Housing: Underoccupancy Charge

Lord Freud Excerpts

Wednesday 29th January 2014 Lords Chamber

[Baroness Hollis of Heigham]

To ask Her Majesty’s Government what assessment they have made of the effect of the underoccupancy charge on tenants.

[The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud) (Con)]

Both an impact and a quality impact assessment have already been published, although it remains too early to say how people are reacting to this change. We have commissioned a consortium to undertake a two-year monitoring of the effects of the policy. The research will include looking at the effects of the measures on supply issues, the impact on rural areas and the effects on financial circumstances and vulnerable individuals.

[Baroness Hollis of Heigham (Lab)]

My Lords, I thank the Minister. Social security sanctions claimants and cuts their benefits if they break the rules, say on JSA, in order to change their behaviour. But the 660,000 families affected, whose existing housing benefit is being cut by the bedroom tax, cannot change their behaviour because there is nowhere smaller for most of them to go. Two-thirds of them are, in any case, disabled, and may need the extra space. Discretionary housing payments, on which the Minister properly relies, can help only a minority even of disabled people. Does the Minister really think it fair to sanction existing tenants for misbehaviour when they have not misbehaved and when they cannot change their behaviour? Are we not punishing people who have done no wrong but who, as they face eviction, are having wrong done to them? Is that now social security’s definition of social security?

--- Later in debate ---

[Lord Freud]

My Lords, I must make clear that the removal of the spare-room subsidy is not a sanction. The numbers are down from 660,000 to 523,000, which may indicate some behaviour trip-change, as people move to smaller places where they can. The self-declared proportion of disabled people is two-thirds, but when you look at the DLA figures it is 17% of the total. We have raised the amount of DHPs to help with the transition; we have £180 million. The signs at the moment are that there will not be a demand for all of it.

[Lord Martin of Springburn (CB)]

My Lords, it is bound to be the case that when tenants vacate a flat or a house, some of the properties will remain empty in parts of the United Kingdom. Will he make sure that records are kept of the cost of their upkeep, and also protect them from vandalism?

[Lord Freud]

My Lords, we are having an intensive review of what is happening. Clearly, there are a large number of people—1.8 million—on the waiting list who would welcome a place to live when it is vacated. We can also look to move some of the people who are living in overcrowded social accommodation; that is a large figure that I discussed with the House yesterday. That will give them some relief.

[Baroness Quin (Lab)]

Will the Minister confirm that discretionary housing payments can cover only a fraction of the losses involved for households as a result of this measure? Research shows that it is of the order of only 6%.

[Lord Freud]

My Lords, clearly people will respond in different ways, which is one of the things that this policy is intended to bring about. The area with which the noble Baroness is closely associated, Gateshead, spent roughly 69% of DHP in the first half-year and put in an application for further DHP that we were pleased to match with another £130,000. This meant that it could spend roughly the same amount in the second half of the year as in the first. That contrasts with the area that the noble Baroness, Lady Hollis, is very closely associated with. It has spent 58% of its DHP. I have not seen its application for further DHP. There is a bidding fund of £20 million that I would like to get spent. Norwich has until Monday to put in that bid, and I hope that the noble Baroness will use her very considerable energies to make sure that it does.

[The Lord Bishop of St Albans]

My Lords, with the Cambridge Centre for Housing and Planning Research showing that 42% of tenants in some parts of Wales, north-east England and north-west England think it unlikely that they will be able to pay their rent in full, what assessment have Her Majesty’s Government made of the implications of the introduction of the charge? In particular, what contingency plans do they have in case that research proves to be true?

[Lord Freud]

My Lords, the way in which we are handling the transition is to make sure that there are adequate discretionary housing payments. That is why we raised that figure. We know that people are making adjustments, which will take time and need funding.

I am very pleased to see some of the innovative ways in which local authorities are responding to the challenge. Places such as Warrington and Salford are converting empty office space. They are purchasing and improving long-term empty two-bedroom homes. Derby has a home-release scheme that provides tenants with money to move—£500 for removal costs, for example. Many local authorities have revised their strategies to allow people with arrears to move, which was a block for some people. We are getting the kind of creative response from local authorities for which this policy asked.

[Lord Lexden (Con)]

My Lords, the party opposite says that it wishes to control welfare spending but believes that this policy should be scrapped. How does my noble friend think that equivalent savings could be made?

[Lord Freud]

My Lords, I have noted that the party opposite has said that it will be tougher on welfare than we are. If it is going to take £500 million of savings and put them back, and then risk matching that and paying the equivalent amount in the private sector—adding up to £1 billion a year—I do wonder where it can get that money back out of the welfare system.

[Baroness Lister of Burtersett (Lab)]

My Lords, almost a quarter of a million children are in households whose benefit has been reduced because of the bedroom tax—we will be debating this later today. What impact will this have on the Government’s child poverty strategy?

[Lord Freud]

My Lords, we monitor child poverty very closely. I am pleased to say—and as the noble Baroness knows perfectly well—that we now have lower relative child poverty and poverty than we have seen for a very considerable time. We will go on monitoring that figure.

Housing: Underoccupancy Charge

Lord Freud Excerpts

Tuesday 28th January 2014 Lords Chamber

[Baroness Quin]

To ask Her Majesty’s Government what recent discussions they have had with local authorities about the costs associated with implementing the underoccupancy charge.

[The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud) (Con)]

Following discussions, we provided £4 million in 2012-13 and a further £7.5 million in 2013-14—£11.5 million in total—to local authorities for the additional costs associated with the implementation of the removal of the spare room subsidy. These figures include both the direct and consequential costs—that is, the costs of notifying claimants, collecting relevant information and changes to IT systems, and other associated costs such as administering additional applications for discretionary housing payments and the provision of housing options advice.

[Baroness Quin (Lab)]

As the Minister knows, local authorities are very much at the sharp end when having to deal with the hardship and distress caused by the bedroom tax. Has the Minister looked at the results of the survey by the Local Government Association released just three days ago? They show that local authorities may well end up picking up many of the costs associated with these welfare reforms, which in turn will be at the expense of other important local services. Will the Minister undertake to look very carefully at the results of this survey, meet local authorities and seek to tackle the problems that have been so clearly identified?

[Lord Freud]

We meet local authorities very regularly. We hold meetings with them both at my level and at official level to make sure that we understand their issues and that we deal with them. Clearly, under the new burdens doctrine we are obligated to pay them any costs associated with administering this policy.

[Lord Geddes (Con)]

Can my noble friend advise the House of the extent of overcrowding in the social sector?

[Lord Freud]

Clearly, one thing about this policy is that it makes properties that are underoccupied available for people who are overcrowded. According to the English housing survey, the figure for overcrowding is about a quarter of a million. Under the 2011 census, the figure was higher, going up to a third of a million—361,000.

[Baroness Hollis of Heigham (Lab)]

My Lords, overcrowding is essentially a London problem, but the local authorities most affected are not London authorities; they are in places such as the north. I am sure that the Minister respects the facts on that and will share his information with the House. Does he agree that the problem that local authorities and housing associations face is that there is an absolute shortage of small accommodation to which people can move? Does he therefore agree that it would only be fair, right and decent if people were sanctioned by the bedroom tax only if they refused an acceptable alternative offer of smaller accommodation?

[Lord Freud]

My Lords, less than half the overcrowding takes place in London. More than 30% of properties are actually one-bedroom and 108,000 have come up. We are adapting to the transition by using the discretionary housing payment system. The recent data on discretionary housing payments show that that is exactly how local authorities are using that money.

[Baroness Sherlock (Lab)]

My Lords, the Minister mentioned discretionary housing payments. The LGA survey says that 81% of authorities said that the number of applications for DHPs had increased greatly between April and November 2013 and that the social sector size criteria topped the list of reasons for this. The LGA has made the point that there are some areas where there is simply not enough accommodation, and therefore the amounts of money the Government have made available are not enough. The tenants are suffering and the local authorities are picking up the tab. Will the Government commit to reviewing this policy and giving local authorities and tenants the help they need?

[Lord Freud]

My Lords, we have a high level of discretionary housing payments, running at £180 million. More importantly, £20 million of that is to be bid for. I have currently had 67 bids and we are paying out. I am not sure whether local authorities will actually be using up all the discretionary housing payment at their disposal. As noble Lords know, a review is going on. I will be able to publicise the interim findings in the spring and the final version will appear next year.

[The Lord Bishop of St Albans]

My Lords, as affordable rental properties in rural areas are in such shortage, will the Government extend the scheme, which currently applies only to the 21 most sparsely populated districts, and allow more local authorities to use discretionary housing payments to help retain more couples and families in their homes?

[Lord Freud]

My Lords, that is exactly what the discretionary housing payment is for. It is for local authorities to take decisions, based on their local knowledge, so that they get the funds to the right people. The emerging signs are that we will not spend all the discretionary housing payments this year. I am, however, making sure that a substantial amount of discretionary housing payment goes out next year, for which the total figure will be £165 million.

[Baroness Bakewell of Hardington Mandeville (LD)]

My Lords, some households with a disabled family member who were allocated a larger property which had been adapted using a disabled facilities grant, are now required to move due to the size criteria changes. Does the Minister think that this is a good use of scarce resources?

[Lord Freud]

One of the fundamental objectives of providing discretionary housing payments is to make sure that where there are significant adaptations in homes for disabled people there will be discretionary housing payments for those people.

[Lord Campbell-Savours (Lab)]

Has the Minister ever stopped to consider the personal distress caused to families who are forced to move because they cannot afford higher rents?

[Lord Freud]

My Lords, we naturally look at these policies with a view to their impact. At a time of very scarce housing, we are under huge pressure to find appropriate homes for people. Everyone takes decisions to move to reflect their circumstances. It is no different in the social sector than elsewhere.

Employment: New Jobs

Lord Freud Excerpts

Monday 27th January 2014 Lords Chamber

[The Earl of Courtown]

To ask Her Majesty’s Government how many new jobs have been created in the private sector for each job lost in the public sector since 2010.

[The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud)]

My Lords, figures released last week show that since 2010 the number of people in work has increased by 1.3 million, bringing total employment to a new record high of 30.15 million. The latest private and public sector employment figures, which were released last month, show that since 2010 the rise in private sector employment is more than three times the fall in public sector employment: the number of public sector jobs has fallen by 451,000, while nearly 1.7 million jobs were created in the private sector.

[The Earl of Courtown (Con)]

My Lords, I thank my noble friend for that good news. Is he aware how noble Lords on all sides of the House consider the importance of youth unemployment? Will my noble friend explain to the House what further actions Her Majesty’s Government are taking to reduce those figures further?

[Lord Freud]

Youth unemployment is clearly a critical part of our strategy. I am pleased to be able to say that the number of youth claimants for JSA went down this year—by 105,000—to 315,000, which is an enormous percentage change but it has been going down now for 19 consecutive months. Long-term youth unemployment has also been going down at a very sharp rate, and the number of young NEETs is the lowest for a decade. We have been pumping up the number of apprenticeships, with 1.5 million places created; work experience is vital—there are 113,000 places. The sector-based work academies are all pushing youngsters into the employment market. As noble Lords know, the key measure I always use is that we manage to make a turnaround in the number of youngsters out of work and out of education, which rose through the boom years of the previous Government. We have now turned that round.

[Lord Lea of Crondall (Lab)]

Will the Minister repeat the figures he gave in terms of full-time equivalents?

[Lord Freud]

The figures I have are the actual figures: the number of youth claimants is down, by 105,000 in the year, to 315,000.

[Baroness Neville-Rolfe (Con)]

My Lords, the figures on unemployment, especially what the Minister has said about young people, are very good. Will my noble friend comment on the regional spread of the new jobs and on which industries and sectors are benefiting from this good news?

[Lord Freud]

I am pleased to say that the regional position is pretty balanced. During this quarter, employment rose in virtually every UK region, with one exception. The north of England and the Midlands are doing particularly well. If one looks at the balance between the north and the south, since the election there have been 360,000 extra private sector jobs in the north—to take those four regions together—and 420,000 in London and the south-east.

[Baroness Sherlock (Lab)]

If that information is right, can the Minister explain the report from the Centre for Cities, which shows that four out of five private sector jobs are now created in London? For example, private sector employment grew by 2.8% in London year on year, but it fell in Sunderland and in Bradford it fell by more than 5%. Do the Government have a strategy for jobs north of, say, Witney?

[Lord Freud]

I hope that I made it very clear to noble Lords that this is a very widely spread recovery, that the north is doing very well and that the noble Baroness is misrepresenting the actual figures.

[Lord Purvis of Tweed (LD)]

My Lords, with regard to some of the information that has already been cited, is it not exciting news that the Edinburgh economy is doing particularly well and employment levels in Scotland are also successful? Would my noble friend agree that this shows that, for Scotland, Liberal Democrat economic policies, of course made in partnership with friends on the Conservative Benches, are successful and are making a positive impact on the lives of people who are now in jobs?

[Lord Freud]

My Lords, we have a widely spread recovery, which is touching all the regions, as I said. To pick up a point that I may not have dealt with adequately, these are full-time jobs. More full-time jobs have been created over the past year than total jobs; in other words, we are reducing very slightly the number of part-time jobs, if that is the full-time equivalent. This is a widely spread recovery of jobs—long-term jobs, female jobs, regional jobs, young jobs. This is good news.

[The Countess of Mar (CB)]

My Lords, would the Minister care to comment on the report in today’s press that British apprenticeships are being advertised in Romania?

[Lord Freud]

My Lords, I cannot control where people advertise anything.

[Lord Hughes of Woodside (Lab)]

While it is understandable that the Minister takes great pleasure from the increase in private sector employment, does he not accept that there is something Orwellian about his response—namely, private sector jobs good, public sector jobs bad? Has he no conception of the damage done to people’s lives by the vast decrease in public sector work?

[Lord Freud]

My Lords, the point that I have been making is that those jobs lost in the public sector have been more than replaced—by a factor of three—in the private sector right the way round the country. That includes the regions as much as the south. Let me make a point about efficiency in the public service. The size of the workforce has decreased by 15% since 2010, so the Civil Service is now the smallest since the Second World War, but output has not decreased. Productivity in DWP, for example, has been steadily improving, and improved by 12% in 2011-12.

[Lord Eatwell (Lab)]

The Minister has referred continuously to “good news”. He has just referred to issues of efficiency in the public sector. Will he refer to the collapse in productivity in the private sector, which is the counterpart of the high level of employment, as also good news?

[Lord Freud]

Well, my Lords, I have very good news for the noble Lord. We are currently restructuring the benefits system to help with that productivity issue. One of the things that universal credit does is to make sure that we have as flexible a labour force as possible. That is something that employers around the country welcome.

[Lord Roberts of Llandudno (LD)]

As we welcome those throughout the European Community who come to work in the hospitality industries—I come from a seaside resort—what is the Minister doing to encourage UK youngsters to take up jobs in the hospitality industry?

[Lord Freud]

My Lords, one of the most enthusiastic sectors to adopt the sector-based work academies was the hospitality industry. The industry has a programme to make sure that people have training, work experience and then a chance of a job, and that has been going very well in that particular sector.

[Baroness Armstrong of Hill Top (Lab)]

My Lords, will the Minister reconsider his views about all of the regions? I come from the north-east and I go back to the north-east every week. I have invited him to the north-east to see what is actually happening. The north-east has lost a significant number of public sector jobs. Yes, it has seen the creation of part-time and full-time private sector jobs, but it still has double-figure unemployment rates.

[Lord Freud]

Clearly, my Lords, there has been the most enormous recession, and that was built under the previous Government. To remind noble Lords, the latest ONS figures for the 2008 recession show that GDP fell from top to bottom by 7.2%. That compares with the 1930s, for which the NIESR show a fall of only 6.9%—it was worse than the 1930s, a terrible smash. We are pulling it back and the figures in the north and round the rest of the country are showing an improvement. In all of those regions the private sector improvement well outweighs the necessary reduction in public sector jobs.

Pensions Bill

Lord Freud Excerpts

Monday 20th January 2014 Grand Committee

Moved by

[Lord Freud]

62F: Clause 38, page 19, line 38, leave out subsection (4) and insert—
“(4) In subsection (5), in the substituted subsection (2)—
(a) in paragraph (a), for “or a hybrid scheme, or” substitute—“(aa) becomes a defined benefits member, with effect from the closure date, of an automatic enrolment scheme which is a hybrid scheme,”;(b) after paragraph (b) insert—“(c) becomes a money purchase member, with effect from the automatic enrolment date, of an automatic enrolment scheme which is a hybrid scheme.””

--- Later in debate ---

[The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud) (Con)]

My Lords, I think confusion may have arisen between the discussions that the previous Labour Government had on this and the discussions that we had in Committee on the previous Pensions Bill, which introduced NEST, or at least some revisions to it. I shall check the Hansard record but I distinctly remember discussing this point with the noble Lord, Lord McKenzie, and making an astonishingly similar argument about the importance of making sure that NEST got its primary role right before we moved on to other aspects and transfers. I shall look forward to writing him a letter—I hope—pointing him to the exchange that we had three years ago.

[Lord McKenzie of Luton]

I look forward to the letter and its contents in due course. We were relaying the origins of NEST in the first place. These issues—the restrictions—were not intended by the then Government that introduced it to avoid NEST being distracted.

Housing: Underoccupancy Charge

Lord Freud Excerpts

Monday 20th January 2014 Lords Chamber

[The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud) (Con)]

My Lords, as restrictions on entitlement to housing benefit based on accommodation size have been in place in the private rented sector since 1989, the local housing allowance introduced in April 2008 could be phased in. We have no plans to make similar arrangements for the removal of the spare room subsidy, which has already been applied, as it delivers a consistent approach to the treatment of housing benefit claimants across both the private and social rented sectors.

[Baroness Hollis of Heigham (Lab)]

My Lords, the sectors are very different. The private rented sector seeks to make profit out of people’s housing benefit. That does not apply to social housing. Social tenants hit by the bedroom tax, through no fault of their own, are now trapped. They are unable to move to smaller social housing as it does not exist. They are unable to move to private housing because private landlords are rejecting or evicting them. They are unable to get discretionary housing payments because most are refused. Debts are mounting and lives are being destroyed. Will the Government please at least apply the bedroom tax only to new tenants who can cope with the new rules, as in 2008, perhaps over a transitional period until we have enough new housing to meet housing need?

[Lord Freud]

My Lords, the number of transfers into one-bedroom social rented accommodation in the past year is running at 108,000. There are more people in the private rented sector, not fewer, and DHPs are—if anything—underspent. Our indications are that they will be underspent. I am pleased to say that in Norwich, with which I know the noble Baroness is very closely associated, the spend was a little higher: £166,000 in the six months, against the allocation of £288,000. I am puzzled that Norwich has not put in a bid for additional funding. I urge it to do so because it has until 3 February to do it.

[Lord Dholakia (LD)]

My Lords, will my noble friend indicate what discussions are taking place with local authorities to ensure that they and the public are aware of the discretionary housing payments?

[Lord Freud]

My Lords, we have a range of meetings and interactions with local authorities. In particular, at the moment we now have a £20 million discretionary fund on which they can bid. I am hoping to get as much of that money to them as possible.

[Lord Jenkin of Roding (Con)]

My Lords, the House is becoming very well aware that the party opposite does not approve of the removal of the spare bedroom subsidy. Could the Minister confirm that if the policy were reversed, it might cost as much as £1 billion over the next two years? Would the Opposition not be a little more convincing if they could give us some idea of how they would replace that?

[Lord Freud]

My Lords, this is a substantial saving, as my noble friend says. Our central estimate is that we will save £500 million a year on this programme, which makes it an important contributor to the Government’s deficit plan. If the Opposition maintain their policy, they need to look at how to find that money back. Not only that, they will run the risk of having to have a similar policy in the private rented sector.

[Lord Best (CB)]

My Lords, has the Minister had a chance to read the report from the Defra Select Committee, chaired by Anne McIntosh MP in the other place? It recommends that rural communities should be exempt from the bedroom tax because it is so difficult for people in rural areas to move down to smaller premises. Staying put means they can be paying £25 a week that they were not paying before, creating a great deal of hardship. Has the Minister had a chance to read that report and react to it?

[Lord Freud]

My Lords, I have looked very closely at the issue of rural communities. That was why, this year, we put in an extra £5 million a year to handle the subsidy arrangements, which buys out a substantial proportion of the cost of this policy.

[The Lord Bishop of Ripon and Leeds]

My Lords, what flexibility is there for housing authorities in the implementation of the underoccupancy charge in circumstances such as when a child dies and the house thereby becomes underoccupied?

[Lord Freud]

The basic principle here is that when a child dies or there is a death, there is a 12-month run-on so that tenants remain entitled to that room for that full year. However, the underpinning support for making sure that these cases of hardship are managed is clearly the discretionary housing fund, which is running at £180 million this year and will be at £165 million next year.

[Baroness Sherlock (Lab)]

My Lords, the Minister has failed to address the core point made by my noble friend Lady Hollis and the noble Lord, Lord Best: why are the Government penalising people already in social housing, who took out their contracts when the current system was in place and before the bedroom tax came in? Why could they not protect people, as this House asked them to do during the passage of the Welfare Reform Act? If all else fails, will he join us in our costed commitment to abolish the bedroom tax?

[Lord Freud]

My Lords, the costings of the Labour Party in this area are fairly extreme because it seems to have used the same money many times over. This is a savings measure introduced in the emergency Budget, which applies to the existing case load and gives 33 months’ notice. The comparison is with the LHA changes introduced at the same time, for which there was less notice: 21 to 33 months. We have put in as support the discretionary housing payment system, as opposed to transitional protection.

Pensions Bill

Lord Freud Excerpts

Wednesday 15th January 2014 Grand Committee

Debate on whether Clause 27 should stand part of the Bill.

[The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud) (Con)]

My Lords, the purpose of this clause is to provide for the abolition of the assessed income period in pension credit cases from April 2016. I will just add that I was most welcoming of the reinforcements I had temporarily.

The assessed income period removes the requirement for certain people to notify the department of changes to their retirement provision for a defined period. The assumption when the assessed income periods were introduced in 2003 was that pensioners were more likely to have relatively stable incomes and capital, so a lighter touch to reviews was therefore considered appropriate as a way to minimise intrusion and ease the administrative process.

The logic behind the policy is clear, but operating the system over the past 10 years has shown the reality to be somewhat different. The operation of assessed income periods has proved to be more complex and intrusive for both staff and the individual than anticipated. For example, people can report a change during an AIP and, as a result, their award can be increased. However, because we have to look again at all of their retirement provision, not just the reported change itself, it does not always lead to a change in the award. This is nugatory work for the Pension Service and is confusing for recipients.

More importantly, our assumptions about the stability of pensioners’ incomes and capital have not stood the test of time. Our analysis shows that circumstances change and fixing retirement provision for such a long period leads to inaccuracies in benefit awards, which then remain in the system for some time. Based on a sample of around 100,000 cases that have been reviewed, the pension credit award required updating in 54% of them, and in 36% of cases the award was reduced.

In the current economic climate, we believe it is right that benefit awards reflect the individual’s current financial circumstances. We therefore propose to abolish assessed income periods by removing them for new claimants and phasing out existing fixed-term ones from April 2016. It is estimated that this measure will result in steady-state savings in AME of around £80 million per year in the long term. We recognise that removing assessed income periods will require pension credit recipients to report relevant changes when they occur—however, this will not necessarily result in increased levels of contact for all recipients.

We will be working with stakeholders and partners on communications products to ensure that people are clear about what this change means and what they will need to report and when. For example, there will be no need to report changes in capital provided it remains below £10,000. Currently, only 12% of recipients—around 290,000—have capital above that level. Above £10,000, changes are only relevant where they cross £500 bands. Annual increases in pensions will be taken into account automatically, as now, so only new income streams will need to be reported. It is also worth remembering that the impact of reporting changes will depend on individual circumstances and that not all will lose out. Some may see an increase in their award, while some may not experience any change at all.

Pension credit is a safety-net benefit designed to help the poorest pensioners, and as such it is right that it takes account of the income and capital people have access to. Through the abolition of the assessed income period, we will ensure that pension credit awards are accurate and that, in future, our limited resources are spent on those who require the most support. I beg to move that Clause 27 stand part of the Bill.

[Baroness Hollis of Heigham (Lab)]

My Lords, I thank the Minister for his explanation of this clause. I would like to explain why I and my noble friend Lord McKenzie have raised this on the stand part debate so we can discuss the issues. As the Minister said, this clause proposes to abolish the current assessed income periods for pensioners claiming pension credit. At the moment, pensioners are means-tested for pension credit at their retirement at 65; then at 70; then again at 75 and not thereafter. I am genuinely surprised and, actually, disappointed that the Government want to make a quick saving of £82 million gross—as the Minister said—or some £60 million-odd or £65 million or so net by introducing annual means testing, although excepting current pensioners over 75 who may be in receipt. It will affect 1 million pensioners a year up to 2020.

Why do we have the current rules? My noble friend Lord McKenzie was instrumental in further enlarging and developing them in 2008. Very wise he was, and very good they were—of course. I hope Hansard records the “Hear, hears” to that. In particular, he introduced the indefinite assessed income period for no means-testing for those reaching 75. In my mind, that was a most important consideration, the one I am most concerned about. Essentially, we know that pensioners loathe means-testing so much that—either through ignorance or stigma—a third do not now claim that to which they are entitled. Those eligible non-recipients are missing out on something like a mean average of £34 a week. That is an average loss of £34 a week, an income that would transform their circumstances.

