Mesothelioma Lump Sum Payments (Conditions and Amounts) (Amendment) Regulations 2014

Lord McKenzie of Luton Excerpts

Monday 17th March 2014 Grand Committee

[Lord McKenzie of Luton (Lab)]

I am grateful to the noble Lord, Lord Alton, for taking us back to those earlier days and the discussions we had at that time. I have the same question for the Minister: what progress are we planning to make on closing the gap between amounts paid to dependants and to sufferers? From recollection, the first task was to close the gap between the 2008 scheme and the 1979 scheme, but that gap between dependants and sufferers remains open still.

As I recall, the funding for the 2008 scheme was to come from recoveries of civil compensation claims. There was always a bit of a mystery about how you got those claims in what was meant to be a no-fault scheme, but there is no doubt that recoveries were made and that they funded the 2008 scheme. Will the Minister tell us the current recovery level and how it relates to the 2008 scheme expenses?

We have debated extensively the broader issue of the consequences of exposure to asbestos, and I am sure that we will come on to it in the regulations that we are to consider next. Will the Minister confirm that the HSE will switch on its awareness-raising campaign on asbestos? It ran a very effective campaign that was curtailed a couple of years back. My understanding is that it is going to be revived. If the Minister can confirm that, it would be very helpful. In doing so, will he tell us something about the funding for the HSE to make sure that it is not just a nominal effort but a really effective campaign? Asbestos is, sadly, still with us in too many parts of our infrastructure, and we need to keep messages going about all the risks of exposure to it.

[Baroness Sherlock (Lab)]

My Lords, I thank the Minister for his explanation of these regulations, and I thank all noble Lords for their contributions. Like the noble Lord, Lord Wigley, I recognise that there is no statutory obligation to uprate these amounts, and therefore I, too, welcome the Government’s decision to uprate the pneumoconiosis and mesothelioma lump sum payments under the 1979 and 2008 schemes.

A number of the questions that I wanted to raise have been asked, but I want to return to one point, which was raised by the noble Lord, Lord Alton, and my noble friend Lord McKenzie, about the difference between payments made to applicants in life and those made to dependants under both schemes. The noble Lord, Lord Alton, explained the three points of difference between the two. As he reminded us, in 2010 my noble friend Lord McKenzie reduced the differential in lump sum payments between in-life claimants and claims from dependants, but there has been no further narrowing of the gap between the two. When regulations equivalent to those here today were before the Grand Committee on 7 March last year—with a very similar cast, I notice from Hansard—representations on this very point were made by the noble Lord, Lord Wigley, and the noble Lord, Lord Avebury, who is not in his place. In his reply on that occasion, the noble Earl, Lord Howe, to whom it fell to respond, said:

“Ministers have to balance competing priorities, and because of the current financial situation, it is our duty to ensure that all available resources are well targeted. As around 85% of payments made under these schemes are paid to those who are suffering from the disease, I believe that they are currently rightly targeted on the sufferer to help them and their families to cope while living with the stress that illness inevitably brings”.—[Official Report, 7/3/13; col. GC 314.]

I remind the Committee of the point that the Minister made in his opening remarks, which is, in fact, that people live for a very short time knowing that they have the disease. If people on average live only nine to 12 months after diagnosis, I wonder whether the Minister still feels that that argument for focusing resources holds water.

When the regulations were debated in another place on 7 March last year, the then Minister, Mr Mark Hoban, acknowledged the discrepancy and said:

“It is something that we need to keep under review, and if the resources are available, we will see whether we can introduce measures to do that. The point about the difference between payments made to a sufferer and to their dependants is well made”.—[Official Report, Commons, Delegated Legislation Committee, 7/3/13; col. 9.]

I have three questions for the Minister. First, will he tell the Grand Committee whether the Government have indeed kept this issue under review and, if so, what conclusions they have drawn? Secondly, will he tell the Committee what percentage of payments is currently made to dependants rather than sufferers? Finally, what estimate has the department made of the cost of narrowing further or, indeed, eliminating the differential between the two? I look forward to the Minister’s reply.

Diffuse Mesothelioma Payment Scheme Regulations 2014

Lord McKenzie of Luton Excerpts

Monday 17th March 2014 Grand Committee

[Lord McKenzie of Luton (Lab)]

My Lords, like other noble Lords, I join in praising the Minister for all his efforts on this Bill. Without his leadership, we simply would not have this legislation on which we can debate these regulations.

[Lord Howarth of Newport]

When I was praising the Minister, I wanted to say that, of course, he built on the foundations created by my noble friend. I hope that he will also accept the gratitude and praise of the Committee and everybody in a much wider community who have been concerned about the predicament of mesothelioma sufferers.

[Lord McKenzie of Luton]

My noble friend is too kind, but I am conscious of the fact that this Bill has been forged in very difficult economic circumstances, and it is a splendid result that we are where we are. Like others, I also welcome the increase in the level of payout. As I remember it, when we were discussing this during the passage of the Bill, there were two versions of the gross tariff: one from the ABI and one from the DWP. I think the difference between them was based on the projections of the age profile of those who contract mesothelioma. We focused on the higher, DWP, one. Will the Minister confirm that this is still the gross tariff that we are working to and that it will be 80% of that?

A number of noble Lords have raised the 3% of gross written premiums. I am not sure that I heard the Minister actually say that this is where the levy is going to start, and it will be helpful if he could confirm the position. I thought his expression was “within that 3%”, but it would be good to know when we will see the levy regulations and whether the expectation is that it will be fixed, initially, and thereafter, as my noble friend Lord Howarth said, at 3% of gross written premiums. Obviously, this is to the extent to which they did not produce more than a 100% payout.

The Minister confirmed that the legal fees at £7,000 per case would be paid on top of that. I am not quite sure that I followed the reasoning of how that will be dealt with in alternative regulations. I would appreciate it if the Minister reiterated what he said. The noble Lord, Lord Alton, has been steadfast on the issue of research. Will the Minister take the opportunity to tell us where he thinks the insurance industry now stands, and what the prospects are of getting extra funding from it one way or another?

I have a couple of technical questions. Can we have an update on the oversight arrangements? I do not think there is a specific reference in these regulations to the oversight committee and whether there should be any obligation on the administrator. I should say that the Minister has been true to his word in terms of the process of appointing the administrator of the scheme, but I do not think there is anything in these regulations which requires co-operation and engagement with the oversight committee. Perhaps the Minister will say how he sees that working.

There was an issue over Schedule 3 to these arrangements, which deals with the application. This sets out all the information that needs to be provided and includes the names of all the person’s employers and the description of the arrangements under which the person was engaged by each employer. One of the issues that cropped up just at the tail end of the Bill’s consideration in the other place was HMRC policy on work histories and the extent to which a court order is now necessary for HMRC to provide them. I hope that this issue has gone away, but I would appreciate an update from the Minister on that point.

On a smaller point, will the Minister clarify where the administrator can impose conditions on a claimant? I think we understand why that would be but, as I understand it, there seems to be some differentiation. Conditions can be imposed where a dependant is an applicant, but where the applicant is deceased and the payment goes to the personal representative I am not sure that the constraints or conditions on that payment would apply. Maybe that is not necessary because it would be the role of the personal representative to make sure that that was effectively dealt with. Can the Minister confirm that?

Finally, I just ask about the Ministry of Justice procedure for reforming mesothelioma claims. In a sense, the Government backed up what was originally proposed but paragraph 39 of their response to the consultation on these proposals states:

“The stated purpose of the Secure Mesothelioma Claims Gateway was to support the proposed Mesothelioma Pre-Action Protocol. As the Government has declined to take forward the MPAP supported by a fixed recoverable costs regime, the ABI will no doubt want to consider whether and how it would wish to take forward its proposal for funding and hosting a SMCG and how claimants and defendants might voluntarily make use of it”.

Could the Minister give us an update on that and what it means in the current situation?

[Baroness Sherlock (Lab)]

My Lords, I thank the Minister for his explanation of these regulations and all noble Lords who have spoken. I am reminded of what an effective Committee process we had during the passage of the Bill. The Minister must feel a certain sense of déjà vu that he is back here yet again being interrogated quite so effectively about the detail. I join other Members of the Committee in congratulating the Minister on pioneering this and pushing it through. I also thank my noble friend Lord McKenzie. I am grateful that my noble friend Lord Howarth included him for all his sterling work in getting this show on the road in the first place and helping to steer it through Committee.

It is very good to see the progress made towards the introduction of the scheme. I am very pleased by the decision to raise the level of payment to 80% of average civil compensation. I also place on record a tribute to all those who campaigned for a higher payment, not only Members from all sides of this House, including my noble friend Lord McKenzie and many Members of this Committee today, but also victims’ groups, trade unionists and Members of another place such as my honourable friend Kate Green and other MPs, including the late and still very much missed Paul Goggins, who was such a strong fighter on these issues. Many in this field will be very grateful.

Clearly, as we have heard, the amounts of scheme payments in Schedule 4 do not now represent the levels of payments we expect, but I thank the Minister for explaining that we may expect imminently some negative orders to come into force to affect that. The Minister said that the Government are able to increase payments because of savings in administration costs. We are indebted to my honourable friend Kate Green who suggested that in the Public Bill Committee in another place—something acknowledged by the Minister there—but it would be very helpful if the Minister here could explain to the Committee precisely where those savings were found.

The impact assessment produced last November indicated that an uplift in payments from 75% to 80% would cost an extra £11 million in the first four years of the scheme and an extra £22 million over the first 10 years. With payments set at 75%, it also stated:

“The costs of the scheme are split between a levy of £371m on the insurance industry and £17m in government funding. This covers scheme payments direct to individuals (£261.4m), benefit recovery (£72.2m), applicant legal fees (£24.6m) and admin of £30.0m (including case legal fees of £24.2m, set up of £1.4m and running costs of £4.4m)”.

To focus in on that, that impact assessment showed two sets of legal fees provided for: applicants’ fees at £24.6 million and case legal fees at £24.2 million. There was some debate as to what the case legal fees covered but the Minister in another place assured the Public Bill Committee that they were for the benefit of applicants. Originally, claimants’ legal fees were set at £7,000 a case, when payment was at 70% of average civil damages. During the passage of the Bill through this House, that payment rose to 75% and legal fees were reduced to £2,000 per case.

