State Pension
Lord McKenzie of Luton Excerpts(8 years, 7 months ago)
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Baroness Altmann
The noble Lord makes an important point; it is one that the Government have already been looking at. The new state pension will give much more clarity and generosity to the base on which the self-employed can build. The new lifetime ISA may be an opportunity for the self-employed to save in a way that they might be more comfortable with, rather than locking money irrevocably into a pension in their 20s and 30s.
Lord McKenzie of Luton (Lab)
My Lords, we know, and the Minister has confirmed, that overall expenditure on pensioner benefits is projected to be broadly the same under the new system as under the old until about 2040. Thereafter, expenditure growth is slower, so the Government plan to save money. There will be winners and losers. In particular among the losing category will be those currently in their 20s and 30s. The Government are pocketing some £4 billion to £5 billion extra a year from national insurance contributions because of the abolition of contracting out. Following another Budget disaster this year, the Government were forced to commit that there will be no more welfare cuts this Parliament. Will the Minister confirm that this applies to all existing pensioner benefits and that the triple lock, including that applied to the new state pension, will be applied as now? Further, should the UK leave the EU as the result of the referendum, what route, if any, will the Government take to preserve existing reciprocal pension uprating arrangements?
Baroness Altmann
The noble Lord has asked about five questions. However, I can certainly reassure the House that there is an absolute commitment to protect pensioner benefits up to 2020, and the basic state pension and the full new state pension, through the triple lock. As regards the expenditure on state pension, the reason that there are losers, if you like, in the long run—although I would not call them losers—is that we need to make the state pension system sustainable. That is exactly what the new state pension system will do. Indeed, with the introduction of the state pension, 75% of women and 70% of men will get more state pension. In the long term, the aim is for the auto-enrolment private pension to make up for the loss of earnings-linked state pensions.
Welfare
Lord McKenzie of Luton Excerpts(8 years, 9 months ago)
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Lord Freud
At one level, the new Secretary of State will clearly look at his whole portfolio with a critical eye. At another level, there may be changes in who gets the higher-rate mobility component to allow them to qualify for the Motability scheme. More people are on the higher rate under PIP than was the case under DLA. Indeed, more people with mental health issues are going on to PIP than would have received DLA. So, while there is a change in who gets the top-level mobility component and is therefore entitled to the Motability scheme, the absolute number qualifying for the Motability scheme is now moving up. As I said, there are now 24,000 more people on the Motability scheme than there were in 2013.
Lord McKenzie of Luton (Lab)
My Lords, the Minister will recall that we recently debated issues around rent restriction policy and local housing allowance changes for supported accommodation. There is a commitment in the Statement that there are no further plans to make welfare savings beyond the substantial savings legislated for recently. Are the proposed changes to supported accommodation now off the table, and does the commitment also run to pensions and pensioner benefits?
Lord Freud
Supported accommodation is a vital issue and I am grateful for the noble Lord’s question as it gives me a chance to offer the industry as much reassurance as possible. We have delayed two of the changes—the rent reductions and the LHA cap on supported accommodation—for a year because that will give us time to really understand the sector. In the short term, I expect to get a report on how the sector works so that we can look at how to support it most efficiently with funding and finance. The noble Lord will probably not remember how it is financed, as I do not think that anyone knew at that time. It has been quite a complicated issue. As for his question about the commitment and pensions, the pension element is growing rather rapidly, so, far from cuts, that becomes an irrelevant consideration.
Occupational Pension Schemes (Scheme Administration) (Amendment) Regulations 2016
Lord McKenzie of Luton Excerpts(8 years, 9 months ago)
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Lord McKenzie of Luton (Lab)
My Lords, I thank the noble Baroness, Lady Altmann, for introducing these regulations in such a clear manner. We share the commitment to the importance of schemes being well governed. It is accepted that these regulations are generally focused on several technical amendments following on from governance requirements that were introduced last year, driven in part by the requirement to ensure that the growth of money-purchase schemes flowing from auto-enrolment is fit for purpose.