More means-testing, which is what the Government are proposing, will not, given this strategy, bring more pensioners in, but will deter even more pensioners from claiming what they should. That is why I am so pleased that we are extracting means-testing out of the new state pension, as the former Pensions Commission recommended when considering the old pension. I was pleased that we were removing it from the new state pension, only to find that the Government are foolishly importing it back in again and extending it through annual means tests, rather than five-yearly ones, in pension credit to make a quick buck. Therefore, those who get the more generous pension in future will escape the means test; the older, poorer pensioners—mainly women—will be subject to even more of it. I think that is wrong.

Why was means-testing for pensioners under my noble friend Lord McKenzie carried out with a light touch? It was essentially because pensioners’ income is pretty well stable in their retirement years. The three major events which are likely to affect their entitlement are, first, the death of their spouse. When he dies—and it is, alas, usually “him” ahead of “her”—his modest pension, if it is a single-life pension which two-thirds of them are, dies with him. That is why it is elderly widows who most need pension credit. The second major event is that they may, rarely, get a small legacy—say, from the death of an unmarried sibling. The third is that they may have to move into residential care.

Such big events should be reported, and I have no objection to reinforcing that and making it clear that capital from, say, a generous legacy of more than £10,000 or £15,000, acquired before 75, should be reported. I do not have a problem with that. Apart from that, a five-year check will discover not just whether pensioners are getting too much, which is rare, but sometimes whether they are getting too little. I do not think we have recently had much in the way of a take-up campaign—funny, that.

Now the Government are going to produce annual means tests, and the Bill team—I thank it for this—very helpfully sent me the best statistics we currently have, which show that twice as many people will lose under annual means-testing as will gain. The Government will not make their savings primarily because people are receiving too much, although some money may come from that and will be clawed back, and so on. No, if the Minister will actually make a saving, it will come from pensioners who should get it not claiming, and certainly not annually. The department has a lot of literature, which is entirely decent, about the problems of the means-testing, which informed the new state pension. It was absolutely right to do so, and yet it seems to be ignoring it in its efforts to make a quick £65 million or so saving from the poorest pensioners.

The Minister and his team will so increase the stigma of means-tested pension credit—with people annually reminded that they are suspected of error, if not downright fraud—that more of the poorest pensioners will slip down the snake of further poverty. Pensioners do not cheat on pension credit, but this proposal suggests that they do. Let us not have any spin about increased take-up as a result. This is about savings and nothing more, and I do not think it is decent.

The Government boast of their reduction in means-testing for the new state pension, while quietly importing a massive extension of means-testing for those not joining the sunny uplands of the full new state pension. They are deliberately widening the gap between those who will get the new pension, and those who cannot on grounds of age. Poorer pensioners will be worse off simply because they are a day older or a year older than other pensioners who are eligible for the new state pension.

Single people who are on pension credit because they are on the wrong side of that cliff edge will have £30 of pension credit added to their BSP of £111, giving them a total income of some £140. However, if they acquire any capital savings over £10,000, they will find them means-tested. In some cases they will then lose every penny of pension credit. Meanwhile, other pensioners, who are a day or a year younger, will get their more generous pension of £144, and will also keep every penny of savings they may have or acquire because we rightly float them off pension credit, and all credit to the Government for that.

The older and poorer start to lose if they have any savings over £10,000, so there is not an incentive to save. Yet pensioners a day younger not only have a higher pension, but their savings are not taken into account at all. This problem will of course be made worse by the loss of savings credit. Is this fair? Far from increasing means-testing for the poorest group, in my view the Government should do exactly the opposite. They should reduce means-testing to achieve greater fairness for pensioners who are being penalised for nothing but their age. That would give less of a cliff edge, and more equity between the two groups of pensioners who are divided by one day. It really is shameful to import an unnecessary cliff edge for trivial government savings, and it is also perverse.

Since my noble friend Lord McKenzie wisely reviewed AIPs, there have been huge cuts in domiciliary support for the elderly from social services. Mr Pickles has cut local government budgets by 35%, and inevitably this is passed on in depleted services. Nearly half a million people, mostly pensioners, have lost homecare since 2008—half a million. Only those with substantial or even critical care needs can now expect to have carers who are funded by the local authority.

Pensioners with only “functional” disability may have quite significant mobility or sight problems, and five years ago they could have received perhaps three or five hours per week of help from social services. They now get nothing, and their family may live 100 miles away. If someone’s needs are more substantial and they are frail, and they need help getting up in the morning and at night, the two hours a day which was offered may now come down to two slots of 15 minutes. On top of this has come Dilnot.

The Government’s response has been to emphasise co-payment. I do not disagree with that, but where is the money for that co-payment to come from? If you are a pensioner on pension credit, you have minimal or low savings and your only asset is your home. Outside London this may be worth perhaps £100,000 or double that. Some 80% of pensioners below 60% of median income are owner-occupiers. Half of those on pension credit are owner-occupiers. Equally, three-quarters of those who should claim pension credit—but do not and so lose out on £34 per week—are owner-occupiers.

Pensioners may have to contribute to the cost of their social care, or decide—rightly, in my view—that they wish to live independently outside of residential care, with more domiciliary support than social services can now provide. However, those on pension credit, having been means-tested at 65 and again at 70 and now coming up to 75, have only one way to do that, which is to release some of the equity in their home.

--- Later in debate ---

[Baroness Sherlock (Lab)]

My Lords, all noble Lords who have spoken have laid down a significant challenge to the Minister on this part of the Bill. I do not propose to add a great deal, but there are a few questions that I would like to clarify. First, in his opening remarks, I think the Minister said that one of the problems being addressed was that there were significant levels of incorrect awards of pension credit because various assets and income were not being taken into account if they happened after an AIP was set. Does he mean incorrect? Presumably, he does not mean incorrect if they were in line with the rules. If someone is not required to declare it then they do not affect the award, but maybe I misunderstood that point.

Secondly, there is a question about the additional changes of circumstances. I am struggling a little to understand what the department does and does not know about this. The impact assessment states:

“We have limited evidence for the additional number of changes of circumstance that are likely to be reported each year as a result of the change in policy”,

but the impact assessment provides an estimate of £17 million a year as the cost of processing additional changes of circumstances and reviews. What assumptions is that figure based on in terms of the number of changes of circumstances?

Picking up a point made by my noble friend Lord McKenzie, what estimate has the department made of the likely increase in fraud and error as a result of the abolition of AIPs? Will the Minister remind the Committee what sanctions will be imposed on pensioners who fail to report a change in retirement income or capital that is relevant to their award? I would also be interested to hear what kind of support will be given. Will he also take the opportunity to remind the Committee how pensioners will be informed of this, how they will be reminded and what discretion can be exercised in choosing whether to sanction them, and of course what appeal mechanisms are there. That would be very helpful.

There is then the crucial question of the likely effect on the level of pension credit awards to those who have, or would have had, an AIP. The impact assessment was encouraging at first because it states:

“Analysis suggests that many customers are not currently reporting changes which would lead to an increase in their entitlement so they may actually benefit from the simplification of the policy”.

Can the Minister explain the use of the word “simplification”? At the moment, if I have an AIP and an income only from pension and capital, I do not have to tell the DWP about any changes in income, but in future I will. How is that simpler?

On the question of level, the briefing said that despite the fact that many customers may be better off, most people will not be better off as the Minister and my noble friend Lord McKenzie have pointed out. It is obvious that they could not be if £80 million a year is to be saved. Also, my understanding is that not only will there be twice as many losers as gainers, if I have read this correctly the average gainer will gain £6.70 a week but the average loser will lose £13.10 a week, which is twice as much. Will the Minister clarify whether that is right and if so what average means in this context? Is it a mean or median figure?

On the impact by age band of abolishing AIPs, the briefing from the department says that it is not possible to break down savings by age band, but that the younger cohort of recipients who are more likely to be affected by the change in policy are less likely to have capital above £10,000 or other pension income. Will the Minister help me understand that distinction? Assuming that they are spared, these younger pensioners will go on to be over-75s, who would have been entitled to an indefinite AIP. Is the assumption that that cohort, when they reach 75, will still be less likely to have savings over £10,000 or other pension income and thus less likely to face a change in pension credit entitlement? In other words, is the distinction one of age or cohort?

Just out of interest, did the department make any assessment of the effect and cost of, for example, maintaining indefinite AIPs for pensioners above 80 or 85 or any other age level? There is then the question raised by my noble friend Lady Hollis on equity release. I have no intention of standing between my two noble friends on the question of how they should be treated, being a woman with an ambition to live to at least 75 myself. But this is a serious question, to which the Minister responded at Second Reading simply by saying that,

“equity release may not necessarily result in a reduction in eligibility for means-tested benefits and will depend on overall income and capital”.—[Official Report, 3/12/13; col. 193.]

Of course, that is obviously true; for some people it may, and for some it may not. The briefing on the subject that came from the department had a note attached to it that may have come from the Department of Health, entitled, Reforms to Care and Support: Financial Product Review. That said, on equity release:

“Some people do use this to fund the cost of domiciliary or home care. No data is collected on the number of people who take out equity release to pay for care but it is currently very limited”.

At the risk of being a pedant, if no data are collected, how do the Government know that the number is very limited? I wonder if they are perhaps relying on the Age Concern survey referenced in the DWP briefing note, Abolition of Assessed Income Periods—Equity Release? I think probably not, however, because it suggests that the sample size was too small to be used for extrapolation. So I am sure that is not the source of it. But they must be able to make an estimate to be able to declare that the number is very limited, so can the Minister tell the Committee how many people the department estimates take out equity release to pay for care?

The importance of this question is to understand its implications. Even if the Minister takes the view that he does not regard this as being anything other than administrative easement, as explained by my noble friend Lord McKenzie, the Committee needs to understand whether there will be consequences for the treatment of income that may be needed to pay for care and, if so, how those costs will otherwise be addressed. I look forward to the Minister’s reply.

[Lord Freud]

My Lords, I shall deal with the equity release issue first. Assessed income periods were never intended to enable people to shield their income and capital from interaction with the means-tested system. Pension credit is a safety net benefit providing support for daily living needs for the poorest and, as such, should be a last resort.

[Baroness Hollis of Heigham]

I am sorry to interrupt, but I am not sure that that is the case. Certainly equity release providers had discussions with the department, to my certain knowledge, and were told that somebody could acquire capital through equity release between, say, 65 and 70, and that if it was then spent down—that is, it was used for reroofing, or a new boiler, or insulation, or whatever—the department was entirely content with that.

[Lord Freud]

Yes, I shall come to that. In practice, that is absolutely the case. Money taken for essential repairs is disregarded. I can confirm what the noble Baroness is saying.

To go back to the argument, people should draw on the income and capital available to them before seeking help from the state. If people liquidise assets to release money or generate an income, that should be taken into account, no matter what the source—if they sell some shares, release equity or downsize. It has been suggested that abolishing the assessed income period will deter people from using equity release to pay for care under the new care funding regime proposed by the Government. The planned care charging reforms will provide greater clarity about what people will be expected to contribute. There will be financial advice to help people better meet these costs, and the Department of Health has been working with the financial services industry to help create the right conditions for a new market of financial products to develop that will be suited to this purpose. Equity release may be a product some may consider, but at this stage it is difficult to say how future care charging reforms will influence behaviour in this area.

The Government do not want people to be penalised for making proper provision to fund their care. That is why the Department of Health will consider how the charging system can recognise the provision people have made and why we are working with them to understand the impacts and the potential interactions with means-tested benefits. However, we cannot retain a complex feature of pension credit as a way of protecting the position for what may be a minority of pension credit customers in specific circumstances. This would not be a targeted response; indeed, it could be argued that it moves away from and undermines the rationale of a safety net benefit.

There may be alternative solutions that both departments will need to consider in due course to avoid penalising those who have made provision to pay for care, but keeping the assessed income period is not the answer. I can confirm what the noble Baroness, Lady Hollis, said—that officials have spoken with the Equity Release Council and have agreed to meet with them in due course to talk through the implications of this measure. The council, in terms of the information base, has been careful about providing advice to those on pension credit about the potential impact on their benefit and designed products so that they do not breach the £10,000 disregard.

[Baroness Hollis of Heigham]

Except, my Lords, in referring to the brief to this extent, that usually the minimum sum from any equity release providers, from looking at the Aviva statistics and retirement statistics, is usually £10,000, at which point any moneys above that are netted off pension credit.

[Lord Freud]

Once these things are put in place with the social care provisions, there may be ways of dealing with that, but it is premature to address it until we have the shape of those social care provisions. As I said, the way to do that is not necessarily through a wholesale change to our AIP strategy.

[Lord McKenzie of Luton]

Does the Minister accept that the easiest way to change it would be simply to amend the disregards for capital in pension credits? It would be easy to do that.

[Lord Freud]

I am grateful for all suggestions. The noble Lord has made the point that I was trying to make: there are probably quite a few ways to skin this particular cat and one would want to look at it in that context. I have confirmed for the noble Baroness that sums of money taken out for essential repairs and so on are disregarded, so there are areas of flexibility as we work through the full implications of this policy.

[Lord McKenzie of Luton]

Is it possible that this cat might be skinned by the time we reach Report?

--- Later in debate ---

[Lord Freud]

My Lords, my experience of cat skinning is that it takes quite a long time, so I am not sure that I can promise the aforesaid cat in its dematerialised form in the right time.

[Baroness Sherlock]

Is the Minister able to help us find out how big the cat is?

[Lord Freud]

I am being taken way off my brief.

[Baroness Sherlock]

I am sorry, but I am pressing the Minister on the comment about the assessment of how many people use AIPs for equity release. The phrase I think he used at the beginning of his remarks was that this may be a minority of claimants, which is about as vague as it is possible to get in terms of a formulation. Can he shed any light on this?

[Lord Freud]

No, my Lords. We do not have any precision on this, and that is one of the reasons that we want to look at it in the context of social care. Clearly, one will need to build a better evidence base rather than me extrapolating from a very thin one. The cat is small; it is possibly a kitten.

On the question from the noble Baroness, Lady Hollis, about potentially retaining AIPs until the age of 75, while the noble Lord, Lord McKenzie, talked about the age of 80, we do not have a breakdown of age from the sample of AIP reviews that we have taken, but we have no evidence to suggest that older pensioners have more stable incomes than younger ones. Retaining AIPs for older pensioners would prevent us driving many of the inaccuracies out of the system and would lead to a two-tier system, whereas we want to see a single, understandable regime for everyone. Older pensioners are more likely to have indefinite AIPs already in place in April 2016 because they are being retained, so they should not experience any significant changes to their reporting requirements.

On the more detailed question about numbers raised by the noble Lord, Lord McKenzie, on the breakdown between guarantee credit and savings credit, I do not have it to hand behind me right now, but I am happy to offer a letter providing that. I can confirm to him that someone who applies for pension credit can make a claim for housing benefit, but people will be encouraged to seek council tax support. As the noble Lord is fully aware, that scheme was localised in April of the current financial year.

--- Later in debate ---

[Baroness Hollis of Heigham]

As this is not an amendment, I do not have a formal right of reply to withdraw an amendment. Before the Minister sits down, therefore, could I press him on this? Why did he—rightly in my view—support his right honourable friend’s position in the other place, which was based on the recommendations of the Pensions Commission, to get rid of pension credit in the new single pension and therefore to reduce means-testing very significantly? Pension credit served its purpose in taking existing pensioners out of poverty. It possibly deterred other, future pensioners from saving, but it did tackle the problem of poverty. Quite rightly, in my view, the current Government have proceeded to take that chunk—a huge chunk of means-testing—out of the system. Why, then, does the Minister think it right to reintroduce it for some people who are simply a day too old?

[Lord Freud]

My Lords, I think there is a distinction to be made here, which the Government are making. You can reduce the level of means-testing by providing a higher single-tier pension, while still making sure that where you are providing people with a means-tested benefit, it is accurate, in order that the Government do not spend more money than they need to at a very tight time.

[Baroness Hollis of Heigham]

But the Government are giving the equivalent of a whole pension credit to everyone who draws their pension after 5 April 2016, so the Minister is not worried about a safety net then, or spending money that is not necessary—he is just doing it. Everybody will get the equivalent of a full pension credit if they fall the right side of the line. If they fall the wrong side of that line, it will be means-tested annually. What is the decency behind that?

[Lord Freud]

As the noble Baroness is fully aware, the dividing line is actually much more spread given the complicated transitional arrangements between one system and another. There is not the sharpness of a dividing line—I know the noble Baroness is fully aware of that because we have debated it in great detail. I am conscious that we are pressed for time.

[Baroness Sherlock]

There are three questions that the Minister did not answer. I am happy for him to write to me: I wanted to get them on the record so that they could be picked up before Report. I asked about the estimate of £17 million in the impact assessment for the cost of processing additional changes of circumstance. What assumptions was that figure based on in terms of the numbers of additional reviews or changes of circumstance?

I asked what estimate, if any, the department had made of the likely increase in fraud and error as a result of AIPs going. Also, the departmental briefing says that the younger cohort of recipients who are more likely to be affected by the change in policy are less likely to have capital above £10,000 or other pension income. Is it that cohort or because they are young and therefore when they become old that will no longer apply?

[Lord Freud]

My Lords, I will arrange to write to the noble Baroness. I think I can deal with the second point straightaway. We simply do not know whether it is an age or a cohort effect, so I cannot be clearer about that.

[Lord McKenzie of Luton]

Could the Minister put something on the record? I am very concerned about issues around sanctions, particularly for older members of the pensioner cohort. They struggle, some of them, in later life to deal with paperwork. When we discussed sanctions in the Welfare Reform Bill around people with mental health challenges, the department undertook never to sanction someone without a face-to-face interview or at least a letter—whether that has been complied with is another matter. There should be some sort of process so that elderly people who fall foul of the system are protected before sanctions are levied.

[Lord Freud]

The noble Lord makes a very fair point. I know that I smiled about that, but it is a real point about older people handling bills. It is best if I come back to the noble Lord and write specifically on that matter.

I can update the noble Baroness, Lady Sherlock, a little more. We are assuming 1 million extra changes of circumstance. That is what the £17 million comes from, and we are assuming a 10% reduction in savings to account for this on the increase in fraud and error. Those are the figures. I will check that I have not missed any other points. I owe the noble Lord, Lord McKenzie, something on sanctions for sure, and probably one or two other things. On that basis, I hope that the Committee will agree that the clause stand part of the Bill.

Clause 27 agreed.

--- Later in debate ---

I know that we have taken some time to debate this issue, but it was perhaps less time than I had expected. However, doing so merely reflects the serious concerns that have been expressed across your Lordships’ House and are shared by significant numbers of people beyond this place. I trust that the Minister will take into account all that has been said today in his response.

[Lord Freud]

My Lords, I start by thanking noble Lords for their thoughtful speeches. I know that they have been considering these issues very carefully and I appreciate and take on board the sentiments that have been expressed. Bereavement benefit forms an important part of state support. Reforms have been made over the years, but they have tended to have been in response to particular pressures, and until now no one has really considered how this benefit fits in with wider changes in society and, indeed, within a new structure of benefits. By not addressing the radical social and demographic changes that we have seen or accounting for the far-reaching changes to the welfare system, the benefit is out of date, difficult to administer and hard to understand. Radical reform is necessary to make it more effective for this century.

[Baroness Hollis of Heigham]

This benefit was introduced or revised after quite a lot of work and research in 2000. In what ways is it out of date? I can understand that the Minister may wish to make savings, but his proposals are cost-neutral. So, apart from the fact that funeral costs have gone up, and therefore there is a need for a larger lump sum, in what way is it out of date?

[Lord Freud]

The history is where it is thought that a partner is a dependent rather than an independent agent—and that is a fundamental change in our demography, and something that I know the noble Baroness welcomes, with the rise of women’s equality. It is one of the biggest structural changes that we have seen since the war.

[Baroness Hollis of Heigham]

I entirely agree with the Minister, but it is my belief that since 2000 the percentage of people in work, particularly mothers with young children, has changed by only three or four percentage points.

[Lord Freud]

I do not think that I want to get into a debate with the noble Baroness on whether the reforms that she was responsible for and those that I am responsible for are better. Let me try not to do it in that context. I shall describe what these reforms are doing.

The design is for the bereavement and support payment to be a significantly simpler benefit and to provide specific financial support at a time when it is needed most without affecting access to further support through other parts of the welfare system. The evidence from independent social research and our public consultation exercise found that the financial impact of spousal bereavement is particularly acute in the first months. Bereavement support payment is designed to provide a significant cash boost for people in these early months, with a lump sum followed by 12 monthly instalments. We recognise that those with dependent children need a greater level of support, so the Bill provides the ability to set out a higher amount in regulations, which is what we intend to do.

Amendment 61 is intended to allow us to pay a higher amount to those who have been caring for their spouse or civil partner prior to bereavement. Caring responsibilities at the end of life can be particularly difficult and distressing and we recognise this by continuing the payment of carer’s allowance for up to eight weeks after the death of the person being cared for. Under the new system, this will be paid in addition to bereavement support payment as opposed to being taken into account in widow’s parent’s allowance and bereavement allowance.

The Bill does not preclude us from specifying a higher rate in regulations for people who meet certain conditions. However, making receipt of or eligibility for carer’s allowance or carer’s credit a condition is neither targeted nor fair. It would be particularly difficult to prove that someone would have been eligible for carer’s allowance, or would have met any other such conditions, after their spouse had died. Moreover, while we are spending more money on bereavement benefits over the first few years of reform, clearly we are in no position to significantly increase benefit expenditure. Money for increased payments to certain groups would have to be taken from elsewhere in the bereavement benefit budget, either resulting in lower payments for those without dependants or lower payments for all.

On the duration of payment, the 12 monthly instalments are not intended to equate to the period of an individual’s grief, nor are they intended to provide ongoing income replacement; rather, they seek with an initial lump sum to provide support when it is needed most.

To pick up on the points from the noble Baroness, Lady Hollis, on the overall effect, the DWP ad hoc report shows that overall, 52% of recipients are better off under the reform and that 62% of those out of work, who are typically poorer people, are better off, while 100% of those who currently receive the least, the BPT group, who get the lump sum of £2,000 but no regular payment, are better off after the policy change. On average, out-of-work parents in the poorest 25% notionally gain for 12 years. Out-of-work parents in the next poorest income quartile notionally gain for up to eight years. On average, out-of-work childless people in the bottom 50% of the income range notionally gain irrespective of age. In-work childless people in the poorest 25% notionally gain, regardless of age. In the structure I am describing, bereavement support payment must be taken in the context of the provision of universal credit, which is efficiently directed at helping the poorest people.

--- Later in debate ---

[Baroness Hollis of Heigham]

Perhaps the Minister could help me. He is arguing that this is an improvement and an increase in generosity in work conditionality, but he is comparing what would be the case if someone did not get this payment under the new universal credit regime. At the moment there is no such requirement, if the income that has been provided is adequate for someone to live on. As I understand it, work conditionality therefore does not apply. If I have misunderstood, I am very happy for the Minister to correct me, but I think that he is making the comparison that we did not make, and he is therefore answering a different comparison.

[Lord Freud]

Clearly, if people can live on the current bereavement payments alone, no conditionality is implied. That is the difference between the systems. Under universal credit if people are reliant on universal credit, work conditionality will be implied.

[Baroness Hollis of Heigham]

In other words, at the moment someone could get a full widow’s benefit under this, together with tax credits, housing benefit and so forth, and they would be free from work conditionality. In the future, I absolutely accept that there will be a different regime, but the point is that at the moment the Minister is making a comparison with the position of people who are not bereaved enjoying universal credit compared with those who will be bereaved under universal credit. I am concerned, as are many other noble Lords, with the position of those who are currently free and exempt from work conditionality with additional incomes coming through tax credits, housing benefit and the like, which therefore give them a higher or sufficient income which does not attract to it work conditionality.

[Lord Freud]

The noble Baroness is looking at a pretty narrow group where people are taking general bereavement benefits plus an income from work at over 16 hours to get the tax credits, which do not contain conditionality. Yes, there is a different system, but that is what the noble Baroness is describing in that particular example.

There are types of tailored work search requirements. There are no work-related requirements at all for the lead carer of a child who is under the age of one. There would be some work-focused interviews when the child is older, and noble Lords will be familiar with these. The work-related requirements can be limited in cases where the claimant has childcare responsibilities or has a physical or mental impairment. This is a flexible approach to conditionality, allowing it to be tailored to the individual, which ensures that all claimants receive the right support.

I am absolutely committed to making sure that parents who have suffered a bereavement receive an appropriate conditionality regime, so I have asked the Childhood Bereavement Network to advise us on how we should develop this guidance. Of course, the point about this, as noble Lords have made clear, is that we are talking about the married bereaved. Lots of other people suffer equivalently who are not eligible for bereavement benefit, and I know that there is some pressure to widen it. This conditionality regime could have wide benefits and I would be prepared to develop that guidance in a relatively transparent way.

