Housing Benefit
Lord Boswell of Aynho Excerpts(13 years, 6 months ago)
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Lord Freud
I assure the noble Lord that I am very pleased to be a listening Minister. Some of the forecasts clearly are misrepresented in the sense that the Mayor of London most certainly did not mean that he expected Kosovo-style cleansing. He actually said that we would not see such cleansing—and we will not see such cleansing. But we now will have a review to establish exactly what is happening. Clearly, we will watch what is happening very closely and take any steps that we need to if we find things happening that should not be.
Lord Boswell of Aynho
My Lords, we all welcome the review. Is it not important that it should also take account of long-term factors in conjunction with the other aspects of benefit reform? This is not merely a snapshot for now, trying to allay the apprehensions that some noble Lords have expressed. It is also very important to keep a continuing handle on the changing social balance and whether it is being influenced by the benefits system.
Lord Freud
My Lords, the key principle behind these housing benefit reforms is that people who are benefit recipients should experience the same kind of pressures as everyone else. That is the way to integrate them back into the world of work, which is one of the fundamentals of our whole welfare reform strategy.
Pensions Bill [HL]
Lord Boswell of Aynho Excerpts(13 years, 6 months ago)
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Lord Boswell of Aynho
My Lords, I congratulate the noble Baroness, Lady Hollis of Heigham, on her ingenuity in inserting this into the delicate business of amendments at Third Reading, of which I have, with modesty, rather less experience than her. I also associate myself with the spirit of her intentions in this matter at least in two respects.
First, many of us across the House felt some dissatisfaction or sadness that we were not able to resolve some of the issues of rough justice connected with the bunching of women's pensions. While I appreciate that we cannot reopen that in this House now, that area might repay further consideration. I have seen some correspondence subsequent to our debates on Report which would have suggested, for example, that a minor adjustment in the entitlement for the male pension above the age of 65 might be a way to finance a smoother progression for women without a net cost to the Treasury. I hope that Ministers have not shut their minds to this area, although I appreciate that it is difficult and that there will always be losers as well as gainers. However, it would be inappropriate to go further into that.
Perhaps I would be on more confident and more positive ground in saying, secondly, that I share the noble Baroness's enthusiasm for the single state pension, which I believe would be a considerable social advance. It would help to make pensions and saving for them, including private pensions and NEST, worth while. That must be an objective for us all. It would also be an important advance in simplifying the system. We could not discuss this previously because of the timings of government proposals and I appreciate that pensions' evolution and development is an incremental business. However, I would like to share with the House some considerations which the Minister, even if he does not consent to a formal review—I know that those things are not easy for Ministers to do—may at least wish to ponder in moving through the consultation process on the state second pension and in looking at the interaction with NEST.
With due respect to the noble Baroness, I will not confine my remarks specifically to women's issues because some wider issues are also appropriate to consider. First, it is in the nature of pensions, particularly where they are guaranteed or organised by the state, to reflect long-term commitments. Any mid-term corrective action, even if benignly intended—and this is so—may therefore inevitably subvert arrangements which have already been made. I cite as an example that when we reduced the qualifying years to 30, with a view to trying to do something about women's pensions in the past, it had the converse disadvantage of nullifying the benefits of some individuals who had made contributions above that period in order to safeguard their entitlement, on the rules as they stood and in good faith.
At the same time, if we moved to a single state pension, I would find it personally important to retain an element of the contributory principle. Again, a post-Bill development, as it were, has been the issue of whether there should be some association either of administration or even of coverage between the tax and national insurance systems. Paying for something and getting something back is both morally and prudentially wise, although there is a huge amount of further work to do on that area. There are also potential differential impacts, as the noble Baroness has already touched on, from the change not just on women but for those with interrupted or overlapping working patterns. For example, there are people who have spent time abroad or who may have saved for a private second pension at different times. All that is complicated and requires a good deal of careful thinking through.
At some stage—the Minister can help us by giving some indication of this—we need therefore to take a dispassionate and careful look at all aspects of the proposed changes as they now come out. This should be designed to minimise any retrospective unfairness and to look prospectively to minimise any moral hazard, where people may feel that they lose when they have acted in good faith; but remembering at all times as we do that—and pursue the hard cases, which we must—that there is a grand prize to follow in simplicity and in providing a good platform for additional, personal private saving. That must be our overriding objective.
Baroness Howe of Idlicote
My Lords, I congratulate the noble Baroness on her amendment, which shows us that there are very few people who know as much about pensions as the noble Baroness, Lady Hollis; we recognise her ingenuity, certainly, but above all her knowledge and her belief in getting the right and honourable thing for all pensioners. I too am extremely sad that we were not able to convince this House to amend the proposals affecting those women turning 57 in March and April this year who were going to be required to work an extra two years, a group of women who had far fewer opportunities for flexible working than women have today. I believe that an attempt in the other place will be made to return a more equitable answer to this problem, and I hope that it would be well received in this House. I too support the idea of the single state pension. It would go quite a long way towards a more equitable set-up for both men and women into the future. I would like to end by very much hoping that we will see a better outcome in many respects than we had first thought when looking at this Bill.
Pensions Bill [HL]
Lord Boswell of Aynho Excerpts(13 years, 7 months ago)
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Baroness Hollis of Heigham
My Lords, Amendment 22 is on early access. I had hoped to be able to move it only once, in Committee, but I found myself caught in another pensions obligation at that time. I apologise to your Lordships.
Those of us who can afford it try during our working lives to build three tiers of savings: instant access to about three months of income; ISAs for the medium term; and, finally, a pension pot for the longer term. Some of us may feed our ISAs into our pension pot in our 50s for tax benefits. To do all that and pay off the mortgage and, increasingly, university fees will require earnings probably well above the national average. Men who can hope to have a full working life and a decent occupational pension may be able to do most of that when mortgage pressures, especially, ease off. I rather doubt that any women earning below about £22,000 could begin to.
On this issue, I am asking your Lordships to hold up the gender filter because this is, for me, a gender point. We assume that the key point about saving into pensions is to transfer income from a financially more secure working life to a more insecure and impoverished retirement. That is true for men, but it is not particularly true for women, unless they are in professional jobs. Women who are in and out of the labour market and have unpredictable and fluctuating caring responsibilities may experience more of a financial rollercoaster during their working years than in their retirement when their income, though lower, is predictable and secure so that their experience during their working life is very different from that of men. Women are far less likely to save in any shape or form, hence the need for NEST. We have already been told today that the pensions pots of men in their late 50s are six times greater than those of women.
What stops a woman saving? This is very different from any analysis that you get when you ask the same question of men. It really is. First, she cannot afford it. Her earnings may be very low, part-time or intermittent. Secondly—and this is where you get a specifically female take on it—she regards it as selfish to save. Money is needed for trainers, and she would expect to put the children’s needs ahead of her own. In any case, she rather vaguely hopes her husband is looking after all of that. Thirdly, even if she does think about saving for a pension, Tracey’s mum who did save is, because of means-tested benefits, no better off than Tracey’s aunt who did not. That is one of the reasons one is so pleased about the prospective new state pension. Finally, and this is the point that this amendment addresses, even if she could afford to save modestly into a pension, her life is so unpredictable, given what I have already said, that she does not want to lock money away that she cannot touch for 40 years. She may face divorce, disability, debt or repossession. Through almost all of that, her husband will keep working. She probably will not. She might lose her home, her husband or her health, and through all of that, she cannot touch her money in the pension scheme, even though her need now is greater by far than her need in retirement and she has no alternative savings. Far more than most men, she may need a modest pot of £5,000 or £10,000 that she can access in hard times but cannot afford to build it alongside a pension.
Why is it that people are putting more money into ISAs than into pensions, even though they are forgoing the employer’s contribution and more generous tax reliefs? It is about access. We allow better-off men and better-off women to put their ISAs into their pensions. What poorer women need is exactly the opposite: the ability to turn part of their pension, so to speak, back into an ISA. There is no product on the market which allows them to do it. We need what David Willetts and Malcolm Rifkind first floated: a lifetime savings account.
Given this Bill, how would we do it? We already allow people early access to a slice of their pension—the tax-free lump sum—even if they are not drawing the rest of their pension. How might it work? I suggest that to encourage saving, when a woman has built a pot of, say, a minimum of £10,000, she could access a quarter of it—£2,500—and I would cap that right at a pot of about £100,000 so that it does not provide work for fancy accountants. She would not be able to draw any more until she had rebuilt her pension back up to, say, £14,000, at which point she could draw a quarter of the difference between the £10,000 and the £14,000, or a further £1,000. By the time she retires, she would have drawn no more than the equivalent that she would have got with her tax-free lump sum, but she would, if she thought it necessary, have had earlier access to it.
Why? First, it would give women especially the right to a savings slice as part of NEST or indeed any occupational pension. A woman would know that for every pound she put away, 75p would be ring-fenced for a pension, and 25p would be available as a savings slice. Knowing she had that rainy day slice does not mean to say that she would draw it, or need to—but if she did, it would be much cheaper to borrow from herself than from someone else at such extortionate interest rates as would squeeze out her ability to continue to pay into a pension. Allow a woman access to a lump sum within her pension and she is far more likely to continue saving and build, eventually, a larger pension.
Secondly, the tax-free lump sum is already separate, if the saver chooses, from drawing the actual pension. Until recently it was at the age of 50, now it is at 55 that you can draw the lump sum, even though you may not take your pension for another five or more years. So no new principle is involved: there is already a disjuncture between taking the tax-free lump sum if you choose and the pension payment. No fiscal adjustments have to be made. You do not have to fret about repayment; you do not have to have judgments about what is and is not good expenditure. Why is it okay at 55 to use your tax-free lump sum to build a conservatory, but not, at 45, to save your home from repossession?
I am often told that the obstacle or objection to this is that it would cost a woman a bigger pension if she has taken her tax-free lump sum earlier, and that this is not acceptable. That might be true—if the tax-free lump sum was usually added to the pension. It seldom is. Of the 76 per cent of people who drew their tax-free lump sum, nearly half spent much of it on the car or the holiday; 39 per cent used it to pay off mortgage or credit card debts; 31 per cent spent it on home improvements; 17 per cent helped their children; and about half put some of the lump sum into other and accessible savings forms, such as a building society. So we should not be reducing the woman’s pension if she were able to draw her tax-free lump sum, but merely freeing up the time at which she may draw down a slice of it, if she needs to—possibly for expenditure on things more significant than will occur at the ages of 55 or 60.
Finally, and above all, being able to access a tax-free slice of the sum would make saving into a pension more attractive. At 22, a young graduate going into their first job would hope that by the age of 30 he or she might have enough for a deposit on a flat. At 40, she may want it for running away money, following family break-up. At any time, it might help with adaptions to the home where there is sudden disability. In the USA’s 401(k) schemes, research shows that those who could access their schemes early—in some you can, in some you cannot—ended up saving up to 3 per cent more into their final pension.
For a low-paid woman wondering whether to opt out of NEST because she believes she cannot afford the 4 per cent contribution, knowing she was also building an accessible savings pot could encourage her to auto-enrol. We should be developing a savings and pension model for those who cannot afford each of those separately—as most of us can—that best fits their needs.
There is currently a consultation paper from HMT which discusses this model, among other models, for early access. The other models—for example, loans and repayment, or channelling money into ISAs which can then be fed into pensions—have their merits, but they add to the fees and complexity and largely benefit those better-off people who can manage both savings and pensions alongside each other. I am concerned for those who cannot manage both. For women between the earnings threshold and, say, average earnings, only the tax-free lump sum model makes sense.
As I have said several times today, as have others of your Lordships, I am thrilled by the £140 proposals, which would make it safe to save. Access to a tax-free lump sum within your pension would make it even more attractive to save. There is no additional cost to the Treasury, no additional risk to the woman saver as she would not from experience have spent that tax-free lump on adding to her pension, and no increased fees because she is supposed to have a different, parallel and separate sort of product. I believe that it would transform her willingness to save in a pension. Many people in the industry tell me that with such a scheme more people would save and they would save more. I beg to move.
Lord Boswell of Aynho
My Lords, the noble Baroness, Lady Hollis, has performed a signal service to the House in bringing this issue to our attention. She was kind enough to refer to work done by David Willetts and Sir Malcolm Rifkind. I was privileged to be part of their Front Bench team at that time, although I cannot claim any real credit for the genesis of the thinking. As the noble Baroness said in referring to the consultation paper, it is now beginning to sink into the mainstream. I am a strong supporter of greater flexibility in this area so I am glad that she has raised it.
I have some slight reservation as to whether the issue is as gender specific as the noble Baroness feels that it is. I think that she is conceding that point and, indeed, she did not say that it was exclusively so. I can imagine situations where men, for example, perhaps have overlapping earnings and have acquired a certain pension capacity or pot. In Committee, we debated some of the difficulties that can arise as regards smaller sums. It might be quite sensible, as well as convenient, for an individual of whatever gender who perhaps is starting a business or otherwise to access that money in order to provide starting capital. It is a wider and general interest. I very much look forward to the Minister’s response to how it is going.
In technical terms—I stress in technical terms, although not in any sense to derogate from it—I have some slight reservations. First, in terms of using this Bill as the vehicle for doing it, it is premature but that is not a reason for not ventilating issues. Secondly, I am not absolutely sure—because it appears annexed to a passage of the Bill which is about auto-enrolment, although I think that the noble Baroness indicated a wider remit—whether it is simply about NEST or more general. I think that it is probably more general and it would be clearly invidious if it was NEST specific.
