Disabled People: Disability Living Allowance

Lord Freud Excerpts

Wednesday 11th May 2011 Lords Chamber

[Lord Boswell of Aynho]

To ask Her Majesty’s Government what assessment they have made of the loss of passported benefits to disabled people when the number of those entitled to receive disability living allowance is reduced by 20 per cent.

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

My Lords, we are committed to ensuring that the budget for DLA is kept under control. Reducing expenditure in 2015-16 by 20 per cent means bringing working-age expenditure back to 2009-10 levels and makes it sustainable for the future. As we are still designing the assessment for the personal independence payment, it is not yet possible to comment on its impact on future passporting arrangements. We therefore cannot currently reflect that in our impact assessments, but I can, and do, commit to us doing so when we are able.

[Lord Boswell of Aynho]

My Lords, I thank my noble friend the Minister for his response and for his assurance. Will he bear in mind that, on our calculation, there are more than 40 passported benefits spanning a wide range of government departments? Will he do his utmost in the assessment process to ensure that there are no cliff edges or unintended consequences which could affect significant groups of rather vulnerable people?

[Lord Freud]

My Lords, this is a key matter. There are a large number of benefits attached to DLA. I suspect that at least six government departments are involved. No one knows exactly where all of them are because local authorities use them in different ways. We are going to make a very close assessment of this. Indeed, we suspect that some of the attached benefits will be looked at again to see how they can best be directed at the people who need that support.

[Lord Low of Dalston]

My Lords, the Minister will be aware that on Monday the Government published draft assessment regulations for the new personal independence payment. It appears that assessments will seek to distinguish between those who have not adapted to their disability and those who have and who will be at risk of having their benefit reduced or losing it altogether. Does the Minister not agree that people may have adapted to their disability by reason of the very help that they have received from disability living allowance, which supports their independence and fuller inclusion in the community, and that reduction of benefit for those who have so adapted may, in fact, be self-defeating and undermine the integration into the community of the very people the benefit was designed to help?

[Lord Freud]

My Lords, this is clearly a quite nuanced issue, because there are people who are climbing Mount Kenya on prosthetic limbs who are, I suspect, less challenged in doing that than many of us would be. It does not make sense to go on treating them as disabled in any way, although they may need ongoing support to keep that particular disability support going. We need to get this right. We are consulting on it, and we are determined that we do not create a disincentive for people to use all the supports that they need.

[Lord Morris of Manchester]

My Lords, we were told that the Government’s policy would be to make the broadest backs bear the biggest burden. How do we reconcile that with cuts in disability benefits that sharply reduce the incomes of severely disabled people?

[Lord Freud]

My Lords, let me take this opportunity to make absolutely clear what is happening, in particular to DLA funding. The funding for all DLA, in real terms on 2011-12 figures, was £12.1 billion in 2009-10—the last year. At the end of this Parliament in 2015-16, the funding will be slightly higher—£12.3 billion. The talk of cuts relates to the projections on a benefit that was rising very sharply. What we are doing is bringing it under control. As I say, in absolute terms—in real terms—it is not being reduced; it is roughly the same. There is a slight decline in the working-age DLA from £6.7 billion to £6.5 billion. I am talking real terms.

[Lord German]

My Lords, I welcome the news that the budget will not be reduced over the lifetime of this Parliament, but I am sure that my noble friend understands that many recipients of DLA are very worried about the proposed changes before them. Further to the question asked by the noble Lord, Lord Low, what words of comfort does the Minister have for those who are about to be reassessed, to ensure that the assessment process treats them fairly and honestly, and that those who are in need of help will get it?

[Lord Freud]

My Lords, we are going through a very complex and thorough process this summer to examine what is the right test for receiving the personal independence payment. A lot of things are coming out of the early research, and one of those is that people who have done less well out of DLA are those who have various mental conditions and learning disabilities, and we are trying to recast it so that those people who need support will get it. There will be some changes; it is not going to be the same as DLA; but it is going to be a far more transparent, clear and consistent test.

[Lord Wigley]

My Lords, assuming that there are some who will not get the DLA but are, at present, entitled to passported benefits, can the Minister give an assurance that if they are to lose their DLA, an analysis of alternative criteria will be made available to them and that they will all be contacted to enable them to claim such benefits?

[Lord Freud]

My Lords, it is probably premature to say how we are going to deal with this in detail. What we are going to do is publish an impact assessment—I am committed to doing that—on exactly what happens to passporting. We shall look at these issues, which are thoroughly complicated. DLA is not the only passport into many of these other benefits—there are other ways into them. We need to look at the issue in a very wide context.

[Lord McKenzie of Luton]

My Lords, the Minister will be aware that the Welfare Reform Bill proposes to extend the qualifying period before claimants can receive the personal independence payment from the current three months under DLA to six months under the PIP. Is it not the case that making people wait longer for financial support will place further burdens on those adjusting to sudden onset conditions such as stroke, and people who experience the immediate debilitating effects of treatments for diseases such as cancer, as well as penalising those whose impairment or condition has gradually worsened over time? How can the Government possibly justify that?

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[Lord Freud]

My Lords, the intention behind the change is that we are directing the PIP to people with long-term disabilities. Therefore, we want to make sure that we get the right assessment and take time to do that, which is common with other benefits.

Jobseeker’s Allowance (Mandatory Work Activity Scheme) Regulations 2011

Lord Freud Excerpts

Tuesday 10th May 2011 Lords Chamber

Finally, coming from a rural area of south-east Scotland, I am really concerned about how transport costs and childcare costs are dealt with in rural areas. My honest opinion is that the £8 million would have been better spent on training schemes, but if we are going to do this, we are entitled to seek more detail. I think that as things stand, these schemes are of doubtful value. The sanctions are very severe, and I will need some persuasion by the Minister not to support the Motion moved by the noble Countess, Lady Mar, if she presses it to a Division this evening.

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

My Lords, thank you for giving me the opportunity to clarify the objectives of the mandatory work activity scheme and to explain further how the scheme will operate.

Before I go into that, I want to say that the department takes the concerns raised by this House very seriously. The concerns raised here and by the Merits Committee tell the ministerial team in the department that something has gone wrong. I am aware that this is not the first time in this Session that the department’s instruments have been called to the attention of this House, and we find that very serious. The full ministerial team is in agreement that providing the Merits Committee and the House with all the necessary information is of central importance, and we all regret—I particularly regret—any occasion when the Committee felt it received inadequate information. We are working hard to improve on this. We have arranged for senior officials to meet with the committee’s advisers this week in order to take a serious look at how we are falling down, and they will work with the committee team to ensure that the House is in future supplied with all necessary information. I can assure noble Lords that I am going to make sure that there is a process in the department that makes sure that the right information goes to the committee. This will not continue in this way.

Let me now offer some assurances about this particular instrument. The mandatory work activity scheme represents a new approach. I understand why some noble Lords feel that we should have conducted a pilot before introducing the scheme nationwide. Such an approach may have been the norm in the past, but there has been a change of philosophy in this area. The problem with small, limited pilots is that in the mean time they leave you with a moribund system. Central to the new philosophy of the department is that it is best to provide the freedom to allow initiatives to flourish into success. That is what the structure of the work programme is designed to do. It provides our own staff with the freedom to innovate. Advisers are given greater flexibility to make decisions on what help an individual needs in order to find work. It is one of a range of available support options that can be considered.

The budget is set by a central contracting process, but it will up to Jobcentre Plus to decide whether to use it and in what numbers. It will depend on whether there are claimants in a particular Jobcentre Plus area whose characteristics suggest that they would benefit from this intervention. Contracted providers will not be paid for places we do not use, so there is no incentive to use places that customers do not need. My noble friend Lord Kirkwood’s maths on his calculator is more or less spot on. We have the money for up to 19,000 places costing £8 million, which on the calculation of my team in the Box comes to £421. That is close enough to my noble friend’s answer of £423. How he got that discrepancy suggests that it is obviously a Hewlett Packard calculator.

It is important to recognise that we are not undertaking this work without assessing its place in the wider picture. We intend to learn from how mandatory work activity is used and what impact it has on the customers who are referred to it. I shall come back to precisely how we plan to report to the House on that.

I should also like to take this opportunity to address some of the other concerns that have been raised in the debate. It is vital to recognise that this support was asked for specifically by Jobcentre Plus personal advisers themselves. After all, they are the people best placed to understand what help those struggling to find work really need. During the summer, ministerial colleagues went out, listened and gathered opinions from Jobcentre Plus advisers. The consistent message was that they wanted a tool like this to engage a particular group of people. So the introduction of the mandatory work activity programme has been driven by the grass roots. The programme is aimed at a particular, rather small group of people who have become disengaged and stuck in a rut in their search for work. By getting them involved in mandatory work activity within their local communities, the aim is to give them the confidence they need to approach finding employment proactively as well as the basic disciplines that any employer would expect.

The noble Lord, Lord Rix, was particularly concerned about people with learning disabilities. We aim to replicate all the existing protections in referring people. JCP advisers are not looking for customers in this group. Equally, I shall pick up the concerns of the noble Countess, Lady Mar. Customers in poor health are absolutely not the target group for this scheme, which is aimed at those whose key barriers to work are the disciplines of employment. We know that every customer’s circumstances are different. As much as possible, we are giving discretion to Jobcentre Plus advisers on when to refer customers to mandatory work activity.

Although we are not being prescriptive, we are providing guidance to JCP so that it can provide a framework and achieve continuity of approach across the country. The guidance will indicate the type of characteristics that we expect claimants who benefit from this provision to display. As a department, we are choosing to trust those who have day-to-day experience of working with jobseekers. They are, after all, the people who are asking for greater freedom in how to help customers.

The noble Lord, Lord Rix, was concerned about the complaints procedure. A clear, independent complaints procedure exists through the independent case examiner. If providers are at fault, a hefty fine will be attached. The noble Countess, Lady Mar, expressed concern about trickery and quoted from an article in the Guardian. I can assure her that there are no targets in place to deliver sanctions, either in JCP or among providers. The noble Lord, Lord Knight, was concerned about costs. We have taken on board the recommendation of the SSAC that we pay childcare costs. Lack of suitable childcare is good cause for failing to attend. Therefore, there would be no sanction. We also pay transport costs under the programme. More detailed guidance will be available to JCP advisers. The guidance will be internal for them, so it would not make much sense to publish it.

We have now completed the procurement process and are able to discuss the suggestions of those who participate in the scheme. That may be helpful in clarifying how mandatory work activity will help customers as they look for employment. The noble Lord, Lord Knight, and the noble Baroness, Lady Lister, said that research shows that workfare is not effective. We must make it clear that this is not workfare; it is a short, supportive and personalised programme. That is why flexibility is built into it. The noble Baroness said that that can be looked at in two ways, but the intention here, given the brevity of the programme, is to be supportive.

We have not asked contracted providers to give us details of every placement, but, as an example, several organisations have suggested that they will place people with charities that renovate old furniture to be used in social housing or by low-income families. The noble Baroness, Lady Thomas of Winchester, spoke of benefiting the community. Examples of placements include improving local green spaces, improving community cohesion by working with excluded groups, maintaining cultural spaces and helping the development of social enterprises. Our aim is not only to provide visible benefit for local communities but also to give people the chance to develop skills that they can take forward when looking for work in the future. Most importantly, they will be expected to turn up for work every day for four weeks. They will be expected to work with their colleagues and to complete tasks that they have been set in a timely way.

In response to the concerns of the noble Baroness, Lady Lister, about placement monitoring, we will monitor placements through direct relationships with providers. It is clear in the contracts that placements must not replace current or future employees. We are seeking in this programme to instil essential work disciplines. Research with employers has consistently shown that they value such characteristics highly. A short experience of the workplace can help that development.

