Pensions Bill
Lord McKenzie of Luton Excerpts(10 years, 8 months ago)
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Baroness Dean of Thornton-le-Fylde (Lab)
My Lords, some years ago I was chair of the Armed Forces Pay Review Body and I saw the way that wives were discriminated against. I remember one case. We went to Belize, where the commanding officer had been offered promotion conditional on his wife accompanying him. She was a very successful lawyer in London and they had to make a decision. She decided to give up her career. While she was abroad—a two-year posting—she was unable to contribute to a private pension fund because she was not doing recognised work. She was working as his partner in Belize on behalf of the British people looking after Army wives. She gave up her career and she lost the opportunity of a good private pension here as she could not contribute because she was not working in this country. She was also losing out at the end of her life because she could not contribute to the state pension scheme either. The changes made in 2010 helped, but this Bill will almost send us backwards. The changes made by my Government in 2010 did not fully resolve this issue. That is one case.
Among the officer cadre in all three services you still find wives giving up their job to accompany their husband, and they get a very raw deal. Until recently, other ranks would have gone to Germany for a two-year posting, and they, too, would lose out. Under the Armed Forces covenant and the updated report issued only this week by the noble Lord, Lord Astor, it is taken into account that we should be looking after families. I have no idea what it would cost and I cannot imagine that it would cost an awful lot of money, but maybe the Minister can help us. As my noble friend says, this may not be the way of dealing with the problem, but somehow it has to be recognised that, in bringing in a Bill that has cross-party support and in general terms is certainly advantageous for most, if not all, women, here we have a group who will continue to lose out, despite the changes that are being made. So it is with a deal of pleasure that I support the amendment, and I hope that the Minister will agree to go back and look at the issue. Perhaps he will come up with something that may not use this wording but which recognises the contribution that these women have to make—and, indeed, by which they lose out when they help their husband’s career, because the post requires accompaniment. If that solicitor, going back those few years, had said, “No, I’m not giving up my career”, the husband would have had to refuse that promotion. There are parts of the Armed Forces where the divorce rate is higher than normal. I am not suggesting that this is the only reason, but I think that it is perhaps one of a whole number of reasons, stress and overreach being another couple.
Lord McKenzie of Luton (Lab)
My Lords, I speak briefly in support of my noble friends and the thrust of this amendment. I should like to ask one or two questions. As I understand it, there is currently a class 1 credit going to people in this service category, which helps to build up not only pensions but access to contributory benefits such as JSA and ESA. In respect of the latter, there is also an easement that was introduced in 2011 in respect of the first contribution condition, because for contributory ESA and JSA you need both to pay an amount in a certain period of time and to have sufficient credit. My first question is whether that credit arrangement is going to continue under the new regime and whether the easement will be continued, because that is important, too.
Of course, the credit has to be claimed; it is not automatic. I wonder whether we could do something to address that issue, because we have a group of people here who would qualify only under certain clear conditions, and one would have thought that arrangements for these individuals could somehow be organised centrally, or perhaps by the separate Armed Forces, so that the information goes in directly and there is an automatic credit, rather than people having to claim. I understand that the take-up is limited at the moment, with only 601 applications in 2012-13, or maybe in the previous year. That is not as many as one might have expected. Perhaps we could also have clarification as to who is treated as a member of the Armed Forces for these purposes. I am not sure that the TA or reserves will be included within this.
This issue draws a wider question about crediting national insurance contributions. My understanding, based on some helpful information from the Bill team this morning, is that if, at the moment, you are in a category of benefit or activity that gave rise to a class 1 credit, that would continue post-April 2016. If you are receiving a class 3 benefit for a particular activity or being in a particular position, that would become a class 3 contribution credit also, under the new regime. So nothing has changed in that respect. These things are important, because a class 3 contribution builds up entitlement only to the state pension and bereavement benefits, not to contributory benefits. This gives rise to the broader question of universal credit. At the moment, if you are on JSA or ESA, you would get a class 1 credit. In the world of universal credit, my understanding is that you would get a class 3 credit, which means that you do not build up entitlement thereby to contributory JSA and ESA, which sit outside universal credit.
I apologise for this rather convoluted series of questions, but this very important issue prompts them, and it would be useful to have clarification on them either today or later by correspondence.
Lord Browne of Ladyton (Lab)
My Lords, I am grateful to my noble friend Lady Hollis for tabling the amendment, for the very reason that it allows your Lordships’ Committee to engage in this important issue. As we have already heard, successive Governments have committed to end any disadvantage that armed service causes members of the Armed Forces and their families—a group of people who have come to be known in these circumstances as the service community.
In July 2008, the Government set out to put flesh on the bones of that commitment in a command paper entitled, A Nation's Commitment: Cross-Government Support to our Armed Forces, their Families and Veterans. In pursuit of the ambition of that document, the DWP announced and introduced on 6 April 2010 new rules that allow spouses and civil partners accompanying service personnel serving overseas outside the United Kingdom to be eligible to claim class 1 national insurance credits during such periods.
In certain circumstances, spouses and civil partners may get credits on their national insurance contribution record for state benefit purposes, and as my noble friend Lord McKenzie pointed out, that helps protect their eligibility to a state pension and contribution-based benefits. Application for the credit is made at the end of each accompanied assignment outside the United Kingdom, but there are complications about that. My noble friend is right to say that it has to be claimed. I understood that the services had in place default arrangements to ensure that everyone who could be entitled to make such an application was advised fully of that. Can the Minister elucidate the current situation?
I do not think that one need go into the complications that service abroad generates for service families, but one can imagine that service abroad may mean that the family is split up. For example, some of our troops are based in Germany, or the families may be there but the service member might be serving somewhere else overseas. All of these complications are accommodated. Indeed, circumstances may arise where there is a need to make an application part way through an assignment, and provision is made in the regulations to facilitate that. There is helpfully discretion—and the DWP is to be commended for this—as to the time that an application can be made. It is already provided for to accommodate the lifestyle of the armed services community. Importantly, however, this improved benefit was not made retrospective.
We have already heard from my noble friend Lady Dean’s experience of her engagement with the service community the sort of circumstances that can lead to the need for this provision. At the heart of it, there is a clear and good reason why we need this. Members of our Armed Forces are commanded to work in overseas environments. If they stay in the services, they have no choice where they work, and often they are there for extended tours. Often their spouses and civil partners are unable to accrue a full national insurance contribution record because of that. Fairness demands that they not be disadvantaged by that service in so far as is possible.
When my noble friend Lady Hollis introduced this amendment she described it as simple, but it has become slightly more complicated in the debate. I am not seeking to complicate it because it is a relatively simple policy issue, although it may have complex consequences. She implied that the trend would suffer regression as a consequence of implementation of the Bill. My noble friend Lady Dean specifically said that the Bill would have a consequence of regression in relation to the position of service wives in particular. It is important for the Minister to address that position. If it is indeed the case that the direction of travel is being regressed as a consequence of the Bill, that needs to be identified. I am sure that all parties, including the coalition parties in the Government, would wish to deal with that situation in the context of this Bill. I do not think that there will be any division, in terms of policy, in relation to ambition here.
Unfortunately, when the change was made in 2010, it was realised that this was a “start”. My noble friend Lord McKenzie has identified, with his characteristic care in these matters, that there has already been a minor change in relation to this provision to improve it. Indeed, the coalition Government are to be congratulated: they have built on the work of the previous Government in pursuing the commitment of “no disadvantage” which is at the heart of the military covenant. In May 2011 they published the Armed Forces covenant. In paragraph 5 on page 7, under the heading “Scope of Covenant”, it states:
“Members of the Armed Forces community should have the same access to benefits as any UK citizen”.
Page 33 of the guidance document that accompanies the covenant, The Armed Forces Covenant: Today and Tomorrow, states that,
“the Government has no plans to make further adjustments”,
to the benefits rules. Importantly, however, it goes on to say that they will,
“keep this issue under review”.
Lord Freud
Let me take the two issues there. It is not necessarily the case that the MoD will have records on this, especially of an accompanying partner. That is clearly one of the issues. I think what was envisaged was exactly to look at this kind of thing and other benefits, which is exactly what we are doing. We are, as I say, treating it very seriously, but that is not the same as being able to say that there is a ready solution. We will come back to this issue.
Lord McKenzie of Luton
I am not sure whether the Minister confirmed that, whatever happens with the impact of this amendment, there is no suggestion that the existing arrangements both in respect of the crediting and the easement of the first contribution condition are not going to continue post-April 2016.
Lord Freud
I am pleased to confirm that the crediting and the easement will continue post-2016.
Baroness Donaghy (Lab)
I support my noble friends Lady Turner and Lord Whitty. The pension letter that I receive reads a bit like a history book. Having completed the 40 years, I have a bit of graduated pension, some SERPS and some S2P. Obviously it all adds up penny by penny but, as I said at Second Reading, one of my concerns is that simplicity is not of itself the best objective. If the amount is set too low, the middle earners will not buy in to the new system. Any system that does not have a buy-in from the middle earners will, in the future, give rise to enormous political pressure from those people for some form of opting out, which I do not believe anyone in this room wants.
When we looked at all the charts at the briefing, we found the crossover point—which I think was in about 2040—before people start losing out. The discussion that took place on Monday about net versus gross may well place that crossover point a lot earlier, and people will see that they are going to lose out much earlier. They will then make a judgment about whether this flat rate is any good and, again, either there will be pressure to opt out or there will be pressure—dare I say it?—for SERPS, graduated pensions or S2P in about 20 to 30 years’ time. Therefore, this gives rise to very important issues.
I know that we are going to have another discussion about net versus gross when we come to later amendments, but I want to make the point that this is not a straightforward issue. I realise that there is cross-party consent about the flat rate but I am slightly sceptical about its long-term holding, although the Minister has said very confidently that it will last for more than 10 years. I hope that he is right, because the last thing I want to see is Governments tinkering with this. As I said, I do not want my grandchildren to have a history lesson in 40 years’ time in which they are reading about the different names for the pension.
Lord McKenzie of Luton
My Lords, perhaps I may raise a point about the level of the single-tier pension, and couple it with a reference to passported benefits in the impact assessment. I looked at the assessment again this morning and there was a point that I had not identified, or did not understand before. This is to do with the interaction with the guarantee credit. This passage is about passported benefits, but it says:
“Receipt of Guarantee Credit passports pensioners to the full amount of Housing Benefit and Council Tax Benefit, if the pensioner is eligible for these benefits. There is little reduction in Guarantee Credit eligibility resulting from the single tier”—
about 1%. I thought that the whole thrust of this simplicity as a base for people to be able to make judgments about saving was that, in a sense, it floated people at a level which was above the guarantee credit. Here we are saying that only 1% of people who get STP will not be affected by guarantee credit in the future. Can the Minister explain that to me, please?
Lord Browne of Ladyton
My Lords, by tabling and moving these two amendments my noble friends have done the Committee in general and the Minister in particular a favour by creating an opportunity for him to expand on what his right honourable friend the Pensions Minister was able to tell the House of Commons about Clause 3. Despite the fact that my noble friend Lady Turner’s amendment is to Clause 2, I think that most of the issues raised can be dealt with within the context of Clause 3.
The provisions of Clause 3 set out a mechanism for calculating the full rate and the reduced rate of the single-tier pension for those whose contribution record commences post 6 April 2016. As we have already established, that does not actually set out in monetary terms the full rate; and as much of Monday’s debate made clear, that is at the root of some nervousness, not to say anxiety—or, on the other side, a possibly optimistic expectation—on the part of future pensioners, a state which, rightly, we anticipate will heighten as we approach these provisions’ implementation date.
Many are concerned as to what the single rate will be, whether they will be worse off as a consequence of change versus their expectations of the continuation of the status quo, and whether the actual rate will keep the new single-tier pension rate above the level of the pension credit sufficiently for it to prove an incentive to save, which is the relevance of my noble friend Lord McKenzie’s point, based on his characteristically forensic examination of the paperwork that is before us, and picking up this key point which instructed much of the debate in the House of Commons on these matters: the degree to which a prime objective of this policy—that is, to reduce in the longer term dependence on means-testing—will in fact be achieved by the full implementation. In addition, people need some predictability of future pension arrangements to enable them to make appropriate decisions to prepare for their retirement, confident that they will live up to society’s expectations of them now and avoid financial difficulties in life and a life of poverty. My noble friend Lord Whitty described the central issue as whether there could be certainty that this figure would not disappoint people’s expectation to such a point that they would fail to support the policy. By the device of these amendments, my noble friends have created an opportunity for the Minister to engage with these challenges.
Lord Freud
My Lords, the amendments relate to the single-tier pension. I have to confirm that the noble Lord, Lord Whitty, is in a better place, but I think we all knew that. I covered quite a lot of this in detail on Monday, so I will keep my comments relatively brief.
The amendments describe a minimum entitlement at a level broadly equivalent to the state pension entitlement that a person with 40 qualifying years could receive under the current scheme through their basic state pension and the additional state pension. For someone on low earnings, that equates to around £180 a week. That is the question that the noble Lord, Lord Browne, was seeking an answer to.
I fully appreciate the sentiment behind wanting to set the rate higher than the illustrative rate of £144, which is from last year's effective equivalent rate. Indeed, under the Bill, future Governments will be free to make above-earnings ad hoc increases in the light of economic conditions at the time, but setting a starting rate that cannot be afforded within the current spending projections would instead force the hand of future Governments, siphoning off greater and greater amounts of GDP into pensions spending. Setting a minimum starting level of £180 a week would add a further £12 billion in real terms to the single-tier costs by 2030—that is a per annum figure. Over the longer term, it would increase annual pension expenditure by another two percentage points of GDP in 2060 and squeeze out other spending pressures from an ageing society.
Sustainability is a core principle of the reforms. Our proposals work within projected expenditure on the current system, and our current modelling, including the illustrative start rate of £144, stays within 1% of current expenditure until the late 2030s.
During Second Reading, much was made of the consensus following the Pensions Commission report, which recommended that the state move away from providing earnings-related pensions. I was pleased to see that the noble Baroness, Lady Donaghy, had moved her scepticism out from 10 years to 30 years in the space of a few weeks, so there is hope that we may move her to the 100-year objective. To this end, under previous reforms, the earnings-relation provided by the additional state pension was effectively being squeezed out of the system, moving over time to a flat-rate state pension but, as many respondents to the Green Paper pointed out, that was not doing enough to support private saving and underpin automatic enrolment.
I have said this before, so I will go on record twice on this. These reforms are not about increasing pensions expenditure. They are not about reducing it. They are about spending the money differently, so that we can move to a flat-rate pension quickly to tackle an urgent problem of undersaving.
To respond to the pointed question of the noble Lord, Lord McKenzie, about why the single tier does not lift many clear of the guarantee credit, that is largely because many people on the guarantee credit have a higher standard minimum guarantee. About 37% are entitled to one or more additional amounts—for instance, for disability—and we do not want to remove those additional amounts.
Lord McKenzie of Luton
I understand that point, but what does that do to the argument that this is all about having a very clear platform so that people know that it will pay to save and that they will be above means-tested benefit levels? On the basis of this information and what the Minister just said, 99% of people who will get STP will still be eligible for the guarantee credit. Indeed, annexe C to the impact assessment states that total spending on the guarantee credit and the savings credit will actually go up by the end of the period in the tabulation. That does not make sense to me. I understand that it is the additions that mean that guarantee credit is above the level of STP, but that seems totally to undermine the whole thrust of the rationale of the Bill.