There is also a technical problem in the wording of the amendment. I understand the point, which was developed during her speech, that there could be some rules which would avoid moral hazard and would get one to the same minimum assured level of pension or pension pot at the end. Nevertheless, the way in which the amendment is worded it seems to me to be at least conceivable that as long as the £10,000 limit were maintained, an individual pensioner could make serial applications to the fund and draw it down to the qualifying level. I know that that is not the noble Baroness’s intention. However, it is right that we should be starting to think about this and I hope that it will be even better when we have brought it to effect.
Lord Flight
Perhaps I may add that I think that it is a great advantage that the noble Baroness has raised this issue. I believe that if it were to be taken up it should go across all pensions. In the US, under the 401(k) plan, you can withdraw money only by borrowing it at a fancy rate of interest and you have to repay. Even with that rather unattractive mechanism, as has been pointed out, it still bears fruit. The ISA story illustrates it even more so. Let us remember also that if you take money out of an ISA you cannot put it back and continue with those benefits.
More widely, if we are going to keep the pension structure as a big area for retirement saving, it is a bad brand name which has been damaged by all sorts of things in the past 15 years. Elements need to be added to pensions saving to make it attractive to people, of which this is one of the important ones.
Pensions Bill [HL]
Lord Boswell of Aynho Excerpts(13 years, 7 months ago)
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Lord Boswell of Aynho
My Lords, perhaps I may respond briefly to this amendment, having spoken on these matters in Committee. It provides a convenient opportunity to differentiate comments that I might make on this amendment from those that I might make on a subsequent amendment in the name of the noble Baroness, Lady Greengross, on the impact on women. I have felt on reflection since I considered the exchanges in Committee that there is an increasing, and I think more intensely felt, acceptance on my part that we have to get on with this and therefore, in order to raise money, accelerate the equalisation of the state pension age. Because of the doctrines that we have on equal treatment, it is only at that point that we are able to effect an increase in the overall unisex state retirement age towards 66 and perhaps at a later stage further in the way that the noble Lord, Lord McKenzie, reasonably accepted.
We know that we have to get on with this and that we have to wrestle with longevity, which has already knocked sideways the assessments under the Pensions Act 2007. While I am aware that we are not discussing private pensions in this part of the Bill, I happened to see some figures the other day on the universities superannuation scheme that totally struck me. They suggested that since 1973 the average pension age has gone up by 13 years. We are not dealing with a static situation; we are dealing with a rapidly exploding situation in people’s state and, where they have them, private pension entitlements on account of longevity.
Therefore, again as the noble Lord very reasonably said, this raises some interesting and rather intense issues about intergenerational transfers. Either we can redistribute this—we might both perhaps wish to return to that in a later group—or we have to consider pushing some of the burden on to today’s working population and taxpayers. It is perfectly true that none of these amendments—even on the Government’s proposed timescale towards equalisation, which I accept is rather rapid—cuts into the present deficit reduction programme, the present Parliament or the immediate outcome of dealing with the crisis.
Nevertheless, we have this inexorable march forward. If we do not do something about it now, particularly if we are anxious to give the maximum possible notice, it will not be possible to tackle the pensions problem before it overwhelms us. The only people who could end up paying for this are our children and our grandchildren through their taxes because of the pay-as-you-go system. We have to grasp the nettle now.
I do know—I was rather appalled at the estimates of costs in Committee—that the noble Lord’s amendment would cost some £10 billion a year. It is a small proportion of the savings which the Government have set out in their indication of the savings. The noble Lord is shaking his head.
Lord McKenzie of Luton
I am sorry to interrupt the noble Lord, but it is not £10 billion a year; it is a net present value figure spread over five or six years.
Lord Boswell of Aynho
The noble Lord is entirely right to correct me. I had added the words “per annum”, which are not in the calculations. However, it is still a very substantial sum, and I do not think that Governments at the present juncture can forgo that. To put it another way, they would have to find an alternative means of financing even proposals that I put forward in Committee, which we may touch on later. Those were alleged to be likely to cost £7 billion, which, frankly, is rather more than I had anticipated or indeed would be sustainable. We are into a difficult calculation, but we cannot, in the circumstances of longevity, responsibly countenance the noble Lord’s amendment as it is at the moment. However, if for some reason the figures are not as pessimistic as we thought, I would very much like to hear my noble friend’s response when the time comes.
The Lord Bishop of Ripon and Leeds
My Lords, I have put my name to these amendments because I want to talk about the speed with which the goalposts are being moved and the unfairness between individuals that that represents. I speak as the Bishop who has had major responsibility for changes to the Church of England clergy pensions scheme and the reduction in benefits that is involved in that. I have had to present those to the General Synod and I bear some of the scars for doing so. I am under no illusions as to the difficulty of this task for the Government.
I fully accept the arguments for equalisations and those based on longevity to which the noble Lord, Lord Boswell, has just been speaking. Change is needed, but I cannot accept that this speed of change is necessary. From my own experience, from my clergy postbag, and from my postbag about the Bill, I know that the two things that potential pensioners most resent are changes to their expectations with comparatively little notice and perceived unfairness. These proposals fail under both those headings, and the amendments put forward by the noble Lord do much to mitigate that unfairness and failure.
Individuals find changes in pension planning extremely complex and difficult to implement on a personal level. Many of the women who are affected here have taken time out to care for elderly parents, having worked long enough to qualify for the full pension. They have done that deliberately and they have responsibly assessed the way in which they are approaching retirement. Now they are simply being told, with only five to seven years’ notice, that they will have to cope on existing resources for one or two more years than they had anticipated—and than they had been told to anticipate as recently as the last changes in 2007. That is actually draconian for a group of individuals, notably the women, mentioned by the noble Baroness, Lady Howe, who were born in that month of March to April 1954. They face an immediate two-year increase in their state retirement age. Some 33,000 women are unfortunate enough to have been born in a particular month. It is not a tiny number, although it may be a small proportion of those who in one way or another will see a reduction in their pension expectation through the timetable of the Bill. We are often exhorted to plan carefully for retirement. It is understandable that people see little point in doing so if, for some, the goalposts are then moved to the other end of the pitch. This may not technically be retrospective legislation, but in practice that is exactly what it is for a significant number of women.
It causes changes to expectations at short notice and, secondly, unfairness. The proposals as they stand create a situation in which a woman born in 1950 obtained her pension in 2010 whereas her sister, born in 1954 and four years younger, has to wait until 2020 for hers—a six-year increase in the pension age, the best part of a decade between the times these sisters receive their pensions. When we look at the figures, it is easy to see the need for change, but we must also take account of the unfairness that that creates between neighbours, family groups and work colleagues, and the tension and pressure on friendships and relationships. That is why we need to think again on the timetable. The changes in the Bill bring no additional savings until 2016. The savings do not contribute to tackling the present economic crisis. It is a matter of justice for a significant number of women that we change that timetable today.
Lord Boswell of Aynho
I am grateful to the noble Baroness, Lady Greengross, for moving her amendment, which is cognate with one that I moved in Committee. I have to say I was somewhat shaken by the Minister’s response because I do not normally go around as a fiscal incontinent. However, I accept the reproof of the noble Lord, Lord McKenzie of Luton, at my loose speech in my previous intervention on this issue when I quoted his cost at £10 billion per annum. That is of course a net present-value cost, and my cost, if I may call it that, is £7 billion per annum. Unless I have misread the amendment, the noble Baroness’s cost is very slightly more generous than mine would have been.
These are big sums but my point earlier, which I wish to talk about now, is that in making a macroadjustment—which I believe is essential and for which I established a case on which we have just triumphed—there is nevertheless a very real problem for individuals. I should say, if there is any doubt, that I have a certain background, if only because I have a household that is 80 per cent female, or was before my daughters grew up. I have no lack of sympathy with women’s issues and am well aware from the data that many women look forward to a less than generous pension and have not had an opportunity to build up the entitlement that some men have. Those are the data. We are gradually, by degrees, achieving social advance.
There is now a suggestion that, in dealing with the major problem that we have to address, we may be affecting a particular group of women very hard. We have to answer the question of how we deal with it. In terms of the overall cost of a grand architectural amendment, I can see that that would be very substantial indeed, which, as I have already indicated to your Lordships’ House, might well fall on taxpayers and the active working population of today—our children and our grandchildren. That would have adverse consequences. We have to find ways other than that of dealing with it. It is possible that one could make some slight adjustments within the system by flexing the exact provisions of the Ministers or the proposals of the Government or the proposals of the noble Baroness, Lady Greengross, thereby sharing the cost between the various women who would otherwise be affected.
My concern, and it is a paradox, is that with the best intentions, as the Minister explained to us painstakingly in Committee, the equal treatment directive—I do not dislike the equal treatment of women and I do not as a matter of fact dislike the European Community—constrains us on sharing the burden with men, unless and until we have caught up to the common age of 65. The present arrangements are a derogation from equal treatment until we reach that equality of pension age which is inhibiting this process.
One way forward, which has been touched on briefly in the earlier exchanges, may be to look at something beyond the pension age of 65, or even 66, as a compensating adjustment for burden-sharing. An alternative approach would be to go for a specific targeted scheme, but there are some difficulties even with the law on that if one were to have a differential pension credit arrangement. I have asked the Minister some Parliamentary Questions on that. The cost is much lower, but it is indeed setting up a special scheme to try to sort out the problems of individuals.
If we could have a system whereby nobody went without their pension for more than 12 months, as the noble Baroness suggested, or something like that, we could reasonably argue, given the timescale—not perfect, not ideal, we have all accepted that—that that is something with which people could accommodate themselves. A doubling of their loss, or a further acceleration of the timescale, would not be acceptable.
I urge the Minister to try to find some acceptable approach, or to signal some acceptable approach, which can, within the constraints that have been mentioned, help this group of women who are seriously and significantly affected, where there is a sense of unfairness, or of harsh treatment, without as it were destroying the intentions or the efficiency of the overall change which we need to make. I hope the Minister will consider that very seriously. It is not a matter of party politics. It is a matter of a common feeling that we should try to do something. I very much hope that, one way or another, through our combined wisdom, or at least our combined persistence, we will reach an acceptable solution.
Baroness Howe of Idlicote
My Lords, I congratulate the noble Lord, Lord McKenzie, on his amendment and I thank everyone for the very warm support that it got. Obviously, I would rather that amendment had won, but the vote was indeed very narrow. With that in mind, I would certainly want to support the proposal of my noble friend Lady Greengross, which would certainly do something along the lines that the noble Lord, Lord McKenzie, was trying to achieve with his amendment.
If the Minister can find a way to accept that, it will give some comfort at least to those who feel strongly—and have shown how strongly they feel—about this issue. I hope he will bear that in mind when he comes to reply.
Pensions Bill [HL]
Lord Boswell of Aynho Excerpts(13 years, 8 months ago)
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Baroness Turner of Camden
My Lords, my amendments are an attempt to deal with the Government’s intention to replace the retail prices index with the consumer prices index as the indexation for pensions in payment. That was raised on Second Reading, and I am sure that everyone is aware that a lot of people have already voiced opposition to that because it is felt that people will suffer very much in their expectation—mostly people who are already receiving pensions.
I understand that people in the public sector have already received notification that they will be receiving the lower amount rather than an increase in line with the retail prices index. A number of them feel very angry about it. My own sister, who is a retired teacher, has phoned up to complain to me about it, and I am not surprised. I have already read quite a lot of material from the TUC, which supports the view that it is not fair. That view has also been expressed extensively by Saga, which has been writing to a number of people on the Committee about the Bill, and I support what it has been doing.
The situation regarding public sector workers is that although there is a lot of talk about public sector pensions being gold-plated and so on, many people working in the public sector do not get paid large amounts of money. Women in the public sector are usually on salaries of between £4,000 and £5,000, and even the loss of a relatively small amount of money means quite a bit to people at that sort of pension level.
With regard to the private sector, the Government have been instructing the pension providers that they have to inform their pensioners that in future the increases will be in relation to the consumer prices index rather than the retail prices index, and their obligation is simply to notify people that that will be their situation. I believe that that has already happened in the private sector. I understand, however, although I am not sure, that if your pension is provided on contract and the contract provides for retail prices index increases, that will not be interfered with by the Government’s new ruling.
One of the reasons why people feel it is so unfair is that we are now in a situation where inflation is running at 4 per cent and everyone expects it to go up—the papers are full of information about how we can expect the cost living to rise substantially—and at the same time many of the people in this category, who were advised to save and have been saving, find that their savings are not worth what they once thought they were, because there has been nothing much by way of interest on their savings. Many of these older people feel that they are losing out twice; they are not getting what they expected with the retail prices index increases, while at the same time the savings that they have been prudentially putting aside are not going to produce the kind of increases or support that they had expected to receive. For those reasons, both Saga and the TUC have been pressing for this to be reviewed. The situation is not fair, and I hope that the Government will be prepared to look sympathetically at their request.
With regard to Amendment 48A, with which my two amendments are grouped, I understand that my noble friends Lord McKenzie and Lady Drake are anxious to soften the blow a bit by providing for the whole thing to be reviewed. I understand that and I respect what they are trying to do. Nevertheless, I want the Government to look again at the whole issue of the retail prices index, as there is a lot of concern about it. I beg to move.
Lord Boswell of Aynho
My Lords, I oppose the amendment. I should perhaps declare that I, too, have members of my family—two daughters, in fact—who are in public sector pension schemes, and of course one hears comments of the sort that have been honourably and properly recorded by the noble Baroness. There are many people in the private sector who for a variety of reasons, not necessarily where their schemes have collapsed into the Pension Protection Fund, are feeling some stress as well. That needs to be said.
I would just say that although I did not respond to the Minister on his remarkable presentation last night with regard to the social security uprating orders, I was actually convinced by it, which I am not wholly sure that I had been until he gave that presentation. It is a change that we have to make, particularly bearing in mind that there are alternative arrangements for retirement pensions which will meet the triple test and will accelerate state retirement pension levels rather faster than the CPI.