My noble friends Lady Thomas and Lord Kirkwood were concerned that there was no indication about how we would operate good cause. We will explicitly include good cause in the guidance in a similar way to that in other regulations. The noble Lord, Lord Knight, was concerned about there being no appeal for mandation. The decision to refer is an administrative decision subject to judicial review if it is unreasonable.

I thank noble Lords for allowing me this opportunity to try to explain these regulations more than we seem to have done to the Merits Committee. I hope that I provided some enlightenment. I recognise that some noble Lords hold deep concerns and I respect and acknowledge those. But in response to those concerns, I assure noble Lords that as well as monitoring the management information generated by the scheme from day one, we will be conducting an impact assessment in November 2012 to assess how mandatory work activity has changed outcomes for individuals.

On top of that, we have set aside £150,000 to conduct external independent research in February 2012 to learn about the experience that customers have while on the scheme, and the difference that it makes to the approach that customers take on their job searches. That will report in summer 2012. Any decisions about the future of the scheme will be based on the outcome of those reports. In order to ensure that the House has the opportunity for further scrutiny of any future changes, I commit that these reports will be laid before the House and noble Lords will be alerted that that has occurred allowing for further debate at that time. I hope that those offers are satisfactory and I urge noble Lords not to press their Motions.

[The Countess of Mar]

My Lords, I am grateful to the noble Lord, Lord Freud, for going to so much trouble, and I have no doubt about his sincerity. I doubt that any noble Lord in this House is completely against these regulations. We agree that some people need to be offered the discipline of work. But we are not happy about the sanctions and the noble Lord has made no effort to justify these draconian sanctions—they are very severe.

I am very grateful to all noble Lords who have taken part. I will not go through their speeches individually because I know that everybody is hungry and will want to go to dinner. I am not satisfied despite the Minister's efforts that he has filled in all the gaps. We have a statutory instrument before us that is not clear and I wish to test the feeling of the House.

Housing Benefit

Lord Freud Excerpts

Tuesday 3rd May 2011 Lords Chamber

[Lord Kennedy of Southwark]

To ask Her Majesty’s Government what are the implications of housing benefit reform for the geographic distribution of low-income families.

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

My Lords, our published impact documents specify average losses by local authority. We expect that a very small proportion of people may have to move as a result of the housing benefit reforms, with a minimal impact on the geographic distribution of low-income families. My department has commissioned a consortium of leading research organisations to comprehensively evaluate the effects of recent local housing allowance changes. Further information on that will be available from the Library today.

[Lord Kennedy of Southwark]

I thank the Minister for his response. Does he agree with me that the success of UK cities is that people from all walks of life live and work together and that introducing a policy that forces low-income families to move to the suburbs, as happened in Paris, would lead to alienation and social unrest and contradict the Government’s belief in the big society?

[Lord Freud]

My Lords, the comparison of London with Paris, which has been made quite widely, is very misleading. The structure of London is very different from that of Paris. London is made up of a collection of villages and is quite unlike the doughnut of Paris. I would not agree with that assertion.

[Baroness Gardner of Parkes]

My Lords, is the Minister aware of the aggravation in London caused in the past couple of years, particularly under the previous Government, when people received letters from councils stating that they could have much higher rents than those that they were receiving and that the council would pay for them? That pushed rents up artificially. I know personally of two cases that were directly affected. Now landlords are unwilling to take rents that previously they thought were very fair.

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[Lord Freud]

My Lords, there seems to be some evidence that landlords were able to benefit from the local housing allowance regime in that we saw its rates go up rather faster than rents for non-housing benefit recipients.

[Lord Best]

May I underline the thanks of everybody who is worried about the impact of housing benefit cuts for the Minister’s action in setting up this independent and rigorous review of the housing benefit consequences? Will he tell the House when it will start, who will be carrying out the review and whether it will include not just people who have to leave because they are evicted or cannot afford the new rent but those who stay put and may face considerable hardship finding the rent from their other benefits and allowances?

[Lord Freud]

My Lords, I am pleased that we have a stunning consortium to do this work. It is led by Ian Cole from the Centre for Regional Economic and Social Research at Sheffield Hallam University, with other key team members being Peter Kemp of the Oxford Institute of Social Policy, Carl Emmerson of the Institute for Fiscal Studies and Ben Marshall from IPSO Mori. It is a stunning group and is going to build an understanding of the impacts of the housing benefit changes right the way through from people who move to those who stay—the noble Lord was concerned about them—at national and local levels, and it will integrate that with wider housing and labour-market evidence. A lot of this will be econometric analysis. The group will report the findings to me finally, as agreed, in spring 2013, but there will be interim reports next year.

[Lord German]

My Lords, I congratulate the Minister on such a comprehensive independent review. Will he indicate the geographic spread of areas which will be covered? Will it include hard-to-let difficult areas as well as rural and urban areas in the whole of the country?

[Lord Freud]

My Lords, I am really pleased that we will have a lot of review for the amount of money that we have. We will cover no fewer than 19 carefully selected case study areas, which will include three each in Scotland and Wales, and 13 in England. Clearly, there will be a concentration on the key area of London and the south-east but we will cover representative areas right through the country.

[Lord Knight of Weymouth]

My Lords, the Government’s change of heart on cutting housing benefit for the long-term unemployed was most welcome. It reflects the possibility that the Minister is compassionate and listening. In that spirit, will he now listen to my noble friends Lord Kennedy and Lord Best, and to the University of Cambridge research which estimates that within five years almost the whole of inner London will be unaffordable to those in receipt of benefits? Will he even listen to the Mayor of London who described these reforms most colourfully as Kosovo-style ethnic cleansing? If the consortium finds that it is right and that he is wrong, what will he do?

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[Lord Freud]

I assure the noble Lord that I am very pleased to be a listening Minister. Some of the forecasts clearly are misrepresented in the sense that the Mayor of London most certainly did not mean that he expected Kosovo-style cleansing. He actually said that we would not see such cleansing—and we will not see such cleansing. But we now will have a review to establish exactly what is happening. Clearly, we will watch what is happening very closely and take any steps that we need to if we find things happening that should not be.

[Lord Boswell of Aynho]

My Lords, we all welcome the review. Is it not important that it should also take account of long-term factors in conjunction with the other aspects of benefit reform? This is not merely a snapshot for now, trying to allay the apprehensions that some noble Lords have expressed. It is also very important to keep a continuing handle on the changing social balance and whether it is being influenced by the benefits system.

[Lord Freud]

My Lords, the key principle behind these housing benefit reforms is that people who are benefit recipients should experience the same kind of pressures as everyone else. That is the way to integrate them back into the world of work, which is one of the fundamentals of our whole welfare reform strategy.

[The Earl of Listowel]

Is the Minister aware that there is a concern that some families may be moved to different areas, which will put additional pressure on children’s services? Is there a mechanism to give additional support to local authorities if there is an additional burden on those services?

[Lord Freud]

My Lords, yes, the system works so that, as families move to different areas, funding follows those families. There may however be lags, which clearly is an issue of some concern. The fundamental principle is that funding follows the requirement.

Pensions Bill [HL]

Lord Freud Excerpts

Wednesday 27th April 2011 Lords Chamber

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

My Lords, I am grateful to the noble Baroness for the opportunity to spend a little time today on our proposals for reforming the state pension. She has been instrumental, as other noble Lords have pointed out, in the move for better pension provision for those left out of the benefits of the heyday of the occupational pension and the earnings-related state counterpart. The Pensions Act 2007, with its enormous boost for women through the reduction in qualifying years for basic state pension and the increasing coverage of the state second pension, could have been the final push for equal treatment in state provision.

Even that was not good enough, though. In March last year, a week before the 2007 Act started to deliver for women, the noble Baroness launched the pamphlet The New State Pension: A Call to All Parties, which pushed for further radical change. Very skilfully, she got my honourable friend, the Minister responsible, to contribute a chapter to that. It proposed a new type of state pension with a near-universal amount, set above the level of the means test and made affordable by paying the pension to new pensioners only. Her main motivation, as ever, was to deliver an adequate state pension for women who, because of low pay and career breaks, have historically lost out in pension provision.

Just over a year later, the Government published their proposals for improving state provision, A State Pension for the 21st Century. That Green Paper confronts the big issue of how to respond to a decline in private saving at a time of increasing life expectancy. It describes how means-testing, with all the damage that it can do to private saving, pervades the state system. It describes the great complexity of the state system. Bluntly, for most people the system is simply impenetrable. Crucially, it fails to answer the most obvious of all questions from potential private savers: is it worth it? How much will I get from the state when I retire anyway? As importantly, it describes the extent of inequality in the state system—how women, on average, get £40 a week less state pension than men and how they are more likely to live in poverty as pensioners.

The Green Paper describes two options for reform to respond to the challenges that the pension system faces. The first option would simplify the state second pension. It would strip out the earnings-related part of the second pension, leaving just a flat-rate amount—the same pension for all workers and people who are credited into the system for caring and other good reasons. The second, more radical, option would effectively fold the basic and second pensions into one to create a simple single-tier pension, set above the level of the guarantee credit. This option, which is clearly similar to the one that the noble Baroness proposed a little more than a year ago, would mean that by 2020 no less than 90 per cent of pensioners—men and women—would retire on a pension above the guarantee credit.

The Green Paper, as I said, was published earlier this month and the consultation is currently under way. As the noble Baroness appreciates, changes of the magnitude proposed in the Green Paper can be progressed only by listening to the views of all those with an interest. It is far too early in the process for the Government to come to a view on the way ahead, so I cannot give a conclusion to the consultation. I assure the noble Baroness that, should the Government decide to bring forward proposals to reform the state pension system, we would as a matter of course publish a full assessment of impacts, including those on women, alongside any reform proposals.

I remind the House that we published an impact assessment, including a gender, race and disability impact assessment, of our proposals to increase the state pension age first as part of the White Paper setting out our response to the call for evidence and again alongside the publication of the Bill when it first entered Parliament. Those assessments will be further amended and revised as necessary for republication when the Bill enters the Commons and yet again once the Bill has completed its passage through Parliament. I can therefore assure the House that, were the Government to publish a White Paper on reform, we would be no less diligent in providing detailed information on the impacts of any policy changes by gender, ethnicity and a range of other factors. In short, there will be plenty of opportunity for noble Lords, as well as Members of another place, to scrutinise any proposals for reform and their likely impacts, should the Government decide to proceed with reform.

I emphasise that the proposals that we have set out in the Green Paper do not depend on increasing the state pension age. As I said in our debates on Clause 1, the rise in the state pension age must be brought forward because the sharp upward revision in life expectancy projections has overtaken the legislated timetable. The revised timetable would be necessary with or without the reforms on which we are consulting. We have already discussed at some length the impact of our proposed changes to the pension age timetable, in particular on those cohorts of women who face an increase in their pension age of up to two years. A number of noble Lords have emphasised that point and I do not propose to rerun that debate. However, I draw attention to the fact that a key objective of the reforms, alongside simplifying the system and rewarding those who save, is to look at how the state pension could be made fairer for groups, including women.

The noble Baroness’s amendment seeks to ensure that we consider the impact of the state pension age changes in conjunction with our proposals for reforming the state pension scheme. As I said, we are only at the consultation stage on our reform proposals but I can assure the House that although, as I hope I have made clear, these are not interdependent changes, we would undertake such an assessment if these reforms are taken forward. I trust that I have been able to assure noble Lords that the statutory duty that the noble Baroness’s amendment would impose is not necessary and, furthermore, is somewhat premature. We will have many opportunities to debate what to do with any reform proposals as they go through the whole process. I therefore urge the noble Baroness to withdraw her amendment.

