Pensions Bill

Debate between Baroness Hollis of Heigham and Baroness Turner of Camden

Monday 24th February 2014 Lords Chamber

[Baroness Hollis of Heigham (Lab)]

My Lords, like others, I am delighted that we are introducing a new state pension, based on 35 years of contributions, which will help to float older people off poverty and encourage savings. However, if that is to happen, people have to know where they stand as they go along, especially women who may have acquired credits and young people on short hours-contracts, on which we voted earlier today. They need to know how reliably their state pension entitlement is building up and whether they need to take any action to make good shortfalls.

It seems obvious, does it not, that if we want people to build a pension they must know how they are doing, how far they have got and what they may get? We expect this from the private sector. Most of us get not only yearly but six-monthly statements about our ISAs, for example, and how they and we are doing. Usually—not always—it encourages us to save more. We all agree that we need transparency about charges and better information and guidance about our financial choices. The Government set up a money advice service to help people do precisely that.

Along with my noble friend Lord McKenzie, who regrettably cannot be in his place today, I was again taken aback in Committee to learn that there will be no such service and support in the field of state pensions. On the biggest investment a person may have—their pension—which, for many people, will be worth more than their home, they are working blind. People will be working and contributing, or not, and claiming credits to which they are entitled, or not, without any information and guidance to help them until shortly before they retire, when it may be far too late to change the hours of their job or claim a carer’s credit which might have brought them safely into the NI system.

How many women in their 40s and 50s with teenage children know that if they work 16 hours a week at minimum wage they will not usually be building a state pension, but at 18 hours a week they will? How many women know that by caring for elderly relatives for 20 hours a week they could, and should, get a carer’s credit? Not many, yet it is one of the most important things they need to know. How many women even know that they will not get a married woman’s dependant pension from 2016 on? Very few, I suspect. We do not and will not tell them, unless they have the wit to ask, until it is almost too late to do much about it. It is absurd and shameful. The DWP’s refusal to provide a level of service is unacceptable. None of us would accept this from the private sector. Indeed, the private sector would probably be pursued and prosecuted if it behaved like we do.

What is the Government’s position? They will respond to a query, which is likely to come from the alert, educated and informed, but they will not bother to trouble those who most need advice, information and guidance. Those who do not inquire and those who leave it too late are most likely to retire with a pension shortfall. Who are the people who are most likely to retire with a shortfall and who will not know until it is too late? What a surprise—women, I fear.

In Committee, the DWP quoted the cost of providing annual statements as a deterrent—a cost which, none the less, we expect the private sector rightly to bear. I therefore suggest that we consider the “nudge” theory: that if we cannot afford to provide annual, or even five-yearly, individual statements, at the very least DWP sends out periodically a standard letter, in bright bold print, two paragraphs only—I offer a draft— saying for example:

“You are able to draw your state pension at 65. To get a full state pension you need by 65 to have made 35 years of contributions into the National Insurance Fund which pays out your pension. Pension contributions may come from your job or you may be receiving free contributions credited towards your pension if, for example, you have children under 12, you are a carer, you are on universal credit, you are disabled or in other circumstances”.

Paragraph 2 would say:

“You may want to find out how many years contribution you have already built up. If so, please contact us either by phoning us on “x” or online at “y”. If as a result you think you may not have made enough contributions by the time you reach 65, we can send you a leaflet which tells you what steps you can take to build a full pension”.

I offer this template letter to the Government as a possible way forward. One standard letter—a nudge—telling people what they may wish to know, in bold print, going out to everybody at five-yearly intervals from the age of 45. It is a nudge for people to find out where they stand and if necessary to do something about it, to help people to help themselves. Otherwise why bother with a Pensions Bill—one that is more generous and certainly one that I support—if we do not want or seek to encourage people to build a full state pension at the end of it? Why bother? It must make sense to nudge people. I beg to move.

[Baroness Turner of Camden (Lab)]

I support my noble friend Lady Hollis on this amendment. I am sorry that the noble Lord, Lord McKenzie, is not here to second it, The Government have had a long-term policy—they kept telling us about it at every stage of this Bill—of being in favour of people saving for themselves in addition to having the pensions provided in the Bill. They expect people to save for themselves and they regard the pensions provisions that they are making as a kind of platform from which people can then make savings for themselves.