In the Public Bill Committee in another place, legal fees reverted to £7,000. The Minister there said that he had had discussions with the Association of Personal Injury Lawyers and felt £7,000 to be a reasonable figure after all. Crucially, he also said that if cases could be conducted more cheaply, applicants would none the less receive the full £7,000. We now know that extra moneys have been squeezed out of administration costs to fund this uplift but can the Minister explain where they come from? I presume that they do not come from a further squeezing of legal fees. He also confirmed—and this was very helpful—that £7,000 per head remains the sum allocated to applicants for their legal fees. Can he confirm for the record that, if the legal fees in some cases fall short of this amount, applicants will still receive the difference in cash up to £7,000?

Assuming that there are no changes in respect of the position relating to applicants’ legal fees, can the Minister tell us where the additional £11 million or £22 million to pay for the uplift has been found? On the face of it, it must have come in some combination from other administration costs. Can he also say what he assesses the running costs and set-up costs of the scheme now to be? Can he also tell us how much is now allocated for case legal fees as opposed to applicant legal fees? If those case legal fees have been reduced and, as the Minister in another place explained, they were to be for the benefit of applicants, will the applicants suffer in any way as a result of that? If the extra money is not coming from there, where is it coming from?

Can the Minister also confirm that payment at 80% is to be met within the planned levy of 3% on the industry, including in the first four years of the scheme? I will turn in a moment to the levy and the points raised by various noble Lords, but I want to talk briefly about a few other aspects of the scheme.

Regulation 5(4) requires the scheme administrator to ensure that there are sufficient numbers of suitably qualified persons to determine applications under the scheme. Does the Minister have any more information that he could share with the Committee about the likely professional background and qualifications of those people and, in particular, about their independence and how they will be employed? Will they be employees of the scheme administrator or might they work on a freelance basis? In particular, if they are freelance, is there any possibility that there could be a conflict of interest if they have other roles within the industry at the same time? The crucial question is: if that is the case, how will such conflicts be identified and dealt with so that the public and the applicants can be reassured of the independence of the people making the determinations?

I welcome the provisions in Regulation 9(2)(a) regarding time limits for applications. It makes it clear that applicants would have three years from the date of diagnosis or, if diagnosis is after 25 July 2012 but before the regulations come into force, three years from the date they come into force. However, there are still some concerns about time limits when we look across to Regulation 18. Generally, if a claimant dies before the case is determined, a payment may be made to his or her personal representative if the claimant leaves no dependants, but that still leaves a small group, admittedly, of mesothelioma sufferers without dependants who were diagnosed on or after 25 July 2012 but who died before they could make an application simply because the forms to do so were not yet available. I understand that they will be available from April, and perhaps the Minister could confirm that. In those cases, I understand that payment will not be made to the deceased’s personal representative. Can the Minister clarify that? If that is so, it seems unjust. It has been quite clear that the Government’s firm intention was for claims to be backdated to 25 July 2012 in all circumstances, but I should be interested to hear the Minister’s response.

I welcome Regulation 11, which sets time limits for the provision of additional information—a suggestion from my noble friend Lord Browne of Ladyton. I am sure that he will be very glad to hear it, and I shall make sure that I communicate the information to him. I am very grateful to my noble friend Lord McKenzie for raising the question about HMRC and the fact that it needs a court order to release the employment records of deceased claimants. This is really serious. I understand that a letter from the Minister to my honourable friend Kate Green in the other place suggests that progress was not being made very quickly on this. I look forward to hearing whether this can be resolved before the scheme is launched.

I also welcome the provision in Regulation 18 which provides for the applicant to request a review of a determination. That was another suggestion from my noble friend Lord Browne, about which I predict he will be even more pleased.

Finally, two important commitments made by Ministers do not appear in the regulations before us today. The first concerns the levy, which was raised by my noble friends Lord Howarth and Lord McKenzie and others, and, in particular, the absence of any reference at all to it in the regulations. I confess that I was a bit surprised about that, but I may have misunderstood where it is to be dealt with. Will the Minister explain whether there is a reason why the levy and the rate at which it is to be set are not included in these regulations? It is important that people are reassured that 3% is to be the amount, although if the Minister wants to adopt the formulation offered by the noble Lord, Lord James of Blackheath, I am sure we will all be very keen to hear that today.

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[Lord Freud]

That is a very powerful point from the noble Lord. I have not yet had a chance to talk to my colleagues in the Department of Health but I shall pick up that issue specifically.

On the suggestion as to where to spend the recoveries money, it is the same core point. There is a process for funding research, and it does not work to direct other moneys around in that mechanical way. The money will go into research as the right propositions come up. That is the reason why, fundamentally, we will not be able to provide support for his Private Member’s Bill. It is a difference not in aspiration but in the structures that we can accept. I know that he will be disappointed in that, but he may not be surprised.

The point that the noble Lord raised on the causes of mesothelioma and the last occupation is one that requires reflection, and I shall write to him on that particular set of points. I will also pick up the related point from the noble Lord, Lord Wigley, on the technical issue of the MoD advising tenants. On the noble Lord’s point about widening the coverage of the 2014 Bill, clearly we will continue to operate the 1979 scheme, but I have dealt in enormous detail with why we would not widen this scheme and why we are in no position to make any such commitments now.

[Lord McKenzie of Luton]

I gather that the noble Lord has moved off the research issue, but will he say whether there is any commitment from the insurance industry, the ABI, to continue contributing, as it has in the past?

[Lord Freud]

I have been in discussion with the insurance industry. There is currently no commitment to go ahead with its funding, but I do not think that this is the end of the story. We are still talking about various options.

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[Lord Freud]

My Lords, I am not in a position to bind a future Government over what happens in four years’ time. However, as the noble Lord appreciates, there is now a context for that Government to take a view at the right time on what should happen beyond then. The figure we have at the moment, which is publicly on record, is 3%. In response to the question asked by the noble Lord, Lord McKenzie, that is based on DWP forecasts. Clearly, to that extent, we are committed to a tariff level. If those forecasts are wrong for one reason or another, there could be variation round that 3%. That is the best we can do to set the level today. However, when that process has gone through—we thought the right point for that was after four years because we will have done the smoothing and seen how it actually works and if people change behaviour as a result of the scheme—we will clearly know exactly what is happening. We can then have a much more specific forecast of expectations, once the scheme is in and has been rolling for some time.

[Lord McKenzie of Luton]

Are we to see some regulations come forward round the mechanics of that levy? There is an absence of a reference to that here, but that does not mean that that is the end of it. Something could come forward to explain how it must all work, who will be levied and on what basis.

[Lord Freud]

I am sorry but I am confused: Schedule 4 has the levy rates. That was also a question from the noble Baroness, Lady Sherlock, who said that they were not in there. There will be further regulations to come, and there will be negative regulations adjusting these figures.

[Lord McKenzie of Luton]

Schedule 4 sets down the tariff, which is based on the gross starting point, but presumably there is a separate starting point for the levy on the insurance companies. Is that going to come forth? On the four-year review of the tariff, must we not have regard to the fact that civil compensation claims are likely to rise over a period anyway because of changes in the claims process?

[Lord Freud]

Yes, that is one of the moving features here. We are moving the tariff up. We have committed to moving it up by CPI in this interim period. That is a sensible enough period after which to take a new look at where civil compensation has moved, if indeed it has, and to reset. However, at that stage other factors could also be looked at. Although the noble Lord, Lord Howarth, is enticing me in his skilful way, that is all I can say on the review. I am deeply impressed.

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[Lord Freud]

I think it is because they do not have dependants. However, I will write to justify what that difference is and why we have designed the scheme in that way. Our estimate is that the 80% payment will be within the 3%, but that is clearly based on our figures. As to the final question on the setup and running costs of the scheme, I cannot go into too much detail for reasons of commercial confidentiality. I will write carefully and provide as much information as I safely can.

[Lord McKenzie of Luton]

On one last point, can the Minister say when we are likely to see the levy rate because, presumably, if people are to start to make payments under the scheme, the cash will have to be obtained from the insurers? That will not necessarily be a straightforward process.

[Lord Freud]

It will be within the next Session. In the initial period the DWP will be putting in funding, so we do not have a funding issue because we are the underwriters of the scheme and are managing the smoothing process which, I can assure the noble Lord, is more complicated than it might appear to be from outside.

I am confident that these regulations will underpin a robust and fair scheme which all noble Lords agree has been needed for some time. This Government are committed to improving the situation faced by mesothelioma sufferers, and the establishment of the diffuse mesothelioma payment scheme is a huge achievement. I commend these regulations to the Committee.

Pensions Bill

Lord McKenzie of Luton Excerpts

Wednesday 12th March 2014 Lords Chamber

Moved by

[Lord McKenzie of Luton]

1: Clause 23, page 11, line 45, at end insert—
“( ) Before the provisions contained in paragraphs 88 to 91 of Schedule 12 come into effect the Secretary of State shall report to Parliament on alternative arrangements for access to the Cold Weather Payments programme and the Warm Home Discount Scheme currently available to recipients of pension credit.”

--- Later in debate ---

[Lord McKenzie of Luton (Lab)]

My Lords, I begin by thanking the noble Lord, Lord Freud, for facilitating discussion on this amendment at Third Reading. It should normally have been dispatched earlier in our proceedings.

The amendment is very straightforward and calls for a report to Parliament on alternative arrangements for accessing cold weather payments and the warm home discount scheme currently available to recipients of pension credit. I seek an explanation of what is to happen to those who reach state pension age on or after 6 April 2016 because, for such individuals, the savings credit is abolished and some will see the substitution of a single-tier pension for an income which is currently topped up by the guaranteed credit.

Receipt of one or both of those elements is currently a passport to cold weather payments. There is of course a range of other benefits to which pension credit is currently the passport, but there are generally other routes to those benefits, typically on low-income grounds. This raises issues for those of working age of how low income is to be determined under universal credit, but these are matters for another day. This amendment deals in the first part only with cold weather payments.

At present, cold weather payments are payable when the temperature in an area is recorded or forecast to be at or below zero degrees for seven consecutive days—one hopes, behind us for this year. It depends on temperatures recorded at individual weather stations. The current level of payment for eligible recipients is £25 per week. Payments are part of the regulated Social Fund. Eligibility for working-age claimants is dependent on them being subject to income-related income support, JSA and ESA where there is a disability component or where such a claimant is responsible for a young child or getting child tax credit that includes a disability element. Obviously, the position of working-age claimants is not generally affected by the Bill, although the Minister could just take the opportunity to say how eligibility will work for those in receipt of universal credit.