[Baroness Hollis of Heigham]

My Lords, I thank all those who have taken part around the House, including the noble Lord, Lord Boswell, the noble Baroness, Lady Howe, and my noble friend for their warm support for the principle of the amendment. If the comments in this House are anything to go by, the Minister can be assured of the reception that his Green Paper will receive outside the House. I am confident that it will be greeted with warm support.

I very much take the point made by the noble Lord, Lord Boswell, that we have to see pensions as part of a structure. However, such a new single state pension is the keystone for any reform not just of state pensions but of occupational pensions that do not generate a savings trap for those on lower earnings. That is why noble Lords all round the House are so delighted to see the possibility of that keystone finally coming into place. The noble Lord said that we should minimise retrospective unfairness and avoid future moral hazard. Those words are well taken; they are wise words for us to absorb.

My noble friend Lord McKenzie is absolutely right that, with the advent of a new single state pension, the issue of the threshold of enrolment into NEST disappears. It does not matter whether you end up with £3,000, £30,000 or £300,000 of savings; you keep the lot if the new single state pension is in place. Therefore, you do not have to legislate to avoid the moral hazard of low-paid women earning less than £7,500 a year going into NEST because their savings may not be worth having, given the effect of pension credit. As NEST will be reviewed in 2017, which many of us are already looking forward to, I very much hope that we shall be able to revisit this issue then as, with the new single pension in place, a threshold of enrolment will simply not be necessary. However modest the savings, they will be worth having and worth encouraging, so that even the poorest of people can go into retirement with a cushion against the adversities of old age.

I am grateful to the noble Lord, Lord Freud, for his generous comments on the background to the single pension and to his officials for their work in bringing the Green Paper forward. My only regret is that the Green Paper came too late for Report and that Third Reading has come too early for the results of the consultation. None the less, we are trying to wedge this in between the two. I believe that the new single pension will transform the pension landscape and should receive huge support. I was delighted to hear from the Minister that there was no interdependence between the deferring of the state pension age—in other words, the raising of the state pension age to 66—and the funding or costing of the Green Paper. That is key. It gives me hope that he and his honourable friend Steve Webb will be seeking to smooth the bunching effect whereby some women have a much rougher deal than others. Some wait nearly an extra year for their pensions and some wait for nearly two years. We all recognise that that is—in the words of the noble Lord, Lord Boswell—rough justice. I would go further than that: it is unacceptable. I and, I am sure, the Minister hope that a decent solution can be found to that in the other place.

However, I am, in a way, using the amendment to do what we would have done had the Green Paper been introduced by a Statement, which was not the case. We are delighted to have the Green Paper in place. We wish the consultation good speed. We hope that the results will come through in such a way that the Government are encouraged to go down the path that they should. I can assure the noble Lord, Lord Freud, that if he comes forward with such legislation in this House or the other place he will have wide and enthusiastic support. I beg leave to withdraw the amendment.

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Moved by

[Lord Freud]

2: Clause 10, page 9, leave out lines 2 to 13 and insert—
““(2A) Alternative requirements must be such that, assuming all jobholders to be active members of schemes to which this section applies, for at least 90% of jobholders—
(a) employer contributions, and(b) total contributions,would be likely to be no less if every scheme satisfied an alternative requirement applicable to it than if every scheme satisfied the relevant quality requirement.(2B) In subsection (2A)—
“alternative requirement” means a requirement prescribed under subsection (2)(b);
“employer contributions”, in relation to an active member of a scheme, means the amount of contributions that have to be paid under the scheme in respect of the member by the employer;
“total contributions”, in relation to an active member of a scheme, means the total amount of contributions that have to be paid under the scheme in respect of the member by the employer and by the member.
(2C) The Secretary of State—
(a) must apply the test in subsection (2A) when regulations under subsection (2)(b) are first made, and(b) must carry out subsequent reviews of whether the test continues to be satisfied.A review under paragraph (b) must be carried out during 2017, and after that each review must be completed no more than three years after the completion of the previous one.””

[Lord Freud]

My Lords, I am pleased to be returning to the topic of certification and even more so to be moving a government amendment that I believe will address the concerns of the noble Lord, Lord McKenzie, and the noble Baroness, Lady Drake. I understand those concerns to be twofold: first, on the scope of the Secretary of State’s powers and, secondly, on the risk of unscrupulous employers manipulating the certification test.

The aims of this amendment are: first, to strengthen the regulatory framework in which the alternative certification model will operate by imposing tougher preconditions before regulations can be introduced; and, secondly, to introduce an ongoing requirement for the Secretary of State to keep the test under review.

At the outset, before publishing any regulations, the Secretary of State must be confident that at least 90 per cent of jobholders will receive the same level of contributions under the certification test that they would have received if their scheme had satisfied the relevant quality requirement. This is more demanding than the previous requirement, which referred to,

“a majority of the individual relevant jobholders”.

In addition, the Secretary of State must periodically review the evidence base of the test. This is expected to involve analysing the dataset from the Annual Survey of Hours and Earnings, known as ASHE. These are the data that underpinned the development of the certification model and other relevant data on the rate of pension contributions required by schemes. This is tougher than the previous test, which relied on a snapshot of the data at the point of publishing regulations. If, as a result of review, we detect undesirable trends in pay and reward packages that suggest that more individuals than expected are receiving lower than minimum contributions, the Secretary of State can intervene to strengthen or repeal the test.

After the publication of the regulations, the review will take place first in 2017 and subsequently at least every three years. The review will form part of our ongoing evaluation strategy. Its publication will be considered in the context of the evaluation of the reforms. The noble Lord, Lord McKenzie, will note that we have pared back the Secretary of State’s power as far as we reasonably can, based on the available evidence. In view of this, I hope that the noble Lord will be reassured that the Secretary of State’s powers are proportionate to the task in hand. For clarity, I should add that the requirements fall to the Secretary of State and not to employers using the test.

The reconfigured regulation-making power aligns more closely with our dataset from the annual survey from ASHE, which we believe to be robust, representative and reliable. Thus, the Secretary of State will be able to deliver the certification model welcomed by employers and key stakeholders at the same time as affording scheme members the appropriate level of protection. A supplementary delegated powers memorandum has been sent to the Delegated Powers and Regulatory Reform Committee to reflect the tighter constraints on the Secretary of State’s regulation-making power.

I say in conclusion that we have ended up with the outcome broadly envisaged by the amendments that the noble Lord, Lord McKenzie, and the noble Baroness, Lady Drake, tabled on Report. I thank both noble Lords for the expertise that they brought to bear on the issue. The Bill has been improved by their intervention and I am grateful for it. I beg to move.

[Lord McKenzie of Luton]

My Lords, I thank the noble Lord, Lord Freud, for his introduction and explanation of the amendment, and for his generous attribution. As he explained, when making regulations about the alternative certification test, the Secretary of State is required now to be satisfied that 90 per cent of individuals eligible for automatic enrolment will receive contributions to the level they would have received had the scheme satisfied the relevant quality requirement. The Secretary of State is required to be so satisfied when regulations are first made and at subsequent reviews. We support the amendments because they represent a significant tightening of the Secretary of State's regulation-making powers.

As we detailed, we support a certification process which gives employers an incentive to retain existing good-quality schemes, provided that it does not undermine the opportunity for relevant employees to benefit from auto-enrolment. We acknowledge that the certification scheme on which the Government are consulting appears already to be drawn within the parameters of the amendment. Perhaps the Minister will update us on that, and in particular on the phasing of employer contributions. Presumably such phasing now will have to be consistent with the amendment. Notwithstanding the constraining of the Secretary of State's powers, we should not lose sight of the fact that the Bill still allows the prospect of up to 10 per cent of jobholders missing out on contributions to which they would otherwise have been entitled.

We stated from the outset that we support the Government and congratulate them on their decision to proceed with auto-enrolment and with NEST. I do so again today. However, we do not do this with unconstrained joy, because a number of provisions in the Bill erode the intended coverage of the arrangements. Some employees might miss out because of the certification process under Clause 10; the three-month waiting period in Clause 6 could reduce an individual's accumulated years of savings by nearly three years; the introduction of the earnings trigger in Clause 5, as currently set, would exclude some 600,000 individuals; and the broad uprating powers in Clause 8 would allow the Government to achieve their aspiration of a trigger of £10,190. As my noble friend Lady Drake pointed out on Report, this would exclude a further 800,000 workers each year, three-quarters of whom would be women.

Collectively, the measures hit the low paid and those working part-time, especially women. They run counter to the overarching objective of auto-enrolment, which is to enable low and moderate earners to save. Should the trigger reach the level of £10,000, the reforms would begin seriously to undermine their original intent. All of this compounds the central unfairness in the Bill, which is the disproportionate way in which women are affected by the raising of the state pension age. As we have had no further comfort from the Minister on this issue today, the parliamentary campaign now moves to the other place.

I conclude by thanking the Minister for the concession that is embodied in the amendment, and his team for their efforts in enabling the matter to be dealt with at Third Reading. They have removed the potential for severe diminution of coverage via the certification process, which is to be welcomed. We look forward to the reviews of how the alternative requirement is working in practice. As this is the last time I will speak on the Bill, I will take the opportunity to thank the Minister for his open approach to handling this important piece of legislation, and the Bill team for the way that they have stepped up to the mark and been helpful to the Opposition as well as to the Minister.

[Lord Freud]

My Lords, I thank the noble Lord, Lord McKenzie, for that response. He had, as ever, a couple of questions—that is rather a low number for him. I shall do my best to summarise my answers.

On phasing and parameters, I can assure the noble Lord that it does work. Phasing will be consistent with the amendment, which probably does not surprise him. At the moment the figures are comfortably within the parameters, so there is a safety margin. Clearly, if they fall out of those parameters, it will be due to changes that we need to look at. The certification model will be reviewed in 2017 when the phasing of the contributions has ended.

As a result of this amendment the preconditions before the Secretary of State to make regulations will be a better check and balance on his powers due to two factors—that the percentage of job holders that must potentially receive at least minimum contributions is high, at least 90 per cent; and that the strength of the alternative certification requirements will be periodically reviewed. As there might be concern that this will add to the burden on employers, I should repeat for absolute clarity that the requirements fall to the Secretary of State, not to employers, using the test.

Although the government proposal will be more demanding for the Secretary of State, it should maintain the right balance between flexibility for employers and safeguards for individuals. I am very pleased that we have been able to reach common ground on this issue. In my turn, I must commend the close scrutiny to which the Bill as a whole has been subject in your Lordships’ House. The quality of the debate has demonstrated noble Lords’ accomplishment and high level of expertise. Once again, this House has performed its role with the distinction and spirit that are expected from it.

While I have the Floor I must take the opportunity to thank in particular those noble Lords who have made a significant contribution to the Bill’s journey through this House, notably, of course, the noble Lord, Lord McKenzie, in his role as opposition spokesman, and the noble Baroness, Lady Drake, for her accomplished performance at the Dispatch Box. I also thank my noble friends Lord German, Lord Stoneham and Lord Boswell, my noble and learned friend Lord Mackay, the noble Baronesses, Lady Greengross, Lady Hollis and Lady Turner, and the noble and learned Lord, Lord Falconer, for their participation in an active and often challenging debate. Finally, I thank my noble friend Lady Garden for her proficiency in covering a number of clauses in the Bill. I also thank the Bill team, who have supported the Bill throughout this process with the right material at the right time. I am very grateful to them.

The Bill now passes over to the other place, and a number of noble Lords have presaged a little of the activity that they expect to see there on particular matters. I am just grateful to get rid of any prospect of having to look at PUCODIs again.

