I argue, bring them into NI and the state pension.

Who are they? Let me tell some of their stories: all people whom I have met, talked to and canvassed. They are rural women in their 40s with their youngest child over 12, who are patching together what we grandly call a portfolio, the components of which vary over the seasons in rural Norfolk. It might be six hours caravan or boat cleaning on the Saturday—handover day—during the summer, three small house-cleaning jobs during the week for the affluent incomer retirees on the northern coast, some mushroom or fruit picking for a few weeks and, during the winter, two or three evenings working at the nearest pub or newsagent.

One woman averages about 20 hours paid work a week, most of it at minimum wage—as much as she can manage given the danger of five to 10 hours a week travel time between jobs. She has no private car, there is extremely limited public transport in rural counties and she has teenage children to care for and feed. In any case, there are few if any decent 20-hour part-time single jobs, let alone full-time jobs, in rural Norfolk for unskilled middle-aged women without their own transport and with a family to care for. This could be her life for 10 or even 20 years.

Half the jobs in Norfolk, for example, are located in my city of Norwich, which is a 30-mile to 40-mile bus ride away for many people living near the coast, and buses are few. She will never be able to access those jobs, with their better pay and hours. She needs and deserves a pension, and if she cannot build one for herself she will not—this is key—be able to rely in future on any from her husband through the married women’s 60% pension.

A second person whom I met was a divorced Norwich woman in her 50s working as a receptionist for an alternative medicine practice, who told me that her employer would not allow her to work more than 15 hours a week, although she would like to because she enjoys the job, so that he can avoid paying national insurance. He pays three women each for 15 hours a week—because he works a long week—in order to avoid paying NI on any of them. At the time, she was topping up her income, although not her eligibility for BSP, by working extra hours in a florist’s shop. She was desperately worried about her pension situation but did not see what she could do about it.

Another woman’s work patterns are shaped by her caring responsibilities. She does not qualify for carer’s credit, but she fits some pieces of paid work around supporting three elderly relatives in my former ward, plus some cleaning and working in the local launderette.

All those women are working sufficient hours to bring them into the NI system for a pension but because they cannot aggregate them, they do not qualify. When some of us campaigned on this in the past, we were told, first, that you could not reasonably divvy up the employers’ national insurance if there were two or three such jobs, secondly, that the women would not want to pay class 1 contributions and that, in any case, they were few in number, only 15,000, and they were passing through. We were next told that it was a temporary problem for them and they had plenty of time to make up their missing years; finally we were told that they could always buy voluntary NICs and, if all else failed, there was pension credit.

The Government’s supporting papers rebut every one of those arguments and show them to be wrong. We now know that we have 50,000, not 20,000 people caught in this dilemma; two or three times as many. If we do not bring them into NI, they may well cost almost as much on pension credit down the line. That keeps more people in the means-tested legacy system, which we surely want to avoid. The second argument run by the Minister in the other place was that this was a temporary period of their lives. We simply do not know. The Minister is guessing. Some, certainly, may become entitled to a credit or move house into, say, the city of Norwich, and thus have a wider choice of jobs, and as a result may be able to come into NI, but others are stuck. Their patchwork life goes on for years because that is all that is available. We do not have the statistics for them, but 40% of the self-employed have been self-employed for more than 10 years. They include some of the poorest self-employed. The women I have described likewise tell me that they expect their position to continue for many years, often because they need the flexibility that it offers around their caring responsibilities or because they lack realistic alternatives, especially in more rural areas.

They can certainly buy voluntary NICs but, frankly, at £13 a week that is not usually feasible or realistic. It is five times more than we expect a self-employed man to pay. Bluntly, she probably cannot afford it. Is it fair? If she were working those 20 hours on the minimum wage for a single employer, she would get her national insurance but she would be below the PTT and probably would not pay a penny. She would come into national insurance without paying because she would come between the two thresholds. If she were on JSA or a disability benefit and not working a single hour, she would, again, get her NI and not pay a penny. Where she is conventionally self-employed, she will pay £2.70 a week and get NI. If she is employed with one employer, she will pay nothing and get her NI. If she is unemployed, she will pay nothing and get her NI, but because she works 20 hours a week, splintered, she will get nothing at all. Perhaps someone can explain to me why that is fair.

I accept that it has been hard to find a way through in the past, even for those who were sympathetic and did not dismiss mini-jobs as pin money. The Minister has never done that when we have been talking about UC and I am grateful to him. The Bill—bless it—gives us a way through. At last, it is now very simple. HMRC—and the Minister will know infinitely more about this than I do—is building real-time information. Rightly, we are giving the new state pension to all those who are self-employed: 4 million self-employed people will, I understand, gain significantly. Surely we are not going to say to them that we can afford to help 4 million self-employed people, largely men, but not 40,000 people with mini-jobs, mainly women.