As I have said, the Bill affects those reaching state pension age on or after 6 April 2016. It does so because the savings credit is removed from that date, and for some the single-tier pension will be sufficient to obviate the need to access the guarantee credit. Our briefing note suggests that by 2021 the pension credit caseload will be some 80,000 fewer than would have been the position under the current system, with 20,000 of these previously entitled to guarantee credit and 60,000 entitled only to the savings credit. Over time, these numbers will increase.

Of course that does not necessarily mean that all these would be missing out on cold weather payments. It depends on where they live and the incidence of cold weather. Our briefing note suggests that initially the Government’s saving would be around £2 million per year if those notionally missing out in this way were not to be somehow brought back into the system, but this saving would increase in nominal terms over time as more and more individuals retired into the new system. In the scheme of things these are modest amounts, but nevertheless they are literally a lifeline to some.

The impact assessment of the Bill says:

“Under the single tier, eligibility for Pension Credit is halved compared to the current system in the first few years following implementation, and ultimately falls to around five per cent by 2060 … Ending Savings Credit for single-tier pensioners is the main driver of the reduction in the number of people qualifying for Pension Credit, although there is also a reduction in the proportion of pensioners eligible for Guarantee Credit. The reduction in the numbers within scope of the Guarantee Credit is the result of most single-tier pensioners under the single tier having a state pension above the level of the Standard Minimum Guarantee”.

I invite the Government to say whether, and if so how, they propose to retain access to cold weather payments for those who notionally miss out in this manner.

In similar vein, the amendment calls on the Government to report on future access to the warm home discount scheme. This is a rebate scheme, worth £135 per annum, given by suppliers to vulnerable and low-income households as a deduction from their electricity bills. It is available to two groups: the core group and a broader group. The qualifications for the core group are statutory obligations and suppliers must provide the rebate to all who qualify. Suppliers have more flexibility about who qualifies for assistance under the broader group. For the core group, eligibility is dependent on receipt of the guarantee credit.

It is accepted that the current regulations for this programme cease in April 2015, although the Government have rightly signalled their intention to extend the scheme. I acknowledge receipt of a letter on Monday from the Minister’s colleague, the noble Lord, Lord Gardiner of Kimble, following some amendment regulations that were discussed in the Moses Room last week. This signals an intent to consult in the spring on an extended scheme, taking account of the changes to the welfare system.

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[Lord Freud]

I am always grateful to the noble Baroness when she comes up with solutions for us, and I can see her yearning to be on this side—perhaps not in this particular coalition but in this particular ministry—sorting out these issues. She has gone to the issue of what the best way might be in which to help this group, which, clearly, we will look at precisely when we consider that matter. I shall pass on her thoughts to the consultation in the hope that it will speed it up.

As I say, we will consult on our strategy, and that will cover the two schemes referred to in the amendment of the noble Lord, Lord McKenzie, as well as broader approaches to combating and preventing fuel poverty, which the noble Baroness, Lady Hollis, indicated. On that basis, I urge the noble Lord to withdraw his amendment.

[Lord McKenzie of Luton]

My Lords, I certainly intend to withdraw the amendment. I am grateful to my noble friend Lady Sherlock for her support and for raising the wider issue of the impact of the new pension arrangements on passporting. I am grateful, too, to the noble Lord, Lord German, for probing the same points in seeking reassurance on the continuation of the cold weather payment scheme and the warm homes discount scheme. I am grateful, as ever, to my noble friend Lady Hollis for providing a solution to the Minister.

I took comfort from what the Minister said, but I would like to read the record on precisely where he has ended up in looking at some sort of definition of low income—whether it is somebody just on the basic single -tier pension—and at a broader review of fuel poverty strategy. I am confident that there will be an opportunity going forward to address and, I hope, influence those issues. Accordingly, I beg leave to withdraw the amendment.

Amendment 1 withdrawn.

Financial Assistance Scheme (Qualifying Pension Scheme Amendments) Regulations 2014

Lord McKenzie of Luton Excerpts

Tuesday 11th March 2014 Grand Committee

[Lord Bates (Con)]

My Lords, I am satisfied that these regulations are compatible with the European Convention on Human Rights. The Financial Assistance Scheme provides financial assistance to members of certain occupational pension schemes who have lost a significant part of their pensions as a consequence of their scheme winding up or being underfunded. Generally, the FAS is limited to schemes that began to wind up before 6 April 2005. This is because the Pension Protection Fund deals mainly with schemes with insolvent employers from that date. However, schemes have been discovered which, for various reasons, fall between the two schemes: they do not qualify for the PPF, but they cannot get access to the FAS. There has been a long-standing principle that schemes should enter the PPF only if they have been subject to all the protection provisions such as funding and employer debt, and have been subject to the PPF levy. Nevertheless, successive Governments have accepted that it is not reasonable to leave members with neither assistance from the FAS nor compensation from the PPF simply because the qualifying events did not happen in a specific order. These regulations deal with one of these situations.

In order for a scheme to qualify for entry to the PPF there must be a qualifying insolvency event on or after 6 April 2005 relating to what is known as the “statutory employer”. To be such an employer, you must employ at least one active member of the scheme. In 2009, a scheme applied to be considered for the PPF. However, it was discovered that while the employer attached to that scheme did become insolvent in 2009, it was not the statutory employer. On further investigation it was found that the actual statutory employer became insolvent in 2002, before the PPF was established. Unfortunately, as this scheme did not begin to wind up until 2009, it is also unable to look to the FAS for help. Rather than leave the members uncovered, the Government have decided to extend the coverage of the FAS to encompass this scheme and any other scheme in these circumstances. That is what these regulations do.

Specifically, the regulations extend the FAS qualifying conditions to cover schemes which began to wind up between 23 December 2008 and before these regulations come into force, where the employer ceased to be a statutory employer before 10 June 2011, and where the employer became insolvent before 6 April 2005. These dates may appear to be very specific and perhaps I should explain why they have been chosen. The first condition of winding up between 23 December 2008 and before these regulations come into force reflects the fact that schemes which commence wind up before 23 December 2008 due to an insolvency event prior to 6 April 2005 are already catered for in the FAS regulations. The second condition is that the employer must have ceased to be a statutory employer before 10 June 2011. This date is the date that we announced our intention to make the extension. It was important to limit the potential scope of the extension in this case to prevent any incentives for employers to break links with schemes that they were supporting. The third condition of the insolvency event occurring before 6 April 2005 prevents overlap with the PPF qualifying conditions.

I hope that I have explained that these regulations are designed to ensure that members receive assistance from the FAS and I commend them to the Committee. I beg to move.

[Lord McKenzie of Luton (Lab)]

My Lords, perhaps I may put two brief questions to the Minister. There is no impact assessment attached to these regulations, but my recollection is that the FAS is funded from the public purse and not, as is the case for the Pension Protection Fund, from the levy. It may be that it is just de minimis in the scheme of things because we are dealing with only one identified scheme at the moment. However, I would be interested to know what the costs of this in terms of additional FAS spending might be. Perhaps the Minister might take this chance to update us on what the annual ongoing costs of the FAS currently are. Can the Minister also clarify for me, in relation to the particular scheme that has been identified, whether it had been paying the protection levy? If not, why was it outside of that?

[Baroness Sherlock (Lab)]

My Lords, I thank the Minister for his explanation and my noble friend Lord McKenzie for his, as always, insightful questions. I am very pleased to see the Government’s ongoing support of the Pension Protection Fund set up by the previous Labour Government. The PPF has made a substantial difference to people’s lives. As regards schemes including Woolworths, MG Rover and Turner and Newall, the members would all have had much lower pensions had it not been for the PPF and the Financial Assistance Scheme. I also welcome the Government’s continued support for that scheme.

I would like to ask a couple of specific questions. First, I recognise that the Minister is trying to close a specific loophole and obviously the changes relate to a particular case. I must confess that the Opposition are therefore unsighted on some aspects of this. Following on from the question of my noble friend Lord McKenzie, can he explain a bit more about the Government’s thinking in deciding to plump for the FAS as opposed to the PPF, rather than leaving the members of a scheme ineligible for either, because that would seem to be the key question?

Secondly, obviously, the Government have not brought forward an impact assessment for these regulations. The Explanatory Note was helpful in explaining the long gap between the consultation process and these being brought forward, but will the Minister confirm that there is a timescale for further consolidation of the regulations on which the Government consulted in 2011, and that an impact assessment will be brought forward to accompany those changes?

[Lord Bates]

I am grateful for those questions. In terms of context, we are talking about a specific scheme with a number of members—the George and Harding pension scheme. To answer the point made by the noble Lord, Lord McKenzie, the scheme had not been contributing to, or paying, the PPF levy and therefore was not able to claim under that procedure. Therefore, we are changing the relevant dates so that we do not break the contributory principle of the PPF but ensure that financial assistance is made available. The noble Lord, Lord McKenzie, is as astute as ever and I am sure that the noble Baroness, Lady Sherlock, as a former adviser in Her Majesty’s Treasury, will also be aware that Her Majesty’s Treasury did seek to have some idea of what the impact would be on the Exchequer. The estimated full cost of the FAS contribution is £600,000, which comes out of the Exchequer over time because, obviously, that will be the way that people will be compensated as and when the funds will need to be drawn down. That is also the reason for the specific dates because we are trying to cope with a specific scheme rather than giving an open-ended commitment. Having demonstrated this, I hope that we can point to the fact that, should similar gaps in certain schemes arise in the future, we will look very carefully at them without giving any cast iron guarantee.

[Lord McKenzie of Luton]

Can the Minister clarify whether the £600,000 is the net present value?

[Lord Bates]

That is the net present value of the cost of the scheme. Annual ongoing cost differs depending on the schemes taken in. I do not know how helpful that is but we try to be as fulsome as we can. Has the relevant firm been paying the protection levy? I have covered that point but that does not mean that it gets entry into the scheme. It was thought that the employer supporting the scheme was a statutory employer. I think that is the point we are dealing with here—the definition of a statutory employer. It was realised that it was not only after investigation. When will we consolidate the FAS regulations? As noble Lords know, there is a great deal happening in the pensions area, to be continued on Centre Court tomorrow, I think. This requires the department to prioritise its resources. The consolidation of the FAS regulations remains on the department’s work plan but I cannot give a definite date as to when the draft consolidation regulations will be laid before Parliament. I am grateful for the probing questions I have been asked. The noble Baroness, Lady Sherlock, looks as though she wants to come back in.