As we have heard, the thrust of these amendments seeks: to put beyond doubt that multiemployer group schemes are excluded from the additional governance requirements; to remove the chair of NEST from the required appointment timescale, because this is otherwise dealt with in statute; to allow a deputy to sign the chair’s statement when the latter is not in place; to enable a statutory override where scheme rules are in conflict with the trust deed requirements; and to let those schemes established by statute have a limited period to comply with the trustee appointments so that the current exclusion can expire—as well as some other tidying up.
We have no quarrel with those amendments, but seek clarification on just one aspect. In regulation 4, the substituted sub-paragraph (2ZA)(a)(ii), participating employers are “connected” if, inter alia, they are,
“are or have been partnerships, each having the same persons as at least half of its partners”.
The test seems to be a head count rather than being a sufficient commonality of shares of partnership activities. Is this what was intended?
That having been said, I should like to return to some points that my colleague, Angela Rayner MP, raised when these matters were debated in another place, particularly as they received scant response from the Minister in the Commons. Of course, we know that our Lords Minister, particularly being forewarned, will be able to do better. These issues concerned the growth of multiemployer schemes or master trusts. It was said that there is no official list of master trust providers although as many as 70 or 80 could be operating at the moment. What is the Minister’s understanding? My honourable friend cited two pieces of evidence given to the Work and Pensions Select Committee, one from the ABI and the other from the Pensions Regulator. The former pointed out that:
“Trust-based … schemes (including master trusts) … are not currently subject to the same stringent regulatory standards as contract-based schemes, which are regulated by the FCA”.
The latter pointed out that:
“Due to their scale, commercial purpose and design for use by multiple employers, master trusts represent different risks to members and consumer protection … master trusts themselves are not authorised prior to market entry and the regulatory framework is not designed for similar levels of ongoing supervision”,
unlike providers regulated by the FCA.
Does the Minister share these concerns? To what extent if at all has the position been ameliorated by the governance arrangements that we are discussing today? Is it satisfactory that the take-up of the voluntary master trust assurance framework seems to be so low? Does the Minister have an update on the previous figure of just five schemes? Is the Minister satisfied that the fit and proper persons test is being applied rigorously? Is it the case that master trusts are not protected either by the Financial Services Compensation Scheme or the Pension Protection Fund and is this an acceptable position?
The Minister will have read the Hansard record of other concerns expressed in the debate. I will not go over them all. It is understood that the Minister is on record as asserting that legislation is needed, particularly to deal with master trusts given their proliferation and the ongoing progress of auto-enrolment. We will have to wait and see what is in the Queen’s Speech in a few weeks’ time but one way or another, there are substantial issues here that need to be addressed.
Baroness Altmann
My Lords, I thank the noble Lord, Lord McKenzie, for his remarks. I am grateful that he shares our commitment that schemes should be well governed and welcome that he has no quarrel with our proposed regulations on these measures. I shall try to respond to some of his questions.
The noble Lord asked if the Minister shares the concerns that have been raised, and I can tell him that the Minister does share those concerns. It is true that trust-based schemes are not subject to the same regulatory controls. The authorisation of master trusts and trust-based schemes is the responsibility of HMRC. There is a “fit and proper persons” test now, but clearly even if that is applied rigorously more protection may be required. That is under active consideration. Such schemes are not, unless they are defined benefit, protected by the Pension Protection Fund, and even if the assets are protected by the FSCS, it is true that the costs of winding up the scheme could be deducted from the protected assets. Therefore, there is still a requirement for us to make sure that we protect as many people as possible in auto-enrolment and protect their pensions. These regulations, however, will ensure that there are improvements in governance standards. They will ensure that multiemployer schemes are better run and will clarify the governance requirements, which of course are such an important part of our pension system, to ensure that trustees are in place who can protect the interests of members.