We need to consider other people who are bereaved in order to ensure that the system is fair to everyone. Bereaved people in employment are not likely to be allowed to stay away from work for six months. On parental bereavement leave, which is a statutory entitlement, the ten-minute rule Bill was asking for a statutory period of only two weeks’ bereavement leave for an employed person following the death of a child. An additional 4,000 bereaved, non-married, non-civil partnered but nevertheless partnered people who are on UC will also be exempt, although they will not be entitled to the bereavement payments themselves.

Our analysis from the current flow of bereavement benefit claims indicates that 55% of claimants are in employment. Out of the remainder, only 9% of widowed parents are unemployed and, if they claimed universal credit, would be required to undertake work-related activity six months after bereavement. Given that the policy of not imposing conditionality requirements on bereaved claimants claiming universal credit for six months is already more generous than that for bereaved individuals in other circumstances, and that our flexible conditionality regime allows us to reflect on and respond to individual circumstances, I see no merit in having a longer period.

I turn to the distinction of kinship carers; I enjoy boasting about the one-year concession on conditionality for kinship carers. I did that for very particular reasons. The death of a parent at any time is clearly a huge loss to a family and children need support during the grieving period, which can be a long period of time, as my noble friend pointed out. In fact, the evidence tends to show that grief comes out well beyond the one-year period. The support will be not only for the surviving parent who has knowledge of their child and how best to support them, but in most cases there is an existing support network of extended family, friends, schools and clubs. Unlike bereaved children who still have a parent to support them, other children do not have that support as they move into a kinship situation. They may have moved away from their home and school, meaning that their social support network has also been removed, and they need time to make new friends, settle into school and learn completely new routines. The difference with kinship carers is that this marks a huge change for both the child and the adult. On top of that, the adult concerned may have little or no experience of looking after a child, and will need time to make adjustments to their own life in order to accommodate the child.

On the point raised by my noble friend on the move to part-time work, I can confirm that a bereaved parent who changes their employment to part-time work will still be eligible to claim universal credit.

Removing any requirement to engage with the labour market through universal credit for a longer or even indefinite period could have a negative effect on a person’s recovery and long-term job prospects. We believe that allowing people to engage with the labour market through universal credit is necessary to help them adjust and regain control of their lives.

[Baroness Hollis of Heigham]

Did the Minister say “allowing people”; in other words, is he suggesting that it is the choice of the bereaved parent?

[Lord Freud]

Yes, I did. There is an element of push-pull and expectation, and the expectation here is that people would engage with the labour market after six months except where there would be difficulties in doing so. That is exactly why we want to develop a good guidance package, which we shall do in consultation with the key stakeholder.

[Baroness Finlay of Llandaff]

I apologise if I am interrupting the Minister when he is about to clarify something further, but I have a question about those situations where things are even more complicated. For example, one parent may have been driving the car, the other parent killed and one of the other siblings killed, so that the bereaved child feels anger towards the surviving parent as the person who was in control of the vehicle when the accident happened, as well as being bereaved of another sibling. Are those the sort of situations that the guidance will address, and will it allow a more flexible interpretation and some flexibility, particularly, over the six-month type of requirement? It is incredibly likely that the surviving child will have an extremely difficult time, including in establishing a relationship with the surviving parent.

[Lord Freud]

One of the key things is that there are clearly some terribly tragic and difficult situations involved here. However, the risk is that one looks at the very worst cases and draws up a policy that suits them, even though the majority of people are not in those extreme circumstances. What we are trying to develop here is a reasonable norm and then a capacity to adjust for the kind of extreme circumstances that do happen. We need to make absolutely sure that we are able to adjust for those—that is the structure we are looking at here. The risk is, as noble Lords know, that we do something for everyone when literally only 2%, 3% or 4% are affected. Noble Lords will have heard the percentages I gave about the number of families, which is 9% of the total. I want to try to avoid designing a system based on one particular example.

[Baroness Hollis of Heigham]

But why, unless the Minister is actually accusing widowed parents of exploiting or milking the system? Being more generous in the case of the very moving examples given by the noble Baroness, Lady Finlay, would give greater choice for other widowed parents with perhaps less difficult circumstances. Unless the Minister thinks they are milking the system, they will find their path back into the labour market. Why does he have to make it quite so tidy and precise? Why does he have to second-guess all the time?

[Lord Freud]

It is important that the system sets out some generous norms against other examples we are looking at. There are people in employment, who would very rarely see a norm of six months, and people who are cohabiting—a huge proportion of the people who suffer this are in that situation and, as I will go on to say, it is very difficult to help them any more. We set up a good norm and then have a robust system to make sure that we can make the appropriate adjustments for people for whom that norm is not appropriate. As I said, I have asked my officials to meet with the Childhood Bereavement Network in the coming months to discuss the policy approach in universal credit and to look at the guidance. I hope that I will be able to report back in time to inform our next debate on this.

I turn to the amendment in the name of the noble Baroness, Lady Meacher, and how widowed mother’s allowance and widowed parent’s allowance are to be treated under universal credit. She is not here now but I know she will read very closely what I say. As in the assessment of any income-related benefit, it is necessary to consider the income the house or individual has access to, including income from other social security benefits. As both the two benefits—the WMA and the WPA—are income-replacement benefits, it is right that they are taken into account under universal credit. Disregarding them would increase government spend on universal credit by a commensurate amount of around £300 million. Claimants migrating to universal credit from legacy benefits, where their circumstances have otherwise remained the same, will be transitionally protected.

This is what Cruse Bereavement Care said about the new system:

“It is a simple system that would provide bereaved people with access to immediate help. It gives immediate financial support at a time when other available sources can be rendered inaccessible … If the principle is that the universal credit should ensure that the bereaved family are adequately supported on an on-going basis then a lump sum to help enable them to get back on their feet may be simpler and more appropriate”.

Of course, this is exactly what we are doing.

[Baroness Hollis of Heigham]

Except that it may be better for some, but what the Minister is doing is making it a requirement for all.

[Lord Freud]

The noble Baroness is now going back to the conditionality debate, but I am now going on to the actual level of payments, which is a somewhat different point. I understand that there is a concern that there could still be a potential impact on a small subset of those universal credit claimants who also receive widowed parent’s allowance. This is the point about them being worse off by £7.56 a week. This is not an unintended consequence, because we have been clear about treatment of unearned income and that widowed parent’s allowance would be deducted pound for pound in assessing universal credit. As noble Lords know, universal credit is a fundamental reform of the current benefits system and leads clearly to both increases and reductions in the level of entitlements. However, no one already on benefit whose circumstances remain the same will lose out in cash terms as a direct result of the move because of the transitional protection.

The point is that widowed parent’s allowance is a taxable benefit. Working claimants might not only have their allowance deducted from the universal credit entitlement, but also pay tax on it through the tax code in their earnings. The reduction in net earnings as a result of the additional tax will be only partly offset by an increase in universal credit because of the 65% taper. Noble Lords will appreciate that there are good reasons why universal credit works on the basis of net earnings and tapered withdrawal, because that is the mechanism that is designed to incentivise work. Nevertheless, I will look carefully at the points that have been made on this issue in this debate and by stakeholders. I need to emphasise, however, that it would be a disproportionate and expensive response to move to a full disregard for all claimants of either of these two awards.

I now move on to the question of allowing bereavement support payment for unmarried couples and the request for a review within six months following Royal Assent. Our law and tax systems recognise inheritance rights and needs of bereaved people only if they have a recognised marriage or civil partnership. This stems from the founding principle of the national insurance system, which is that all rights to benefits derived from another person’s contributions are based on the concept of legal marriage and civil partnership. Allowing cohabiting couples to have access to bereavement benefits would significantly increase complexity; and proving cohabitation can be incredibly challenging, not to say an intrusion into claimants’ private lives.

On the request for a review, there clearly needs to be a period following introduction of the new payment to allow changes to bed down before we can review its effectiveness and impact on the different groups of claimants. I can assure the noble Lord, Lord Browne, that we have already committed to review the change in our impact assessment at a point when sufficient evidence is available to assess all aspects of the policy.

I want to pick up another point made by the noble Lord on the take-up of bereavement benefits. The take-up is high at around 90%, which has been helped by the rollout of the Tell Us Once information service. The majority may not qualify for the full amount due to the complex contribution conditions. Indeed, this is why we have simplified them into a position where someone is entitled to the new payment on the basis of payments of 25 times the lower earnings limit in any one tax year. I believe that the bereavement support payment will be simpler and fairer than the current system, providing support when and where it is needed most by supporting people to regain control of their lives as soon as they can. These amendments would be a backward step resulting in more complexity in a system that would provide less help to those who need it when they need it.

[Lord McKenzie of Luton]

Will the noble Lord perhaps deal more fully with the point raised by my noble friend Lord Browne about contributions and be a bit more specific about why Class 3 contributions are no longer a route to qualification?

[Lord Freud]

We think that it is essential to retain the contributory principle, and it is reasonable for people to have made those contributions for at least six months in order to qualify. However, the noble Lord and the noble Lord, Lord Browne, will appreciate that this is a radical simplification of the contribution conditions.

[Lord McKenzie of Luton]

We have been considering this for a long time and I do not want to prolong the debate, but that really will not do. All that has been done is that one route has been chopped off for people who satisfy the contribution conditions. Class 3 contributions are payments. We are not talking about credits into the system here, this is a payment. Presumably the noble Lord will argue that one should reduce the Class 3 rate on the basis that someone will get less for it.

[Lord Freud]

The point is that, depending on if it is a late payment, it would be possible to make a very small contribution and get a large payment of £9,800 back. I am happy to write to the noble Lord with a full justification of that decision.

[Baroness Hollis of Heigham]

My Lords, I am very appreciative of everyone’s contributions. A lot of issues have been explored, and although the Minister has been as fastidious and careful as he always is in trying to respond to the points, I have to say that, on what is now our fifth day in Committee, I thought that his responses here have been less persuasive than they have been to almost all of our other debates. They will certainly require us to look very carefully indeed at the small print of his responses because I am not persuaded by almost any of his points.

Let me first thank the noble Baronesses, Lady Finlay and Lady Meacher, and the noble Lord, Lord German, who I think actually used the word “cruel”. If the noble Lord wishes to resile from that, I apologise. I think that they all spoke very well and movingly about the situations in which families find themselves—not just singly bereaved but doubly bereaved. Sometimes the surviving partner or spouse may be seriously injured, which means that they cannot support a child in the family in the way they would wish. We know that such tragedies exist and the consequences multiply in what is a ripple effect for families for many years. That is especially the case when there are multiple losses. All sorts of feelings of guilt continue to plague unreasonably and irrationally but completely understandably, those who survive such a situation.

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[Lord Freud]

I want to make sure that the noble Baroness adjusts the figure of 88% on the record, because that is not the figure. I was trying to supply the figures. Across all groups, 50% are better off compared to 48%. The figure of 88% is for a narrow group of those in work who are receiving the widowed parent’s allowance. A lot of misleading figures have been going around on the structure of this. There are effects of the combination of these payments with other benefits in the system, particularly universal credit. You cannot ignore those interactions and our figures show that poorer people in particular do well out of this new system.

[Baroness Hollis of Heigham]

I emphasise again that without seeing the Minister’s detailed working I will sustain the figures I have, unless, until or if the Minister can show me the points at which they are inaccurate. Is it 88% of widows with children in work who will be worse off, and 57% of those not in work who will be worse off? To put it another way, any widow with children who would have claimed for two years or more will in future be worse off. It may be that the Minister has not fully taken into account the cohort effect with regard to the point people at which join the labour market. Obviously, we should continue this in correspondence.

My noble friend Lord Browne pressed the Minister hard and showed again that targets interlocking with financial need are going to leave very many widowed parents in a far worse position. He encouraged the Minister to consult further with the Childhood Bereavement Network group of voluntary organisations to see whether a rearrangement of these benefits can meet some of our concerns. I am pleased that the Minister is willing to do this. He also argued not just for a reconsideration but, if necessary, a review, especially as regards cohabiting parents. If the Minister is serious about trying to bring benefits up to date, he should recognise that 50% of all children are now born outside marriage, even though the relationship may be an entirely stable one with two committed parents. The Minister deploys the argument of bringing structures up to date to suit his case, but apparently refuses to recognise other people’s positions. He is obviously right to want to continue to keep all benefits under review as an act of stewardship. However, if he is going to take account of this changed world, he is selecting what factors he chooses to take account of and ignoring others that are equally significant—and possibly in many ways more so—in their effects on families and their children.

The Minister made several points. First, as regards structure, I accept that we need to review it but I think that he is going about it the wrong way. Secondly, as regards money, he paraded the gainers against the losers and implied that somehow that is all right because there is some mythical average. It is not all right and I am sure we will come back to that point. The point on which he was least persuasive was that of conditionality. He seems to think that when you have lost a spouse and your children are very insecure, fearful and frightened, and need the surviving parent’s full-time attention, six months’ relief from conditionality is generous. I would tell him that he needs to live in the world that such parents inhabit. It really is not generous. He is making the comparison with, say, a single parent under UC. I accept that a widowed parent in that situation would be more generously placed in terms of work conditionality than a single parent unaffected by widowhood would be under UC, but that is not the point we are making.

I cannot believe that the noble Lord is deliberately bypassing this point. Our knowledge of what those widowed parents and their children experience was built into the previous structure that is now being abandoned. There is an apparent reliance on the fact that the relevant provision is somewhat better than UC, and therefore what have we got to complain about? The Minister needs to ponder some of the literature which the noble Lord, Lord German, identified; perhaps he has. It may shape his perception of this issue of work conditionality. He is so completely wrong on this that I am puzzled because I know that he tries to enter into the situation of recipients of benefit.

Finally, the Minister referred to kinship carers and charmingly boasted that he had been responsible for making their situation better. I am very glad indeed that he did, but the lesson I draw from that is that widowed parents should now turn themselves into kinship carers. Is it his intention to make the regime harsher for the parent and their children who are suffering grief than is likely to be the case for kinship carers, given that the latter are nearly always grandparents? I know they are nearly always grandparents as I have done some work on this. Is it the Minister’s intention that the regime should be harsher for the widowed parent with children than for a grandparent caring for the children, particularly if the maternal grandparent is involved who has suffered not the direct loss of a son but, say, that of a son-in-law? Is that what he is really arguing? I wonder how much experience he or his team have had of engaging with families in that situation. I would hope that at the very least he will take away from this the argument that whatever he may or may not be able to do in terms of budgets and cost neutrality—and that may follow discussions with the voluntary groups, which we welcome—he will at least extend his empathy for kinship carers, which we respond to and recognise, to the similar group of widowed parents, and at the very least not deploy work conditionality until a year has passed. That would at least go some way to meeting our concerns. Unless the Minister wants to respond to me further now, I beg leave to withdraw the amendment.

--- Later in debate ---

Moved by

[Lord Freud]

62: Before Schedule 15, insert the following new Schedule—
ScheduleOption to boost old retirement pensions Part 1Great BritainSocial Security Contributions and Benefits Act 19921 The Social Security Contributions and Benefits Act 1992 is amended as follows.
2 (1) Section 1 (outline of contributory system) is amended as follows.
(2) In subsection (2)—
(a) omit “six”;(b) in paragraph (d), after “making up entitlement;” insert—“(da) Class 3A, payable by eligible people voluntarily under section 14A with a view to obtaining units of additional pension;”.(3) In subsection (4)(a), for “and 3” substitute “, 3 and 3A”.
3 After section 14 insert—
“Class 3A contributions14A Class 3A contributions in return for units of additional pension
(1) An eligible person is entitled to pay a Class 3A contribution in return for a unit of additional pension.
(2) A person is eligible to pay a Class 3A contribution if the person—
(a) is entitled to a Category A, Category B or Category D retirement pension or graduated retirement benefit, or(b) has deferred entitlement to a Category A or Category B retirement pension or graduated retirement benefit.(3) The amount of a Class 3A contribution needed to obtain a unit of additional pension is to be determined in accordance with regulations made by the Treasury.
(4) Before making those regulations the Treasury must consult the Government Actuary or the Deputy Government Actuary.
(5) A person—
(a) may pay Class 3A contributions on more than one occasion, but(b) may not obtain more than the maximum number of units of additional pension.(6) The maximum number of units of additional pension that a person may obtain is to be specified by the Treasury in regulations.
(7) In this section “deferred”, in relation to graduated retirement benefit, has the meaning given by section 36(4A) of the National Insurance Act 1965.
(8) For the meaning of “deferred” in relation to a Category A or Category B retirement pension, see section 55(3) of this Act.
14B Class 3A contributions: repayment
(1) The Treasury may by regulations provide for a Class 3A contribution to be repaid in specified circumstances.
(2) Regulations under subsection (1) may, in particular, make provision about applications for repayments and other procedural matters.
(3) A person is to be treated as never having had a unit of additional pension if the Class 3A contribution paid in respect of it is repaid.
(4) Regulations under subsection (1) may provide for benefits paid to a person because of the unit of additional pension to be recovered by deducting them from the repayment.
14C Class 3A contributions: power to change eligibility or remove the option to pay
(1) The Treasury may by regulations change who is eligible to pay Class 3A contributions.
(2) The Treasury may by regulations remove the option for people to pay Class 3A contributions
(3) Regulations under this section may, in particular, amend an Act.”
4 If paragraph 3 comes into force before the day mentioned in section 51(5), section 14A(2) as inserted by that paragraph has effect as if the reference to entitlement included the prospective entitlement of a person who—
(a) has not yet reached pensionable age, but (b) will reach pensionable age before that day (assuming that the person lives until pensionable age).5 In section 43 (persons entitled to more than one retirement pension), in subsection (1), after “subsection (2) below” insert “and section 61ZC below (which deals with unusual cases involving units of additional pension)”.
6 In section 44 (Category A retirement pension), in subsection (3)—
(a) in paragraph (b), at the end insert “or where the pensioner has one or more units of additional pension”;(b) after paragraph (b) insert—“For units of additional pension, see section 14A.”
7 (1) Section 45 (rate of additional pension in a Category A retirement pension) is amended as follows.
(2) In subsection (1)—
(a) after “shall be” insert “the sum of the following—(a) in relation to any surpluses in the pensioner’s earnings factors,”;(b) at the end insert “; and(b) if the pensioner has one or more units of additional pension, a specified amount for each of those units.”(3) In subsection (2), at the end of paragraph (d) insert “; and
(e) if the pensioner has one or more units of additional pension, a specified amount for each of those units.”(4) After subsection (2) insert—
“(2A) For the purposes of subsections (1)(b) and (2)(e) the “specified amount” is an amount to be specified by the Secretary of State in regulations.”
8 In section 52 (special provision for surviving spouses), after subsection (3) insert—
“(3A) In subsection (3) the references to additional pension in a Category A or Category B retirement pension do not include any amount of additional pension attributable to units of additional pension.
(3B) If an amount of additional pension in the Category B retirement pension is attributable to units of additional pension, the additional pension in the Category A retirement pension is increased by that amount (in addition to any increase under subsection (3)).”
9 After section 61 insert—
“61ZA Shortfall in contributions: people with units of additional pension
(1) This section applies to a person who has one or more units of additional pension if the person—
(a) is not entitled to a Category A retirement pension, but(b) would be entitled to a Category A retirement pension if the relevant contribution conditions were satisfied.(2) The relevant contribution conditions are to be taken to be satisfied for the purposes of the person’s entitlement to a Category A retirement pension.
(3) But where a person is entitled to a Category A retirement pension because of this section, the only element of that pension to which the person is so entitled is the additional pension attributable to the units of additional pension.
(4) For units of additional pension, see section 14A.
61ZB Shortfall in contributions: people whose dead spouse had units of additional pension
(1) This section applies to a person whose spouse or civil partner died with one or more units of additional pension if the person—
(a) is not entitled to a Category B retirement pension as a result of the death, but (b) would be entitled to a Category B retirement pension as a result of the death if the relevant contribution conditions were satisfied.(2) The relevant contribution conditions are to be taken to be satisfied for the purposes of the person’s entitlement to that Category B retirement pension.
(3) But where a person is entitled to a Category B retirement pension because of this section, the only element of that pension to which the person is so entitled is the additional pension attributable to the units of additional pension.
(4) For units of additional pension, see section 14A.
61ZC Entitlement to more than one pension: sections 61ZA and 61ZB
(1) Section 43 does not prevent a person from being entitled for the same period to both—
(a) a Category A retirement pension because of section 61ZA, and(b) one Category B retirement pension.(2) Section 43 does not prevent a person from being entitled for the same period to both—
(a) a Category A retirement pension, and(b) one Category B retirement pension because of section 61ZB (or, if there is more than one such Category B retirement pension, the most favourable of them).(3) Accordingly—
(a) in section 43(2)(a) the reference to “a Category A or a Category B retirement pension”, in a case in which subsection (1) or (2) of this section applies, includes “a Category A and a Category B retirement pension”,(b) in sections 43(3)(a) and (aa), 51A and 52 “Category A retirement pension” does not include a pension to which a person is entitled because of section 61ZA, and(c) in sections 43(3)(a) and 52 “Category B retirement pension” does not include a pension to which a person is entitled because of section 61ZB.”10 In section 122 (interpretation), in subsection (1), at the appropriate place insert—
““unit of additional pension” means a unit of additional pension for which a person has paid a Class 3A contribution under section 14A;”.11 In section 176 (parliamentary control), in subsection (1)(a), at the appropriate places insert—
“section 14A;”“section 45(2A);”12 In the heading to Schedule 1, for “and 3” substitute “, 3 and 3A”.
Social Security Administration Act 1992 (c. 5)13 (1) Section 162 of the Social Security Administration Act 1992 (destination of contributions) is amended as follows.
(2) In subsection (5)(e), after “those contributions;” insert—
“(ea) in the case of Class 3A contributions, 15.5 per cent of the amount estimated to be the total of those contributions;”.(3) In subsection (8)(c), for “or (e)” substitute “, (e) or (ea)”.
Welfare Reform and Pensions Act 1999 (c. 30)14 In section 47 of the Welfare Reform and Pensions Act 1999 (shareable state scheme rights), in subsection (2)(a), omit “earnings-related”.
Part 2Northern IrelandSocial Security Contributions and Benefits (Northern Ireland) Act 1992 (c. 7)15 The Social Security Contributions and Benefits (Northern Ireland) Act 1992 is amended as follows.
16 (1) Section 1 (outline of contributory system) is amended as follows.
(2) In subsection (2)—
(a) omit “six”;(b) in paragraph (d), after “making up entitlement;” insert—“(da) Class 3A, payable by eligible people voluntarily under section 14A with a view to obtaining units of additional pension;”.(3) In subsection (4)(a), for “and 3” substitute “, 3 and 3A”.
17 After section 14 insert—
“Class 3A contributions14A Class 3A contributions in return for units of additional pension
(1) An eligible person is entitled to pay a Class 3A contribution in return for a unit of additional pension.
(2) A person is eligible to pay a Class 3A contribution if the person—
(a) is entitled to a Category A, Category B or Category D retirement pension or graduated retirement benefit, or(b) has deferred entitlement to a Category A or Category B retirement pension or graduated retirement benefit.(3) The amount of a Class 3A contribution needed to obtain a unit of additional pension is to be determined in accordance with regulations made by the Treasury.
(4) Before making those regulations the Treasury must consult the Government Actuary or the Deputy Government Actuary.
(5) A person—
(a) may pay Class 3A contributions on more than one occasion, but(b) may not obtain more than the maximum number of units of additional pension.(6) The maximum number of units of additional pension that a person may obtain is to be specified by the Treasury in regulations.
(7) In this section “deferred”, in relation to graduated retirement benefit, has the meaning given by section 35(4A) of the National Insurance Act (Northern Ireland) 1966.
(8) For the meaning of “deferred” in relation to a Category A or Category B retirement pension, see section 55(3) of this Act.
14B Class 3A contributions: repayment
(1) The Treasury may by regulations provide for a Class 3A contribution to be repaid in specified circumstances.
(2) Regulations under subsection (1) may, in particular, make provision about applications for repayments and other procedural matters.
(3) A person is to be treated as never having had a unit of additional pension if the Class 3A contribution paid in respect of it is repaid.
(4) Regulations under subsection (1) may provide for benefits paid to a person because of the unit of additional pension to be recovered by deducting them from the repayment.
14C Class 3A contributions: power to change eligibility or remove the option to pay
(1) The Treasury may by regulations change who is eligible to pay Class 3A contributions.
(2) The Treasury may by regulations remove the option for people to pay Class 3A contributions.
(3) Regulations under this section may, in particular, amend an Act.”
18 (1) If paragraph 17 comes into force before the new state pension commencement date for Northern Ireland, section 14A(2) as inserted by that paragraph has effect as if the reference to entitlement included the prospective entitlement of a person who—
(a) has not yet reached pensionable age, but (b) will reach pensionable age before that day (assuming that the person lives until pensionable age). (2) In this paragraph “the new state pension commencement date for Northern Ireland” means the date on which legislation in Northern Ireland corresponding to section 2 of this Act comes fully into force.
19 In section 121 (interpretation), in subsection (1), at the appropriate place insert—
““unit of additional pension” means a unit of additional pension for which a person has paid a Class 3A contribution under section 14A;”.20 In section 172 (procedure for regulations etc), in subsection (11A), after “11(3)” insert “, 14A”.
21 In the heading to Schedule 1, for “and 3” substitute “, 3 and 3A”.
Social Security Administration (Northern Ireland) Act 1992 (c. 8)22 (1) Section 142 of the Social Security Administration (Northern Ireland) Act 1992 (destination of contributions) is amended as follows.
(2) In subsection (5)(e), after “those contributions;” insert—
“(ea) in the case of Class 3A contributions, 15.5 per cent of the amount estimated to be the total of those contributions;”.(3) In subsection (8)(c), for “or (e)” substitute “, (e) or (ea)”.”