Let us now class this woman as self-employed. If she pays the flat rate £2.70 a week, she can, by choice, buy herself a pension for the current year and opt in. We can discuss any backdating rules on retrospective purchase. Equally, we could, say, by regulations, agree that by working a certain number of hours—say, 16 or even 20—she conforms to JSA work search conditionality. She could, if necessary, discuss this with Jobcentre Plus—I have no problem with that—so that she meets the threshold. However, it would be absurd to say that to get an NI contribution she has to stop working 20 hours a week in real, convenient jobs and go and work in Poundland as part of an internship to meet work search conditionality. She is already doing 20 hours a week in work that fits around her caring responsibilities. In this way, she will qualify for a credit just as does someone on JSA who is not working at all.

UC may or may not be available to help her in due course. We do not know how many people it would apply to and by what route. In any case, it would be wrong to rely on it, given the current delays in rolling it out. Realistically, it may be several years beyond April 2016, although not too many, I hope—all years in which she continues to miss out. What number of women in a patch of mini-jobs does the Minister expect to still be unable to build their NI by 2020?

I want to make one final point. I have been describing older women, family women and often rural women, but I ask noble Lords to look around them. I think—it is only an estimate—that 5 million people are estimated to be on zero-hours contracts with uncertain hours, largely in the service sector and usually on the minimum wage. They work perhaps 10 hours one week and 20 the next, and they cannot run a regular job, as we understand the phrase, alongside it, as they always have to be available, so this involves evening and weekend top-ups. It is a major and growing problem in my view. Some may, over the year with one employer, come above the LEL. How many, I do not know. If the Minister has figures, that would be good. However, others on zero-hours contracts will not do that.

Employers love such a flexible, low-paid, semi-casualised labour force—what is not to like for them?—with staff patching together a living wage as best they can around their zero-hours contracts. The price paid is in tax credits from us. There is a burgeoning tax credit bill which, despite the wildly erroneous statements of the Secretary of State, does not come from those who do not get up in the morning but from the working poor, many of whom are on these contracts, as the Minister and this Committee know very well. That cost is paid by us in tax credits and by the worker in poverty, low wages and insecurity in their working lives, and poverty, insecurity and a relatively low pension in their retirement years.

The Bill gives us a way through, either by classifying them as self-employed or possibly by saying that they now conform to JSA conditionality. There are other ways I can think of by which we can do this, but this is a decent opportunity to rectify a problem that has gone on for far too long—that women who are doing their best for their family while contributing to the economy find themselves penalised. We can rectify that. It could be the decent and right thing to do, as I hope noble Lords will agree. I beg to move.

[Baroness Drake (Lab)]

My Lords, I support Amendment 11. It is always a great pleasure to follow my noble friend Lady Hollis. The disadvantage is that she mobilises the argument so compellingly that one feels rather depleted before one even starts to come in to support her. I will try, in a slightly depleted way, to give support on the very important issue which she has identified.

In the numerous iterative debates on the UK pension system in recent times certain criteria key to the design of that system and appraising outcomes have held constant. One of these has been that it must work for women. We cannot wholeheartedly say yes to that, notwithstanding the reforms that we have seen in the Bill. Clearly there is still room for improvement, and two weaknesses are frequently referred to. First, the level of the earnings trigger set for auto-enrolment is too high and excludes too many part-time workers, mainly women. Secondly, women who undertake mini-jobs—each of which delivers earnings below the lower earnings limit of £5,668, the access point for the national insurance system, but which if added together would put them above that level—do not have access to the state pension system under the contributory system because there is no provision for people with mini-jobs to aggregate their earnings in a way that would allow them to enter the NI system.

If we strip that back to its essentials, a woman with two part-time jobs, earning £100 per week from each job, will not be accruing pension rights unless she is covered by some alternative credit arrangement. Someone who may be working fewer hours but earning £110 per week from one job would accrue pension rights. However, £100 equals about 16 hours on the national minimum wage, so if one was doing more than one mini-job, one would be doing a lot more than 16 hours. Yet in the way that the system operates, they are not allowed access to the NI system.

As my noble friend Lady Hollis so clearly explained, this amendment would allow women and men to aggregate income from two or more mini-jobs and opt to have a year treated as a qualifying year for state pension purposes, and to pay national insurance as though they were self-employed. Having said that, I note from the Peers’ briefing pack that the rate of national insurance payable by the self-employed will be a matter for the Government to decide closer to implementation. If the Minister is able to give us indications of the Government’s thinking on that, which would go to the efficiency of the solution, that would be helpful.