Lord Freud
Despite the guarantee credit not changing a lot, there is roughly a halving of the overall reliance on means-tested benefits, so there is a move, but I acknowledge that it is not by any means a complete elimination of the use of means-tested benefits.
Lord McKenzie of Luton
I hesitate to follow those two powerful speeches, but I wanted to ask the Minister a question around RTI. It is understood that, so long as an employer has a PAYE system, RTI requires reporting of all earnings whether or not the individuals are earning each week at a rate in excess of the LEL. That would not apply to an employer where all employees were below the threshold and nobody was issued with a tax code. We are now in a position whereby, at least in theory, HMRC has within its system details of earnings per paid period of each employee with each employer. Even if that is not the basis of a calculation, it would at least provide a basis on which individual claims might be verified. That seems a potential change that ought to help with this important issue.
Baroness Dean of Thornton-le-Fylde
My Lords, I shall not detain the Committee long except to give my support to this. It is quite interesting that the changes that HMRC has carried out actually help this particular argument. The situation as it stands is completely counterintuitive to what the Government are trying to achieve, which is that we all save while we are working so that when we retire we have built up a state pension. If people do not have a state pension, they will be reliant on welfare benefits, or whatever the Government of the day decide. So it is a matter of independence.
My noble friend Lady Drake is so right: women find it offensive that they are excluded from contributing when they are able to towards their own pension. I said “women” deliberately, because the nature of work today will change that argument. Since the recession, we have seen more and more men also working part time. So what has been traditionally an argument on equality for women is being diluted by the nature of work in the country today. The argument that we are putting forward is not just for women—it is for citizens who may, by force of circumstance or choice, have more than one job.
The Inland Revenue has no problem in finding solutions to quite complex issues when it comes to collecting tax, and this goes hand in hand with that. Citing the excuse or reason that it is very complex and impossible to do is wearing very thin. Given the remit to do it, I am sure that the Revenue would have to find a way through. The issue is not going to go away; it will be raised at every opportunity, and it is one that runs four-square with what the Bill is trying to achieve, which is for us all to contribute to a state pension while we are working.
Lord Freud
I accept that. This is for low-paid households. That is what universal credit is. There will be some people in higher paid households who will have to take a view on how to make their arrangements through voluntary NICs or whatever. I accept that point.
Lord McKenzie of Luton
The Minister proffers universal credit as a solution, but as I understand it, universal credit will generate only a class 3 credit, not a class 1 credit. Therefore, it would help towards pension entitlement but not to contributory JSA or ESA.
Lord Freud
The noble Lord is exactly right. It goes to the point of what we are discussing. It would get you the pension entitlement and the bereavement benefit entitlement but not the contributory entitlements. The current arrangements for crediting a person with national insurance contributions are comprehensive. They cover all the main reasons why someone may not be working, or working only a small number of hours, such as ill health and unemployment, or where people are caring for a child aged nought to 12 or for someone with a disability. They also cover those currently entitled to working tax credit, and we have recently introduced credits to protect the contribution record of working-age grandparents looking after their grandchildren.
Those who fall outside the scope of the crediting arrangements and who can afford to do so—higher paid households are clearly in that category—can make payments on a voluntary basis. The current rate of voluntary class 3 national insurance contribution is a very fair price at £13.55 a week, or £705 a year. The person could recoup the cost within four years of receiving basic state pension benefits.
Using this approach to establish whether a person’s combined earnings exceed the lower earnings limit would require the collation of tax and contribution returns for employees with multiple jobs. That clearly would place a burden on business and require HMRC to develop complicated IT which would take time and money and benefit a small number of people. We would also need to consider collecting the employer’s national insurance contributions in proportion to the earnings in each job, which would add considerable administrative complexity.
The question that one needs to consider is whether those who have aggregate earnings above the primary threshold should be credited or should pay a discount rate of national insurance. That is a question I address to the noble Baroness. It could be seen as quite unfair on someone who is earning just over the threshold in one job and has to pay full national insurance, whereas someone else just below might be credited.
“( ) Within 12 months of the passing of this Act the Secretary of State shall report to Parliament on a strategy to improve the take-up of National Insurance Credits.”
Lord McKenzie of Luton
This amendment moves us into somewhat gentler waters. The amendment calls for a strategy to improve take-up of national insurance credits. It is by way of a probing amendment, seeking clarity on what is planned to encourage greater take-up. In a sense, it is a subset of the debate that we had on Monday about communications in general, which we have touched on today. We had a very thorough note from the Bill team, which confirms that the NI crediting system is comprehensive but also highly complicated. There is a low level of awareness of some credits, carer’s credits in particular, the very aim of which is to protect state pension provision for individuals who take time out of paid work due to caring responsibilities. Of course, the issue especially affects women.
The importance of ensuring take-up of maximum credits is increased under S2P because of the increase from 30 to 35 years in the number of years required for a full state pension and the 10 years’ minimum threshold. This is a reversal of the position whereby the reduction in qualifying years from 44 and 39 to 30 meant that the gaps were not so important. The increase in the number of years to 35 has in part rebalanced that, although the value of credit in the new system would be higher.
We are promised a review of the national insurance recording and operating systems and an HMRC review of deficiency notices. Perhaps the Minister will say a little more about that. There was reference to deficiency notices being suspended for those due to retire on or after 6 April 2016, and the Minister might like to take the opportunity to clarify that. Some awards of credits, of course, are automatic; some have to be claimed, including class 3 credits for foster carers or kinship carers and those caring but not receiving carer’s allowance, and class 1 credits for maternity, paternity or adoption pay, for non-governmental sponsored training, jury service, for those wrongly imprisoned and, as we discussed earlier, for Armed Forces spouses or civil partners. There is also a new issue for those with high income who would be excluded from claiming child benefit.
Our briefing note identifies the carer’s credit as achieving take-up significantly lower than the 2007 legislation anticipated. We acknowledge that those in receipt of universal credit will automatically get a class 3 credit and that this would cover some of these circumstances. However, universal credit will not be fully in place for a number of years and, in any event, there will be some credits which will be claimable. Crediting entitlements has come a long way in recent years, and universal credit looks to improve the position further, but some are still missing out and this needs to be addressed.
I will revert to one point that I touched upon earlier. As I understand it, the credit for universal credit is a class 3 credit and therefore is focused on pension and bereavement entitlements only. Given that employment and support allowance, jobseeker’s allowance and working tax credit are at the moment a class 1 credit—obviously those benefits will be subsumed within universal credit—it seems that we are worsening the position of some groups. I will be interested in the Minister’s response. The purpose is to give the Minister a chance to focus on those who have to claim where take-up is not as it should be and to see what can be done. I beg to move.
Baroness Sherlock
My Lords, I thank my noble friend Lord McKenzie for giving us the opportunity to touch on this issue and for setting out the challenges in his characteristically clear and well informed style. I shall be very interested to hear what the Minister has to say in response.
I would be grateful if the Minister would answer the following questions. First, will he clarify whether all the routes to gaining national insurance credits which are currently available will continue to be available in the new system on the same terms? Secondly, if not, or if there is any doubt about that, have the Government consulted on changes or will they commit to a public consultation before making any changes? I include within that any changes that are implied or necessitated by the switch to the new pension system or the universal credit system.
My noble friend raised an issue concerning the Government’s strategy. In particular, I am concerned about the categories of people who have actively to make claims for credits and will not get them automatically, even under universal credit. I think he cited all the ones that I have been able to identify, plus child benefit, which I had not noted. Will the Minister tell us whether the Government’s strategy will include elements targeted at those categories of person? Within that, will they consider how they engage with direct routes, rather than just generalised campaigns? My noble friend Lord Browne mentioned that the Armed Forces look for ways to make sure that members of the forces community can take up those credits. Will the Government consider other routes to that—for example, through adoption services or the ways in which the Government already communicate with those in receipt of maternity, paternity, adoption or sick pay? Is the department in discussions with other government departments about the way to take this forward?
My noble friend Lord McKenzie also mentioned take-up. It would be helpful if the Government could report on take-up now and under the new system and tell us how they will monitor that and report to Parliament on it. Finally, will the Minister tell the Committee whether the Government have considered ways in which people might actively be supported in claiming credits for past years, which might now become important, where they would not have been previously?
Lord McKenzie of Luton
Before I do, will the Minister comment on the issue of universal credit being just a class 3 credit, whereas some of the benefits that will be subsumed into universal credit—ESA, JSA and the working tax credit—are class 1 credits? Is that not a diminution in the crediting opportunity?
Lord Freud
JSA is, I think, already a class 3, is it not? I have a comprehensive list of national insurance credits. Rather than running through them all, perhaps I should just forward it to the noble Lord and the Committee to make the point.
Lord McKenzie of Luton
I am grateful to the Minister. I think that I have the list, which probably came from the same source as his did. I was interested in the rationale for the universal credit just being a class 3 credit, because that is a change for somebody who would previously have been on JSA or ESA in particular. Has any assessment been made of the extent to which people are likely to lose out on their contributory JSA or ESA as a consequence of that?
Lord Freud
The principle is not to allow access to contributory benefits through claiming another benefit. That is fairly logical, if you think about it. If you were purely claiming unemployment benefits and you were on them for a year, you would automatically go into contributory unemployment. That is the logic that we are pursuing when we move to class 3 in universal credit.
Lord McKenzie of Luton
My Lords, I thank the Minister for his reply and my noble friend Lady Sherlock for her questions. On the latter point, I am not sure that the Minister specifically dealt with whether there would be individual strategies focused on those types of people whom we particularly need to reach, such as carers. On the issue that was just raised about not accessing the benefits through other benefits, the point about contributory ESA and contributory JSA, as I understand it, is that you cannot achieve them only by credits; there has to be a payment arrangement as well to qualify. If the credit is changed, that makes it potentially more difficult than it is at the moment. The Minister mentioned the earnings factor credits but, as I understand it, those disappear because S2P obviously disappears as well in the new regime.
I am comforted by the fact that deficiency notices, perhaps in their new form, are to be reactivated once we get to the stage where the April 2016 data are available, which is helpful. I suppose that, broadly, one accepts that there is going to be a big communications strategy. I see that my noble friend Lady Sherlock is poised to ask a question, so I will give her that opportunity.
Baroness Sherlock
Before my noble friend withdraws his amendment, the reason I asked the Minister generally at the beginning about whether all the currently available routes to gaining NI credits would continue on the same terms was precisely to try to draw out the kind of things that my noble friend has been highlighting. If the Minister finds anything else which could possibly fall under that category when he goes back and consults more with his officials, perhaps he might write to us.
Lord McKenzie of Luton
I am grateful to my noble friend and to the Minister. I am happy to read the record on this but, in the mean time, I beg leave to withdraw the amendment.
“( ) Where the state pension is uprated other than by reference to the triple lock for any period to 6 April 2020, the regulations shall require a calculation of the difference between the actual uprating and what uprating by the triple lock on a cumulative basis would have provided.
Lord McKenzie of Luton
My Lords, as the Minister will have spotted, this is a device to continue the debate on the level of the STP and the associated costs and savings in the Bill. The Bill assumes that STP, but not any projected payments, will be uprated by not less than earnings but the impact assessment is predicated on the triple lock applying, with uprating by the higher of earnings, CPI or 2.5%. Looking long term, these two bases of uprating produce materially different results, as illustrated in annexe B to the impact assessment.
Overall, we know that these reforms will reduce the overall percentage of GDP going to pensioner benefits. As we discussed briefly on Monday, by 2060 the share of GDP, compared to the current position, would fall by 0.6% if uprated by the triple lock but by 1.3% if uprating was just by earnings. Over the long term, the cumulative effect of uprating by earnings rather than the triple lock would lead to STP being 10% lower than if uprated by earnings. This is not a small difference and although the long term— 2060—may seem a long way away, it is the scenario which those in the labour market today will face. Annexe C shows projected expenditure in total support for pensioners at various points over the period to 2060. It shows, in 2013-14 prices, that state pensions in total will be £30 billion less than they would have been under current arrangements. This is why we need to keep an eye on how things are uprated.
One message we take from all this is that the Treasury has undoubtedly taken advantage of a progressive proposal—the STP—to claw back support from pensioners where it can. The figures just discussed do not, I think, include amounts being withdrawn from the systems because of the introduction of the minimum qualifying period, now confirmed at 10 years and saving some £650 million a year, nor the changes to the rules on deferrals, with savings rising to something like £300 million a year. We will obviously come on to debate those in due course. We do not have clarity on the savings that may be made from restrictions on passporting although, as we discussed earlier, these may be limited. None of these figures take account of the increases in national insurance which the Treasury will garner: some £5 billion in 2016, £4.6 billion in 2020 and £3.7 billion by 2030, which are very significant sums.
We heard much praise on Monday for the triple lock and we should acknowledge its significance. However, my noble friend Lady Sherlock explained previously why our priorities had to be elsewhere—to tackle the legacy of pensioner poverty. Given the manner in which the Treasury has clawed back money where it can, it is reasonable for us to at least ask about the Government’s aspirations for the triple lock without, of course, conceding the likelihood of them being in a position to implement those aspirations. I beg to move.
Lord Freud
My Lords, the engagement of the guaranteed minimum 2.5% uplift in April this year saw the basic state pension reach a higher share of average earnings than at any time since 1992. Next year, in 2014-15, the basic state pension will be more than £8 a week higher than if it had been uprated by earnings alone in this Parliament.
This Government believe that, like the basic state pension, the single-tier pension should be uprated by at least earnings to ensure that it retains its value compared to wages, but there is flexibility in legislation for above-earnings increases. I therefore reassure the noble Lord, Lord McKenzie, that the triple lock could be used for the uprating of the single-tier pension, as it has been in this Parliament for the uprating of the basic state pension.
Clearly, the noble Lord would not—and the noble Baroness, Lady Sherlock, was generous enough not to—expect me to commit future Governments for the next 47 years. Looking back 47 years would take us back to 1966. That was a long time ago. Was it the summer of love? Perhaps that was 1967, but in any case it takes us back a long way. Therefore, I do not think that one could commit any Government to anything, and I am sure that there will be lots of different Governments over the next 47 years. However, when you look at the proportion of GDP taken up on the assumption of a triple lock, it is possible that Governments will want to stick to it. The Office for Budget Responsibility adjusts for the triple lock by applying a 0.3 of a percentage point premium to the annual uprating of the basic state pension over and above the earnings rate.
Clearly, the triple lock has insulated pensioners from periods when the inflation rate has been relatively high, and has been particularly important in the unusually uncertain economic climate that we have seen in recent years. The Government do not want to constrain future Administrations by placing a requirement to uprate by the triple lock in primary legislation. It must be up to future Governments to decide, based on their annual reviews, whether uprating above the minimum of earnings is applied.
In response to the noble Lord’s question, the expenditure figures include the impact of the minimum qualifying period and deferrals, but the chart in chapter 3 of the impact assessment—there is a loser’s chart there —does not. No savings are assumed from passporting.