--- Later in debate ---

Moved by

[Lord Freud]

62A: Schedule 16, page 91, leave out lines 11 to 13

--- Later in debate ---

Moved by

[Lord Freud]

62B: Schedule 16, page 92, line 23, after “State” insert “or the Commissioners for Her Majesty’s Revenue and Customs”

Employment

Lord Freud Excerpts

Wednesday 15th January 2014 Lords Chamber

[Lord Holmes of Richmond]

To ask Her Majesty’s Government what assessment they have made of the number of people in full-time employment in the United Kingdom.

[The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud) (Con)]

There are more people in work than ever before. The latest figures show that we have reached a record high employment level in the UK, with more than 30 million people now in work. Three in every four workers—about 22 million people—are in full-time employment. In the past year, the number of people in full-time work has risen by 460,000. This represents 95% of the increase in total employment in the UK.

[Lord Holmes of Richmond (Con)]

I thank my noble friend for his response. These figures are very good news. Work represents the greatest way for people not only to escape poverty but for most of us to realise our potential. What are the Government doing to ensure that all groups benefit from this employment boom, not least young people and disabled people?

[Lord Freud]

My noble friend is right to concentrate on specifics, and I am happy to assure him that we have campaigns to get the disabled into work. We have just launched the two-year Disability Confident campaign for employers, and in December we issued the disability health employment strategy. As for youth, I am pleased to be able to say that JSA for youth has now fallen for 18 consecutive months. The number of young NEETs is the lowest for a decade. We have 1.5 million apprenticeship places. The key measure that I have used in this House before is the number of young out of work and out of education, which rose under the previous Government, even though we had the biggest boom. We have now got it under control and it is beginning to fall. The number is now down by 100,000 since the election.

[Lord Peston (Lab)]

My Lords, is the Minister aware that quite a few people in full-time employment are in jobs below their qualifications and abilities, so the figures need to be looked at more carefully? Much more to the point, is he aware that if we look at the present state of the British economy, to cite that great liberal economist John Maynard Keynes, it is nowhere near full employment and the Government’s policies will never get us there?

[Lord Freud]

My Lords, the leader of the Labour Party said in 2010 that we had a programme that would lead to the loss of 1 million jobs. In fact, we have had a programme that has led to an increase of 1.2 million jobs. We have the right policies to get this country back on the move.

[Lord Kirkwood of Kirkhope (LD)]

My Lords, whereas it is quite clear that the headline unemployment figures are welcome, there is a problem about emerging underemployment and intermittent hours. While we are waiting, with more and more impatience, for the arrival of universal credit, which in due course will help, will the Minister do all he can to encourage people to take advantage of the existing in-work benefits, which can help employees get into full-time, sustainable jobs? While he is at it, will he do his best to try to tone down the Government’s anti-welfare rhetoric, which indiscriminately and unfairly seeks to caricature every social security claimant as either a scrounger or a cheat?

[Lord Freud]

My Lords, as my noble friend is fully aware, we are introducing a programme to blend the out-of-work benefits with the in-work tax credits. That is vital because it gets rid of that distinction and makes a smooth transition from being out of work to being in work. That is a vital reform which, as my noble friend knows, I am pursuing with all my energy.

[Lord Low of Dalston (CB)]

Is the noble Lord able to say when the Government expect unemployment to fall to the level of 7% and we can expect to see interest rates rising again?

[Lord Freud]

My Lords, that is, of course, a reference to the Bank of England’s target of 7%. Unemployment has been falling pretty dramatically: it fell 0.3 percentage points to 7.4% in the latest three-month period. It is not the job of a government Minister to predict when unemployment will hit any particular rate; all I can say is that these trends are immensely encouraging. We should all look for them to continue to improve and I have no doubt that they will.

[Lord Soley (Lab)]

Bearing in mind his first Answer, can the Minister tell us what discussions there are in government about the relative economic merits of raising the minimum wage?

[Lord Freud]

There are two distinct factors. The higher the minimum wage, the more people will not go into the market. Estimates show that if we were to go with the recommended living wage, we would lose 300,000 jobs, particularly among youngsters. On the other side of the argument, there are benefits in terms of pay, particularly for the Government, because—as my noble friend mentioned—the tax credit system boosts the pay of low-paid people. That is the balance of the debate.

[The Lord Bishop of Newcastle]

My Lords, the Minister will be aware that there are still significant regional differences in unemployment levels in the UK. Can he tell us what regional policies the Government may have in mind to help the situation in areas such as the one where I live, in the north-east of England, where unemployment levels are still in double figures?

[Lord Freud]

My Lords, I was encouraged, as other noble Lords will have been, to hear the very optimistic remarks about what is happening in the north; namely, that it is outpacing London at this particular time. Let us hope that that is and remains the case.

Housing: Underoccupancy Charge

Lord Freud Excerpts

Tuesday 14th January 2014 Lords Chamber

[Lord McKenzie of Luton]

Lord McKenzie of Luton to ask Her Majesty’s Government, in the light of reports of anomalies in the operation of the underoccupancy charge, whether they have any plans to amend housing benefit regulations.

[The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud) (Con)]

The housing benefit regulations will be amended in March 2014 to ensure that all working-age social sector tenants who underoccupy their homes are subject to a reduction in their eligible rent, regardless of the length of their tenancy, unless they fall within one of the limited exceptions. The exceptions include certain excluded tenancies, shared ownership tenancies, mooring charges for houseboats, rent for caravan sites, temporary accommodation and supported exempt accommodation.

[Lord McKenzie of Luton (Lab)]

My Lords, I thank the Minister for that reply, but is not what has happened just another example of the incompetence that surrounds the Government’s welfare reforms, and their careless approach to people’s lives in introducing it? The upshot is that there are thousands of people who are being hit illegally with housing benefit reductions, and thousands of people who are unnecessarily caused undue stress because of the effect of this tax. I would like to ask the Minister how the Government are going to rectify matters for individuals who are denied their full benefit entitlement to date, whose rent arrears may have affected their credit rating, who have moved house in response to the tax and given up their security of tenure, or who have fallen into the clutches of private sector landlords who are now intent on evicting tenants claiming housing benefit? Is not this mess a further reason to scrap this wretched tax?

[Lord Freud]

My Lords, I can tell the noble Lord that the numbers involved in this anomaly are small and the amounts are modest. We have put guidance out to local authorities and we intend to regularise the matter through regulations in March.

[Lord Paddick (LD)]

My Lords, the legislation agreed by this House includes the requirement for a full review of the underoccupancy charge. Would my noble friend the Minister tell the House what progress has been made in putting this review in place, and will he confirm that this important process will include not only the impact of the policy but the methods of implementation?

[Lord Freud]

My Lords, we have an elaborate review, about which I have given full information to this House in the past, that is coming out in two stages. We have the interim report coming out later this year, and we have the final report coming out in 2015.

[Baroness Lister of Burtersett (Lab)]

My Lords, the numbers may be small, but it is people’s lives that have been affected, and I do not think the noble Lord the Minister actually answered my noble friend’s question about what will happen to them. Could he please answer it now? Also, it is quite likely that many of these people will have got into debt as a result of this. Will the Government pay compensation to cover the interest payments on that debt?

[Lord Freud]

The reductions in housing benefit will of course be repaid as we correct the anomaly for this period, so people will be made whole.

[Lord Greaves (LD)]

My Lords, when the repayments have to be made by local authorities, will they be reimbursed by central government, since it is clearly not the fault of local authorities that this cock-up has occurred?

[Lord Freud]

Yes, my Lords, the payment will of course go through as housing payment in the normal way.

[Lord McAvoy (Lab)]

My Lords, what a catalogue of disasters: the bedroom tax applied illegally to thousands of people; refunds that will be demanded and quite rightly paid; thousands paid a discretionary housing allowance by mistake and not obliged to repay the cash; and people forced to move house from areas they have lived in all of their lives. The Minister boasted of his role in introducing this tax. Will he now admit his personal responsibility in this disaster, and admit that it is a financial and a social disaster?

[Lord Freud]

My Lords, I will not. The department is engaged in a massive programme of reform. We have successfully brought in a benefit cap, and we have launched PIP, the universal credit and housing benefit reform, to name just a few.

[Lord Martin of Springburn (CB)]

My Lords, will the Minister acknowledge that in circumstances where couples are required to leave underoccupied houses, it is not necessarily the case that the house that is vacated will be easily re-let?

[Lord Freud]

My Lords, the position is that we have got a large number of overcrowded social homes; we have got a very long waiting list, stretching out to 2 million people; and the job of local authorities is to make sure that available homes are matched with the requirement of people who have larger families.

[Lord Christopher (Lab)]

My Lords, what plans do the Government have to deal with the problem, before it gets widespread, of the growing number of private landlords who have decided not to let any properties to people on benefits?

[Lord Freud]

My Lords, there are always flows between private landlords coming into the market and coming out of it. The underlying statistics are that, since we introduced the local authority housing changes, the number of people in private rented accommodation has gone up.

[Baroness Farrington of Ribbleton (Lab)]

My Lords, would the Minister undertake to read after this Question Time the questions that have been put to him and which he has not yet answered? For example, there was a question about people who have lost secure tenancies as a result of the Government’s errors. What are the Government going to do to help them?

[Lord Freud]

My Lords, as I made clear, the regulations that will come in in March will go back to the position that was intended, so people at that stage will have to make adjustments where they need to. So there is a timing issue, but not an underlying one.

[Lord Grocott (Lab)]

My Lords, will the noble Lord acknowledge that this House is often not a bad barometer of whether a policy is going well or badly? Could he note, as I have certainly noted, that there has been quite an absence of enthusiasm on his Benches for this policy, and for asking him helpful or even supportive questions? Could he just report that back to the department?

[Lord Freud]

My Lords, I am pleased to remind the noble Lord that the survey conducted on this policy by Ipsos MORI a couple of months ago found that 78% of people thought that it was important to tackle this problem, and 54% thought it was fair to have this kind of reduction.

[Lord Hughes of Woodside (Lab)]

My Lords, the Minister said that the regulations would be brought forward in March, which is two months from now. What will happen between now and then to the people who have suffered the difficulties that have been described, and how long after the amendments have been made will they take effect?

[Lord Freud]

I am not quite sure that I got that question. We have put out guidance to local authorities to make it clear that people in that position should not have a reduction in their benefits until the regulations have been introduced in a corrected form.

Pensions Bill

Lord Freud Excerpts

Monday 13th January 2014 Grand Committee

Moved by

[Lord Freud]

44: Schedule 13, page 76, line 25, at end insert—
“Pensions Act 2004 (c. 35)In section 258 of the Pensions Act 2004 (pension protection on transfer of employment), in subsection (2)(c), for sub-paragraphs (i) and (ii) substitute “complies with prescribed requirements”.”

[The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud) (Con)]

My Lords, before I speak directly to the subject of the amendment tabled in my name, I would like to address some of the points raised in debate last Wednesday while we were still considering amendments to Clause 24 and Schedule 14. I will start by acknowledging the points made in Wednesday’s debate about the need to ensure that statutory mechanisms to amend schemes are used with care. We have not chosen to apply an override lightly and we recognise the need to ensure that the extent is tightly defined.

The primary legislation sets out the key limits on the scope of the changes under the override, but much of the detail that deals with this, including how the extent of the changes is limited, will be set out in the technical regulations that we have been working on with trustees, scheme managers, the actuary profession and pension lawyers. We intend the regulations to set out a methodology and the assumptions that will apply to the calculation of the lost rebate.

We also intend to set out in the same way how the impact of changes to scheme rules are to be valued so that the actuary can certify that the employer is not recovering more than the lost national insurance rebate. We will of course conduct a full public consultation before these regulations are laid. As I said in my letter to Peers, if it would be helpful I would be happy to offer a separate briefing meeting with officials before Report. This will allow us to go through our thinking in detail in a way that is not possible in debate or correspondence.

I also want to make clear that we do not see use of the override as a default position for employers. We expect the override to be used by employers only as a fall-back position where they need to offset the costs resulting from the end of contracting out and have no options available other than closing the scheme. As several Lords pointed out, there are long-standing and established ways in which employers work with trustees to make changes to schemes when required. The noble Lord, Lord Browne, when paraphrasing the Pensions Minister, said:

“The strong incentive, therefore, is … to have a mature conversation with the trustees in order to reach an agreement”.—[Official Report, 8/1/14; col. GC 427.]

The Government have every expectation that, in the majority of cases, employers will do that and trustees will fully engage.

However, employers have told us that without the override, some of them will have few or no options available to them because such agreement cannot be reached or because scheme rules will not allow it. They tell us that this will force them to close their schemes. Some trustees have told us that without the override, they will find it difficult to agree changes. We therefore believe that the override is necessary to avoid schemes being closed, even though we believe that in most cases employers and trustees will be able to explore other options. As employers and trustees can be expected to discuss scheme changes as a matter of routine, and as it is in their interests to do so, we do not believe that those discussions would be facilitated by overlaying legislative requirements concerning the content and time limits of consultation. That is why we have not provided for that.

The noble Lord, Lord Browne, also asked whether the changes had been discussed with employers and, especially, small businesses concerning the impact of the increases to national insurance that they and employees will have to pay on the ending of contracting out. In particular, what would be the impact of large numbers of employees leaving schemes because of the increases in contributions? During the development of our policy we have engaged with a large range of employers, including the British Chambers of Commerce and the Federation of Small Businesses. Small businesses expressed no particular concern on the ending of contracting out. When we consult on our regulations, we will of course ensure that we gather views from employers of all sizes.

I turn now to scheme members. Notwithstanding the potential for increased contributions, members of defined benefit schemes will continue to get good-quality pension provision. Our expectation is that members, as demonstrated by the low opt-out rates with automatic enrolment, will choose to remain in their schemes. Our communications strategy will seek to ensure that both employers and employees are properly supported through this change and that both parties understand why the changes are taking place and what options and outcomes are available to them.

As to whether the override regulations should follow the negative procedure, I recognise the desire of the Committee to ensure proper scrutiny of the regulations. There is just over two years until the end of contracting out. To ensure that employers have adequate time to consult with actuaries, trustees and members about any potential changes, regulations need to be finalised as soon as possible. We are working hard to complete the regulations. However, these are complex provisions that require us to have extensive discussions with employers and trustees during and after a consultation period before we can get them right. Based on previous experience, we do not expect a final version to be ready to present to Parliament until May or June.

Our concern is that, with the affirmative procedure, we would not be able to secure time for a debate in both Houses before the Summer Recess. This would potentially delay the point at which employers can start to plan with confidence until October this year, just 18 months before contracting out ends. So, while recognising that the negative procedure does not allow Parliament the same level of scrutiny, it will mean that employers and schemes have longer to consider and consult on any changes. We believe that, on balance, this is the right approach.

The noble Lord, Lord Browne, specifically referred to the power in Clause 24(8) to extend the five-year window in which the employer override can be used. I will make clear that we think it important that there is a strict time limit on when the override can be used, which is why the Bill repeals the relevant provisions of Schedule 14 after five years. We fully expect those employers who wish to employ the override to have done so by 2021. However, we recognise that, in limited circumstances and given the complexity of some schemes, some employers may find it difficult to meet that time limit; for example, if several diverse employers have to agree on changes to a multi-employer scheme.

We therefore think it is vital that the time limit can be extended if absolutely necessary, but we also think that the extension of an existing time-limit period should not require the affirmative procedure when using the power would only allow employers otherwise prevented from using the override to do so. The power does not allow us to alter the way the override works or to extend its scope—only to extend the window in which employers can use it. As such, I do not believe the affirmative procedure would be appropriate. I apologise for the length of my contribution to the debate, but I hope that I have helped to reassure noble Lords on the issues that were raised last time we met.

I turn to Amendment 44 to Schedule 13. As I said when we last met, the abolition of contracting out is a natural consequence of the implementation of the single tier. With the ending of the additional state pension, there will no longer be anything to contract out of. Employers who contract out of the additional state pension must provide their scheme members with pension benefits that are broadly equal to, or better than, the benefits they would have received had they remained contracted in. To do so, they must satisfy the statutory standard set under Section 12A of the Pension Schemes Act 1993.

This is a consequential amendment to existing legislation to remove the reference to this statutory standard, as the standard will no longer exist once contracting out has ended. The amendment is to the provision for pension protection when someone transfers employment under TUPE regulations. For future transfers, and those who have already transferred, the intention is that regulations will ensure that employees will receive or continue to receive the same protection of their pension rights as they currently enjoy. I beg to move.

[Lord Whitty (Lab)]

My Lords, I am grateful to the Minister for giving in his opening remarks a reply wider than the amendment before us merits. I have no particular objection to the amendment, in so far as I understand it, but a few issues were raised in the debate last week that I do not think the Government have yet fully answered, even given the Minister’s speech today.

We have a difficult situation here. Everyone understands that contracting out has to cease in this respect, but the way in which it is done is vital. The Minister referred to the measures for private sector occupational schemes being tightly constrained by technical regulations. They definitely need to be tightly constrained because the Bill provides the ability to override trustees in all circumstances, to avoid any form of negotiation, and to place the full cost of any replacement of the contracting-out benefit on the employees. The cost of contracting out will jeopardise the solvency and therefore the future of many of these schemes. As we discussed at some length, and as was pointed out by my noble friend Lord Browne in particular, there is also the question of statutory protection in some circumstances in certain fairly significant schemes.

The Minister continues to justify doing all this on the basis of a negative resolution procedure. This is quite a revolution that will be imposed by this statute on private sector occupational pension schemes. There is not even, for example, a provision that states that there should be no retrospection. The whole principle of pension scheme regulation is that at any given point, benefits accumulated by an individual until that point will be frozen, even if changes are made by the trustees, by statute or whatever. That is not written into Schedule 14, as far as I can see. We need some reassurance on that.

The wider point is the one I raised last week. Where do the Government think we are going on private sector occupational pension schemes? The Minister said—perhaps not with relish; I would not put it quite like that—that it was a matter of inevitability that the decline in the number of people covered by defined benefit schemes had already reduced from more than 2 million to 1.6 million, and that the figure was expected to be roughly 0.9 million in a couple of years’ time. The Government seemed to regard that with some complacency. Of course changes will have to be made to those schemes, but it is not right to say that this imposition will have an effect only on defined benefit schemes, because the lack of trust in the future for any form of scheme is affected by the way that the Government can change solvency rules and the prospects of this scheme so drastically.

I am grateful to the Minister for offering us a meeting between now and Report. We will probably wish to take up that offer, and some schemes may wish to write to the Minister, but my point is that it is extraordinary that the Government seem to be relaxed about the prospect of the whole occupational pension scheme sector being undermined without any serious guarantees to beneficiaries or a clear strategy as to where we are going on the pensions scene.

The proposal is even odder coming from a Conservative-led Government, because these private sector schemes allow individuals to provide savings for the whole of their working lives. They are a way of providing security in retirement. They are a form of collaboration between employees and the employer in providing that. They defer pay in a way that, because it is in the pension pot and not in the pay packet, reduces inflationary pressures. Of course, they also create funds that will be the long-term investors in our business and industrial performance.

--- Later in debate ---

Finally, I fully accept that it is the Government’s intention that this override power will be used in extremis and that the very existence of the pension scheme is at risk. I understand that. My noble friend Lady Drake indicated that that may not necessarily be an approach to the use of the override that an employer may use; that is a point she made more strongly than I could. But if either the members of the scheme or the trustees come to the view that an employer has exceeded the limitations of the statutory power of the override, how do the trustees or the members of the scheme challenge the employer? Or is the Government’s intention—this is one possible interpretation of the legislation—that there will be no challenge if the employer holds a certificate from an actuary that confirms that the employer’s use of the power is compliant with the extent of the statutory power? Is there no method of appeal or challenge open to them? If there is, is it is expected that the expense of that, which could be significant, will have to be found by the members or trustees of the existing pension fund?

[Lord Freud]

I am grateful to noble Lords for their observations. I shall first take the query from the noble Lord, Lord Browne, about whether Amendment 44 is needed. I am conscious of his forensic skills in looking at particular bits of legislation in this area, and I therefore take his warning seriously. What it does is to remove a defunct reference on which legislation is worded. The default test is to meet the statutory standard. Actually, the legislation could work without this particular amendment, but it is confusing to those applying legislation and would leave an out-of-date reference on the statute book. The noble Lord, as usual, has picked up something quite clever.

He also picked up another clever thing: that I mis-spoke about my decades. I should have said two decades in each case, so I am pleased to correct that, and impressed that I was picked up.

On the negative procedure issue that the noble Lords, Lord Whitty and Lord Browne, and the noble Baroness, Lady Drake, mentioned, at this stage I do not have anything to add except to say that we are genuinely concerned about timing if the affirmative procedure is used. But that may be something we have a chance to discuss in our briefing ahead of Report.

On the question from the noble Baroness, Lady Drake, about the override being net or gross, as I mentioned in my letter on Friday, the intention is that the current rebate rate of 3.4% will be used for these calculations. Without reform, this rebate would change over time, but it is impossible to predict what would happen, and therefore creating a net value for the rebate in future years would be impractical.

[Baroness Drake]

I shall desist from arguing that point, as we are going to have a meeting, but it is such a wrong approach because it is an unexpected premium for employers. You can have net at the employer level and at the aggregate level—what employers would have to pay taking into account taxation and tax relief—as well as how you set the figure for NI overall. Individual employers would have been able to set the cost of the additional NI against their tax liabilities.

[Lord Freud]

I think my answer stands. It is gross, not net.

[Baroness Drake]

We are going to have another meeting, but the effect of what the Minister has just said worries me. Employers will be allowed to recoup the value that is crystallised in 2016, but everyone knows that if there had not been changes the post-2016 value would have gone down. In addition, the employer’s NI charges are an expenditure that can be taken into account and set against tax. If those two elements are not built in, is that not a little unfair in term of the rules for recoupment—a little imbalanced?

--- Later in debate ---

[Lord Freud]

I do not think that I am in a position to say anything further, but we will pick this up later and if we cannot satisfy the noble Baroness at that stage, I will have to write very specifically on that matter and the tax implications.

[Baroness Drake]

It goes to my point about negative regulations. We just do not get the opportunity to address these issues because they are not drafted.

[Lord Freud]

I hear the point. Clearly we will be looking at it some more.

On the point made by the noble Lord, Lord Whitty, about whether the override can be used for retrospective changes, the answer is no. That is contained in paragraph 3 of Schedule 14, which prohibits changes that might adversely affect subsisting rights; that is, rights to benefits already accrued.

On the noble Lord’s point about whether this undermines schemes, the override has been introduced precisely so as not to undermine schemes. Employers have told us that without the override, they would close schemes; the override is there to help them find ways of avoiding that.

On the protected persons question from the noble Lord, Lord Browne, I agree that it would be most unusual if the Government were not able to notify Parliament of their decision before the Bill completes its passage.

The noble Lord had a query about the rights of trustees to challenge. They could apply to the courts for direction, because amendments to the rules are not valid if they are beyond limits. Costs fall to the scheme, and ultimately the employer pays.

I hope that I have covered all the issues. Clearly this is an area of some interest and we will be spending more time on it.

Amendment 44 agreed.

--- Later in debate ---

Moved by

[Lord Freud]

48: Schedule 14, page 78, line 19, at end insert—
“( ) Where the effect of using the power to increase employee contributions of the relevant members would be to increase the contributions that the employer is required to pay, the power may be used to make other amendments needed to ensure that only the employee contributions are increased because of the use of the power.
“( ) Where the effect of using the power to alter the future accrual of benefits for or in respect of the relevant members would be to decrease the contributions that any members are required to pay, the power may be used to make other amendments needed to ensure that the contributions of those members are not decreased because of the use of the power.”

--- Later in debate ---

Moved by

[Lord Freud]

51: Before Clause 25, insert the following new Clause—
“Part 1AOption to boost old retirement pensionsOption to boost old retirement pensions
In Schedule (Option to boost old retirement pensions)—Part 1 contains amendments to allow certain people to pay additional contributions to boost their retirement pensions;
Part 2 contains amendments to allow corresponding legislation to be put in place for Northern Ireland.”

[Lord Freud]

My Lords, Part 1 of the Bill is about future generations of pensioners who will benefit from the certainty of a contributory state pension set above the level of the basic means test.

We have dealt with a great deal of complexity as we have discussed the transition provisions. These are intended to respect past contributions by giving people reaching state pension age on 6 April 2016 onwards the higher of the value of their national insurance record calculated under both single tier or old scheme rules. As a result of this calculation, many people retiring in the early years of the single tier will have their pension boosted using new-scheme rules. So a woman with 30 qualifying years and £10 of state earnings related pension scheme in 2016 would get £123.30 of single-tier pension, which is around £6.30 a week more than under the old scheme rules. As illustrated here, the groups who will benefit most are those who have only modest amounts of additional state pension, if any at all. These tend to be, in the main, women and the self-employed whose social and economic contributions were not captured in SERPS and are not fully reflected in the state second pension.