Pensions Bill

Lord McKenzie of Luton Excerpts

Wednesday 26th February 2014 Lords Chamber

[Lord McKenzie of Luton (Lab)]

My Lords, we should thank the noble Lord, Lord Freud, for bringing forward this government amendment, which as far as it goes is a restriction on the power to create exceptions to the employer automatic enrolment duty. It responds in part, as the noble Lord has acknowledged, to the amendment moved in Committee by my noble friend Lady Sherlock and by Gregg McClymont in another place. We are grateful for the Government’s movement on that.

As we have heard, this amendment narrows the circumstances in which regulations can be deployed, and precludes them being used to provide an exemption for employers of a particular size. This will therefore appear to deny the exemption, whether size is determined by numbers of employees, profitability, turnover, capitalisation or asset base, or some other size criteria. Perhaps the Minister can confirm that that is how he sees it. Nevertheless, the Bill would still leave scope to carve out exemptions on a fairly wide basis. That could be by reference to a description of worker, “particular circumstances”, or “in some other way”, as the Bill provides—for example, by sector.

We accept entirely the assurances of current Ministers that the purpose of the government amendment is to offer employers more flexibility in a limited number of specific situations that affect only a small number of workers. However, even as amended the Bill is not so tightly drawn and opens up the prospect in the future of a wider impairment of the employer duty, which is the foundation on which auto-enrolment is built.

We acknowledge that the Government have consulted widely on the issue and rejected a number of suggested easements to the employer duty. Other than for four specific circumstances, the Government in their response to the consultation have concluded:

“We remain confident that the right to opt out remains the most suitable option for all other workers who do not wish to remain in pension saving”.

We agree with that.

The question therefore arises as to whether the four circumstances identified—and remember that that was after a very extensive trawl, including the experience of live running—warrant the potentially broad amendment which will remain in this legislation. The four circumstances referred to by the Minister—those with tax-protected status for existing pension saving, those on the brink of leaving employment, those who have given notice of retirement, and those who have recently cancelled membership after being contract joined—might well justify an exemption on automatic enrolment rather than rely on workers opting out, especially given the potentially large tax penalties which might arise for those with tax-protected status. However, until the practical consequences of putting this into effect are fully considered—and we welcome the commitment to consult on a draft instrument, albeit still a negative one—we cannot be certain that the “cure” is better than the “ailment”.

On reflection, a better way forward might have been to identify these four specific circumstances in primary legislation together with the power to introduce regulations for the exemption of the employer duty in all or any of these situations. This would have removed concerns over the Bill retaining the still potentially wide powers of exemption. If it is too late to consider this approach, as it might be, I hope that the Minister can give as much assurance on the record as to the intended use of what will remain of this clause.

Pensions Bill

Lord McKenzie of Luton Excerpts

Monday 20th January 2014 Grand Committee

[Baroness Sherlock (Lab)]

My Lords, Clause 37 is headed: “Automatic enrolment: powers to create general exceptions”. I am tempted to rest my case there but I will press on a little. I hope that this will be a relatively uncontroversial amendment that the Minister can accept.

If the Committee looks at Clause 37, it will see immediately that it is drafted very broadly—too broadly, I suggest. In effect, it gives the Government the power by regulation to create exceptions from the employer duties under auto-enrolment in a way or to an extent that could undermine the intention of Parliament in establishing auto-enrolment in the first place.

When this clause was discussed in another place, the Pensions Minister said that the Government needed the powers to make regulations in order to ensure that employers do not automatically have to enrol people whom it will be a waste of time to enrol because they will be immediately removed; for example, people who have resigned, are retiring or have used their lifetime tax allowance. Apparently the clause is broadly worded because, the Minister said in the other place, we cannot predict the future need for exceptions. I suspect that our Minister’s brief contains similar assurances.

Clause 37(2) inserts a provision into the Pensions Act 2008 which enables the Secretary of State by regulation to provide for exceptions to the employer duty that may,

“be framed by reference to a description of worker, particular circumstances or in some other way”.

We accept that there will be circumstances in which it will be inappropriate to auto-enrol someone who is likely to want to be removed immediately, but it is our view that the clause is unnecessarily widely drafted—a view that is shared by others, including the TUC and the CBI.

In Committee in another place, the shadow Pensions Minister, my honourable friend Gregg McClymont, quoted from a letter from the CBI in which it expressed support for the intention of the clause but said it was too broadly drafted because:

“The inclusion of ‘in some other way’ would provide too broad a power to government to change the scope of automatic enrolment at any time it saw fit. For instance, it would provide the Secretary of State with a secondary legislation power to exempt some businesses. This is a move the CBI could not support, as it undermines the consensus that was reached on pensions reform by giving exempted firms a cost advantage”.—[Official Report, Commons, Pensions Bill Committee, 9/7/13; col. 352.]

If the Government want to exempt a category of business, they should come back to the Floors of both Houses and amend their legislation. This is not fanciful. It is not long since the Beecroft report recommended that micro-employers be exempted entirely from auto-enrolment.

This amendment makes it clear that Clause 37 shall not be used to exempt entire classes of business, such as small or medium-sized employers. This will ensure that the Government’s apparent intention for auto-enrolment to apply to all categories of employer and business will be honoured. If the Minister is of the same view as the Pensions Minister on this point—in other words, if it is the Government’s intention that no such general exemption should be made—there can be no reason to resist this amendment. If he does, he has some explaining to do.

[Lord McKenzie of Luton (Lab)]

My Lords, I support my noble friend’s amendment. Auto-enrolment has, initially, clearly been a success and the Government deserve credit for implementing the policy. But we should recognise that we are just at the beginning: although it has been up and running for 18 months, we are just approaching the point in April this year when smaller and medium-sized employers, those whose largest PAYE scheme covers between 50 and 249 employees, have to commence their duty.

There have already been a range of changes to the process, implemented by regulations, resulting from a review of early live running. Those changes mostly came into force last November, although some are due this coming April. The consultation on the draft regulations also canvassed views on other changes, including the proposition of excluding a certain category of worker from auto-enrolment. It sought more information on three situations, identified that it had a substantive response to the use of an exception, and committed to publish the results, with government proposals and a further consultation. When will the results be published? Will it be before Report? At the very least, can the Minister provide us with a list of the circumstances being considered, if those extend beyond the three identified in the briefing note, which states:

“The initial evidence suggested that there is a case to re-examine the appropriateness of the employer duty in some, very carefully specified, circumstances”?

However, as my noble friend has clearly set out in the amendment, the power taken in Clause 37 is a very wide one.

The circumstances covering someone handing in their notice, where the notice spans the automatic enrolment date, and where an active scheme member gives notice of retirement and stops making contributions could, it is suggested, be the subject of specific amendment. As for those individuals with fixed or enhanced protection for their lifetime allowances, the Minister might tell us how an exclusion might be framed so that the employer could operate without input from the worker. That those circumstances need to be addressed to avoid detriment to workers is clear, but at present the encouragement from HMRC is to do so by opting out. If the system for exemption depends on the worker lodging the existence of enhanced or fixed protection, perhaps with some validation from HMRC, I am not sure that that is a more effective route than the worker simply opting out.

If the rationale for Clause 37 is based on just those three circumstances, I am bound to say that it is not overly convincing. If we are to understand that a range of other circumstances have been identified which justify the clause, we must be entitled to know what they are. The Government must be aware of them from representations that they have already seen. The briefing note sets down some core policy principles against which suggested exclusions are to be tested. One of these is:

“Are the individuals unlikely to benefit from pension saving?”.

This has echoes of some of the challenges to auto-enrolment when the policy was first originated and being developed, particularly around older women just approaching retirement.

It is entirely reasonable that there will be changes to the operation of auto-enrolment arising from practical experience, but we should be cautious of wide powers to remove the employer duty of enrolment. That is the cornerstone of the policy. Of course, we are mindful that the duty has already in practice been narrowed by aligning the starting point with the level of the income tax personal threshold, thereby removing thousands of the low-paid from its benefits. We are also mindful that there is a subtext to the overall Bill about generating savings for the Treasury, so my noble friend is right to be cautious about this clause.

[Lord Bates (Con)]

My Lords, it is now two years since the rollout of automatic enrolment began and we are seeing how it works in practice. Automatic enrolment is a blunt instrument, since everybody who meets the relevant tests is automatically enrolled. There is emerging evidence that we should consider refining and targeting, but it is impractical to make refinements by amending primary legislation every single time. A degree of flexibility is an integral part of future-proofing the policy. This clause provides that flexibility, with a power to exclude prescribed types of workers from the scope of automatic enrolment.

I should respond to the points made by the noble Baroness, Lady Sherlock, and the noble Lord, Lord McKenzie. The inclusion of all employers, whatever their size, is part of the broad consensus that continues to underpin support for automatic enrolment. That is Her Majesty’s Government’s position. I will come back to the specific points, which have rightly been raised, at some point.

We need to take the oddities out of the system and this clause enables us to do just that. Automatic enrolment is not always appropriate. Indeed, in extreme cases, pension saving could lead to an individual incurring a financial penalty. Until now we have relied on opt-out as a solution: an individual can opt out of automatic enrolment if pension saving is not right for them. However, a problem remains: inappropriate enrolments, opt-outs and refunds still cause work for employers and frustration for the individual. We need to consider how we can remove, or at least reduce, the administrative burden in cases where automatic enrolment serves no purpose.

The Government’s consultation on technical changes to automatic enrolment last year shows significant support from employers, pension providers and financial advisers for limited, carefully crafted exclusions which help individuals where automatic enrolment has no benefit or makes no sense. We are currently looking at the evidence from that consultation with a view to publishing proposals when a power is on the statute book. So far, the evidence suggests some clear examples. One straightforward example is that people with enhanced or fixed tax protection status could face a tax surcharge if they make any further contributions into a pension. As well as this, automatic enrolment may be illogical for leavers, since it may make no sense to force an employer to enrol a worker into a company pension scheme if they are serving out their notice.