With regard to the figures, over 90% of members who automatically enrolled into master trusts have been enrolled into those schemes that had signed up to the master trust assurance framework, which ensures that some quality features apply but is not, in and of itself, sufficient as a guarantee. It is a good indication of well-run schemes. There are a number of large master trusts available for auto-enrolment, and the Pensions Regulator is obviously trying to signal to employers that they have been through some quality assurance testing. Again, that is important because the worker who is auto-enrolled into a pension scheme has no control over the scheme chosen for them by their employer. It is therefore essential that we help employers to know how to choose a good pension scheme for their staff that is safe and secure, and indeed that they do so.
Well-run master trusts can and do offer good value for consumers and their employers, and of course we are keen that this market develops in the right way. We are aware that there are some potential issues and, as I am sure the noble Lord is aware, we are working with the Pensions Regulator to improve protection and ensure that the right protection is in place, which is likely to require legislation. We will come back to the noble Lord when the measures can be further elaborated upon.
There are a number of governance requirements that master trusts already have to meet under the current law, and I believe that the voluntary master trust framework covers seven schemes—is that right? I understand that it covers five at the moment, but others are in the pipeline. Still, we need to be sure that we are exploring, and will succeed in achieving, other protections in addition to those that already exist as auto-enrolment moves forward. Currently the contribution levels are extremely low, but numbers will increase—contribution levels will be quadrupling by 2019—so we must ensure that we have protections in place for those who enter auto-enrolment in the coming years.
On the noble Lord’s question about the head-count issue in partnerships, the purpose of the definition of “connectedness” is to help schemes to establish the degree of connection within a corporate group or partnership. If they are sufficiently connected, it can be exempted from the requirements. The partnerships definition is designed to ensure that two employers that are partners share a sufficient number of partners—that is, at least half—in order to be connected. This is about not just numbers but connection. As long as the multiemployer scheme is multiowner only because of connected employers, it is treated more like a single-employer scheme, but if a scheme promotes itself to bring in other employers rather than just being within the group then it is a multiemployer scheme, and we are trying to clarify that with these regulations. We hope that that will be clear.
Lord McKenzie of Luton
I will perhaps expand a little on the question, although maybe we should follow it up outside this session. I understand the thrust of employers needing to be “connected” for these purposes and, so far as partnerships are concerned, connection looks to be driven by a certain commonality of numbers of partners. However, numbers of partners may not tell you very much about where the weight and financial interest of any particular partner is. It would have been quite easy to construct something where you had a sufficient number of partners but all the clout and financial substance was with just one or two partners. I wonder how the “connected” rules would operate in those circumstances. I am afraid that this is a bit of a nerdy issue, and maybe we should deal with it outside this session if the Minister is not able to cover it fully today.
Baroness Altmann
Regarding these regulations, as I have just described, if employers that are outside the group can fit within these corporate scenarios—that will include where an employer was part of the corporate group but has now left the group and continues to participate in the scheme—they are considered a corporate group scheme.
Lord McKenzie of Luton
If that is the end of the exchange, I thank the Minister for a very full and quite frank response. It is very helpful to get that on the record.
Baroness Altmann
I thank the noble Lord. I am grateful for noble Lords’ careful attention and scrutiny of these draft regulations. We believe that good governance is fundamental to securing good member outcomes and these draft regulations will help ensure that schemes are better run, in members’ interests. The regulations that we have put forward today will make amendments that will help to clarify the scope of the governance provisions. I am grateful for Members’ contributions to this debate. I hope I have set out the need for these regulations, and have responded as best as I can to the matters raised. If necessary, I will continue to answer any further questions that noble Lords may have. I commend these draft regulations to the Committee.
Automatic Enrolment (Earnings Trigger and Qualifying Earnings Band) Order 2016
Lord McKenzie of Luton Excerpts(8 years, 9 months ago)
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Lord McKenzie of Luton (Lab)
My Lords, I thank the Minister for introducing this order. We support the progress which has been made on auto-enrolment and we should take this opportunity to pay tribute to those who helped to create it. My noble friend Lady Drake was there at the start, or indeed before it, and she has expressed her concerns that the system still does not seem to be dealing adequately with the concerns and needs of low-paid women. It will be interesting to hear the Minister’s response to all that.
