Pensions: British Pensioners Overseas

Baroness Turner of Camden Excerpts

Wednesday 11th March 2015 Lords Chamber

[Lord Freud]

I regret I cannot give my noble friend any comfort. Full uprating to today’s levels would cost us more than £0.5 billion and while partial uprating—in other words, just starting to move current levels of pensions up by the increases—would start off being much less than that, those costs would rise in the medium term to a level similar to the full uprating.

[Baroness Turner of Camden (Lab)]

My Lords, is it not really rather unfair? I have a relative who retired to South Africa, where there is no reciprocal agreement. He is very upset that he paid the appropriate contributions before leaving this country and his pension will nevertheless be frozen. Should not people who have made some contribution at least have some gesture from the Government in favour of fairness, which is, apparently, not available at the moment?

Pensions Act 2011 (Consequential and Supplementary Provisions) Regulations 2014

Baroness Turner of Camden Excerpts

Wednesday 9th July 2014 Grand Committee

I understand the complexities, and trying to construct this speech so that it did not sound too complex was a challenge in itself. I remain concerned at how the Government accord themselves a level of confidence at which they can say that, in giving this retrospective protection, the disregard on members’ benefits is negligible.

[Baroness Turner of Camden (Lab)]

My Lords, my noble friend Lady Drake has made an exhaustive study of this complicated matter. I certainly do not have her kind of in-depth understanding. I came this afternoon because I am interested in what happens to members of DB schemes who have been concerned that the various changes would threaten the safety of their benefits.

As we have heard this afternoon, there have been quite heavy assurances from the Government that the protection of members is paramount to them; that is of course important. We have already heard that there have been assurances on retrospection. The changeover in some schemes from non-money purchase into money purchase can give rise to uncertainty and a lack of assurance among the people receiving it. I am therefore interested to hear what the Minister has to say in response to my noble friend, who has raised these points sharply and with great clarity. It is necessary when you are making adjustments in pension benefits in whatever area to make sure that people who are on the receiving end are confident that what they have been paying for and supporting all their lives will be safe. That is terribly important.

We understand that the Government have given assurance both in relation to protection under the ECHR, which is important, and to general protection as well as protection of some means of challenging if people feel concerned and are not happy about what is happening. I await with interest what the Minister has to say in response to the issues which have been raised, which are very pertinent in the circumstances.

[Baroness Sherlock (Lab)]

My Lords, I thank the Minister for his introduction to these regulations and for explaining how we got to this place, the noble Lord, Lord Kirkwood, for some very good questions, and my noble friends Lady Drake and Lady Turner for raising some significant concerns.

There has rightly been a long consultation on this issue, and it is right that the Government have taken the time to listen to a wide range of voices, particularly regarding the retrospective nature of the changes, the significance of which has been highlighted by the noble Lord, Lord Kirkwood, and others. While on one level these are very technical changes—I say to my noble friend Lady Drake that, being a relatively normal person as far as pensions are concerned, if in no other respect, I found that “complex” did not begin to describe my emotions—sadly, I felt the same way as Brazil when I was reading these. None the less I confess that the questions I am asking the Minister are quite genuine and I will find the answers fascinating, because I certainly do not pretend to understand the exact implications of what is happening here.

As my noble friend Lady Drake explained, the original draft SI was withdrawn after being challenged by the Joint Committee on Statutory Instruments. It has been replaced by two orders: this affirmative draft instrument and a negative instrument, the Pensions Act 2011 (Transitional, Consequential and Supplementary Provisions) Regulations 2014, to which I shall refer from now on as the negative instrument, if noble Lords will bear with me. Those two orders are completely intertwined. Indeed, the Government issued a single impact assessment covering both. Therefore I hope that the Minister will forgive me if some of my questions end up straying into that territory. I simply want to understand the settlement that the Government reached, and inevitably the ground is split in practice between the two instruments.

On commencement, my noble friend Lady Drake explained that these regulations will apply primarily with prospective effect, with the exception of two limited circumstances relating to winding up and to employer debt where there is a risk to member benefits. However, there will be retrospective protection for the affected pension schemes, with earlier decisions effectively being validated. The key effects of that of course—as has been mentioned—are on schemes that switch from being money purchase to defined benefit, with all the significant regulatory, governance and funding implications that that switch carries. There is also the effect on wind-ups and administration and the impact on employer debt. The Government originally intended that the provisions should all be retrospectively applied, but changed their position on consultation. The Government response to the consultation on the definition of money purchase schemes says at paragraph 50:

“However the Department has been persuaded that, where there is negligible risk to member benefits, it would be unduly burdensome to require schemes to revisit past decisions. This would give rise to expensive administrative costs that could deplete scheme assets and therefore, the ability to fund members’ benefits”.

Paragraph 51 continues:

“Nevertheless, where there is a real risk to member benefits, it is right that the legislation provides that employers fund a scheme deficit if a scheme is underfunded on wind-up, or if the scheme is unable to put in place a recovery plan”.

The response goes on to explain that in practice the transitional regulations validate the actions of trustees or managers in respect of those non-money purchase benefits, except in limited circumstances.

If that is the basis of the transitional protection that is being offered by the Government, can the Minister tell the Grand Committee a bit more about the basis of their assessment? The impact assessment says that,

“there is insufficient information available to accurately estimate the number of schemes affected by these regulations”.

It goes on to say that there are approximately 40,000 private occupational pension schemes in the UK that include money purchase benefits, of which about 2% are hybrid schemes.

The impact assessment says that during the consultation the department held four stakeholder forum events, with more than 100 stakeholders in attendance. It had 95 responses to the consultation document. The department also made direct approaches to relevant organisations, including employer representative bodies. As my noble friend Lady Drake mentioned, it also went out and made direct attempts to get data, in order to better understand this. However, paragraph 25 of the impact assessment says:

“Despite these efforts the Department is unable to quantify the impact of the regulations on the schemes that are likely to be affected. There is no data available at an industry-wide level and the consultation did not elicit sufficient data at scheme level to allow us to produce reliable estimates of the impacts on schemes, employers or members”.

However, the Government were obviously given a pretty clear steer by the industry that the consequences of retrospection would be significant, because the impact assessment says at paragraph 30:

“The Department have taken into account the strongly expressed views of those in the industry. Having carefully considered these responses, the Department is persuaded that this change to the policy”—

as was quoted—

“will not appreciably increase risk to members’ entitlement or make any material difference to members’ pension outcomes, given the protections put in place through these regulations”.

My noble friend Lady Turner said that she was pleased the Government were able to give assurances that members would not find their benefits being affected. However, I have to ask—along with my noble friend Lady Drake—how the Government can be confident that the risk to members’ entitlements is negligible and will not increase appreciably, when they are unable to quantify even the number of schemes affected, never mind the number of members, and when they do not seem to have been able to gather any data about what the quantum of that effect might be. I understand that they are in a difficult position, but I wonder what degree of confidence the Government have, and therefore what degree of assurance the Minister can offer the House through this Grand Committee, that these regulations will have the effects that the Government believe they will.

Housing: Underoccupancy Charge

Baroness Turner of Camden Excerpts

Tuesday 24th June 2014 Lords Chamber

[Lord Freud]

There are some 200,000 smaller premises in the social rented sector available through each year. We are now seeing a good increase in the number of home exchanges. Some systems are going up and the housing partners’ HomeSwapper scheme, for instance, has now had a 25% increase partly because of the effect of this change.

[Baroness Turner of Camden (Lab)]

Is the Minister aware of disputed cases being referred to the Local Government Ombudsman for decisions? If so, have there been any decisions in favour of the claimant as I understand that some people have disputed the charges that have been made under the bedroom tax?