Let me reiterate the principles of the Bill which I set out on Second Reading, as they are still absolutely applicable. We need a fair, sustainable and balanced system that adequately and accurately reflects the society we live in. Saving for retirement should not be a thought which occurs only when you first spot that grey hair. It should be a process that begins when you enter the labour market as an adult and continues over the years. The Bill does just that while not losing sight of the key tenet of providing a decent income for the individual in retirement.

Amendment 2 agreed.

Health and Safety at Work

Lord Freud Excerpts

Monday 4th April 2011 Grand Committee

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

My Lords, I am grateful, as always, to the noble Lord, Lord McKenzie, for the opportunity to update the House on how the Government’s proposed changes to the health and safety system will encourage safer and healthier workplaces.

I should begin by reiterating why change is needed. Good health and safety is, of course, vital, and the Government are committed to maintaining health and safety protections. That is the whole point—for health and safety to be effective, it must be a protection, not a burden. Health and safety legislation, overzealously applied, achieves nothing. That is exactly the point that the noble Lord, Lord Berkeley, made about snap shackles. Equally, compensation claims, pursued at random, simply breed cynicism. Our challenge is to lift these burdens and—to paraphrase my noble friend Lord Young of Graffham—to let common sense prevail.

Noble Lords will be aware that the Government are committed to implementing the recommendations in my noble friend’s report, Common Sense, Common Safety, and have recently reinforced this commitment. On 21 March, my right honourable friend the Minister for Employment, Chris Grayling, announced the next steps in the Government’s plans for health and safety reform in Britain. These include setting up an immediate review of health and safety regulation, with a wide-ranging remit including exploring the scope for consolidating, simplifying or abolishing regulations. The review, led by Professor Ragnar Löfstedt, director of the risk management centre at King’s College London, is set to make recommendations this autumn. I can assure my noble friend Lord German that the terms of reference will be published on the DWP’s website before the end of May. The overall remit for the review was set out in Good Health and Safety, Good for Everyone. In the mean time, I assure noble Lords that the Government are already making good progress in implementing the recommendations set out in the report of my noble friend Lord Young. Those who wish to can view a progress report on my department’s website, detailing progress against all the recommendations.

My noble friend Lord German expressed concern about whether the code of practice would be enforceable in respect of adventure activities. That code of practice will be consulted on shortly. In practice, current licensing does not cover many of the newer adventure activities—I do not think that it covers coasteering, for instance. Health and safety law will continue to apply and will be enforced appropriately.

I shall focus on two aspects of our strategy today: first, the action that we are taking to change the health and safety culture for the benefit of Britain’s workplaces; and, secondly, our focus on reforming so-called no-win no-fee agreements and other aspects of civil litigation funding and costs.

Culture change, whether in health or safety or anything else, does not happen overnight, but its results can be impressive. Perhaps noble Lords will allow me a personal reflection. I well remember meeting officials from Eurotunnel—for which I was working in a more financial capacity—some 20 years ago and comparing the numbers of fatalities that occurred during the construction phase of that amazing project. There were seven on the British side and two on the French side. The factors involved were many and various, but I was struck and a little shocked by how much the French construction industry had achieved for itself compared with its British counterpart and how much its strong safety culture owed to partnership working.

Happily, in the intervening years, much of the British construction industry has followed suit, and the benefits are plain to see. The industry now has a fatal injury rate of 2.2 workers per 100,000 per year, which is among the best in the world.

Against this background I am delighted to report that the efforts of the noble Lord, Lord Young, and of the Minister for Employment to deliver culture change are already bearing fruit. Following its recent launch by the Health and Safety Executive, already more than 2,000 health and safety consultants have been approved to join the online Occupational Safety and Health Consultants Register. It is not only the noble Lord, Lord McKenzie, who has welcomed the register. We confidently expect more consultants to join the scheme as its reputation grows.

I need hardly explain the importance of the new register. It should spell the end of rogue health and safety advisers. All those on the register will be properly accredited to a professional health and safety body, which is good news for health and safety and, indeed, good news for business.

The consultants register is designed to help employers who need general health and safety advice to find a well qualified and experienced consultant who is able to give that advice. Employers using a registered consultant can have confidence that the consultant belongs to a professional body, has had their experience and qualifications assessed and is undertaking continuing professional development; in short, someone who is committed to providing sensible and proportionate advice and is properly insured.

To pick up on my noble friend Lord German’s point, there will be an annual renewal process to make sure that all those on the register still meet the eligibility criteria. The relevant professional body will deal with complaints and, indeed, could take action to remove consultants from that register. The new register is just one of several online tools launched recently by the Health and Safety Executive, with a view to providing small and medium-sized enterprises, and others, with straightforward guidance on how to manage health and safety.

Health and Safety Made Simple, for example, is a concise and easy-to-navigate website, designed specifically for low-risk SMEs. Similarly, four interactive risk assessment tools have been developed—specifically for offices, shops, charity shops and classrooms—and the HSE has also just published simple web advice making clear that health and safety law is not a barrier to volunteering activities, and explaining clearly when the law applies in practice.

Taken together, these new measures will allow businesses to achieve a basic level of health and safety compliance, and that, again, is good news for everyone. A basic level of compliance means lower-risk businesses delivering on their key health and safety obligations—but not being smothered by red tape, nor health and safety inspections, in the process.

As for my noble friend’s point on asbestos, asbestos clearly must remain a priority. Work to educate and raise awareness of the risk is under way and included in the HSE’s forward business plan.

On inspections, perhaps one of the biggest changes is the focusing of inspection and enforcement on those areas where it is needed most. In the current financial climate, there is no point in claiming that the enforcing authorities can inspect all businesses to the same extent and with the same frequency. On the other hand, why should they? Why should a lower-risk business be inspected as much as a higher-risk one? Equally, why should a business that is in serious breach of its health and safety responsibilities not be charged by the enforcing authorities for putting things right?

Let me be clear: we have no intention of reducing inspections in high-hazard industries. In fact, by the end of SR10, the aim is to have more, not less, nuclear and hazardous industries inspectors. As for unnecessary inspections, an issue raised by the noble Lord, Lord Berkeley, the statement is designed to drive this change of behaviour.

On inspector numbers, as of April 2011, we have 2,500 front-line staff and we are expecting an increase over the next year, with the figures beyond that date dependent. As I said, there is no intention to reduce numbers substantially although, with the reduction in the number of inspections, by implication the concentration on the higher-risk industries will intensify. This is not a net loss but an additional concentration on the higher-risk industries.

The noble Lord, Lord McKenzie, asked about the evidence base for lower-risk classifications of industries. Essentially, it comes from the Office for National Statistics, and trends over that show where sectors are improving their health and safety performance. Higher-risk classifications relate to those industries where performance remains a concern. In agriculture, farm inspections have not proved effective in reducing injuries over the years. The current approach involves new training and education and has proved to be more effective.

As for my noble friend’s point about how to decide who to inspect without proactive inspections, clearly there is a whistleblower element and a follow-up of complaints. More importantly, however, there is also a follow-up of those incidents and an investigation where necessary. Other inspections will reflect evidence of risk and be regularly reviewed.

There was a question about why quarrying and transport have been excluded. It is mainly because of improvements in their performance over recent years.

Given the time constraints, I shall not speak about issues of civil justice. Those issues were not specifically raised so I shall perhaps leave them until another occasion.

[Lord Berkeley]

The noble Lord has just mentioned quarries and transport, but where do railways come into this? I asked whether railways are part of transport or something else.

[Lord Freud]

That is currently being looked at within the Office of Rail Regulation. It was separated—I forget exactly when, but, from memory, I think it was 2004—and is now being brought back together and integrated with the regulator.

[Baroness Turner of Camden]

The noble Lord has not mentioned trade unions once and yet this is a major part of all unions’ work. For many years it was one of my responsibilities within my union to run a scheme that provided assistance to people who had accidents at work. The TUC is very much involved with the prevention of accidents and so on and it is a major part of unions’ work. The Minister did not mention that. Although he referred to the register of people who are giving professional advice and so on, he did not mention unions at all.

[Lord Freud]

I apologise. That was an inadvertent miss-out. Clearly where there is a more responsive, not so proactive system, the unions would have a role in alerting the HSE where there were concerns. Clearly, the role of education and training in reducing health problems in many of these areas will be important.

One area in which I am most interested is what we will find from the sickness absence review. This has now been launched and will be looking at periods of sickness absence of 28 weeks. Stress-related and mental health-related issues account for around 40 per cent of such absence, and it will be very interesting to see whether we can use the new arrangements for managing sickness absence to ratchet up how employers look after their staff. I know that the sickness absence review team is actively looking at that. Therefore, there is a health and not just a safety angle here.

[Lord McKenzie of Luton]

I am sorry to intervene again and the Minister may wish to write to me, but perhaps I may clarify two points. First, can he confirm that the evidence base on which the categorisation has been determined takes account of evidence relating to propensity for ill health in sectors, as well as accidents and fatalities? Secondly, in relation to reactive, as well as proactive, inspections, the document, if I read it correctly, says that in both areas—that is, the high-risk areas and areas of concern, but not the low-risk areas—the HSE will continue to undertake inspection for enforcement purposes or to follow up complaints when such an intervention appears necessary. Can the Minister confirm that there is no intention of having reactive inspections for what are classed as lower-risk areas—for example, the transport sector, electrical engineering, and indeed education provision, as we know that asbestos in schools is a continuing problem?

[Lord Freud]

I am happy to confirm both those points. The first, concerning health, is clearly part of the statistical base that will alert the HSE. Secondly, where there is concern, the HSE will respond whether it is a lower risk or a higher risk, and that is exactly as I understood the section of the document to which the noble Lord referred. It says that in as many words.

[Lord McKenzie of Luton]

My Lords, perhaps we should pursue this matter outside the Committee, as I do not think that it does. The comment seems to relate to the first two areas—areas of concern and areas of high risk—but not those of low risk. However, perhaps we can deal with that in correspondence.

--- Later in debate ---

[Lord Freud]

I should be happy to write a full letter on that point. In conclusion, I am confident that our health and safety changes are a force for good, ensuring that civil justice and health and safety law are applied sensibly. The emphasis should be on addressing real risks and preventing death, injury and ill health to those at work and those affected by work-related activities. I have said before that we will not make the United Kingdom a safer place by wrapping everyone in cotton wool and avoiding all risk; we will do it by delivering a health and safety system that is fair, balanced and proportionate.

[The Deputy Chairman of Committees (Baroness Fookes)]

My Lords, the Committee stands adjourned until 4.30 pm.

Pensions Bill [HL]

Lord Freud Excerpts

Wednesday 30th March 2011 Lords Chamber

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

My Lords, this set of amendments puts forward the first of two alternative routes to achieving a combined retirement age at 66. We shall discuss the second route in the next group of amendments, tabled by the noble Baroness, Lady Greengross.

I thank the noble Lord, Lord McKenzie, and the noble Baroness for giving us a further opportunity to debate the issues that the amendments in this group raise. Let me start by saying that we are not insensitive to the impact that our timetable will have on the women who will face a much steeper increase in their state pension age than they were expecting. We also appreciate that we are asking them to make this adjustment with less notice than we would provide in an ideal world. However, for reasons that I shall explain, we are not in an ideal world, as my noble friend Lord Flight has just said. We remain of the view that, although this is a genuinely difficult decision, it is still the right one.

[Baroness Browning]

When my noble friend explains his intentions to the House, will he include an explanation of what the practical implications would be of helping those women most affected by shifting the burden on to the wider pensioner population?