In her introduction, the Minister referred to the fact that those between the LEL and qualifying earnings can opt into the system. Do we have any data about how many actually do that? I think she cited that there was equality in 2014, in so far as 63% of eligible men and 63% of women opted in. The trouble is that the numbers of men and women were not equal, which meant that many more men opted in, so her statistic was a bit unfortunate.
As my noble friend Lady Drake has recognised, freezing the earnings trigger for a second year has a modest impact in drawing more people in and will help women, who are of course disproportionately represented among the lower paid and have missed out on auto-enrolment previously. One of the effects of freezing the trigger at £10,000 is a widening gap between the contributions and the income tax threshold, which means that, as a practical matter, those who are on the net pay tax relief arrangements are not actually getting effective tax relief. There are, of course, two ways in which you can get your tax relief: one is through the net pay arrangement and the other, the name of which escapes me—
Lord McKenzie of Luton
It is indeed relief at source. I am grateful to the Minister. What is happening to try to ensure that those people who are subject to the net pay arrangements are getting their tax relief? I am not quite sure what the arrangement with NEST is. I think that relief at source, which generally operates for NEST, will obviously cover a good many people, but how many people are missing out? These are people at the low end of the income scale who are not getting their tax relief, which was an important ingredient of the overall arithmetic.
Has there been any progress on aggregating mini-jobs for the purposes of the trigger and qualifying earnings band? If our noble friend Lady Hollis were here rather than in the debate on the Housing and Planning Bill, she would be on her feet extensively.
Lord McKenzie of Luton
It was about people with mini-jobs being able to aggregate to reach the thresholds. We understand some of the practicalities, but has any progress been made on that?
I have another question to which I genuinely do not know the answer, about the impact of zero- hours contracts and fluctuating earnings on take-up arrangements. Looking at the varying pay periods, how does this work when somebody is within a pay period and above the threshold for one month but not for the subsequent period, so that they fluctuate in and out of the system? I think those were all the questions that I had. We will obviously not be opposing these provisions, and I look forward to the Minister’s response.
Baroness Altmann
My Lords, I thank the noble Baroness, Lady Drake, and the noble Lord, Lord McKenzie, for their excellent contributions. I certainly join in the tribute paid to the noble Baroness by the noble Lord for her role in setting up and being responsible for the successful programme of auto-enrolment.
I am delighted and welcome the fact that the noble Baroness welcomes the decision to freeze the earnings trigger. I am also delighted that she is as pleased as we are with the low opt-out rate and that, so far, this programme has indeed been a real success. All the points raised by the noble Baroness are valid, and are ones that I have raised in the past. However, there is a further reason why we have to be mindful of where we set the earnings trigger, and be very careful as we move forward with this policy not to derail what is already such a success. Part of the reason why it is such a success is that there is widespread consensus among employers as well as the pensions industry that this is the right thing for the country. Employers have accepted—willingly, in many cases—the idea that it is normal, and should be normal, for an employer to be responsible for not only the national insurance and tax of their employees but also a pension for their workforce.
However, as the noble Baroness knows, that consensus was hard won. It was the result of a very long period of negotiation and renegotiation, part of which concerned the costs to the employer. Although the earnings trigger is higher than might have been expected a few years ago, we have put other burdens on employers. Were we to reduce the earnings trigger significantly at this stage, given that we have the rollout of the national living wage, the apprenticeship levy and other elements that will impact on employers’ labour costs, it would be right to be mindful and careful about how quickly we move to include significantly more people in pension saving. However, notwithstanding that, as I said, 130,000 more people will be brought into pension saving—71% of whom are expected to be women—as a result of keeping the earnings trigger at the £10,000 level rather than moving it up, as was one of the considerations.