[Lord Freud]

I am not aware of the ombudsman process. The process of which I am aware is when people appeal to the tribunal; there have been more than 100 such cases, which have gone one way or the other—some have gone to appeal and some have been accepted.

Employment

Baroness Turner of Camden Excerpts

Thursday 20th March 2014 Lords Chamber

[Baroness Turner of Camden (Lab)]

My Lords, I should like to thank the Minister for introducing a debate on this important subject. He referred to growth, and many of us welcome that, but we have other concerns. What sort of growth, we must ask? What kind of work, and what is the effect upon many families struggling against poverty? The growth is clearly mainly in London and the south-east. The remainder of the country, particularly the north, is not doing so well. Unemployment in the north is around 10%, compared with 5% in the south-east. The parts of the country that are most affected are those that have faced deindustrialisation. The factories that once provided employment for the local population have disappeared. Many industries, like the steel industry following privatisation, have disappeared altogether. This is the process which was started under the Administration of the late Baroness Thatcher.

Concerns about the lack of balance in the economy have been voiced by many noble Lords in the debate. The Government seem to accept that rebalancing is necessary if growth is to continue, but obviously much more needs to be done. It is accepted that we need a more skilled workforce, and in that respect I support the efforts that the Government are making to promote apprenticeship training. Much more needs to be done in that direction for young people. Equally, more should be done to encourage young people into science and engineering studies. A number of years ago, when I was a member of the Equal Opportunities Commission, we ran the WISE campaign, which stood for Women Into Science and Engineering. We had some success in that regard and we could do with another campaign now. We need campaigns to generate more enthusiasm.

As to what work is like nowadays, again, there has been concern about the work that is available. There is talk of zero-hours contract work and of work that is low-paid. Sometimes individuals must take several small jobs because one job simply does not pay enough. This is particularly the case for women, because childcare is too expensive for many people. There was recently a TUC conference for women at which many stories were told of the treatment of people on zero-hours contracts, as well as appalling stories about very low pay. Concerns were expressed that the austerity cuts, from which everyone is expected to suffer, impact more heavily on women. Although there has been growth, wages generally seem to be stagnant. I am glad to say that there has been talk of raising the minimum wage, but it needs to rise by more than the amount suggested for it to be of real assistance. What we really need is the living wage to lift people out of poverty.

In discussions about employment in this House on previous occasions, it was suggested that people should “get on their bikes” and go to where the work exists. That is no longer a good idea because the problem is housing. In London and the south-east generally there is a housing crisis which has resulted in a shortage of social housing, and private renting is desperately expensive. All this indicates that although there is growth, particularly in the south-east, there are still major problems for many people, who face insecurity both in employment and on the housing front. The Government’s employment policies have simply added to that insecurity.

We have seen a series of measures from the Government designed to diminish or totally remove the employment rights that have been fought for over the years. It is now very difficult for a dismissed worker to claim for unfair dismissal. If, after coping with a series of bureaucratic steps he or she eventually gets to a tribunal, it will cost almost £1,000 in fees. Workers injured at work will find it more difficult to claim compensation because of changes to the law, and whistleblowers will now lose their protection if they attempt to warn about unsafe practices in the workplace.

There is also the government scheme of “shares for rights”. Employees are given shares in a company in return for surrendering all employment rights. I am glad to say that these schemes do not appear to have had much success, but all this indicates that the Government prefer to have a workforce with no workplace rights at all. This adds further to feelings of insecurity and of course encourages bad employers to behave even worse. In this House we defeated some of the proposals, but the Government later defeated our amendments in the Commons. I strongly believe that a well paid, well trained and respected workforce is far more likely to produce sustainable growth than an insecure one. After all, no one likes to feel that they are disposable.

As for training, the Government should not pay too much attention to what the media have to say about trade unions. I speak as a former trade union official. Unions are committed to the education and training of members. Unionlearn, the TUC’s education department, is highly respected for the work it does among people who missed out on training earlier in their careers. The automotive industry, which has been doing quite well, has involved the unions and has received their support. I gather that this is what happens in Germany. That was explained in some detail by my noble friend Lord Monks in his speech earlier.

There is some growth and some improvement in the employment figures, but clearly very much remains to be done. Again, I thank the Minister for his speech. It has given a number of us an opportunity to air our problems, and I hope that he will pay attention to what we have said this afternoon.

Pensions Bill

Baroness Turner of Camden Excerpts

Monday 24th February 2014 Lords Chamber

[Baroness Turner of Camden (Lab)]

My Lords, in this section of the Bill employers are given a new power to change the provisions of a scheme in order to cover the NI costs to which they will be subjected. They may apparently do so without having to seek the agreement of staff or their unions. As my noble friend has pointed out, this is an overriding power to which a number of us objected at earlier stages when discussing the Bill. Schedule 11 sets out the provisions in some detail.

At Second Reading I referred to the development of what we now call defined benefit schemes, and what used to be called final salary schemes, as a result of which generations of pensioners have enjoyed excellent retirement provision. There was a move some years ago to change such schemes to money purchase schemes or schemes with less generous protection. Where the workforce was strong enough, probably with active union involvement, such schemes have been maintained. There is now, as a result of this Bill, concern among those who have not yet reached retirement age that these schemes will not continue and that employers will utilise the provisions in Schedule 11 to undermine or change them. Hence my amendment, which stipulates that an employer may not change these benefits without the agreement of the current scheme members, which under my amendment could be ascertained through a poll. I hope that the Government will agree that it is reasonable for the members of the scheme to have the final say. If an employer wants to change the existing arrangements, it must be by negotiation with the staff and their representatives and by agreement. Again, I hope the Government will agree that that is reasonable. If they do not, I would like to oppose the whole clause and the schedule.

I want to make another point about so-called protected persons. This was raised during earlier discussions and referred to again by my noble friend today. The Government have agreed in principle that individuals who were members of schemes when their employing companies were being denationalised would retain their pension provision. I believe the assurance is that where this protection has been agreed by statute, it will continue. I welcome that, and would like to see an endorsement of the point by the Minister. There are others who believe that they are covered not by statute but because their own private scheme gives them cover. Because of a change of ownership that might happen, they are concerned about their position in the future. Their position is not protected by statute, only by their own scheme. These people have concerns about what might happen to their DB scheme. My amendment would provide some cover because of the necessity to get the agreement of scheme members to any changes to benefit.

I wait with interest to hear what the Minister has to say to this, and in particular what he will say about his own Amendment 14, which looks like a tentative step in our direction. I hope that it is more than a tentative step and that he is undertaking to do something of the kind that we have been campaigning for and would like to see in the Bill before it leaves this House. I support the amendments already spoken to.

--- Later in debate ---

Moved by

[Baroness Turner of Camden]

16: Clause 27, page 13, line 29, leave out from “to” to “and” in line 30 and insert “the type of work undertaken and the degree to which this may impact on health and life expectancy”

[Baroness Turner of Camden]

My Lords, this is a short amendment dealing with the section of the Bill that allows for the periodic review of rules about pensionable age. When I read it, I was concerned that there was nothing at all about the type of work people undertook before they retired. At Second Reading, I said that there were many people who were quite happy to go on working past normal retirement age but it depends on the kind of job you do, whether you are well paid, whether your job has authority, whether you enjoy your job and so on. However, there are many people who do work that is very necessary if the rest of us are to lead reasonably comfortable lives, such as people who work in construction and other industries where there is strenuous activity and, sometimes, danger. It is not a good idea to have elderly people in this kind of work.