As my noble friend confirmed, the DWP analysis found in 2012-13 that 50,000 people—40,000 women and 10,000 men—had two jobs with a combined income above the lower earnings limit, but were not accruing qualifying years towards their pension. Those may be relatively modest numbers—although the real figure may be higher, given that these things are difficult to measure. However, fairness is not simply a function of the number of people affected, because the disadvantage for these people is very real. As my noble friend Lady Hollis pointed out, the changes in the contemporary nature of the labour market may indeed increase the incidence of what the noble Baroness refers to as a “portfolio of mini-jobs”. We are increasingly seeing an intensity of flexibility requirements within contracts when it comes to the hours of work that employers want in any one week. Certainly, therefore, we need an NI system and a state system able to reflect the developments in the labour market so that it stays fair for people who are working.

Pensions Bill

Debate between Baroness Hollis of Heigham and Baroness Drake

Monday 16th December 2013 Grand Committee

[Baroness Hollis of Heigham]

My Lords, I hope that Committee will forgive me if just for a second I revisit Amendment 3 and pension credit costs. I pressed the Minister, but he did not give me an answer—I would be very happy for him to write me—about the annual savings from each cohort of men falling out of pension credit and where those savings go to. That was not part of his reply and it would be good to know.

This amendment proposes a 2% head space between the new state pension and what someone would get on pension credit. Obviously, it is a probing amendment, a peg to explore what the future level of the state pension vis-à-vis pension credit will be, and to give us information about some of the winners and losers on the income analysis, on which I am sure that my noble friends will be pressing the Minister.

In particular, I want to focus on the issue of means-testing. As far as we know, eventually only something like 3% of the means-testing in the system will drop out as a result of the proposed changes. One of the great virtues of the new proposed pension was that by bringing together the BSB, S2P and pension credit, it was to leapfrog some means-testing. As my noble friend Lady Sherlock said, we had to use means-tested pension credit when we came into government because pensioner poverty for the bottom third was so acute and the number was so large that we could not financially manage a sufficient flat-rate rise for all. So we targeted our resources, and the policy worked. However, as my noble friend Lady Turner will remember, although we pushed the policy through, it was not without insistent, noisy and continuous haranguing from the late, splendid Barbara Castle, who used to sit right behind me, muttering very loudly to Muriel as I would reach some fancy point in policy, “What’s she trying to say now? What’s she trying to say now?”, to the great amusement and glee of those on the opposition Benches.

That policy removed hundreds of thousands of people from poverty, so pensioners are now less likely than any other group to come within that category of poverty. However, it came at a price. As we know, means-testing is disliked, especially by older people and, no, it is not the same as giving your income details to HMRC for tax purposes. It is highly expensive to administer and open to error—I will not say fraud—for this group.

Above all, as the Minister rightly and sympathetically identified in his previous answer to my noble friend Lord McKenzie, those entitled to pension credit, such as the self-employed unsure of their income or elderly widows whose husbands’ pensions have died with them and who have never handled the financial pension arrangements between them, do not always claim. Unlike lone parents, who are savvy and feisty about their benefits—well, usually—and have very high claim rates, pensioners do not. For example, fewer than half of those entitled to savings credit claim it. In the past, fewer than two-thirds of those entitled to council tax benefit claimed.

Endless studies were undertaken into why, and I congratulate the DWP on its fascinating in-house research published last year by Maplethorpe et al on whether we could get a significant increase in the take-up of pension credit if pensions were made to the department’s random sample of 2,000 entitled non-recipients automatically and a further 2,000 ENRs who were followed through by DWP visitors. That was an imaginative and welcome piece of research.

It is a pity that the results were, for everyone I think, really rather disappointing. The money was welcomed at the point but after the trial period of three months DWP had added only about 10% to the number claiming pension credit, which was useful but not a breakthrough, when pensioners were required to submit their own forms—in other words, take the initiative in a means-testing pension credit. As the research identifies, it is about stigma and difficulty with the forms, but also we have long found that if a pensioner had applied in the past for another means-tested benefit—HB, for example—and been refused, they thought they were ineligible for any other means-tested benefit so did not apply. If a friend or member of their family had been refused after applying, they assumed that the case applied to them too.

Many of them felt that the money they got at the end of a lengthy process was too little to be worth it. They may be right because although the savings credit mean figure is something like a loss of about £34 a week, the median is infinitely lower because it is skewed by a few very high numbers at the end. However, pensioners worried—this is partly the result of some of the problems with tax credits—that if they were wrongly paid they might face having to repay money that they subsequently could not afford. Nor are they clear about income and savings rules; some pensioners with £5,000 tucked away for funeral costs think that that disqualifies them. A few thought that as they could manage without pension credit, although they were entitled, it was morally wrong to claim it.