[Lord Freud]

Yes, I will try to address that now. If we were to look for funding by asking men and women, after their pension ages were combined at age 66, to go on for a little later than 66, the sums of the adjustment—although it is not easy to do them—would be roughly £330 million a year per month. It would depend on how many years you have. I will write to my noble friend and try to spell out the figures on making that adjustment.

Let me revert to the amendment, which is fundamentally the same proposition that the noble Lord, Lord McKenzie, made in Committee. I shall recapitulate why—notwithstanding the many concerns that we heard today and in Committee—we believe that we are taking the right course of action. It is common ground all around the House that we simply cannot go on ignoring the increases in life expectancy and the pressure that this puts on the state pension system now and in the future. Indeed, these amendments acknowledge that we need to move faster than the timetable that was set earlier. The impact of the upward revision in the life-expectancy projections is an extra £6.5 billion in state pension spending over the lifetime of just that cohort retiring in 2010.

As many noble Lords have pointed out, the amendment would cost the public purse upwards of £10 billion that would need to be found elsewhere. When the coalition Government came into power, we had not only to combat the huge financial debt the UK was in at that time, but put the country on a sound financial footing for the future.

I remind noble Lords that the financing of old age as a whole is the single biggest structural, long-term economic issue facing this country. We need to address the long-term costs of our pension system and ensure that we can deal with any wider economic problems that may appear on the horizon—a point made by my noble friends Lord Boswell and Lord German.

We expect public debt to be on a declining path by 2015-16, but it will still be well above pre-crisis levels. By the end of this Parliament, we will still have a national debt of £1.3 trillion. Waiting until 2020 to start moving to retirement at 66 would reduce the savings that we are looking for by a third—£10 billion off a total of £30 billion. That is the equivalent of reducing the education budget by 10 per cent over the spending review period, or one year’s capital budget for health. We have not yet heard a plausible alternative that would deliver those savings—with apologies, perhaps, to the noble Lord, Lord Stoddart. This is not an insignificant amount of money that we can easily pass up.

We believe it is right that those people who will benefit from recent increases in life expectancy make a contribution to the additional cost that comes from those longevity improvements. Women, no less than men, have benefited from increases in life expectancy. In three generations, projected average life expectancy at age 65 has risen by nine years for women. At the same time, women’s basic state pension outcomes have been rapidly catching up with those of men and continue to improve. In 2006, only 30 per cent of women retired on a full basic state pension. In 2010-11, that figure has increased to around 75 per cent. The projection is for it to reach 90 per cent by 2018, which is a big change-around in the support that older and retired women will get.

On the point made by the noble Baroness, Lady Howe, we have also taken action to ensure that the state continues to provide a decent income for people when they retire, with the state pension supported by the triple lock and key support elements for pensioners protected, such as free TV licences, cold-weather payments maintained at £25 and so on.

As the Chancellor has now officially announced, we will be consulting shortly on proposals for a simpler state pension, which will boost state pension outcomes further for the groups which are traditionally disadvantaged in the current system by low earnings and by interruptions, which is a point that several noble Lords have made. I have been challenged by my noble friend Lord German to talk more about the single tier. Every time we meet, I think there is more discussion on it than on anything else. A Green Paper is due shortly that contains two proposals. There is a proposal for a single-tier system, which will be looked at alongside the alternative option of accelerating the currently legislated changes to the current system—so-called flat rating.

The single-tier system would be around £140 a week and its main benefit would be much greater simplicity for individuals, which would give them a much clearer idea of how to plan ahead. It is also cost-neutral, a factor that is particularly valuable in the current climate, as I have pointed out. However, this is a complicated thing to do, and it is important that the reforms fit in with the programme of automatic enrolment and we will actively consult on the proposals. I take to heart the point about information made by my noble friend Lord German. I will take that back to the department and see how much clarity I can get.

Women retiring at 66 in 2020 should receive their state pension for 24 years on average. That is the same amount of time that we expected this group of women to receive their state pension for at the time that the pensions commission reported in 2005, when they were due to retire at 64.

Of the 2.6 million women affected by the change in state pension age, around 12 per cent face an increase of 18 months or more, and 1 per cent face the maximum increase of two years. That point was made by the noble Baroness, Lady Bakewell. Survey data show that 70 per cent of these women are still in employment. While I accept that we are asking these women to work longer, they will benefit from additional income and a potential boost to their pension savings and entitlements. In response to the point made by the right reverend Prelate the Bishop of Ripon and Leeds, data show that only 4 per cent of the women affected by these proposals have already retired.

The noble Baroness, Lady Hollins, raised the issue of carers. Clearly, they are a most valuable group in society, and we acknowledge them as such. There has been a downward trend in the proportion of women who say that they are not in the labour market because of caring or domestic responsibilities—the figure fell from 10.7 per cent in 1998 to 6.9 per cent in 2010.

The data show that employment rates decline as people approach the state pension age. Currently, the average age at which women leave the labour market is two years below that of men, although it is still two years above the current state pension age for women. The noble Lord, Lord McKenzie, made the point that women are less able to cushion the impact of any change. Current employment patterns for women in their early 60s are not a reliable indicator of future trends, as those women will already have started getting their state pension. It is difficult to predict with certainty how women will respond to the changes in the state pension age. I recognise that women are more likely than men to face competing demands in the form of caring and other responsibilities. Despite this, the figures show that the age at which women exit the labour market has risen steadily, from sixty-one and a half in 2004 to sixty-two and a half in 2010.

We had to act quickly to reduce the increasing costs imposed on the state pension system by the increase in longevity. It has not been possible to give a notice period similar to those given for previous increases in the pension age, but these women will still have between five and a half and six and a half years’ notice of an increase in their state pension age, enabling them in many cases to change their retirement plans.

In order to get to 66 by 2020, we have had to make some hard decisions. The noble Baroness, Lady Hollis, talked about our coalition plans. I point out to her in reply that the single-tier pension was also not in the government programme. Clearly, the new timetable creates a pension age gap between women born in March 1953 and March 1954, which increases from one to three years, but that is the most extreme contrast and applies only to women born in that month.

--- Later in debate ---

[Lord Freud]

I thank the noble Baroness, Lady Greengross, for this amendment, and for seeking to achieve a compromise position between what we have proposed and what the noble Lord, Lord McKenzie, put forward—the rather more costly proposition that we were discussing a few minutes ago. No one wants to hear a rehearsal of all the arguments that we have just gone through, so I will avoid it. I thank the noble Baroness for her ingenious approach to trying to develop this compromise position. It is a real achievement that she has got ahead of the noble Baroness, Lady Hollis, on a weekend when she had a towel around her head.

This amendment attempts to recoup at least part of the savings that are lost by a gentler transition to 66 years for women by increasing the pension age for men to 66 years first, and then staying within the European equal treatment directive. As she explained, the amendment is intended to ensure that no women will have their state pension age increased by more than 12 months, which would place women on a similar footing to men at least in respect of the adjustment that they would need to make. Picking up on my noble friend Lord German’s teasing about the kinks, I think that we should look at the intention here rather than at the exact drafting. I am very happy to do that, although it is nice to look at the kinks if you are a little techy about the subject.

This timetable would result in deferring the point at which a state pension age of 66 is reached until 2021. However, unlike the amendment tabled by the noble Lord, Lord Boswell, in Committee, which had the same end point, her amendment would cost some £2 billion compared to his £7 billion because the increase in state pension age for men to 66 by April 2020 would go ahead as we have planned. That is why this is such an ingenious amendment.

I must now air the issue of the equal treatment directive, which, frankly, has bedevilled the whole situation and created a lot of problems in devising how we approach it. I ought to spend a little time on the directive.

Directive 79/7 deals with the progressive implementation of the principle of equal treatment for men and women in matters of social security. It provides that there shall be no discrimination on grounds of sex in relation to the benefits to which it applies. When the Pensions Act 1995 was passed, the UK legislated to end gender discrimination in the state pension age by April 2020. Any change we now wish to make needs to be considered in relation to the position left by the 1995 Act. In particular, we need to consider whether any alteration would hinder progress towards equal treatment by either increasing the present gender gap in pension age or prolonging the period of unequal pension ages. Doubtless with the first of these considerations in mind, the noble Baroness’s timetable aims to control the gap. It is certainly the case that the difference in pension ages between men and women sharing the same birth date is no greater than it would otherwise have been under the original equalisation schedule. It does, however, result in a difference of treatment between birth cohorts. I shall try to illustrate that.

At the point that the noble Baroness’s timetable parts company with the proposals in the Bill—that is, for women born from 6 October 1953—the pension age gap between men and women for that birth cohort would stand at five months. It falls to three months for the following cohort but then starts to rise again, to a year for men and women born in March 1954, before rejoining the path set by the 1995 Act, albeit at a year older. By reducing and then increasing the difference in the state pension ages between men and women, and by delaying the final point of pension age equalisation by 12 months relative to the timetable legislated in 1995, the amendments can be seen to be adverse to the progressive equalisation of pensionable age both in themselves and by reference to the Pensions Act 1995.

As I said, the noble Baroness’s proposals would still reduce the overall savings by around £2 billion. While this is significantly less than the £10 billion price tag attached to the amendment of the noble Lord, Lord McKenzie, it is still not a negligible sum. As I have tried to explain, the issue around this amendment is the extent to which it runs contrary to the progressive equalisation of pensionable ages currently on the statute book. As structured, it risks breaching the European directive and being unlawful. Therefore, I am not in a position to support the amendment or even to make any warm noises about it or the possibility of action being taken in another place, as the noble Lord, Lord McKenzie, suggested. However, this House has expressed strong feeling on this matter and the message has undoubtedly gone out loud and clear. On that basis, I urge the noble Baroness to withdraw her amendment.

[Baroness Murphy]

I believe that I must respond to the Minister since I moved the amendment. I have listened to the debate very carefully and thank everyone who has spoken in support of the amendment of the noble Baroness, Lady Greengross. I say to the noble Lord, Lord German, that I do not have a clue why the kinks have arisen. If I was the Minister, I would say at this point, “The noble Baroness, Lady Greengross, will write to you with her responses”. I am sure that we would all like to know the answer to that.

I am very disappointed with the Minister’s response.

--- Later in debate ---

This is not the first amendment in the group. Depending on my noble friend Lady Turner and on the Minister’s reply, we are minded to test the opinion of the House when the amendment is called.

[Lord Freud]

My Lords, this group of amendments in effect aims to provide mitigations to the state pension age timetable. I thank the noble Baroness, Lady Turner, for giving us the opportunity to discuss the issues surrounding those in ill health and those in arduous or dangerous employment. Similarly, I thank the noble Baroness, Lady Drake, for her proposed changes to the pension credit qualifying age timetable.

The amendments were tabled with the intention of helping those people who might be described as vulnerable, as noble Lords pointed out. I very much agree with the principle that we should assist those who require additional support. However, a balance must be struck between doing the right thing for those people and making the system more complex and harder to understand when it comes to delivering that support.

As I said, Amendment 9 allows for mitigations to the proposed change to the state pension age timetable for those in ill health and those in arduous or dangerous employment. While I have great sympathy for the people these amendments aim to help, the arguments against accepting them that I set out in Committee have not changed. The changes would make the system too complex.

I will pick up a point made by the noble Baroness, Lady Drake, about the life expectancy of people on low incomes. There is good news here. Male manual workers saw a two-year increase in life expectancy at the age of 65 between the 1992 to 1996 and the 2002 to 2005 assessment periods. Women manual workers saw a one-year increase. When one drills down into the figures—I was looking at them this morning—one sees an acceleration for manual workers. Perhaps the nature of manual work is easing. In the latest period, life expectancy for both men and women improved more rapidly for manual workers than for non-manual workers. Between the 1997 to 2001 and the 2002 to 2005 periods, male manual workers saw their life expectancy rise by 1.2 years, against 0.8 years for non-manual workers. Clearly in this latest period there is very good news.