Any exclusion is likely to be sensible and uncontroversial, which is why the Government suggest that a negative resolution in these circumstances is an appropriate use of Parliament’s time. In terms of the breadth of this power, we have been clear from the outset that the intention of this clause is not to exclude entire employment sectors from automatic enrolment or to carve out a particular size of employer; that is a specific statement in relation to this.

We know that undersaving is most prevalent among low-to-moderate earners, those who work for employers who have not provided an accessible pension scheme or those who do not pay into one. These are the core policy objectives on which the consensus was built and to which we are still committed. We are not considering exclusions to the automatic enrolment duty simply because some employers tell us automatic enrolment is an inconvenience. This is about exceptional situations where it makes sense to take a person outside the scope of the Bill, hence the exemption. Although I can understand the aim of the amendment, it is trying to stop the Government from doing something that we have no intention of doing. As noble Lords will know, it would not ultimately constrain future Governments in any event.

The noble Baroness, Lady Sherlock, mentioned Beecroft. We have already firmly rejected proposals to cut micro-employers out of auto-enrolment. Workers in those firms have as much right to save for their retirement as anyone else; we have been quite clear about that. Measures have been introduced, such as the timetabling for the introduction of auto-enrolment meaning that smaller businesses, with fewer than 50 workers, are not affected by the reforms during the lifetime of this Parliament. This provides an additional breathing space. That is how we are seeking to tackle this and intend to make allowance.

On the words “in some other way” in the clause, which have been the focus of remarks by noble Lords, the power is there to exclude people for whom pension savings make no sense. We want to be sure that we can deal with future situations in which exclusion is clearly justified. The drafting of this power enables us to react to unforeseen circumstances. That is critical, particularly as we are dealing with such a complex and technical area. On what happens next with the power to make exemptions, the Government’s intention is to publish draft regulations for consultation later this year.

The noble Lord, Lord McKenzie, asked whether this was about saving tax, or tax relief. We are looking at the use of this power. Saving money for the Treasury will not be one of the factors we consider. Although, of course, general consideration of the management of fiscal balances is sensible, the primary purpose here is to ensure that employers of all sizes, and employees, take the opportunity to engage with pensions and save for their retirement. Ultimately, in the long-term, that is in the best interests of the Treasury, the Department for Work and Pensions—indeed for all of government—and, chiefly, the people themselves.

I understand the thrust behind the amendment and that it is important to get those remarks on the record, but with those reassurances, I ask the noble Baroness, Lady Sherlock, to consider withdrawing it.

[Lord McKenzie of Luton]

Nobody disagrees that there could be some limited and carefully targeted exclusions in particular circumstances, but I am trying to understand the circumstances that the Government have currently identified. They have laid out three of them in the briefing document, which suggests that they might have had representations on a whole range of other areas. I reiterate my question: can we know what circumstances, other than the three identified, the Government are focusing on that warrant an exclusion from the provisions?

In particular, one of those that has been identified deals with enhanced or fixed-protection provisions. I accept that there is a financial detriment for people who get auto-enrolment in those circumstances, but HMRC has advised them pretty clearly to opt out in that case. How, specifically, would the Government draft an exclusion to encompass that group of people? The enhanced or fixed-protection status of individuals would not be readily known to employers. Would an employee have to report it to an employer? How is that a better arrangement than the employee simply opting out?

Fundamentally, I am trying to understand how many circumstances the Government have identified where they think there might need to be an exceptional exclusion from auto-enrolment. I accept the Government’s good faith on that remaining the cornerstone of the policy, but how many other circumstances, given all that has gone on and all the representations and discussions to date, have been identified which warrant this power?

[Baroness Sherlock]

I have a question to add to that. I am grateful for the Minister’s explanation as to why the Government feel they need to have some flexibility to deal with circumstances as yet unknown, but I do not think that the Minister addressed what the problem is with the specific amendment I moved. After all, the amendment does not seek to prevent the Government from having those powers; it simply says that the Government may not make regulations in such a way as to exclude categories of business such as small and medium-sized businesses from auto-enrolment. What is the Government’s particular problem with this amendment?

[Lord Bates]

I will come to the noble Lord, Lord McKenzie, in the first instance. We have said that there are three categories, which he rightly referred to: tax protection, leavers and retirees. Those are the issues that we have identified. We are, of course, having a consultation. One of the challenges we invariably have is that we phrase a piece of legislation and make certain statements on the record in terms of the progress of that legislation through the House. We give certain assurances and then put something in to say, “This is to cover for unforeseen circumstances”, to which the legitimate question is: “What are those circumstances?”. The legitimate response to that has to be that they are unforeseen at present.

Responses to the consultation are currently being processed. They will be dealt with and published later this year and could reveal examples that we have not actually identified at present. This is a new policy and a new area and we therefore need to look at this. As I made my remarks about unforeseen circumstances, I gave examples of areas where it would be unacceptable to exclude people from the terms. We have rejected these exemptions and certainly would not want to introduce them. We have identified casual staff and teachers with second jobs, for instance, as being examples of people for whom we would not want this provision to apply. However, there will be further consultation on this issue and I ask noble Lords, if not quite to trust the Government, at least to accept that sufficient assurances have been put on the record. We recognise that there is broad consensus, but this needs to apply to everybody. However, this is a young policy in general terms and therefore flexibility is still required.

[Lord McKenzie of Luton]

I do not want to labour this for too long but it is important that it is clear. As regards the range of circumstances under consideration—in addition to the three of which we have already had notification—will we get any details, or at least the headlines of those circumstances, before we get to Report? On the three that have been identified, does the Minister accept that you could deal with those—particularly two of them—through specific legislation rather than giving a power to the Secretary of State? I come back to my point about the enhanced and fixed protection provisions for the lifetime allowance. Do the Government have it in mind to craft an exclusion for those circumstances? How does the Minister see that working?

[Lord Bates]

The short answer is that it is not easy. As the noble Lord will well know, given his experience as a distinguished Minister in the previous Government, it is not easy precisely to craft provision in those areas. We will seek to produce further examples by Report, following the responses received to the consultation. However, I can certainly assure the noble Lord that none of the responses has suggested that small employers should be excluded from the scheme. I know that is at the heart of the concern and, I hope, is at the heart of the reassurances which I have sought to give.

--- Later in debate ---

[Lord Bates]

My Lords, I thank the noble Baroness, Lady Sherlock, for giving me the opportunity to update the Committee on all things NEST.

As noble Lords know, the National Employment Savings Trust was established to support automatic enrolment, providing access to a quality, low-cost scheme for a target market of low-to-moderate earners and smaller employers. We are now just over one year into automatic enrolment and NEST has around 800,000 members and 2,500 participating employers. Opt-out rates are low, with only 8% of individuals enrolled into NEST choosing not to save for their retirement. NEST is already very successfully doing what it is there for—supporting automatic enrolment.

However, we are approaching a peak in the staging profile. Between April and July this year, 27,000 medium-sized employers will start to enrol their workers, and from April 2015 more than 1 million small employers will do the same. We anticipate around 65% of these small and medium employers will use NEST. By the end of staging we expect NEST to have admitted around 750,000 employers and to be providing a pension saving vehicle for between 2 million and 4 million members.

This implementation challenge is what we need NEST to focus on. We need to ensure that the millions of people currently not saving sufficiently for retirement are provided with an opportunity to do so, and that NEST plays its part in starting to make pension saving the norm rather than the exception. For this reason, during the implementation of automatic enrolment, it is critical that NEST focuses on the key task of getting employers and workers on board without distraction. That is why we announced that we will be lifting the annual contribution limit and transfer restrictions currently placed on NEST by April 2017, when implementation for all existing employers is complete.

I am pleased to advise the Committee that, following an invitation from the European Commission, the Government submitted a formal notification earlier this month of their plans to lift these two constraints. The Commission will provide its response in due course. Once this has been received, the Government intend to consult on draft regulations and bring forward secondary legislation later this year to lift the constraints in 2017.

These regulations will provide certainty that beyond 2017 NEST will be on a similar footing to other providers and its members in the wider pensions market. It will enable NEST to support the successful implementation of automatic enrolment but will send a clear message to employers that these constraints will not have any bearing on them in the longer term, helping them to make an informed decision about automatic enrolment scheme choice for their members.

The Government are committed to ensuring that the introduction of automatic enrolment is a success. Effective implementation is important for building and maintaining consumer confidence in the reforms. Removing the annual contribution limit and transfer restrictions by April 2017 is the right approach.

The noble Baroness asked if the ban on transfers stopped employers from choosing NEST. NEST already has 800,000 members and 2,500 participating employers. Given that the overwhelming majority of employers that have staged so far are large employers, the evidence suggests that the constraints have not unduly deterred employers from choosing NEST.

This is an operational capacity issue for NEST. The restrictions on transfers in and out of NEST were designed to enable NEST to focus on its primary objective of supporting the introduction of automatic enrolment. Between April and July this year, an anticipated 10,000 to 15,000 medium-sized employers will start to use NEST to meet their automatic enrolment duty. It will not stop there, with more than 1 million small employers starting to enrol their workers from 2015.

I hope that those comments and updates, and the responses to the questions that the noble Baroness rightly raised, will enable the noble Lord to withdraw his amendment.

[Lord McKenzie of Luton]

My Lords, I was not going to intervene in this debate but I must challenge something the Minister said. It is as though the ban on transfers and the contribution cap were originally put in place because otherwise there would be a distraction from the fundamental purpose of NEST. That was absolutely not the position. There was a lot of detailed discussion. My noble friend Lady Drake would have been involved in that.

When the legislation was introduced, the imperative was to try to get a consensus of employers, trade unions and the providers, to make them feel comfortable with auto-enrolment. That certainly means that the Government of the day conceded things to get that consensus, so that the thing could move forward. However, those restrictions were not put in place because NEST would be distracted from the very important task that it was given without them.

--- Later in debate ---

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

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

[Lord McKenzie of Luton]

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

[Baroness Sherlock]

I thank my noble friend for that. First, I am disappointed that the Government decided to go ahead and stick with their current position. I would have liked the House to have the opportunity to discuss this further, as I do not think the Minister took on seriously the arguments made from this side. There was no reference at all to the question of scale. If the reports one hears from the industry are correct, it is possible that some of the big players may, this year or next, shut their doors to new members. We should do everything possible to enable NEST to build an appropriate level of scale and to enable it—far from distracting itself—to do precisely what it was set up for: to fulfil its public service obligation by delivering a high-governance, low-charge offer to those who can benefit from it.