I will make one further comment on Amendment 48A and the scheme proposed by the noble Lord, Lord McKenzie of Luton. I understand the motivation, but it is asking for a report on one-hand clapping, as the Zen Buddhists would say. It would be better expressed if it called for a report on the relative impact of the use of the CPI and of the retail prices index. We would then have some measure of comparison. As all noble Lords are aware, historically the CPI has run ahead of the RPI. My noble friend last night made representations about why this was overstating the problem and arguably would overcompensate recipients.
That leads me to make a technical comment of my own, to which my noble friend may want to respond. As one takes the heat off the RPI, it will become less immediately salient, although it will still be used and reportable for a number of purposes. As that happens, given the types of interaction and substitution effects that were rehearsed last night, it may be that it will cease to be of quite the utility that it was. Somewhere at the back of my mind—I must say it while I remember it, and hope that I still can—are my scribbled lecture notes of 45 years ago that I took on the Laspeyres and Paasche indices, and on all the different impacts of these complications. I implore noble Lords not to ask me to explain to the Committee how they work, but I will make the point that as we shift the emphasis to the CPI—that will surely be an irreversible shift, and I have given reasons for supporting the concept—the RPI will move out of focus and could become distorted in the uses for which it is still employed. Perhaps the Minister will give me some assurance that it will retain its integrity even if it is not being used for these uprating purposes.
Lord McKenzie of Luton
My Lords, I will speak to Amendment 48A in this group. I start by acknowledging the criticism made by the noble Lord, Lord Boswell, of the drafting; I very much take his point. I am also intrigued that he can read his notes after 45 years. I struggled today to read the notes that I made yesterday.
Amendment 48A calls for a triennial report to assess the impact of using the consumer prices index as the measure of inflation. It seeks that assessment from, among others, pension scheme members, employers, taxpayers and PPF levy payers. It is an opportunity to reflect on what has become known as the RPI/CPI switch. We stated in the other place, and again in our debate yesterday on benefit uprating, that we cannot support the decision to adopt on a permanent basis the CPI as currently constructed for the determination of benefit uprating and of pension revaluation and indexation. However, if our understanding of the process and legislation is correct, we do not need more amendments to the Bill to secure any change in future—which may help my noble friend Lady Turner. Issues of uprating pensions, including the BSP, S2P, public sector pensions and occupational pensions, are determined annually. These are undertaken by the increase in the general level of prices, which is generally not specified to be RPI or CPI, or indeed any other measure. Therefore, if I am right, a future Secretary of State could take a different view on the most appropriate measure of the increase in the general level of prices, and without the need to change primary legislation. The situation with regard to the PPF is similar. Clause 15 removes references to the retail prices index and substitutes,
“the general level of prices in Great Britain”.
But that does not lock in the CPI for all time. If I am wrong on that, perhaps the Minister will let us know, because we might want to table further amendments on Report. That runs also for the provisions of Clause 14, which my noble friend has addressed.
The change to uprating the various facets of pensions by CPI—subject to statutory caps—will, as we know, have a significant impact, particularly over time. We obviously accept that for the basic state pension, where we support the re-linking to earnings, which will provide the long-term determination of the basic state pension. For private sector occupational schemes, the extent to which the CPI ends up being used for revaluation and indexation depends on the scheme rules, and we support the Government in not pursuing the override. Nevertheless, the updated impact assessment produced by the DWP in February shows that the total cost in terms of reduction in the anticipated value of members’ pension rights—including the stock as well as the flow of pensions—is something like £86 billion, which is a considerable sum. This is not a deficit-reduction saving; it is an almost equal and opposite benefit for sponsoring employers, and there are consequential benefits to the PPF and levy payers.
Lord Boswell of Aynho
I rise very briefly to support my noble friend Lord German, or at least his line of thinking. I have perhaps one qualification or addition to the presentation that he has given, in relation to the role of trustees. I have already declared to the Committee my interest as a pension trustee. I can assure the Committee that my colleagues and I are taking an interest in the matter of ethical and otherwise acceptable investment schemes as part of our dialogue with the fund managers who represent us and the interests of beneficiaries. I think that a little more could have been said about the role of trustees as a necessary link, in most cases, between the former employees and the beneficiaries on the one hand and the investment managers on the other. This is something that we should all be in, and nobody should cop out of it.
My second and perhaps also substantive point is to support my noble friend’s observations about the business utility of all this. I think that the Committee will know that I have a background in a number of issues connected, for example, with disability and other aspects of diversity. In dealing with the private sector I have found over the years that, on the whole, those businesses that take a mature view and consider their long-term interests actually understand the business case for awareness of these considerations. They are not after the big buck. Their reputation and their business attractiveness benefit, with a long-term beneficial result.
When George Cox was chief executive of the Institute of Directors, I remember doing a number of presentations with him on disability issues. He used to come up with the deathless phrase, “We do this kind of thing because we are the kind of company we are”. That seems to me a very good motto. That is the kind of company that as a trustee I would like to invest in, and that as a beneficiary I would like to feel that my trustees and my investment managers were steering me towards. I do not think that this is a matter of political contention; I think that my noble friend has been right to ventilate it.
Baroness Drake
My Lords, I have considerable sympathy with the amendment moved by the noble Lord, Lord German. Notwithstanding the impact of the events of 2008-09 on regulators around the world, which are no doubt focused much more acutely on governance, with the shift from defined benefit to defined contribution pension provision, which the noble Lord referred to, and the imminence of auto-enrolment, the design of the default investment funds and the investment principles surrounding them are going to gain more attention. The issue of how shareholders, particularly institutional shareholders, approach their responsibilities as owners of assets is coming under increasing scrutiny by the Government, regulators, the members of pension schemes and those who discharge fiduciary duties on their behalf.
Corporate governance, principles of stewardship and interactions between institutional shareholders and companies are increasingly considered as a coherent whole in exercising ownership rights. As the noble Lord said, defined contribution schemes in money purchase and in personal pension schemes in future shift the risk on to the individual. Although the Myners principles have improved decision-making, achieving best practice in the investment governance of pension schemes—both trust-based and, particularly, contract-based, which I will come back to—still poses a challenge.
We have seen evidence of that concern in the Pensions Regulator’s recently published consultation on investment governance in DC schemes, which included a table of accountabilities. The table aims to define and clarify the roles and responsibilities of each decision-maker in each part of the investment governance chain, but I read it again last night and, unless I missed this, it does not refer explicitly to social and ethical considerations or to exercising voting rights. Close to my heart, NEST, and its predecessor PADA, published their own document on exercising responsible ownership in a low-charge scheme. Discharging this governance in the context of maintaining low charges is equally important.
As the noble Lord, Lord German, referred to, the Financial Reporting Council published the UK stewardship code in July 2010, which is designed to lay out the responsibilities of institutional investors as shareholders and provide guidance as to how those responsibilities might be met. Pension fund trustees are strongly encouraged to report how they have complied with that code. As a conscientious pension fund trustee, I have attempted to do just that, and my own experience suggests—here I concur with the noble Lord, Lord German—that if the code is to bite, trustees will need a great deal more guidance on how to comply with it if box-ticking is not to continue to be the method of compliance with these standards.
The Occupational Pension Schemes Investment Regulations, which the amendment refers to, say clearly that when setting out their statement of investment principles, trustees should identify,
“the extent (if at all) to which social, environmental or ethical considerations are taken into account in the selection, retention and realisation of investments; and … their policy (if any) in relation to the exercise of the rights (including voting rights) attaching to the investments”.
It is clear that this is an area where guidance and best practice are growing in importance. Because of the political risk that Governments face, with the biggest experience of asymmetrical paternalism that we are about to see, I bet my bottom dollar that this will grow and grow. If you transfer responsibility to the individual, politically Governments have a responsibility to ensure that government frameworks are up to the job.
Clearly, there are issues around how trustees can fulfil these responsibilities. One issue that we must address—I will not dodge it—is how one can be an effective, active asset owner while maintaining low charges, and how one can effectively monitor stewardship policy when one selects passive funds. Although I am absolutely committed to the highest level of governance at every stage of the investment chain, and believe that the ability of trustees to discharge their disclosure requirements in electronic form will help, these things must always be proportionate, because in a DC world it is the individual who bears the charges. I would not want a scenario in which we say that the good news is that we have gold-plated system of governance on disclosure, but the bad news is that it will cost X per cent. Therefore, we need to look at how all the players, including the fund managers, can raise the overall level of governance.
I come back to the providers of contract-based pensions. With the shift away from DB to DC, we are seeing a big shift away from trust-based DC to contract-based provision. Therefore, if we talk only of a model for how the trustees will discharge their governance function in this area, we will miss an ever-growing part of the pension provision market. A big issue, with which I know others are concerned, is who in a contract-based provision world should accept the fiduciary responsibility of designing the default fund or deciding how investment governance should be discharged. This takes us into areas where the Pensions Regulator has no reach. The guidance and regulatory framework must catch up with the shift from trust-based to contract-based provision, because in a contract-based provision world there are no trustees, unless there is a master trust, on whom to place clearly the fiduciary duty. It is clear that the Government will need to look both to the Pensions Regulator and to the FSA or their successors to raise the governance standards in the way that the noble Lord, Lord German, seeks through his amendments.
Lord Boswell of Aynho
“Gender recognition
Notwithstanding the other provisions of this Act, those persons living within their acquired gender within the terms of the Gender Recognition Act 2004 for a period of two years before the passage of that Act, or who have received a full gender recognition certificate under the terms of that Act within a period of two years after its coming into effect, are deemed always to have lived in their acquired gender for the purposes of calculation of state pension and other provisions of this Act, provided that this is not to their detriment in entitlement to those benefits and other provisions.”
Lord Boswell of Aynho
I am conscious of the hour and will try to be as succinct as I can. The Committee will know that I served previously for 23 years as the Member of Parliament for Daventry, and would not wish me to rehearse too many experiences from that time. However, I would say that this is one of the perhaps two handfuls of cases that I encountered as a constituency Member which struck me as having a particular interest or relevance, which influenced my subsequent actions and interests and in which I became personally involved. It is for that reason that I have brought forward this amendment.
I refer to the situation of a then constituent who was well known to me, who is now a senior and respected member of her local community, having transgendered from being a male and having in that capacity been a senior civil servant—and therefore well able to write a brief for me on this subject, though she is not the sort to do so in this case. I know that the Minister is aware of her identity, as is my successor as the Member of Parliament for Daventry, with whom I have discussed this case and who was enthusiastic that I should take it forward. We happened to discuss it by chance, and I said, “Ah, the Pensions Bill is on; a new clause will be following immediately, because we ought to chase this”.
The background to this situation, which involves the comparatively small number of people in this country who are transgendered, perhaps 5,000 or something of that order, was an adverse judgment of the European Court of Human Rights against the UK for not really handling the problem. It is a matter, both in the application of the judgment and more generally, that continues to attract its attention. Purely by coincidence, I happened to notice as the result of some representations that I had this week by e-mail, that the ECHR is going heavy on Lithuania, which has a rather more punitive attitude than the United Kingdom has ever typically shown on the matter. The issue is not about punitive intervention; rather, it is essentially about the lack of a legal regime and, to some extent, a lack of interest in handling our problem.
The previous Administration rightly sought to respond to the ECHR judgment by introducing a Gender Recognition Bill. Because of my involvement with those issues, I volunteered to lead for my own party in the Standing Committee and the detailed consideration of that Bill. I found the situation fascinating and complex, although there was a wide measure of consensus across the committee. These are complex and sensitive issues for the people involved. People often get the wrong end of the stick if they have had no interest or involvement in this area; they get confused by issues of surgery and so forth. Those matters were rehearsed at some length and in some depth in the committee.
The criterion under which we were operating was living in the acquired gender as the main test, rather than some purely mechanical procedure, and proof that that had been taking place for a substantial period of time and had not been reversed and was not equivocal. Under the 2004 Act, that led the individual involved to have the right to apply for an interim, and then for a final, gender recognition certificate.
I should make the point that this is substantially a matter of law, and it would have been nice if the Ministry of Justice, in the shape of my noble friend Lord McNally, had stayed behind. I am sure that my noble friend Lord Freud will want to have consultations with the Ministry of Justice—indeed, I hope that in formulating his response to this he has done so—because it is primarily an issue of law and legal status.
There were some difficulties, and therefore there is only a limited amount of retrospectivity. If I may give an example from outside this context in relation to registrations of birth, there was an understandable reluctance to tear up the birth registration if someone had altered gender, and special provisions were made for the registrar to record separately any subsequent applications and the grant of gender recognition certificates. We cannot unwrite the past or the previous gender—perhaps some of the people involved would not wish to do so—but we record as we move on.
As I said to the committee, there was a strong emphasis on law and a tacit understanding that, once the certificate had been given, that would alter the legal status, but it did not convey benefits retrospectively back to the cradle in the new acquired gender. It would be fair to say, with no disrespect to either Ministers or officials from the Department for Work and Pensions in their briefing on the Bill, that the provisions for pensions and state benefits were grafted on. It would also be fair to say that Members of the committee like myself did not focus as intensely on them as we did on some of the other issues that we had already debated.
Lord Boswell of Aynho
My Lords, I am grateful to the Minister for his response, the detail that he has been able to bring to the current situation, his explanation of some of the difficulties that go even further than those that I had anticipated or scoped, and his sensitivity in dealing with the matter. I do not think that anyone would have expected a knock-down, one-off answer today, but we have had some encouragement on the commitment to having a specialist team to deal with the issue of equal treatment. I give a personal commitment to provide any assistance that the Minister might want on this, because I am happy to continue my interest in this area in any way that would be useful to a resolution. None of us wants serial legislation to clear up each case. It would be better to get an agreed understanding, and the Minister has perhaps given us the basis for that. I am grateful to him and I beg leave to withdraw the amendment.