This research, which builds on two previous pieces of research that the DWP has done over the past 15 years on pension credit that I am aware of, suggested to me that means-tested benefits are almost inherently troubled by the failure of a substantial number of pensioners to claim, and that the new state pension is absolutely the right way to go for the future. It has to be on an automated basis. Whatever may happen to other means-tested benefits, we hope that at least pensioners’ basic income in the new state pension will be safely delivered and in full. However, means-testing will continue for the 25% of future pensioners who are not owner-occupiers but who are on housing benefit in the rented sector, or for those with incomplete NI records. The reduction in means-testing is mainly because the new pension incorporates the means-tested guaranteed credit while abolishing the means-tested savings credit. That is actually why the numbers fall.

However, if the new pension is to reduce means-testing, as we hope it will do—though at the moment the statistics do not suggest by as much as some of us had hoped—it must, to use the phrase, put clear blue water between it and the new pension. At the moment, the difference between what a pensioner would get under the three tiers of state pension, possibly some additional pension and pension credit under the new state pension, could be less than £1 a week, although the triple lock for the pension, unlike the earnings link for pension credit, should widen that gap over time if the triple lock remains. Age UK has provided figures showing that means-testing will have fallen by just 3% by 2014 from what it would have been as a result of this. However, as my amendment suggests, 2% would provide a rounder figure—a £3 gap, I guess.

I am hoping that the Minister will give us some guidance on the difference in income for each path that a person registering for the new pension will take, and the winners and losers as a result, so that we can work further on those stats before Report. The Select Committee recommended such a clear space, although it did not suggest a specific sum. The Government’s response was rather interesting. They agreed it was necessary to establish,

“a firm foundation for saving”,

but believed that it was not necessary to put that in the legislation. I do not think that is good enough. Put very crudely, there is not much point in having a massive and welcome reform of pensions structure if at the end of the day many future pensioners, mainly women, lose derived rights, and many other pensioners, mainly women, are no better off than they would have been on pension credit because the new state pension is financially not sufficiently distinctive. I beg to move.

[Baroness Drake (Lab)]

My Lords, I shall take advantage of the helpful peg of this amendment moved by my noble friend Lady Hollis. I completely accept that moving more rapidly to a flat-rate pension will bring losers and gainers. However, we need to have some confidence about the initial value of the single-tier pension and how its value will be maintained over time, in order to have confidence about the assessments of gainers and losers.

The figures and statistics that we have are based on the assumption of triple-lock uprating, which is far from assured over time. We know that the single-tier pension has to produce a series of outcomes: it has to be above the guarantee credit to address the disincentive to save; it has to be set at a level which reduces reliance on means-tested benefits; and it has to provide a firm foundation for private saving. However, whether it achieves those intentions depends in part on the starting value of the single tier and how its value moves over time. The White Paper therefore suggested that a single-tier pension should be worth £144 in 2012-13 earnings terms, but the extent to which the single-tier pension figure is to be set above the pension guarantee credit is very unclear.

At the time of the White Paper’s publication in January 2013, the illustrative £144 was only £1.30 higher than the guarantee credit—less than 1%—which was lower than the figure in the Green Paper, when the £140 illustrative figure was £7.40 above the guarantee credit, which is nearly 6% higher. In 2013-14 earnings terms, £144 would be worth £146.30—just 90p above the guaranteed credit of £145.40. We therefore have a lack of confidence about what the level of the single-tier pension will be at its introduction, what its uprating is likely to be over time and what its relationship with the guarantee credit is likely to be.

The rate of the new state pension will be set in regulations, and it is important to have some confidence about government thinking. The Delegated Powers and Regulatory Reform Committee commented that,

“we draw to the attention of the House that, for the first time, the rate of the state pension will be specified only in subordinate regulation”.

The Government’s impact assessment assumes uprating by the triple lock, but the assumptions about gainers and losers and pension adequacy could be significantly different if the triple lock were not applied. I also note that, when it comes to assessing gainers and losers, the notional figures include the previously contracted-out individuals. In one of the very helpful briefing sessions that we have been afforded, I asked whether we could see the notional figures for gainers and losers, excluding those contracted out at April 2016, in the hope that we could get a clearer picture of winners and losers. I was particularly interested in understanding more clearly who the winners and losers were from the base of the actual amounts that contracted-in individuals receive. I was interested to read a report this weekend, albeit in the Corporate Adviser. I quote from the article:

“The figures for mean gross state pensions, which give the clearest official picture of the level of combined basic and secondary pension of contracted in workers, have been omitted from the ONS’s 2013 Pension Trends paper”.