The Minister made reference to employer choice but of course, by definition, the constraints actually reduce employer choice. Employers who want to go into it are unable to because the restrictions remain in place. I am disappointed that, despite the pressure from this side of the House, the Government have not revised their position. However, given that we are in Grand Committee and I can do nothing else, I beg leave to withdraw the amendment.

Pensions Bill

Lord McKenzie of Luton Excerpts

Wednesday 15th January 2014 Grand Committee

That first group which misses out on the new state pension will be penalised if they have any savings over £10,000 and probably will not be able to afford to release any equity in their home to meet care needs. The other group, comprising people who are perhaps one day younger, will get their full new pension, avoid any means-testing and can enjoy any savings or choose to make any equity release as they see fit. Who are these older, frailer pensioners who are effectively denied equity release and punished for their poverty? They are older women, of course.

[Lord McKenzie of Luton (Lab)]

My Lords, I join my noble friend Lady Hollis in reviewing why this clause should stand part of the Bill. This debate gives us an opportunity to review its rationale, as my noble friend has done, and particularly to scrutinise what alternative support mechanisms are to be put in place for those newly required to notify the DWP of changes to retirement provision. As we know, the assessed income period removes the requirement to notify changes to capital and retirement pension for the purposes of pension credit. It will run for five years but is set indefinitely for somebody who has reached the age of 75.

As the Minister himself has said, the concept was based on the assumption that the capital and retirement income of pensioners would not vary significantly, that administratively it was appropriate to have a light touch for claims maintenance, and that it was also less intrusive for a claimant whose reporting of changes of circumstances obligations was significantly reduced. It is now asserted that the administrative burdens will not be forthcoming, in part because a huge volume of cases come up for review at the same time, and there is not the stability in levels of capital and retirement income originally envisaged. So far as the administration issues are concerned, it would presumably be possible to spread the load by modest extensions of the end dates of existing AIPs to even out their reconsideration. Perhaps the Minister can tell us why such an option was not considered.

We learn from the impact assessment that just under 2 million of 2.5 million people on pension credit have an AIP split roughly half and half between those with a specified end date and those of an indefinite period. Given that those with an indefinite period AIP are not to be preserved, it looks as though these provisions will potentially affect some 1 million pensioners. Do we have figures for those within this cohort who are in receipt of savings credit only, guarantee credit only or both? Obviously, savings credit would have no application for those who reach state pension age after 5 April 2016, and to a certain extent these provisions wither on the vine because those who reach state pension age post-April 2016 will get STP generally which will be above the guarantee credit level, so they get floated off and savings credit does not apply to them in any event.

As for changes to income and capital, as my noble friend has made clear, the numbers have been predicated on scaling up and are now, I think, upwards of 99,400 cases. We know that of those cases, 36,000 will see a reduction in their award—13,000 will lose all pension credit—18,000 will see an increase and nearly half will see no change. However, over a five-year period, the impact assessment suggests that 540,000 people will be affected by the change in policy, with one-third gaining and two-thirds losing. It would seem that the reasons for a reduction in award are attributable to increases in non-pension income as well as increases in capital—the former cases, I think, being more numerous.

We know that in a steady state the Government will benefit to the tune of £82 million a year and will gain further savings from housing benefit and rent support. I do not know whether we have an updated assessment for that figure. Incidentally, will the Minister remind us what is happening because we went through a period when an application for pension credit, council tax benefit or housing benefit was going to involve one process of application, and that was then going to be shared? I do not know what has happened to that process. Clearly, the council tax part of it has had to go because of the localisation of that but it would be helpful to have an update on that process.

Ensuring that pension credit assessments of means-tested benefit are accurate is not an unreasonable ambition, but an equally important ambition should be to improve the take-up of pension credit, as my noble friend made clear. We know that about one in three of those eligible for pension credit are currently not claiming it, although take-up of the guaranteed credit is higher. The greater the required engagement with the system, the greater the risk will be that pensioners will fall out of the system or not engage with it in the first place.

As my noble friend asked, what are the Government’s plans to improve take-up of pension credit? This issue must not be underestimated, especially in an environment in which people are living longer, and living at least semi-independently, with support from formal and informal carers. I have seen this in my family: whereas bank statements and pension slips were once neatly filed in date order, they are now tucked away down the side of a chair, scattered randomly in a drawer or thrown out with the rubbish. When you cannot always remember whether you have had breakfast, it is not always easy to remember to pass on a piece of correspondence to a family carer. These are real issues, particularly as people get older.

Of course, there are penalties for failure to report changes of circumstances, and we know that this Government are hot on sanctions. So can the Minister please say, given the changes to the AIP policy, what additional cost is to be incurred in supporting pensioners, both at the point of the change and routinely thereafter? What special protections will be in the system if someone is at risk of being sanctioned?

Finally, on the matter raised by my noble friend Lady Hollis concerning the effect of this change on equity release and capital more widely, it is with a degree of trepidation that I am bound to say that I cannot fully support the position of my noble friend. I know that that is dangerous territory. I agree that AIPs facilitate the accumulation of substantial sums from equity release without impact on pension credit, but that, of itself, is not a reason why it should be retained. It is common ground that AIPs were designed as an administrative easement, not as a route to allow certain types of capital to be outside the pension credit rules. I see great merit in equity release but I am not sure why capital raised just in that way should have more favourable treatment under the benefit system than capital raised in any other way. There is already a series of provisions under which capital is disregarded for the purposes of pension credit and, indeed, other benefits. They include amounts held to buy a home or to carry out essential repairs. There may well be an argument—and my noble friend has advanced these—to extend these capital disregards in effect to cover costs of caring. However, this should be done explicitly, not under the guise of hanging on to something via an administrative easement.

The Government are going down a dangerous path. Thousands of pensioners could be disadvantaged by this provision administratively, and we certainly want to know, if the Government are going to press ahead with it, what support is going to be given. I do not see anything in the figures about extra costs and more frequent reviews. What is in the analysis that states that the Government are going to support pensioners, particularly older pensioners, effectively to make sure that they take up pension credit when they are entitled to it, and that that they are able to comply with the new, more onerous reporting rules that flow from these provisions?

[Baroness Meacher (CB)]

My Lords, I support my noble friends. I have just worked out that it was about 40 years ago when I undertook and produced the first research report of the Child Poverty Action Group. The subject of that study was the non-take-up of means-tested benefits. At that time, when I was a young person, I assumed that the important issue was stigma. Of course stigma is a major feature, but what took me by complete surprise was the level of ignorance and complete unawareness on the part of, most particularly, the poorest potential claimants—ignorance that they might even conceivably be entitled to any benefit at all. It just had not crossed their mind. If you do not ask any questions, you do not get the answers to those questions. If he really wants to extend means-tested benefits, I urge the Minister to undertake some research into the levels of knowledge and understanding of potential pension credit recipients, because if the level of ignorance remains today as it was then, the social consequences of these reforms will be very alarming indeed.

--- Later in debate ---

[Lord Freud]

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

[Lord McKenzie of Luton]

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

[Lord Freud]

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

[Lord McKenzie of Luton]

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

--- Later in debate ---

[Lord Freud]

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

[Lord McKenzie of Luton]

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

[Lord Freud]

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

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

--- Later in debate ---

[Lord Freud]

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

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

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

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

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

[Lord McKenzie of Luton]

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

[Lord Freud]

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

[Lord McKenzie of Luton]

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

[Lord Freud]

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

--- Later in debate ---

[Lord Bates]

The noble Baroness says they do not agree with it, but when the ABI actually carried out a survey and asked people which one they preferred, 58% of consumers said they preferred pot follow member.

[Lord McKenzie of Luton]

Did the noble Lord not say a moment ago that perhaps the aggregator model was initially slightly more difficult to understand than the pot-follows-member model? It is not surprising, therefore, that initially, some of these surveys may have shown less support for that model.

[Lord Bates]

The noble Lord makes my point: it is more difficult to understand. What are we trying to do? We are trying to make it simpler. We are trying to get people to be able to understand it. That is one of the reasons why it appeals to people. They will only ever have one pension pot; under the other scheme they may have several; they will be able to keep track of that and follow it through. Anyway, we can discuss and debate that, but in all of the consultation that was undertaken, it was clear that there was a strong view in favour—not only from the respondents of the consultation, but also in the opinion polls that followed from the industry.

The noble Lord, Lord Turner, raised the important issue that pot follows member fails to deal with high charges. We strongly agree that driving up scheme quality is of paramount importance. This is an issue wider than just a scheme used for transfers in the aggregator model, but actually should be something that applies to all, to set minimum standards across a broader range of schemes. Therefore, in doing so, it would benefit not just those affected by these pension pot transfers, but also the existing members of those schemes.

The noble Lord, Lord Turner, said he did not accept the pot size comparisons that were being put forward. He spoke about the £2,000 limit: why was it £2,000? We actually consulted not just on £10,000: we consulted on £20,000, £10,000, £5,000, all the way down to £2,000 and even £1,000, which is similar to the amount that is currently used in the Australian model, which is often cited in this context. In all of those different levels, pot follows member came out ahead of the aggregator in terms of individual responses.

Housing: Underoccupancy Charge

Lord McKenzie of Luton Excerpts

Tuesday 14th January 2014 Lords Chamber

Asked by

[Lord McKenzie of Luton]

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

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

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

[Lord McKenzie of Luton (Lab)]

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

[Lord Freud]

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

Pensions Bill

Lord McKenzie of Luton Excerpts

Monday 13th January 2014 Grand Committee

[Baroness Hollis of Heigham (Lab)]

My Lords, the Minister has been very helpful in his introduction, but how can the consultation that he reports he has had with possible users be at all meaningful when they do not know how much they are going to have to pay and what they may be likely to get? Following that, can he give us any indication of the ball-park figure? Say someone is 70: what is the lowest possible price and the range for which the extra year of pension will be bought? Otherwise, people’s views cannot be taken seriously because they have not got the relevant information.

[Lord McKenzie of Luton (Lab)]

My Lords, following my noble friend Lady Hollis, I support the inquiry about the pricing structure and whether we will know that by the time the Bill completes its passage through your Lordships’ House. I listened carefully to the Minister’s explanation, because at the heart of it this is basically a savings plan. It is effectively an annuity arrangement. It is attached to the additional state pension but you could delete all that and describe the fundamental proposition here very much as an annuity. We know that that cannot be done because the DWP does not have the power to do it. However, we should be clear what this is about.