Lord Boswell of Aynho
“Objectives of the Pensions Regulator
(1) Section 5 of the Pensions Act 2004 (regulator’s objectives) is amended as follows.
(2) At the end of subsection (1), insert—
“(e) to promote the provision of good pensions and to ensure their health and longevity.””
Lord Boswell of Aynho
My Lords, I will be even briefer on this amendment, having regard to the hour and the common wish to finish.
This amendment arose as the result of an approach that I received from the National Association of Pension Funds. The intention of the new clause would be to put what I might call a forward gear into the work of the Pensions Regulator. As I have explained to the Committee in the past, I have quite a lot of people in my family with a background in education. My wife for one would always say, “Emphasise the positive, don’t go around looking at the negative”. That is a good maxim for this Committee.
At the moment, as the NAPF reasonably reminds us, the Pensions Regulator has three basic statutory objectives, all of which are, at least to some extent, slightly passive, although I do not mean that they are improper: first, to protect the benefits of members of work-based pension schemes, which is hugely important; secondly, to promote the good administration of work-based pension schemes, which is also important, although administration is something that serves rather than being the main driver of the event; and, thirdly, to reduce the risk of situations arising that might lead to claims for compensation from the Pension Protection Fund. At the moment there is an interest in preventing that getting out of hand; we have discussed the levy and the burden on pension funds and, indirectly, on contributors of all kinds. No one is arguing that those objectives are wrong, but the NAPF’s concern, which I warm to, is that the last obligation—trying to avoid benefit run-off—is beginning to dominate the regulator’s activities. The overall work of the regulator is insufficiently focused on the continuation of good-quality workplace pensions. It is in the interests of the NAPF and of everyone across the Committee that that should be sustained.
What is proposed here is a simple provision that would give us a positive forward gear to promote the provision of good pensions and to ensure their health and longevity. Nobody here would dissent from that. Arguably, large parts of the Bill, particularly in relation to the NEST scheme, are focused on it, and it would be helpful to have the Minister's response in due course. He will recognise a probing amendment when he sees one. I am not committed to the exact wording, nor to the vehicle involved: but I hope that somehow we will be able to signal that the focus should be on supporting, sustaining and maintaining the positive, rather than on simply cleaning up the mess where things go wrong.
I will take one final shot. Perhaps the Minister would report on any elements of deregulation or decluttering of the business obligation that he has undertaken within the spirit of BIS’s one-in, one-out approach. That would be helpful. I beg to move.
Lord McKenzie of Luton
My Lords, I will be brief. I understand the thrust of the amendment. However, I have some concerns, mainly over the wording. To place on the regulator an objective to ensure the health and longevity of good pensions is stretching a point. The regulator is focused on workplace pensions. As written, “pensions” could range over a raft of different situations, including contract-based ones as well as DB ones.
From my experience, I challenge the assertion that the regulator is overly focused on protecting the PPF. Perhaps it is easy to forget the circumstances of 2004, when DB schemes were dropping out of the system like flies. The regulator's role then made a real difference. I recall also that over the past 18 months to two years there have been constant challenges to the regulator on the grounds that requirements under recovery plans were too severe. The regulator responded in a very effective way, being clear about what flexibility there was in the system but also recognising that what was important to DB schemes was the employer covenant. Unlike insurance-based contractor arrangements, these entities are capitalised and support the provision of annuities or whatever else through that structure. For DB schemes, it is the undertaking of the employer and sponsor that is the driver. Therefore, the regulator's role in holding them to account is good.
No one would object to anyone’s role in promoting the provision of good pensions. However, in this case I would not impose the obligation to ensure their health and longevity, because these will depend on a whole raft of things, not least the commercial situation of the sponsor and what their future may be. The regulator has played an important role, and I will be interested to hear if the Minister has any proposals to change their current remit and focus.
Lord Boswell of Aynho
I am grateful to my noble friend for the way in which he has answered this question. I have been around for a year or two and have seen a ministerial brief or two. I am not entirely surprised, although mildly disappointed, at the nature of his comments. We understand the difficulties, including the substantive one of confusing people or in any way removing the focus on the important background work of securing a properly funded and safe pensions industry. I am glad on his behalf that the Minister has assumed for himself the role of the forward gear, because he is the best possible bully pulpit for all this. The essence of this should be collaboration and discussion between representatives of the industry, employers, staff and the department to facilitate a good outcome.
In conclusion, this has been the first Committee that I have attended in this place. I am grateful to my noble friend for his responses, but in the same breath I apply that gratitude to noble Lords opposite, including the noble Lord, Lord McKenzie of Luton, and others. I have found this procedure enlightening and positive, and on the whole it has done some good. I am grateful specifically for my noble friend’s response, and beg leave to withdraw the amendment.
Mesothelioma Lump Sum Payments (Conditions and Amounts) (Amendment) Regulations 2011
Lord Boswell of Aynho Excerpts(13 years, 8 months ago)
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Lord Boswell of Aynho
My Lords, the whole Committee appreciates the tone and sensitivity of the Minister’s remarks, as well as the good message he has conveyed. In areas such as these, it is incumbent on any Government to err on the side of generosity and to show a certain breadth of spirit—and not, as it were, to retreat into the small print or the least that they can get away with—even in difficult times. That is easy to say because, obviously, the scale of the overall outlay, and the fact that some of it is potentially recoverable, is rather small in comparison with other matters we have debated in this place. Nevertheless, it is the right approach when these diseases are as unpleasant as they are unspellable and, other than by a Welshman—I say to my noble friend Lord German—unpronounceable. They are extremely unpleasant and should not be treated lightly.
I have had some experience as a Front-Bench spokesperson across the wider aspects of the Department for Work and Pensions, where we held an annual debate on the uprating. The issues have not substantially changed—although they are, perhaps, in clearer perspective than they were—and one should be at least aware of the possibility of relating them to either a constituency or personal experience. A late kinsman of my wife was a pneumoconiosis sufferer, not through coalmining but through his work in the flour-milling industry. His lungs filled up and he died prematurely. I am sure that many people, particularly those from heavy industrial constituencies, could say that. The person I knew who was a mesothelioma sufferer was a former Member of this House. I shall say no more about that, but it is interesting that these diseases can affect people who are beyond the heavy industrial profile.
As to the substance of the regulations, I think we are doing the right thing for the reasons I have given. However, in addition to the points to which the Minister is going to respond, can he give some indication of the emerging actuarial build-up? He has already told us that the peak, sadly, has not been reached, but obviously that is subject to re-evaluation in the light of the claims experience. There will be difficult judgments to be made as to whether it is accelerating and people are presenting claims earlier or whether there is a wider aetiology of claims than was previously thought—that is, whether it is going to be more expensive or, more importantly, more extensive in terms of the number of people who are suffering. I get the impression from the figures and the nature of the debate that the picture is one of broad stability, but it would be useful to have that assurance.
It would also be useful if the Minister could say whether the way in which the system is now set up—particularly under the Health and Safety Executive—will ensure that we do not make similar commitments in relation to other long-term diseases as a result of carelessness.
My second point has already been made by other noble Lords but it is worth a moment. We all feel very strongly that there is a need for good record-keeping and a clearing house method of allocating the liabilities to insurers and employers, as appropriate, to ensure that they do not escape. I should like to make two points about that. First, that should be equally in the interests of good employers and good insurers as otherwise, because if there is an elaborate game of pass the parcel and one is the only one left standing because all the others have cleared off or ceased to exist, that is a very unfortunate position and may be disproportionate. As the noble Lord, Lord McKenzie, indicated, there are some fraught issues about the moment of onset and who is liable.
I draw the Committee’s attention to my concern that this is a somewhat wider issue—we have seen it in relation to motor insurance and the Motor Insurers’ Bureau. However, in relation to the whole field, including the pensions field, I think that many people across the private sector feel—as we have also debated—that the record-keeping has perhaps not been as good as it might have been. People may have little entitlements of which they have no continuing knowledge. There might be others who should have obligations that have somehow been lost with the passage of industrial change. That is understandable over a 40-year period. One has only to look at Andrew Marr’s recent series, “Britain from the Air”, to see how everything is different from what it was two generations ago. Nevertheless, the people, their needs and their need for support remain. It is a serious issue and I am sure that the Minister will want to attend to it.
For the moment, I think that we are content, with a measure of real consensus on this, to reflect on the situation that people and their families find themselves in, and on the need to be as generous as we reasonably and possibly can in dealing with and meeting their immediate needs and their family problems.
Lord Freud
My Lords, this has been a debate in which I think we are all in exactly the same place. It is a very difficult area, as we all know. I shall try to deal with the issues that have arisen as well as I can.
With the consent of the noble Lord, Lord McKenzie, I think that we might just park CPI/RPI in this context. We will have another chance to look at it today, another on Monday and another on Tuesday. I shall say a few words on it later, but it is one of those things that, in this context, might feel slightly uncomfortable. I am very relieved that the figures are such that we do not need that debate.
The noble Lord, Lord McKenzie, asked for some figures on payments and so forth. I can give him some up-to-date figures. The payments made in 2009-10 amounted to £42.3 million. In 2008-09—I am sorry that I am going down the years—the payments amounted to £37 million. In the current year, up to January, in combination, they amounted to £38.8 million.
Occupational Pension Schemes (Levy Ceiling) Order 2011
Lord Boswell of Aynho Excerpts(13 years, 8 months ago)
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The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud)
My Lords, I shall speak also to the Pension Protection Fund (Pension Compensation Cap) Order 2011 and the Financial Assistance Scheme (Revaluation and Indexation Amendments) Regulations 2011; and I shall first give a relatively short account of what the Occupational Pension Schemes (Levy Ceiling) Order 2011 and the Pension Protection Fund (Pension Compensation Cap) Order 2011 do. Many noble Lords will be familiar with these orders, which have appeared annually and been the subject of amicable debate in Grand Committee on a number of occasions.
I turn first to the Occupational Pension Schemes (Levy Ceiling) Order 2011. Your Lordships will be aware that the compensation provided by the Pension Protection Fund is in part funded by the pension protection levy, which is paid by those schemes eligible for the protection provided by that fund. The pension protection levy is the responsibility of the board of the Pension Protection Fund. However, the Pensions Act 2004 provides a levy ceiling that restricts the amount that the board may raise through the pension protection levy in any year.
The levy ceiling for the financial year beginning 1 April 2010 is £871,183,684. This order provides for an increase in the ceiling for the financial year beginning 1 April 2011. The Pensions Act 2004 requires that the increase must be in line with increases in the general level of earnings in Great Britain, in this case using the rate published by the Office for National Statistics for the 12-month period to 31 July 2010. The order therefore increases the levy ceiling by 2.4 per cent, bringing it to £892,092,092 for the financial year beginning 1 April 2011. This does not mean that the pension protection levy will increase to that figure. The board of the Pension Protection Fund has already determined that, for the period covered, it estimates it will collect a pension protection levy of £600 million.
I turn to the Pension Protection Fund (Pension Compensation Cap) Order 2011. The pension compensation paid to people who are below their normal pension age at the date their scheme is assessed for entry to the Pension Protection Fund is subject to a cap. The compensation cap for the financial year beginning 1 April 2010 is £33,054.09. However, people below their normal pension age are paid pension compensation at the 90 per cent rate. This means that the compensation payments for people below normal pension age shall not exceed £29,748.68, which is the 90 per cent figure.
The Pension Protection Fund order provides for an increase in the compensation cap for the financial year beginning next April. Again, the Pensions Act 2004 requires that the increase must be in line with increases in the general level of earnings in Great Britain, in this case using the rate published by the Office for National Statistics for the financial year ending March 2010. The order therefore increases the compensation cap by 0.5 per cent to £33,219.36 for the next financial year, which means that, with the cap in operation, the compensation payment for people below normal pension age shall not exceed £29,897.42. The new cap will apply to people who first become entitled to pension compensation on or before the coming 1 April.
I should point out that when the more sharp-eyed or sharp-eared of your Lordships spot the difference between the 2.4 per cent and the 0.5 per cent, that simply reflects what happened to the relevant earnings index in those three months. It just so happened, but clearly, over the period, there will be catch-ups and so on.
Lord Boswell of Aynho
On that specific point, perhaps it might be convenient to ask my noble friend whether he can confirm what I thought I heard him say—that both those figures, although they differ from each other, are derived from calculations made by the Office for National Statistics?
Lord Freud
Yes, they are Office for National Statistics figures. I think that it is the average weekly earnings figure, which is the new figure that is updated from the annual earnings index—no, it is the general level of earnings.
I turn now to the Financial Assistance Scheme (Revaluation and Indexation Amendments) Regulations 2011. Many noble Lords will be familiar with FAS; indeed, the noble Lord, Lord McKenzie of Luton, has in the past brought a number of sets of regulations on the scheme to this House and presented them most eloquently, despite the material. I hope that noble Lords will listen to me with the same patience that they extended to the noble Lord, Lord McKenzie.
The scheme provides financial help to members of qualified pension schemes who face significant losses because their schemes wind up underfunded. It is mainly funded by the taxpayer. It has never been intended that FAS should replicate what might have been provided to members had their schemes wound up fully funded. Payments made by FAS have their value protected against price inflation through revaluation before payment begins and indexation after payment begins on rights accrued after 1997. This reflects the broader legislative position. The changes being made to the FAS revaluation and indexation rules by these draft regulations are a consequence of a wider decision. Noble Lords will know that the Government intend to use the consumer prices index—the CPI—as their general measure of inflation for a range of payments. These include state pensions, statutory minimum increases for private sector occupational pensions and increases to pension compensation payments made by the Pension Protection Fund.