It is too late in the day to make a long statement about this, but if there is to be a review of retirement ages it must be understood that people do very different types of work and it is not a good idea to think that one size fits all. I hope the Government will realise that in a periodic review of retirement ages it is sensible also to take on board the kind of work being looked at and the sort of people who are expected to do it. If they do not, it will not be very popular and may lead to problems in the future. You do not want future problems in a pensions Bill, so I suggest the Government think very seriously about this. I quite like Amendment 17, which is also concerned with a review of how retirement age is judged and brings a range of representatives of parties, including trade unions, into consultation, which is also very sensible. In the mean time, I beg to move.

--- Later in debate ---

[Lord Freud]

My Lords, as your Lordships know, the purpose of the review of state pension age is to inform the Government. The reports from the Government Actuary and the independently led review, which will feed into the review, should collect and analyse the latest data, and give the Government of the day the information they need to make what will always be a difficult and contentious decision.

We are all keen that the Secretary of State receives a report that is impartial. Because we are requiring that all reports compiled as part of the review are published and all future changes to state pension age continue to go through primary legislation, any proposal based on a report that is not impartial, credible and comprehensive will quickly fall apart when scrutinised by stakeholders and both Houses of Parliament.

Turning first to the substance of the amendment tabled by the noble Baroness, Lady Sherlock, and the noble Lord, Lord Browne, if one thing is apparent it is that there is no clear consensus on who should sit on the review, what they should look at, or how they should collect the necessary evidence. We have been clear in Grand Committee and in the other place that this Government’s vision of the review is one similar to the independent review of public service pensions. That review was run by the noble Lord, Lord Hutton, a member of the opposition Benches and an expert in his field. It was transparent, comprehensive, independent and established a consensus.

Noble Lords will also be aware that the Pensions Commission, set up by the previous Government, had three commissioners from the areas of business, trade unionism and academia: not a single politician or Cross-Bencher. That commission gained support through comprehensive and open debate about the issues and trade-offs, rather than being based on the inherent characteristics of the commissioners’ backgrounds.

In short, the amendment tabled by the noble Baroness, Lady Sherlock, and the noble Lord, Lord Browne, would preclude these two successful models. It would result in a body of at least six individuals from stakeholder groups, the other place and this House. It would not necessarily have the expertise to review the relevant data and would effectively create a mini parliamentary process before the parliamentary process proper. We do not think that is the right way to run a review designed to inform the Government. In the Bill as currently drafted there is nothing to prevent a future Government running the review in whatever way they think best. That is a key point underpinning our approach to the review—getting future Governments to take active ownership of and responsibility for all aspects of the review, instead of just going through the motions.

Turning to the factors to be considered as part of any review, I must note that in response to the recommendation made by the noble Baronesses, Lady Turner and Lady Sherlock, we do not have the data regarding the relationship between specific occupations or types of work and life expectancy and healthy life expectancy. Beginning to collect such data would be both burdensome and, I imagine, for some professions simply impossible. More generally, we do not think it is necessary to specify any factors to be considered in legislation. We have already consulted stakeholders on what factors they think are important, and stated the factors we expect to be considered in the White Paper. The Opposition are worried that by not specifying the factors in legislation, future reviews simply will not consider important variables. However, what kind of support would such a review generate?

We want to encourage all interested parties to feed in their thoughts and contributions to better involve them. Specifying factors in the Bill could send out the message that we have already thought of everything important, and that future Governments do not need to consider additional factors as they are not set out in primary legislation. Such an approach could lead to a tick-box mentality, with Governments simply going through the motions instead of taking a proper, considered approach to each review. My point is illustrated by the fact that another factor has been added to the Opposition’s amendment since its predecessor was tabled only a month or so ago. Other noble Lords have also previously suggested additional factors, including life expectancy of the lowest income decile, prevalence of smoking and quality of diet. This demonstrates that the determination of relevant factors should take place after a thorough and extensive consideration and on an iterative basis for each review.

I turn now to the review’s remit. We believe that the Government should maintain control of this to keep it focused on the task at hand. There is nothing in the Bill to prevent the Secretary of State of the day updating the remit of the review, and we—or, more importantly, stakeholders—would fully expect him or her to do just this if new and compelling factors were identified during the course of the review.

The amendment of the noble Baroness, Lady Sherlock, also requires evidence to be gathered in public sessions. Although there is nothing in the Bill to prevent some evidence being taken orally—rather as Select Committees do—noble Lords will be aware that the nature of the analysis around state pension age, such as the myriad tables, charts and graphs, does not lend itself well to public sessions. Underpinning our approach is the idea that each Government will fully own and be responsible for the review. Setting out membership and factors to be considered restricts rather than increases that responsibility. It would instead limit the scope of reviews and reduce engagement by stakeholders. I therefore urge the noble Baroness to withdraw her amendment.

[Baroness Turner of Camden]

I thank the Minister for his response. It does not surprise me, but, on the other hand, I still think that the type of work that people do is very important. There are, of course, already industries in this country in which there are different ages of retirement for different types of work. It is not unusual for that to happen; indeed, it is quite a common practice, if an industry is particularly stressful or difficult, for there to be a lower retirement age for that kind of work. It is not an unusual state of affairs but one that is highly regarded where it applies—and people accept it. They think, “Oh well, that sort of work is very tough, but at least you go a bit early for it. You don’t have to stay and work there—after a certain time you can go”.

My husband, who was a pilot in the war, tried to stay in the Air Force because they were recruiting people to fly civil aircraft when the war ended. He tried to get into civil aircraft because he was a pilot, with decorations, but he was disappointed to find that he could not do so. He wanted to get into the civil air force because they had an early retirement age; he thought that he could retire at 50 and start becoming a full-time artist, which is what he had always wanted to do. But he did not manage to do that. I give that as an example, because the age of retirement was different than for general people. So it is not an unusual situation.

I still think that it is quite sensible to have a provision under which it is possible for a review to take seriously into account the type of work that is involved. However, I note what the Minister has said this evening and I shall study it with interest. In the mean time, I beg leave to withdraw the amendment.

Amendment 16 withdrawn.

Pensions Bill

Baroness Turner of Camden Excerpts

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?

[Baroness Sherlock (Lab)]

My Lords, my noble friend Lady Hollis has raised some significant questions and I look forward to hearing the Minister’s answers. This amendment follows an ultimately rather unsatisfactory discussion we had in Committee during which my noble friends Lord McKenzie and Lady Hollis, along with the noble Baroness, Lady Greengross, and others tried valiantly to get the Minister to explain exactly when somebody would receive a communication from DWP to warn them that the state pension they would get in future would not be the same as what they might have expected. I went back and reread the record. I think the answer we got was that they would get a statement if or when they asked for it and then normally only digitally. The Minister kindly arranged for officials to explain their communications strategy to Peers, and I am genuinely grateful for that. However I think it is fair to say that the exercise did not entirely allay our fears or perhaps fill out all the gaps in our knowledge. I hope the Minister is looking forward to finding a consultancy fee for my noble friend Lady Hollis for her contribution to what will doubtless be the next mailshot from the department.

In Committee I raised comments that had been made during the Select Committee inquiry and elsewhere from quite a wide variety of bodies about this subject. It is worth highlighting a couple. Citizens Advice has been stressing that considerable complexity inevitably remains in the system because of the transitional provisions. It says that,

“a sustained communications programme could improve outcomes, manage expectations, minimise misinformation, promote action on NI contributions, and support personal saving for retirement”.

That last point is one made by my noble friend Lady Turner. The Association of British Insurers had also stressed that adequate communication was essential because it was important that people did not feel unclear about how much they would receive, and it should be clear that they would need to save. That is a crucial drive behind all of these reforms and the Labour reforms that preceded them. People need to understand what they are going to get to make sure they save enough for their retirement.