On the provisional outcomes on the basis of earnings upratings, the White Paper set out the assumption that the triple lock would be extended until 2060, but we have nevertheless demonstrated the impact on earnings upratings on expenditure in our impact assessment. That is in chart B2 in the impact assessment, which shows that the triple lock uprating has a progressively greater impact on expenditure, and therefore pensioners’ incomes, over time.
The annual uprating process for the state pension is transparent, based on a review made by the Secretary of State with reference to the general level of earnings and the overall economic situation. The indices for earnings and prices are published by the Office for National Statistics before the uprating decision is announced and are readily available. As a result, we see no advantage in committing in legislation to providing a relatively straightforward calculation. I therefore ask the noble Lord to withdraw his amendment.
Lord McKenzie of Luton
My Lords, I am grateful to the Minister for that reply. I did not expect him to announce that it was going to be triple lock for the next 47 years; my noble friend Lady Sherlock made our position clear.
There is nothing wrong in looking back 47 years to 1966. England won the World Cup. Harold Wilson was Prime Minister and in his ascendancy. Those were halcyon days and well worth reflecting on.
As I said, the amendment was just a peg to get a debate to highlight that the Treasury is withdrawing quite a lot from the S2P. To an extent, we accept that that is a progressive measure. The Treasury has been chipping away at various bits and I have by no means listed them all. We will probably have another go at listing them in the interim, but in the mean time, I beg leave to withdraw the amendment.
Lord Flight (Con)
My Lords, these amendments raise some issues that relate back to the previous Pensions Bill and, at least as far as I was concerned, some not very clearly answered questions about the potential size that the cash-flow deficit would grow to with regard to pay-as-you-go pensions.
First, my understanding is that, whether it is a pay-as-you-go public sector scheme or a funded public sector scheme, with the ending of contracted-out contributions, the money that the schemes will no longer receive will go towards financing part of the new state pension. Therefore, it has gone off to one box for that purpose. So we are left with pay-as-you-go public sector schemes and the impact that there is on them, and financed public sector schemes, such as local government schemes. My understanding is that, with pay-as-you-go public sector schemes, the money is no longer going to come in from contracting out and therefore the impact will be on the extent of cash-flow deficit going forward relating to public sector schemes. I should be interested to know the aggregate amount that pay-as-you-go public sector schemes will lose per annum as a result of no longer receiving the contracted-out contributions.
I think that there was some discussion during the passage of the Public Service Pensions Bill about the extent of the potential cash-flow deficit. Mr Michael Johnson and I calculated that it could be as large as £25 billion on the basis of including an estimate of the loss of contracted-out contributions. I think that the Government argued that it was not going to be as large as that but I could never quite get my head round the figures.
With regard to contributory public sector schemes, such as local government schemes—which is what these amendments are particularly concerned with—it will automatically become the financial liability of local government to make up the loss of the contracted-out contributions. How is that going to be financed? Not just in terms of what it might mean for a particular local authority, what is the extent of the aggregate cost to public sector schemes which are financed, and what is the average proportion that local government schemes, in particular, will have to make good as a result of the loss of contracting out?
I do not expect the Minister to be able to answer those questions with figures off the cuff, but it is desirable that they should be known and understood. Indeed, the impact on funded local government schemes may be very substantial, implying either significant increases in local council tax or the need for yet further substantial reductions in local government expenditure to finance the loss of contracting out.
Lord McKenzie of Luton
My Lords, briefly, I commend my noble friend Lord Whitty and the noble Lord, Lord German, on trying to focus on solutions to deal with what seems to be a major problem, particularly in relation to local authorities. My noble friend Lord Whitty said that the annual cost of losing the 3.4% rebate is in the order of £700 million a year. Today, we had the local government finance settlement, which reinforced what was announced in the spending round: a further real terms cut of 2.3% in overall local government expenditure. Sir Merrick Cockell, who is a Conservative and the chairman of the Local Government Association, said that local authorities will have lost one-third of their budget by 2015. He said,
“This is the calm before the storm. We do not know how big the storm will be or how long it will last”.
The Audit Commission last year found that 29% of councils showed some form of financial stress. Council tax increases to cover this, even if they were contemplated at the level that the noble Lord suggested, simply are not on because of the need to have a referendum to go beyond a very small increase. Do the Government see this as a new burden which central government is placing on local authorities and therefore a burden which it should it meet?
Lord Browne of Ladyton
My Lords, I am content to join in commending my noble friend Lord Whitty and other noble Lords for bringing and developing this argument. They will forgive me if I do not join in the nostalgia for 1966. The removal of contracting out from April 2016 has significant implications for all occupational pension schemes. I shall make my speech short, given the time. It is bad enough to be between somebody and their dinner; it is impossible to be between somebody and Christmas.
It is clear just how significant are the figures quoted by the noble Lord, Lord German. I did not immediately recognise them, but they are in the same ball park as the figure, which I understand to be the Government’s figure, which suggest in excess of £5 billion a year going to the Treasury in extra NI contributions from 2016 when the new state pension scheme begins. Because of the scale of public service pension schemes, the lion’s share of that increase will come from them. It is far from clear, in the complexity of the Bill, how the increased NI contributions in the public sector can be met. Not surprisingly, those who have responsibility for these schemes—bearing in mind that they have just, in many cases, entered into agreements to reform them—are seriously concerned about the impact these changes will have on local authorities, health services, fire and rescue services and policing.
I note that in Committee in the Commons, Oliver Colvile correctly also put the Armed Forces Pension Scheme in the frame in the context of public service pension schemes. If that is correct, if the Minister is minded to accept Amendment 42, the definition of public service pension scheme will include the Armed Forces, which will answer more clearly the question asked by the noble Lord, Lord German, about what is a public service pension scheme. Rightly, Oliver Colvile was concerned that the defence budget should be spent on defending our country and should not be directed back to the Treasury. If it encourages the Minister to engage with this issue in a positive way, I promise not to tell noble and gallant Members of your Lordships’ House that this issue may impinge on that aspect of public policy. If he considers that, I will keep it quiet in the mean time until we see whether we can make some progress on this issue.
The Local Government Association has been in touch with all of us and has advised us that it supports my noble friend Lord Whitty’s amendments, which defer the end of contracting out for public service pension schemes until the tax year beginning 2018, and require the Government to credit public service pension schemes with amounts equivalent to the money lost through the end of contracting out.
It is understandable why it supports them, because, in the absence of an alternative from the Government, the choices they face are extremely unpalatable. They include loss of services or increased council tax, for example, or, as we are advised, the certainty that low-paid workers will leave the schemes or that settlements, including the settlement of the public service pension scheme, would have to be renegotiated. I am also told by those who know that it will mean the renegotiation of a lot of contracts in relation to privatised services, because assumptions were made about commitments in relation to pensions in the TUPE environment that no longer stand true.
It is not unreasonable in those circumstances to ask the Government how they will resolve the additional expenses and how they expect those who run public service schemes to deal with the increased cost and, for that matter, how they expect the individuals affected to deal with the increased costs. Will the Minister address the advice that we have been given and the concerns of those who run these schemes? Does he accept that there will be a perverse incentive unless this is resolved and that low-paid workers may decide to opt out of their public sector pension schemes? Does he accept that there is genuine worry that this will undermine agreements to reform that have already been reached? Does he accept that there is genuine concern that this will impact on existing contracts for provision of services by the private sector?
Benefits: Sanctions
Lord McKenzie of Luton Excerpts(10 years, 8 months ago)
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Lord McKenzie of Luton
To ask Her Majesty’s Government what has been the impact of the application of the new sanctions regime for jobseeker’s allowance and employment and support allowance claimants.
The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud) (Con)
The new sanctions regime was introduced in jobseeker’s allowance from 22 October 2012 and in employment and support allowance from 3 December 2012. We have released statistics on the sanctions up to the end of June 2013. They show that there has been little change in the volume of sanctions since the introduction of the new regime. Matthew Oakley is conducting a review of how we operate the sanctions system and will report back in due course.
Lord McKenzie of Luton (Lab)
My Lords, I thank the Minister for that reply. It is not a matter of dispute that the social security system should involve rights and responsibilities, but I suggest that the recent, delayed data show a record number of sanctions, and raise the question of whether the sanctions are being fairly applied—particularly the JSA and ESA three-year sanctions. I ask the Minister particularly about the case of Reilly and Wilson v the Secretary of State. He will be aware that the Supreme Court dismissed the Government’s appeal and determined that the Government had a duty of fairness to provide enough information to jobseekers on an individual basis about available back-to-work schemes for them to make informed representations should they so choose. Will the Minister give an assurance that this is now happening, and that it is happening before the DWP seeks to apply the sanctions regime?
Lord Freud
My Lords, as part of the Jobseekers (Back to Work Schemes) Act we passed earlier this year, we are having a review, which is being run by Matthew Oakley. He is concentrating on precisely the issues of communication that the noble Lord raised.
Pensions Bill
Lord McKenzie of Luton Excerpts(10 years, 8 months ago)
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“( ) The Secretary of State shall ensure the timely provision of relevant data to persons who may become entitled to a state pension at a full, reduced or transitional rate.
( ) Relevant data shall include such information as will reasonably enable a person to be aware of state pension accrued at 6 April 2016, the basis of which it may be revalued and the number of further qualifying years, if any, required to achieve a full state pension.
( ) Such information shall be provided as soon as reasonably practicable after 6 April 2016 and from time to time thereafter.”
Lord McKenzie of Luton (Lab)
My Lords, this is a gentle, probing amendment designed to give some respite to the Minister and to explore further the details of what is planned about the nature and extent of the communication strategy envisaged for the introduction of the single-tier state pension. The noble Lord, Lord Kirkwood, touched on this, as did the Minister in responding to the first group of amendments.
We have been provided with a certain amount of information in the various briefing packs and we have had the opportunity to peruse the overarching strategy for communicating the reforms, which has been made available in the Library. I take this opportunity to commend the Bill team. We do not want to heap too much praise on them, as this is just the start of our proceedings, but I think that we have had some genuinely good information packs, which have helped. The problem with good information packs, of course, is that they generate additional queries, so forgive me if I pursue some of them.
One objective of the strategy is, rightly, to inform people about the impact of the reforms on their individual circumstances and the actions that they may take to improve them. That aspect is of particular relevance to the amendment. It seems to me that the state pension statement is to be the key way in which this communication is delivered, so the Minister may wish to comment on the statutory underpinning of such statements, if it exists, and on whether this might be improved.
Although the amendment focuses on STP, it does not negate the need to communicate to those who retire before 6 April 2016, especially in relation to the extended arrangements for paying voluntary NICs and the new class 3A NICs to improve state second pensions. I ask the Minister specifically what is planned in this regard. I suppose, given our earlier debates, that the key communication issue for those who retire before 6 April 2016 is why they are in a separate category, although I do not want to revisit the debate that we have just had.
Issues relating to the new class 3A have obviously not yet been fully developed and those who might be eligible are a definable group of all those who reach state pension age before 2016. The group that are particularly in need of information are those who are entitled to a state pension at the transitional rate. If they are to be encouraged to make rational savings decisions, such information as their foundation amount, any protected payments, the rebate derived amount where appropriate or any derived and inherited entitlement is key. Individuals should be made aware of how the revaluation of the various components is to work and they will need to be alerted to their potentially not meeting the minimum qualifying period, having fewer than 35 qualifying years, as well as not being able to add further to their STP.
It is understood that this information is still to flow via state pension statements, but following implementation of the STP it is not planned to make it proactively available, either as soon as the NIC information is available up to 5 April 2016 or otherwise. A post-implementation statement will be provided on demand and digitally but not otherwise, as I understand it.
A number of questions therefore arise. Can the Minister clarify precisely what is to happen between Royal Assent and in advance of implementation so far as state pension statements are concerned? Will these be made available proactively or will individuals have to ask for them? It is understood why a digital service is to be developed for post-implementation—that is to be welcomed—but there will be some for whom the digital approach will be difficult. That is surely the experience of universal credit. What other support will be available to these people? There is clearly some merit in being able to take stock of one’s state pension provision as close to 6 April 2016 as possible, so can the Minister say how long it is expected to be before the 2015-16 national insurance data will generally be available at individual level? How long does it take for that to filter through to the records?
Given more complex situations, how quickly is it envisaged that individuals will be informed of all their pension components, including the rebate-derived amounts, after 6 April 2016? What, if any, capacity will there be in the system for individuals to query, challenge or even appeal the details that they receive? We are told that there is not the capacity in the system to provide full details to everyone proactively—like the noble Lord, Lord Kirkwood, I think that there is a measure of concern about that. Just what is the capacity to provide such details for those who would likely be entitled to a state pension at the transitional rate? We are told that, post-implementation, state pension statements are to be provided on demand. Those who are clued up and digitally savvy will cope, but what monitoring will be undertaken to see what is happening to those who are not? What particular communication strategies are to be focused on the self-employed, who will be brought more fully into the system than hitherto?
Although the components of the calculation will generally be more straightforward for those who grow up entirely in the new system, they will still need information so that they can be reassured on their likely level of state pension income and the desirability of saving. Of course, some may enter the new system part way through their working life because, for example, they had been working abroad or had just decided to join the labour market. What in terms of communications is planned for those in this position? I accept that much of this will be work in progress, but I do not want to miss the opportunity to get an update on the latest position before we leave Committee. I beg to move.
Baroness Hollis of Heigham
My Lords, I want to comment very briefly. I declare an interest, which I know is relevant to this amendment, as a board member of the Pensions Advisory Service. TPAS has recently completed a survey of just under 1,000 women on their pensions which makes the point absolutely for my noble friend’s request for an information and communication strategy to go out to prospective pensioners and pensioners. Of that 1,000 women, 36% did not know when their state pension would be paid; 74% did not know how much they would receive; 57% did not know whether there was a shortfall in their NI record; 25% do not know that the age is likely to change again; 54% have made no changes to their retirement plans; 27% wonder whether they will have to work longer; and 76% do not expect to be financially comfortable in retirement. I have before me a lot of quotes, some of which I may choose to use later on. Those figures suggest how wilfully uninformed far too many women are about what will happen to them over the next couple of years. That evidence from a TPAS sample substantiates my noble friend’s points.
Lord Freud
The cost of providing it to absolutely everyone in the country would be large and, in capacity terms, would be too great to be able to cover everyone on that basis.
Lord McKenzie of Luton
If there were increased demand because of the changes that are taking place in the broader communications strategy, what is the capacity to deliver individualised statements? How many could the department cope with?
Lord Freud
One of the issues here is that we will need to talk, or write, to people who cannot get the information in the digital way that we are planning as our primary way of communicating. Clearly we will be in a position to do that but, until we have the service up and running, it is difficult to estimate what the underlying demand might be.
Lord McKenzie of Luton
As ever, I am grateful to the Minister for his full reply. I think that I have ended up slightly more concerned than when I started on this amendment. I also thank all noble Lords who have participated in this debate. First, specifically the Minister referred to the opportunity to challenge a statement to see whether the information was right, which is not routinely done at the moment. I can understand that. Is there technically a right of appeal or does that arise only when the pension falls due for payment?