I understand that the reason for that is information provided by the DWP. For the sake of debate and for clarity, net state pension figures are only those payments paid directly by the state, whereas gross state pension figures are estimates of the total entitlement to additional state pension, which include those elements paid by private pension schemes that are contracted out.

Welfare Reform Bill

Debate between Baroness Hollis of Heigham and Baroness Drake

Monday 24th October 2011 Grand Committee

[Baroness Drake]

I support Amendment 50A. I am very concerned about the implications of the change of the rules on pension credit because the effect of the proposed change is a severe restriction on the availability of pension credit. The most recent impact assessment which updates that provided in February to take account of a more recently announced policy confirms that the number of households with lower entitlements under universal credit has increased relative to the previous version of the impact assessment. That is primarily due to the announced policy changes to disability payments and the treatment of couples with one partner under and one over the qualifying age for pension credit under universal credit.

I find this change in policy a peculiar form of couples penalty, when the Government are on record, I understand, as being against such a penalty. It is a couples penalty that disproportionately impacts on the poorest of couples because the recent impact assessment reveals that the number of households with lower entitlements under universal credit will increase as a result of this particular treatment of couples with one partner under and one over the qualifying age for pension credit. As a consequence of these changes, although not wholly attributable to this one, 70 per cent of the lower entitlement is concentrated in the bottom and lower quintile.

Although the figures in the impact assessment do not separately show the impact of the pension credit changes, the impact assessment states quite clearly that:

“Some of the heaviest notional losses … are in cases where one member is of working-age and one is currently eligible for Pension Credit”.

I see in response to a question from Stephen Timms in the other place, Steve Webb answered that as of February 2011, 93,200 pension credit recipients had a partner aged below 60. A not insignificant group of people, no doubt in low-income groups, will be impacted by this change.

When one looks at previous impact assessments that the department has released, in many of these couples when one is a pensioner and one is not, the partner below state pension age may well be caring for children or somebody with a disability or who is ill. Now those households would be subject to the new in-work conditionality requirements. We know that older women are less likely to be employed outside the home, so this is another example of a policy that will impact on women—exactly the kind of policy upsetting the Women's Institute according to this weekend's papers. I am sure that it will be onto the case with this one as well

I notice that the Minister, Mr Grayling, commented in Committee in the other place that it should be acceptable to say to someone:

“‘Your household is on a low income, you need more money, get a job’”,—[Official Report, Commons, Welfare Reform Bill Committee, 28/4/11; col. 553.]

as a defence of this change to the pension credit rules. Perhaps he should have reflected on the characteristics of the community affected by this change, such as the number of older women in such households who are undertaking valuable non-wage caring work or the fact that disabled people are more likely to be reliant on pension credit at minimum qualifying age. Those facts and figures are freely available in impact assessments from the department.

We now have a policy that is discriminating between pensioners on the basis of their spouse’s age and producing some quite arbitrary outcomes with poorer households having significantly different experiences because of what could be quite moderate differences in the age of their partners. Let us be clear: the effect of this policy is to disentitle someone under the current rules who would otherwise receive pension credit and place them, because of the age of their partner, into universal credit.

This policy will impact on a lot of low-income households. The noble Baroness, Lady Greengross, detailed that when she moved the amendment. I know that Age UK is particularly concerned. If, for example, a couple received an amount of universal credit equivalent to the basic level of income-related jobseeker’s allowance that would be just £105.95 compared with pension credit for a single person of over £137 and £209-plus for a couple.

The other point that causes me concern is that pension credit provides an automatic passport to benefits such as health benefits, Christmas bonus, home improvement grants and free school lunches—I was looking the list up—and any cared-for children’s access to school lunches. Will all these fall away now for these couples, even though one of them reaches the qualifying age?

The other impact is that this change in policy will also mean that these older couples, with one at the PC qualifying age, will find that any savings that they have are now subject to the more aggressive capital rules, rather than the gentler rules under pension credit. That strikes me as particularly harsh as a consequence of this change. I feel that this Bill is being used to change the rules on pensions, yet it is not a pension Bill, because the population most impacted on by the change in this policy will be subject to a series of government policy changes, the accumulative effect of which would be quite significant. They face an accelerated increase in the pension credit qualifying age, consequent on the state pension age changes, and the impact of that has been clearly detailed. The savings credit element of pension credit has been frozen until 2015, and now a new policy of disentitlement has been introduced, whereby a qualifying age of entitlement to pension credit will be dependent on the age of the partner. When one stands back and looks at the cumulative impact of this on these individuals, the impact of the rules on their savings and the characteristics of this demographic, one can see that this is a very harsh change of rules. Yet the Government’s own impact assessment for the Pensions Bill shows that women under 55 on low incomes, who are most likely to be the people under the qualifying age, whereas their male partners may be at it, are the hardest hit by any changes in pension credit policy because of caring responsibilities, ill health or availability of work. They are now going to be caught up in the conditionality requirements under universal credit.