The Select Committee certainly found that there was a lot of confusion out there. Many people thought that from now everybody would get £144 a week instead of the current state pension. Many people thought that all means-testing would disappear and that if they would have got more than £144 now that they would lose that in future. The committee stressed how important it was that people have full information about their future entitlement.

I reiterate three simple questions which I raised in Committee; they did not get answered at the time but I think the Minister has had an opportunity since then to reflect on them. First, how and when do the Government propose to contact people to tell them of the changes to their entitlement? Secondly, at what point will the Government contact people who have previously requested and received a pension statement to warn them that it may no longer be accurate? Finally, in setting up a communications campaign on this new scheme, what outcomes are the Government seeking and how will they measure them? I look forward to the Minister’s reply.

Pensions Bill

Baroness Turner of Camden Excerpts

Wednesday 15th January 2014 Grand Committee

[Baroness Drake]

My Lords, perhaps I may reiterate for continuity that the areas for concern with PFM can be grouped into three: confidence in the basis for the Government’s decision, differing views on what benefits the saver and the need to protect dormant pots already accrued.

When it comes to the basis for the Government’s decision, where are the significant barriers to be overcome before the Government can be confident about the superiority of the PFM model? The consequences of getting this wrong are huge. Yet the transfer model is in the Bill when there are so many conditionalities still to work through, and confidence in securing lower charges, which is the main benefit claimed for the PFM model, are by no means assured.

PFM requires effective pan-industry collaboration, but what if that is not forthcoming? Are the Government confident that they can overcome industry inefficiencies and conflicts of interest, so well articulated by the noble Lord, Lord Turner? The DWP is working with the industry to find an IT solution to match pots to members. There are significant technical challenges to overcome, standardisation to be achieved and the industry as a whole has to reach a consensus that prioritises the savers’ interests. If and when that is achievable are unknowns, but the Bill locks us into pot follows members.

Some providers will have an interest in getting rid of small, less profitable pots but will also have an interest in setting a pot size cap to defend their more profitable pots. They will have a natural antipathy to an aggregator with a pot cap that increases to a certain level. However, the pot limit chosen for automatic transfer will affect the number of separate pots that a saver builds up over their working life. It is one of the issues that goes to the heart of the efficiency of the aggregator model or the consolidation model chosen. Depending on the assumptions about the aggregator or how many active member and dormant-member pots that it has, the administrative savings can be greater than those that have been estimated in the impact assessment.

The department comments in its impact assessment that, overall, the results of its modelling suggest the aggregator scheme will achieve slightly less consolidation than PFM, but that needs to be set against the greater control that an aggregator scheme could provide in mitigating other risks that come with an automatic transfer mechanism. It would also be interesting to see the results of modelling that includes today’s dormant pots. I would like to come back to this. Equally, pot follows member cannot be implemented without raising quality standards, or the Government risk transferring the savings of millions of ordinary people into myriad schemes over which they currently have little quality control.

Even if the Government succeed in getting all schemes to a minimum quality standard, there will be a wide range between minimum standard and best practice. For example, consider a modestly paid worker who leaves a good scheme provided by a major retailer and goes to work for a two-person employer running a small shop, whose workplace scheme has higher charges, poor governance and a less suitable investment strategy. Would it really be wise to default several thousands of pounds of the worker’s savings into the new employer’s scheme? Regulation could set standards for aggregated schemes above the qualifying standards for automatic enrolment schemes, raising those standards in order to mitigate the risks that can occur on transfer.

Against that, PFM increases the regulatory burden to oversee a myriad schemes into which automatic transfers would be made, rather than focusing on leveraging very high standards in a few aggregated schemes. There is the potential for significant burdens on employers involved in transferring small pots to any number of schemes. Under PFM, every scheme would potentially need to be capable of communicating with every other scheme. Aggregators could pose a lower burden, as there would be—or could be—a much smaller number of such schemes.

Automatic enrolment was intended to carry a lighter regulatory burden for employers, especially SMEs, but this seems to be rowing in the opposite direction. The National Employment Savings Trust, which embraces the most transient low to moderate market, could consequently face higher administrative costs as a result of PFM. What is the consumer detriment to NEST members whose pots are transferred into the schemes of new, small employers, and out of the protection of the high governance standards in NEST?

With pot follows member schemes, the department expects that over the long run average charges would reduce as efficiency savings are made by the industry, but a reading of the impact assessment lacks confidence. Paragraphs 67 to 69 list some of the risks to which I have referred, but paragraph 70 concludes rather sweepingly that,

“the Department would expect the gains and losses from differences between scheme charges and investment performance to cancel out on average”.

When it comes to savers benefitting through lower charges from the administrative savings that providers may make from PFM, paragraph 71 comments that,

“there is a risk that some providers will not experience the resource savings projected”.

Paragraph 72 reminds us of the,

“uncertainty surrounding the assumption over the savings that providers will make”.

This is not the firmest of springboards from which to lock into a solution on the front of a Bill. On the differing views of what benefits the saver, PFM does not currently accommodate people who leave the labour force or become self-employed, as they have no employer scheme into which to transfer their pot. Their ex-employer may nevertheless default them into a poorer personal pension because they do not allow ex-employees in their existing scheme, which I must say is a growing trend. What of women who leave to become carers, move to a new employer, or who work part-time but because of the level of the earnings trigger are not auto-enrolled into the new employer’s scheme?

As has been argued by NAPF and others, pot follows member increases the risk of charges and transaction costs being incurred on the whole pension pot, rather than on the incremental amount saved with the previous employer. If the saver works in an industry characterised by frequent job changes they will be more vulnerable to these risks, which an aggregator could reduce.

Even where individuals choose to transfer to their new employer’s scheme, they face supply-side barriers. Transfers can take weeks if not months, and complexity and lack of standardisation combine to cause delay and increase costs. At decumulation the buying power of a larger pot can be harnessed by the individual, but the buying power is even better if open-market options can be exercised in bulk. Aggregators could facilitate and do this.

I turn to the third element, which is the need to protect dormant pots that have already been accrued. A key weakness in pot follows member is that it excludes existing dormant pots. An aggregator could pool an individual’s dormant and live pots because aggregation would not depend on an active scheme member moving to a new employer. Pot follows member at the point of introduction only consolidates live pots with future live pots. Today’s dormant pots are completely ignored. No start date has been set for pot follows member, as my noble friend Lady Sherlock has indicated, but by 2016 some five years’ worth of dormant pots will have been built up under automatic enrolment, and they will be excluded from the PFM proposition. The summary of the impact assessment points out that those with dormant pots before the start date will,

“remain in their existing scheme”.

That is a key weakness in this solution. Equally, it cannot be right that they should stay with their existing scheme in every instance because some employers will simply default these pots into alternative arrangements anyway if the former employee does not voluntarily transfer. If they are not allowed the option of access to PFM or the aggregator, the employer may well default them anyway into a personal pension.

Finally, the issue of pension pots is not only a future one, it is also one of legacy. Quite a lot of work is being done on standards and reviewing legacy pots by the DWP and the OFT, and there is work to come out of the FCA. I would ask this question: is there to be no synergy on the solution to transferring small pots post-2016 under auto-enrolment, and the solution to the problems that may be revealed in the audit of legacy schemes arising from the OFT investigation? Is it really going to be a set of parallel lines in looking for the solutions to cover the legacy problem, which could also be in auto-enrolment savings pots because of the 2016 dateline and what evolves in the future?