As set out in these amendments, we now want to give existing pensioners and those reaching state pension age before 6 April 2016 the opportunity to boost their additional state pension by paying a new class of voluntary national insurance contribution: class 3A. The intention is that a unit of additional pension, obtained by paying the class 3A contribution, will provide £1 a week of extra pension. The extra pension itself will simply be added to people’s state pension. The intention is for the scheme to start from October 2015 and run for a limited time of between 18 months to two years. There are just two entitlement conditions to class 3A—entitlement to a UK pension and that the person reaches state pension age on or before 5 April 2016.

We published a briefing paper that provides more details of the scheme, but we have left some decisions to secondary legislation. These include questions such as whether there should be a cap, perhaps of £25 a week; how long the scheme should be open; and whether people should have a cooling-off period after paying class 3A contributions. As the extra pension obtained will be the additional state pension, it will be uprated by CPI, it will be heritable and people will be able to defer, in line with existing rules.

I turn now to costs. As noble Lords will know, covering basic state pension gaps through existing class 3 is relatively cheap. A person paying class 3 to acquire one qualifying year of basic state pension will get their money back within four years of reaching state pension age. A different approach is required for class 3A to ensure that the arrangements do not become a burden for today’s national insurance contributors. So the costs of class 3A, which will be set by the Treasury, will be based on actuarially fair terms, in consultation with the Government Actuary’s Department. In keeping with this, the cost will be adjusted to reflect the age of the pensioner at the time they pay class 3A.

The briefing paper provides an example of how pricing based on life expectancy will work. The Government Actuary expects to report back to us on a pricing structure shortly. The report will take account of the latest ONS life expectancy estimates that were published on 11 December. I should clarify at this point that entitlement to pay existing class 3 voluntary national insurance contributions, which allows people to cover gaps in their contribution record for basic state pension, will be unaffected by this measure. DWP and HMRC will put in place administrative arrangements to ensure that individuals applying to pay new class 3A contributions are made aware that they should check their eligibility to make class 3 contributions.

--- Later in debate ---

The polling suggests that, overall, 14% to 15% of people are either very or fairly interested in buying; mostly, they are fairly interested. Let us average everything for Mr and Mrs Average. Let us suppose that 500,000 or 7% of the 7 million people who the Minister believes will have enough savings decide to buy class 3A contributions, that on average they buy about £13 a week extra, which is just over half the suggested maximum, and let us choose the middle price of £600 for an extra £1. My estimate, which I accept is very rough, is that this will bring in less than £4 billion in revenue. Whatever the figure, how will this be scored given that it will have to be paid back again by the state in pension payments in the decades ahead? Presumably, this also pushes those billions of pounds into the DWP AME costs over the years ahead. I do not know whether the Minister has the answer to this but how does that interact with the concept of a welfare cap? Is this to be added to the cap or within the cap?

[Lord Freud]

It does not count. I can answer that straightaway because the discussions on the welfare cap have been around working-age benefits, not pension benefits. The Labour Party may have been discussing a wider pension cap but that is not what we—

[Lord Browne of Ladyton]

It is the pension cap that this Committee is discussing. I am grateful for that clarification, which was appropriate at this time.

Finally, there are the decision points for individuals. Will they get advice on whether they should buy class 3A contributions? After all, there are significant considerations for individuals, such as their life expectancy, which may be significantly affected by where they live in the United Kingdom; whether they are married or in a civil partnership, or likely to be so; and what other income or savings they have—and, therefore, whether it is a good idea, if it may affect their entitlement to incapability benefits, for example. After all, if someone with £10,000 in savings decided to spend £4,000 of those in buying another £5 in income, would they not simply lose that in pension credit and have 40% less of their savings? For all the reasons that we have discussed, those savings may be necessary at later stages in their life. Crucially, who would sell this to them? In the context of the briefing that we received from the Minister’s team, we were told that engagement between the purchasers of this and the Government would be through the Treasury. Does that mean that the Treasury will have certain responsibilities to people who call to inquire about buying these class 3A contributions? If so, how will they be discharged?

There are many questions to ask. The Committee will not be surprised if the Minister cannot answer them all now, because, with respect, he was unable to answer even any of his own questions on his introductory remarks. We may have to wait and see about some of the detail. I understand the reasons for haste; this legislative vehicle is important for this initiative and, if it proves to be positive, that is a good thing. But the scheme was rushed out in the Autumn Statement and added on to the Bill when it had gone through another place. We have no costings or details on price, and no idea how it will be administered—but we still look forward very much to the Minister’s reply.

[Baroness Hollis of Heigham]

Can I ask a question following on from my noble friend about the interaction of pension credit, which I was trying to tease out as he was going along? At the moment, if you have savings of more than about £40,000, the first £10,000 of pension credit capital is disregarded for pension credit purposes. Thereafter, you have the tariff income of £1 for every £500, which means that if you have savings at the moment of about £40,000 and you are single—I am not sure how it would work for a couple, because I do not have the figures in my head—you would be just about ineligible for pension credit, because your tariff income would float you above it. But turn that capital into a pension, given the fairly unattractive rates for annuity purposes, and I think as a result you would come into pension credit. I shall try to do some more work on this as the discussion moves on, but, if I am right, what the Minister will get in upfront savings he will lose not only in payments in perpetuity while those people live, through his additional pension, but also the immediate payments he will have to make in pension credit—because, having disbursed their capital, they will now come within the pension credit income rules.

[Lord Freud]

I need to thank noble Lords, as usual, for a mine of interesting questions, and I shall try to deal with as many as I can. On the point that the noble Baroness, Lady Hollis, raised about the research and the understanding of the prices, we are clearly looking at how much the original research needs to be complemented—and, indeed, we may consider more polling work. The original testing was based on a stylised scheme, and further work, playing in the fact that the scheme is secured in national insurance and state pension, may be beneficial. We will also look to consider qualitative research to find out what sort of barriers there may be to taking up class 3A contributions, and I will be happy to provide further details of that research. On the question raised by the noble Lord, Lord Browne, about whether some of that research needs to be redone, I think we would say that it needs to be complemented.

The example of £1,248 raised by the noble Lord, Lord Browne, was not the cost of £1 for a 65 year-old; it was illustrative only, and we are looking to do some more research on the final price. In answer to questions from both the noble Lords, Lord Browne and Lord McKenzie, about information and timing, we will provide comprehensive information and get it quality assured by stakeholders, and we build on the kind of information we provide for class 3, which noble Lords will be familiar with. This is the standard background that we will build on.

The noble Lord, Lord Browne, raised the question of the amount of financial advice that people will need before buying class 3A. Again, in this document, as in others, we draw people’s attention to the fact that they may wish to take independent financial advice before taking a decision that could affect their current or future income. We also need to note that HMRC, rather than the Treasury, administers this scheme.

On the point about pension credit that the noble Baroness, Lady Hollis, was developing in front of our eyes, she is correct that some people would come within the scope of pension credit, but it is up to the decision-maker to decide whether people deprive themselves of capital in order to derive income. We will look at that point further.

[Baroness Hollis of Heigham]

There is certainly a rule within all social security, along with the rule that capital may be treated as income and income treated as capital, that you may not wilfully deprive yourself of capital in order to boost income. However, to do so wilfully in response to a government campaign would be very different from handing a gift of £10,000 to your grandchild. I think that the Government would be open to mis-selling claims if they went down that road. I do warn the Minister.

[Lord Freud]

I am, of course, always very grateful for warnings from the noble Baroness or other members of the Committee. That is clearly one of the areas in which quite a lot of detailed work needs to be done. I suspect that it is a minority sport that she is defining, but nevertheless we will need to look at it.

On the question of the noble Lord, Lord McKenzie, about what pension entitlement is necessary, people can have a pension entitlement that consists of graduated retirement benefit or state pension based on their own record of national insurance, which is a category A pension, or one derived from a spouse or civil partner’s record, which is a category B pension. Proposed new Section 61ZA overrides the rules that prevent people having an entitlement to more than one pension at a time.

On the question about what we call it, I think that the noble Lord called it a savings vehicle. We have to be rather careful in our language, which the noble Lord was good enough to recognise and acknowledge. Class 3A will be a one-off opportunity for today’s pensioners, with a cap on the amount of additional pension that can be bought and a limited window during which applications can be taken. As with other forms of voluntary national insurance, we do not expect it to be seen as an investment in a commercial sense. As class 3A is not an investment product, it does not require regulation by the Financial Conduct Authority and, therefore, people with defined contribution pension savings will not be able to get their pension pot refunded in order to take up class 3A as an alternative to an annuity.

On the point raised by the noble Lord, Lord Browne, about the belt and braces approach of the Government Actuary or the Deputy Government Actuary, this is a provision to cover situations where the post of the Government Actuary is vacant. It enables engagement for consideration. I know the noble Lord takes an Occam’s razor attitude to legislation, but that is the reason.

The question from the noble Lord, Lord McKenzie, on the recovery—

[The Deputy Chairman of Committees]

I apologise to the Minister—he will have to finish in a few minutes. A Division has been called. The Committee will stand adjourned for 10 minutes.

--- Later in debate ---

[Lord Freud]

My Lords, I should start by quickly apologising to the noble Lord, Lord Browne, on my belt-and-braces comments. I should have directed my admiration towards the noble Lord, Lord McKenzie, as regards the deputy Government Actuary. I need to address to the noble Lord the point on recovery, which is a straightforward matter, to the extent that if someone changes their mind we will undo both sides of the payment and consider only any actual additional payment made to balance up.

[Lord McKenzie of Luton]

Perhaps we can clarify the point to get rid of it. In that case, does the reference to benefits paid basically include the additional pension that has been earned from the payment?

[Lord Freud]

Yes. To the extent that if someone changes their mind about wanting to buy class 3A contributions and recoups that fund, we will recoup the early payments made on that benefit in order to balance both sides of the position.

We hope to have the pricing details bottomed out by Budget time, although I cannot give any range at this point.

As regards the query on numbers from the noble Lord, Lord Browne, of the 7 million pensioners we assess as potentially being able to afford it, we estimate that around 30% will have savings of between £1,500 and £10,000, 20% will have between £10,000 and £20,000, and 50% will have more than the £20,000 limit. So if we assume that pensioners would not want to spend more than, say, 25% of their capital on this, we might expect the average amount bought to be £5 a week. However, those are, again, premature estimates, and it is not worth spending too much time on that because there will be more information later.

I also take on board the points made by noble Lords about the importance of communicating the new scheme effectively and giving people the right information at the right time. We will take great care in going through the detail of implementation and delivery arrangements to put the customer first and will work with key stakeholders to ensure that this happens.

As I said in my opening remarks on pricing and revenue raising, we need to bring regulations back to the House, and at that time we will have the details required for a fully informed debate. We will introduce those regulations as soon as possible. I hope that I have been able to assure noble Lords that the new voluntary national insurance class 3A policy is well intended, designed to give some people who may have lost out on the opportunity to build additional pension the chance to do so.

[Lord McKenzie of Luton]

Will the Minister clarify a couple of points? Is it the case that someone can avail themselves of these provisions if they are currently contracted out and that there is no prohibition on that?

[Lord Freud]

I can confirm that they can do so.

[Lord McKenzie of Luton]

Whatever the level of their current S2P arrangements—they might have paid in significantly or they may have nothing at all—can they still avail themselves on the same basis as everyone else?

[Lord Freud]

Yes, I can confirm that, too.

Amendment 51 agreed.

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[Baroness Sherlock (Lab)]

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

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

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

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

[Lord Freud]

My Lords, the purpose of Clause 25 is to bring forward by just over eight years the point at which the state pension age completes its rise to 67. The latest evidence shows that we are living longer and, on average, healthier lives than ever before. To illustrate this point: a man in the UK reaching the age of 65 30 years ago—in 1983—could expect to spend 14.5 years in retirement. Today, a man reaching that same age can expect to spend about 21.5 years in retirement.

The noble Baroness, Lady Turner, raised the key issue of differential life expectancy. I do not propose to go into that in great detail at this point because we will have the opportunity to address that full-on in the next amendment; so, if she will forgive me, I shall concentrate my remarks on raising the age to 67.

The Pensions Act 2007 was informed by the Office for National Statistics’ 2004-based life expectancy projections. Those projections suggested that a man aged 67 in 2028 would survive for a further 19.9 years. However, on our latest understanding, this same man is projected to survive for a further 21.5 years, fully 1.6 years longer than we thought when setting the original timetable in the 2007 Act.

We continue to believe that it is only fair that those enjoying the benefits of longer life expectancy pay a share of the associated costs. Bringing forward the increase in pensionable age to 66 through provisions in the Pensions Act 2011 ensured the short-term sustainability of the UK’s state pension system. Now, the measures contained in this clause to accelerate the increase to the age of 67, combined with the regular review mechanism as set out in Clause 26, will help ensure the fairness and affordability of the system into the medium and long term. The savings projected to result from this proposal are significant—some £73 billion in net savings between 2026 and 2036—but not only are there net spending reductions, but this measure is projected to increase employment rates and boost GDP by around £100 billion over the same period.

Bringing forward the rise to 67 by some eight years will affect around 8 million men and women born between 6 April 1960 and 5 April 1969: people who are now aged between about 44 and 53. As with previous increases in state pension age, the transition to the higher age will be phased in gradually: men and women born between 6 April 1960 and 5 March 1961 will have a state pension age of between 66 and 67, and those born between 6 March 1961 and 5 April 1969 will have a state pension age of 67. Those born after 5 April 1969 will not be affected by this change because they already have a state pension age of 67 or 68, or somewhere in between the two, as legislated for in the Pensions Act 2007. The proposals in this clause mean that the maximum increase that any individual will experience in their state pension age, in relation to the Pensions Act 2007, is one year. By starting the transition to age 67 in 2026, no one who was affected by the Pensions Act 2011 will have their state pension age changed again by the measures in this Bill. To help people prepare for the change, we announced these proposals back in November 2011, giving the first cohorts affected more than 14 years’ notice.

Finally, noble Lords will be aware that an ageing society is not a phenomenon unique to the UK. That is why other countries in Europe and beyond are moving to adjust the age at which retirement benefits become available. Indeed, even by moving to a state pension age of 67 in 2028, we will still be behind many other countries—Ireland will get there in 2021, the Netherlands and Australia in 2023, and Denmark and the US in 2027. In bringing forward the rise to a state pension age of 67 we are ensuring that the system as a whole remains fair between the generations and sustainable and that we are doing so in a way that is on a par with elsewhere in the developed world. I beg to move that Clause 25 stands part of the Bill.

Clause 25 agreed.

--- Later in debate ---

[Baroness Sherlock]

My Lords, in addition to a gender divide, we have heard that there is a class divide and a geographical divide. To add to the examples from Glasgow, Liverpool and Norfolk, I offer Dorset, which I am reliably informed is the place to live—statistically, you are expected to live longest in the UK. Women in east Dorset can expect to live nine years longer than women in Corby—the area with the shortest life expectancy for women. Men living in east Dorset can expect to live 7.1 years longer than men in Manchester—the area with the shortest life expectancy for men. Then there is the effect of this differential life expectancy on state retirement incomes. Those living shortest post retirement, primarily the poorest and least skilled workers, will obviously receive less in state pension than their better-off counterparts in Dorset. Women in Corby will get £67,000 less and men in Manchester will get £53,000 less. And, of course, those manual workers may well have contributed for longer than those who spent longer in education.

Where does all this take us? It does not take us to any straightforward policy solutions. As I am sure is the case with other noble Lords, many representations have been made to me on ways in which the Government should tackle this—that perhaps they should not raise the state pension age until we have tackled inequalities in health; or that a variable retirement age should be brought in, taking account of life expectancy, work pattern or contribution history; or that there should be flexible retirement proposals or the idea of paying actuarially adjusted pensions early for those retiring in their 60s but before the state pension age. It is quite likely that none of these will commend themselves to the Minister. Given the look on his face, I expect that I am right in that. However, I am sure the Minister will accept that what we have heard today is an analysis that suggests that a significant set of public policy issues needs to be addressed. They are not all pension issues—a point that my noble friend Lady Drake made powerfully—but are effectively spillovers from decisions around the state pension age, which will then impact on public policy-making in a range of other areas.

If the Minister does not feel able to respond positively to any of those concrete suggestions on how to deal with this issue, I encourage him at the very least to go along with the idea of spelling out in the Bill the need to take account of all these factors, because that would then at least put the review process for setting the state pension age in the position of having to tackle all these complicated issues and making some recommendations to government on which we could all, I hope, place some store.

[Lord Freud]

My Lords, the purpose of Clause 26 is to ensure that every Government consider state pension age in light of the latest life expectancy projections and other relevant data. The legislation sets out that a review must be informed by a report from the Government Actuary on the proportion of adult life spent in retirement and corresponding implications for state pension age.

On the point about pensions as a percentage of GDP raised by the noble Baroness, Lady Hollis, the single-tier impact assessment shows that even with an SPA of 67 in 2028 and an SPA of 68 in 2046, the proportion of pensioner benefit expenditure could rise from under 7% of GDP in 2016 to 9% of GDP by the 2060s. I am addressing her point about the baby boom.

It is true that life expectancy is different between socio-economic groups, and even in the latest figures it slightly widened. However, it is increasing for all groups. Such inequalities have always existed and, as the Minister noted in Committee in the other place, adjusting the pension age is not the right way to address these inequalities. We need to address these issues elsewhere through tackling the factors that lead to these differences in life expectancy. To illustrate the rate of increase, the period of life expectancy at age 65 for males in the lowest occupational class between 2002 and 2006 was 15.3 years. You have to go back only to 1999 for the average period of life expectancy of males from all occupations to be the same figure.

I will not go into detail on one of the amendments regarding adult age because we have not discussed it very much, but I will pick up the point raised by the noble Baroness, Lady Hollis, and the noble Lord, Lord Whitty, on the timing of when people enter the labour market.

The single-tier pension’s key features are simplicity—giving people the clarity and confidence to save—and a value set above the minimum income guarantee standard. Allowing early access would mean that we would have actuarially to reduce the pension, and this would severely undermine both these key features of the new system, complicating outcomes and meaning that, if people’s actuarially reduced state pension was below the minimum guarantee, we would retain an extensive and complex system of means-testing. International organisations have repeatedly advised countries to withdraw incentives to early retirement. Indeed, in recent years, a number of countries have put in place measures to discourage it, including Denmark, Finland and Germany.

The changes to state pension age are primarily about fiscal sustainability and fairness between the generations, such as taxpayers and pensioners, at any given time. It is therefore right that the Government Actuary’s Department focuses on total life expectancy from state pension age and not on healthy life expectancy. Indeed, the Pensions Commission advocated that pension age should rise proportionately in line with life expectancy, thereby maintaining the proportion of adult life spent in retirement. Just last week, the noble Lord, Lord Turner, reasserted this principle. This is what the GAD element of the review is for.

We also think it is crucial that future Governments have access to wider evidence before laying any proposals to change state pension age before Parliament. We have been clear in the White Paper and in the other place that we believe the reviews of state pension age should consider healthy life expectancy but also differences between socioeconomic groups and the wider economic effects of increasing state pension age.

On my original point about flexibility, we do not want to be too prescriptive in setting out factors that must be looked at by each review. We want to foster a more long-term view which would allow each Government to specify factors relevant to the circumstances at the time of commissioning the review. There is the danger that, by setting out a list of things for each review to consider, future Governments will simply have a tick-box approach to the reviews. As my noble friend Lord Stonham said—

[Baroness Sherlock]

It is Stoneham.

--- Later in debate ---

[Lord Freud]

When I last talked to the noble Lord he was pretty indifferent about his pronunciation, but I apologise to the noble Lord, Lord Stoneham. He made a point which I want to reinforce. When we are looking out for 10, 20 or more years, it is quite difficult to specify all the considerations that a review should take into account. The risk is that that if you specify them, you become restricted.

[Baroness Hollis of Heigham]

The Minister is being a little unfair in this argument because at no stage did I suggest that we remove the words “other factors”. They would remain. All I am trying to do is transpose the wording from this document into the Bill; they are both the Government’s documents.

[Lord Freud]

I am very grateful to the noble Baroness for her advice, but we want to make sure that future Governments look at this themselves, take a proactive approach to the review process and are transparent and conscious about what they are commissioning. Stipulating now all the variables and all the factors to be taken into account restricts rather than supports that responsibility. Greater discretion will also allow an iterative approach with future Governments building on the reviews of previous ones.

A lighter touch approach will help to generate more debate at the time when the state pension age review is conducted. This should encourage all interested parties across Parliament and industry to feed in their thoughts and contributions and involve them better in the process.

The noble Baroness and, indeed, the noble Lord, Lord Whitty, discussed quite a lot of the factors. I do not wish to get into a huge debate about healthy life expectancy, and so on, but I will make just make a few points on it. The first is to warn noble Lords that the ONS measure of healthy life expectancy from 2000 onwards was changed to run in comparison with our EU partners, so we do not have a consistent data run for the whole period, although we have evidence that shows that healthy life expectancy has increased consistently since the 1980s. Do not use the run because there is a discontinuity in it.

--- Later in debate ---

[Baroness Hollis of Heigham]

We are more stoical.

[Lord Freud]

It is a very fair point that health is, importantly, attitudinal. It is not a matter of just taking a medical model for this. I accept that point.

However, where we have an unbroken record, which is the time spent free of disability, which runs from 1981 to 2010, the figure for men in Great Britain rose by 2.9 years and by 2.8 years for women. It is possible to take a rather more encouraging attitude towards our healthy life expectancy compared with some of the gloom I sometimes hear. The House of Lords report, Ready for Ageing—the Filkin review to which the noble Baroness referred—concluded:

“The Government were right to raise the state pension age, but they are now adopting a timetable of increases slower than that recommended by the Turner Commission and will have to revisit this with rising healthy life expectancy”.

[Baroness Hollis of Heigham]

Yes, but one of the problems is that people quote that without reading the 980 pages of evidence that went with it, which show that the summary of those recommendations did not pick up most of the debates in the evidence.

[Lord Freud]

My Lords, I can only go with the conclusion that I would like to leave on the record alongside my warning to take a little care on some of the conclusions that have been drawn on the progress of healthy life expectancy.

The noble Lord, Lord Whitty, asked whether people can work longer and what the trends are in the labour market. The SPA has remained at 65 for men since the 1940s and the average age of labour market exit in 1950 was just over 67 for men and just under 64 for women. That figure has declined, ironically, along with the nature of the work that we have been talking about—hard physical labour. We have seen a countertrend in what has happened since then.

I genuinely welcome this debate and believe that it is important to keep having these discussions, whether inside or outside the House. But we should not seek to prescribe every last detail in the Bill; we must make sure that each and every Government revisit the issue in the light of the circumstances. I urge the noble Baroness to withdraw her amendment.

[Baroness Hollis of Heigham]

Despite being interrupted by a couple of votes, we have had an interesting, valuable and, I hope, important debate. I am very grateful to the number of noble Lords who have taken part in it, including those who had not expected to do so. I was certainly grateful to hear from the noble Lord, Lord Stoneham—not to be confused with the housing association called Stonham.

I am grateful to my noble friends Lord Whitty and Lady Drake for joining me in pressing the Government to put these provisions in the Bill, not to challenge where we are now but for future consideration, when we are thinking about raising the state pension age—and I cannot emphasise too strongly—so that we have a coherent policy across government. We need that, because, as pension credit is withdrawn, with every year that we equalise the state pension age between men and women, we reduce the income of men who are in their twilight and who have dropped out of the labour market early, as 30% or more have and do. That figure will increase as the pension age rises—that 30% will probably go up to 35% and 40%, and so on, as we raise the state pension age, unless we can keep people in the labour market for longer, as my noble friend says.

--- Later in debate ---

[Lord Freud]

Let me just make a point, before we take those figures absolutely on face value. When you have differential incentives—in other words, the point that the noble Baroness is making precisely, when you have a higher level of pension credit than working age benefit—you cannot be too surprised when people elect to go with the better paying structure. That probably tells you less than it could about what is happening to those people.

[Baroness Hollis of Heigham]

Oh, dear me. Are we assuming that somebody who has a real choice about whether to stay in work is going to make a rational decision to forgo a job that pays £400 a week to take an extra £30 or £40 or £50 in pension credit to top up an employment support allowance? Is that what the Minister is saying—that that person is so rational that he will willingly reduce his income to one-third of what it was because of the enticement of pension credit? Is that the Minister’s position?

[Lord Freud]

I was referring to the differential between the two benefit structures. I was not referring to enticement; I was just saying that one cannot be too surprised if people select the better of two options.

[Baroness Hollis of Heigham]

I think that I am right in saying that under 10%—probably about 7%—of those in that position do not choose to go on pension credit when that choice is available to them, and the rest do. So clearly the Government’s position assumes that people are making a choice that is attractive because they have been financially encouraged to do so by the relative generosity of pension credit. I cannot attach any other understanding to the Minister’s position. If pension credit did not exist, the assumption would be that the benefits structure was less attractive and therefore, presumably, that they would stay in work for longer—and that therefore they are being encouraged because of pension credit to leave earlier than they need to and that, therefore, withdrawing pension credit is a wise move in the process of the rationality of economic thought in the labour market. Is that what the Minister is saying?