Pension credit is a very effective policy for targeting pensioner poverty, which was confirmed by the recent PPI research commissioned by Age UK and launched at an event supported by the Minister, Steve Webb, who came to speak. Here we are, tampering with the rules of pension credit when it is probably the most effective mechanism that we have for immediately addressing pensioner poverty. The effect that it will have is simply to disentitle people who have previously been entitled to pension credit and put them through a discretionary work conditionality process when we know that the characteristic of this particular group should not be subjected to those kinds of policies. The amendment tabled by the noble Baroness, Lady Greengross, will allow the Government to address my concerns on this issue.

[Baroness Hollis of Heigham]

My Lords, may I just ask a question of the Minister in support of the amendment? As I understand it, if someone is on pension credit above the age, they pull a younger person up to their age. In future, if someone is of a younger age, they will pull someone over pension credit age back down again. How will that interact with the proposed new state single pension, which will of course embed pension credit into the pension, so that somebody over the age of 65 or 66 will get the whole lot? Could he confirm that the timing of this, which I thought was 2014-15, will be precisely when some of this is due to be implemented? Would it not therefore be wise to rethink that, in terms of those proposed changes?

Welfare Reform Bill

Debate between Baroness Hollis of Heigham and Baroness Drake

Monday 10th October 2011 Grand Committee

[Baroness Hollis of Heigham]

My Lords, the noble Lord started off with a question that I suspect was meant to be rhetorical, but I think he is entitled to an answer. Is it right for the taxpayer to support someone who has £50,000 in savings? That was the noble Lord’s opening sentence. I agree with him that that is the key question. However, given the responses that he has heard today, the answer should be, “Yes, in certain circumstances”. The key question is, “What are the circumstances?”. There is no absolute yes or no answer.

The circumstances mentioned so far include whether this will help sustain savings and the savings habit. The answer is yes. Would it help people get back to work earlier than they otherwise would, and therefore depend less on benefits? Possibly, yes. Would it help families avoid falling into debt and thus lose even the tariff income that they would otherwise expect to enjoy between £6,000 and £16,000? Possibly. Should it be for a limited time so that it is not an unending commitment? Certainly. That is surely the way in which we should approach the question. It should not be, “£50K or not?”, but, “What are the circumstances in which it is reasonable to support people?”. Otherwise, we will make short-term savings at the expense of longer-term losses, which will come from keeping people on benefits longer than they need to be because they have gone into debt by having run down their savings. Surely that is the right question to ask rather than the bald one that does not take into account the very different situation of people who are marginal, who are in and out of the labour market but who hope to stay there with the help of savings to smooth out these movements.

[Baroness Drake]

The Minister opened by asking whether the taxpayer should support someone with £50,000 in savings. My initial reaction to that is that the taxpayer supports people on £500,000 because there is 40 per cent to 50 per cent tax relief up to the value of £1.8 million and £50,000 per annum for pension savings. Actually, the taxpayer supports people on much higher levels of income, and we can think of lots of other incentivised examples. There is no limit on the ability to use the advantageous tax opportunities of ISAs year on year depending on what capital is held in other places. I am not sure that that would withstand the test of rigorous intellectual analysis.

Pensions Bill [HL]

Debate between Baroness Hollis of Heigham and Baroness Drake

Thursday 3rd March 2011 Grand Committee

[Baroness Hollis of Heigham]

My Lords, this amendment is about voluntary earnings. Who do we think NEST is for? It is basically for poorer people, mostly women, who are not able to save in conventional ways and have hitherto had no access to an occupational pension. The other two members of the Paul Johnson review team that produced the report Making Automatic Enrolment Work are very experienced people, but they come from the industry and employment side. Their report recommends that auto-enrolment begins not at the LEL of £5,204 but at the earnings threshold of just under £7,500. This means that 1 million people, mostly women, who would have been automatically enrolled will now not be. The expectation is that ET will rise potentially to £10,000, at which point 2 million people, mostly women, will not be automatically enrolled.

The report runs two arguments in favour of raising the threshold. I think that both of them are fallacious. The first argument that the report runs is that—it is, of course, true—very low earners have high replacement rates in retirement through benefits and so on, so that NEST is not necessary, unlike for higher earners, for whom state benefits by definition represent a lower replacement rate and who might therefore wish to take advantage of NEST. The second argument that the report runs—as you would expect from the industry—is that they do not want to handle such small sums. That is the basis of their argument and the Government have followed their advice.