Much has been said about the move to the CPI since we announced our intentions. We are moving to using the CPI as we believe it is a more appropriate index, although we acknowledge that no index is perfect. Without going into the kind of elaborate detail that I think we may be going into in the next few days, let me summarise why it is the most appropriate index.
The key difference between the RPI and the CPI is what is known as the “formula effect”. Put simply, the CPI is calculated in such a way that it takes account effectively of consumers switching to substitute goods when prices rise. That consumers behave in this way is a cornerstone of economic theory, and it has been borne out by empirical research. Let me be clear that we are not talking about switching from rump steak to lamb shoulder, for example, but from rump steak that has seen a sharp increase in price to rump steak that has seen a lower one. The substitution effect is nothing more than that.
This methodology is uncontroversial, and once we accept it as preferable to the RPI’s, which the Institute for Fiscal Studies and the Royal Statistical Society do, we have accounted for 60 per cent—two-thirds—of the historical gap between the CPI and the RPI and already the CPI becomes the more suitable index. We will have the opportunity to talk about this in great detail, although I will do so now if noble Lords want.
Lord Boswell of Aynho
My Lords, I, too, am very pleased to support these regulations. The purpose of my intervention on my noble friend, for whose reply I was grateful, was to confirm that there was a principled basis for the slightly different, heterogeneous nature of the figures set, in that they all have their root in the ONS and are related to the principles of the particular component parts of these three orders or, to put it the other way round, that Ministers were not setting the rules in order to suit themselves or with the intention of saving money. Of course I accept that assurance.
I should make it clear to the Minister, if it is not already self-evident, that partly because it came in the lacuna between my Front Bench service and today, I would not claim to be very ready to sit an exam on the pension protection scheme and am less familiar with it. In relation to the cap, which if it is raised is relieving as a measure, is there an impact on a significant number of individuals or on just a handful? I would be interested in that. The Minister knows that I am now, for the first time, a pension trustee.
There is another point that he might like to say a bit about. There is concern, certainly debate, across the sector about the balance between the scheme levy and the risk-based levy and how that is to be conceived. That forms two categories. First, will he report to us on where we are on it? Secondly, given that he is, in a sense, setting limits under which the levy should be set rather than the level of the levy itself, which he said is the responsibility of the scheme, is it the case that he will stand back and allow that balance to be struck by the professionals? Does he have a view and what is the state of play on that?
Lord Freud
My Lords, again I thank noble Lords for taking such an active part in the debate and, as ever, looking at these issues in real detail. I will aim to answer as many of the questions as I can before I resort to the expedient of the letter.
The noble Lord, Lord McKenzie, is completely right about this being our last opportunity—last unforced opportunity, if you like—to do this under the affirmative procedure, so we should—and we are—taking advantage of that opportunity. He asked about the spilt between risk-based and scheme-based. Eighty per cent of the quantum is designed to be risk-based. That varies slightly, but the figures have held pretty firm over the years so, without going through endless figures, if we look at the £600 million for 2011-12, which I referred to at the outset, the risk-based element is estimated to be £480 million and the scheme-based element is £120 million.
The noble Lord, Lord McKenzie, and my noble friend Lord Boswell asked about the impact of raising the cap and about how many people are affected by it. As at January 2011, 92 scheme members receiving compensation were affected by the cap. The noble Lord, Lord McKenzie, asked about time in assessment. The real driver in that is legal action, which can take many years. As he saw, that is connected to the change in the Pension Bill. The problem we have is that resolving some of these issues can take a lot of time. On top of that, assessment is often delayed by poor scheme data and uncertainty about what the scheme rules are. It is not people being dilatory; there are genuine problems.
My team has just informed me that, in opening, I made a mistake. I said that the newer cap applies to people entitled to compensation before 2011 and I should have said after 2011. I am sure noble Lords knew what I meant. I apologise to the Committee.
The noble Lord, Lord McKenzie, asked whether the cap was overrated if it was linked to earnings. That is not the case because, to take an example, the comparator is the position of a 50 year-old at the insolvency of the employer. We want someone whose employer goes bust this year to be capped at the same relative level as someone whose employer went bust, for example, in 2005.
The calculation of the levy formula is something for the board of the Pension Protection Fund. The proposals concern the distribution of the levy between schemes and not the overall quantum. Will individuals be worse off due to the switch from RPI to CPI? The current market conditions mean that the cost of providing RPI or CPI are equal, but we have to recognise that there may be a divergence in future and we shall review that over the summer in the light of emerging evidence.
The noble Lord, Lord Stoneham, asked about indices. Without going into a full-blown techie analysis, the question was about whether we can make CPI a better fit with pensioner inflation. The ONS is working to include owner-occupied housing costs in its statistical programme. It is a very active programme. Rather than using mortgage costs, according to its research, the likely outcome—I may be jumping the odd hurdle to reach that conclusion, but bear with me—would be to take the cost of an average house and see how that moves up and down. I cannot see that happening much before two years, but an active process is taking place and the ONS will work very closely with European statistical organisations because it would need to be a general move.
One of the most interesting things is that the CPI has been adopted as the main measure, certainly for comparative purposes in Europe. The Americans took the decision to go down this route because of the geometric approach, which basically gets elasticities closer to one, which reflects substitution, as opposed to any elasticities closer to nought, which do not show much substitution, and that is seen in the arithmetic mean used mainly in the RPI. In the CPI, interestingly, about 70 per cent is done geometrically. The other 30 per cent of goods, which are hard to substitute—oil, for instance—are left at that low-elasticity arithmetic mean. We will have more of that next week.
The noble Lord, Lord McKenzie, asked whether the implications of this switch to CPI mean that some FAS members would find that the total value of their protection from the UK Government is reduced to a level that the European Court of Justice indicated would be below the minimum lawful percentage for protection. Perhaps I slightly overinterpret the question, but we have looked at that closely and we believe that the Government continue to meet their obligations under Article 8 of the European insolvency directive.
Pensions Bill [HL]
Lord Boswell of Aynho Excerpts(13 years, 8 months ago)
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Lord Freud
My Lords, on Tuesday we discussed the possible aggregation of many jobs for credit towards the basic state pension. I admit to being indebted to the ever persuasive arguments of the noble Baroness, Lady Hollis, about the effect of portfolios of many jobs, especially in rural communities, and her concern that as many low earners as possible should be able to qualify for auto-enrolment and an employer contribution.
I also note the wise cautions of the noble Lord, Lord Boswell, on Tuesday about the potential effect on employers—where aggregation is mooted—and on the labour market. As I said on Tuesday, I am sympathetic to the principle of aggregation for basic state pension purposes. I am cautious but optimistic that this could be possible in the new world of the universal credit. This is because, if Government systems can track information for universal credit, it may not be a huge leap from there to having national insurance contributions or making credits on a state pension record. However, we are now about to discuss a somewhat different issue—that of the aggregation of earnings from many jobs in relation to auto-enrolment into workplace pensions. I need to emphasise again that it is important to encourage part-time jobs and to look for a way of aggregation. However, there are greater barriers in this area than there are in the area of the state pension in terms of aggregation. That it is more complicated was stated by the noble Baroness, Lady Hollis, in her speech.
The main and unique barrier is a need not only to aggregate earnings across employers but also to apportion pension contributions between those different employers. This is quite a problem in terms of employer burden cost and complexity, which we would need to find a way to resolve. The automatic enrolment duty falls on each employer for the people they employ. There is no sharing of the duty between employers. If a person has two jobs, each of their employers is responsible for enrolling them as the legislation is presently set up. Workers who do not earn enough to qualify for automatic enrolment clearly may opt in. Those who have the qualifying earnings have the right to employer contributions, which is ground we went over just now.
The first amendment raised by the noble Baroness, Lady Hollis, seeks to increase voluntary pensions saving for people who do not earn enough to be automatically enrolled by enabling the aggregation of the many jobs and any earnings from self-employment for a person who also works on their own account. This would allow people who earn under the automatic enrolment earnings trigger, and opt in, to have their earnings for more than one job taken into account for calculating pension contributions. This looks like a straightforward proposal. However, there are considerable practical problems that would, in practice, increase employer administration burden.
Let me turn to the two amendments from the noble Baroness, Lady Drake, and the noble Lord, Lord McKenzie, which seek to enable aggregation by solving one of these practical difficulties about information sharing between employers. These amendments enable earnings from separate jobs for separate employers to be added together where the person can demonstrate to the employer that they have another job with other earnings in that week or month and that they are therefore entitled to be auto-enrolled. This is a very neat amendment that shifts the burden of proof from the employer. However, it is not quite as modest as the noble Lord suggested because it does not entirely solve the issue of the employer administration burden.
It is not immediately obvious how the employer contribution could be easily calculated or divided up. No mechanism currently exists to do that. Would multi-employers share the cost of the employer contribution? If so, how would that be done? Which employer takes responsibility for paying contributions to the pension scheme? If they share the cost, how would one employer recover the cost from the other employer? If they do not share the cost, is it fair that one employer bears the entire cost and the other none of it? Overall, we cannot see how it could be done without placing a significant and unfair burden on employers. I sympathise with the intention behind these amendments in terms of those with multiple jobs, and it is certainly an issue to keep an eye on as we go forward. It clearly—and noble Lords all acknowledge this—is not feasible with our present technology; but even if it became feasible, which it very well may, moving the burden of proof on to the worker is not the way to do it.
Standing back just a little, our first priority at this point must be to ensure that employers understand, and are able successfully to implement, their duties under automatic enrolment. That is the priority. This is not the right point to contemplate introducing significant changes to those duties, and I think noble Lords today recognise that. Introducing new and significant burdens would disrupt that process. However, noble Lords have successfully put down a marker for 2017. On that basis, we do not accept the amendment and invite noble Lords to withdraw it.
Lord Boswell of Aynho
My Lords, I wonder whether I might make my contribution before the Opposition spokesman. First, I apologise to the Committee for having been late; my excuse is probably the best I have ever been able to tender, because I have just been attending a meeting of pension trustees.
Lord Boswell of Aynho
Well, they are, and it is the Conservative Party agents’ superannuation scheme, but I promise not to detain the Committee on that. I hope I would have given the same attention to anyone else with whom I was in a trustee relationship.
May I just make two points? I fully understand that the Minister was kind enough to quote my slight reservation in our earlier exchanges on related matters. The first is a note of concern: it would certainly be unfortunate if one employer were somehow to be delinquent because of the failure of another employer to declare, which had created excess over the qualifying limit. I just make that point; I am sure my noble friend will have it in mind.
The second point is intended to be more positive and it might help to inform trains of thought. One always has to be careful about these sorts of things, not least for data protection reasons. I happened yesterday to have gone to a completely unrelated meeting in this building about occupational health, which is an interest of mine. We were looking at the new construction workers’ smart card scheme. Of course, once there is something that is able to identify the individual with known characteristics—dates of birth, for example, or presumably one could incorporate an NI number—and that is portable, it is possible for that to be tendered, or even required to be tendered, through various places of work. It might be possible to aggregate electronically in that way. I just offer that to my noble friend as a way forward. I am pleased to see the noble Baroness, Lady Hollis, also nodding; at least it is a thought. We always have to be careful with these things, because there will be some people on manual, some people who do not understand and minority interests and industries. But if we can possibly start working toward some sensible protocols people could use, it would be generally beneficial.
Lord McKenzie of Luton
I wonder whether the Minister would allow me to intervene, because he challenged the description I gave of my amendment as being modest. He may have misunderstood the intent of part of it. All it was seeking to do initially was to say that if someone had qualifying earnings, with a particular employer, but not earnings that reached the trigger, and if there were a process of the employer being made aware that the trigger had been reached, the employer would automatically enrol and be responsible for contributions in respect of the earnings in that employment between the start of the qualifying earnings band and whatever that band reached. That would in a sense be stand alone for an employer. That gives exactly the same result as employees now have in being able to opt in, because if you have earnings above the threshold, but not at the trigger, you can simply opt in and get the employer contribution.
Along the way, the hope would be that, rather than relying on the activity of the employee—because we are always trying to deal with the inertia problem—you could somehow make it more automatic. It would be automatic, though, only in the sense of the employer being aware that the trigger had been reached. It would not require any aggregation of earnings by any employer. I instance how HMRC deals with notices of coding. If people have two or more jobs, on one basis or another the personal allowance is divvied up across their notices of coding—don’t ask me how. In a sense, an employer would be aware that other earnings may be involved. That sort of process could be a trigger for automatically alerting the employer that the trigger had been reached and simply then requiring them to deal with auto-enrolment on the earnings that the employee is being paid by that employer. My amendment would do no more than that.
Lord Boswell of Aynho
My noble friend the Minister said that she would have nothing from the employer. I suppose, to be pedantic, that that would be so unless the employer chose to make a contribution, but there would be no obligation on the employer.
Lord Freud
Yes, I can confirm that, although we are going to be giving everyone their pension soon if we carry on giving examples.
Lord Stoneham of Droxford
My Lords, we have had a discussion on some of the main reasons for the move in the threshold. We are understanding of that move. There are a number of reasons for it. The documentation that we have received from a number of organisations questions the rate of return on the savings of people at these levels of earnings.
We have heard mention of the replacement-to-income argument. It is almost certainly true that at these levels of earnings a lot of individuals are less prepared to save. Of course, there is also the burden of administration. I take the noble Lord’s arguments on the threshold being linked to the tax threshold. You would expect us to be committed to raising the tax threshold to £10,000. We want neither a deterrent to doing this nor a deterrent to those who are trying to improve their savings and pensions. I hope therefore that we will have a commitment to look at this each year and that it will not be related necessarily to the raising of the tax threshold, as that would take a lot of people out of the net, which is not what we are trying to do.