The noble Lord, Lord McKenzie, also referred to women. I once again confirm that the coverage of pensions for eligible workers is the same for women and men. As most noble Lords are probably aware, I would certainly like to see more women being brought into auto-enrolment. In time, I am sure that we will be able to do that. Of course, they can now opt in anyway if they are earning more than £5,824 a year and receive an employer contribution. That still means that they do not get the same behavioural nudge, but I can report that the latest figures suggest that 5% of those who are not eligible and are earning below the relevant figure are opting into their employers’ pension scheme. It is a start. I hope that, in time, we will go further as we establish this as the norm and as more workers become aware of the fact that this could be effectively free money from their employer, and that a significant extra contribution on top of their own pension savings is on offer if they wish to take it up. Of course, it takes time for those messages to come through.
As the noble Lord may well be aware, the issue of net pay arrangements is something significant that I have raised since I became aware of it a few months ago. Clearly, it is not acceptable that the very lowest earners might be required to pay about 20% to 25% more for the same pension as someone who earns more than them. That is the potential result of their employer choosing to use this net pay arrangement-type of scheme rather than a relief-at-source scheme.
Welfare Reform and Work Bill
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Baroness Deech (CB)
My Lords, I rise to speak in support of my noble friend Lord Low. Until about a year ago, I was by no means an expert in this field, and I am still not, but I have had the privilege for nearly a year of chairing the House of Lords Select Committee on the Equality Act 2010 and Disability. This afternoon, we have listened to a litany of shameful government actions that will undermine the struggles of disabled people. Disabled people are not “them over there”; any one of us could become disabled tomorrow by an accident or an illness. This applies to all of us; it is not something to be put in a corner. I find it quite shameful that we are removing Motability cars and that we are not carrying out an impact assessment.
My conclusion is that there is nobody in the Commons to champion the rights of disabled people in a holistic manner, and that it falls to this House, which has, fortunately, a good share of disabled people and those who are experts, to do so. I want this House to put on record its dismay, disagreement and disappointment with the way that disabled people are being treated—the very people who are trying to get back to work and trying to be independent. And it could be you, tomorrow.
Lord McKenzie of Luton (Lab)
My Lords, as others have said, this is a sorry occasion when we have to accept that the Government will have their way on the £1,500 a year reduction in ESA WRAG and universal credit limited capability for work component for new claims from April 2017, but in doing so we should make it clear that we reject the Secretary of State’s assertion that this House was somehow usurping parliamentary procedure in asking the Commons to defer its introduction until there is a proper impact assessment. We remain concerned that, in pressing ahead with this measure, the Government have continued to fail their public sector equality duty, which is to consider the impact of their policies on the elimination of discrimination, the advancement of equality of opportunity and the fostering of good relations.
Noble Lords may have had circulated to them correspondence between the Equality and Human Rights Commission and Roger Godsiff MP, which commented on the very limited analysis of the ESA work-related activity proposals. It said:
“These are the kinds of matters that we might have expected a more thorough analysis to have considered. Without this level of evidence, the assessment does not, in our opinion, sufficiently support consideration of alternative options which might have less of an impact on people with particular protected characteristics”.
We know that the EHRC wrote to the Secretary of State last September, offering to work more closely with the DWP on the Bill, but we understand that the offer was rejected. Will the Minister confirm that that was the case?
At Third Reading, my noble friend Lady Sherlock, while acknowledging some improvements along the way—the Minister outlined those and we thank him for his engagement—asserted that this is still “a bad Bill”. My noble friend was right. The retention of Clauses 13 and 14 is a particular manifestation of its unfairness. It is therefore a regret that, given what this House considers to be the right thing to do, as expressed by strong votes, we have been unable to convince a sufficient number of the elected House to our point of view.
We hold fast to the view that including these provisions will not act as an incentive to work—quite the reverse. We remain dismayed at the paucity of the analysis that underpins the Government’s position and their refusal to hold back until a proper impact assessment has been undertaken. It seems perverse in the extreme to rush ahead with these changes and at the same time promise the publication of a White Paper to address in part the disability employment gap. It is not helped much, either, by some meagre concessions that bring some uncertainties in their wake.