I do not think that we got an answer to the point made by my noble friend Lady Sherlock as regards at what point someone would receive a communication. I think the answer to that is that it would be only at the point at which they asked for it. I can see that an educational policy, financial literacy, and all those issues dealt with by the noble Baroness, Lady Greengross, and the noble Lord, Lord German, are important and may give an enhanced understanding for people. I am trying to understand what would happen if there is no proactive approach. You could end up with very few people asking for a statement, and the percentage of people in the new system getting an early statement seems to be low. I still do not think that we have the answer to the question about the capacity of the department to respond to queries if there are more than the current 600,000 requested statements. I would have thought that there is at least some prospect of a bit of a flood of inquiries at least at the start when people seek to understand the new position, particularly if the broader education approach is to help and encourage people to understand what their potential provision will be in due course and, therefore, what additional saving they might, if they are able, undertake.
I am grateful to my noble friend Lady Hollis, as ever, about some very helpful data which really underlines the importance of getting these communications right. The noble Lord, Lord German, made the point that this is not just for people who are retired or just about to retire. This is a broader issue about helping young people as well to understand the importance of saving. I had not heard the figure of the 2 million people who auto-enrolled. I am grateful for that. It is a huge achievement and it is great to have it announced while sitting next to my noble friend who was so instrumental in getting that under way.
Obviously, I will withdraw this probing amendment. I hope that the Minister may be able to fill in some of the gaps but I am still left very uncertain as to how most people will get that information expeditiously. I would have thought that most would want it.
Baroness Hollis of Heigham
Will the Minister think about the possibility of, say, when someone hits the age of 50, a pension statement or whatever being sent out? The whole push of the Government’s programme has been that people should have enough time to be able to make good any shortfall in their record.
They cannot do it six months before they are due to retire. If a statement was sent at 50 and then the usual one was sent a year before retirement when people may or may not be in a position to consider voluntary NICs or something like that, even that would be helpful if a statement cannot be sent out each and every year. I take the point about cost and effort but people need some snapshots so that they know what the position is as they go along at the ages of 50, 55, 60, 64 or whatever. Otherwise, we will find that a hell of a lot of people are going to remain on pension credit and two legacy systems will be running for 40 years.
Lord McKenzie of Luton
My Lords, before I withdraw the amendment, can I check on two points? The Minister said that it would be possible to go to the previous year’s statement on the normal basis by 6 April 2016. Would that statement include any estimate of what life would be like under STP or would it just be on the old basis? I accept entirely the Government’s intent to communicate effectively on this. It would be crazy to develop a policy like this and then let it fall because there had been inadequate communication, so there is not a challenge on the Government’s intent here. However, how will they spot the difference between those who are digitally able and those who are not? How long will it take for them to realise that there is a group of people here or there who have not accessed the system and that they therefore need to do something else?
Lord Freud
I shall take the noble Lord’s second question first. We realise that some people today are not necessarily digitally able or on the net, but this is the way of the future and we are looking to increase digital take-up and access and a lot of investment is going into that. It is interesting that the divide currently seems to be at age 45, with people pre-45 tending to be relatively familiar and people post-45 tending to be less so—this tells us something about the nervousness in Lords committees. However, clearly, as the system moves ahead over the decades, more and more people will take digital involvement for granted. For those who cannot today, we will need to supply other means of support and we have said that we will do that.
Statements before April 2016 will contain information to help people understand what the amount stated will mean if they reach state pension age after 2016—in other words, what the foundation amount that they could expect represents.
Lord McKenzie of Luton
I am grateful for those further clarifications. I have just one final point—I promise no more. Is there a statutory underpinning for state pension statements? If there is not, should there be one?
Lord Freud
I complained about razor blades before. I am pleased to be able to inform the noble Lord that, no, there is not a statutory underpinning. I am not utterly sure as to why there should be one and whether that is a loss to the system.
I should be very interested if the noble Lord can explain why there should be one and to think about that.
Lord McKenzie of Luton
Perhaps I could write to the noble Lord. It just seems to me that one would have assumed that the Government were authorising some formal way to produce this information, or have an obligation to. Perhaps that is the difference here: the more we move to a statutory basis, it imposes a stricter obligation on the Government. We might reflect on that, but we have cantered around the issue, so I withdraw the razor blade and beg leave to withdraw the amendment.
Baroness Hollis of Heigham
I am sure that the Minister will understand our need for clarity on some of these issues—whether it is net or gross; mean, median or average and so on—because they completely reshape the statistical base on which some of us are trying to base some of our contributions. The Minister is patient in taking our comments on this point, but we really need to know and we have not always had the statistics in ways that have allowed us to read across in a straightforward and simple form. This is not the fault of the Box; it is simply because that is the way in which, classically, statistics have been collected.
I am grateful to my noble friend Lady Drake, who emphasised both the need to deliver the Green Paper promises of a substantial headspace between the pension credit regime and the new state pension, and the way in which this is becoming narrowed. As my noble friend Lady Sherlock said, it is becoming very hard to calculate. I was checking back on what the Select Committee on Work and Pensions actually called for, and I really do not understand why the Minister cannot do this for us. The committee said in paragraph 34:
“There is no certainty about how long the triple lock will be in place and we believe that it is important that there is as much clear water as possible between the rate of the STP and that of Pension Credit. There appears to be scope for a bigger differential (either at the outset or over time) given the increased National Insurance revenue that the Government will derive from the ending of contracting-out and the overall long-term savings which will be made on”,
pension credit,
“expenditure as a result of the introduction of the STP. We therefore recommend”—
and I do not understand why the Minister cannot go along with this—
“that, when the Bill is before Parliament in the summer”—
that is, in the prior discussions at the other end—
“the Government publishes an analysis of (a) the cost of setting the STP rate at a range of higher levels; and (b) the level at which the STP could be funded if the additional NI revenue was used for this purpose”.
The Minister says that the whole of this project has to be cost-neutral. Yes, to an extent, but of course it is cost-neutral within a growing demographic population. When he talks about it being cost-neutral, I am never sure how much he is looking at the rise in life expectancy and so on and therefore at the number of claimants coming through, particularly for the post-war bulge. After all, the GDP figures show a drop for this group in going to pensions of something like 8.9%—I think I am right; I am doing this from memory—or about 8.23%. That is a significant drop in projected GDP going to a cohort that will actually have increased in number. When the Government say that this has to be cost-neutral, therefore, it seems to me that in practice, unless I have misunderstood the Minister, that could be achieved only by allowing the real value of the new state pension to fall simultaneously with the real value of pension credit. Perhaps he might like to write to us to confirm whether that is the case. However, as I have said, I do not understand why he cannot respond to what seems to be an entirely appropriate piece of analysis that was recommended by the Select Committee. Perhaps he could write to us and explain why it cannot be done.
Lord McKenzie of Luton
Before my noble friend sits down, does she agree that the drop in the share of GDP would have been even greater had the uprating been by way of earnings rather than by the triple lock? It is maintained even at that 0.6% drop because of the triple lock assumption, which is far from guaranteed, as I understand it.
Baroness Hollis of Heigham
My noble friend is exactly right and I thank him for that. Perhaps the Minister could write to us on why this is not possible. Why we cannot follow previous legislation in doing pension Bills, I do not understand.
Lord Freud
My Lords, I thought that I had just said that we had made that concession a general one in practice.
Lord McKenzie of Luton
My Lords, I wonder if I could help my noble friend Lady Hollis here, although on this issue I am not sure why I should, as I was the Minister dealing with this and she was on the Back Benches giving me a hard time. My recollection, although I have not gone back over the detail, is that there was the opportunity to buy back outside of the six years, but you had a limited period in which to do that. I have forgotten what the deadlines were and I do not know whether that time has expired now; maybe it has and we are therefore back to the usual six years, with the extension that the Minister has explained. There were two systems and there was a limited opportunity to go back—for any length of time, as I recall—and you had to go back within a fixed period of time.
Lord Freud
Without indulging in too much nostalgia, particularly as I was not present in 2008—or was not present here—that relaxation was because of the change from 39 qualifying years to 30. That was specifically introduced to exclude the cliff edge, and the concession was only for people reaching their state pension age before 2008. As I said, I do not think that we need to get over-nostalgic. As they move through into the new single-tier system, both before and afterwards, people now have a broad ability to purchase extensive voluntary national insurance contributions, and of course we are adding to that capability with the new class 3A voluntary contributions. Therefore, there will now be a substantial opportunity for people to buy state pension.
Pensions Bill
Lord McKenzie of Luton Excerpts(10 years, 8 months ago)
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Lord McKenzie of Luton (Lab)
My Lords, as my noble friend Lady Turner has just said, this is an important Bill which covers a major area of public policy: how we provide for and treat our citizens in retirement, the extent to which we expect them to make provision themselves through their lifetime and how we value contributions made otherwise than through formal work by way of caring or nurturing future generations. It is about the intergenerational bargain.
As a number of noble Lords have recognised, despite major and progressive changes to the pension environment in recent years, we cannot claim that the state pension construct has yet reached steady state. We know that the proportion of women in Great Britain qualifying for a full state pension will not equalise with men for another six or seven years, and for S2P outcomes to equalise will take much longer. While the availability of means-tested benefits—pension credit, housing benefit and council tax support as it now is—has lifted millions of pensioners out of poverty, there remain problems of take-up and ongoing questions of the extent to which their potential availability undermines incentives to save. Despite progress, we have not eliminated pensioner poverty, but neither does the Bill—all this, of course, in an environment where life expectancy for men and women continues to increase at an accelerating rate. As my noble friend Lady Hollis said, we should look at healthy years.
The introduction of a single-tier pension pitched above the rate—just, in the illustrations—of the guaranteed credit is therefore an important development. It is built on the foundation of auto-enrolment which grew out of the Pensions Commission work on which my noble friend Lady Drake was so influential. It was the report of this commission which clearly concluded that the then state and private pensions regime would not deliver adequate incomes in retirement through changes to the state system alone. Reform to make it simpler to understand and less means-tested were essential to provide clear incentives for individuals and employers to build additional private provision.
In analysing the reforms necessary to the state system to underpin private saving, it was clear that abolishing S2P before establishing the success of auto-enrolment and a national pensions saving scheme would be risky. Since then, things have moved on. We legislated for auto-enrolment—my noble friend Lord Hutton was Secretary of State at the DWP at the time—and for NEST, and the coalition Government have brought them into being. It is still early days, but opt-out rates look to be below expectations, which is encouraging. While continuing to acknowledge that the coalition Government have broadly followed the consensus, we should continue to express concerns about raising the bar to automatic entry. Every time the Deputy Prime Minister talks to us about how many people have been taken out of income tax, he might complete the sentence and say how many—mostly lower paid women—have been denied auto-enrolment.
As my noble friend Lady Sherlock said in her sparkling opening speech, the introduction of a single-tier pension deserves our support—our long-term support. I know that it will be music to the ears of my noble friend Lady Hollis, who has long campaigned for this approach. Of course, as proposed, the detail will not be unwelcome news to the Treasury.
We do not reach the sunny uplands of a simplified single tier overnight. There are complications along the way and we will seek the assurances of the Minister in Committee about the communications strategy to be adopted to explain what is going on. We also need to be assured of the capacity of HMRC and DWP to build and maintain the necessary systems which will give effect to all this. Without putting too fine a point on it, I suggest that the DWP has not covered itself in glory in managing change in recent times. It is a sobering thought that the transition to everyone being in receipt of a single- tier pension will probably extend beyond my lifetime. In the interim, there will be two systems running side by side. Those retiring before the single tier could receive the basic state pension, possibly uprated by the triple lock; S2P, uprated by earnings during accrual and CPI in payment; and the guaranteed credit, possibly uprated by earnings. On the single tier, the Bill provides for uprating by at least earnings, although the impact assessment assumes the triple lock. Protected payments under the single tier are to be uprated by price inflation. So it is hardly all simple and straightforward.
There will also be different access to benefits. Those retiring into the new system will be denied savings credit but not the guaranteed credit. They might also be eligible for housing benefit and council tax support, although the former could be affected by the withdrawal of savings credit. Those retiring before 6 April 2016 will be able to access benefits as now. There are complexities here, too, compounded by how passporting is to work. For some benefits, it is the guaranteed credit of pension credit which is the passport; for others, it is either the guaranteed credit or the savings credit. We need more clarity around all this.
Individuals retiring before 6 April 2013 will be able to defer their state pension under the current rules, including taking a lump sum. Deferral under single tier cannot involve a lump sum and will be more actuarially based and restricted. Qualifying conditions will be different for the two regimes—we now know that it will be 10 years for single tier—and both these changes contribute to the savings for the Treasury.
Over time, those reaching state pension age before single tier will comprise a smaller proportion of the pensioner population and it is important that their interests, too, remain protected. Those retiring in the earlier years of single tier will be better off than under the existing system—notionally, that is—although this reverses for those retiring later. The position of women improves, particularly because single tier benefits lower paid and part-time work.
Transition is not only about two systems running side by side. Provision is necessary for those who retire after 6 April 2016 but who have a contribution record prior to this—hence the need to grapple, as we doubtless will in Committee, with new concepts of “foundation amounts”, “protected amounts” and “rebate-derived amounts”. We should also test the transitional proposals for derived and inherited entitlement.
Perhaps a surprising fact to emerge from the various analyses that we have been sent is the extent to which means-testing will remain within the new system. While the amounts may have declined, the percentage of pensioners receiving housing benefit or council tax support in comparison to what would have happened under existing arrangements hardly changes. There is a significant fall-off of pension credit entitlement, but even 5% of those reaching pension age in 2060 will qualify. Overall, there is a reduction in benefit claimants of just 3%. Nevertheless, there is an improvement in the number having low marginal deduction rates, which is important for saving incentives.
In these circumstances, take-up remains an issue. If the rationale for the assessed income period—a degree of stability in the incomes and capital of pensioners—has not proved to be the reality, it could be difficult to argue for its retention, although I take the point that my noble friend Lady Hollis has just made. However, we think that the Government have done the right thing in retaining the current indefinite awards. Given the still significant scope of benefits within the system and the fact that take-up of pension credit is not high, the need for more regular reporting will bring its challenges. What assurances can the Minister give us about the support proposed for pensioners having to reconnect with the reporting system?
We should be clear that, because of this Bill, the state is going to do less than is currently planned. Over time, the share of GDP going to pensions will be smaller than currently predicted. At 2060, it will be 0.6% less—some £30 billion—but assuming the triple lock for uprating. Should uprating be as provided in the Bill, by earnings, the reduction is 1.5%. On top of those savings are the increased national insurance contributions which accrue to the Treasury from the abolition of contracting out—some £5 billion a year in the early years. More than 80% of that will be borne by public sector employers and employees. An additional 1.4% national insurance contribution is unwelcome news for scheme members at a time when incomes are being squeezed and household costs are rising. Costs have risen faster than wages in 39 of the 40 months since this Government came to power.
Notwithstanding the override given to private sector employers to recoup the loss of the 3.4% national insurance rebate—I share the concerns of my noble friend Lord Whitty about that—there is the risk that all of this will accelerate the decline in defined benefit provision. Public sector schemes will not be able to recoup the loss in that fashion. Following on from questions already asked, perhaps the Minister will say something specific about how those costs are to be met. On the local government schemes, specifically dealt with by my noble friend, as he said, the LGA estimates employer costs in the region of £700 million a year. Given the savaging of local authority budgets by the coalition, how does the Minister think that those costs can be found? Does he think that the new burdens policy should apply and that they should be met centrally? What analysis has been undertaken of the concerns expressed by the LGA that the Bill could undermine the agreement of the reform of the local government pension schemes due to be implemented next April?