I accept that there is an increase in these thresholds, but I want to go back. I apologise for repeating some of the earlier arguments, but I want to make the point that there are a number of things that we need to do—or the Government need to look at—which would be helpful to people who could be vulnerable to these changes. I have mentioned the tax threshold and I hope that we will have a firm commitment on that.
Secondly, we will discuss later the pots of savings and what people will be able to do with them. If they can be brought into NEST, and if we can encourage that process, that would be a most helpful change. It would make the overall change more acceptable.
I was very supportive of the arguments on multiple earnings. It is a big issue that will grow. I am pleased that there was a commitment to 2017. We underestimate the number of women in this position and, even though we may not be able to act now, we could be saying that it is an issue that we will try to address as the new system beds in. We also want to see a degree of commitment to encouraging people to stop opting out. We will address that matter in later amendments. In the context of raising the threshold, these are a number of points that we think are important to make that acceptable. I accept that, ultimately, running through this Bill is a trade-off with the Treasury on all kinds of aspects. We must make sure that we get a good trade-off.
Lord Boswell of Aynho
Perhaps I may briefly invite my noble friend to consider one particular point about the raising of the threshold. There is no need for a commitment at this stage, although it has been implied that it will be considered. Can my noble friend give some thought to, and discuss with his Treasury colleagues, the way in which this might be introduced annually into the national consciousness? I hesitate to dangle another red herring before the Committee in the shape of the national minimum wage, on which I have some prior form. However, if we are beginning to look at the impact on labour markets of a number of items, and some of the misguided or inappropriate claims that are made, or the fact that people say, “I don’t think I can afford that anymore and I want to pull out”, it would be useful to have a national economic snapshot. Although this is strictly about the labour market and within the Minister’s remit by definition because he is legislating on it, it is part of a national economic snapshot. Some people may have noticed today in relation to the national minimum wage a suggestion with which I do not agree—that we should announce it and defer it for 12 months. I merely make the point that probably on the occasion of a Budget it would be useful to have an annual appraisal that was keyed in and could be related by the commentators to tax rates, take-home pay and so forth. It would add to clarity and transparency.
Baroness Greengross
At Second Reading, I stressed the point that one good aspect of the trigger was that it would help prevent employees and employers from making very small contributions. This is still an important point.
Lord Boswell of Aynho
My Lords, briefly before my noble friend replies and in the spirit of the questions that are being fairly put by the noble Lord, Lord McKenzie of Luton, I wonder whether the Minister could give some thought to the position of people who have not changed what they are doing—they are still doing it at the same place—but whose employment status has changed. Quickly, off the top of my head, I am thinking of two sets of people. One includes those who come in as self-employed and are then taken on by the firm as employees to do substantially the same thing. Clearly, that cannot be backdated and should not be backdated from their time as self-employed persons, but they have been there. The second case, which may be even more difficult but is at least worth rehearsing, is the question of agency workers. The employer may choose to take them on from the agency and pay a take-on fee, but they are, again, doing substantially what they were doing before in the same place as before. It is clear that they are not covered by the existing provisions, but it is not entirely clear why they should not be, at least in terms of equity.
Baroness Hollis of Heigham
That is a very interesting contribution and I hope that the Minister will follow it up. I want to put to the Minister a very simple but not obvious point. I understand why employers prefer a waiting period—obviously one is glad that it is not two years, as in some conventional schemes—but even with three months we must recognise that, given the figures on job turnover on page 103, with which I am sure the noble Lord is familiar, the median number of jobs that men and women have is 11. My previous research shows that the pattern of job turnover is different for men and women: men have more turnover in their earlier years and settle in their 40s or 50s, while women have a higher job turnover than most men by virtue of being much more frequently in and out of the labour market and more likely to re-enter into a different job. The report makes the point—although it does not back it up with research—that statistically there is not that great a difference between the two. It is worth pointing out that if somebody has 11 job changes, which is the median according to the report, having a three-month waiting period represents three years’ loss of pension contributions. Interestingly, 26 per cent of the population on this model have between 12 and 15 jobs in their working lifetime, which would mean, on average for them—if my sums are right—a loss of five years’ pension contributions. Furthermore, 15 per cent have 16 jobs or more—up to 23—which would be an average of something like eight years’ loss of pension contributions.
This is highly significant. Even reducing that by one month to two months would help; reducing it back to one month, as my noble friend has argued, would make a significant contribution for those who have staying power but none the less a rapid job turnover for whatever reason. It may be because of a cycle between self-employment and employment—take a hairdresser, for example, for whom the conditions of employment are often very obscure, whether you are self-employed or, even if you work in a salon, whether you are employed or not. None the less, the waiting period of three months can represent over your lifetime a significant loss of working contributions matched by the employer into your pension. For that reason, as well as others adduced so far, I hope that the Minister will reflect on whether he could make any movement in this direction.
Lord Boswell of Aynho
My Lords, before the Minister responds, perhaps I may briefly share with the Committee a slight concern that I have, which is very much subsidiary to the powerful point that the Minister has already made about the need to maintain simplicity and make the scheme doable by employers. Behind earlier remarks that I made, which I shall not rehearse, concerning agency work and self-employment, and behind the slight concerns that I have here is an anxiety about employers who are perhaps less well intentioned than those of us who were employers had hoped to be. Therefore, I stress to the Minister that it is extremely important that we monitor any devices that are used, in effect, to subvert these waiting periods. The Minister is absolutely right to introduce them to simplify the scheme but, at the same time, we need to come down very hard on people who use them as an opportunity to avoid their obligations.
Lord Freud
My Lords, I thank noble Lords for their observations and repeat how the structure works. The cycle would be starting again. However, I emphasise that we think that the group involved would be extraordinarily narrow. We could overcomplicate this issue, because in practice many employers will probably just enrol those people the following month, which they are quite free to do. They can opt in. As I said, we will be monitoring this very closely. If it becomes a substantive issue and we can see some peculiar games going on, we will have to move in and sort it out, and we will do that.
Lord Boswell of Aynho
Lord Boswell of Aynho
My Lords, I rise to move my sub-amendment, to use European parlance, as corrected by the noble Baroness’s perceptive intervention, and to speak to my noble friend Lord Stoneham’s substantive amendment and around the parallel thoughts of the noble Baroness, Lady Hollis of Heigham, on this matter. My amendment is slightly different in character, but all these amendments are about essentially the same problem. I quote, with approval, the words of the Minister only this afternoon, which I jotted down for greater accuracy:
“It is very expensive to manage small pots”.
That is exactly what the problem is about. There are a number of complexities in the consequences of this. It is expensive for employees and employers, or pension administrators. It is extremely expensive for the Inland Revenue and gives rise to lots of often misleading tax codes, which overlap and never seem to get synchronised and sorted out. It causes difficulties for taxpayer compliance and taxpayer understanding when these bits and pieces come in from sources that are probably long forgotten and do not add up to very much.
On Second Reading I quoted examples. I will be a little more pointed than I was then. They were actually my wife’s two pots of about £20 per annum and about £30 per annum. Goodness knows what the administrative cost of carrying that burden is. I am pleased to see the Minister chuckling. As I recall the situation, my wife had already consolidated a number of pension entitlements and had one go at this. She had some entitlement under the teacher pension scheme but no actual pension and she had had that out. You cannot consolidate more than once. I may have got that wrong, such is the complexity of this. In other words, there was nothing that she could really do about them. The proposals, as I understand it from my noble friend and the noble Baroness, are basically that NEST should be an optional repository to handle them. I can understand that the Minister may be a little diffident about taking it all in while he is getting this extremely imaginative scheme under way, but there is at least the potential for a default mechanism to take this over. Were my energies not to have faded, I would have sub-amended my noble friend’s Amendment 34 to read “may make regulations” rather than “must make regulations”, but let us not debate that at this hour. The idea would then be that NEST would be a place where these could be sorted out.
An alternative approach would be to enable people to have a slightly more relaxed view about taking these in cash, which is what my sub-amendment in effect proposes. One always has a whiff that the Inland Revenue has a certain concern here. I am quite sure that some elaborate scheme could be devised of tax avoidance where people could have hundreds of miniature pots and somehow take it all out in cash with the full benefit of the accrued tax reliefs, ending up with a fortune. Perhaps this has never happened, but I am quite sure that the Inland Revenue would be there alert to make sure that it did not.
I also feel, in relation to the suggestion made by the noble Baroness, Lady Hollis, and the thinking behind it, that it is not absolutely essential that this should be done by NEST. It could be that, if the rules were made more flexible, existing administrators could take this on. I am pleased to hear her acknowledging that. I do not wish to create an unnecessary controversy in the Committee, but I have a feeling that the words “any willing provider” might even be considered. If, for example, in a case such as that of my wife, where there was an entirely trivial and ridiculous entitlement that could have been bolted on to her existing private pension arrangements, somebody could say, “This is the value of the scheme; will you take it over?”, and pay it possibly as an agent—I am not concerned with the legal basis of this—I think that we would be making some progress.
I feel strongly about two things. The debate in this Committee has rightly focused on mini-jobs. We are now talking about mini-pensions, which are often, but not always—and it is not contingent on income or anything else—a by-product of mini-jobs, and good luck to people. They may in certain cases, though not in the case of the lady whom I mentioned, be quite central or disproportionately important to the income or the top-up of income of the individuals involved. We should be moving towards a system that is less complicated, more flexible and less obsessed with the possibility of theoretical minor difficulties with tax. We should somehow cut through the legal thickets and deliver something that is cheaper, easier to understand and worth having in the hands of the beneficiaries who have properly earned it.
Baroness Hollis of Heigham
My Lords, I have high hopes for the thrust behind these amendments, given that all sides of the Committee today share a similar take on the problem. I know that the Minister shares this view and I hope that he can give us some positive indications of ways forward. I am particularly happy to follow the noble Lords, Lord Stoneham and Lord Boswell, on this.
We discussed earlier the question of the number of job changes and we know that, as I said, the median number of job changes is around 11—25 to 26 per cent will have between 11 and 15 job changes and others will have even more than that. That means, depending on the rules of individual schemes and how long people are required to work before they can join a scheme—it could be two years or up to two years, or your contributions could be returned to you and you might decide to hold them in a pot—that it is likely that low-paid employees and some not necessarily low-paid employees, but people who have moved a lot in their first five, 10 or 15 years of earning, will build up some pension entitlement in five of those jobs. At, say, £11,000—half women’s average earnings—with a fairly conventional DC scheme, which I know applies in a lot of the charitable or voluntary world, a five plus five would mean that such a woman would have something between £1,000 and £1,200 a year in her pot for each year in her job. That could mean that she had five or six pots of anywhere between £1,000 and £3,000, depending on the rules of the scheme. The question then is what happens to those pots.
I am cross with myself because I missed a trick and I should have put it down as an amendment, because one way to approach this, obviously, is to follow in a slightly larger form the thrust of the argument of the noble Lord, Lord Boswell, which is to raise the trivial commutation limit, which at the moment is £18,000— 1 per cent of the lifetime savings allowance. A trivial commutation limit of, say, £25,000 or £30,000 would pick up quite a lot of these very small pots without having to hassle about whether they were at or above a certain level. Of course, some providers—some banks and so on—will allow you to bring together five or six small pots and consolidate them, because they are then worth handling.
In addition, the Government propose in due course to remove annuitisation at the age of 75. However, the Treasury—bless it—has insisted on a quite absurd de minimis figure of £20,000 income. That is quite unnecessary; it merely needs to be about £8,000. Of course, if the new state pension comes into play at £140, you will not need any de minimis for failing to annuitise, because it will float you off all public funds, apart from housing benefit. Therefore, with, I hope, the new state pension of £140, not only would NEST be safe but so would all other small savings schemes. You would not then need things such as trivial commutation rules because the choice would be left entirely to the individual. We would be kicking out a lot of silly mess and tangles that have been imposed by the Treasury, which is more concerned to avoid £1 being lost through manipulation of the tax system than it is to encourage £10 being gathered into the savings system. I consider that to be really rather sad. I am sorry that I missed that point, but we will come back to the trivial commutation issue later if it seems worth doing so.
If the person in question cannot trivially commute and she is handling pots of, say, £3,000 each, she will be getting somewhere between £1 and £4 a week from each of those small pots. The Pensions Advisory Service—I should declare an interest as a board member of TPAS—has been very concerned about what noble Lords have called “orphan assets”. At the moment, a poor woman can use these small pots altogether, but she may end up with, say, £20,000 or £25,000 in her NEST pot, have three, four or five other pots of £3,000, £2,000 or £1,000 and lose all those small pots, which are above the trivial commutation figure, are too small to be annuitised and cannot be bundled together. She would effectively lose a third of her lifetime savings, even though she is on a very low income. No one would regard that as decent. Therefore, I think that she should be able to bundle or consolidate her various pots. For this purpose, I am talking about NEST but I am perfectly happy for it to be any willing provider. The important thing is that she can access all her savings.
What would be the advantage of my proposal? It is very simple. First, above all, the person in question retains the full value of all her savings, rather than possibly losing some of them. Secondly, it represents simplicity for her in retirement, as she could be handling just one flow of pension income rather than multiple flows of small pots. Thirdly, there is a sort of best-value option going on here—a version of the open-market option. In this Bill we have not yet talked about disinvestment strategies, but I suspect that she would get a better return on disinvestment were she to purchase an annuity if all these small pots were bundled together and consolidated into one scheme, rather than if she were trying to play around with various small pots to avoid losing them.
In my amendment, I stipulate that the transfer should be able to take place the year before retirement simply to recognise the concerns—they may be exaggerated but they certainly exist—among some pension funds that existing scheme providers will not want a wholesale flood of money from their schemes under management going earlier into NEST, possibly because NEST will appear so much more attractive in terms of the reduced fees that will be charged and therefore the amount that will be available for accumulation. I do not mind that, but they might, and therefore it may be a price that has to be paid.