The first of these is about replacement earnings. It is, of course, true that, if you have a low enough income from earned work, even the basic state pension backed by pension credit will come to much the same level as your wage and therefore you will have a high replacement rate. The statistics and percentages on this are all very well, but these women are still very poor. That is why their state benefits in retirement will perhaps just about equal their wage. They are still very poor, whether in work or in retirement.

A pension, however small, even if it is below the trivial commutation level, which it probably will be, gives the woman, through pension savings, a two for one to match her own—because she attracts the employer’s contribution and, to a minor degree, the tax relief, depending on where she is earning—which, perhaps for the first time, might allow her to retire with a small capital sum below the trigger commutation rate of perhaps £10,000 or £15,000, depending on how long she has saved.

I do not accept this argument. It is right that there are high replacement earnings in retirement, if you have a very low wage. However, that means that—this is the key fact behind it—both in work and in retirement you are likely be very poor indeed. This is why we need an option for NEST.

The industry’s second argument, which I also think is fallacious, although I understand it, is that employers do not want the hassle of handling small sums that, they say, would not be worth much to the employee once the means-tested benefits come into play. However, there is a profound flaw in their argument here, too.

The reason why the sums are small is that, wherever you set the auto-enrolment start line, whether it is LEL at £5,200 or ET at £7,400, the first £1,000 or £2,000 of earnings above any line that you set will by definition produce only a very modest increment in pension. That would be true whether you were on £10,000, £15,000, £20,000 or £22,000. The first £2,000 produces little additional revenue. That is why, while the argument is true that you might as well put it up to £7,500 because the difference between £5,200 and £7,500 is tiny, it is also the case for the first £2,000 of earnings above £7,500. It is true for wherever you set the threshold, so it does not apply to the figure of £5,200 as such; it applies to the fact that you have a threshold at all, which is not based on the first zero pound.

The whole of the report is fallacious, in so far as it hinges on that argument. Otherwise, if the woman is auto-enrolled at £5,200 with earnings of £7,400, her pot over 25 years, I estimate, with a levy on the £2,000 increment, will be about £10,000 greater than if she was enrolled at £7,400. But if she is enrolled at £7,400, and has earnings of £2,000 above that—say £9,400 or £9,500—she will still have the same size pot on the first £2,000 or so of income, give or take £100 or £200.

The additional pot argument, in other words, applies wherever you pitch the threshold—unless, of course, you are up in the £30,000 or £40,000 region, where by definition you have a much higher increment. Therefore, the argument that the pots are too small to be worth bothering about either is valid for wherever you set the threshold for low earners or is not valid at all. The problem is not whether it starts at the LEL of £5,200 or at the ET at £7,400; it is that it does not cover the earnings below the threshold—the first £5,200 or £7,400. Auto-enrolment on those would make the difference that matters. That is what this amendment is about.

I am pleased that the Government have agreed that, following the Johnson report, wherever a woman wishes voluntarily to enrol between the LEL of £5,200 and the ET at £7,500, the employer must contribute. As I have suggested, although that is useful, it is not enough to make a really significant difference unless it is extended to embrace the whole of the earnings from pound zero.

My amendment adduces no new principle. The Government have already agreed—unless they have changed their mind and I have not picked that up—that young people below the age of 22 can voluntarily enrol. I welcome this. The Government have also agreed—I also welcome this as a concession following the report—that low earners earning between LEL and ET can also voluntarily enrol before they hit the auto-enrolment figure of £7,500. This amendment would allow the earner voluntarily to enrol on all her earnings from pound zero, provided that she was at or above the threshold—a threshold that I would like to be the LEL for the sake of consistency.

Therefore, no new principle is involved in this amendment. It would merely bring into NEST those employees who, if they were in a standard occupational pension, would have their earnings covered from pound zero. It would merely align NEST with best practice already in occupational pension schemes—nothing new or novel. Only NEST has the LEL threshold for voluntary entry at £5,200 and ET at £7,500 for auto-entry.

What does all this mean? Take a woman on half average earnings—say £11,000 a year. Only in NEST would a third of her earnings, between £7,500 and £11,000, be automatically pensioned. If she were in an OP, her entire earnings would be automatically pensioned. I emphasise that it would be voluntary for her to make the choice as to whether she welcomes and wants this form of savings going back to pound zero, given her family circumstances.

Why is it necessary? Some 40 per cent of women at retirement may not be married; they may be cohabiting and they may or may not be financially interdependent with their partner. As a result, they need to carry their own pension. I am sure that the Minister and everyone in this Room would agree with me on that. As it stands, only a third of her income would be automatically pensioned. Should ET rise to £10,000 and she is on earnings of £11,000, almost none of her earnings—a paltry £1,000—would be pensioned unless she chose voluntarily to go back down to the LEL. Not surprisingly, this would result in the small sums which the industry finds a hassle and the employee finds disappointing and which trap employees into benefit tapers.