[Lord Freud]

My Lords, I am saying that when you have a higher benefits structure, it is not surprising if people select it, other things being equal, over a lower one.

[Baroness Hollis of Heigham]

I think that the Minister and I have a very different understanding. My view is based on my experience representing—I do not know if the noble Lord has ever had that privilege—one of the poorest wards in my city for nearly 25 years. My noble friends here have either represented such wards or constituencies with very poor members and I can tell the Minister that if people can work they want to work. They want it for self-respect, for income, for social mobility and they regard going “on the club”, as it used to be called in my ward, or taking benefits as something that they are not proud of but reluctantly do because the labour market does not make appropriate provision for them, given the state either of their skills or their health. If that comes from experience of working with people, as I have done and as I am sure my noble friends have done, then I regret that the Minister cannot share that personal experience, which might give him a greater respect for the pressures that some people face in making decisions when they have to leave the labour market. I am not for a moment suggesting that he is lacking respect, but there is a great difference in perspective on this and I do not know that I can bridge it with the noble Lord.

It is certainly the case that, as pension credit is withdrawn, it will reduce the income of people who have already had to leave the labour market, usually on grounds of ill health, and as a result they will have less money for heating, diet and all the other things that we know they will need. People going onto pension credit are already effectively entering that second decade of disability without, in many cases, having gone through the first decade of reasonably healthy retirement. By withdrawing pension credit and putting no substitute in its place, we are ensuring that all we do is increase people’s poverty and thereby progressively increase the rate at which they go into further ill health, since they can no longer afford the heating, the diet, the aids and appliances, the cleaning help and all the rest of it which keeps them more effectively fit and engaged in society. Again, I am really disappointed in the Minister if he does not appreciate that.

[Lord Freud]

I cannot understand the difference between what the noble Baroness has just been talking about and what she was saying the other day when she was so indignant that men could get pension credit at women’s state pension age. She described it, if I remember right, as a smooth path to the beach before getting state pension.

[Baroness Hollis of Heigham]

Indeed so—I made the image up on the spot, but I will, indeed, repeat it. What I was arguing there was that women were facing a cliff edge. Men had always had that slow path to the beach, but that is now being withdrawn from them and as a result they have a cliff edge in the future between where they are, on benefits, and state pension. Unfortunately for the Minister, the argument continues to be made.

I do not think that any of us disagree, as my noble friend Lady Drake pointed out so well and as was reinforced by my noble friend Lady Sherlock, that we need to extend healthy life expectancy and that that requires health policies. We need to make the second decade of average life expectancy, of increasing disability, of as decent a quality as we possibly can. The noble Lord, Lord Stoneham, said that factors will change. Of course they will. The Minister said that factors will change, but the point is that that is already covered, as was pointed out by my noble friend Lord Browne, but the wording of Clause 26(1)(a) gives the Secretary of State alone the privilege of determining the other factors. Putting all these factors in the Bill, as listed in the White Paper, does not exclude other factors that may develop as time permits; it is a basis on which I would hope that the DWP has its arm strengthened as it engages in battles for resources with other departments and with the Treasury.

Does the Minister really think that he will have greater powers of persuasion to get those health policies that we would want to extend healthy life expectancy, or those supporting policies from local government or from the DCLG for the second decade if these factors are not in the Bill and if the Government are not bound by the legislative requirement to consider those factors? On the contrary; by putting those factors into the Bill we will strengthen the DWP’s arm in requiring other departments to play their part in seeking to extend healthy life expectancy and to improve the quality of the decade of disability. Without it, his position will be weaker, not stronger. The other factors, as my noble friend Lord Browne has reminded me, remain the same. I hope that this addresses the point made by the noble Lord, Lord Stoneham. We are absolutely right to challenge the assumption of reduced inequality.

My noble friend Lady Sherlock said that we are going to eat into capital. The point is that, for example, somebody who is in a position to draw down an occupational pension has a choice of when they retire and they are not dependent on their basic state pension. The people we are talking about in this Bill are, and they have no such choice. As my noble friend Lady Sherlock said, they will eat into their capital, thus ensuring an impoverished old age as they wait to reach their state pension age.

--- Later in debate ---

[Baroness Sherlock]

My Lords, as I said, there has been a succession of changes to pension policy and legislation. One key example is that under the previous Labour Government the number of years of contributions required to get a full basic state pension fell significantly, only for there to be a change of Government and for the number now being proposed to shoot back up again. The Chancellor did not help by giving the appearance of using the Autumn Statement to make an ad hoc announcement about the raising of state pension age. Once the dust settled, that turned out to be nothing more than what was already in the Pensions Bill and was therefore not necessary. However, that ran the risk of reinforcing the impression that pensions policy is made on the hoof, and we need to tackle that.

If we are serious about getting Britain saving for retirement, we need a proper, cross-party consensus on the way forward for settling the state pension age. Rather than simply being a matter for the Secretary of State, as the Bill proposes, we need a proper external panel which has the kind of cross-party and independent representation which will reassure the public and give confidence to parliamentarians from across the spectrum. We need a review mechanism that is clearly understood, a review body that is clear in purpose and function and ways of working, and clear parliamentary scrutiny of its finding—the kinds of things that will come from the report.

I know that the Minister will want to be reassuring about the Government’s intentions. In another place, the Pensions Minister said, in the face of pressure from the Opposition, that he had always envisaged a model such as the Hutton review, where the review is chaired by someone who people respect and who has credibility across the spectrum. That point was underlined by the Minister at Second Reading. I am happy to accept that the current Pensions Minister means that. However, even if that proposal were satisfactory, he will not always be Pensions Minister. I mean no disrespect when I say that I hope very much that in 18 months he will not be Pensions Minister any more. I can recommend my right honourable friend Mr Gregg McClymont, should anyone be looking for an alternative. However, Mr Webb, even when he is Pensions Minister, cannot bind the hands of his successors, even in this Parliament, never mind a future one. That is why this matter needs fixing in legislation.

Our amendment proposes simply that the review body should include representatives of the opposition parties and of the Cross-Bench Members of this House to ensure that Parliament as a whole is at the heart of this process. It would also include representatives of trade unions as those who represent those who are spending their ever-longer working lives saving for retirement. This broader representation on the review panel will give people confidence that a wide range of views will be heard. This amendment does not seek to shape the remit beyond that of having a range of competent and representative people sitting on the review panel. I urge the Minister to accept it.

[Lord Freud]

My Lords, I start by acknowledging the expertise and experience of the noble Baroness, Lady Drake, as a member of the Pensions Commission, on which she was able to rest when she moved this debate.

The purpose of the review is to inform the Secretary of State. Its job would be to collect and analyse the latest data, compiling a report to give the Government of the day the information they need to make a decision. Of course, we are all keen that the Secretary of State receives a report that is both impartial and credible. We appreciate the attraction of a panel to ensure that a wide range of views are reflected in the compilation of the report. However, we have been clear that we do not think that prescribing a committee is the right way to go. We do not want to restrict future Governments by prescribing exactly what the review looks at and who is doing the looking. There is greater merit in allowing Governments to choose whether to appoint a single reviewer—as with the review of public service pensions by the noble Lord, Lord Hutton—or a larger commission, such as the Pensions Commission. Indeed, the latter, set up by the previous Government, was made up of three individuals, two from the worlds of academia and business, neither of which, incidentally, was mentioned in the amendment.

Both of those cases show that a legislative underpin is not required to set up a review that can win cross-party and wider public support and that there is no consensus on where is the best place to find the right people. We do not think that the proposal by the noble Baroness, Lady Drake, to set up a permanent commission—an NDPB or a standing commission, as she put it—is appropriate. That kind of structure is simply not necessary for a review that will come together and publish a report on a single issue, wide-ranging though it may be.

[Baroness Hollis of Heigham]

Is that so very different from the Low Pay Commission, which is also a single issue?

[Lord Freud]

The Low Pay Commission reports on a much more regular basis than the five years envisaged here. To pick up the timings that we have experienced, there is the example of Independent Public Service Pensions Commission. The noble Lord, Lord Hutton, was appointed in June 2010 and reported some nine months later, in March 2011. In the intervening period the noble Lord held two calls for evidence, undertook a research event, published an interim report and published his final report. It is clear that a lot can be done in the space of a year, and that is the kind of period that we imagine is about the right length of time required for a review.

NDPBs also tend to look at a wide variety of regularly changing data in the areas of longevity, healthy life expectancy, socioeconomic variations, trends in the labour market and so on, and they tend to be published on a much less regular basis than this. I want to be clear, though, that the groups indicated in Amendment 57A and many others should all be encouraged to participate and contribute in the process. Indeed, the review has been designed to ensure that both Parliament and stakeholders will have ample opportunity to participate in the process and shape the outcomes. Furthermore, because the reviews will be regular, stakeholders may indeed be able to better prepare and contribute than they are now.

Of course, if the Government decide to bring forward changes to the pension age, then those changes must be secured through primary legislation and subjected to the full scrutiny and approval of both Houses, as now. However, to have such extensive and political input at the data-gathering and analysis stage risks stymieing the process before information can even be provided to the Secretary of State. Indeed, the House of Commons Disqualification Act 1975 prevents MPs sitting on many public bodies, precisely in order to avoid politics influencing their work.

Regarding the publication of this report, subsection (6) of this clause requires all reports prepared under the clause to be published. This means that both the Government Actuary and the report from the independently led review, including any recommendations that that component of the review makes, will be published, so all the evidence that has been taken will be made available. Every report will be laid in Parliament and published, including the report from the Secretary of State. As I said before, any proposed changes will require primary legislation.

It is for the Government of the day to put forward proposals resulting from the reports and to present any legislation to Parliament. Responsibility for publishing any overall report on the outcome of the review therefore has to remain with the Secretary of State. I hope that I have been able to provide some reassurance about how we envisage the review working and why. In this case, less is more. I urge the noble Baroness to withdraw the amendment.

[Baroness Drake]

I thank the Minister for his comments. I certainly was not trying to overleverage my experience on the Pensions Commission; that was not necessarily the main driver for my amendment. I shall respond to some of the points that he made. In Clause 26 the periodic review on the state pension age is a standing arrangement, which is why it provides an opportunity to create an independent commission in support of that arrangement. It is not a case of a one-off job and then it finishes, otherwise it would not be in the Bill. It is obviously intended as a standing arrangement, which is meritorious; I do not disagree with that. However, that is materially different from a one-off commissioning of something. It says that if you are going to have this standing arrangement and periodic reviews and assess whether the current rules on state pension age are fit for purpose, that lends itself to being supported by a commission on a standing basis.

Again, on reading Clause 26 it is not simply dealing with the narrow issue of the state pension age rules, it is also quite clearly saying it will review other factors relevant to the review. The implication in that must be that the Government recognise that complexities would arise around the demographic challenge. That would need to be understood in order to influence policy decisions across a range of issues. Again, a standing commission would be able to assist in looking at that wider range of factors that would inform the review.

I also repeat the point I made in moving the amendment because it is really important. The long-term management of public finances, particularly in respect of responses to the demographic challenge, would be really helped by having a standing commission. The fact that so much progress was able to be made on a political consensus that we are still getting the reward from was because there was a commission. It was able to present the issues and the case to Governments and political parties, as well as the country as a whole, in such a compelling way that it drives, almost from a sense of political responsibility, a consensus on the long-term management of public finances on that issue. It would be a shame to lose that.

Sustainability is a long-term project. Secretaries of State change, Governments change, but as a society we want a political system that delivers rational policies that give us good long-term outcomes. The one thing that characterised pensions in the last 20 years of the previous century was the incremental decisions that Government after Government made about both the private and public pension system. When you stood back you could see the complexity and the dysfunctionality of what the political system, motivated as it might have been in each instance in a very positive way, created. Certainly, when employers started to withdraw from the private pension system it started to show the weaknesses of our political system.

If we are looking for long-term effective management of public finances, the sustainability of the private pension system and the demographic response over the long term this strikes me as a way to go forward. To take an anecdotal example, I remember telling my husband that I was about to go and tell the whole country that they had to work significantly longer and we could not even promise that even the first forecast of how much longer they would have to work would not be increased further in the light of experience. He thought that I was committing career suicide and could not believe that I could possibly do that. I explained to him that the evidence was so compelling and if one cared desperately about a pension system and the interests of the people in this country you had to have the courage to take that debate out to people.

I can remember the CBI being horrified at the thought of having to retain older workers. I can remember trade unions being mortified at the prospect of the default retirement age being raised or abolished because it was a stalking horse for raising the state pension age. However, because you had a commission you could have a much more positive influence on that debate. I remember, as I am sure the Minister will experience, lots of people from around the world, particularly in Europe, asking how the UK managed to get such a consensus from the country about the reforms that needed to be made to the pensions system and the state pension age in particular. I genuinely think that one of the reasons that was possible, compared with some of the problems that are being experienced in other countries, is because the analysis and the narrative that were taken out to people were not just the product of party politics. They were the product of a commission that sought to identify the issues and the choices on the basis that even if you did not make a choice, that by definition was a choice because you would be inevitably moving along a certain line.

I think that that is right. There are 60 million people in this country who have an investment over the very long term, either for themselves, their children or their grandchildren, so we must get this right. What is there to fear in trying to sustain the political consensus by having a group of independent people who assist that process by being able to assist with the narrative and identify the issues? It is that passion that makes me move the amendment, not just that I happened to be on a commission at a point in time. I beg leave to withdraw the amendment.

Pensions Bill

Lord Freud Excerpts

Wednesday 8th January 2014 Grand Committee

[The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud) (Con)]

My Lords, I start by thanking the noble Lord, Lord Browne, for stepping into the place of the noble Baroness, Lady Sherlock, with his customary skill. I join him in paying tribute to Paul Goggins. I knew him much less well than the noble Lord, Lord Browne, did, but I worked with him on the Mesothelioma Bill—which is now an Act—and I found him knowledgeable, supportive and an extraordinarily likeable man. He is a real loss to many of us.

[Noble Lords]

Hear, hear!

[Lord Freud]

On the series of questions that the noble Lord, Lord Browne, raised about the triple lock, I would direct him to the next Conservative manifesto if he wants more information. I will not go into any more detail, but I will promise to deal with the amendment in more than two paragraphs and to treat it with the dignity that it deserves.

The amendment of the noble Baroness, Lady Turner, concerns the single-tier position of people entitled to a protected payment—so, in other words, those with foundation amounts higher than the full single-tier pension. People in this position are likely to have built substantial additional state pension entitlement in the existing system and would typically have been contracted into the additional state pension for most of their working life.

Let me first say that the decision to close the additional state pension in 2016 was by design, rather than by accident, as it allows us to provide a simpler, fairer state pension. Most of the complexity inherent in the current system is associated with the additional state pension and contracting out. This in turn makes it more difficult for a person to know how much pension they are likely to get from the state and how much more they would need to save to realise their desired income in retirement. However, we are recognising pre-commencement qualifying years in the transition design and will allow people to gain amounts above the full single-tier pension. We also uprate the whole single-tier amount by earnings, as opposed to just the basic state pension in the current system, and any excess is price-protected. I think we have had sufficient reference to the triple lock around that.

The noble Baroness’s amendment would allow those with protected payments to add up to nine extra qualifying years to their foundation amount. This would provide for a maximum of an extra £37 a week in single-tier pension—or, in other words, nine times the £4.11 a week illustrative figure. If we were to do this, we simply would not have a single-tier system. We would, in fact, enhance disparities in state pension outcomes counter to the aims of the reform which seeks to provide a flat-rate amount on which people can save. For example, a person whose pre-commencement qualifying years result in a pension that is £1 above the illustrative amount of £144 a week could add up to nine more qualifying years. However, this generosity would not be extended to a person whose pre-commencement qualifying years resulted in a pension just below, or at, the full single-tier amount: this person’s pension would be capped at £144 of the illustrative amount. This seems arbitrary and unfair.

We are also talking about potentially enhancing the entitlements of up to around 1.5 million single-tier pensioners who will be receiving a protected payment in the 2030s. This would come at a significant cost—each extra year added to each individual’s entitlement would add £200 a year to the costs of the single-tier pension. As I have already said, the costs of this amendment would be considerable and it would benefit a group which is already receiving £11 a week more than the full single tier on average.

To sum up, the single-tier pension is designed to give people a clear foundation for saving. The transition arrangements recognise the contributions people will have made up to 2016. Further enhancements for people with amounts higher than the full single-tier pension would undermine the principles of the reform and come at considerable cost. I therefore ask the noble Baroness to withdraw the amendment.

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[Lord Browne of Ladyton]

My Lords, I have no idea how many persons Clause 6 is expected to relate to, but it seems to be a discrete and relatively small group of pensioners. As I understand it, it deals with those who, after the start date, leave a contracted-out pension scheme where, under the rules of the scheme, they are not entitled to a pension and their transitional rate will be calculated as if they have never been contracted out before, and thereafter by reference to Schedule 1 which will set out the rules whereby that transitional rate will be calculated.

Amendments 25 to 29, as my noble friends have explained, all have similar intentions behind them. They refer particularly to the revaluation of the foundation amount and the protected accrued state pension amount above the single-tier amount for people with pre-commencement qualifying years of practicable pensionable age. As my noble friends have explained, the amendments are designed to ensure that for the revaluation of the foundation amount and the amount in excess of the full single-tier state pension, the protected payment would be in line with average annual increases in earnings as opposed to annual increases in general price levels. I hope that I have understood the effect of these complicated amendments. Currently, the Bill specifies that the valuation of the foundation amount up to the full rate of the state pension is to be revalued by earnings and any excess over that rate is to be revalued in line with the annual increase in the general level of prices.

For all those reasons articulated by my noble friends, which it would be otiose to repeat, I look forward to the Minister’s assessment of my noble friend’s amendment. I ask him to address these additional questions when he responds to the amendment. How will the public be informed of these changes to their pension entitlement in order to ensure that they are able to make adequate preparation for a secure retirement? In the words of my noble friends Lady Turner and Lord Whitty, will they be able to calibrate their expectations? Do the Government plan to review these arrangements at some time in the future? My noble friend Lord Whitty asked a very pertinent question: what are the cost implications of these amendments? In my estimation, they appear to relate to a comparatively small number of people. If the Minister is not able to tell us, will he come back to my noble friend before Report so that that information can inform the debate, if it takes place then?

[Lord Freud]

My Lords, it might be helpful if I explain the principle behind having protected payments. We recognise that some people who will reach pensionable age under the single tier will already have amounts of additional pension which take them over the full single-tier rate. A key consideration in the design of the transition was that this extra would not be taken away. Revaluing the protected payment, at least by increases in prices, will maintain its purchasing power over time.

Let me deal directly with the point made by the noble Lord, Lord Whitty, about fairness in relation to expectations. Under the current system, the additional state pension is revalued up to state pension age in line with average earnings, but is then indexed only by prices once in payment. A man retiring in the first 10 years of single tier could expect to spend, on average, 20 years in retirement. In single tier, we have shifted this balance between adjustments before and after pensionable age, and the majority of people receiving protected payments will be better off overall as a result of this shift.

In the current system, only basic state pension is uprated by a minimum of earnings. In the future, the full amount of the single-tier pension would be uprated in this way. So using the 2012-13 White Paper figures, this means that people will see the illustrative £144 of their state pension being uprated each year by earnings, or more—potentially the triple lock—not just £107. People with a protected payment will be relatively close to pension age, so the revaluation will typically be applied only for a few years. So, for example, even someone with an above average protected payment of £20 with 10 years left until they reach retirement would find that revaluation leaves them £4 per week worse off upon reaching pensionable age, but £4 better off 10 years later.

The amendments tabled by the noble Baroness, Lady Turner, and the noble Lord, Lord Whitty, would effectively incorporate earnings revaluation of the protected payment into single tier. As this is a cost-neutral package of reforms, we would need to make offsetting changes elsewhere. Given that we expect most people to be better off from the combined revaluation and uprating changes, this would be difficult to justify. To give noble Lords a response to their question about the costs we are talking about, I can tell them that using earnings to revalue the protected payment would have annual costs, which would peak at around £150 in about 2040.

[Baroness Hollis of Heigham (Lab)]

How much?

[Lord Freud]

It would be £150 million per annum—I am not doing too well with my millions and billions. Let me be specific: £150 million per annum at the peak in about 2040.

As regards the question from the noble Lord, Lord Browne, on the review, we will look at how we do that as part of our overall communication strategy, part of which will be about providing people with individualised information. I hope that I have covered all the questions and therefore ask the noble—

[Lord McKenzie of Luton (Lab)]

Before the Minister sits down, I hope that he will help me. I think that he made reference to the proposals being cost neutral and that his previous formulation went something along the lines that the new arrangements would not be more costly than the current ones. Should we be worried about this nuance?

[Lord Freud]

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

[Baroness Turner of Camden]

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

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[Lord Browne of Ladyton]

My Lords, I intend to make a very short contribution to this debate. As my noble friend Lady Hollis made clear in her introductory remarks, this is a simple amendment. If it can be simple and complex in its implications at the same time, then that is what it is. I have no intention of trying to replicate or supplement my noble friend’s understanding of the complexity of this issue, and the implications of the decisions that face people in these very difficult circumstances. My understanding of the element of the pension that can be split by the courts on divorce is as my noble friend Lord McKenzie explained it. We benefited from a briefing from the Minister’s supporting civil servants which, as always, we were grateful to receive; it was very clear and helpful.

We have heard from my noble friend Lady Hollis about some of the challenges and problems that face divorced women in particular, or women in the context of divorce, about the choices that they have to make. They may well spend some significant time thereafter before receiving pension payments, not knowing or losing track of the details of their pension-splitting arrangements. As a supplementary to the questions asked by my noble friend, and because I do not know the answer, can the Minister tell the Committee if there are arrangements in place by which the courts or the legal profession—the justice system—in some fashion notify the DWP of such arrangements? If they do, what are they? If people are not to be sent regular statements of pension credits or debits, how else would the Minister suggest that this information gap be addressed?

Before I sit down, I want to take the opportunity to provide the Minister with the chance to put on the official record information about a very discrete point relating to the devolution settlement, and the implications of these provisions about pension sharing on an area of devolved responsibility. In this Bill, necessarily, there are consequential amendments to the Family Law (Scotland) Act 1985. As most of us have come to know, the devolution settlement requires certain rules to be applied to circumstances where we in this Parliament legislate in areas which are otherwise devolved—and family law is devolved to the Scottish Parliament. I am satisfied—because I raised this matter with the Minister’s civil servants and received an e-mail explanation on 13 December—that this issue has been discussed with both the Scottish Parliament and the Scottish Government. I was told that the Scottish Government were content, within the scope of the devolution settlement; that the provisions in the Pensions Bill fall under a particular category in the devolved guidance that allows legislative provisions to be enacted here without the necessity for the normal processes. I think this is called a Sewel Motion in the Scottish Parliament. I am speaking long enough for the Minister to find some words that he can put into the official record. I am sure he will understand why it would help if there was some recognition of these discussions and the agreement of the Scottish Government to this Parliament legislating in these potentially contentious areas which would otherwise be devolved. I hope I have made myself clear that it would be helpful if that could be addressed in the response to this amendment.

[Lord Freud]

My Lords, by way of background, the additional state pension can be considered as an asset in a divorce settlement and the department is responsible for administering pension-sharing orders ordered by the courts. Basic state pension is not included as an asset to be shared, nor will the new single-tier pension be shareable. However, share orders in respect of additional state pension which are made before the single-tier pension is introduced will still stand and, from 2016, only the protected payment—the excess above the full single-tier pension—will be considered in any share order.

--- Later in debate ---

[Baroness Hollis of Heigham]

The Minister also gave those figures last time, when we debated the amendment on divorcees and the substitution issue. The 100,000 requests and the 150 orders are happening in terms of the protected or state second pension, or SERPS, now. Of course, it is only a tiny fraction of the occupational pensions which are usually the more valuable asset and make up the other 9,900 or so requests.

Perhaps I should have asked this before, and I do not mean to catch the Minister on the hop, but what is the financial distribution of the 150 within the 10,000? Are those 150 simply the largest, or are they associated with people who are tenants in rented accommodation, where there is therefore no unoccupied house to be set off in lieu, or what? What does the Minister know about them?

[Lord Freud]

Rather than going into the sub-detail of what is already a very detailed point, I ought to commit to getting whatever information we can find and supplying that by letter to the noble Baroness.

When pension sharing disappears, most men and women will be able to build up entitlement to a simple contributory pension above the basic level of means-tested support. This is the most effective way of ensuring that savers have a decent underpin which stays with them however their family circumstances change. More than 80% of those reaching state pension age by the mid-2030s will get the full single tier, a figure with which I know the Committee is familiar. The courts will still be able to take account of private pension provision in the divorce settlement. The expectation is that the vast majority of people will be able to build a single-tier pension in their own right.

If someone is the beneficiary of a pension share order they receive a pension credit. The person the order is made against is subject to a corresponding debit. State pension credits are normally awarded and debits applied from state pension age. If the order is made after state pension age, the payment is increased or decreased at that point. As under the current system, single-tier pensioners who have a state pension debit or credit will be informed of the weekly addition or deduction when the court order is implemented. Individuals will be able to ask for statements of their state pension, but the pension credits or debits would be consolidated within the individual’s single-tier payment or protected payment and so not identified as credits or debits. As now, these elements could be identified on request but I am informed by the department’s pension sharing administrators that no one can recall ever receiving such a request.