As I said, we have already made strides on the value of the state pension by introducing a triple lock. As we discussed, we are looking to reform and simplify the state pension, which has become unbelievably complex.

[Baroness Drake]

Perhaps I should have intervened a sentence or two earlier, but I was not sure whether the Minister had finished on the longevity point. I accept his point that the life expectancy of certain lower socioeconomic groups has also improved. However, the evidence of the Marmot review and of a recent NAO report also shows that inequalities are increasing in healthy life expectancy, and that this group is less likely to be healthy and therefore less able to re-enter the workforce at short notice in the accelerated timetable. I accept the general proposition about improving the state pension age.

[Lord Freud]

I thank the noble Baroness, Lady Drake. We could get into a long debate here that perhaps would not be hugely valuable. The figures for life expectancy, healthy life expectancy and disability-free life expectancy are all moving up. They are moving up at slightly different rates for different people, but the general movement is in an encouraging direction. Healthy life expectancy is moving up almost as fast as life expectancy—just slightly slower.

I come back to the point about the state pension age and the amendment of the noble Baroness, Lady Turner. A state pension age that is different for different groups would take us further away from the goal of a new flat-rate, single-tier pension based on contributions, which is simple to understand. It is important for the state to be clear how much someone will receive in retirement, and it should be equally clear about when they can receive it. A variable state pension age will not help this. Now is not the time to bring in further complexity by introducing bespoke state pension ages for individuals.

Adding to the complexity of this concept is the problem of defining prolonged ill health or arduous and dangerous employment. It might seem straightforward to produce a list of health conditions and occupations, but our direction with welfare reform is precisely the opposite, away from categorisation of people towards individualising and looking at how they can function and what they are doing. We are looking towards assessing each person’s appropriate pension age. Then we begin to get into very difficult territory, which we will discuss under the personal independence payment and the capability assessment. I need not spell out for a third time how difficult that is.

People are working longer and are living longer and healthier lives. We need a system that takes into account recent changes. I must accept, with regret, that some people, due to ill health, have to leave work before they reach state pension age. However, it should be acknowledged that support is already available for those people. Although they may not be entitled to a state pension immediately, that does not mean that they are left with nothing. As my honourable friend the Minister for Pensions recently said, it is not a case of going from a £97 pension to zero: working age benefits will continue to be available for those whose state pension age has increased and those who are unable to work because of health problems. They may very well be able to claim employment support allowance. Support through other benefits and credits is available today and will continue to be available in future, whatever the state pension age. Indeed, the introduction of universal credit will make it much easier to see precisely what entitlements are.

We need to ensure the sustainability of the state pension system and our proposals strike the best balance between the impact on individuals and fairness to the taxpayer. I should make one slightly technical point, to which I think many noble Lords will be sympathetic. Changes to the state pension age should be made only following agreement in this place and another place. For the Government to be able to vary the provisions of the schedule through regulation is a significant power, and one which should not be treated lightly.

I turn to Amendments 11 and 14. The arguments remain the same. It is vital that our system strikes that balance. I thank the noble Baroness, Lady Drake, for tabling the amendments and allowing us to consider the role of income-related support for those over a specified age. The amendments would keep the pension credit qualifying age in line with the existing legislative timetable for women's state pension age. Their effect would be that the pension credit qualifying age would diverge from the women's state pension age from 2016, as proposed by the Bill. The amendments, while seeking to ensure that the pension credit qualifying age cannot be higher than the state pension age, also leave the door open to retaining a pension credit qualifying age below the state pension age—possibly permanently. That seems to me to be based on a fundamental misapprehension. The underlying assumption seems to be that by keeping the pension credit minimum qualifying age pegged to state pension age, we seek to attack the incomes of older people. That is just not the case. We think that, for all people of working age, the appropriate form of support is a working-age benefit.

The Government introduced the Welfare Reform Bill, which sets out the proposals for universal credit by 2016. There is widespread support for the principles underpinning universal credit—in particular, the principle that work should always pay. We should define people of working age by using the state pension age, not that of pension credit. We have used that only because state pension age has not been equal between men and women. The upper age limit for universal credit will be set at the pension credit qualifying age. That ensures that the appropriate work-focused and work-related support is targeted at those of working age. Providing an arbitrary age for pension credit which breaks the link with state pension would also compromise that important aspect of welfare reform. If it is not state pension age, when should it be?

[Baroness Drake]

I must correct the noble Lord, because I think that he is misrepresenting my amendment. It asks the Government only to commit to separating pension credit qualifying age from the women's state pension age for four years, from 2016 to 2020, to mitigate the impact on a particular group. It does not ask them to commit to a policy beyond 2020; that is for the Government to decide. We already have a precedent for separating state pension age from the qualifying age for pension credit, which is that of men. The amendment would not by the back door set a formula for the future; it simply provides that for a four-year period from 2016 to 2020 there is a separation to mitigate disproportionate impact. It does not require the Government to commit beyond that.

[Lord Freud]

Let me accept that that is the intention behind the noble Baroness’s amendment—although when we costed it, we had to make an assumption about how we then bring it back up to pension age. We need not be technical. It is important when we debate these matters that we debate the underlying intention and not worry about precise things.

I reinforce my point: if we divorce the minimum qualifying age for pension credit from the state pension age, with the exception that the noble Baroness pointed out, the minimum age for pension credit becomes arbitrary, and people would well ask why it is at that age, not one year sooner or one year later. As life expectancy increases, more and more people will want to improve their incomes by working for longer. We should celebrate and encourage that. The amendment goes completely against that principle. We are clear that we want people below state pension age to work if they possibly can. The point of the proposals is not to take money away from people, as some noble Lords have said, but to encourage people to go on working longer, which should leave them with more income. We cannot give up on those people. They deserve our help and support in their endeavours to support themselves.

The other misapprehension is that there is inadequate provision in the universal credit for those who cannot work—people in ill health or people who have worked in manual jobs, who may not be able to continue working as state pension age increases. Again, that is simply not the case. Universal credit is intended to provide appropriate levels of support for those of working age, including those who, for whatever reason, are unable to work or have limited capacity for work.

The amendment will give no comfort to those who want to make entitlements much clearer and more transparent in an effort to ensure that they reach those who need them. It would mean providing complex and confusing information to customers. Unfortunately, it would come into place just when we are introducing universal credit, which is designed to have a pure, simple messaging to people to convince them of how they need to interact with the state. By producing this new, complicated system, we would undermine that simple messaging.

Quite apart from the messages, it would also add significantly to the complexity of the benefits system, confusing the people it is designed to help and the organisation delivering it. In order to deliver that confusion, which would obscure entitlements and potentially discourage people from working in the years before they get their state pension, the amendment would present the taxpayer with an unaffordable bill. For the financial years 2016-25, we estimate that it would be around £1.9 billion, and there would be further costs in the years to follow, depending on when it is withdrawn.

The amendment would add complexity to the system and have the effect of withdrawing valuable in-work support for people below state pension age. It would obscure entitlements for those who need them most and incur a very substantial increase in expenditure. I think I have clearly set out the rationale for the Government’s position. It is simply impractical to assume that the system will be improved by adding further complications to an already complex beast. For these reasons, I urge the noble Baroness to withdraw the amendment.

[Baroness Turner of Camden]

My Lords, I thank the Minister for his response. I think he agrees that there is a problem here, but what he is telling me is that it is too complicated to resolve in the way that I have suggested. I will read very carefully what he said about it because I got the impression that he understands that there are problems about people who do dangerous and difficult work—people on whom we all depend in a modern environment. We do not notice that they are doing it until they cease to be there to do it, and we are not expecting that to happen very soon.

I thank my noble friend Lady Drake for what she said about pension credit. It is quite clear that her amendment on pension credit is intended to deal with the less well off. In that respect, it has to do with my amendment, which is concerned with poorer people. I therefore support what she said.

On my amendment, as time goes on, we may well see, although I hope it does not happen, that if you have accidents or incidents at work, there will be pressure for changes in that respect. I do not think we have finished with the argument about dangerous and difficult work. People do not expect to have to go on working in that kind of environment without any reasonable prospect of an earlier retirement. I shall read with interest what has been said about my amendment. What my noble friend does about her amendment is, of course, entirely up to her. I think it should be supported. I beg leave to withdraw the amendment.

--- Later in debate ---

[Lord Stoneham of Droxford]

I have already allowed one intervention and I should like to move on, since this is a short debate.

Finally, it is important to understand that too low a threshold may well encourage more lower income people to opt out than would a more realistic one. For those reasons, I support the proposal set out in the Bill.

[Lord Freud]

My Lords, there is clearly a lot of consensus in the House around auto-enrolment, but I am afraid that one of the areas where there is genuine disagreement—there are not many of them—concerns the right earnings triggers for it. The amendments in the name of the noble Baroness, Lady Drake, seek to introduce a lower entry point for automatic enrolment, and we need to look at them with the amendment which seeks to cap annual rises in the automatic enrolment trigger to the higher general level of earnings and prices. Let me take a few moments to explain why it is our view that the threshold we are proposing is right and why reverting to a lower trigger would not be right. As the noble Baroness, Lady Hollis, pointed out, we reached a recommendation on the level by leaning on the Johnson review, which considered a number of factors: earnings dynamics, family characteristics, and the replacement rate which the noble Baroness finds distasteful.

Let me explain why the replacement rate is an important factor. If you are earning a certain level of income through your working life, it does not necessarily make sense to take money out of that to have a better income later. That should be a choice for the individual—that is the theory of replacement rates. When you are looking at asymmetric paternalism and encouraging people to do things that they might not do if they thought about it harder or were equipped to make those assessments, it does not necessarily make sense to create a situation where people find themselves scrimping and saving during their working life to have a slightly better lifestyle when they are older. That might be the right choice, but it should not necessarily be something that we encourage.

If we only consider replacement rates, then the analysis done by the review shows that individuals with earnings in the £10,000 to £15,000-a-year range throughout their working life would, through the combination of the state pension and income-related benefits, receive replacement rates that are often in excess of 100 per cent. If it had been replacement rates alone that guided the setting of the threshold, it would have been set somewhere between £10,000 and £15,000. However, that clearly is not the whole story and the review recognised that. It recognised the importance of dynamic earnings, which mean that some of those who have low earnings today will still benefit from saving as they are likely to go on and earn more in the future, a point made by the noble Baroness, Lady Hollis. However, even that is not straightforward either—when a person’s earnings are low there is a genuine question about whether it is right to encourage them to save at particular times when they may very well have a pressing need to use all their income to meet present living costs.

That led the review team to consider individuals’ family circumstances. These may well mean that a low-earning individual with a higher-earning partner might benefit from saving even when their earnings are low, as it would help provide a decent replacement rate for the family as a whole. In the vast majority of families with both partners working, their total earnings are significantly higher than the earnings of just one individual. Bearing all these complicated and interrelated factors in mind, the aim of the independent review was to set a threshold which maximises pension saving for those for whom saving is valuable, while minimising the number of those brought in for whom it is not. In doing this and making its recommendations, the review team struck a very careful balance.

It is simply not correct to assert that all low earners will benefit from pension saving throughout their working life due to dynamic earnings, receipt of working tax credits or the fact that they live with partners who earn more; nor is it correct to say that all low earners will not benefit from saving. That is why we have the opt-in to allow those who will benefit from saving to choose to do so. Individuals who opt in and have qualifying earnings will of course still benefit from an employer contribution.

