Pensions Bill

Lord Kirkwood of Kirkhope Excerpts

Monday 16th December 2013 Grand Committee

[Lord Stoneham of Droxford (LD)]

I would like to make three points. I hope that there will be cross-party support but, if we are now saying that the higher pension should apply to everybody, clearly we need to know the cost. I have to ask the question: why did Labour not do this in its 13 years if it does not cost money? The point has to be made. Resentment could build up among those who see younger people coming forward on larger pensions. We know that there is a problem with women in the 1951 to 1953 age group. We have to understand exactly how much this is going to cost. The noble Baroness, Lady Hollis, is absolutely right: it is not necessary for this legislation, but in the future obviously we should look—as the country can afford it—at how we can phase in for various groups of pensioners the higher rate and get rid of means-testing for them. We need to know about the money but we also have to be realistic. You have to start somewhere on this higher-rate pension, and where the Government have tried in difficult circumstances to start is the best that can be done at the moment, I think. Obviously we should look at the future at some stage, once we are aware of the cost and how we can afford it.

[Lord Kirkwood of Kirkhope (LD)]

My Lords, I would like to add a more operational note to the questions raised by the important amendment from the noble Baroness, Lady Turner of Camden. She makes a powerful case, but the financial circumstances suggest to me that there is more likelihood of eventually getting into the position that was explained by the noble Baroness, Lady Hollis, than she was suggesting.

The implication of the amendment is that it would extend the single-tier pension to all pensioners. I have some questions about the operational capacity of the system to deliver sensibly some of these significant changes. In the first place, the Green Paper suggested that we should be looking at this by 2017. That has been brought forward; there are obvious advantages to that but it has caused some people to raise questions with me. Some of that is informed by the current controversy about the efficacy of the systems for universal credit, which are of course of a different order in terms of the IT systems. It also has to be acknowledged that the Pension Service has a very good record of implementing some of this stuff; when pension credit came in, it was done in a way that got very high marks from the National Audit Office, as I recall. So it may be that everything is going to be fine, but if the national insurance records are not all clean data then we could be facing some serious difficulties in delivering the payment of pensions on time. There are other operational matters that I am sure are concerning people at Longbenton in Newcastle, as they should be.

Speaking for myself, I would be very pleased to get some kind of assurance at some stage in Committee that with regard to this huge and significant change, affecting a number of very vulnerable households, the department, having regard to the recent reductions in staff and all the other matters, is in place to be able to deliver this efficiently and on time in the way that is proposed.

[Baroness Sherlock (Lab)]

My Lords, in speaking to Amendments 1 and 2, I look forward to a productive time in Grand Committee. I assure the Minister that there will be cross-party consensus over the direction of travel; this very much carries on the direction that Labour took in government, and I look forward to being able to debate the detail. This first group has already highlighted a number of the issues that we are going to want to explore over the next few weeks. The point about cost made by the noble Lord, Lord Flight, and my noble friend Lady Hollis is an important one, and I hope that the Minister will be able to give us an indication of both the cost of bringing all these people into the system but also the cost drivers that might help us to understand better my noble friend’s point. If he could cost her ingenious scheme before we got to the end of this stage of the Bill, that would also be very helpful.

The point made by the noble Lord, Lord Kirkwood, about operational issues is going to become very important. There are amendments later on in which we will begin to explore how the department will communicate with people, and that will surface many of those issues. The Minister may want to be prepared before we get to that stage.

I, too, have heard concerns from all kinds of people. I know that Age Concern has been very worried; it has been getting letters, e-mails and phone calls from people who are anxious about the fact that they will not get this new pension that they have read so much about. One of the requirements on the Government from a very early point is going to be to try to manage their communication better, as I will say later on when we come to discuss information. The Select Committee found a huge amount of confusion among the public about who would get what and when. It is not surprising, therefore, that people are as anxious as they are.

Will the Minister reassure the Committee that the Government are alive to the concerns of those who have already reached state pension age or will do so before implementation, and will carry on listening? Will they consider the impact on those pensioners as the system is brought in? Will the Government, maybe at the next Committee day, take the opportunity to explain to us the impact of the new amendments tabled in the wake of the autumn Statement? That could be helpful, and we could look at it later this week.

Will the Minister help the Committee to reflect on the position of those who retire before implementation on modest incomes? Will he clarify that those who have saved with the second state pension or its predecessors will find that any amount they get in future which is above the single-tier pension is in fact uprated only by CPI? There is a perception that everybody before the transition gets one thing and everybody after it gets another, when in fact, as we will unfold, it is going to be a lot more complicated than that.

Is the Minister concerned at all about the distributional impact for those in that area of modest earnings? He will know that S2P is distributive because it treats anyone earning between the lower earnings limit of £5,668 and the lower earnings threshold of £15,000 as though they earn £15,000. That distributive element is quite important in protecting those on modest incomes and making sure that they can save for the future.