Amendment 62ZC clearly maintains the power of the Secretary of State to make arrangements for the transfer of pension pots, because everyone sees the compelling need to have some way of aggregating or consolidating these small pots. This amendment provides an opportunity to rethink the model to be chosen, but it does not of itself substitute an alternative model. The Government can eventually decide on the alternative model, and new primary legislation would not be needed—but it would not lock us in. The effect of the amendment would not be to lock us in to the PFM model at this stage. The reason for that is, I would say, because the case is not proved, members’ interests are not truly being defended, and there is no synergy with any dormant savings that may exist prior to the implementation of PFM before 2016. I believe that all these issues need much more consideration.

[Baroness Turner of Camden (Lab)]

My Lords, I have not spoken on this item hitherto except briefly at Second Reading. In my opinion, it is one of the most important issues before the Committee. That is because it is quite obvious that the Government want people to save. Everything they have been telling us about pensions indicates that they want people to save. What happens if people do save, but then they transfer jobs? Nowadays, of course, people do not stay in the same job for their lifetime. They may have several or even many changes of job in the course of a career. What happens to the pension pots that they accumulate? If there is no safety in those pension pots, the whole thing will be a disaster. I support strongly what my noble friends have said. It is clear that this is something that requires a great deal of attention.

Is the regulator to have more powers to deal with this? It is obvious that you cannot have a situation in which pension pots are put at risk because there is no way of handling the market or for dealing with people who will be forced to make choices for which they do not have the necessary skills or experience. They cannot make the right kind of choices and they may end up with a bit of a disaster instead of a reasonable pension, or even a reasonable lump sum to place with another pension provider. Again, I hope that the Government will take seriously what has been said in this debate. It is a very important issue.

[Lord Bates (Con)]

My Lords, I can certainly assure the noble Baroness, Lady Turner, that we will take very seriously what has been said this afternoon because it comes from such authoritative sources. We have had a high-quality discussion, as is typical of this entire Committee. In fact, at one point I think that we had a Turner commission quorum. This is a very important discussion. We are agreed about the urgent need to tackle small pots and to keep people engaged as regards the value of their savings with a view to their increasing them and being able to purchase a bigger pension when they retire. The savings culture to which the noble Baroness, Lady Turner, has just referred is at the heart of this amendment and the proposals we have put forward.

First, I wish to put some general remarks on the record and, in so doing, speak to government Amendments 62A and 62B, standing in the name of my noble friend Lord Freud. I will then turn to the issues and questions raised and, I hope, give noble Lords some comfort on them.

I think it is worth starting on a note of consensus. Clearly, there is a strong sense that the issue of the proliferation of small pots is one that needs to be addressed. There is some disagreement about how we get there—an issue on which we have consulted extensively since 2011. We announced our preference for the pot-follows-member-model in 2012 and reiterated it in the Command Paper published last year. A full and proper policy-making process has been followed in coming to this conclusion. These amendments seek fundamentally to change our proposals to a type of aggregator model, where pension pots will be moved to a separate nominated transfer scheme. We consulted on the option of an aggregator and there was no clear consensus for a particular type of aggregator. We received views on single, multiple and virtual aggregator models and only 19% of respondents preferred a multiple aggregator which these amendments seek to introduce. Therefore, these provisions, while providing a broad framework, legislate specifically for the pot-follows-member model, providing a clear direction to drive development of the detailed transfer process and to enable the industry to plan for the future.

I will take some time to set out why this Government believe it is right to take this approach. The rationale behind automatic transfers has always been to ensure that individuals have better retirement outcomes and we believe that pot follows member will help to achieve this because it brings greater pension pot consolidation. The proportion of people reaching retirement with five or more dormant pots could fall from one in four without reform to nearly one in 30. We estimate that pot follows member will halve the number of dormant pots and make net administrative savings of £6.4 billion by 2050. That is a key point because the administrative costs of pensions are at the heart of what we are talking about in terms of charges, so therefore reductions in costs mean a bonus for the savers.

In contrast, by their very nature, aggregator models mean less consolidation than pot follows member. Individuals will have at least two pots in a single aggregator model and they could have many more in a multiple aggregator model. Our research shows that a single aggregator scheme would achieve only around half the net present value of a pot-follows-member system to the new employer’s scheme. Given that people are more likely to engage with pension saving as they see their pot grow, coupled with the fact that most annuity providers require a minimum of at least £5,000 or £10,000 in a pension pot to achieve the market option to which the noble Baroness, Lady Drake, referred, consolidation is a key objective to achieve greater results and economies from the purchase of annuities.

Pensions Bill

Baroness Turner of Camden Excerpts

Monday 13th January 2014 Grand Committee

[Baroness Turner of Camden (Lab)]

My Lords, Clause 25 increases the pensionable age to 67. It is a key clause, but I wish to oppose the question that it should stand part of the Bill, as I hope to get the Government to think again about it. I know that in legislation that has an impact on millions of people, as this Bill does, it is useful to have arrangements that are the same for everyone—the same benefits and the same retirement age—as that makes things much easier to administer. The problem with that is that we are not all the same. Even more important, jobs are not all the same.

As I said at Second Reading, some people are happy to work for longer. They like their jobs and the social aspect of working with others is important to them. Such people do not look forward to retirement; they like to go on working if they can. These people are often employed in administrative jobs, but for others things are very different. Some industries involve strenuous and often hazardous work—the construction industry is one such. Those who work in such industries do work that is necessary for the rest of us. Without them, we would not have the comfortable lives that we now have. Yet such industries often have a record of industrial accidents and disease, which we should all find unacceptable. It may be dangerous for older workers to work with others in such a working environment. Therefore, an earlier retirement may well be necessary. This simply cannot be left to the private sector. We cannot have legislation that says that all people must work longer before retiring.

It is not only industries that are hazardous where this is a problem. There are many low-paid workers in dreary jobs who are only too happy to retire, as long as they have enough money to do so. People who work in hospital cleaning and dreary jobs of that kind are only too happy to retire if it is possible for them to do so and to receive reasonable benefits when they are retired. Such people long to retire. It is not enough for us to say, “Oh well, you have to work for longer”.

We are often told of the evidence that we are all living longer, but it is not always sensible to use that as a reason for extending working life—not for everyone, anyway. We are not alone in thinking this. A number of my colleagues have tabled amendments to subsequent clauses to seek a review of retirement ages. I certainly think that that is necessary. Have the Government thought through what all this means? What is the impact on people working in particular jobs and their health? What happens when people live longer? What is the effect on their health? Therefore, it seems to me that this simple provision in legislation to ensure that people work for longer is not a good idea. I hope that the Government will be prepared to look at it again, in the light of some of the things that have been said both at Second Reading and in Committee today.

[Baroness Sherlock (Lab)]

My Lords, as this is the first discussion of Part 2 of the Bill, it may be worth setting out a couple of principles from these Benches at the outset. First, we agree with the principle of raising the state pension age to reflect longevity, as people are living longer than when the current arrangements were put in place, largely in post-war reforms. As I indicated at Second Reading, we also accept the need for periodic reviews of the state pension age, but we differ from the Government on how best to do that—we will return to that issue in the discussion of our later amendment.

Fixing the state pension age is never easy, and an issue of fairness is always at stake. There needs to be a balance between the interests of the generations on the funding of retirement incomes in a pay-as-you-go system, where today’s taxpayers fund today’s pensions. As we will discuss in later groups, our view is that having a careful, evidence-based review before taking any future decisions on changes to the state pension age is a crucial element of ensuring fairness between generations.