We should express our thanks to the noble Lord, Lord Low, for the leadership that he has shown on this issue, and for the work that he and the noble Baronesses, Lady Meacher, Lady Grey-Thompson and Lady Campbell, have done in the Halving the Gap? review. It seems to us that this stands in stark contrast with the Government’s effort by helping us better to understand the lives which many disabled people live, their aspirations for work, the barriers that they face to getting and sustaining work, and the poverty and poor health which challenges so many of their lives—issues that are brought home to us also by the work of the Disability Benefits Consortium. As we have heard, it has asserted that these clauses will bring savings of £640 million to government by the last year of this Parliament. In a couple of weeks’ time we will hear from the Chancellor who is to be favoured in his next Budget. We will hold in our minds the price that is being extracted from disabled people as a contribution. But our task in the mean time, as others have said, is to continue to press the Government on how these cuts are affecting disabled people both in and out of work and, as the DBC urges, to argue for a proper impact assessment about the consequences for their physical and mental health, and for their finances.
State Pension Age
Lord McKenzie of Luton Excerpts(8 years, 9 months ago)
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Lord McKenzie of Luton (Lab)
My Lords, I start by thanking the noble Baroness, Lady Altmann, for repeating the Statement delivered in the other place. One of the matters that has characterised this Government’s approach to pensions—changes to both the state and private pensions—has been the lamentable approach to communicating change. This has manifested itself in the frustrations of the WASPI group; the misunderstandings over why only a minority of those retiring after 5 April this year will receive the full rate of the new state pension of £155 per week; and issues arising from the so-called new flexibilities.
What assurance will the Minister give about not repeating the mistakes of the past when the review that is being undertaken brings forward its recommendations? The terms of reference require consideration of what a suitable state pension age is in the immediate future and over the longer term. However, the government press release states—this is what the noble Baroness said—that the review will be focused on the longer term and will not cover the existing timetable to April 2028. So can the Minister please reconcile these two positions? It is a classic case of confused communication which fuels speculation about the Government’s true intent.
Do we take it that there is no intention of revisiting with some transitional relief the position of those in their mid-50s who are adamant that they received inadequate notice of the rise in their state pension age?
The review has to take a view on how changes to state pension age rises support affordability. I ask therefore whether the triple-lock is within its scope.
We accepted the 2014 provision which required a periodic review of the pension age. We know that life expectancy is generally increasing, but we know that this does not always equate to healthy years of life. We know also that health inequalities remain stubbornly persistent. How does the Minister consider that these factors should be reflected in a fair approach to the pension age? Can the review cover an assessment of the adequacy of social security arrangements for those who cannot sustain work before reaching an extended pension age?
We wish John Cridland well with his review: transparency, consultation and a clear recognition of the need for long-term notification of any changes will be vital.
Baroness Altmann
I thank the noble Lord for his comments. I would like to request and invite all noble Lords to be in touch with the review, so that we can ensure lessons are learned. If noble Lords have any observations on issues relevant to the consideration of long-term changes to the state pension age and state pension age policy, this is the opportunity to do that. It will be an independent review which will consider all the relevant factors, and the reviewer will welcome such evidence. The review is about the state pension age. It is also about the longer term. I repeat that it will not consider any changes to the state pension age timetable that is already legislated for up to 2028.
Lord McKenzie of Luton
If the Minister will forgive me, could we just clarify that point? The terms of reference—I have a copy here—say that the review will consider:
“What a suitable State Pension age is, in the immediate future and over the longer term”.
Baroness Altmann
The Government have made it clear that this is about the changes for the longer term and the appropriate framework for state pension age policy. No changes will be considered and the reviewer will not be looking at making or recommending any changes to the timetable before 2028.