Given the support around the Committee today, given that I know that the Minister is sympathetic to the issue that has been raised and given that we have produced two or three different ways in which we can approach this problem, I hope that we will get a sympathetic hearing from the Minister.
Lord Freud
My Lords, I accept the point that the noble Baroness makes that people lose money because of this. They have been losing money for many years. This problem has not suddenly emerged. Regrettably, because of the amount of work now under way, it would be premature for me to give any time indication about whether one could envisage some certain quick fixes that would go along with an overall strategy. It just depends. Noble Lords will understand that I am simply not in a position to say that we could apply some quick fixes along way. They may be possible but I certainly cannot indicate that that will be the case or the timing of it. I would love to be able to announce a wonderful transformation so that with one bound we broke free. But I can assure noble Lords that there is a major process in train to get a holistic solution to the issues of savings and these pots, and we are moving at a rapid speed to get that done.
Lord Boswell of Aynho
My Lords, I never mind saying this, but the Minister has given us an almost entirely satisfactory response. I can understand the noble Baroness’s desire to get on with this, so perhaps I might counsel the Minister to look at two interim approaches in parallel. First, if he could do anything along the lines of my amendment, it would help. Secondly, we should try to avoid these schemes accumulating further. If he can stop the rot and prevent any more of these little pots being created from now on or fairly soon, it would be very helpful. However, I fully understand, not least because of the comments made by my noble friend Lord Flight, that these are complicated matters. I suspect that we will have only one go at this—it probably will not be in the Pensions Bill with which we are now dealing—and we need to get it right. All power to the Minister’s arm on the overall concept, but I hope that he will remember at the same time to look either at whether existing arrangements and payments can be smoothed or at stopping the rot by preventing any additional schemes being created. However, in the spirit of what has been a very constructive debate, I beg leave to withdraw my sub-amendment.
Pensions Bill [HL]
Lord Boswell of Aynho Excerpts(13 years, 8 months ago)
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The Deputy Chairman of Committees
My Lords, I should point out that, if this amendment is agreed, I cannot call Amendment 1A, for reasons of pre-emption.
Lord Boswell of Aynho
My Lords, perhaps I may respond to the very helpful introduction by the noble Lord, Lord McKenzie of Luton, and apologise to the Committee pre-emptively, as this is my first occasion in Committee, at least at this end of the Palace. I thank him for raising matters of substantial public concern in a moderate way, and shall try to talk around them and to explain matters connected with my own amendment. It will be obvious to the more perceptive Members of the Committee that, despite the heroic efforts of the Clerks with occasional interventions from myself, in this case it probably was the printer who was responsible for certain infelicities, one of which appears in Amendment 3A, which refers to 2010. This should of course be 2020. In Amendment 4A, there are two references to 2010 which should be 2020. Though I may take the Conservative Whip, not even I would claim to wish to legislate for the past. Those will be self-evident as slips of the pen.
If we unpack the principle of this, we always begin with a troubling element to do with disturbing the contributory principle, or disturbing people’s settled expectations. In a pure world, which ours is not, we would probably wish not to disturb anything from the moment when somebody entered the scheme as a young person and was paying on a certain assumption, in the hope that 40 years later they would receive their due pension. That was perhaps the philosophy of 1948. I do not think it is the practice of 2011. It is clear that, for a whole variety of reasons, successive Governments have changed that, particularly in relation to the inexorable march of longevity and the pressures on the public finances.
I was very grateful to hear the noble Lord, Lord McKenzie, making that point specifically, and of course we all make it. As he rightly intuited, my effort is in a field which is certainly somewhat exploratory, and I am exploring it in parallel with a number of Parliamentary Questions. We do not quite know the distribution, but we do know, on the Government’s proposals, that half a million women—of course it is only women—are affected by phase 1 of this change, and then men and women are affected by the move in the overall pension entitlement thereafter. There is an inhibition because it is felt, perhaps for reasons of concern about European sensitivities, that we are dealing with all the women in one go, and then moving forward together. The Minister may wish to comment further on that in a moment.
Baroness Drake
I express my sympathy with the sentiments that concern my noble friend Lady Turner in her amendment. As we can see from the previous debate, the acceleration of the equalisation timetable is disproportionate in its impact on the poorest and on those with disabilities, many of whom will have worked in manually demanding professions. I look to speak to that issue in my Amendment 7. Although I have great sympathy with her concerns, I am not sure whether the state pension age is the right mechanism for recognising the disparity in life experience that people have, and it may take some time to reduce that disparity of experience or outcomes as a result of working life experiences. Certainly, initiatives aimed at improving health generally and reducing the disparities between socioeconomic groups and geographies—because that can be quite distinctive as well—are important, because I have a great deal of sympathy with the point made by my noble friend Lady Hollis, who said that when you look closely at the figures, certainly for lower socioeconomic groups, the healthy life expectancy rate of improvement is not as great. One does not absolutely know how that will evolve over time, which is why it is important that the Government retain initiatives aimed at reducing existing health disparities.
Flexibility in working arrangements is also extremely important because, regarding scrapping the default retirement age—of which I approve—and other stated policies to improve the working position of older people, it is one thing to have a policy but it is quite another challenge to deliver the changes and cultures in working practices at the work face to deliver the flexibility in working arrangements that you need for older people. Certainly, changing employers’ practices and attitudes is important. Those may be more effective mechanisms in reducing that disparity over the long term.
Having said that, if ill health disparity persists between socioeconomic groups, and one does not know how that will evolve—in terms of ill health the early signs are that those disparities could persist—a Government may well want to look at the qualifying age for pension credit to deal with those issues, where it is not possible for someone with ill health to address the disadvantaged-income position that they will be in. The Government should certainly remain open to that, depending on how the figures evolve.
Lord Boswell of Aynho
I wish briefly to comment on the amendment of the noble Baroness, Lady Turner. She is on to a substantive issue of concern: that there are clear occupational differences which, in a sense, mirror some of the concerns that many of us across the parties would have in relation to differential health outcomes between people with different occupations. In a sense, that supports some of the points that have been made about relative gender disadvantage. We understand why the Bill is conceived as it is, but those are issues that are entirely proper to raise in Committee.
I am not enthused by the text of the amendment, not least because I am not a Treasury official, and I notice that it provides a power to revise but does not explicitly state that there should be a power to revise downwards. Knowing one or two Treasury officials, they might have a go at the opposite. More seriously, there are concerns about whether we should differentiate the pensions and benefits system by different occupational groups, in the way that some of our continental neighbours have done. I may be old fashioned, but I would be reluctant to do that. Whether we could define the categories in any coherent way that did not give rise to further anomalies or whether this is the right approach, I am sure there is a problem which the noble Baroness is right to draw to the Committee’s attention. For example, I am sure that there are lots of issues in the construction industry or agriculture, which I know well, whereby we can try to mitigate and improve occupational health. We should do that, but I am not sure that a vehicle that is about the state pension age is the appropriate one to do it.
Baroness Hollis of Heigham
If I may, I want to use the amendment to raise an issue that has been touched on before but which needs to be re-emphasised, although I am sure that noble Lords are well aware of it. That is the differing work patterns, whether waged or unwaged, of women and of men through their working-aged lives.
We all recognise as appropriate that women, even those with children once the children are old enough, should be encouraged to enter the labour market. I have no problems with that at all; I think that it brings independence, increased income, sociability and all sorts of other life chances. Also, it encourages other members of the family to realise that work is indeed an option and appropriate for them in years to come. I have no problem with that, but that is the position of only about 60 to 70 per cent of women. When we talk about them being in work, we are including part-time work as well as full-time work. The number of women in full-time work is relatively very low—mostly among lone parents rather than married women, because married women tend to work fewer hours although more of them do some part-time work.
A group has been hinted at who are doing some of the most heavy-ended work of the lot without anything other than a most trivial benefit income attached to it. That is what I call heavy-end caring. I attach this to my noble friend's amendment. I do not have an easy answer for what should be done about it, except to say that I would like to see an age-related premium attached. Taking a woman who is perhaps in her early 60s at the moment, she is likely, if she is a carer—and several million of them will be—to be caring for someone in their upper 80s. We know that one person in three over the age of 85 is likely to suffer from dementia, which will become increasingly severe although their physical health may remain. We also know that another one of those three aged over 85 is likely to be experiencing severe physical health problems, although their longevity may expand. So she—and it will almost always be a she—will be involved in that heavy-end caring.
I am delighted that the previous Government have allowed for those doing what I call lighter-end caring of 20 hours a week to come into the NI system without payment—although, probably rightly, without paying a carer's allowance. Think about those women who currently receive a carer's allowance of about £57 a week, together with the right to earn up to £100 if they can manage it. The effect of what I call heavy-end caring—by that I am talking about 50 or 60 hours a week—is that, first, it almost certainly breaks the health of the carer. All the experience of caring is that the help of the carer suffers seriously.
Secondly, the carer’s savings run down. She is usually caring for another family member, probably her parents or possibly the parents of her husband. In order to make their life tolerable, she is using her money. What savings she may have will help to keep them afloat as well as herself. Thirdly, she will suffer, as a result of heavy-end caring, increasing isolation, so that when she comes to need care in turn there will be few people able or willing to care for her.
Finally, as a result of all that, given her caring record, she has become in the eyes of an employer someone who is tired, has been out of the waged labour market for perhaps 15 years, has poor physical health and has perhaps suffered, as a result of bereavement, from depression. She is then expected to go into the labour market, but she is effectively unemployable. Even if she were willing, able, fit, healthy and financially buoyant to re-enter the world of work, it will be very difficult for her to do so.
The women who are being asked to stay in the labour market between 60 and 65 are precisely that group who are doing what I call heavy-end caring. It is caring that gets heavier as they get older, because the person cared for is getting older and is more likely to have Alzheimer's and severe problems of longevity. I do not have an easy answer, except to say that if we cannot—as we obviously should not—keep women's pension age at 60, I would like some age-related premium or some version of what my noble friend mentioned: some recognition of carers’ responsibilities.
We are too easily assuming that women are in the waged labour market and will stay there for up to an extra six years. That is true for men; it is not true and never will be true for women who expect and embrace with grace the heavy-end job of caring which, as I said, will make them poorer, possibly break their health, may leave them isolated and almost invariably unable to re-enter the world of work at 63 or 64, when the person for whom they have cared has finally died.
I hope that, between now and Report, my noble friend can in conjunction with us think of ways to address that, because I think that those women will find themselves in a very bad situation.
Lord Boswell of Aynho
My Lords, I endorse the amendment and the thinking of my noble friend Lord German. As we begin to move towards the end of the deliberations on Clause 1, he has capped an interesting piece of architecture that has developed during the afternoon. The first pillar was set jointly, and possibly independently of each other, by the noble Lord, Lord McKenzie, and me. We are clearly the Stakhanovites of this game and we have set out to proceed by formula and on principle in redesigning the architecture of the table for the withdrawal of benefit or the increase in the state retirement pension. That is clearly one approach, which also has the consequence that my noble friend Lord Freud has already pointed out to the Committee, of substantial expense.
It will be interesting to see how further consideration of the Bill unfolds, not only this afternoon, but one way to mitigate that might be some conjunction of large figures in terms of income, some other benefits being reshaped or males being asked to pay earlier, if that were possible, to try to balance those large aggregates. I understand that that is at least one approach.
Then, if I may put it this way, there was the approach of the noble Baroness, Lady Turner, of looking at pension credit, because it is the keystone in the middle. That is also using a piece of architecture which is already in being. Because it is income-related, or means-tested, if you want to put it the other way round, that is a way to deal with it for a lot of people who, as we have all acknowledged in this Committee, are most seriously affected. We now come to the other side of the pillar in the suggestion of my noble friend Lord German of what might be termed a targeted scheme which, as he said, might cost three and seven pence, or thereabouts, if that is all that the Treasury could provide, but would be designed to look at the specific problem for an age group that we have all identified as being particularly heavily affected, although that is mitigable in certain cases to see what could be done.
It may be that, on reflection, that is the most sensible approach for the Minister. Certainly, his most sensible short-term strategy would be to say that we will reflect on these things, that there are problems and that we need to think further about how best we might deal with them. If I implied, in having bound myself and the Opposition spokesperson together as Stakhanovites, that my noble friend Lord German was in any way a slacker, the way that he set out the different options was appealing and, I thought, covered most of the field.
I throw one specific point into the pot for the Minister's consideration. I do so tentatively, not least because it breaks some of my precepts about differential arrangements, but I have always felt strongly that one of the impacts that is underdescribed and underconsidered in relation to state retirement, almost irrespective of age, is the substantial hurt that it represents not merely in the receipt of a benefit that is taxable, but in relation to the withdrawal of an obligation to pay an employee national insurance contribution, because that can have a substantial effect.
I remember looking at my payslip and saying that the withdrawal of the NIC is worth nearly as much to me as is my state retirement pension. In my case, that is on a 40 per cent rate of tax, but it is underdescribed as a factor. I leave this for the Minister's consideration in due course, but it might be that one way of doing that would be to say, not least because we are interested in maintaining employment wherever possible, given that this is a particularly hard-hit group of individuals that is relatively easily definable and quite small, that we might be prepared to waive the NIC contribution for the employee while they continue in employment until they reach the state retirement age, as if they had already retired.
I put that only as a consideration, but the Committee is wrestling with some dilemmas. We know where the problem lies, in a relatively small group. Other groups are affected—I am not trying to say that they are not—but we know that there is a particular problem for a small number of people. One can either adopt a large architectural solution that redesigns the system and may claw back all or part of the cost of doing so, or one can adopt a much more targeted scheme directed towards their particular problems along one or other of the lines that my noble friend so helpfully suggested.