However the arguments made by my noble friend Lady Turner require careful attention from all of us. Sometimes fairness also requires at least a consideration of difference, and my noble friend has highlighted some crucial differences, particularly in relation to longevity and health. We all know that life expectancy is increasing, but that fact conceals as much as it reveals. Mortality rates vary widely, as do morbidity rates. There is a huge amount of socio-demographic data available to inform our debate—and I am sure we will hear a great deal of it in the groups to come—from the Wanless and Marmot reviews to government figures and other outside research. There are also some very interesting data from the TUC. I will say more on this later, but I do not want to pre-empt what I think could be a very substantial discussion coming up shortly.

There are no easy solutions to these problems. The biggest challenge to the Government is to address the question of differential mortality and morbidity rates through urgent attention to public health, but we also need time to reflect on how best to deal with these questions in relation to the state pension age. It is our view that the best way to do that is to ensure that the mechanism for reviewing the state pension age includes a review panel which has on it representatives of a wide range of interests in society, including employer and employee representatives and representatives of different parties and, indeed, our own Cross Benches. I shall move an amendment later today to that effect, but in the mean time, I hope very much that the Minister will take the concerns of my noble friend seriously. I look forward to his reply.

Pensions Bill

Baroness Turner of Camden Excerpts

Wednesday 8th January 2014 Grand Committee

Moved by

[Baroness Turner of Camden]

22: Clause 5, page 3, line 18, at end insert “plus the state pension benefits from an employee’s post-commencement qualifying years up to a maximum of nine years”

[Baroness Turner of Camden (Lab)]

My Lords, this is a rather complicated matter. We are on to the area of people who are contracted in and those who are contracted out. Under the Government’s proposal, an employee who by April 2016 has already built up a state pension entitlement equal to or in excess of the single state pension cannot add further to it. This means that a large number of long-term contracted-in employees will face the prospect of a reduced state pension. These employees, by definition, have not had access to quality company DB pensions during their career, and SERPS and the second-tier pension were originally designed to assist them. By contrast, an employee who has been long-term contracted-out will have an established right to the basic state pension only. Under the transitional terms, they would have the ability to add to their single pension benefit and could increase it from the prospective £107 of the basic state pension level to £144 in approximately nine years.

The amendment is designed to be helpful. We realise, of course, that the transition may be difficult. Some people may feel that they are losing out as a result, and we want to ensure that as few as possible feel that way. The idea of the amendment is to limit the loss of future rights to accrue for the contracted-in employees and to put them on an equal footing with contracted-out employees. Under the new scheme, both groups will in future be paying the same amount of national insurance contribution. The idea of the amendment was therefore to ensure that the transition that is taking place will be as smooth as possible, and that people who think that they have been left out or that their conditions are undermined will feel that every effort is being made by the Government—if they accept our amendment or something rather similar—to make the transition as painless as possible. I beg to move.

--- Later in debate ---

[Baroness Turner of Camden]

I thank the Minister for his detailed response to the amendment. It was of course designed to cover the situation where a number of people may feel that they are being badly done by in the transitional process. That is why it was suggested that an amendment be put down and the Government’s views on it sought. I am grateful for what he has said. I acknowledge, of course, that there will be some cost involved—I realise that we mostly put down amendments that involve some cost. None the less, we were anxious to try to ensure that people should not feel hard done by if they feel that they are losing out in any respect. However, I note what he has said. We shall have a good look at this issue before Report and I shall let the people who originally raised it with me know what the response was. In the mean time I beg leave to withdraw the amendment.

Amendment 22 withdrawn.

--- Later in debate ---

Moved by

[Baroness Turner of Camden]

25: Schedule 1, page 28, line 33, leave out sub-paragraph (2) and insert—
“( ) The amount to be revalued in accordance with the full rate of the state pension.”

[Baroness Turner of Camden]

This, again, concerns a somewhat difficult point. Currently, paragraph 6(2) of Schedule 1 provides that amounts of pre-commencement pension up to the level of the full single pension will increase in line with “the full rate” of the single state pension, while any amount in excess of that will rise only in line with CPI inflation. In other words, the rate of revaluation is on the basis of prices rather than, as in the past, in relation to earnings. This takes us into the whole area of revaluation. We have already heard that, apparently, government policy is in future going to support the triple lock, which I personally have always supported. If the triple lock were accepted, and if our amendment were accepted, that would certainly bring the whole thing into line with the triple lock, because it would increase this section of the pension in line with earnings.

I am rather surprised that the Government continue to imagine that it is possible, in this particular section of the Bill, to have revaluation in line not with earnings, or indeed with the triple lock at all, but in line with prices. That is completely out of kilter with what will, hopefully, be in the rest of the Bill and with support for the triple lock. I therefore suggest that the Minister look again at the amendment and perhaps agree with what we are suggesting: that the amount to be revalued should be in accordance with the full rate of the state pension, which would of course bring you directly into the earnings section rather than looking at prices again. I do not think that we want to look at prices again in relation to any section of the Bill. If we are going to have the triple lock, which I hope we shall, that would of course not arise because the best of three would be payable in respect of all the pension payments referred to in the Bill. I beg to move.

[Lord Whitty (Lab)]

My Lords, I fully support what my noble friend has just said and have some amendments in this group which point in the same direction. The issue is fairness in relation to expectations. Under this part of the schedule, if your entitlement under the prior system is greater than the reference point, it is index-linked on a different basis from that on which it would be if it falls below the reference point.

The Minister may regard that as part of the overall approach, but in terms of the expectations of the people concerned there is in essence the same point as was in my noble friend’s previous amendment: somebody who is retiring in 15 years’ time may be able to provide other means of savings to make up for the loss of expectation. However, if they are retiring fairly close to the due date of the single tier, then their expectations cannot be made up in that time. A significant degree of unfairness applies there. The same applies in relation to the subject matter of these amendments if you happen to be one side or another, under the old system, of the proposed reference figure of £144 or whatever it turns out to be. There is no particular reason why one group of workers—who have, by and large, not had the most favourable pension schemes but have saved into the state second pension—should be treated differentially in this way, compared with their expectation.

It is an issue of fairness. The triple lock seems to have all-round support except in these clauses. It seems that the Government, at a relatively small cost, could make the adjustment here and save quite a lot of aggro and, I suspect, a significant postbag for most Members of Parliament.

--- Later in debate ---

[Lord Freud]

My Lords, it was not my intention that the noble Lord should be worried about it. I ask the noble Baroness to withdraw her amendment.

[Baroness Turner of Camden]

I thank the Minister for that response but he will not be surprised to learn that I am not terribly happy with it because I cannot envisage a situation in which any element of pension provision could be linked to prices rather than anything else, and rather than the triple lock which we have all talked about. Therefore, although I thank the Minister for his detailed response, we will have to look at it very carefully because I am not happy about any element of pension provision where there is revaluation based on prices. It is out of kilter with the rest of the thinking in relation to pensions generally and we will certainly have to think about this and come back to it on Report. However, in the mean time, I beg leave to withdraw the amendment.

Amendment 25 withdrawn.

--- Later in debate ---

Moved by

[Baroness Turner of Camden]

37: Clause 24, page 11, line 34, leave out subsections (2) to (5)

[Baroness Turner of Camden]

My Lords, Subsections (2) to (5) of Clause 24 and Schedule 14 give employers powers to amend employee contributions and benefits in their occupational schemes to an extent supposed to be limited to the cost of the extra national insurance the employer will have to pay as a result of the end of contracting out. I am totally opposed to this clause and also to Schedule 14. The proposal potentially impacts on 1.6 million active members of private sector DB schemes. It would enable any existing protection for members’ benefits in legislation or scheme rules to be overridden. This includes specific statutory protection given to members in former nationalised industries when they were privatised and also measures of protection that employers in times past have agreed to write into their schemes.