No earnings threshold will ensure that automatic enrolment is perfectly targeted, encouraging saving among all those who need to save while excluding all those who should not—unfortunately, the world is not that simple. That is why the review team sought to identify the correct balance between all these factors. The Government accepted its findings, including the adoption of a higher earnings threshold; this was widely welcomed by stakeholders. We believe that the starting point that we have proposed in the Bill on the basis of the review recommendation strikes the right balance between ensuring that we do not encourage persistently low earners or those experiencing a period of low earnings to save, while ensuring that those who clearly will benefit are able to be automatically enrolled.

We all agree that setting an appropriate earnings threshold for auto-enrolment is absolutely central to the success of the reforms. The arguments that I have heard today and during Committee have not persuaded me that there is sufficiently compelling evidence in favour of setting a lower threshold in the Bill when this is compared with what the review team has already considered in detail in reaching its recommendation.

Let me turn to the second element of the issue: the mechanism for revaluing the automatic enrolment thresholds year on year. The aim of the independent review was to set a threshold for automatic enrolment which maximises pension saving for those for whom saving is valuable, while minimising the number of those brought in for whom it is not. In doing this, the review team recommended that the automatic enrolment earnings trigger should be aligned with the tax threshold, currently £7,475. The presumption of the Johnson review was that the trigger would remain aligned with the tax threshold, unless future action by Government resulted in a fundamental change in its purpose or the relationship between them. The Johnson review is clear about its view on the right direction of travel.

The Chancellor has now announced the personal tax threshold for 2012-13 as £8,105. It is logical that this announcement has prompted the question, which my noble friend Lord Stoneham raised, as to whether it is our intention to uprate the automatic enrolment trigger to this figure for live running in 2012. We will want to undertake detailed work over the coming weeks and months to assess the impact of aligning the earnings trigger with that threshold of £8,105. We will look in particular at whether the right balance continues to be struck in terms of who is brought into auto-enrolment using this trigger, especially with regard to low earners and women.

It is appropriate to share with the House the figures that demonstrate the impact of moving up to £8,105. It would remove around 100,000 individuals from automatic enrolment. It is also appropriate to share with the House the fact that the bulk of those are likely to be women—our figure is 79 per cent, a proportion consistent with the impact of the rise to £7,475.

It is too early to say definitively that because £8,105 is the personal tax threshold for next year this will also be the auto-enrolment trigger. However, I can say that our expectation is that we would align with this figure, unless the evidence suggested that this was the wrong thing to do. It is therefore worth my repeating here the commitment I made at Committee that as well as the uprating order being subject to an affirmative debate, we will prepare an impact assessment to accompany the uprating order for each of the first five years up to and until shortly after the 2017 review. This will give us the opportunity to explain in detail to the House how and why we are proposing to uprate the auto-enrolment trigger and inform the affirmative debates that we will have annually.

Times are changing—as we debate these issues, the Chancellor has announced not only a new personal tax threshold but a major review of the operation of tax and national insurance contributions. It is vital therefore that we retain for the long term the flexibility in the uprating power to allow us to consider a number of factors.

Pensions Bill [HL]

Lord Freud Excerpts

Wednesday 30th March 2011 Lords Chamber

[Baroness Drake]

My Lords, I shall also speak to Amendment 21. The new pension arrangements that are to apply from 2012 provide a minimum level of pension contributions, based on a band of qualifying earnings, of 8 per cent, of which at least 3 per cent must be met by the employer and the rest from the employee contribution and tax relief or credit. The required minimum contribution levels are set as a quality requirement for a qualifying pension scheme. Some employers who already operate good workplace pensions base their pension contribution calculations not on earnings but on other definitions of pay such as basic pay. It has been argued that the regulation should be set so as to encourage employers with good-quality schemes to stay with them. Clause 10 seeks to recognise this by introducing an additional provision to the powers in the Pensions Act 2008 that allows the Secretary of State to set an alternative process of certification known as the alternative requirement. That will allow employers to certify that overall their schemes satisfy the quality criterion for pension contributions. This process involves setting a regulatory test which, if met, will allow employers so to certify.

Although the Government have published the test that they intend to set in regulations, the regulations are still subject to consultation, so we do not know what they will finally look like or how they may change over time. The Johnson review asserts that under the regulatory test that is proposed, 92 per cent of workers would still match the statutory quality criterion on contributions under the qualifying band of earnings. This assertion is based on the ONS survey of hours and earnings. The assertion of 92 per cent is based also on the pattern of earnings before auto-enrolment. Our concern is that after the onset of auto-enrolment, an incentive may have been created that will encourage bad employers to arbitrage between the statutory quality criterion of an 8 per cent contribution on a band of earnings and the alternative requirement, to the detriment of some workers. In a nutshell, our concern is that while trying to accommodate good employers, a compliance loophole is created for bad employers.

The purpose of the amendments is to strengthen the protection afforded to jobholders under the alternative requirement. For the purposes of the amendments, I do not seek to debate the detail of the proposed regulatory test for the alternative requirement, or even whether there should be such a requirement. I want to focus on the powers that are enshrined in Clause 10 and what must be satisfied before the Secretary of State can set the alternative requirement.

The Delegated Powers and Regulatory Reform Committee refers to the Secretary of State's power to set an alternative requirement as “significant”, as indeed it is. Clause 10 prescribes the power of the Secretary of State in setting an alternative requirement, but it does not go far enough for the following reasons. In Clause 10, the Secretary of State must, for most schemes, ensure that, for all jobholders or a cohort of the relevant jobholders, the contributions paid into the pension scheme satisfy the quality criterion. However, the clause requires this to be the case only for a majority of the individual relevant jobholders—a majority being 50 per cent plus one. We are concerned that this could lead to a significant number of individual jobholders missing out on what should be their statutory entitlement. In effect, the aggregate requirement could be met by more generous contributions for some jobholders, with less than qualifying amounts, or potentially even none, for others.

The intent of Amendments 20 and 21 is to strengthen Clause 10 such that in all cases—not just most—schemes will be able to satisfy the alternative requirement only if, for no less than 90 per cent of the individual relevant jobholders as distinct from a simple majority, the amount of contributions paid under the pension scheme meets the qualifying amount. As my noble friend Lord McKenzie said in Committee, it is not acceptable that,

“an alternative requirement could allow nearly half of all jobholders”—

with a particular employer—

“to be short-changed”.—[Official Report, 15/3/11; col. GC 2.]

I beg to move.

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

My Lords, I thank the noble Baroness, Lady Drake, for introducing this debate. The amendments to Clause 10 would require the Secretary of State, before making regulations on certification, to be satisfied that in every single scheme at least 90 per cent of individuals would receive contributions no less than if the scheme had satisfied the relevant quality requirement.

I fully understand that the noble Baroness still has reservations about the breadth of the Secretary of State's regulation-making power and individuals losing out under the proposed certification arrangements. The whole purpose of the reforms is to transform the savings culture by improving the coverage of and participation in workplace pension saving. To succeed, we need to incentivise employers to retain their good-quality schemes. Certification gives employers an incentive to keep their good-quality schemes by simplifying the automatic enrolment requirement. It protects members by discouraging levelling down. The flexibility provided by certification is an important counterbalance to the burdens being placed on them by automatic enrolment. Getting the balance of protection right is crucial because introducing complexity will encourage employers to level down by abandoning good schemes and individual savers will be short-changed.

To help employers plan for the reforms, I should like to put on record that employers using certification will be able to phase in their contributions gradually. That question has been of some concern to the industry and I am pleased to clear it up. I believe that employers using certification will welcome that easement to help with the administrative and contribution costs of increasing enrolment into their schemes. We recognise the advantage that such an approach would bring and so have already kicked off discussion on how we might operate phasing within the certification model. We propose to set out the detail in regulations and guidance. The plan is to consult on secondary legislation informally over the spring, with a more formal consultation after the Bill receives Royal Assent.

However, I recognise and share the noble Baroness’s concern about some individuals receiving less than the minimum contributions, for whatever reason, under the certification arrangements. In developing the certification model, we have undertaken some detailed analysis of pay and reward systems using data from the annual survey of hours and earnings. Based on that analysis, we believe that the number of people who could potentially lose out is quite marginal. If all employers were to use certification, the data tell us that around 9 per cent of individuals could experience a shortfall resulting in contributions less than if the scheme had satisfied the relevant quality requirements. Those individuals are concentrated in industries where basic pay can be supplemented by overtime and other non-pensionable income.

We are committed to finding a pragmatic solution to certification which protects individuals without alienating employers. I believe that the certification test which I have previously described is that solution. However, to address the concerns raised, particularly in relation to the breadth of the regulation-making power, I take this opportunity to commit to looking at how we can reasonably circumscribe the scope of the Secretary of State's powers without compromising his ability to deliver the certification model welcomed by employers. We will be analysing the available data sets on earnings and contribution rates to see how that can be achieved. If it is possible, I should like to return with an update at Third Reading in the shape of an amendment to be introduced in Committee in another place.

I hope that, based on the assurances I have given, the noble Baroness will feel able to withdraw her amendment.

[Baroness Drake]

I note what the Minister said about phasing in contributions gradually. I was not anticipating that. He said that there will be consultation about the regulation on that point, so we will have an opportunity to look at that. I note what he said about the regulatory test. I had stayed off the detail of that test because I was focusing on the powers in the Bill.

I am grateful for the Minister's commitment to look at how the powers of the Secretary of State could be reasonably prescribed in order to address the concerns that we expressed and to return to it at Third Reading. I hope that between now and Third Reading it will be possible to sort out a form of words that would reassure us on that point. If it is not possible, I reserve the right to come back to the matter at Third Reading. On the basis of what the Minister has said this evening, I shall not press the amendment.

--- Later in debate ---

[Lord McKenzie of Luton]

My Lords, I thank my noble friend for her amendment. I know that she is very committed to this proposition and she has enunciated it with a particular focus on gender issues, which we understand. However, the noble Lords, Lord Boswell and Lord Flight, both pointed out that it is a wider issue and one that is not just for NEST but for pensions across the board. We support the Government’s call for evidence on allowing early access to pension savings, evidence which would consider benefits to individuals and the impact on aggregate saving levels. As my noble friend pointed out, there are various policy models—loans and withdrawals, permanent withdrawals, feeder funds and early access to lump sums—which I think is the model that my noble friend is particularly focused on. But of course these have different impacts and outcomes in terms of the propensity to increase savings, or indeed in some instances, the propensity to reduce savings.

There are few data on how an early access policy might impact on individual behaviour or the pensions industry. Behaviours in other countries—401(k) has been mentioned in respect of the US—give only a limited guide to the UK. The PPI says that for real conclusions for the UK, further research within the UK context is needed. Is there an appetite for early access? Would it encourage savers to save more? What proportion of people would access savings early? These questions need to be considered in the context of other current developments—auto-enrolment, the removal of the requirement to annuitise at 75, changes to taxation, and so on. Where is the balance between encouraging more saving and reducing pensions in retirement?

We need also to think about the application to DB schemes and how that would fit. If we have something that is attractive to DC, what does that mean in terms of DB schemes? I am quite sure that technically something could be provided to work for DB schemes as well, but I think it would be quite complex.

In terms of its application, the noble Baroness focused on pension pots of £10,000. I do not know what data there are about “running away money” at aged 30 or 40; I am not sure whether I was enthused by the concept or not. How many people would have a pension pot of £10,000? When we were debating annuitisation at 75 I remember data that showed that only 5 per cent of people had pension pots in excess of £100,000. Those data may be a little old, but they are illustrative. How many people at the age of 30 have a pension pot? If you are talking about 25 per cent of £10,000, that would not pay for one year’s worth of university fees. We have to explore what the appetite would be for this and how it would work, but it seems to me that it is not altogether straightforward.