On communications, the question raised by the noble Lord, Lord Browne, our statements will give individuals an up-to-date picture of their single-tier state pension position, which includes their foundation amount, and explain how this may change with further national insurance qualifying years through work or credits. The foundation amount included in statements will take into account any pension share debits or credits, as I have said.

Let me make it clear that state pension sharing on divorce affects relatively few people. As I said, in 2012-13 the department implemented only around 150 sharing orders. The changes to the computer system necessary to generate such automatic annual statements would therefore be disproportionately costly to provide this group with information it can in any case request.

Finally, on the devolution issue raised by the noble Lord, Lord Browne, I can confirm that this does not require a legislative consent Motion from the Scottish Government.

I hope that I have been able to go some way in reassuring the noble Baroness that, while there is low demand for this information, it is available if requested. I hope that on that basis, she will feel able to withdraw the amendment.

[Baroness Hollis of Heigham]

My Lords, I am grateful to my noble friends Lord McKenzie and Lord Browne for their contributions and also to the Minister for a helpful reply. However, I am still not secure on a couple of points he raised, if he would be so kind as to elaborate on them. He said that the recipients—I presume they would be almost all women; the Minister has not challenged me on this so I assume that it is correct—get information when the court order is implemented. Does that mean at the point of divorce or at the point of payment? What does “implementation” mean here? It could be the legal point of when the court has finished with it or the practical effect of when it is actually paid. I am not quite clear.

[Lord Freud]

My Lords, I think it is at the point of divorce.

[Baroness Hollis of Heigham]

So it is at the point of divorce. Thereafter, from what the Minister has said, if they wish to see what has happened to that payment they can make an inquiry but the Minister says they never have so far.

[Lord Freud]

That is exactly right. We have the information and people who want to double check it can ask, although they seem to be satisfied with the level of information they had at the outset.

[Baroness Hollis of Heigham]

If it is 150 people, how much does an inquiry cost to handle?

[Lord Freud]

I beg your pardon.

[Baroness Hollis of Heigham]

If we are talking about 150 people, how much does it cost to respond to each inquiry?

--- Later in debate ---

[Lord Freud]

My Lords, as I said, in practice we have not had an inquiry. We have to manage 150 sharing orders. Again, I am not sure of the cost of that and how easy it is to extract it. If I can do it, I will include it in a letter that I have committed to send.

[Baroness Hollis of Heigham]

I am grateful for the Minister’s promise of further information and, on that basis, I am happy to withdraw the amendment.

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[Lord Browne of Ladyton]

My Lords, I speak to the amendment and to Amendment 31B which are in my name and that of my noble friend Lady Sherlock. These are simple probing amendments which need not detain the Committee for long. Clause 16(4) says:

“A person may not opt to suspend his or her entitlement to a state pension under this Part on more than one occasion”.

Clause 16(5) says:

“Regulations may specify other circumstances in which a person may not opt to suspend his or her entitlement to a state pension under this Part”.

My question is simple. Can the Minister please explain the need for these subsections and what circumstances they are intended to cover? I beg to move.

[Lord Freud]

My Lords, the simple answer is one word: simplicity. However, I will embellish a little. Clauses 16, 17 and 18 allow people to defer their single-tier pension at state pension age in order to build up an increase to their pension. These provisions broadly mirror the deferral arrangements in the current scheme.

Clause 16 specifically provides for the individual to suspend their single-tier pension only once after they have started to receive it, as is the case in the current state pension scheme. This will be particularly important for those who are not certain of their likely retirement income until they have reached state pension age but who could benefit from the ability to suspend their pension and build up weekly increments. At the moment, pensioners can only do this once under the current scheme. This enables people who want to return to work or increase their hours to manage their tax position more effectively. For example if they have the opportunity to work and no longer require their state pension to support themselves, they will be able to suspend their pension and therefore lower their taxable income for that period. They will then build up an increase to their single-tier pension which will be payable when they reclaim it.

The amendments would remove any restriction on the number of times a person may opt to give up their entitlement to a single-tier pension. It introduces new complexity for individuals planning for their retirement and administrative complexity for the department. Allowing people to de-retire later in life increases the risk that they will not live long enough to break even. It would only really make sense for people who would see a significant tax benefit from not claiming their state pension for certain periods of time. Having the option to suspend their state pension once strikes a balance between giving people the flexibility to return to work and manage their tax position after claiming their state pension and ensuring the system remains as simple as possible. I ask the noble Lord to withdraw the amendment.

[Lord Browne of Ladyton]

My Lords, I am grateful to the Minister for his response, to the extent to which he responded. I had hoped, however, that he would have gone further and, in particular, engaged with Clause 16(5), giving noble Lords some indication as to under what circumstances the Government expect that they would want to further curtail the option to suspend. Maybe the Minister has something of an answer to that coming to him at the moment.

I had hoped that the Minister would say that there is a very narrow set of circumstances to which the regulations that could be promulgated under Clause 16(5) would relate, and give some assurance that it was not the Government’s intention to use these powers extensively but in a narrow way, with reference to at least one set of circumstances for which they were planned.

[Lord Freud]

My Lords, the power provides the flexibility to respond quickly should the need arise to amend the scheme—for example, if there is a group of people to whom it would be inappropriate to offer the opportunity to improve their pension once it was been claimed. Under the current scheme, if the individual is not ordinarily resident in Great Britain or another EEA member state and has claimed their pension, they will not normally be able to suspend it in order to build up an increase. The inclusion of this power means that we can use secondary legislation to mirror the current position for the suspension of a single-tier pension. The amendment would mean that any modification of the option to elect to suspend a single-tier pension would require a degree of parliamentary scrutiny via the primary procedure that would be disproportionate to that change.

[Lord Browne of Ladyton]

I am grateful to the Minister for engaging with the challenge that I encouraged him to engage with. I am not entirely sure that it satisfies my curiosity over the need for this power, but this is an issue to which we can return later, perhaps in correspondence. In the mean time—

[Lord Freud]

My Lords, so that we do not waste a lot of extra time on this matter, this replicates the power that we have in the current scheme and does no more than that. There is no substantial change going on or any intentionality towards using it in a different way.

[Lord Browne of Ladyton]

I reassure the Minister that I do not see any malevolent intention masked by this power. It occurs to me that if there is no purpose in this element of the existing structure, there is no purpose in replicating the existing structure, but I do not intend to expand this debate into such philosophical discussions. At the moment, I am content that the issue has been raised and will consider the Minister’s response to it. If I am satisfied when I see it in writing, we will not return to this. If I am not, we may return to this issue. In the mean time, though, I am content to beg leave to withdraw the amendment.

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[Lord Browne of Ladyton]

My Lords, in speaking to these amendments, I seek to achieve a better and more precise understanding of the nature of the Government’s objections to the taking of lump sums. My noble friend Lady Hollis has done your Lordships’ Committee two favours. One is in raising this issue, which has captured the mood of the Committee quite clearly. The second is in rehearsing accurately the explanation by Steve Webb, the Pensions Minister, in the House of Commons, as to why there is opposition to the taking of lump sums. In my recollection, the arguments were as thin as my noble friend made clear.

My noble friends, and the right reverend Prelate the Bishop of Chester, have explained very clearly the case for allowing lump sums. Undoubtedly there is a savings crisis. Too many people do not have the safety net of a rainy day fund or, in some cases, of any fund at all. British households do not have enough money in savings, and the amount they do have has been falling in recent years. This is, perhaps, unsurprising given the cost of living crisis that we have been experiencing. The data on this are very persuasive. ONS data show that 6% of pensioners—over half a million people—live in households where the total financial wealth is less than £10,000. Half—more than 4.8 million—live in a household where it is less than £20,000. However, that is not the whole story. Given the distribution within those bands, there must be a significant number of retirees with little or no cash available in savings. Interestingly, the ninth annual Scottish Widows pensions report stated that, of those already retired, one-third are still paying off debts, including mortgages. The average amount owed is in excess of £5,500—£5,682 to be precise. It is not as if those people are in a position to add to their savings in retirement. In a survey in June 2013, the insurance giants LV reported that nearly 2 million pensioners have an average £8 per week of disposable income. By way of comparison, that is less than the average eight year-old has as pocket money, according to another survey.

The case made by my noble friends and the right reverend Prelate about why people might need access to a lump sum deserves an answer. The lump-sum payment option was introduced in April 2005. I think my noble friend Lady Hollis was the Minister who oversaw its introduction. The reasoning then was the same as the case she has made today. Even if pensioners go into retirement with a just adequate income, they may well not have enough savings to deal with the rainy day problems we all face. Never mind the challenge of the eventual cost of their own burial, what happens if the boiler fails in a bitterly cold winter? Or the car that they require in a rural environment breaks down and they are otherwise trapped in their home? We can all think of circumstances in which a bit of capital would be of help.

We know who chooses to defer their pensions. Drawing on the DWP’s own statistics, in March 2013, 1.2 million pensioners, or 9%, were receiving an income arising from a deferred pension, of whom 75% were women and 77% were living in the UK. We know that few of those who choose to defer take the lump-sum option; 63,000 payments were made in 2011-12, and the DWP forecasts that that will fall to 35,000 by 2017-18. In 2011-12, the average lump sum was £11,500, with the UK average being £13,700 and the overseas average £4,100. These are not significant sums, and the calculation could be done as to what this is likely to cost based on these statistics.

However, there are things that we do not know. First, we do not know why people choose to defer. Of those deferring, 75% are women, but the question is whether they are waiting until their partner retires to draw their pensions or there is some other motivation we do not know about. Are those who defer still working, deferring their retirement perhaps because they have saved too little and it is too early for them to retire? What do we know about the wealth of those who defer? Very little. The statistics already deployed show that 25% are overseas residents. Do we know why they make the choices that they do? We do not.

These Benches would like to understand the costs better. The DWP tells us that spending on lump sums currently costs about £800 million per annum and is due to fall to £700 million in real terms, although I am not sure by when. Obviously, these people have not been drawing their pensions for the period during which they deferred, so I presume that that is not a net cost—but maybe my presumption is wrong and it is. If it is not, what is the cost of the lump sum minus the pension forgone? What is the net cost of these deferrals in real terms? If there is a net cost, what rate would have to be offered to make the lump sum a cost-neutral choice?

Finally, I would like to understand why the Government want to end this. Is it the cost? Is it the administration? Is it the desire for simplicity? Are the Government sure that they know enough about the impact of this policy and the relatively small numbers who choose to defer? If not, has the Minister or his department considered further research on who is deferring? If it turns out primarily to be people with no or too little savings, what other option would he suggest for those who are retired and have no nest egg now, on what are likely to be low incomes with no means or opportunity to build up such a nest egg or capital?

[Lord Freud]

My Lords, as several noble Lords have said, the Bill does not provide an option for those deferring a single-tier pension to receive a lump-sum payment. Instead, the deferral arrangements will be simplified. Those who defer will receive a weekly increase in their state pension, enabling them to improve their pension income for retirement. Looking at some of the relevant figures, I can confirm the figure given by the noble Lord, Lord Browne, of 1.2 million people receiving an increment in March 2013, which was around 9% of the state pension case load. We had 63,000 lump sums taken in the latest year for which we have figures, 2011-12. In response to the query of the noble Baroness, Lady Hollis, two-thirds of those are women and one-third are men. However, under the new system, we expect that that is likely to change, and I will go into that in a little while. A primary objective for the reforms is to simplify the state pension and to provide a simpler foundation for private saving.

At this point, I was going to give the cost figures, which the noble Lord, Lord McKenzie, asked about. The savings from removing the lump sum in isolation from the change in the increment rate are around 85% of the overall deferral savings for 2030, which are outlined in the impact assessment. That figure will be between £250 million and £300 million in 2030.

[Baroness Hollis of Heigham]

Why did the Minister in another place, Steve Webb, argue that one of the reasons for doing this was because the deferred pension, even at the proposed rate of 5.4%, was financially much more attractive to people and a much better buy, and therefore he was helping to protect would-be savers from themselves? If it is a better buy for the individuals receiving it, why does it therefore cost the Government money to keep the less expensive option going?

[Lord Freud]

It is a timing issue, of course, because you take the money in earlier. That is where the costs to the Government come from.

[Baroness Hollis of Heigham]

If the Government were making that monetary saving, they would have to show us that that would be a one-off saving and not a continuous saving. If those people then took instead the increased income, the cost of that would soar by comparison because the £62,000 or £63,000 would presumably move across. In order to save some upfront costs of the lump sum, the Minister is committing himself to an increased continued income on the deferred income option.

[Lord Freud]

I do not have the crossover point figure. I could look into that. Clearly, it would be different depending on the system. I can offer to discuss this with some graphics, which I suspect are essential, in a briefing session before Report.

[Lord McKenzie of Luton]

Will the Minister help me on another point about simplicity? We will come on to discuss 3A voluntary contributions in a moment. As I understand it, additional pension achieved via that route could be deferred and a lump sum could be taken. Is that right?

[Lord Freud]

Yes. The reason is that that is the equivalent of the private pension provision, which is a purchase. We are drawing a distinction here between public provision and private provision. With the pulling into a single tier, that is where the line is drawn between the two. As private pensions offer lump sums, that is where we would expect people to be taking them.

[Baroness Hollis of Heigham]

That cannot be reasonable, can it? After all, the new state pension combines the element, including the state second pension, which was bought up by people in lieu of and as an alternative to or an equivalent of an occupational pension and contracting out into it.

[Lord Freud]

Deferrals of lumps sums are both complex to understand and cumbersome to administer.

[Baroness Hollis of Heigham]

Why are they complex to understand?

[Lord Freud]

That complexity is illustrated in the DWP information booklet which provides guidance on deferrals. It runs to 60 pages and then recommends after all that that people get independent advice before making their decision. Even so, given the factors and variables, there is no guarantee that such advice would be forthcoming.

Reverting back to the class 3A distinction, that is clearly being directed at existing pensioners who currently get existing increments as a lump sum, so they are within the old system. It is being directed at people who are in the existing system rather than those in the single-tier system.

[Baroness Hollis of Heigham]

But that means, does it not, that the Minister is giving the option of a deferred lump sum within the state system, even though, a couple of minutes ago, he said that was exactly what he was not going to do because he wished to maintain the boundaries between state and private provision?

[Lord Freud]

Yes, that is the distinction between the existing system, where there is a lump sum, and the post-2016 single-tier system, where it is proposed that there should not be a lump sum. That is where the consistency lies.

The simplified arrangements under Clause 17 will mean that people will be able to work out both the level of increase they will build up as a result of deferring their state pension and the potential effect this will have on their future taxable income. People will be able to make their own arrangements to save their single-tier pension if they wish and build up savings in that way. This will give them a choice over what and when to save, in a form that meets their needs. We do not think that the state should continue to provide the lump-sum option as an alternative to savings in the long term.

However, there is a way of building up some capital, if people take 12 months of arrears of pension straightaway if they claim after state pension age. That is worth around £7,500 for someone with a full single-tier pension in 2013-14 terms. Our intention is to bring forward regulations for the single tier that will replicate the existing arrangements.

[Baroness Hollis of Heigham]

Could the Minister help us further? Is he saying that at the end of the first year post the conventional state retirement age you can choose to take your deferred pension as a lump sum for one year only but not for a second year? Is that what the Minister is now telling us?

[Lord Freud]

That is what I am saying.

[Baroness Hollis of Heigham]

Well, why? Why is it okay to do it for one year and not for two?

[Lord Freud]

That is the standard position whereby, if you are in arrears for a year, you can take the provision at the end of that year and that is treated as arrears of pension rather than a lump sum. Some noble Lords are very concerned about the issue of the nest egg. If we drop the distinction between arrears and lump sum, there is a nest egg opportunity in that £7,500, which may go a long way to satisfy the concerns that have been expressed with some vigour this afternoon.

[The Lord Bishop of Chester]

My Lords, I invite the Minister to comment on the more general point as we are getting into specifics, which I recognise are complicated. Do the Government agree that it would basically be a good thing if deferral was encouraged? Is it the Government’s position that in the great scheme of things and income in old age it would be a good thing if the principle of people being encouraged to defer was affirmed?

[Lord Freud]

I am not sure that parliamentary privilege covers me for giving financial advice. Perhaps the noble Baroness, Lady Drake, could advise me on what I should say on that matter.

--- Later in debate ---

[Baroness Hollis of Heigham]

Personal circumstances to the fore!

[Lord Freud]

I must thank the noble Baroness for keeping me out of jail. Many a seminar that I have been to would have told me that. It is a matter for people to judge.

[The Lord Bishop of Chester]

If I may have another little bite of the cherry, I do not wish the Minister or the Government to give any specific advice to any specific person. I am inviting a general comment upon the desirability of people looking to the longer term, given the parameters around old age and pensions in our society. If in some general terms that is a desirable object, without making any comment about specific cases, surely the more flexibility we build in, the better.

[Lord Freud]

I actually have very strong views on this matter but I think they are personal. I am going to utterly resist putting them on the record in this Committee but I would enjoy having tea with the right reverend Prelate and giving vent to my personal views at full force.

[Baroness Drake]

Could we come too?

[The Lord Bishop of Chester]

My Lords, very few people on the Committee will know that the last time that I had tea with the Minister was in his rooms in Merton College when we were both first years in 1969, so it would be good to have another cup. Given the nature of this discussion, I wonder whether the Minister could at least agree to take the issue away and think about it. There are issues here that may need a bit of teasing out other than in the circumstances of this Committee.

[Lord Freud]

I have to accept that the right reverend Prelate is on a very important and interesting point, on which one could write many a financial essay. I will go back and think about whether there is any generalised approach that we as a Government should take on this. I will resist any indulgence in doing so off the top of my head, though, because this is a huge and difficult issue.

[Lord Browne of Ladyton (Lab)]

My Lords, I am pleased and not surprised that a cup of tea with the Minister can last one a very long time. May I tempt him to look at the challenge that he has been posed from a slightly different perspective? It strikes me that a number of things may be possible. First, I tempt him to express a view on whether he thinks that it would be a good thing to encourage people in their retirement to have some capital, rather than encouraging individual people to defer a pension or whatever. As a point of principle, would it not be better for us if our retired population had access to some capital that would cover these rainy-day situations?

Secondly, is it possible to take advantage of the Bill, in the way in which the Minister has suggested pensioners can do, by deferring taking pensions for a year and then taking that as a lump sum or by some other simple method to create an opportunity for people to take a deferred pension lump sum to provide that capital? I am struck that it should not necessarily be the case that the only way of doing this is to import a very complicated existing procedure as a method of taking a lump sum, and then finding that that confounded the argument for simplicity. Is it not worth spending some time to see whether there is a simpler method of doing this, such as perhaps an extension of what the Minister has tempted us with today as a possibility?

[Lord Freud]

My Lords, if it is a nest egg that noble Lords are worrying about, then the arrears approach is not a huge distance away from what they might find quite attractive. The best thing that I can do is try to spell that out in a bit more detail in a rather considered letter to Members of the Committee, to see if it addresses their concerns. The counterpoint is that a lot of people take their nest egg and blow it on a car. Concern about the no-savings culture is the other side of the lump sum coin and those people will face later old age, if they live a long time, poorer than they otherwise would have been because it is a complicated decision. I will think a little bit harder about the arrears issue we have discussed because it might give noble Lords what they are after, possibly without needing to change very much, but I need to spell out how that might work. My team is looking ecstatic at that offer and will fully support any tea-time activities I might indulge in later.

--- Later in debate ---

[Baroness Hollis of Heigham]

My Lords, I am extremely grateful to all Members of the Committee. I am sorry we did not hear from the Lib Dem Benches as we would then have had a full hand. I am grateful particularly to my noble friend Lady Dean, to my noble friend Lord Hutton for raising the debate in the way he did and to the right reverend Prelate for his persistent questioning. Both my noble friends continue to interrogate the Minister, which is really valuable. The right reverend Prelate said, “If it is not broken, why fix it?”. I have seen no evidence at all, apart from the Minister saying this is not such a good buy for individuals as taking it as income, that the system is broken. The Government are relying on having the upfront savings rather than the longer-term costs. That is not, in my view, a prudent way of handling finance.

My noble friend Lord Hutton, along with the right reverend Prelate, stressed that it is no use saying that we have to go for simplicity and thereby remove choice, if choice would be part of the attraction for people to save and defer taking their state pension. We do not have hard evidence on this, but we know from everything that is coming through from auto-enrolment and the pilots—including under my noble friend—that the nudge theory of encouraging people to stay opted-in and having them opt out rather than choosing to opt in was transformative. I remember when we got the figures from the Newcastle brewery, where something like 43% of its staff opted in to a pension. When it went to opting out, that went up to over 90%, and the only people opting out were students working in the summer vac. It transformed the pension regime in that brewery. It relied on nudge and inertia and ensuring that people could save in the way that was least problematic for them. Unless the Minister can show noble Lords—certainly me—that denying people the right to turn a deferred state pension into a lump sum will not only not have a negative effect on their savings but actually increase their savings, he is storing up problems for himself in the future.

Research last month by the LSE found that 483,000 people—nearly half a million, almost all of them pensioners—had either lost their home care support or were no longer eligible to claim it, as compared with 2008. Now, that home care will need to be funded by savings; it will not come out of income. People are losing the capacity to pay for home care week in, week out, as the cuts bite. My noble friend Lord McKenzie—

[Lord Freud]

To go back to the point of how people use their lump sum, it is towards the latter end of the pension drawdown period that you are going to need to pay for care. It is exactly at that time that any lump sum taken earlier will have been used up on other expenditure. That is why this is such a difficult area. A lump sum taken at 70 is probably not going to be around when social care is needed in the late 70s, for instance.

[Baroness Hollis of Heigham]

How does the Minister know? I represented one of the poorest wards in the city of Norwich and the pensioners I know were desperate to have a lump sum. Very often, they cast it in terms of paying for funerals, because that was a working-class, respectable-culture consideration. They desperately wanted savings and they did not have them. They managed weekly. Sometimes their daughters might help out with the odd bit of groceries when they did their shopping but the notion is that you can read across from people in the private sector having a car or holiday.

The same arguments apply to equity release. We know the research on equity release. We know that if people take it very early they may spend it on white-good replacement or on trying to keep up a standard of living but we also know that, as they grow older, they tend to take it for personal care. If, as the Minister suggests, he believes that it is going to be blown, why, for example, are his Government continuing to keep a tax-free lump sum? By his own argument, we should scrap that, on the grounds that the Government know better than the taxpayer how to spend the taxpayer’s money. We should instead roll it into the basic pension that people have from their occupational fund because we know that only between 11% and 13% of pensioners use their tax-free lump sum to increase their pension; instead they use it to give themselves savings. We know that from the private sector. We have no reason to think that it would not apply here. I am amazed that the Minister seems to think that there are different cultures between those who have private, occupational pensions and those who do not. As a result, we are making it harder and harder for the poorest to have what each and every one of us wants—a modest cushion against, as my noble friend Lord Browne said, the rainy day. The Minister, the Government or the department seem to be pulling that possibility away from people for no good reason.

My noble friend Lord McKenzie asked about health impairment. The Minister did not answer that question at all. Under the new scheme, a spouse would not be able to inherit a deferred income that was accumulated by their deceased spouse but they could inherit the lump sum. That, too, is unfair. The couple have made a decision together that that is what they will do. They can take it in one form, but not in the other. Why? That is just the point at which the spouse may wish to have the cushion of a lump sum and is not able to inherit it. It is unfair.

The Minister may also choose to look at my other consideration, which has not been discussed today. Perhaps I should have raised it in my opening speech. Once you hit retirement age, if you carry on working, you are not entitled to continue to build up national insurance contributions. I think you should be able to do so, with employer input, although maybe that is a debate for another day.

Drawing on the report from Scottish Widows, my noble friend Lord Browne emphasised how many people retire with debt, including mortgages. He is absolutely right. Taking a lump sum that actually pays off that debt, which it would take years to accumulate through a modestly increased pension, may be the most prudent thing that those people can do, because that debt may require a much higher rate of payments to keep it covered than any other income that they could get. It could be through a loan company, for example, where they were paying APRs of 300%, 500% or 1,000%. A lump sum would pay that off and therefore increase the robustness of the rest of their income. That is what you can do with capital—you cannot do it with income. Again, I hope that the Minister will reflect on this. I know that he is concerned about people’s indebtedness as they go into retirement, and by freeing them from a burden of debt he would actually improve their financial ability to cope once in retirement.

The Minister argued about the cost of the lump sum. He seemed to suggest that taking away the lump sum would produce 85% of the £800 million savings. I am completely baffled by that figure. What he is doing is removing the up-front cost of paying a lump sum while paying out over a period of time at a higher cost to the Government. There is therefore a break-even point, five or maybe seven years down the line, at which the Government incur additional cost—not reduced cost—by getting rid of the lump sum. Obviously it is less financially attractive; a return of 2.5% or 3% is less attractive than the return of 5.4% that he is proposing. In that case, how can the Government say simultaneously that they are going to save money by getting rid of the lump sum and that if a person takes it as deferred income instead they will be better off? He is going to have to do some nimble footwork—I am sure he will be able to do so—to explain to the noble Lords how he gets to those savings.