The Bill is not only about state pension provision. It includes a raft of other measures, and it should be supported in its attempts to tackle some long-standing problems in the private pensions industry, including the prohibition on offering incentives and removal of short-service refunds. Although the focus on tackling small pension pots is to be applauded, like others, I regret that the proposed solution cannot be supported. The technical amendments to auto-enrolment look supportable, but is it not time to remove some of the historic constraints on NEST?
Finally, I have observed with admiration the work done by Gregg McClymont, the shadow Pensions Minister, aided and abetted by my noble friend Lady Drake, on the urgent need to restructure the UK pensions market, including the annuities market, to forge greater transparency and drive down costs for savers. Once again, we see the Labour Party, just as on energy prices, leading the way, standing on the side of consumers against the vested interests of dysfunctional markets.
Given the scope of the Bill, I hope that the Government will yet be able to pick up some of the amendments that will undoubtedly be moved. As for what is in the Bill, it should, sensibly amended, receive our agreement. I look forward to supporting my Front Bench to that end.
Universal Credit: National Rollout
Lord McKenzie of Luton Excerpts(10 years, 10 months ago)
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Lord McKenzie of Luton
To ask Her Majesty’s Government when they will publish an agreed plan for the national rollout of Universal Credit.
The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud) (Con)
Our priority is to deliver universal credit safely and securely over a four-year period to 2017. We remain committed to that objective, these timescales and the budget. We have already announced plans to expand universal credit into additional jobcentres from today and to roll out the claimant commitment nationwide by next spring. We have also said that we will provide more details around our implementation plans later in the autumn.
Lord McKenzie of Luton (Lab)
I thank the Minister for that Answer. Any confidence that we may have had in the Government’s ability to deliver universal credit was dramatically shaken by the NAO report last month. It concluded that the DWP was not achieving value for money and that there was,
“weak programme management, over-optimistic timescales, and a lack of openness about progress”.
Alarmingly, it stated that the department does not know to what extent its new IT systems will support national rollout. When will those systems be fit for purpose to support national rollout as well as enable detection of fraudulent claims? I also note that the department has written off £34 million-worth of abortive IT expenditure. How much more will be written off as abortive before the Government get their act together?
Universal Credit, Personal Independence Payment, Jobseeker’s Allowance and Employment and Support Allowance (Claims and Payments) Regulations 2013
Lord McKenzie of Luton Excerpts(10 years, 10 months ago)
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Lord McKenzie of Luton
That this House is concerned that provisions in the Universal Credit, Personal Independence Payment, Jobseeker’s Allowance and Employment and Support Allowance (Claims and Payments) Regulations 2013 (SI 2013/380) to provide for the payment of universal credit awards on a monthly basis may result in budgeting pressures on low income families; and further regrets that universal credit awards being paid in respect of children or rent charges will not by default be paid to the main carer of the children or to the person liable for that charge, and expresses concerns that this may impact disproportionately on women and vulnerable members of society.
Lord McKenzie of Luton (Lab)
My Lords, the regulations before us this evening cover a range of matters, including the claims and payment arrangements and contributory ESA and JSA, as well as arrangements for claiming and payment of the personal independence payment. The thrust of this Motion is to focus on the awards and payment arrangements for universal credit. Of course, these regulations are only one set of a raft of regulations that we have considered concerning universal credit and other benefit changes. Some may be a distant memory in terms of the legislative process, but they are a looming reality for many. The context of all this has shifted dramatically since the start of the Summer Recess, when we were assured by the Minister that we could rest easy in our beds, that universal credit was on time and on budget and that everything was going swimmingly.
The Secretary of State told Parliament in March that universal credit,
“is proceeding exactly in accordance with plans”.—[Official Report, Commons, 5/3/2013; col. 827.]
However, the September NAO report uncovered the truth, describing how the Major Projects Authority raised concerns about the DWP having no detailed blueprint and transition plan for universal credit, which must therefore be reset. It recites that the Government will not introduce universal credit to all new out-of-work claimants nationally from October 2013, but will add a further six pathfinder sites this month. The NAO report emphasises that the pathfinder systems have limited function and do not allow claimants to change details of their circumstances online, as was originally intended. The department does not yet know the extent to which the new IT systems will support national rollout. In its October 2011 business case, the DWP expected the universal credit caseload to reach 1.1 million by April 2014; that reduced to 184,000 in the December 2012 business case. What is it now? Can the Minister tell us when the Government will set out a detailed plan for the full rollout of universal credit?
At a time when some of the poorest families in the land are being forced into debt by the bedroom tax and other measures, it is a scandal that the Government are writing off tens of billions of pounds of wasted expenditure because of their incompetent management of the universal credit programme. It is against this backdrop—where the department has delayed rolling out universal credit to claimants, has had weak control of the programme, is not achieving value for money, has been overoptimistic about timescales and has demonstrated lack of openness about progress—that we are obliged to return to some of the basic architecture of the scheme, to challenge whether it, too, has lacked the rigour of full analysis and, in particular, whether some of the protections against the worst impact of monthly payments are fit for purpose.
We cannot yet look to the April pathfinders for help as their scope is very narrow, covering where universal credit is applied to those who are single, are without children, are not claiming disability benefits, do not have caring responsibilities and are not entitled to housing support, but have a bank account and national insurance number. Clearly, these pathfinders will not tell us much about the impact of universal credit on low-income families and those who rent. The characteristics of those admitted to the further October pathfinders are not clear. Perhaps the Minister will tell us what those characteristics are and especially whether they will involve those who rent their homes. If not, at what point will universal credit be applied to those that do? So far as monthly payments are concerned, has the payments exception policy been applied yet to any recipient of universal credit under the pathfinders?
The substantive issues we raise tonight are not new—we raised them throughout our deliberations on the Welfare Reform Bill, and the Minister will doubtless hear from noble Lords with the same force and passion as was evident then. As our Motion sets out, our concerns are about the impact of monthly payments of universal credit on low-income families and about putting the clock back to the days where support for children did not go directly to the main carer and where the default position of rent support going directly to tenants increased the prospect of poor families losing their homes. We know that the justification for making monthly payments direct to claimants is that it will encourage personal budgetary responsibility and mirror the world of work. This is despite the fact that only half of those earning less than £10,000 a year are paid on a monthly basis. Life on benefits is not a comfortable existence for anyone who has tried it—and not just for a week here or there. There is the grinding awfulness of the poverty it brings, where there is simply no margin for error and where hanging on for the next payment date and juggling the cash to meet the next most pressing bill is the routine stuff of life. The temptation is to skip a payment here to meet a pressing payment there and risk becoming trapped in a cycle of debt.
How will monthly payments and assessments make things better? Research by the Social Market Foundation concludes that they will not, the Government’s exception policy notwithstanding. Although supporting the Government’s aim of encouraging greater personal responsibility and financial resilience, it concludes that changes to the payments and assessments system,
“could cause significant hardship for families on the lowest incomes”.
Its research outlined the budgeting methods that many households adopt to see them through, which inevitably involve debt of some sort, whether formal or informal. The households that it researched cited, in particular, the fact that more frequent payments served as a method to help them ration their income and restrain their spending. They feared that the larger payment might be spent too quickly, given the competing demands on their low income. On the exceptions policy, the Social Market Foundation expressed concern that a centralised system of identifying vulnerable claimants was an inefficient way of helping households and suggested an alternative of claimants being able to opt in to a budgeting portal. Have the Government given that any thought?
The Child Poverty Action Group focused on the “rough justice” that can ensue from monthly assessments where benefit claimants receive increased entitlements but which disadvantage claimants whose entitlement reduces. All of this is happening at a time when the discretionary social fund has been abolished along with crisis loans, community care grants and budgeting loans. They are to be replaced by payments on account or short-term advances and local welfare provision to be provided by local authorities. Short-term advances are much more restricted in scope than crisis loans and are only payable to benefit claimants in very tightly prescribed circumstances. As CPAG points out, that will not cover situations where a person has no, or insufficient, money to meet basic needs. Budgeting loans will continue to be payable to universal credit claimants, subject to strict criteria, on a discretionary basis with no right of appeal.
As for local provision, a recent Children’s Society report identified that money given to local authorities to replace community care grants and crisis loans is only a little over 50% of the equivalent spending at 2010 levels. Hard-pressed local authorities are in no position to make up any shortfall. Have any universal credit claimants under the current pathfinders been eligible for support for local welfare provision, short-term advances or budgeting loans, and what has been their experience?
We know that low-income families are poorly placed to cope with the current economic challenges. Some 10 million low-income households are in unsecured debt; three-quarters of those in the lowest income quartile have no cash savings. The cost of living squeeze is not only hitting the poorest, although it bears more heavily on them. Current levels of inflation will mean that universal claimants endure a real cut in their income at a time when energy bills are soaring and childcare costs are rising at almost 6% a year.
One thing is certain. For those who currently struggle to make their benefit receipt last until the end of the fortnight, the temptation to resort to payday lending will be enormous. For irresponsible payday lenders, the temptation to exploit an expanded market created by monthly payments will be irresistible, and with it the risk that continuous payment agreements will drain bank accounts as soon as benefit payments arrive. We applaud the work that the Minister is doing in encouraging the expansion of credit unions, but note that he is on record as seeking to restrict continuous payment agreements to accounts of benefit claimants until utility bills and rent have been accounted for. Could we have an update on that work? Will the Minister support the call that Ed Miliband has made for a special levy on these payday lenders, so that further moneys can be channelled into credit unions?
We raised the issue of the impact of universal credit payments on women, because time and time again it is women who are being hit hardest by this Government’s measures. It is women who are paying three times as much to get their deficit down, even though they still earn less than men. New mothers particularly are being hit, with House of Commons Library research showing that they will lose almost £3,000 during pregnancy and their baby’s first year.
My noble friend Lady Lister will say more about the wallet to purse issue, given her deep understanding of its history, and why the hard-won settlement should not be put in jeopardy. However, the Government have implicitly acknowledged the concerns we have raised about monthly payments, payments going to the main carer where children are involved, and payments going directly to landlords, because those have all been covered in their proposed alternative payment arrangements. As far as it goes, that is to be welcomed, but it raises a number of issues about how it will work in practice. The main concern is that this is a centralised system. Jobcentre Plus will decide whether an individual can have an APA and there is no right of appeal against an adverse decision. The key issue is whether Jobcentre Plus will have the capacity to make the determination a potential entitlement on a fair basis, given the range of circumstances that has to be taken into account.
Will the Minister indicate the expected number of claimants who will receive an alternative payment arrangement by, say, April 2014 and by full rollout? We have seen the first draft of the local support framework, which sets out the principles of the support that will be offered. However, what was planned as phase 2 of the universal credit rollout was supposed to provide the basis for the DWP and local authorities to start to plan these vital services. What is the plan now, given the revised universal credit rollout?
The Government have also launched demonstration projects to test how claimants can manage monthly payments of housing benefit. These are supposed to inform the final development and design of the exceptions policy. Will the Minister please update us on whether the projects will include any circumstances where monthly payments of rent are made under universal credit, rather than under the existing benefits regime?
We have supported the introduction of universal credit and will continue to do so, despite the project being seriously off-track. We have offered our support to help to restore confidence in the project. We have an unease about some of its components, especially combined monthly payments as the default position, and we will continue to press for the development of fair, comprehensive and practical exemption arrangements. We make no apology for promising to revisit these issues regularly and robustly. I beg to move.
Lord McKenzie of Luton
My Lords, I thank noble Lords who spoke in this debate. It has been a debate of some quality and detail. I also thank the Minister for his very detailed reply. Like my noble friend, I think it would be good to look at the record to see what, if anything, might be outstanding. We acknowledge that the Minister listens to the House and certainly responds to the House—for 28 minutes on this occasion.
We welcome the announcement about credit unions. That is good news. As the Minister will, I hope, have understood, we are on the same page as far as support for universal credit is concerned. We are all signed up to a single in and out of work payment. We welcome the fact that the Minister has accepted the Major Projects Authority’s recommendations. On that, and touching on a point made by the noble Lord, Lord Kirkwood, about helping us keep abreast of what is happening, there was a contrast between our perception about where universal credit was when we went on holiday and the rather rude awakening of the NAO report. I hope there is a way of smoothing that in future.
We have news about a further six pathfinders starting this month. The scope of the people involved in them is still a little unclear, as is whether it is still the fairly narrow category that we started with in April and, in particular, whether it excludes people who rent their accommodation. On the pathfinders—this again touches on one of the points made by the noble Lord, Lord Kirkwood—we do not want this to be rushed; we want it to be right. As I understand it, some of the early pathfinders are focused on helping subsequent policy development. That is why it is important that there is some co-ordination.
I thank the right reverend Prelate the Bishop of Ripon and Leeds for his support. We are on the same page in concerns about payday lenders. The right reverend Prelate did get an answer about the backdating of universal credit. Whether it is sufficient, he may wish to reflect. He made the telling point about the crucial role of mothers in the evaluation and understanding of how universal credit should work.
Occupational and Personal Pension Schemes (Automatic Enrolment) (Amendment) Regulations 2013
Lord McKenzie of Luton Excerpts(11 years, 1 month ago)
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Lord McKenzie of Luton
My Lords, in thanking the Minister for introducing these regulations, let me make it clear that they have our strong support, as the Committee will have gathered from my noble friend Lady Drake.
At the start of her presentation, the Minister made reference to the progress that has been made with auto-enrolment. That is indeed heartening. I think the figure was more than 1 million people already enrolled—I was not quite sure whether that was gross or net of opt-outs. I understand from my noble friend that, thankfully, the level of opt-outs has been quite small.
It was a particular delight to hear from my noble friend Lady Drake in this short debate because she was there at the heart of the creation of auto-enrolment as one of the three members of the Turner commission. We always endeavour to follow her wise words.
We particularly endorse the analysis which points up the misalignment, which the Minister referred to, between the interests of the primary consumer—the employer—and the end customer—that is, the member. As my honourable friend the shadow Pensions Minister Gregg McClymont has made clear, the workplace pensions market is not made up of fully informed consumers. The inertia that this phenomenon fostered is, in part, to be addressed by auto-enrolment. A lack of informed consumers is not sufficiently balanced by good governance arrangements, particularly for contract-based DC schemes.
We see the issue of the complexity of charging as inextricably tied up with the wider issues of governance, especially for defined contribution schemes. My honourable friend has gone further and challenged whether the Financial Conduct Authority’s regulation offers sufficient safeguards for the workplace pensions market, and has proposed an extension of trust-based governance, a widening of fiduciary obligations and bigger schemes to improve the bargaining power of members. He argues that full disclosure of costs and charges is not a sufficient improvement to the current situation but it is a necessary one. We welcome the call for evidence around some of these matters.
As we have heard, in April 2013 the Work and Pensions Committee covered a number of these issues and made the point, with which we agree, that auto-enrolment will mean that many more people in the UK will be saving for their retirement. But given that most will be auto-enrolled into DC schemes, hence bearing most pension-saving risks themselves, the issue of good governance is of heightened importance. The committee says:
“Decisions made by contract-based scheme providers, and the employers who enrol their employees into them, may not always be made in the best interests of the scheme member. Trust-based schemes generally offer members greater protection, as scheme trustees have a fiduciary responsibility to act in the interests of scheme members”.
