Social Security Benefits Up-rating Order 2025

Debate between Baroness Janke and Baroness Drake

Tuesday 25th February 2025 Grand Committee

[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.

Occupational Pension Schemes (Collective Money Purchase Schemes) Regulations 2022

Debate between Baroness Janke and Baroness Drake

Wednesday 23rd February 2022 Grand Committee

[Baroness Janke (LD)]

My Lords, I thank the Minister for her presentation, which was clear and to the point. I would like to raise two issues for consideration.

The first is the possibility of widening the scope for CDCs to smaller companies and how the Government view that. The current legislation has been written very much with Royal Mail in mind but if the CDC scheme goes well, others might want to follow suit, including smaller employers. But they would want to join something bigger; for example, a multi-employer or industry-wide CDC scheme or master trust CDC scheme. Will this require new primary legislation to allow multi-employer schemes, or does the Pension Schemes Act give the DWP sufficient power to do this? If it would require new secondary legislation, how long does the Minister think this might take? Does she share the view that multi-employer schemes are key to unlocking CDC? Not everyone has the resources or scale of the Royal Mail to do it for themselves. Please can she explain the process for multi-employer CDCs?

Secondly, can the Minister say something about retirement-only or decumulation CDCs and the position of the DWP on these? One of the discussions over the new pensions freedoms is that individuals take all the risk of managing a DC pot for themselves, including the longevity risk. In a pooled CDC retirement scheme, this is shared with others, so it is an attractive option for people to join at retirement. What is the scope for these and what is the position of the DWP on this? NEST has hinted that it might be prepared to look at it, but it would be helpful to know whether the Government look on these suggestions favourably. I look forward to the Minister’s response.

[Baroness Drake (Lab)]

My Lords, I refer to my registered interests: I am trustee of the Telefonica pension scheme and the People’s Pension master trust. I thank the Minister for her helpful presentation of the regulations, and the DWP staff who kindly took the time to answer my many queries. My contribution is rather long. The only consolation is that it would have been even longer had I not had that discussion with colleagues.

Collective defined contribution schemes are clearly a welcome addition to the pensions landscape, whereby employees can, in effect, share their investment and longevity risks and remove some complexity from individual decision-making. But with only one employer committed to date, there is a risk that the regulations are bespoke for the Royal Mail scheme but may need adapting for others set up subsequently.

There is considerable uncertainty over the fuller impact of the CDC proposal, which is reflected in the detail of the regulations and the draft code. The code contains a list of matters more likely to satisfy the Pensions Regulator, but some lack a qualitative feel or benchmarks or triggers. Take the example of trustee governance. The draft code says that the regulator is

“more likely to be satisfied”

if there is clarity as to

“who decides in a scenario where both the employer and trustee have an interest”,

but it does not express a view on good practice in such scenarios.

A CDC scheme is set up under an irrevocable trust by an employer. In a single or connected employer scheme, sustainability can be influenced by employer behaviour and changes to corporate control and structure. A regulator’s expectations for the governance framework and the extent of trustee discretion are therefore particularly important. I ask the Minister: is it the intention to set out good practice expectations on the governance framework and the extent of trustee discretion?

The approach to authorisation, supervision and continuity reflects that for master trusts, but there are differences. For authorisation, it is the actuary who confirms the soundness of the scheme and issues the viability certificate. There are a lot of requirements for the actuary to meet before issuing a certificate, including a novel role in considering non-actuarial matters. Is this considered a materially extended level of obligation on an actuary when compared with other forms of pension schemes?

Occupational Pension Schemes (Administration, Investment, Charges and Governance) (Amendment) Regulations 2021

Debate between Baroness Janke and Baroness Drake

Monday 6th September 2021 Grand Committee

[Baroness Janke (LD)]

My Lords, we certainly agree with the policy aims and mechanisms of this instrument and endorse the Government’s actions to make sure that

“members do not languish in sub-optimal arrangements that do not meet governance requirements and are unable to take full use of investment opportunities, to the benefit of the end saver’s eventual retirement outcome”,

as the Explanatory Memorandum states.

As the Minister has said, paragraph 7.6 of the Explanatory Memorandum explains that Regulation 2 requires that schemes holding assets worth less than £100 million and which have been operating for three or more years are to compare charges, transaction costs and the return on investments with three other schemes. We are not clear how those schemes are to be selected and who is to select them. Is it the trustees, for example? Are there selection criteria other than that they have assets of more than £100 million and are personal pension schemes? If it is not the trustees, who selects the comparator schemes?

Paragraph 7.8 states:

“Where the trustees have reported that the scheme does not provide good value for members, they are also required to report whether they propose to wind up the scheme and transfer the members’ rights into another scheme or explain to TPR why … not … and what improvements they are planning to make.”


What happens if these improvements are not acceptable to the Pensions Regulator and what powers does the regulator have based on compliance or non-compliance with Regulation 3?