The Minister helpfully said that people could already take a deferred pension at the end of one year as arrears of £7,500. If he were able to say that two years could be taken as arrears, I would be satisfied because that would give people the cushion that they would need, or some such flexibility. I take heart from the fact that he has responded, as I was confident that he would, to the range of feeling around the Room that this is simply the wrong way to go. All parties have genuinely attended to pensioners’ incomes, and the present Government—I include both members of the coalition—as well as the previous one are entitled to claim high credit for that. It is a very good achievement for us to have taken pensioners out of income poverty. However, we are sending them into retirement with increased capital poverty. If we wish, we have the option of allowing them to do something about that. To say that we are removing the choice to address capital poverty in the name of simplicity is, frankly, Orwellian, and normally I would expect better from the Minister than that.

Under the circumstances, I will withdraw the amendment and hope that the Minister will be able to find a way through, perhaps around the hook of an assumption that this is actually paid as arrears. I thank again all noble Lords who have taken part in the debate and beg leave to withdraw the amendment.

--- Later in debate ---

Finally, the Pensions Minister said that he remained sympathetic to the case. Do the Government remain sympathetic to the case? If so, and if financial circumstances allowed, would they be willing to uprate these pensions? With respect, I think that is the most interesting question of the afternoon.

[Lord Freud]

My Lords, as the noble Baroness, Lady Hollis, pointed out, the policy on the uprating of state pensions for pensioners abroad is a long-standing one. It has been regularly debated over the years. Clause 20 provides an enabling power for regulations to restrict the availability of annual uprates, as now, in the new state pension where the recipient is living overseas. The Government’s intention is that there will be no difference in treatment between the new and old state pensions as to overseas uprating, either generally or with regard to the UK’s various bilateral agreements. I can reassure noble Lords that all our existing legal obligations with regard to uprating of pensions under bilateral agreements—along with the European co-ordination regulations—will continue to be honoured. To treat the new single-tier pension differently from the current pension would clearly go against the spirit of these agreements. However, I should make it clear that there are no current plans to enter into any new social security bilateral agreements.

There are a number of factors to be considered behind that decision. These are the number of people moving between countries, the benefits available under the other country’s scheme, the compatibility of systems and how far and to what extent reciprocity can be achieved. Future costs are also considered in both the implementation and future operation of any agreement. A bilateral agreement with Australia existed in 2001 when Australia ended it because of a dispute around the current UK policy on uprating UK state pensions paid overseas. There are no plans to enter into a new bilateral agreement with Australia, as any agreement would not achieve reciprocity between it and the United Kingdom.

I shall pick up the Canadian point. Bilateral agreements cover social security matters only, rather than matters beyond this scope which might be described as mutually beneficial. DWP officials are not aware of a discussion or correspondence on this wider scope of mutually beneficial arrangements. I cannot confirm the figures provided by the noble Baroness, Lady Hollis, on whether four times more go to Australia than come back, but she is normally well informed.

I need to make information available on the numbers. We are in the process of updating and quality assuring our estimate of the cost of unfreezing pensions for 2014-15. The department has moved from modelling change to the case load at a population level to a more complex methodology, which takes account of individual characteristics and provides a more accurate estimate when applied to historic data. As a consequence, we now estimate that the cost of extending the uprating of pensions currently paid overseas is slightly reduced but it will still represent a substantial cost to UK taxpayers of more than £0.5 billion per annum. My noble friend is right in saying that this is somewhat below the previous estimate, based on general populations, of £700 million. The department has recently released a statistical publication that clarifies this matter, to which I can refer noble Lords if they need more information.

On the point of the noble Baroness, Lady Hollis, on whether people have full information, the department issues the following leaflets which include information on the impact of living outside the UK and the annual uprating increase for UK state pensions: leaflet BR 23, leaflet DWP040 and leaflet DWP026. The 040 leaflet is sent out with the state pension statement, for instance. Information is available on the government website and Social Security Abroad, leaflet NI138, issued by HMRC, also includes similar advice.

The amendment in the name of the noble Lord, Lord Browne, on reviewing overseas residents’ provision assumes that we would be able to identify and assess the behavioural link between uprating policy and migration patterns. The question about a review is whether it would raise expectations. The noble Lord posed the question about whether we would uprate if we had the money. The noble Baroness, Lady Hollis, was spot on when she raised the issue about making very difficult decisions on payments. Finding £500 million is not an easy business. Clearly, there will always be different priorities for £500 million per annum, as indeed the previous Government decided at a time when there appeared to be more money floating around than there appears to be today. I will not step on anyone’s grave in the collegiate atmosphere of this Committee.

The final question raised by the noble Lord, Lord Browne, was on the numbers of pension-age people moving abroad. That comes from the document from the ONS called Emigration from the UK, November 2012, which states:

“Only two per cent (or 6,000) of those emigrating were over the state pension age of 60 for women and 65 years for men”.

The report also interestingly indicates that 10% were aged between 45 and 59/64 years.

We are aware of research that suggests that a theoretical and economic case can be made to support the uprating of state pensions for all recipients abroad. However, it is notable that this analysis has not been able to provide evidence of a proven behavioural link between uprating and pensioner migration. In fact, we think it unlikely that any review would demonstrate that. In any case, the decision to emigrate abroad remains a personal choice for individuals. In the absence of that kind of evidence, we know that the cost of extending the uprating of pensions currently paid overseas remains significant at more than £0.5 billion per annum. The Government, like their predecessors over the past 60 years, believe that they must put the interests of pensioners living in the UK over the interests of those living overseas by restricting the availability of uprates to those living here or in a country where we have a legal or treaty obligation to provide them. I therefore ask the noble Lord to withdraw his amendment.

[Lord German]

My Lords, I thank noble Lords who have taken part in this debate. It is an interesting one because in the words, I think, of the noble Lord, Lord Browne, it is one that will not go away and will continue to raise its head. I am grateful to the noble Lord, Lord Browne, for reminding noble Lords that at Second Reading I did preface my remarks quite clearly by saying that I was not seeking to pay huge amounts of money to deal with this matter in the manner that many people have demanded or asked. It is a question of trying to find an alternative approach, which is what I was seeking to do with this amendment and in my earlier statements at Second Reading.

As many noble Lords have mentioned, people are putting pressure on noble Lords and Members of the other House to come up with some solutions. The challenge is to think of a way in which an approach might be developed, and I put one before noble Lords in this amendment. I hope it was quite clear that the amendment was not seeking any approach beyond a quid pro quo with another Government so that the message would be clear to any other Government seeking to approach the United Kingdom on this issue. Quite a number have approached the United Kingdom over the years, including some quite surprising places such as Mongolia. If we are going to go down this route, we need to ensure that there is a clear message that there will be no additional costs to United Kingdom plc.

I note what my noble friend said about reciprocity only being looked at from a social security angle. However, that raises another point, on which I echo some thoughts back to the noble Baroness, Lady Hollis. If income comes to UK plc, providing the UK Government can redistribute it accordingly, there may well be opportunities in any agreement beyond just simple social security. I think that has been consistently looked at as the approach for all these reciprocal arrangements, right back to the very beginning.

--- Later in debate ---

[Lord Freud]

My Lords, as you know, these amendments seek detailed arrangements of passporting to other benefits for single-tier recipients who would, under the current system, have been receiving a basic state pension with a modest private pension income above that level. They would also ensure that mixed-age couples, where one member has reached state pension age before 6 April 2016 and the other after, would retain access to the savings credit. As noble Lords will be aware, the savings credit, which is currently available to those aged 65 and over, will continue to be available to those who reach state pension age before 6 April 2016, and mixed-age couples who are already in receipt on that date will continue to receive it.

The guarantee credit will continue to be available for the poorest, regardless of when they reach state pension age, and receipt of the guarantee credit will, for example, continue to give access to the warm home discount scheme and to cold weather payments. Moreover, poorer pensioners, in the bottom income quintile, are among the principal beneficiaries of these reforms: more than half will be better off in the first 25 years, with a median gain of £8 a week in 2040 and £5 in 2020.

The full rate of the new single-tier pension will be set above the basic means test. Where both members of a couple receive the full single-tier pension, they will receive nearly a third more than the couple rate of the pension credit standard minimum guarantee, based on 2013 rates. This means state pension income alone will raise them above the standard income level at which pension credit runs out. Savings credit already rewards some couples for their state pension, which muddies the original intention. Mixed-age couples, where one is on a full basic state pension and the other a full single-tier pension, would also have income above the couple’s standard minimum guarantee.

A key principle of the reforms is to remove access to savings credit for single-tier households, which includes couples where one reaches state pension age before 6 April 2016. We need to balance the fairness between recipients and taxpayers in dealing with the conflict between the individual basis of the single-tier pension and the household basis of the savings credit. However, we will allow those mixed-age couples already in receipt of savings credit on 6 April to retain it, if they continue to meet the eligibility conditions.

Amendment 36A would retain means-testing for the mixed-age couple group and continue to reward some with savings credit for their state pension, but without any increase in savings incentives, which is why we oppose it. The cost of the amendment would be up to £20 million per year into the 2030s.

I shall pick up the issue of why we include the example. The power in the Bill will allow us to specify when the restrictions should and should not apply. The example in new Section 3ZA(2) captures one situation where we may wish to allow existing recipients to retain the entitlement, but we may identify more situations as we work through the detail of single tier. The numbers affected are likely to be small, with a maximum of 20,000 couples at any one time, and a total of 40,000 couples affected at some time over their retirement, which is only 5% of an estimated 800,000 mixed-age couples. Of those potentially affected, only around two-thirds would have claimed, because of the low take-up issue. Changes in circumstances during retirement mean that, on average, a mixed-aged couple would miss out for only seven years of their retirement.

The noble Lords, Lord McKenzie and Lord Browne, asked about numbers in receipt of savings credit. There are currently 540,000 receiving only savings credit. The average median loss of savings credit peaks at around £10 per week in 2020, but the net impact on household income is only expected to be £8 per week at that point.

[Lord Browne of Ladyton]

Before the Minister moves too far away from my specific question, which was exploring legislation by example, I should perhaps correct what I said. In explaining this, I remember suggesting that new Section 3ZA(2) was about the circumstances in which somebody would be “entitled” to savings credit. However, the wording is “not entitled to”. I wish to clarify that for the purposes of the record. I am really not clear why the Government choose to legislate by putting into primary legislation an example of the only set of circumstances that they have currently come across in which, specifically, a mixed-age couple would not be entitled to savings credit and then say they expect that there are other sets of circumstances out there but that they have not formulated them yet. Why put in any example at all? What is the purpose of it?

[Lord Freud]

The purpose is that we want to retain the ability to avoid cash losers. That is the purpose of this particular power. In relation to the potential impact of the removal of savings credit on passporting, I remind noble Lords that, while pension credit acts as a passport to a number of other benefits, most are linked to receipt of the guarantee credit rather than the savings credit. Housing benefit and council tax reductions are not limited to pension credit recipients; they can already be claimed on low-income grounds regardless of receipt of pension credit, and this will continue. Furthermore, there is a higher applicable amount for pensioners over 65 in housing benefit, essentially to ensure that the savings credit is not itself means-tested away for those paying rent. This higher applicable amount applies to all pensioners over 65, not just those receiving savings credit. This provision will continue for at least as long as housing benefit remains. As noble Lords may be aware, we recently announced that there are no plans to change housing benefit for pensioners until at least 2017-18.

Unlike housing support, entitlement to social fund payments, including cold weather payments, requires receipt of pension credit, and this can include people getting savings credit only. I assure the noble Lord, Lord McKenzie, that we have made no assumption of savings from cold weather payments as a result of the changes in this Bill.

On the question of figures—

[Baroness Hollis of Heigham]

Is the noble Lord saying that cold weather payments will continue as is?

[Lord Freud]

No, it means that we do not expect that we will be paying out less in cold weather payments because of these changes.

[Baroness Hollis of Heigham]

Then I am even more confused. If we are denying a category of people the right to cold weather payments, how is it that the bill is remaining the same?

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[Lord Freud]

Clearly, it is because we are expecting that broadly the same numbers of people will be getting cold weather payments. Because of the complexity around this, as I was trying to indicate, we have put no assumption of savings into these figures.

[Lord McKenzie of Luton]

I accept that the Government have not put in any assumptions of savings but if, in fact, there are going to be 540,000 fewer individuals on savings credit and presumably at least some of those would have been able to access cold weather payments under current arrangements—quite apart from couples; I am not talking here about mixed-age couples—there must be savings. There must be circumstances where cold weather payments are not going to be due to somebody in the future who would have got them under the current arrangements. We are just trying to understand the numbers and the savings.

[Lord Freud]

We estimate that only 80,000 who would otherwise have been claiming pension credit in 2020 will be taken out of the scope of cold weather payments. Cold weather payments will clearly continue to be linked to savings credit, but it is difficult to say whether the 100,000 who may lose savings credit would get cold weather payments for other reasons. It depends on where they are living and what is triggered. That is the reason that we have not made any assumptions. On the basis of these observations and, in particular, the reassurance in respect of support with housing costs, I ask the noble Lord to withdraw the amendment.

[Lord McKenzie of Luton]

My Lords, I am going to withdraw the amendment—we are in the Moses Room—but I am bound to say that I think that the noble Lord would himself recognise that that answer in no significant way addressed the issues we were trying to explore. I will just restate them, and maybe we could have follow-up correspondence. Maybe we should have one of our sessions around this; it is important that we get to the bottom of it. We are seeking to understand how many individuals who would get the savings credit under current arrangements will not do so under the new arrangements in the future, whether they are individuals or couples; I am not dealing here with mixed-age couples. What is the average loss of income because of the denial of savings credit? What is the benefit to government of having restricted passporting of these individuals to a range of benefits, except that some of them may have other routes to those benefits? Of course, the cold weather payments depend on where they live; I am not asking the noble Lord to assume that they go and live in the Antarctic, Scotland or somewhere cold. Sorry, Des; I am in hot—no, cold—water.

The Minister will see the point that I am probing here. There must be savings to government from these changes and we are just trying to understand the measure of them. I take it from the Minister’s reply that there is absolutely no intent to bring forward any special arrangements to reinstate this sort of entitlement for people who will fall out of it because the savings credit is no longer applicable or because they are just at the threshold of being out of the guarantee credit. That is where S2P is going to be pitched, on the basis of all the information that we have. I am not sure that we can make much further progress on this issue this afternoon, unless the Minister is going to—

[Lord Freud]

I think the noble Lord made a valuable suggestion. This is one of the issues we can look at in a pre-Report session, at which we can go through some of the figures and tables. I am happy to commit to arranging that.

[Lord McKenzie of Luton]

I am grateful for that. On that basis, I beg leave to withdraw the amendment.

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Moved by

[Lord Freud]

36: Schedule 12, page 62, line 25, at end insert—
“In Schedule 4 to the Marriage (Same Sex Couples) Act 2013, omit paragraphs 11, 12, 13 and 16.”

[Lord Freud]

My Lords, this is a minor technical amendment. It is being made as a consequence of Part 2 of Schedule 12 which, among other things, amends and consolidates the provisions dealing with category B pensions, which will continue to be available to people reaching state pension age before the magic date of 6 April 2016. These provisions have recently been amended by the Marriage (Same Sex Couples) Act 2013 in order to extend category B pensions to same-sex spouses. This Bill already takes account of these recent amendments. They are consolidated in paragraphs 55-61 and 63 of Schedule 12. The amendments in the Marriage (Same Sex Couples) Act will therefore be redundant when Schedule 12 comes into force so this amendment simply removes them from that point. I beg to move.

[Lord Browne of Ladyton]

My Lords, I am grateful to the Minister for confirmation for the record that this is a genuine and consequential amendment and I accept that. I am encouraged to ask a question, which he may not be in a position to answer, and I would be happy if he could write to confirm what I suspect is a simple answer to this. As a consequence of drawing my attention to this area of the law, I am moved to ask whether the Minister can confirm if there is any difference in the transitional arrangements that will apply to members of a civil partnership or same-sex marriage who divorce if one of them has reached state pension age before 6 April 2016? I do not want to detain the Committee in the detail of that. If the answer is no that is the answer I am looking for.

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[Lord Freud]

I am very pleased to give the answer the noble Lord is looking for. No.

[Lord Browne of Ladyton]

I am grateful to the Minister and am pleased to have that on record. I have nothing further to add.

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There is an extremely interesting passage in the debates in the Commons about the value of the negative resolution as opposed to the affirmative resolution, conducted by the Pensions Minister, in which he goes very close to saying that there is no substantial difference in these processes. An affirmative resolution requires the Government to make their argument and a negative resolution requires someone to pray against, to encourage the debate. In my view, the extension of these powers beyond a five-year period is such a significant thing to allow an employer to do, against all the consequences that we have debated, that it would be proper for the Government to make their argument for an extension as a matter of legislation rather than expecting someone to pray against it and then have to make the argument.

[Lord Freud]

My Lords, I particularly enjoyed the stories of the noble Lord, Lord Browne, about his dealings with pensioners. I am disappointed that he and his silver tongue were unable to persuade against the pocket. After single tier is introduced, there will not be an additional state pension to contract out of. Employers with such schemes will no longer receive the national insurance rebate; they will pay the same rate as other employers and will have to continue to provide a pension scheme that is generous but which will therefore be more costly. To continue funding these defined benefit schemes and to keep them open without the rebate, employers will be forced to find other ways to reduce running costs. They may wish to reduce the future rate of accruals, or to increase employee contributions.

Employers have told us that, without the override, they will have to consider closing their schemes, particularly if they have no other way of offsetting the costs of contracting out. Clearly, members are not served by their pension schemes closing. It is vital that we support those employers who are seeking ways of offsetting the increased cost of national insurance, including where their scheme rules would not allow the change or where the consent of trustees cannot be obtained. We also recognise that trustees may be put in a difficult position if employers come to them with a request to reduce benefits or increase contributions.

[Baroness Drake]

On the point that trustees find themselves in difficult positions if they are asked to consider increasing contributions or reducing benefits, I am not sure whether the Minister appreciates what trustees have been doing in the past 10 years in addressing precisely those kinds of requests from employers.

[Lord Freud]

I understand what trustees in pension funds do and I understand that some of them find themselves in very difficult positions when having to address those issues.

Referring to those private sector employees who are contracted out immediately before implementation, who reach state pension age in the first decade of single tier, around 75% of them will receive enough extra state pension to offset both the increase in national insurance contributions that they will pay over the rest of their working lives and any potential adjustments to their occupational pension schemes. Such a move must be considered in this context.

In contrast to the figure that the noble Baroness, Lady Turner, and the noble Lord, Lord Whitty, were looking at—1.6 million in private sector schemes—regrettably, by 2016, we expect only 950,000 individuals to be affected. That figure is in the impact assessment at paragraph 128.

Amendments 37 and 38 would remove the statutory override power and prevent Schedule 14 from coming into force. The practical effect would be that an employer would be required to get trustee consent for the changes they wanted to make to their scheme should their pension scheme rules require this. For the reasons I have just set out, we feel the override is necessary.

Amendments 38ZA, 45, 46 and 47 of the noble Baroness, Lady Drake, relate to the calculation of the value of the employer’s lost national insurance rebate. For the statutory override to operate as intended we must balance two competing factors: first, safeguarding members from changes to scheme rules that go beyond offsetting the loss of the rebate; and, secondly, providing an override that remains workable for employers—otherwise in practice they will still be left with little real alternative to scheme closure. Schedule 14 sets out important safeguards in the Bill and includes powers to put further safeguards in regulations. Paragraph 2(2) of the schedule prevents the employer making changes beyond those necessary to recoup their increase in national insurance contributions. We intend for this amount to be calculated in accordance with regulations—allowing us to define annual national insurance contributions—and an actuary must certify that any changes do not recoup more than that amount before they are made.

Importantly, any proposed scheme changes cannot take effect before April 2016 and individuals’ accrued pension rights are protected by the Bill. The amount will be calculated in accordance with actuarial methods and I accept that that can be a changeable feast, as the noble Baroness, Lady Drake, pointed out. However, we intend to specify the methods and assumptions in regulations following consultation with the actuarial profession. We are working on the detail of the override regulations and are developing the legislation with stakeholders. We have shared an early draft of the key technical provisions of the regulations with the industry and will undertake a full public consultation on the full regulations as soon as possible. The override will not remove an employer’s obligations under existing legislation to consult their workforce in the usual way before making changes.

Amendments 38A, 39 and 50 refer to the role of trustees in the use of the statutory override. Legislating for trustee consultation risks unnecessarily complicating existing communication channels. It would be counterproductive to require employers to seek trustees’ agreement that the proposed changes recoup no more than the increase in national insurance costs. Trustees would be put in a position of either accepting or challenging the professional view of the certifying actuary. The proposal that the trustees could block the use of the override would negate its purpose. It is worth remembering at this point that, as with any significant alteration to pension schemes, existing legislative provision means that members must be consulted before any changes take place, which is a point I have made.

Where employers wish to make changes to their scheme, whether using the override or through existing scheme rules, it is in their interest, as my colleague Steve Webb said, to engage with their employees and scheme trustees. They will not want to make changes that are impractical or have unforeseen consequences for the scheme or themselves. We can see no reason why employers would not engage in the usual way without the trustees in this case.

We have placed a limit of five years during which employers may use the statutory override. This ends in 2021 but, as the noble Lord, Lord Browne, observed, that time limit may be extended by an order made by the Secretary of State. Based on all the information we have at the moment we believe employers who choose to use the override should be able to do so within this time limit. However, contracting out is complex and there may be unforeseen problems for some employers. An employer who is unable to use the override within the time limit, without the possibility of an extension, may have no option but to close their defined benefit scheme. This would be a compelling reason to use the power and we feel that an affirmative resolution procedure on this matter would not be a prudent use of parliamentary time.

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[Baroness Drake]

I wish to clarify one or two points, if I may. The Minister said that these changes would still be subject to consultation with employers, by which I assume he is saying that they would be considered as listed changes and therefore trigger the listed changes regulations. What triggers that? Those provisions can be operated in a way that excludes the trustees, if the employer takes a certain route. I do not want to go into the detail; perhaps I can do so outside. I would like to understand how consultation with employers is triggered because I would almost certainly want to go on to say that what I think will be triggered will not be fit for purpose in a statutory override situation. I have a couple more points.

[Lord Freud]

Those are not straightforward points to answer and, given the time pressure we are under, I will write on those two matters.

[Baroness Drake]

I completely understand these technical matters. We are up against the clock but I think they need answering and I would want to respond to the answers. There could be an element of the positive in the second—on specifying the assumptions in the regulations—because it starts setting out the rules more explicitly. However, it appears that the Government are still proceeding on the basis that these are negative regulations. The trouble is that other interested parties cannot make an effective contribution unless this House has the opportunity to question those assumptions and those regulations. I have no idea what the delay implication would be of allowing this House to consider the proposed regulations and assumptions more actively when they are brought forward.

Secondly, I would still like an answer to what it is that can be recouped. Is it the definition of the NI rebate in 2016, or is it the NI rebate as it would evolve anyway over time under the current arrangement, meaning that, because of the reduction in the earnings element, it would contract?

Again, I do not want to get too much into protected persons but, on the fourth point, if one takes as an example the railway pension scheme, the Minister is absolutely right. Lots of people in that scheme do not have protected pensions, but they do have the shared cost. There are particular complexities that arise from shared costs and some other things as well, but I feel that there is no opportunity to flesh these out. I have spent some time looking at the railway pensions bill. Even if one did not want to challenge the Government on the principle, there are some complexities here. It is not easy just to adjust the contribution rate or to adjust the benefits in a shared cost situation and where there are variable accrual rates. How are we going to get a chance to look at these?

[Lord Freud]

My Lords, given our time constraints, I will pick up those issues—the shared cost and the rebate over time. With the negative and affirmative, there is a time saving and a certainty. The difference is that you get them in and, within a matter of a month, they are effectively law and they can then be prayed against, but they are in shape unless they are undone. Affirmative has to be approved. So there is quite a process and a time loss in going one way or the other, which I hope I have spelt out. Let me rush to—

[Lord Browne of Ladyton]

I am grateful to the Minister. I am conscious of the time, but I am also conscious that we should not move on from this particular part of the Bill with all its complexity because we are pushed for time, due to the accident of when we held this debate. I say this for a good reason. The Minister read a speaking note about affirmative resolution procedure in relation to regulations which was not written to respond to the amendment that I proposed but was a much more general speaking note. The amendment tabled by me and my noble friend Lady Sherlock related only to Section 24(8)—a very specific part that would not involve the complex regulations which the Minister narrated. The regulations in Section 24(8) will probably be two short paragraphs.

The Minister has given us a lot of other food for thought about how the regulations will be promulgated more broadly. He tantalisingly gave us some of the detail about what may be in there, which may answer many of our questions. It is inappropriate that we just move on from Committee in relation to all these issues that he has raised in his response, and which none of us has had the opportunity to tease out. There are three or four other issues that he raised in response to my contribution with which I would like to engage, because I am not certain that these arguments would stand the test of debate.

[Lord Freud]

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

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

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

[Baroness Turner of Camden]

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

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

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