There is an issue about whether it changes the paradigm with employers. If you have something which is seen more as a saving scheme than a pension scheme, that will impact on employers’ willingness to fund. I do not assert that it would, but it is an issue that ought to be explored as part of this journey. We all know the Treasury line—I am sure that the Minister has it in his file that pensions are about long-term savings. That is why there is generous tax relief and any deviation from that should not be contemplated. I do not have to follow that line any more as I am not in the noble Lord’s position, but there is an issue about how it would impact on the tax regime for pensions. We also need to be careful about the risks of tax avoidance by these mechanisms. If someone paying the 50 per cent rate gets half of that paid on the way into the pension pot and you can get 25 per cent of it out tax free straightaway, that would seem to be a pretty good deal. Rather than simplifying the tax system, one can see the complexity of the rules that would need to be put in place to deal with that and the constant challenges there would be to those parameters.

We should thank my noble friend for introducing the amendment. I hope and believe that it is probing in nature because the time is now right for this to be fully examined and it seems that the Government are on a path to do that. However, we need more information on a number of issues before I or my party would officially be able to say that this is something we support. But it is certainly something that deserves examination for the sort of reasons that my noble friend has advanced.

[Lord Freud]

I thank the noble Baroness, Lady Hollis, for raising this very important issue of allowing individuals early access to their pension saving. I was more or less as disconcerted as the noble Lord, Lord McKenzie, about the concept of it being “running away money”, not least because I thought that if the spouses of Members of this House got to hear of it, they might take advantage as we spent night after night in this place rather than at home with them.

The noble Baroness wishes to allow individuals to access a tax-free lump sum of up to 25 per cent, before the current minimum age of 55, when they have pension savings of at least £10,000. I am conscious that this is an issue to which the noble Baroness has repeatedly drawn our attention, and to which she returned at Second Reading when she asked where the Government's consultation paper on early access to pensions had got to. I can answer that particular question; I can report to my Lords that the Government published their call for evidence on early access to pension saving on 13 December last year. It set out the available evidence around early access and some of the potential benefits and risks, and then sought further evidence from interested parties. That call for evidence closed on 25 February. Drawing on the responses to the call for evidence, we will consider the arguments for and against allowing more flexible access to pension savings, based on firm evidence, before we consider further changes to the pensions tax framework.

It is too early to say what these changes might be. However, we need to bear in mind several principles. First, the purpose of tax-relieved pension saving should be, as the noble Lord would like me to say—I have to say it—primarily to provide an individual with an income in retirement. I think 75 per cent probably makes that point anyway. Secondly, any changes to the pensions tax rules must be affordable and sustainable for the Exchequer, and not, as the noble Lord, Lord McKenzie, pointed out rather vividly, create opportunities for tax avoidance. I was pretty impressed that he was able to knock up a tax avoidance scheme so quickly, but we can see where he is coming from. Thirdly, changes should not create disproportionate complexity or administrative burdens for individuals, pension providers and schemes, or indeed for Her Majesty’s Revenue and Customs.

I am sure the noble Baroness will agree with me that it is right for us to examine the evidence submitted before making changes to legislation. On that basis, I urge the noble Baroness to withdraw this amendment.

[Baroness Hollis of Heigham]

I am very grateful for the support around the House—equivocal support, perhaps, in some cases—on the significance of this issue. Of course, this is not exclusively a women’s issue by any means, and if it was attractive to anyone who wished to take it up, as far as I am concerned they would be able to do so with the agreement of their trustees. My noble friend Lord McKenzie anticipated the paragraph that we have all had to repeat—I have had to repeat, my noble friend has had to repeat, the noble Lord, Lord Freud, has had to repeat—about how pensions are designed and so on, but I tried to hold up a gender filter because I firmly believe that it is still an HMT model that is based on male working lives. However, let us not go down the route of asking why the Treasury might not understand.

When we are trying to encourage poor women—women earning possibly well below average earnings—into a savings model, I do not mind very much whether it is saving for their current life or their retirement. I do not mind very much whether it is income or capital. We get hung up on divisions that make sense in the click-in click-off world of conventional male work; the noble Lord, Lord Freud, is absolutely right, in the universal credit, to refuse to accept that simple dichotomy of “in work, out of work” and see it as a dial. The same situation applies to women in pensions. They do not have a male life, where they are in work, they contribute to a pension, they retire, they are then poor and where you have to distribute from one to another—that is not the experience of poorer women in and out of the labour market who may face more turmoil and roller-coaster finance in their working lives than they ever will in retirement.

The question is how we best encourage those women to build some protection for themselves against the contingencies in their working lives, as well as to prepare as best they can for savings in retirement. We want to do this in ways that do not either exploit their naivety or get them into oversaving at a risk to their current living expenses. The more research that I and others in this field have done the more I believe we need a simple single product—probably not called a pension, probably called something else—into which you put your money and where a proportion is ring-fenced for retirement and a proportion is available for savings. We happen to have a very easy way of modelling that based on the tax-free lump sum; the other versions that the Treasury have put out to consultation are more elaborate, possibly more adept, models but will not particularly meet the needs of this client group. We need something that is simple, understandable, attractive, affordable and fairly obvious in what it does.

I fully accept that the amendment is probably technically defective. I was of course never intending to do anything other than trying to focus the issue, given that we have the consultation paper. I was hoping to take your Lordships’ views on this so that this might in due course, perhaps, be fed into the Treasury’s response to this White Paper.

The provision is not gender-exclusive. It would not exclusively apply to NEST. I would have it available for all pensions and, again, I would not particularly get hung up about what it was used for. Nor would I worry too much about the issue of moral hazard, providing we cap the amount that people can withdraw, which is why I would not go for the 401(k) models, because too many of them run their schemes right down and that is undesirable.

I fear that too many women may opt out of NEST or—this is more likely—fail to continue in NEST when the first financial crisis of many hits them in their lives and they realise they cannot access the money and they have nothing else. At that point the contributions of those individuals will drop off like a stone. How do we prevent that? We prevent it by running the two alongside each other and produce a package for women where it is attractive to save.

We have discussed it. I am very grateful for the support and encouragement around the House tonight. With your Lordships’ permission, I beg leave to withdraw the amendment.

--- Later in debate ---

[Lord McKenzie of Luton]

My Lords, it is a great pity that the Minister does not have to face the amendments of the noble Baroness, Lady Noakes. Some of us endured that for a couple of years. It seems to me quite outrageous that he does not have the opportunity to do so tonight.

[Lord Freud]

My Lords, I am very sad that the noble Lord is outraged.

Schedule 4 : Pension Protection Fund

Amendment 28

Moved by

Disabled People: Employment

Lord Freud Excerpts

Monday 21st March 2011 Lords Chamber

[Baroness Turner of Camden]

To ask Her Majesty’s Government what is their response to the decision of Remploy Ltd, the largest specialist employer of disabled people in the United Kingdom, to make redundancies among the workforce.

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

My Lords, voluntary redundancies are a matter for Remploy management and employees. Remploy will continue to examine how best to deliver its businesses within the existing five-year modernisation plan funding and will continue to fulfil its mission of transforming lives by providing sustainable employment opportunities for disabled and disadvantaged people.

[Baroness Turner of Camden]

I thank the Minister for that response. However, is he aware that I have received information from the unions that Remploy has been told by the Government to make 1,500 people redundant? They are very concerned about this because they fear that it may mean the closure of certain locations. As I said in my Question, Remploy is the largest specialist employer of disabled people in the country, working at 54 different locations. Surely it is in the interests of everyone, including the Government, to ensure that this facility is maintained because, in the light of the Government’s own policy, it is very important that disabled people should be able to work if they want to do so.

[Lord Freud]

My Lords, I can categorically reassure the noble Baroness that there is no such plan as has been suggested by the unions; we are looking at a voluntary redundancy plan. The next stage of what happens to Remploy will depend on the review that Liz Sayce is conducting into disability employment programmes, which is due to report in the summer.

[Lord Low of Dalston]

My Lords, I recognise that only voluntary redundancies are being sought at this stage, but does the Minister not agree that Remploy’s failure to meet its financial targets is, at least in part, attributable to the Government’s failure to meet their commitment to put work into the factories through procurement and otherwise? Can he assure the House that the Government will redouble their efforts to fulfil their side of the bargain contained in the five-year funding agreement of 2007?

[Lord Freud]

My Lords, the Remploy business plan was designed by Remploy management. It has failed to achieve its targets because, in retrospect, it was wildly overambitious to expect that public procurement could go up by 130 per cent. The cost of subsidising a disabled person in a Remploy job has now reached £23,000 a year, compared with the success of Remploy employment services in putting a person into an independent job for a one-off cost of £3,400.

[Lord Addington]

My Lords, will my noble friend expand on the work of Remploy employment services? Getting people with disabilities into jobs in the mainstream is surely the way forward. What guarantee is there of support for such schemes, which are in line with what most of us have been working towards for a long time.

[Lord Freud]

Yes, my Lords, the success of Remploy’s employment services is little less than extraordinary. It has now put some 24,000 people into jobs. In 2009-10 there were more than 10,000 people. It looks to get about 18,000 people into jobs this year and its target for 2012-13 is 30,000.

--- Later in debate ---

[Baroness Hollis of Heigham]

Thank you, my Lords, I am grateful. We all agree, following the noble Lord, Lord Addington, that the best strategy for work for disabled people is to see them coming into mainstream jobs. Anything that can be done in this respect by the current Government, as was done by the previous one, is greatly to be welcomed. Yet, frankly, that strategy only works when there is low unemployment. At the moment, in my county of Norfolk where 32,000 people are chasing 4,000 jobs, I suspect that the opportunities for disabled people will shrink unless Remploy can ensure supportive employment. Could the Minister not at least work with Remploy to ensure that there are continuing opportunities for disabled people until we see the employment market open up again?

[Lord Freud]

My Lords, my last answer made clear the extraordinary success of Remploy in getting people with disabilities into jobs. That does not seem to have been affected by a very difficult employment market. I remind the House of the relative costs: the factory business of Remploy takes between 20 per cent and 25 per cent of the total that we as a country spend on disability employment programmes to support some 3,000 people.

[Lord Davies of Coity]

My Lords, while recognising that the policy of the coalition Government is to have voluntary separation and voluntary redundancy, does the Minister agree with me that even on a voluntary basis the number of job opportunities will be reduced for disabled people in the future?

[Lord Freud]

My Lords, I hope that I have made absolutely clear the exact opposite. The employment services strategy is working. Numbers are going up. It is looking to help 30,000 people per year by 2012-13 into mainstream jobs. A company such as ASDA has already taken on 1,000 disabled people. With this strategy we are delivering something that disabled lobbies and people want—to be in full, mainstream employment.

Pensions Bill [HL]

Lord Freud Excerpts

Monday 21st March 2011 Lords Chamber

Moved By

[Lord Freud]

That the amendments for the Report stage be marshalled and considered in the following order:

Clause 1, Schedule 1, Clause 2, Schedule 2, Clause 3, Schedule 3, Clauses 4 to 18, Schedule 4, Clauses 19 to 25, Schedule 5, Clauses 26 to 30.

Motion agreed.

Financial Assistance Scheme (Revaluation and Indexation Amendments) Regulations 2011

Lord Freud Excerpts

Wednesday 16th March 2011 Lords Chamber

Moved By

[Lord Freud]

That the draft regulations and orders laid before the House on 31 January and 3 February be approved.

Relevant documents: 15th and 16th Reports from the Joint Committee on Statutory Instruments, considered in Grand Committee on 9 March.

Motions agreed.