The ending of contracting out and the associated increase in employer national insurance is, in principle, no different from any other risk employers with DB schemes might face and there is no sound justification for the Government to disturb the existing balance of power in relation to these schemes. The extra cost on employers is no greater than as might arise in the event of a small change in market interest rates. There was no suggestion of intervention to protect scheme members who lost out when the Government, not so long ago, amended the statutory basis of the pension increase from RPI to CPI. A number of us objected at the time. Governments should allow the problems arising for employers on this count to be dealt with through the established process whereby changes can be effected by negotiation and agreement. An overriding power based on being able to recover a set amount of cost could result in great unfairness as there may be no correspondence between the variable amounts members may gain from a single state pension and those they may lose if employers are allowed to determine unilaterally the form of contribution and benefit changes in occupational schemes.

I also recall, during my career as a trade union official a number of years ago, how keen we were to negotiate what we then called final salary schemes— DB schemes. As a result of the schemes that we negotiated then, there have been beneficial changes for many pensioners. As we know, though, after a certain number of years there was a bit of a campaign against DB schemes, as a result of which a number of employers decided that they would scale down their DB schemes. I have sensed that there remains not a hostility but a lack of concern and support on the part of the Government for DB schemes. These schemes excellently provided for generations of pensioners, who are very grateful for the fact that they are in existence.

What is proposed here is not in any way acceptable. I very much hope that the Government will take it away and rethink it. I am not the only person to feel this; the Minister will notice that there are a number of other amendments in this group, including my own Amendment 40, which are designed to protect employees who were covered by existing protections when they belonged to former nationalised industries that were denationalised. As a result of that, there was legislation that provided for protection. In fact, the protected persons were first introduced by an Act of Parliament in 1948 and reaffirmed by the Thatcher Government on the denationalisation of the electricity supply industry in 1990.

The Government now propose, in my view, to override the statutory provisions providing these pensions, in order to allow employers to claw back the additional NI contributions. This really is the thin end of the wedge and I do not think we should accept it. The Government should take it away and rethink it, because I regard it as quite unacceptable and so do many people, including individuals who are themselves beneficiaries of DB schemes and the unions that support them. I beg to move.

[Lord Whitty]

My Lords, I have amendments in this group that broadly support the line that my noble friend has been taking. She was right to try to prise open what the Government’s strategy actually is.

Everyone recognises that there are consequences of contracting out, but under this clause and schedule the Government are effectively giving carte blanche to employers to change established means of paying occupational pensions among private sector employees. Government Amendments 48 and 49 actually make that worse by making it pretty explicit that the full cost of that will, or at least can, fall on the employees so that not only are the employers given the right not only to avoid the consequences of that cost and place it on to the employees, which is likely to have the knock-on effect of people opting out of the schemes, but they are overriding the long-established system whereby such schemes are governed by trustees representing the employers, the contributing members and often the pensioners in those schemes. To override the whole system of pension trustees that we have had in place for the past 40 or so years with regard to private occupational pensions is a very serious step. There are particular consequences in the area where statutory protections are built in. Past Governments have given guarantees that can be overridden by this clause.

All this can lead us only to the conclusion that the Government have a strategy and are using the excuse of the other provisions of the Bill on state pensions to go further in destroying private occupational schemes. We discussed the knock-on effect in public sector schemes at our previous sitting but here we have, as my noble friend says, more than 1.5 million people still in defined benefit schemes who have benefited from them and have every expectation of continuing to benefit from them. On top of everything else, the Government are attempting to ensure that those schemes now fail.

There are other reasons why some schemes have been curtailed and there are other reasons why the future of such schemes, in some cases, looks fragile. However, this is a deliberate attempt by the Government to make matters significantly worse. The Government must think very seriously about that. This is why my amendments and those of my noble friend would delete the bulk of Clause 24 and Schedule 14. We recognise that we have to face up to the consequence of that, but it would force the Government to rethink this and do it in the context of an overall strategy towards occupational pensions, their governance and their future, which is not there at the moment.

This clause provides the possibility of the Government reassuring us that they have a strategy but, frankly, we need to see the outlines of that strategy before we finish the proceedings on this Bill. Otherwise, I think that the message to those outside will be that, if you are in an occupational pension scheme in the private sector, we will make it cost you more and the benefits will be less and, if you are in the public sector, the Government will not compensate for the costs that they are imposing on well funded public sector schemes, as we discussed last time.

There is an occupational pension dimension to the whole pension issue. In principle we support many of the changes that the Government intend to make to the state pension, but the other part of the equation also needs to be faced up to. Frankly, I have seen no sign of a government strategy to do that. These clauses and much of this schedule will only make matters very significantly worse.

--- Later in debate ---

[Lord Freud]

Well, my Lords, I was responding to the comments of the noble Baroness, Lady Drake, on the negative procedure generally. It is fairly odd to have two separate procedures going on within one process. That is the point.

I will try to deal with government Amendments 48 and 49. Schedule 14 currently provides that regulations can create exceptions to the limits set out in paragraph 2(2). This was originally provided to deal with unusually funded schemes, such as fixed cost-share schemes, which I hope goes to the issue raised by the noble Baroness, Lady Drake. The Delegated Powers and Regulatory Reform Committee raised concerns about the power. In light of this and our ongoing discussions with the pensions industry, we no longer believe that we need this power—we believe that something different is required—so Amendment 49 removes it. Amendment 48 then makes specific provision for employers with atypical scheme-funding arrangements, such as cost-share schemes. It allows those employers to recover their increased costs without affecting the safeguards provided by Schedule 14.

In the statutory override we have designed a process whereby employers can continue to sponsor defined-benefit schemes without losing the rebate. We have included provision to allow for a pivotal role for actuaries in signing off any changes but we have not restricted the ability of trustees, and indeed members, to express their views to the employer. We have ensured that trustees are not forced to decide whether to accept scheme changes or risk closure of the scheme. I hope that this reassures noble Lords and I urge the noble Baroness to withdraw her amendment.

[Baroness Turner of Camden]

I thank everyone who has contributed to the debate. I agree, of course, that it is a complicated matter but, on the other hand, the complications take place within the context of what is in the Bill. The Bill makes it clear that in future employers will have the right to change the provisions of pension contributions and benefits. That is what most of us are concerned about. I do not think that the Minister’s response has dealt with the fear that people have that they are now facing a possibility that DB schemes could be under attack. They have been under attack in the past. Although I agree with everything that has been said about the necessity of involving trustees—of course I believe in that—when in the past employers have changed from a DB scheme to something less good, which has happened, the trustees have been consulted but have made no attempt to disrupt what the employer had intended to do. I therefore still do not think it is sufficient to say that the trustees have to be consulted. There has to be general consultation. The problem is, of course, that it is in the general context of the Bill, and the general context of this clause, which gives the employer power to change the benefits system through the DB scheme that may exist.

People are concerned about the continuation of their DB schemes. As I have said in the past, DB schemes which have been negotiated in the past have been responsible for improving benefits for a whole generation of pensioners. They want to continue with those schemes and to ensure that the unions to which most of them belong will have the right to ensure that negotiation will properly take place before anything can be done to remove those benefits that they all value so highly from them.

In those circumstances, while I have listened very carefully to what has been said, particularly to what the Minister has been saying this afternoon, I will look again at what he said. However, concerns still exist about Schedule 14 and the wording of this clause, and we shall certainly return to it on Report. Personally, I have not been satisfied with what I have heard and am quite certain that a number of other people will not be either. There has to be much more of a debate. Unfortunately, a number of our Members have left because we are running rather late tonight. A number of people who have tabled amendments have not had the opportunity to speak to them and so on. I beg leave to withdraw the amendment.