The committee also pointed out that:
“A confusing array of costs and charges is applied to pension pots by pension providers … and these costs and charges can have a serious negative impact on an individual’s retirement income”.
My noble friend’s comments about the need to maintain and build on the broad popular support for pensions saving that auto-enrolment has thus far engendered are very important.
Like the Minister, the Work and Pensions Committee was particularly concerned about members bearing consultancy charges. As the committee sets out:
“The provision of pensions advice to employers is currently an unregulated activity”,
and it would seem that the Government have no plans to change this, so tackling consultancy charges, which end up being paid by scheme members, has to be seen in this context. We consider that the Government are right to ban these arrangements rather than seek to ameliorate them by capping or strictures from the regulator. As the Minister has explained, such charges can have a particularly pernicious impact on the low-paid and transitory job holders, as the Explanatory Note makes clear.
I have a few brief questions. In fact, I think the Minister has pre-empted two of them. I am not sure whether that is foresight or I am getting predictable. Have the Government considered the risk of trading down in circumstances where employer contributions would be above the statutory threshold but could be reduced to the statutory threshold, with the savings covering the consultancy charges that would otherwise be on-charged to scheme members? I was going to ask what assessment has been made of the ramifications of the cut-off point where an employer has entered into an agreement before 10 May 2013. Those agreements presumably will run for some time in the future. Can the Minister say something about the nature of these contracts and whether they tend to be short or long term? If they can be terminated by notice, there does not seem to be an obligation on an employer to do that under these arrangements. However, the Minister in her opening remarks said that there seem to be just a few of them, so it does not seem to be a particularly big issue.
The Minister has covered my final question, which was to get an update on auto-enrolment. That is encouraging news. We are thoroughly supportive of the impact of these regulations.
Baroness Stowell of Beeston
My Lords, I first thank the noble Baroness, Lady Drake, and the noble Lord, Lord McKenzie, for their support for these regulations. I am grateful to them for that.
In response to the comments of the noble Baroness, Lady Drake, in particular, I will say a little more about the market study into workplace pensions that the Office of Fair Trading launched in January. The aim of the study is to examine whether DC pensions are set up to deliver the best value for money for savers and to take a forward look at the impact of auto-enrolment. On 11 July, the OFT published an update on its progress. This included several areas it wishes to explore further, including the current level of governance over the performance of some schemes, which the noble Lord, Lord McKenzie, raised; schemes with two-tier charging structures in which deferred members pay higher charges; and schemes that do not have a realistic prospect of reaching sufficient scale to generate value for their members. The OFT is also concerned about the way that charges are currently presented and about charges in older schemes that may not represent value for money.
The Government intend to publish a consultation in the autumn, following the publication of the OFT’s report and recommendations. Our consultation will cover a number of issues including a charge cap, active member discounts and extending the prohibition on consultancy charges to all qualifying schemes. These regulations are a first step in a wider move towards addressing the whole area of consultancy charges and their potential effect.
The noble Baroness, Lady Drake, stressed the importance of the FCA and TPR working together. The regulators have already set out how they will co-ordinate and exchange information. The FCA and TPR will jointly publish a document which sets out how regulation of work-based pensions operates in the autumn. This will better articulate the existing regulatory framework. The FCA is updating its pensions strategy and this will inform its business plan, to be published in the spring of 2014.
Mesothelioma Bill [HL]
Lord McKenzie of Luton Excerpts(11 years, 1 month ago)
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Lord Empey
My Lords, perhaps, in summing up, the Minister could address two matters that were raised last week, one by the noble Earl, Lord Howe, and one by him. First, I think it is true to say that during the proceedings a cocktail of suggestions were made by the noble Earl, Lord Howe, as to how research could be opened up, extended and encouraged. Secondly, I believe that it was the noble Lord, Lord Wigley, who sought from the noble Earl an undertaking to look at a reporting mechanism so that we might have some way of following progress. Can the Minister say when he feels that it will be possible to initiate this process, and can he keep us informed of the progress being made with regard to the research, which is so critical for the future?
We keep repeating the mantra about how 56,000 people in this country may yet contract this disease. However, I remind noble Lords that western countries are exporting the disease to south-east Asia, where I believe it is a disease of the future, not a disease of the past. Together with our colleagues in the European Union, we ought to be looking even harder at whether there are certain things that can be justified.
I join in the thanks to the Minister and the noble Earl, Lord Howe, as well as to the Bill team, for the work that they have put into this. Whatever shortcomings some people may feel there are, I believe that significant progress has been made with this legislation.
Lord McKenzie of Luton
My Lords, we support these amendments, which were spoken to by the Minister some little while ago. We do so in the confidence of having received advice from my noble friend Lord Browne, to whom I pay tribute for his tenacity in pressing certain points, even at Third Reading, and for the food for thought that he has left for colleagues in another place, added to that suggested by my noble friend Lord Howarth and the noble Lord, Lord Alton.
We have heaped praise on the Minister for all his efforts in developing and bringing forward this scheme, and we should do so again this afternoon—in particular, for his determination to have a co-operative approach to a scheme which, sadly, will have to last for many years. This has been reflected in the welcome approach of the Bill team, for which we are very grateful, and indeed in the attitude adopted by all noble Lords who have participated in this debate. I thank my noble friend Lady Sherlock in particular.
Of course, we would have hoped that the scheme would go further, especially in terms of the level of payment. However, we have something solid and substantial to build on in both another place and with a future Government.
I have a final word for all those who have campaigned on behalf of people who are or will be affected by this terrible disease. They, too, can be justifiably proud of what has been achieved so far. It will be their efforts that continue to remind us of what we still have left to do.
Lord Freud
My Lords, I shall just tidy up the questions that noble Lords have raised. I turn, first, to the concerns about the scheme rules raised by the noble Lord, Lord Browne, who takes pride of place in terms of specificity. He was looking at the draft rules, and we will update them to reflect the points that he has made. I do not have an answer for him right now concerning the discrepancy between “a relevant” and “the relevant” employer but I will write to him over the summer. If possible, I should like to borrow his expertise in the coming months. We are still seeing the Bill through and I retain overall responsibility for making sure that it gets through in good shape. Perhaps I may borrow the noble Lord to go through some of these points with the Bill team, because he seems to have been most effective and helpful.
My noble friend Lord German raised related points concerning a company which is uninsured at the point of exposure and which later moves on. If the employer still exists, a claim would have to be made against that employer. If the employer no longer exists and no employer liability insurer can be identified, the person could come to the scheme. That is relatively straightforward to address.
I should take up the points raised by the noble Lord, Lord Howarth, who has been utterly assiduous in looking through the Bill, for which I thank him. I will touch on some of the points that he commends to another place. These issues are very specific, so the rate that we can pay is tied very much to the risks that the costs get passed on to British business. The start date is very much tied to the structure of the smoothing that we have, so that would be very difficult to change. We also have a problem with the household member concerned because it is cover not from employer liability but from public liability. We look at the point on annual reporting in the context of how the oversight committee works.
On the point made by the noble Lord, Lord Empey, on research, we are having a meeting later this week on this issue with key players, launched by the British Lung Foundation. My noble friend Lord Howe and I will be there, and it might be a useful place to discuss how we might look at the progress of research. While we did not agree with the amendment of the noble Lord, Lord Alton, we very much agree with the sentiment behind his motivation for raising the issue because something most disturbing was happening with the lack of research. We are looking for the very best way of making sure that we have quality research. I know that my noble friend Lord Howe went through that in great detail and that he has put a lot of energy into ensuring that we transform that situation. With that, I beg to move.
Mesothelioma Bill [HL]
Lord McKenzie of Luton Excerpts(11 years, 1 month ago)
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Lord Ahmad of Wimbledon
Perhaps I may clarify matters. The noble Countess is quite correct. This is Report and we should be addressing the amendment. I would ask my noble friend to make his point when we reach the relevant amendment.
Lord McKenzie of Luton
My Lords, I start by thanking the noble Lord for the amendments, which we support. Putting the scheme on a statutory basis responds to the debate that we had in Committee and to the recommendations of the Delegated Powers Committee. I thank him for that.
Perhaps I may be allowed the opportunity to pick up a few points from the noble Lord’s opening statement—again, the thrust of which we are very happy with and supportive of, particularly the open competition for the scheme administrator. That is a very positive move. In addition, the improvement to the record-keeping, the progress of ELTO and the engagement of the FCA are to be welcomed. We knew the Minister’s view on the oversight committee and hoped that it would be possible for him to table amendments for today. However, as that has not proved possible, we hope that there will be a commitment to do so when the Bill goes to the House of Commons.
We support the 75% as an improvement on the opening position. I hope that the noble Lord will not misinterpret subsequent amendments that we have tabled as being ungrateful for the efforts that he has made but I think that we have an obligation to pursue the matter further. The noble Lord put an important issue on the record concerning the scheme, its uprating and the review. The CPI uprating is to be welcomed, as is the review based on the practice and outcomes of the smoothing period. The key issue here, certainly after the initial—
The Countess of Mar
Again, I am sorry to interrupt the noble Lord but I wonder whether he will address Amendment 1 moved by the noble Lord, Lord Freud.
Lord McKenzie of Luton
My Lords, I have addressed it and was simply taking the opportunity to pick up a few points from the Minister’s opening statement, with which I think he was trying to be helpful in setting the scene for this. I was also trying to be helpful by saying what our position is on that. It seems to me that that is my responsibility at this Dispatch Box on behalf of the Opposition. We have tabled an amendment, so we can pick that up in due course. The key thing for us is whether the levy rate will be reduced at the end of that four-year period or whether it can be maintained at its opening level. Obviously that will have beneficial implications for the rate of payments in due course, but perhaps we will come to that on some of our later amendments. However, I support the amendment moved by the Government.
Lord Freud
My Lords, perhaps I may quickly touch on some of those issues. The point raised by my noble friend Lord Avebury will be dealt with in the third group of amendments, but, as he shrewdly spotted, the figure of 75% comes out at £75 million of costs.
Lord Kerr of Kinlochard
I had not intended to speak but I am moved to do so by the austere and Robespierre-like logic of the noble Lord, Lord Howarth. He was supported by the noble Lord, Lord Deben, who I strongly agree with in his advice to the Minister to eschew the hypothecation arguments. My advice would be to also eschew the Robespierre argument advanced by the noble Lord, Lord Howarth. The Minister is actually in such a good mood today that I rather hope he is going to accept this amendment.
I do not think that the noble Lord, Lord Howarth, is right. From my passing experience of being involved with and watching the noble Lord, Lord Tugendhat, who I see is in his place, playing a principal part in a university medical research programme, medical research does not seem to have any difficulty in accommodating well placed money from foundations, trusts, charities or private philanthropy. I do not see why a levy should be any different and I reject the reference to Stalin. It seems that this levy could go direct, but if the research councils need to be involved in this at all, it does not follow that the awards displaced would necessarily have been of higher quality.
I do not accept that the purity of the system is affected if money comes in from other streams. Universities seem to have managed to cope with that very well over the years, so we do not need to follow such an austere argument as that of the noble Lord, Lord Howarth. Although I accept that there is a worrying logic to it, in practice it does not work like that.
Lord McKenzie of Luton
My Lords, this has been a wide-ranging debate. I do not think I will be drawn into issues of hypothecation, although it is a tempting subject for debate. Throughout our deliberations on the Bill and before, the noble Lord, Lord Alton, has been passionate and convincing about the case for funding mesothelioma research. He has been supported in this by many noble Lords, including those who have added their names to his amendments, particularly the noble Lords, Lord Walton and Lord Pannick.
The case that the noble Lord makes is thorough and incontestable. Despite knowledge of this terrible disease and its long latency over many decades, research spending by Governments has been derisory. The noble Lord contrasted the levels of research on diffuse mesothelioma with other cancers to reinforce his point but he acknowledges, as does the noble Lord, Lord Walton—and as indeed do we—that the insurance industry has funded such research in the past. The ABI has made it clear to us in discussion that it stands ready to do so again in the future, if the Government are prepared to play their part. They had said that they would match-fund. I hope that we will hear from the Minister in a moment that the Government will play their part, and how they will do so.
We all recognise that the noble Lord, Lord Alton, has made his case about the need for a national research effort, so the issue is not whether but how this outcome is to be achieved. His approach is focused on the insurance industry’s contribution, which, as he explained, is set down by Amendment 24 as a “Research supplement” raised under regulations under the levy provisions. That supplement could not exceed 1% of that required for payments under the scheme. The proposed regulations must cover how such amounts are to be applied and the role of the scheme administrator. Of itself, the amendment makes no reference to the Government’s obligations. I think that we will hear a different approach from the Minister about the plans that he would wish to develop to attract quality research funding for mesothelioma. If this is right, we need to understand the parameters of this: how much is involved and what is expected of the insurance industry. We also need to understand whether the approach is inconsistent with that of the noble Lord, Lord Alton, which is to raise a levy on insurers.
We have thought long and hard about this and which is the best way forward. Our shared objective is, I believe, to get properly funded research under way as quickly as possible and on a sustainable basis. We all acknowledge the commitment and integrity of the Minister and his desire to fulfil this objective. After hearing the Minister again, the noble Lord, Lord Alton, may consider that he has sufficient reassurance that his objectives will be met, albeit by the administrative route rather than the legislative one. Perhaps he has already concluded that from the extensive discussions he has had to date. If the noble Lord, Lord Alton, is not reassured, and presses his amendment, we are minded to support him in the Lobby.
The Parliamentary Under-Secretary of State, Department of Health (Earl Howe)
My Lords, it may be a slight surprise to see a Minister from another Department of State responding to this amendment. However, my noble friend Lord Freud has asked me to speak to it as a reflection of the importance that he and I place on promoting research into mesothelioma. We are both sympathetic to the view that more money should be put into research on this disease. Indeed, before this amendment was tabled, my noble friend and I spent some time exploring possible routes for funding. It is the fruits of those discussions that I shall now cover. However, the mechanism proposed in this amendment is not the best way to achieve the objective that the noble Lord, Lord Alton, is aiming at.
There are a number of reasons for this. In Committee, my noble friend set out some technical but none the less important arguments as to why the Government are resistant to the idea of a supplementary levy for mesothelioma research. I will not rehearse those arguments again and my noble friend Lord Deben need not worry as I am not going to rely on them at all. I need to stress that any additional research charge of the kind proposed by the noble Lord, Lord Alton, would, like all taxation, have to be paid into the Consolidated Fund and, if hypothecated, would then have to be paid out by the Treasury for a specific purpose. The Treasury does not normally handle tax income in this way, and there would need to be more convincing arguments before it could consider doing so for mesothelioma research.
The more substantive problem with the amendment is to do with research policy. As noble Lords will be aware—and the noble Lord, Lord Howarth, pointed to this—there is a fundamental, widely accepted principle that the use of medical research funds should be determined not just by the importance of the topic but by the quality of the research and its value for money. There is a good reason for this. There will always be more proposals for high-quality medical research overall than there are resources available for funding, and it is arguably unethical to support second-rate work in a particular area at the expense of higher-quality work in another equally important one. Noble Lords will understand that this is why, as a rule, public sector funders of research do not ring-fence funds for particular diseases. It was the same principle that prompted Dame Sally Davies to restructure the research funding that the Department of Health was putting into the NHS over many years, so that funds would flow, as they now do, to the most important, highest-quality research.