--- Later in debate ---

Therefore, there will still be inequalities in the existing system because of the historic situation with women in the workplace taking time off as primary carers or for childcare and not receiving credits until the previous Government brought in changes to provide credits for that sort of situation. However, even under the changes brought about by the previous Labour Government, it would have taken until 2020 for women to receive outcomes from the full basic state pension equivalent to those for men. As far as the state second pension is concerned, it would have taken until 2050. When you bring about these sorts of changes, it is always difficult to decide at what stage they should be brought in, but it seems reasonable to do so at the date that the pension changes for those people who are not currently in receipt of the existing state pension.

[Lord Kirkwood of Kirkhope]

My Lords, I wish to comment briefly on this group of amendments as much as anything to apologise for the fact that I should have declared an interest earlier. I am the chairman of the General Medical Council superannuation fund, as declared in the register of interests.

This is an important debate. We are all very familiar with the unintended consequences of different parts of the system affecting people in a way that might not have been fully appreciated, and I want to look carefully at what the noble Baroness, Lady Hollis, has said. However, on a more strategic basis relating to the policy contained in the Bill, no one is denied any accrued rights, and that is a quintessentially important protection in provision. I was concerned that that was not the case but the foundation calculation is based on actuarial calculations with which we are all familiar within the basic state pension. Therefore, of course we need to look at some of these anomalies, and that is what this Committee is for.

In passing, the debates in the other place have all been based on this being a nil-cost reform within its own terms. However, my position is that that does not take account of the substantial savings that the Government will make over a very long period. For my money, I am willing to look beyond the self-contained envelope if the case is made properly, but, for me, the absolutely important and cardinal thing is that accrued rights have been protected.

Amendment 4, in the name of the noble Lord, Lord McKenzie, is very important and well crafted but my real reason for speaking to it is that I think that everybody should be written to. Everybody who is subjected to this change should get a letter from the Pension Service, although obviously that cannot happen until Royal Assent and other mechanics have taken place. I was grateful for the very full answer earlier from the Minister, and I shall study it with great interest. That is the very least that is required. My noble friend Lord Paddick is absolutely correct that there is confusion. We are all slightly finding our way through some of these policy and operational matters. Within the terms of Amendment 4 as it is currently cast, I do not think it is unreasonable to ask for individual letters looking at the foundation costs and calculations that apply to each individual so that everybody knows where they are before this policy takes shape.

[Lord Freud]

My Lords, these amendments centre on the group of women who will receive a state pension under the existing system, while men born on the same day as them may be eligible for a single-tier pension. We recognise that people are concerned about this issue and we have already reviewed the position of this group of women. Having looked at the numbers, our analysis shows that about 90% of the women in this group will receive more in state pension and other benefits over the course of their retirement than a man born on the same day as them with the same national insurance record who will be getting a single-tier pension. To be specific, this comparison excludes pension credit but includes savings credit.

The reason is that those women reach state pension age between two and four years before their theoretical twin brothers. Indeed, almost half the group are already drawing their state pension and, on average, will have drawn up to £26,000 before their male twins have begun to draw their pensions. I am excluding from that the unemployed group to which the noble Baroness, Lady Hollis, drew our attention. This group of women were not affected by the Pension Act 2011 pension age changes; their state pension age was set back in 1995. We are increasing pension age to maintain sustainability and fairness between the generations. These interactions with pension credit are inevitable consequences of introducing single tier at a time of unequal pension ages. We do not want to wait until late 2018, when pension ages will have equalised, before introducing single tier.

In addition, being a single-tier pensioner, especially in the early years, does not necessarily mean people receiving a full single-tier pension. Under the current system, the median average entitlement for the women in this group is projected to be £125 per week. A similar valuation based on single-tier rules results in a figure of £131 per week—a difference of £6. These are median averages; about half the group would see no change in their entitlement at all. To pick up the point made by my noble friend Lord Paddick, these women have benefited from the triple lock. Basic state pension will be £8 higher per week in 2014-15 than if their pensions had been uprated by earnings since the start of this Parliament. Almost half these women already drawing their state pension are benefiting from the triple lock.

It is often assumed that the new system will simply be more generous than the current system but, as the Committee will be aware, and as we will discuss in depth later, that is not necessarily the case. We will put in place a minimum qualifying period and close access to the savings credit. We will also reduce the deferral increment rates and cease the ability to derive pension from a spouse’s record. Many people will gain from single tier but there are those who will receive less, compared to the current rules. In response to the questions on costings from the noble Baroness, Lady Sherlock, we assume that these women could choose the system that is better for them, although that is not necessarily an easy choice. However, that is the basis on which we have got to those particular costings.