It is attached to the additional state pension and gives people a chance to enhance provision they have made in that respect. As I understand it, you could avail yourself of this opportunity if there was currently no additional state pension due—or there was a very significant amount of additional state pension due because you had been investing heavily in it, certainly above the level of the single tier of pension. Indeed, if somebody was contracted out of additional state pension I think they would still be able to avail themselves of this opportunity. I am just trying to work out how easily that sits with the whole concept—this is all about people who have reinvested in additional state pension, not just about an investment product.

I did not find the rationale for leaving these arrangements open for only a limited period, and the online survey is a bit difficult to interpret. Can the Minister give us any more information about the expectation of the number of people likely to take this up and the amounts that they are likely to take up? The Minister said—and this was said in the briefing session as well—that nothing has been scored in respect of these proposals so far as the public accounts are concerned, but presumably it will be scored at the next Budget, and certainly credit for any take-up of this will feature in the year 2015-16, presumably with its consequential impact on the deficit and government debt arrangements. Indeed, the lump sum would be taken out in the year in which it is received, and the flow of pension contributions will just score over the years and decades ahead.

Given the nature of this, I am interested to understand the sort of explanations and information that people will be given when they are looking to make their choices. In a sense, the information about their class 3 and 3A voluntary contributions is relatively straightforward, but we are in an environment where we know the annuities market is generally very opaque. The Financial Conduct Authority is on the point of publishing a review of the annuities market. Given the closeness of this product to annuities, what sort and range of advice and information is it proposed that the Government will provide for people thinking about taking up these opportunities? We accept some of the potential benefits. In a sense, it is risk free; it is inflation protected; and it can be shared on divorce. One sees the benefit of those arrangements, but I have one or two queries on the wording of the amendment which I hope the Minister can help me with.

[Baroness Hollis of Heigham]

Would my noble friend not agree that the Treasury is following the same philosophy as it is in trying to abolish the lump sum as an option for people who have deferred taking their state pension for two years in order to avoid paying out the money upfront and is now trying to do exactly the same thing—a sort of mirror opposite—in terms of this package?

[Lord McKenzie of Luton]

Indeed, I agree with my noble friend. It is the converse of that. A cynic might say that this is all to do with managing the deficit and the debt in the run-up to a general election, but that is for us cynics, I guess.

Looking at Amendment 62, I wonder whether the Minister can help me out on what will eventually be new Section 14B dealing with the arrangements for repayment of contributions. I am a little unclear about proposed new subsection 14B(4), which states:

“Regulations under subsection (1) may provide for benefits paid to a person because of the unit of additional pension to be recovered by deducting them from the repayment”.

I am not quite sure whether the benefits referred to there are the additional pension that has hitherto been received or whether there is something else because typically one would not expect extra benefits to be paid if somebody has extra income—quite the reverse. Perhaps the Minister can help me on that provision.

Proposed new Section 61ZA is headed “Shortfall in contributions”. I was a bit bemused by this. It states:

“This section applies to a person who has one or more units of additional pension if the person … is not entitled to a Category A retirement pension, but … would be entitled to a Category A retirement pension if the relevant contribution conditions were satisfied”.

It goes on:

“The relevant contribution conditions are to be taken to be satisfied”,

but in a sense it negates the impact of that in terms of payments as you get only the additional pension attributable to units of additional pension. I was trying to fathom what that was about because if somebody is not entitled to a category A pension presumably they would only be entitled at all if they had a category B or D pension. Or is this saying, basically, that even though you do not have a pension entitlement, we will treat you as having a pension entitlement for the purposes of being able to take up these provisions? That seems to undercut one of the two requirements—and there are only two requirements—to be able to access these arrangements.

I do not know why there needs to be consultation with the Government Actuary or the deputy Government Actuary—I do not know whether you can choose who to go to for advice. I would have thought that going to the Government Actuary’s Department would include going to the deputy if the Government Actuary is not available. But there may be good reason for that formulation. This may well be a nice little earner and deserve support on that basis, but until we know more detail it is difficult to judge. It is an odd formulation to attach this to the additional state pension in the way that is proposed.

[Lord Browne of Ladyton]

My Lords, I, too, thank the Minister for his explanation of these provisions. I take this opportunity to thank his Bill team on behalf of my noble friends and myself for the briefing that it provided to explain some of the issues that have been raised. When the Chancellor announced the scheme in the Autumn Statement there was much excitement among financial journalists, I recollect. It was hailed as a great deal for consumers by commentators, many of whom missed crucial words in the small print that it would be at a broadly actuarial fair rate. My understanding—and the Minister's explanation confirmed this—is that the price will vary according to age at purchase, much as an annuity would, and that it would be gender-neutral.

The Minister has effectively confirmed that the only factor that will be taken into account in pricing a class 3A contribution will be age. No account will be taken of any regional or occupational differences in life expectancy, which are issues that will engage the Committee later in this evening’s debate. As that is not going to be the case, have the Government done any work on the likely distributional effects of this scheme? If this scheme is broadly actuarially fair in pricing and the proposal is that over time the policy will be broadly cost-neutral as the briefing paper says, if some people are getting a good deal others must be losing out. Those who lose out will be those with shorter than average lives, and there is a clear socioeconomic correlation there.

There is much that we do not know about the scheme and the Minister was absolutely candid about that. In fact, there is much that the Government do not know about the scheme because they have not worked it out. We know, however, that it will start in October 2015 and that the Government are minded to run it for 18 months or two years only. I digress here to point out to the Minister the irony of telling us in one short unqualified sentence that the affirmative procedure will be used for the regulations for this in a scheme that is due to start in October 2015 when he spent a significant amount of his last contribution to the Committee explaining that it would be very difficult to find time for affirmative regulations in this Parliament. That irony was not lost on the rest of us. He may find that fact being played back to him at some time in the not-too-distant future.

We do not know the range of prices, but the illustrative price given in the briefing paper sent to Peers showed a charmingly named couple, Mr and Mrs Average, who will be 65 in 2015. They could be expected to live for another 24 years. It suggests that they would have to find £1,248 to acquire another one pound a week. That would be a better deal for them than going to the market, said the briefing, because the extra pension that it would buy would be uprated by CPI and without charges, and would be inheritable under the additional state pension rules. I am not sure whether that was meant to be the price for them to receive an extra £1 per week each because it seems in the polling reports that the prices tested were between £300 and £800 to buy an extra £1 per week, depending on age. I make this point because the value of polling is of course dependent on the nature of the questions asked. If the questions that were asked in the polling were on an expectation that one unit per week would cost between £300 and £800, and in fact it is likely to cost £1,248 to acquire, that polling may need to be redone as it will be of limited value.

--- Later in debate ---

[Lord Freud]

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

[Lord McKenzie of Luton]

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

[Lord Freud]

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

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

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

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

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

[Lord McKenzie of Luton]

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

[Lord Freud]

I can confirm that they can do so.

[Lord McKenzie of Luton]

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

[Lord Freud]

Yes, I can confirm that, too.

Pensions Bill

Lord McKenzie of Luton Excerpts

Wednesday 8th January 2014 Grand Committee

[Lord McKenzie of Luton (Lab)]

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

[Lord Freud]

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

--- Later in debate ---

[Baroness Hollis of Heigham (Lab)]

My Lords, we move on to a different subject, which is pension sharing on divorce. This is a very simple, short amendment that raises the issues of divorce that were touched on in previous amendments. When we delivered pension sharing on divorce—many of my noble friends were absolutely vital in that activity in the 1990s—it primarily affected private pensions. We thought that the portion that could be set aside as part of the divorce settlement would be the basis of a useful pension for the divorced spouse—usually the woman. We were also anxious that he and she would build on—or, in his case, perhaps rebuild—their pension shares back up again so that both would face retirement with an adequate pension. However, most divorcing spouses do not seek pension sharing. In some cases, obviously, there may not be much pension to share, particularly if the divorce takes place at a relatively young age—often, sadly, younger women do not always properly value their husbands’ pension, and solicitors, I am afraid, are still pretty sleepy about what is quite a technical issue. Many of those who share pensions do not realise the need for or the possibility of rebuilding their separate pensions. However, out of 120,000 or 125,000 divorces a year, an average of 10,000 divorces involve pension sharing, which means that 8% or 9% of total divorces involve pension sharing of private occupational pensions.

This amendment asks what the implications are for the new state pension. Currently, under existing laws—we clarified this again in a previous discussion on divorcees—upon divorce the woman can substitute the man’s NI record for BSP in lieu of her own at the point of divorce, if his is the higher, and she may also be entitled to half of his additional pension—SERPS or S2P—if the court so decrees as part of the sharing of matrimonial assets.

Under the new regime, she will not be able to substitute his NI contributions for her own, a point that we argued a few amendments back. The only element that can be split or shared, if the court decrees it, is the protected pension; for example, the frozen, additional amount from SERPS and S2P, to which my noble friend referred on a previous amendment. What is more, if he has a shortfall in his NI contributions towards the new state pension—possibly because he has a track record in the public sector, I imagine, with contracting out—some of his additional pension will be brought over to make good his NI record and that transferred slice of protected pension will not then be available for sharing. I am assuming a genderised position here, I am afraid. So she takes the double whammy: not only does she not get an ability to substitute his NI contributions for her own for the basic state pension element, but, equally, if he has an inadequate NI contribution—that may well be the case if he has had a lifetime of contracting out, has never had head space and wishes to make good his shortfall in the new state pension—as I understand it, she will then not be able to access that chunk of his protected and S2P or SERPS pension, which will go across to make good the shortfall.

I would be grateful if the Minister would confirm that I have understood this correctly. If so, the woman has a pretty nasty deal and I think some explanation of the implications is required, particularly for women who have childcare responsibilities and so on and who may not be able to rebuild the additional income, particularly once their youngest child hits 12.

Advising people annually of their pension debit—for example, telling him, as it is usually, but not invariably the man, by how much the pension has reduced following divorce, or with regard to pension credit, the fraction that usually has gone to her of the protected additional pension, if the court has so decreed—would allow each of them to know where they stand to make better decisions about their pension futures and, in particular, that might encourage them into NEST to build or rebuild their total pension prospects.