Amendment 37 withdrawn.

Pensions Bill

Baroness Turner of Camden Excerpts

Wednesday 18th December 2013 Grand Committee

Moved by

[Baroness Turner of Camden]

10: Clause 2, page 2, line 2, at end insert “and it shall not be less than the entitlement to basic and state second pension as would be established by a person under the previous system who had 40 qualifying years based on paid or credited earnings level equal to the lower earnings threshold”

[Baroness Turner of Camden (Lab)]

My Lords, this amendment is about the level of the full rate of the single state pension. As we know, the Bill states that it will be specified in regulations and, as we know, the Government propose an entitlement of about £144 in 2016. The amendment would raise the level by about £40. Although that is calculated by reference to 40 qualifying years under the current system, it still represents only 80% of working age years and an earnings level which will by then be about £15,000 per annum. Only at that level would the single state pension make a genuine improvement to the state pension. That would address the concerns of those many millions of current employees with contracted-in careers who will see their state benefit reduced under the current proposals.

As I said at our previous sitting, I have had discussions with the pensions officer of Unite, as a result of which I have tabled some amendments, including this one. I am told that Unite policy is for the restoration of an earnings-related pension to supplement a higher level of basic state pension, as it is felt that that will provide a better foundation for employees in company and private pensions. I explained to the officer with whom I had discussions that the single state pension is the model before us which we have to discuss today but, on the other hand, it is believed that it has merit only if it is set at a realistic level. The amendment before the Committee is intended at least to produce a discussion about what a realistic level would be. I am not alone in suggesting that we need to look at the realistic level, because my noble friend Lord Whitty has tabled a similar amendment, Amendment 17—a very well worded amendment, in my view—which also proposes 40 qualifying years and requires a realistic assessment of what the benefit should ultimately be.

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[Baroness Turner of Camden]

I thank all noble Lords who have contributed to this debate, which I found extremely interesting. My noble friend Lord Whitty was quite right that this amendment is in the wrong place and should have been on Clause 3 rather than Clause 2. However, it has enabled us to have a discussion about what the full rate of the single state pension ought to be. A number of noble Lords expressed a view that indicates that it is certainly worth considering, although I am not surprised that the Minister’s argument relied heavily on the cost if we got what we wanted, which is a great deal more than I think most people contemplated.

Even so, there is a case for looking again at the level that is being paid, because a lot of people will rely on this. They rely on the basic state pension—they do now—and few of them will have savings or access to a decent pension provided by an employer, although we hope that the new arrangements with regard to automatic enrolment in the new pension schemes will enable people to save. That needs to be looked at, and we will have an opportunity to do so later in the passage of the Bill. In the mean time, I thank all noble Lords for their contribution, and I look forward to hearing what the Minister has to say, particularly about the cost. I beg leave to withdraw the amendment.

Amendment 10 withdrawn.

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[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.

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[Baroness Turner of Camden]

My Lords, I do not want to add anything to what my noble friend just said about public sector schemes, but at Second Reading I referred quite briefly to the fact that DB schemes have been under threat for a very long time. I can well remember when I was head of the pension committee of a well known charity that had a very good DB scheme. While I was there, there was a suggestion that in future new people would not be entered into the DB scheme. Gradually, it would be phased out. I spent a whole day persuading the executive not to go down that path. Time went on, and I ceased to be in that office. I went to a dinner on one occasion several years afterwards and somebody said, “Remember that? It’s all changed now. They waited until you’d gone and changed it”. It is absolutely dreadful, quite obviously, as far as my union is concerned.

I have tabled amendments further on that deal with the private sector. My noble friend dealt with the public sector, but also mentioned the private sector, for which we have very much the same cover as far as DB schemes are concerned. I am sure that a number of us have had letters from public sector unions that are very concerned about the future of their schemes, and they have every right to be. I hope very much that the Government will consider very carefully what has been said this afternoon. It is very important.

[Lord German]

My Lords, I congratulate the noble Lord, Lord Whitty, on his success in having a ticket for the 1966 World Cup final—very exciting for those of us who can remember it—and for raising these issues. At Second Reading, I also raised the issue of public sector schemes and how we should try to deal with them. I want to address Amendment 41, which I will not support in its directive approach to the Government, but I echo some of the issues that the noble Lord raised as being significant to the discussion of the Bill. Undoubtedly, we will return to them later when we get to the appropriate clause, Clause 24.

The abolition of contracting out will result in additional national insurance revenue to the Exchequer: £6.1 billion in 2016, of which £3.7 billion comes from public sector employers and £1.5 billion from public sector employees. If you project those figures forward from the £6.1 billion in 2016, they go to £5.6 billion in 2020, £4.3 billion in 2030, £3.8 billion—which is the lowest point in projections—for 2040 and start to rise again to £4.7 billion in 2050 and back to £6 billion in 2060.

So far the Government have allocated some of the funding they see coming back to them already up front. They have allocated to the Dilnot proposals and to some employment measures; but that leaves a significant tranche of money, of the money available, for the Government to deal with as they see fit but also, I hope, to use to deal with some of the problems that affect public sector pension schemes.

The first question that we have to ask ourselves is: what is a public sector pension scheme? I am a recipient of the Local Government Pension Scheme, although I did not work for local government, because I worked for a charity that was a company limited by guarantee and a member of the Local Government Pension Scheme. I transferred my teacher’s pension scheme to the local government scheme, as it was, but I have never been an employee of local government. I was a councillor, but that was not a time when councillors were entitled to retirement benefit.

A public sector scheme, therefore, could mean a scheme that has private sector people within it. We need a definition of whether that is just one single member of a scheme, because it can work the other way round for a private scheme. Does a single member make it a public scheme, or does it mean a group of members or which organisation came into it? The effect of having no, or very little, room for manoeuvre in public sector pension schemes means that there is going to be an effect on the employers, or those public sector services which we all cherish.

The point about local authorities is probably the most relevant. I took the opportunity to try to work out, with some help, what might be the effect upon the small Welsh council, because they are smaller than those in England. I did choose not the one that I live in, but the one alongside it. The extra cost on that Welsh council, if it simply had to meet the cost of the reduction in NIC, would probably be a £33 rise in council tax. If you took a council in the south-west of England—which shall remain nameless, but is probably far west—you would see an increase in its expenditure of £2 million that it would have to find, simply in the first year of the new scheme. Of course, it is possible to work out the impact on a specific council by doing the figures—working out what is 3% of payroll or 3.4% adjusted. Not all their employers are in the scheme, but you can work out what might apply to each local authority in the land.

Some public sector pension schemes can make adjustments through their investment policies; but I think the noble Lord was probably right that not many public sector pension schemes have the ability to match and manage this change. Therefore I believe, quite sensibly, that it is important that the Government use some of the tranche of money that they will have available by not having to pay out national insurance contributions to smooth over the process of changing from one to another. Over time, pension schemes are able to make adjustments through their investment policies. These are important issues.

I have a plea to make to the Government, and I hope that my noble friend can help with this. I know that it is the Exchequer, and not the DWP, that will make this decision. As the Government have made some forward commitments in relation to this money and have forward-spent it in advance, I think that it would be right for them to say now that they are prepared to help these public sector schemes to smooth the transition over the period in which they can make those adjustments in order that we, the council tax residents and people who use public services, will not have to pay more for those services in the immediate future. These are crucial issues and I am grateful to the noble Lord, Lord Whitty, for raising them, but the Government are going to have to make some effort to compensate the way in which these changes impact upon the public services that we all cherish.