In the case of mesothelioma, the real issue is not just the money; it is the quality of the research being proposed. How can we try to ensure that the research proposals in this field reach the quality threshold required to secure funding? If that threshold is reached, funding is much less of a difficulty; indeed there is no need to think about the forcible gathering of funds from insurers. If noble Lords agree, the goal is how we stimulate high-quality research proposals without undermining the country’s strategic research mechanisms.
Lord McKenzie of Luton
My Lords, the amendment stands in my name and that of my noble friend Lady Sherlock. I shall also speak to Amendment 8. The two amendments are linked, and we see Amendment 8 as being consequential.
The amendment addresses one of the major bones of contention with the legislation: its start date. The payment scheme, which we all applaud, is applicable only to those first diagnosed with diffuse mesothelioma on or after 25 July 2012. This is, as we know, the date when the Government responded to the consultation published by the previous Government. It was more than two years after the consultation closed. Over that period, some 600 individuals will have died from diffuse mesothelioma without them or their dependants receiving proper compensation.
We were told in Committee that it took so long to move from consultation to response because of the complexity of the issues and the intense work with stakeholders, including the insurance industry. We accept this, but it can hardly then be argued that the insurance industry did not know what was coming. It would surely have been on notice as to the likely parameters of the scheme, because it was a key participant in the negotiation, which in effect required some degree of agreement. It is not as though the scheme was somehow sprung on the industry from out of the blue.
We had some debate in Committee about the date on which insurers could reserve against liabilities. As my noble friend Lady Sherlock exposed in her usual forensic analysis, it is not a matter of reserving against liabilities. The levy is apparently a tax and should be provided for in the usual way when it arises.
It has been suggested that the February 2010 date, the date on which the consultation document was issued, was insufficient notice to create the expectation of the introduction of a scheme that would have to be funded by the insurance industry. We disagree. It is an entirely appropriate start date. Paragraph 60 of the document states clearly:
“Having considered this carefully, the Government are persuaded that an ELIB”—
an employer liability insurance bureau—
“should form part of the package of measures to improve the lives of those who, for whatever reason and through no fault of their own, have been injured or made ill”,
by work.
That was clearly putting people on notice that the then Government were intent on introducing an ELIB broadly on the terms of the Motor Insurers’ Bureau. Moreover, this intent was not limited to a scheme to cover diffuse mesothelioma; it was a broader intent to cover those more generally who were missing out on justifiable compensation. Although a very valuable scheme, what is now provided for in the capital is a smaller, less costly scheme than was signalled in the February 2010 consultation. It should have been no surprise for insurers. The arguments in favour of a July 2012 commencement are flimsy to say the least. In its briefing for today, the Law Society states: “There is little justification for disqualifying cases diagnosed between the announcement of the consultation in February 2010 and July 2012”.
Of course, the Minister will tell us that there is greater cost, that it could tip all this finely balanced negotiation over the edge, and that co-operation from insurers would recede, but the cost originally presented to us for a February 2010 start date was an extra £190 million. It is now transpired that that assumes payment at 100% and presumably took no account of any additional compensation recovery that might ensue and assist with smoothing. It would be dependants rather than sufferers who would mostly benefit from this, because many of the latter would, sadly, not have survived, but that is no reason to deny justice. I beg to move.
Lord Freud
Yes, my Lords. That specifically is what the state provision is there for. In particular, the 2008 mesothelioma scheme was set up to make payments to people, such as wives, who worked with asbestos. It is a smaller payment but that is what it was designed to do. I ask the noble Lord to withdraw his amendment.
Lord McKenzie of Luton
I thank the Minister for his response, and all noble Lords who spoke in favour of Amendments 4 and 8. I also thank my noble friends Lord Howarth and Lord Browne for addressing the issues in Amendments 5 and 6.
To pick up the Minister’s reply, if the response to everything we have discussed tonight is basically that the scheme is locked down and there have been negotiations—this point was made by the noble Lord, Lord Stoneham; as well—we might as well go to the bar because I am not sure that we are going to shift anything tonight. We pay tribute to the Minister—
Lord Freud
I must come in on that. The group—huddle?—of noble Lords who have been working on this Bill have made enormous changes to what we are doing. Noble Lords’ concerns have fed straight in and we have made a series of changes. I do not want any Peer to feel that their views and the work they have done has not been taken, absorbed, acted on and gone right to the edge of what is possible. I assure the noble Lord that the bar is not the place for him.
Lord McKenzie of Luton
I am grateful to the noble Lord for that explanation although it is a pity about not being allowed to go to the bar. I want to make it clear that we have acknowledged, I hope fulsomely, the work the Minister has done on this. I acknowledge also the acceptance that what we have deliberated on in Committee and in meetings has influenced the Bill but if we are now saying that in a sense we have come to a full stop, I wonder what progress we can make. However, I will carry on with the argument.
As far as the start date is concerned, I simply do not accept the point that the insurers did not know until July 2012 that there was the expectation that a scheme would be set up. From what the Minister has told us, there have been two years of intense negotiations, generally with the ABI, which has had to discuss matters and negotiate with a range of insurers. There was an intense process under way, as we understand it, and therefore it must have been very clear to insurers that something was very likely to come from this and that was going to be the sort of scheme that has now emerged. I do not accept that the first insurers knew about it was the point when we said: “Here is the document. This is what we are going do”.
Lord Freud
I just want to clarify the point about the expectations or otherwise of the insurance industry. From our negotiations, which went on for a long time —more than a year; I cannot remember exactly—it would have been anticipating that the specific insurers with historic liability would have been pinned down in a completely different way from this levy. We spent an enormous amount of time working on that. As I have already told the House, my first instinct was to try to get the actual insurers that wrote the liability to find the money out of their balance sheets. I judged that the legal risks to that approach were high—not impossible, but high—and we therefore switched to this other approach. Actually, the expectations that the industry might have had would not have been set anything like as early as noble Lords might think.
Lord McKenzie of Luton
Again, I am grateful to the Minister for that explanation, but it seems to me that the expectations were not set only at the point of July 2012. On the cost that the Minister has outlined, I understand that it has reduced from the original figure of £119 million. I do not think that the figures that the Minister has given reflect any additional benefit recovery potential that would come from having two more years in the scheme, or know whether that was fed in to any analysis of how it might impact on the spreading that would arise from that. Maybe we will have to have that discussion on another occasion. I do not think that we are going to see eye to eye on this.
On Amendments 5 and 6, the noble Lord prayed in aid a technical deficiency of the drafting. I have done it myself; I think it was the noble Lord, Lord Deben, who advised generally against that. The thrust of the point made by the noble Lord, Lord Browne, was that, whether it is the employer liability route or the public liability route, you are basically coming back to the same insurers. Obviously, the Minister’s point about there being some hope for the self-employed —being able to argue that in certain circumstances they were de facto employees—is helpful.
We do not accept the proposition that the start date should be the 2012 date. February 2010 is a better date. That was when the expectation was effectively created. In fact, when you look at it, the insurers ended up with a lesser scheme than was proposed in February, so their expectation should have been of a higher obligation arising from that. A broader bureau was consulted on at that time. Having said all that, I wish to test the opinion of the House.
Lord McKenzie of Luton
My Lords, I shall speak also to Amendment 13. Amendment 11 requires that those diagnosed with diffuse mesothelioma and eligible under the scheme should receive payment of an amount no less than 100% of the average actual damages recovered in mesothelioma cases. Because the scheme under consideration is a payment scheme rather than a strict compensation scheme, it has been agreed that a tariff based on average compensation levels taken over recent periods should be taken as a reasonable proxy for compensation amounts. The tariff, which we will discuss in subsequent amendments, is comprised of bands depending on age at date of diagnosis. It is understood that the starting tariff is accepted by the Government, the insurance industry and the Asbestos Victims Support Groups. What is not agreed is the percentage of the tariff that should be paid.
The amendment proposes that it should be 100%, a full compensation equivalent. Hitherto, the Minister has referred to payment levels of 70% of the tariff and today we heard the good news that he has been able to negotiate this a little higher with the ABI, with the proposition that it now be 75%. These amounts are of course separate from the payments towards legal costs and any research supplement, should that re-emerge. We should make clear again that we consider that the Minister has done a first-rate job in bringing the scheme thus far. We have no doubt that he has had to endure many painful engagements with the insurance sector, whose failure—or market failure in his terms—is at the root of the problem that this Bill seeks to address. I wish him to go further. I do not wish to seem ungrateful for these efforts but we have an obligation to speak to the victims to see it from their point of view.
The payment scheme provided for in this Bill operates when somebody has been negligently exposed to asbestos and has consequently contracted diffuse mesothelioma. This is, as we have heard, a terrible disease, invariably fatal, which inflicts untold suffering on those who contract it and on their families. In Committee, a number of noble Lords spoke of their own harrowing experience of witnessing the awful pain that mesothelioma causes. The only thing that prevents individuals in these circumstances getting proper compensation—the government schemes fall far short—is the inability to trace the employer that caused negligent exposure to asbestos or the insurance company which provided employer liability insurance cover. No blame can be attached to mesothelioma sufferers for this. It is not their fault that, because of the passage of time, records have been lost or destroyed. Many can trace those responsible and the new tracing office will help more in the future. That is good news. That is as it should be. However, for those who cannot, why should they not be treated in an equivalent manner? They are the victims. If I may, I will quote from an e-mail received from Tony Whitston, who, as many will know, has been a tireless campaigner for asbestos victims. Tony said:
“For mesothelioma sufferers and their families, compensation isn’t about money per se. For mesothelioma sufferers, compensation provides solace that their loved ones will have some financial security when they die. For their families, compensation is about justice. No one will stand in the dock and answer for the terrible suffering and loss of life, past, present and to come. Compensation stands in for justice. To diminish compensation is to demean the pain and suffering families have witnessed and cheapens the justice they thought they had obtained”.
If we are encouraged to look at this through the eyes of the insurance industry, we will be told, as we have been, that a discounted payment is necessary to encourage individuals to trace an employer or insurer. We will be told that not all employers in the employer liability market will have been in the market or on risk over the years when people were exposed. That is notwithstanding that tracing or accessing the scheme has to follow the same routes. References to public liability policies not being traced are, by and large, a red herring. Collectively, over the years, the industry would have had premiums for liability that it has not had to meet, and it still has the benefit of premiums for other exposures that remain outside this scheme. If there has to be some rough justice at the edges of these arrangements, clearly the justice should go to the sufferers. The insurance industry should make amends for its failures of the past.
Our Amendment 13 seeks to take the insurance industry at its word. It has expressed concern that a levy rate of more than 3% could tip matters over to a situation where the levy costs would have to be passed on to industry. The noble Lord referred to that in his opening remarks. We are sceptical about whether pricing of employer liability policies would work collectively for all 150 or so market players in this way. However, accepting that 3% is a tipping point for the sector, Amendment 13 requires that the levy is a minimum of 3% or such lower sum as would provide for 100% of the tariff.
For the initial four years of the scheme, the industry would doubtless claim that at 75% of the tariff it is already at 3%, or perhaps above it, in which case the amendment should not cause it a problem. On the Government’s figures, the levy would be close to 3% for a 75% payout over the initial four years of the scheme but below 3% for the latter six years if the tariff is to be paid in full. Given that no one, we hope, is arguing that the percentage levy will reduce in future, except to the extent of avoiding paying more than 100% of the tariff, the amendment should be readily acceptable.
If the Minister is unable to accept the amendment as it stands, could he at least confirm that it is not the intention to reduce the levy rate in real terms after the smoothing period unless that produces more than 100% of the tariff? Amendment 13 sits perfectly well with that in the name of my noble friend Lord Browne and the noble Lord, Lord Wigley. I beg to move.
Lord McKenzie of Luton
My Lords, I thank all noble Lords who have spoken in favour of Amendments 11 and 13. Perhaps I may deal briefly with the Minister’s reply. We agree that we want to get the maximum possible out of this. We acknowledge the improvement in the incentive for tracing that the noble Lord announced earlier, and I think that all noble Lords accept the increase from 70% to 75% in the level of recovery. However, we always come back to analysing this from a justice point of view: what is fair to insurers and what is fair to people who have contracted diffuse mesothelioma because of employers’ negligence. We cannot get away from the fact that justice for them has to be 100% of the compensation that they would otherwise receive if there were formal compensation arrangements rather than the tariff. One hundred per cent of the tariff is justice; anything less is not.
I am not sure that we heard a compelling argument as to why the 3% minimum was not appropriate, particularly if it is where insurers are at the moment, certainly over the initial period. That would seem to be an easy one for the Minister to accept. However, given the hour and given the business that we have left to do, I should like to test the opinion of the House on Amendment 11.
Mesothelioma Bill [HL]
Lord McKenzie of Luton Excerpts(11 years, 1 month ago)
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“(2A) The average damages recovered by claimants in mesothelioma cases shall be determined by reference to the gross tariff, as set out in Schedule (Tariff).
(2B) The gross tariff will be up-rated annually by the general level of prices as measured by the Consumer Price Index and reviewed at least every five years.”
Lord McKenzie of Luton
My Lords, in moving Amendment 15 I shall speak also to Amendment 19. These address aspects of the levy. That subject was covered in large measure by the noble Lord in his introductory statement, so I hope that I can be brief. However, given that we have not yet seen a draft of the levy regulations, nor will we by the time the Bill leaves your Lordships’ House, we need as much clarity as possible on what they will contain.
Amendment 15 sets out a gross tariff as a schedule to the Bill. It is based on the national institute analysis that sought to determine average civil compensation awards for mesothelioma cases based on recent experience. It is set out in yearly age bands and stretches from age 40—that is, at date of diagnosis—to age 94. The tariff is intended to be a proxy for levels of compensation that would have been awarded had individual compensation assessments been made. It is expressed in gross amounts, so if payments are made at less than 100%, the relevant percentage would apply. The tariff excludes the legal cost of reimbursement. I understand that the amounts included in that gross tariff, reflected in the proposed new schedule, are not contentious and are accepted by the Government, the ABI and the Asbestos Victims Support Group campaigners and its professional advisers. However, it would be good to have the Minister’s specific confirmation of that.
The Government may resist the tariff going in a schedule to the Bill, although we would contend that that is where it belongs. An alternative approach is acceptable to us, as long as there is certainty on the gross starting tariff. The amendment also calls for the tariff to be uprated annually by reference to inflation. We have adopted the CPI measure and the Minister has already said that that is the intent. However, again, it is important to have that on the record.
The amendment further calls for the tariff to be reviewed at least every five years. Not only is this reasonable in terms of generally ensuring that the tariff is aligned with reality, but it implicitly recognises the changes that might ensue following the uprating of civil compensation claims following LASPO deliberations. It would be helpful to have confirmation from the Minister that it would be the intent to align the tariff with the outcome of any such review. I beg to move.