Baroness Hollis of Heigham
My Lords, I support the thrust of the amendments in much the same way as has the noble Lord, Lord Boswell. Whether this is the right way forward I do not know, but we have all identified that there is a problem. There will be a group, particularly of women—although there may be some men who currently would come under pension credit—who are among the poorest, because they are eligible for pension credit, and who have very reduced employment prospects and very poor life expectancy. That goes together. They are poor, their health is not good and they would normally have been eligible for pension credit.
Lord McKenzie of Luton
For noble Lords who were anticipating a debate around PUCODIs, I advise them not to blink. This is just a gentle probe about the effects of getting rid of PUCODIs; hopefully, we communicated the nature of the inquiry to the Bill team to make it a bit easier on the Minister’s time. Clause 2 removes the right to receive payable uprated contracted-out deduction increments from 6 April 2012. It does not, as I understand it, affect awards already in payment, so the noble Lord, Lord Boswell, can relax, although I understand that he will be CPIed on it in the future. I imagine that at the moment it will buy him a thimbleful of petrol, if that.
Let me be clear: we support this measure and consider it to be a sensible tidying-up. My probe is about what we understand to be the range of PUCODIs that would have been payable but for this abolition. The notes accompanying the impact assessments point out that the overall saving is less than £1 million—pretty small beer. For those currently in receipt, we are told that 80 per cent receive less than £1 per week, and for inherited rights the mean is about 60p per week. However, we are also told that the maximum payment is £14 per week, and £6.30 per week for inherited rights. Removing a few pence as a top-up is one thing, but taking away £700 per year is potentially something else. Perhaps amounts build to these levels only after a period of time, so maybe it is not an issue. Nevertheless, I should be grateful for the Minister’s comments about the spread of what would otherwise have arisen, to see whether there are any issues there or whether it really is de minimis.
Lord Boswell of Aynho
My Lords, the noble Lord, Lord McKenzie, has been kind enough both to mention my name and to tempt me. I shall disappoint the Committee, I am sure, by indicating that I have no intention whatever of explaining how PUCODIs work or how important they are to one’s lifestyle. All I can say is that I indicated at Second Reading, and a further reading of my recent annual pension statement appears to confirm this, that I think that I have one. However, rather in the manner of one of my masters at school who conducted a survey among the masters’ common room into the wearing of long johns in the winter and found that a significant number of people did not know, I am not absolutely sure that I have one. For the avoidance of doubt, it certainly is not in the range of £14 a week; it is much lower than that, although it is more than £1.
I simply make the point that this is an example of complexity and I am sure that we need to remove it. I am pleased to see the noble Lord who moved the amendment nodding to that. It is an example of how even people who know a modest amount about the system do not know everything that is applied. It creates problems that are almost in geometric progression: the more complex the system is, the less easy it is for people to understand it and the greater the chance of making mistakes. As one building block of the programme of simplification and consolidation, this is a modest but essential measure. I look forward to the Minister’s explanation—if he understands PUCODIs too.
Lord Freud
My Lords, I really am grateful to the noble Lord for giving me this incredible opportunity to talk about PUCODIs. I have to quote the noble Lord himself from 2007, when he said:
“This is a technical area and, despite the hour, I hope that the Committee will bear with me as I explain”.—[Official Report, 4/6/07; col. 875.]
He then gave an explanation, but I am convinced that, to his disgrace, he has forgotten every single word that he said to the Committee.
The essential point regarding the payable uprated contracted-out deduction increment is that these payments are very small. As the noble Lord pointed out, 77 per cent of recipients get less than £1 per week. Where it is in payment, it represents 0.6 per cent, on average, of an individual state pension income. Most of the people in receipt are women—93,000 out of 118,000 people are women—and the average received by women is slightly higher than by men. Bluntly, though, both are around 20p per week.
Around 6,000 of the 9,000 in receipt of inherited awards are women. The average received by women is again similar to men: around 30p per week. The original policy intention of the PUCODI was to ensure parity between those who were contracted out, and those who were not. However, as noble Lords will be aware, contracting-out on a defined contribution basis is being abolished from April 2012. The proposed abolition of new awards of PUCODIs for members of such schemes is linked to the abolition of defined contribution contracting-out. I shall not go into the detail of the timings, except to assure the noble Lord that it has never been the Government’s intention to bring the proposed legislation into force before 6 April 2012.
I am not sure that I have a reliable spread, although I am very happy to write making clear what the spread of payments is. However, given the averages we are talking about, there are going to be fairly few outliers. The point is that, as the name suggests, there is an element of choice for people when they take them. They are delaying payment of their contracted-out pension, and there is therefore an element of choice. If the loss is too much, they can start to take it, so there is an element of market balance for the outliers. I will write about that very specific point beyond the averages.
As the noble Lord said in his introduction, it is not his intention to do anything more than find out some of this detail, and I am sure that he will be pleased to withdraw the amendment.
Lord Boswell of Aynho
My Lords, I shall respond briefly to the noble Baroness, Lady Hollis, who has performed a service to the Committee in raising this issue. My immediate reaction, not least as a former small employer in the agricultural business employing casual labour and the kinds of people who she rightly described from her Norfolk experience, is that we need to think about how this burden should fall on employers if we are to do it. I shall come in a moment to the other side of the argument, but the Minister will have to tell us how this can be done. He will also need to reassure us that, even if perhaps it should not, it will not in practice act as a disincentive to employers employing these people. That is partly on the administrative side, as well as being the effect with regard to cost uplift. I am not for a moment suggesting that the right thing is for people to go into the irregular economy or that in some way we should find some kind of special deal for them because that is not what the noble Baroness is saying. However, we need to have at least some assurance that it is not going to create problems for employers, that it is manageable and that it will not have malign economic effects.
On the other hand, the noble Baroness is very much on to a point of substance. We have mentioned the word “problem”; I appreciate that that was not the context of what she said, but we should not regard part-time employment as a problem. It is a problem only if, when people would choose to be working for longer hours, it does not escalate into being able to do so, or they have not got the right bag of skills or their remuneration package is too low. We should welcome part-time employment with open arms, along with the flexibility that it brings. That is important and positive, which is why I hope that the Minister can come up with a solution.
I have one more thing to say, which is not meant to be threatening to him or anyone else. My knowledge of employment law has somewhat faded over the years and I am not too good on the equal treatment directive, but, looking at this from the perspective of human rights law, which I know a little more about from recent experience, and equality, if we do not come up with a system that provides the same functional opportunity for people who are working the same number of hours but for a number of employers as compared with those who are working for one employer, we are at some risk of being accused of discrimination. The Minister has to find a workable answer to this.
Lord Stoneham of Droxford
I support the amendment. It is related to the amendment that we will discuss in a moment about including part-time earnings to qualify for NEST. This is an important issue, and we need the Minister to look at it with a view to recognising the fact that part-time work is growing and is going to grow. There is a lot more out there in the unseen economy than we probably realise, which should be revealed as we move towards the universal credit system. We must therefore address it. As an employer myself, I have seen discrimination happen over the years. People deliberately keep employment below a certain limit so that they can avoid national insurance, and in future they will be doing this on pension contributions as well. This needs to be addressed.
I accept that there is an administration problem, but systems are improving. We should be trying to address this problem in the light of that. Because it is linked to the problem that we will be discussing on a later amendment, I am very sympathetic to this one.
Pensions Bill [HL]
Lord Boswell of Aynho Excerpts(13 years, 9 months ago)
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Lord Boswell of Aynho
My Lords, the House has just heard, with great interest and respect, two most distinguished contributions by well known lawyers on the role of the judiciary and the Bill’s impact on it. We will shortly hear from a third distinguished lawyer on the matter. I am sure noble Lords will be relieved if I say that I have neither the competence nor the temerity to engage in this argument. We have also heard from my noble friend Lord Brooke of Sutton Mandeville, who was kind enough to support me on my introduction to this House last year. He lightened the tone in the most splendid manner. It made me think that in an effort to build consensus across the coalition, if not across the House, on what is essentially a rather consensual Bill, I should declare a past interest in that my father did know Lloyd George, although they were never of the same party.
Having said that, I was reviewing, as one should, my declarations of interests. The primary one, which I do not think I have heard from anyone else, is that I am a state pensioner. This means that my wife, who is in a similar position, and I are now immune to most of the measures in the Bill. We have passed the gateway. But perhaps more materially, I am also a trustee of the Conservative and Unionist Agents’ Superannuation Fund.
Beyond that, it might be of interest to the House if I throw in the fact that at one stage in another place I handled the Front Bench brief in relation to the initial pension credit legislation. However, I find it sobering—this is germane to the case—that with the complexity of the system which we now face, even given that measure of experience, when it came to the fine points of my own state retirement pension statement I was completely unable to interpret what it actually meant. I knew something about graduated contributions but it was only this week in connection with a new statement of my entitlement for next year, and with reference to Clause 2 of the Bill, that I discovered that I had a PUCODI that I never realised I had. I am delighted to say—it is a matter of a few pence—that it will continue in the future.
I welcome the Bill—strategically, if not in every respect—in that it addresses three needs. First, it addresses the need to control the deficit, although, significantly, it will not do so initially, and not even within the period of the commitment in the coalition agreement to control it. However, it will build up to effect very significant budget savings of the order of £30 billion directly, plus tax and national insurance contributions of a further £8.5 billion over a decade. Those savings are some way away but are very significant indeed. Secondly, it begins to respond to the inexorable demographic process of an ageing but increasingly viable population with a rapid increase in life expectancy which has shaken every actuarial calculation. Remarkably, at the beginning of my political career, there were about 8 million pensioners but we are starting to talk in terms of having 14 million or 15 million within the lifetime of many of us in this House. Thirdly—this is rather qualified praise—the Bill effects some simplification in what I have already indicated is an overcomplex and unintelligible system for the lay person.
As judicial pensions have just been touched on, I shall say no more about them. I do not intend to say a great deal about the arrangements for auto-enrolment although I am pleased that they have been widely welcomed. However, although we are nearly there, some aspects of the technical alignment of this—for example, some submissions I have seen from the British Chambers of Commerce—are entirely proper matters for discussion in Committee. Another area that concerns me—although I am not saying that we should reverse this into one of the functions of NEST, which has a great deal to do—is the whole question of small pots—which I find very vexing—which have been left behind for individuals, particularly but not exclusively for women. I am aware of one in my family worth £20 of pension per annum and another worth about £35 of pension per annum. They cannot be removed on the ground of triviality as that is being claimed somewhere else but they are very untidy and the administrative costs are unconscionable. We must hope that we will return to that issue in the future. What we are doing with NEST—though it will not always be easy and will introduce a burden for employers, including some smaller employers—is broadly sensible in view of the objectives of securing greater savings and availability which the Bill sets out.
I remember from my early days in the pension credit world, to which I have referred, the moral hazard of encouraging people of modest means to save when any benefit from their deferred gratification may be matched, or even overcome, by the opportunities available—these are not related to their own saving—through means-tested pension credit. That destroys the moral basis for their contribution and may give rise to legal challenge later on. That is why I am attracted by the ideas that have been touched on in the debate, particularly by the noble Lord, Lord German, and have certainly been sketched in the press, that something should be done to consolidate the state pension at a higher actual level. Moving to a higher minimum level would provide a platform on which people’s full NEST-directed or other-directed savings could build, rather than being subverted by a means-testing system.
However, the meat of the Bill in financial and policy terms lies in Part 1 on the state pension. We know that life expectancy is increasing even faster than the assumptions of the timetable of the 2007 Act. Even allowing for a completed move to 66 for everyone, within 20 years there may be another 2.5 million pensioners. Any Government would have to address this, even if the budgetary situation were better than it is today. I therefore support the principle of bringing forward changes to the state pension age. On fairness, we need to recognise the interests of those in the active labour market—taxpayers who have to fund these pensions when they are paid—and the overall gender balance effect. These issues have been touched on.
That is not to say that there are not concerns—I share those concerns—about problems, particularly for a number of women in this transitional phase. It is simply unrealistic to pretend that any move to accelerate the system could be painless. However, we need to recognise—many of us across parties have campaigned on this for years—that the position of women in the pension system has generally been difficult. In fact, we have only just achieved 30-year entitlement. One or two cases of particular stress have been referred to—for example, women who have attained the age of 60, or will have done, who then discover that their pension is moving from them, rather like the fruit in the old parable whereby you never quite get there. I hope that in Committee we can look at some of the most direct effects, particularly on people who are seriously ill, to see whether something can appropriately be done about them. I recognise that cost is a real constraint. Trying to say that we have a problem that we will meet in full would nullify the Bill.
Another constraint which has not much been touched on in the debate is the jurisdiction of the European Court in relation to potential discrimination. Although I would not wish it to do so, the court will look seriously at the issue of not aggravating a gender imbalance. However, I should like Ministers to consider whether they could meet at least part of the cost by transferring the balance from the female gender to the male gender and making an earlier start on moving the male pension age up towards 66 before 2018. In order not to destroy the principle in Europe, this could be done by ensuring that there was a progressive reduction in the differential between the male and female pension ages—that is, the female rate of withdrawal or of moving the contribution qualifying age would always be faster than that of males. That would be a reasonable package to put to the Europeans, saying, “We have a problem. It is an historic one. We also have an overall financial problem. Can we consider doing something slowly about the male approximation to 66, to which we know, as part of our programme, the female age would approximate in due course?”. Such a proposal would be reasonable if it helped to provide some resources for the burden sharing.
The overall message from this debate is that pension legislation is complex and potentially expensive and savings are not easy to get and have to be thought about well in advance. Somewhere along the way—although, as I have indicated, I am no lawyer—the words “reasonable expectations” chime in on this. However, I congratulate the Government on the concept behind their Bill and I look forward, because the devil is in the detail, to its detailed, objective and, on the whole, broadly consensual consideration.