How are people to save for themselves if they do not have the necessary information about what their entitlement is? The amendment addresses the entitlement to a pension statement and notification of entitlement to a statement. All that is very necessary if people are to make sensible arrangements for their retirement. I am amazed to think that the Government may not accept this amendment. I hope however that they will because it is in line with their own thinking on the Bill. They want people to save. How do they expect people to save if they do not know what their entitlement is? They have an obligation to tell them what it is. Certainly it happens in the private sector; I belong to a private pension scheme and I get a regular statement as to what my entitlements are. Why can that not be the case for people who are receiving state benefits?

Pensions Bill

Debate between Baroness Hollis of Heigham and Baroness Turner of Camden

Wednesday 18th December 2013 Grand Committee

[Baroness Hollis of Heigham]

This amendment is the last in the series and is, I hope, equally short.

Some dozen years ago, with the help of my noble friends Lady Dean and Lady Turner, we established pension-sharing on divorce. For many couples then, the man’s pension, especially his occupational pension—and it was usually his—was more valuable than the home, but it was not regarded as a matrimonial asset. Even now, not enough solicitors, in my view, seem to be fully aware of that, although couples will often trade: she the house, he the pension.

For less well-off couples, his additional state pension was a structured income that could be shared to help her too. Therefore, at the point of divorce—usually, perhaps, in the couple’s early 40s—she could substitute his NI record, so far accrued, which might be 20 or 25 years, for her own, and in addition they could have attributed to her half his additional pension. As I understand it, in the future she will be eligible to pension-share his SERPS or S2P—that is, his additional pension acquired up to that point—but not to substitute his basic NI contributions for her pension if hers are also more favourable. She is on her own.

Again, it is a matter of age. Younger divorced women, with or without children, will have enough time, through either NI contributions or child credits and, I hope, universal credit, to build their own pension. However, older divorced women in their 50s do not have that head space or do not always have that resilience; they may have been looking after his elderly parents for him or have helped him, as we learnt at the time, unpaid, to build his small, self-employed plumbing or taxi-driving business, keeping the books and booking the jobs. When looking at this in 1995, my friends and I found countless stories of this exploitation where she sinks her labour into his work, he builds up his pension—assuring her that it is for both of them—and then, at quite a late age, she gets dumped, as the phrase goes, for a younger model. I would be sorry to see history repeat itself. We can avoid that by permitting a transitional period of 15 years. I beg to move.

[Baroness Turner of Camden]

I support what my noble friend has just been saying; nobody likes being dumped. I do not know whether noble Lords have seen from the newspapers lately that there has been a rise in the number of older women divorcing. It is quite remarkable; people who are quite elderly and approaching pension age are getting divorced, whereas formerly they simply put up with it. It can be quite a problem.

[Lord Freud]

My Lords, I will avoid the issue of divorce rates because I am aware of the quagmire in which I will incredibly rapidly end up if I say anything at all.

The final amendment tabled by the noble Baroness on the issue of derived entitlement focuses on the impact upon divorcees and people whose civil partnerships have been dissolved. Under the current system, divorcees can—through a somewhat complex mechanism colloquially known as “substitution”—use their former spouse’s or civil partner’s contribution record to qualify for a full, or enhanced, basic state pension. With the ability to derive a pension ending for post-2016 pensioners, we accept that some divorcees may be affected, and they are likely to be those divorced relatively late in their working life. We estimate that these individuals could number about 70,000 up to 2031.

Turning to the specific situation of divorced women, it is likely that single individuals who themselves have not achieved a record sufficient to build up a full basic state pension will be eligible to claim guarantee credit, which is considerably higher than the maximum a divorcee could derive from a former spouse through the current, complex substitution arrangements.

These provisions are extremely complex and, as with the married woman’s and widow’s pensions, there is no longer any substantial need for these arrangements because the vast majority of women will receive a pension in their own right.

I repeat that in designing the transition to single tier, we have had to make decisions about the way that we spend the money we have available and about how to achieve the simplicity needed for people to make decisions about their retirement plans. A safety net will remain in place and absolute losses will, on average, be relatively small. I therefore urge the noble Baroness to withdraw the amendment.