The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud)
My Lords, I thank the noble Lord and the noble Baroness for their amendments. As I understand it, their purpose is to set out the exact tariff to be used by the scheme and to require that the growth tariff would be uprated annually in line with the consumer prices index. I support the intention of the amendments, although I do not think that they are necessary. I shall explain why.
I put on the record that it is our intention to uprate the scheme payments annually in line with the CPI. If we were to put that in the Bill, we would have no flexibility to uprate by any other amount in future. For instance, we have given an undertaking to review the scheme’s operation and the rates of payment at the end of the smoothing period. Obviously I cannot pre-empt the findings of the future review, but were any review to show that a gap had developed between average civil damages and scheme payments, we would want to address that. If we were required by the Bill to uprate only in line with the CPI, we would be unable to do so.
Regarding the proposed tariff to be included in the Bill, I confirm that we have published an ad hoc analytical publication that sets out the same figures that are included in the table attached to the amendment. These are the figures that we will be using as a baseline when we calculate the percentage level of damages. If we included the table as a schedule, as the amendment proposes, we would need either annual primary legislation or a regulation-making power to make any change to the schedule. As I say, I am happy to go on record to say that the figures contained in the report that we have published will be used when we calculate the amounts that individuals will receive. We will publish in regulations the amounts that people will receive from the scheme.
I hope that I have covered these issues in adequate detail and have put the position on the record without the need for these amendments, which I understand were intended to tease out these issues. I hope that the noble Lord will feel able to withdraw the amendment.
Lord McKenzie of Luton
I thank the Minister for his reply. It dealt satisfactorily with the purpose of the amendment, which I beg leave to withdraw.
Lord McKenzie of Luton
My Lords, we have Amendments 25 and 29 in this group and we support Amendments 17 and 30 in the name of my noble friend Lord Howarth, although there is some overlap between the two sets of amendments. I will be brief as I believe we are pushing at an open door from what the Minister told us earlier today. Amendment 25 calls for the establishment of an oversight committee to monitor, review and report to the Secretary of State on the overall arrangements touched on by this legislation. It would undertake this task in relation not only to the scheme and the technical committee but to the tracing office and the electronic information gateway. They fit together, and we know that the insurance industry sees them as an integrated package.
The idea of an oversight committee was originally prompted by concerns over the extent to which the insurance industry may be engaged in all of this, possibly as a scheme administrator—although we welcome the news announced earlier today about the open competition—and certainly on the technical committee, running the tracing office and devising the portal. An oversight committee properly constituted would provide a level of reassurance for those whom the scheme should benefit and would be a counterweight to the level of engagement of a powerful industry with clear financial interests in how it all works, as my noble friend Lord Howarth so powerfully demonstrated. That is why we believe that the oversight committee should include representatives of asbestos victims support groups and the trade unions which have supported them, with an independent chair. Effective oversight would, we suggest, help the hard-pressed DWP resources, and an annual report from the committee could be incorporated with an annual report to Parliament by the Minister.
In Committee and in meetings thereafter, the Minister has expressed support for an oversight committee. We heard it again today and I know that he has considered various options. While disappointed not to see a specific amendment from the Government today, we hope for an assurance that they will introduce an amendment when the Bill passes to the House of Commons. I was not quite sure that it was clear enough in the noble Lord’s opening statement, so I hope he will clarify matters. It would be good if that assurance spelt out at least the bare bones of what is intended.
Amendment 29 is a return to the issue of support for sufferers of other asbestos and long-latency diseases. The payment scheme in this Bill relates to those diagnosed with diffuse mesothelioma. It therefore excludes other asbestos-related diseases such as asbestos-related lung cancer and asbestosis. It also includes other work-related, non-asbestos diseases such as pneumoconiosis. The DWP’s June 2013 analysis quotes the Health and Safety Executive data on industrial diseases, which has an annual estimate of sufferers of asbestos-related diseases of some 3,500—that excludes those suffering from mesothelioma—and of non-asbestos-related industrial diseases of some 4,200. Many of these will face the same problem in identifying a negligent employer or an employer liability insurer. The DWP’s June note acknowledges that many of the diseases covered do not share the same characteristics as mesothelioma, and that their severity and progression may vary, depending on the heaviness of exposure to asbestos.
It also highlights the fact that, for example, only a small proportion of asbestos-related lung cancers are compensated through government schemes, because of the range of different causes of lung cancer that mask an asbestos cause. Notwithstanding this, and perhaps somewhat strangely, in computing the effect of extending the scheme, it has been assumed in the data that the same proportion of those with diffuse mesothelioma who can access the scheme proposed by the Bill will be able to access an extended scheme, that the same level of scheme payment will be received, and that the same amount of benefit will be recovered. These are fairly broad-brush assumptions, to say the least. In resisting this amendment, the Minister will doubtless point to the costs of bringing forward an extension of the scheme. On the basis of their estimates over a 10-year period, they suggest that there will be 5,100 successful applicants for other asbestos-related diseases and 6,100 with non-asbestos work-related diseases. There will be additional levy on insurers of £478 million and £564 million respectively.
At face value, these figures are shocking. It is not so much the amounts as the suggestion that over the 10-year period some 11,200 people will miss out. By how much will depend on benefit recovery arrangements, but they could miss out to the tune of £1 billion. If the concentration were just on the other asbestos-related diseases, not expanding the scheme will deny 5,100 people, who will miss out just because an employer has gone out of business or cannot be located and a relevant insurer cannot be established.
The amendment requires the Secretary of State to bring forward proposals within a year to establish other schemes to cover these other diseases. We have been clear that we do not want the pursuit of broader coverage to hold up the scheme for diffuse mesothelioma, and there is no reason why acceptance of the amendment should cause this to happen. It is accepted that it will be difficult to graft onto the mesothelioma scheme the tariff approach, given the varying degrees of suffering that some of the other diseases entail, and that there may be convoluted issues around causation. Therefore, while continuing to acknowledge the merits of the mesothelioma scheme, we should no longer look aside from those people—many thousands on the Government’s own figures—who face terrible suffering because of the negligence or breach of statutory duty of an employer. This is all the more important where access to the state lump sum and social security support is more difficult, as it is for some.
The Minister has come thus far and we have supported and congratulated him on doing so. Indeed, he has expressed sympathy for a broader scheme. Accepting the thrust of these amendments would add to that journey, which I beg him to undertake. If he cannot, he will of course be aware that the campaigns will go on.
Lord Freud
My Lords, it would be most convenient to deal with these amendments in their original order. If I may, I will start with the amendment moved by the noble Lord, Lord Howarth, on the scheme administrator, and then turn to the two amendments tabled by the noble Lord, Lord McKenzie, and the noble Baroness, Lady Sherlock, which relate to an oversight committee and future reports on further schemes. I will then turn to the amendment of the noble Lord, Lord Howarth, on annual performance.
Amendment 17 is intended to make certain that the body chosen to administer the scheme is able to operate in a wholly objective and unbiased manner. I know that there has been concern among noble Lords about the insurance industry’s involvement with this scheme, especially its administration. I agree that it is paramount that the administrators of a scheme that is intended to help its applicants must be able to do so in a fair way. I am confident that the necessary safeguards are in place to ensure this without the need for an amendment on the matter.
First, I remind noble Lords of the commercial procurement strategy that I spoke about earlier. The scheme administrator will be chosen through an open procurement competition that will be launched in time to meet our aim of taking the first applications in April 2014 and making payments next July. Members of the insurance industry will be allowed to tender, as will the shadow body created by the ABI. Legal specialists may also tender. The body will be chosen through this exercise according to our commercial criteria, which include being able to administer the scheme as set out by the scheme rules.
Secondly, I refer noble Lords to the scheme rules, which set out clearly every aspect of the scheme administration and specify how the administrator may or may not act. Compliance with the scheme rules will form an integral part of scheme arrangements.
Lord McKenzie of Luton
Before my noble friend withdraws the amendment, perhaps I may clarify one point with the Minister. I was slightly less reassured about the oversight committee than I expected to be, partly because it looks as though it might be a fragmented effort, given the ELTO structure. The noble Lord said that his preference was for a non-legislative solution, and we do not have a problem with that. However, will a conclusion be reached as to whether the non-legislative solution will be found by the time the alternative of a legislative solution passes in the Commons? It would be a pity if we had not concluded on this and decided in due course that we needed a legislative solution and the Bill had completed its passage.
Lord Freud
My Lords, my aim is to know where we are with the structure over this Recess. I think that I owe the noble Lord a letter at the end of the Recess setting out where we have got to on that so that he will be able to talk to his colleagues in the other place. If he thinks that a gap is developing, that is a way for me to handle that uncertainty.
Lord Freud
The amendments in this group concern the technical committee that will be established to make decisions regarding disputes about whether an insurer provided employer’s liability insurance to a particular employer at a particular time. The amendments do two things: first, they make clearer the definition of “potential insurance claimant”—in other words, those who could be in dispute with an insurer about cover and whose disputes might come to the technical committee for a decision—and, secondly, they remove the power of the Secretary of State to expand that definition in the future.
Currently, the definition of a potential insurance claimant includes those who allege that an employer is liable for damages and an employer or anyone else who is alleged to be liable for damages. Amendment 26 removes the phrase “or anyone else”. This phrase is not deemed necessary because we are not able to identify any further parties that could come to the committee, other than those already listed.
Amendment 27 removes Clause 15(10), which gives the Secretary of State powers to make regulations to amend the definition of potential insurance claimant. This could include extending the scope of the technical committee to cases concerning other diseases or bodily injury. Amendment 32 makes a consequential amendment to Clause 17 to reflect the fact that, with the removal of Clause 15(10), there will be no regulations under Clause 15.
The Delegated Powers and Regulatory Reform Committee, in its report, recommended the removal of the power to amend the definition of “potential insurance claimant” unless its purposes could be more precisely specified. Having considered the points made by the DPRRC about this power, we are persuaded that these amendments are necessary. Clause 15 as it stands potentially broadens the scope of the Bill in a way that is not consistent with the focused nature of the rest of the Bill. Furthermore, as we are not able to specify the exact circumstances in which the Secretary of State might choose to expand the classes of people about to bring disputes before the technical committee, we agree that such a broad regulation-making power is inappropriate.
I hope that noble Lords can support the wish to make the Bill as robust as possible, and support the removal of unnecessary regulation-making powers. I beg to move.
Lord McKenzie of Luton
My Lords, we have no difficulty in accepting these amendments. As far as Amendment 27 is concerned, we are a little unhappy to see this disappear but accept that, without broader schemes evolved and being brought forward, it does not make particular sense.
So far as Amendment 26 is concerned and the deletion of “or anyone else”, can the Minister just remind us who that was intended to cover or who the drafters originally thought ought to be covered?
Lord Freud
My Lords, I think that is the most difficult question I have had in the past three years. I simply do not know what was in the draftsman’s mind. I think it was a standard reflex to capture anything that may not have been in the list. When we had the chance to go over it in more detail, we really could not think of anything else so it became redundant. I think that is the explanation and I am deeply impressed by the question.
Lord James of Blackheath
My Lords, the sole purpose of this amendment is to make sure that we do not lose track of the very important but parallel issue of asbestosis that affects members of the fighting services. I remind noble Lords of the amendments made some six years ago by the former Government that were very much against the interests of former officers and servicemen, particularly in the Royal Navy. There was a very bad record of asbestos-related illness, particularly on ships such as HMS “Furious”, HMS “Albion” and, above all, the Royal Yacht “Britannia”, which was a floating death-trap.
The unfortunate consequences of the amendments made six years ago were that the amount of compensation one was entitled to was reduced very drastically; in addition, the period of claim was limited so severely that it could not possibly allow for the inevitable eventual development of the disease and the justification for a claim. Armed Forces people have been very poorly treated in this and although we are talking here of a different branch of asbestosis, I remind your Lordships that in the insurance world they would not make that distinction. Nobody ever wrote a policy for mesothelioma on its own any more than they wrote one for asbestosis without embracing the generality of it. This is an important factor that has sometimes been forgotten in this debate.
In the matter of the Armed Forces, these people have been left exposed—to a greater or lesser degree—to all the consequences we have been talking about that are associated with this disease. They are going to be somewhat perplexed when they find out that the Government have gone out of their way to pass this splendid Bill to help sufferers of a different form of asbestosis while doing nothing whatever to amend the drastic reductions made six years ago to the terms available to servicemen.
I was very grateful for a joint meeting between the Minister’s department and the MoD, from which I came away with the great expectation that there would be a thorough analysis of data of the actual exposure and the number of cases concerned, and that this would open the way for some sort of parallel accommodation to be agreed. There was no question of dipping into this Bill’s pot to pass money over but there was the suggestion of perhaps a separate pot being arrived at by the Ministry of Defence, which could help to close the gap between the have-nots of the Armed Forces and the haves who will benefit from this Bill.
The reason for this amendment is that, unfortunately, the MoD has not provided the expected data. I talked to the noble Lord, Lord West, about this matter earlier and he showed a keen interest. He was an officer on one of the ships that was greatly affected and had the responsibility of overseeing the engine room replenishment of one. He therefore regards himself as a prime candidate for the condition in time. We have not had those data and it looks as if it is the Navy that has been remiss; yet it is the Navy about which we are most concerned.
May I please send a message via the Minister to ask the Navy to stir its stumps a bit and do something about getting those data to us? We need them. The idea would then be to see what can be done to put together a programme that will not result in a Daily Mail headline such as, “Callous Government plan for the many and abandon their heroes of the seas”. We do not want that, and it would be unfair anyway. We need a commitment to do something for Armed Forces people who have had a very bad deal for the past six years. We need to do something to put it right.
I have tabled this amendment in order to keep people interested in the possibility of having that debate, which we cannot do until we know the data and what can be done. I do not wish to press this amendment tonight but I certainly wish to roll it over to Third Reading, in exactly the same wording, in the hope that by then we will have a more positive approach to how we can arrive at a solution to give some parallel improvement to the terms available to former members of the fighting services. On that basis, I urge the Minister to do whatever he can to stimulate that dialogue. I would be happy to participate in any stage of it.
Lord McKenzie of Luton
My Lords, the noble Lord, Lord James, raised this issue with passion and commitment in Committee and, doubtless, previously. I am not sure that I understand all the detail of the proposition he is advancing and the background case but I certainly encourage him to continue with his campaign. I think that the noble Lord was seeking to advance the argument that some people are being dealt with under this Bill but that there are members of our Armed Forces who are not being dealt with on an equivalent basis. He keeps referring to asbestosis. This Bill relates to diffuse mesothelioma, which is different from asbestosis. In fact, we have just set our face against developing a scheme that has broader implications for people with asbestosis.
Lord James of Blackheath
I thank the noble Lord for that. I hope I made clear the distinction that I am looking at this matter from an insurance industry point of view; namely, that asbestosis covered everything and that six years ago we inadvertently disadvantaged the Armed Forces so severely that we have put them way below the benchmark that we are seeking in this Bill for sufferers of mesothelioma. A comparison is bound to be struck. Veterans’ groups are bound to pick it up and there will be people who are very unhappy to see this deficiency on their part.
Lord McKenzie of Luton
I am grateful to the noble Lord for that clarification, and I accept the point. If he is comparing people with diffuse mesothelioma who are not being treated on an equivalent basis, it seems that there is a case. I think that I would hang on to my point that asbestosis is different and that we have not sought to address that in this Bill.