With this amendment, I am seeking to ask the Minister to ensure that women who may not be aware of, but who could well take advantage of, a share of the additional protected pension have the knowledge that they can do so. They may wish to set that against other matrimonial assets that may otherwise go their way on divorce. I hope, therefore, that the Minister will agree with me that as this is techie and this has now been changed substantively in the Pensions Bill, those women who have been married to someone in the public sector—the reverse could equally well be true in terms of gender—will be a loser a second time because he may well dip into this to make good his NI shortfall. I hope that the Minister will agree with me that we need to encourage people to be aware of the situation and I think that the department needs to take some responsibility for ensuring annual information. I beg to move.

[Lord McKenzie of Luton]

My Lords, I put my name to this amendment because I spent a happy half hour with my noble friend trying to fathom out what the legislation was about, on this occasion, without a bottle of gin. The conclusion that my noble friend has just outlined, which I believe to be correct, is that any protected payment could be shared—I think that was confirmed at one of our briefing meetings and indeed in some of the documentation that we have and this parallels the current situation with the additional state pension—but the protected payment cannot, I think, for some of the reasons outlined by my noble friend, be greater than the second state pension accrued at 6 April 2016; it can, however, be smaller. For individuals who grow up entirely within the single-tier system, with just S2P, as we understand it, there would be no basis for sharing the state pension. The noble Lord’s confirmation would be helpful. The particular thrust of the amendment—to make sure that people are routinely informed—seems entirely reasonable.

[Lord Browne of Ladyton]

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

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

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

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I do not know the figures but maybe the Minister does. How many pensioners who exercise the choice to defer their state pension claim a lump sum? That would be good to know. My sense is that it would be quite a significant number but I would like to hear the number from the Minister. This is an issue of principle and I do not think this House, or Parliament, should take away from pensioners the option of taking their deferred state pension as a lump sum if they choose to do so. That should be their choice and we should enshrine it in legislation.

[Lord McKenzie of Luton]

My Lords, I have added my name to this amendment and I wholeheartedly support the points my noble friends Lady Hollis and Lord Hutton and the right reverend Prelate have raised. The Government are reserving the right to defer but, of course, making it more expensive. I think the savings the Government ultimately get from this are in the order of £300 million, because it is going to be dealt with on an actuarial basis rather than the current way. I do not know if it is possible to split the saving between that resulting from the denial of the lump sum and that which is otherwise simply a result of the different actuarial calculation. It would be helpful to have that split, if it could be done. We await the final rates, which are going to be dealt with in regulations.

The issue about lump sums is very important. We need to think about people who might have a health impairment. There is no impaired annuity equivalent under state provision, so far as I am aware. Surviving spouses cannot inherit increments arising from deferral, as I understand it, but they can, of course, inherit a cash sum that has been saved.

The point has been made about the equivalence between the private sector and the state sector. Many people to date have not accessed private savings. Thank goodness auto-enrolment is in place now, courtesy of my noble friend Lord Hutton, who was Secretary of State when big advances were made on that. Over time, people will get better private sector provision and that will provide them with an opportunity many of them do not currently have to access a lump sum.

Can the Minister say what this all means for the public finances? I presume a lump sum paid on day one in a sense scores against public finances in that year while a deferred amount does not score until it is received, and is then received at a higher rate going forward. I do not know whether this is part of the Government’s considerations, but I hope not because I think it would be modest at best.

There are also differences in relation to pension credit. A modest capital sum is ignored for pension credit but, of course, a supplement and income increase arising from deferral would not be. That would be a further denial and scraping away of benefits from these provisions. I very much support the point that no great rationale has been advanced why the lump sum and other deferments should be denied and I hope we can agree across the Room that it should be reinstated in the Bill.

[Baroness Dean of Thornton-le-Fylde (Lab)]

My Lords, I, too, will not detain the Committee very long. When we go through a Bill, there is always something that comes up quite unexpectedly. My noble friend Lady Hollis has alighted on one here, which I do not think is going to go away. If we are not able to progress it at this level, perhaps we shall need to return to it later in the debate on the Bill.

I do not know where the Government have the mandate for this, but it is there now. They are understandably trying to look at pensions as a whole, and saving for retirement, hopefully through a personal pension scheme and through the state scheme. We would support that. However, it is taking a very different principle to the one that applies in private schemes. It will only apply, of course, where the individual says, “I am going to defer my pension”. It is not a case of saying, “I want to take some of my pension in a lump sum”. It is also taking choice away from people. You cannot say, on the one hand, that we want people to have choice, to save and to be in charge of their own income when they retire, and do everything you can to encourage them, but then, in this particular aspect, say, “No, we the state know better than you do”. Even if the Minister cannot do so today, I hope he will be able to reflect on this and give due consideration to making some movement in the Bill on it.

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[Lord Freud]

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

[Lord McKenzie of Luton]

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

[Lord Freud]

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

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Moved by

[Lord McKenzie of Luton]

34: Clause 23, page 11, line 30, at end insert—
“( ) Before the provisions contained in paragraphs 83 to 86 of Schedule 12 come into effect, the Secretary of State shall set out comprehensive arrangements for the passporting to benefits for those no longer eligible for the savings credit.”

[Lord McKenzie of Luton]

My Lords, this is a probing amendment to give us a chance to have a canter round the passporting issues. The impact assessment has a section on passported benefits. We had a brief excursion into these matters when we last met and have since had a helpful letter from the Minister. The impact assessment sets it out clearly:

“If pensioners are no longer eligible for Pension Credit as a result of the single-tier reforms then they could lose eligibility to some of these ‘passported benefits’”.

That is straightforward. It goes on to state:

“Receipt of Guarantee Credit passports pensioners to the full amount of Housing Benefit and Council Tax Benefit … There is little reduction in Guarantee Credit eligibility resulting from the single tier”.

Therefore, this has a limited impact on the proportion of pensioners who are eligible to be passported. Yet in his letter—and we understand the arithmetic—the Minister tells us that in 2020 there will be a fall of around 15% to 20% of the total eligible for guarantee credit in these cohorts.

Going back to the impact assessment, we are reminded that there are other benefits that are linked to receipt of guarantee credit such as health benefits and Social Fund payments, so that pensioners no longer entitled to guarantee credit as a result of the single-tier measures may also lose eligibility to these other benefits. But again we are told that,

“there is only a small impact of single tier on entitlement to Guarantee Credit”.

The cynic might conclude that, when dealing with passported benefits, the Government are seeking to play down the reduction in guarantee credit recipients but are otherwise seeking to reassure us that single tier will reduce means-testing. I accept the figures in the Minister’s letter that in the 2040s there will be some 50,000 fewer households on guarantee credit than would have been the case under the existing state pension arrangements. It is further accepted that fewer will be on guarantee credit because their income has risen. However, the working assumption is that STP will be set just marginally above the guarantee credit level, so for notionally swapping pension income for guarantee credit some 50,000 are notionally missing out on passporting. Is this correct? What are the estimated savings to government from this? There seems clearly to be no intent to compensate in any way. As our documentation makes clear, the main driver of reductions in pension credit is the demise of the savings credit. Chart 4.1 of the impact assessment shows—as a percentage of the population reaching state pension age after the introduction of single tier—the change in the composition of those eligible for pension credit, but I cannot readily locate the absolute numbers of households which lose savings credits and the notional average amounts. The chart is done in percentage terms. Can the Minister help us on this?

So far as the passporting of benefits is concerned, under current arrangements most depend on guarantee credit. However, receipt of the savings credit can unlock access to such benefits as cold weather payments, affordable warmth obligations of energy companies and, until abolition, working tax credit and child tax credit. How many pensioners will have no access to cold weather payments under STP who would have under the current arrangements? How much money are the Government saving by this, and are there plans to put in place any alternative arrangements? I beg to move.

[Lord Browne of Ladyton]

My Lords, in speaking to this amendment I shall speak also to Amendment 36A in the name of my noble friend Lady Sherlock and myself. Amendment 36A is a small probing amendment designed simply to draw out the Minister on the impact of the abolition of savings credit on mixed-age couples—that is, a couple where one member reaches the state pension age before 6 April 2016 and the other after. The relevant provision in the Bill is to be found in paragraph 85 of Schedule 12, and the mechanism is the insertion of Section 3ZA into the State Pension Credit Act 2002. Subsection (1) of this new section of that Act reads as follows:

“Regulations may provide that, in prescribed cases, a person who is a member of a mixed-age couple is not entitled to a savings credit”.

Subsection (2) reads:

“For example, the regulations could provide that a member of a mixed-age couple is not entitled to a savings credit unless … the person has been awarded a savings credit with effect from a day before 6 April 2016 and was entitled to a savings credit immediately before that date, and … the person remained entitled to state pension credit at all times since the beginning of 6 April 2016”.

For good reasons to do with the interpretation of statutory powers, it is unusual to legislate by example, and with this amendment I am seeking to draw out the Minister on why the Government have chosen to do so. The answer may be that there is some existing provision that has to be re-enacted. If that is the case, I would quite like the Minister to go further and explain why there is this particular example of circumstances where a mixed-age couple would not be entitled to savings credit. For the record, I think it would instruct and inform the public and the Committee if the Government explained whether it is their intention that these example circumstances will be the only circumstances in which a mixed-age couple are entitled to savings credit. How many couples do the Government expect will be affected by this very specific change?

On the broader issue of the loss of savings credit, will the Minister clarify precisely how many people are currently entitled to savings credit only? I cannot reconcile the figures from the different case load statistics that I have access to. Will he clarify how much the mean and median loss—the notional loss, if he prefers—will be? Will he engage with the question of whether or not this will create a cliff edge for those who just miss out on guarantee credit?

Turning to my noble friend’s amendment, what will happen to entitlement to those benefits that are passported off savings credit? According to the paper from his officials, these are assisted prison visits, affordable warmth, access to the Social Fund—presuming, of course, that there is anything left of it—working tax credit, child tax credit and the Sure Start maternity grant. Will these people still be entitled to those, based on the maximum income on which they could have been eligible for savings credit?

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[Lord Freud]

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

[Lord McKenzie of Luton]

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

[Lord Freud]

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

[Lord McKenzie of Luton]

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

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

[Lord Freud]

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

[Lord McKenzie of Luton]

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

Amendment 34 withdrawn.