We would probably all agree that it is a good idea to encourage smaller funds to transfer rights or improve if Regulation 2 comparisons show poor performance, but what about larger funds? Should there not be a requirement for them to undertake the same comparisons and take the same actions if their schemes show poor value for money for their members? It is easy to see why small funds should be encouraged in this way but hard to see why larger firms are not similarly encouraged. I would welcome the Minister’s clarification on these points.

[Baroness Drake (Lab)]

My Lords, I refer to my entry in the register of interests, particularly as trustee of a large master trust and the Telefónica pension scheme. I thank the Minister for the clarity of her explanation. It is a pleasure to talk face to face, rather than digitally, for once.

Of the three main provisions in these draft regulations, one requires smaller DC schemes with less than £100 million to demonstrate overall good value. If they cannot, the expectation is that they will wind up and consolidate into another scheme. The regulations also require schemes to take their net investment returns and increase flexibility to take account of performance fees when calculating the 0.75% pension cap on pension savings.

I support the focus on smaller schemes and the drive to consolidate them into larger schemes. The TPR evidence reveals that many smaller schemes struggle to match the governance, investment opportunities and charges delivered by schemes operating at scale, but the Minister’s aspirations are high. I quote Guy Opperman, who wrote:

“It is not my intention to stop at £5 billion”,


and that

“There is no doubt in my mind that there must be further consolidation”,


and that

“further action will follow”.

However, even a threshold of £5 billion goes beyond small and will catch all but the very largest of DC schemes.

The Minister believes that consolidation drives better member outcomes, a view again with which I agree, and I accept that scale matters. The Minister wants to understand the barriers to further consolidation through two lenses. He stated:

“I am particularly keen to understand how the creation of greater scale in the DC market can benefit members through economies of scale and access to alternative investments.”


However, the Government have to recognise that they created some of those barriers, even though the case for scale was well documented at the time. When auto-enrolment was introduced, they took the view that there should be an open market with virtually no barriers, or few barriers, to entry, with the inevitable proliferation of provision and the acceleration of small pot numbers that followed, which made decisions for employers even more complex. The transfer of the cost of market failure on to the members of the growing number of poorly regulated master trusts was eventually recognised and led to the new authorisation regime. At the start of that authorisation regime there were 90 master trusts; 37 were granted authorisation, a reduction in the overall size of the market by 58.8% in a little over a year, perhaps an indication of how inefficient the original policy had been. Is it anticipated that the drive to accelerate the consolidation of schemes will lead to a further reduction in the number of authorised master trusts? Will the TPR be expected to modify its approach to the authorisation criteria? Given the Minister’s aspiration and the Government’s drive for greater consolidation, what do they consider would be the optimal outcome in terms of the number of schemes? How do they define optimum scale in terms of assets under management?

The Government’s policy that consolidation into fewer and larger DC schemes will facilitate greater investment into a wider range of assets and bring benefits to scheme members and the UK economy was captured in the letter of 4 August from the Prime Minister and Chancellor, entitled Igniting an Investment Big Bang: A Challenge from the Prime Minister and Chancellor to the UK’s Institutional Investors. They called for the need to,

“seize this moment … to unlock the hundreds of billions of pounds sitting in UK institutional investors”—

particularly pension schemes—

“and use it to drive the UK’s recovery”,

and growth. They added that the Government were,

“doing everything possible—short of mandating more investment in these areas as some have advocated—to encourage a change in mindset and behaviour among institutional investors, and we remain open to addressing further barriers”.

Guaranteed Minimum Pensions Increase Order 2019

Debate between Baroness Janke and Baroness Drake

Thursday 14th February 2019 Lords Chamber

[Baroness Drake (Lab)]

My Lords, I will take the opportunity of the GMP increase order to raise the recent High Court decision in the Lloyds Banking Group case, which now requires trustees to amend their pension schemes to equalise GMP benefits. The inequalities arose because between April 1978 and April 1997 an employer could contract its company scheme out of the second-tier state pension if it provided a guaranteed minimum pension—the GMP component of a member’s company pension. A calculation of the GMP accrual is set in legislation and results in inequalities because GMPs are payable from the age of 65 for men and 60 for women, so they accrue at different rates, with female benefits accruing more quickly.

That is further complicated by different schemes’ normal pension payment ages, which create a result that is sometimes more favourable to men and sometimes more favourable to women. Following the 1990 European court decision, occupational pension schemes “equalised” their retirement ages for men and women, often to 65, but the GMP component continued to apply at 60 for women and 65 for men. Following consultation in 2016, the DWP proposed a GMP equalisation method but did not commit to it being a safe harbour for achieving equalisation.

The High Court decision in the Lloyds Bank case required schemes to implement GMP equalisation from 1990, and identified approaches to achieving it. That decision still left uncertainties—for example, over how previous transfers out and buyouts should be addressed and the position of survivors’ benefits in payment. In March 2017, the DWP advised that it would consider its position in the light of any legal decisions resulting from the Lloyds Bank case. Will the Government press ahead with their planned changes to GMP conversion? Will they make variations to their proposed methods more generally? Are they considering any legislation on GMP equalisation?