I will repeat the statistics that I offered at Second Reading. Under these proposals, a woman has the right to enrol voluntarily below the LEL, so a woman on £11,000 after 25 years who voluntarily saved on all her earnings could end up with a pension pot of £40,000 over 25 years. If she relied on auto-enrolment and it were to kick in with an ET of £10,000, which is what the Pensions Minister, the honourable Steve Webb, is promising us, she would retire with a pot of virtually nothing. So the difference is between £40,000 or £1,000 or £2,000.

This amendment adduces no new principle. It is about voluntary enrolment in which the employer must contribute. That principle has already been established for young people and for the gap between LEL and ET. There would be no additional small pots. On the contrary, it could well double the pots and more, to the gain of all parties concerned, and make it worth saving, which is what we all want. I beg to move.

[Baroness Drake]

My Lords, to my mind there are two reasons why Amendment 16, tabled by my noble friend Lady Hollis, is attractive. First, it would enable people outside the lower limit on the band of earnings who want to save to be able to. Those of us who followed the debate know that a reason for the lower limit on the band of earnings, as distinct from the earnings trigger that is now proposed, was the consideration of the persistently very low-paid workers and whether it was appropriate for them to be nudged. However, as my noble friend said, this amendment is not auto-enrolling. It allows for the active choice of the worker—an active decision of someone on low earnings for a particular job. If they choose positively to make that decision, there seems to be a good and fair reason for the employer to make a matching contribution of 3 per cent, particularly because their incomes are low. The individual would still be a worker and the 3 per cent employer contribution would also assist with the arguments about de minimis levels of contribution and the consequential impact on costs and charges.

My second reason for finding this amendment attractive is that it extends the principle that the reforms should work for women because, although women are most likely to have earnings below the qualifying band, their household income may be such that they still want to make a pension contribution. That is very important. I declare an interest because of my involvement with NEST. NEST is designed to allow someone voluntarily to contribute once they have a NEST account, although I acknowledge that there are de minimis requirements because of the need to keep costs and charges low. However, I am sure that in most instances the combination of the employer contribution and the employee contribution would go above those de minimis requirements. It could also start to address the multi-job problem where women have several mini-jobs, because individual contributions per job look low but in aggregate could be much greater. Although I fear that many women in such mini-jobs will not have the confidence to overcome the barriers of inertia and voluntarily opt in—their needs will require more systemic change, as we discussed yesterday—none the less there will be women who will want to make the active choice and who will be in circumstances where that makes economic sense and where it will assist the asset accumulation for a pension in their own name. So the proposal certainly has attractions.

--- Later in debate ---

[Baroness Hollis of Heigham]

This is an important amendment, not just for this but for all the other areas where we are looking at voluntary enrolment. I hope, therefore, that the Minister will reassure us on the employer making sure that the employee in the waiting period can voluntarily enrol into a NEST scheme before it becomes automatic. I hope that he will also reassure us that employees earning above the LEL, but below the automatic enrolment threshold will be made aware of their rights. That could involve quite a considerable number in jobs where, for example, very many women work part time; I am thinking of retail, where women might work two days a week and so on. I hope he can give us some reassurance as to how he is going to operate a nudge, where there is opt-in, as opposed to where there is auto-enrolment.

[Baroness Drake]

My Lords, I express my support for the sentiments and views of the noble Lord, Lord German, in moving this amendment. I, too, noted the Minister’s comments on regulation on this matter. As we move nearer to the commencement of auto-enrolment in 2012, I am also conscious that both the Department for Work and Pensions and the pension regulator will need to prepare for a major programme of communication and guidance to workers and employers. Can the Minister assure us that sufficient funds will be made available for this scale of communication and guidance programme? As the Minister said, this is the biggest ever example of asymmetrical paternalism, and, given the constraints on public expenditure, the old phrase about not spoiling the ship for a ha’porth of tar, is extremely important in this instance.

I, too, agree with the noble Lord, Lord German, that, if individuals are to be given the right to opt in during the deferral period, it has to be a meaningful right, understood both by the employer and by the employee. A meaningful right to me means three things: do you know you have it; do you know how to exercise it; and do you not suffer a detriment in exercising it? That is quite important if the three-month waiting period is to have integrity for the reasons given as to why a three-month period is needed and the individuals none the less can opt in. It is quite important that guidance and culture meet those three requirements. I hope there is guidance to both the employer and the employee that makes the opt-in opportunity meaningful.