The Explanatory Memorandum advises that the Secretary of State’s decision on the values of the qualifying earnings band and trigger for auto-enrolment for the tax year 2019-20 is based on established policy principles: namely, the right people being brought into pensions saving; the appropriate minimum level of saving for people automatically enrolled; and the costs and benefits to individuals and employers being appropriately balanced. I can understand why the Government would hold to the current interpretation of those principles for the 2019-20 tax year. A priority is the phasing to the 8% contribution rate from April 2019 with negligible impact on the opt-out rate. However, we know that the Government want to change the future interpretation of those principles as, following their auto-enrolment review, they announced reforms to lower the age limit for auto-enrolment from 22 to 18, and to remove the lower earnings limit of the qualifying earnings band and calculate the 8% contribution from the first pound earned.

There is no confirmed date for the implementation of these reforms, other than a loose reference to the mid-2020s. The Government could announce a forward date, which would allow time for consultation and legislative change, and give employers good notice. The reforms could bring an extra £3.8 billion into pension saving annually, increasing the pot of the lowest earners by about 80% and the median earner by 40%. When will the Government name the implementation date for these reforms and when do they anticipate bringing forward legislation to give the Secretary of State the necessary powers to implement them?

Finally, the earnings trigger—earning £10,000 or more in one job—is a factor in determining which workers get automatically enrolled into a workplace pension. Some 37% of the eligible population for auto-enrolment is female and 63% male—a glaring example of the lifetime caring penalty that women pay. Predominantly because of caring, millions of working women—some 45%—are in part-time jobs and earning less, which excludes many from auto-enrolment. Although the £10,000 earning trigger is frozen, decreasing in real terms against assumed wage growth, that 37% still rises only to 38%. Yes, once in the eligible population women are saving at the same rate as men—one would expect that; women are not stupid—and they still gain from having their inertia mobilised into savings. It is not getting into the eligible population that excludes many women from the benefits of saving.

The Government’s argument for not lowering that £10,000 is that,

“the predominant impact will be upon people for whom it could make little economic sense”,

to save. Such a sweeping assumption sustains a gender stereotype that is not fair on the women impacted, for several reasons. Many women will be in households with income that would support them as the right people to be brought into pension saving. Some women earn more than £10,000 but will not qualify because they do not earn £10,000 in any one job. Many women work part-time during periods of caring, outside of which they work full-time. For them, the assumption that it would not make economic sense to save is wrong and simply undermines their persistency of saving.

Fully 100% of pension contributions are deducted from employed earnings when calculating entitlement to universal credit and tax credits—an incentive to save for low-income earners. Excluding them from auto-enrolment undermines that incentive. Under pension freedoms people do not need to secure an income stream in retirement, so the concept of replacement rates is more tenuous. Older women on low incomes have lower financial resilience—lack of financial resilience has been reported on copiously in the last year or two—so supporting women during their working life to build up a pot of savings, accessible from age 55, will increase their resilience and mitigate their exposure to debt.

The Government consider that opting in to pensions is the most appropriate option for these people. Their published review of the earnings trigger refers to Institute for Fiscal Studies research showing that the impact of auto-enrolment has also increased pension membership among those earning below £10,000. However, I read that research, and the institute’s researchers observed that “it might be unlikely” that employees ineligible for auto-enrolment asking to opt in to workplace pension “is the major driver” of this increase. They referred to other influences more likely to account for the increase, such as some employers choosing to contractually enrol their workers who earn below £10,000—either from,

“a paternalistic desire to provide”,

low earners with some saving,

“or to reduce the … burden of monitoring whether staff”,

with variable earnings,

“do or do not earn over”,

the earnings trigger during a relevant pay period. So the research quoted does not support the assumption that low-paid women being able to opt in to pensions is translating into them saving more.

I ask the Minister what measures the Government intend to take to address the problem that, even with the changes in this order, still only 37% of the auto-enrolment population is female.

[Baroness Janke (LD)]

I thank the Minister for her introduction of the orders and I am privileged to follow the noble Baroness, Lady Drake, who is such an expert on this matter. I too will raise a few points about how inclusive the scheme is. It has been a success; we all recognise that. It has been a very good example of cross-party working on a crucial issue.

On inclusivity, the latest figures from the department show that 37% of women workers, 33% of workers with a disability and 28% of black and minority-ethnic workers are not eligible for master trust saving through auto-enrolment. Auto-enrolment does not cover the self-employed or workers in the gig economy. Both the noble Baronesses, Lady McIntosh and Lady Drake, mentioned the cumulative earnings of people who work part-time and in more than one job. What plans do the Government have to further extend the scheme to include those groups? How can it be made more accessible to enable those who need it most to benefit from it?