Welfare Reform and Work Bill
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Lord Kirkwood of Kirkhope
My Lords, I would like to add a couple of broad points to this important debate on this significant subject. As far as I am concerned, the noble Lord, Lord Low, has done the House a great service in tabling his amendment. I take the point made by the noble Lord, Lord Young of Cookham, as a former Chief Whip; the amendment may well be defective, and I certainly do not want to go back into the territory covered by the report of the noble Lord, Lord Strathclyde. However, the noble Lord, Lord Low, is saying that the House of Commons has asserted its rights in the process of ping-pong but this is merely a Motion to ask for some extra time.
As one or two other colleagues have said in the debate, I would want that extra time, if for no other reason than—a point made by the noble Baroness, Lady Thomas—to look at the White Paper. The White Paper that is coming will be significant and I am looking forward to it; it is an opportunity to have a look at this whole important policy area again. Taking this decision this evening would be a retrograde step and might make it more difficult for us to take the proper opportunity that the White Paper represents. If this change were not to be introduced until May 2017, that would be a sensible pause. I take the Minister’s point about the difficulty and technicality of meeting the test set out in the amendment, but it would be perfectly possible to have a sensible stab at estimating the impact on this particularly vulnerable group of our fellow citizens—the DWP has hundreds of researchers who do this work all the time.
I want to draw a broader point from that: we would not need to be here if we had had a proper impact assessment in the first place. To make an even broader point, it is now deemed to be old-fashioned and not sensible to have White Papers, Green Papers and a pre-legislative process for our legislation because it all has to be done for the greater glorification of Chancellors at Budget time so that they can make ex cathedra statements and get plaudits in the Sun newspaper the next day, only for us to find a fortnight later that all is not as it seemed. There is a plea here and a lesson to be learned: we should be more deliberative about the consultation process in these specialist areas of policy in order to get this kind of thing done right in the first place.
I make a point in passing about universal credit that a number of colleagues have made: this strips out some of the many advantages that universal credit will have in future, and that is regrettable. I also make the point that the £640 million saving has to be measured against the £100 million. I accept that again the influence of the noble Lord, Lord Freud, on this has been entirely beneficial. No other Minister could have had the success he has had in refining in important but second and third-order ways when considered against the fact that we are spending a sixth of the savings we are making in support for people who are in the work-related activity group. That is not enough. If it had been 50:50 and the Government came forward to the House with the savings bill—and it is correct to bear in mind that we are facing austerity as you cannot ignore that either, but to put one-sixth of the saving into the support services that are necessary for people in the WRAG group is not a proper balance or the right judgment—the House would have been a bit more willing to listen if the balance had been a bit more even.
The other thing is that the personal independence payment provisions we have introduced will not survive the test of time. The assistance we give people who are in the support group is nearly absent, and we need to do far more to provide help for people in that group to find work in the longer term. Therefore the Government would be well advised to think again. The noble Lord, Lord Low, has brought forward an important amendment; if he presses it to a Division I shall certainly support him, and I hope that other Members of the House will do the same.
Lord McKenzie of Luton (Lab)
My Lords, as others have said, we should be grateful to the noble Lord, Lord Freud, for his focus on a number of initiatives that seek to ameliorate the problems created by withdrawal of the WRAG component for new claims after March 2017, whether those were intended or unintended. However, I will be clear up front: we do not consider that the Government’s package of proposals adequately deals with the consequences of that withdrawal.
I will start by addressing the specific points raised by the Minister. First is the commitment to increase the funding in 2017-18 for the flexible support fund with guidance to jobcentres to ensure that the additional funding is targeted specifically at those with limited capability for work. The sum of £15 million has been mentioned. Obviously, this is to be welcomed so far as it goes and it could be used to help with extra costs of expenditure on attending interviews, training courses, accessing the internet, and so on. The focus on those in the WRAG is important because at present, as the 57 pages—would you believe it?—of guidance to district managers makes clear, the fund can be used to support all Jobcentre Plus customers, including 16 and 17 year-olds. Does the Minister have any indication of the current annual application of the fund to those in the WRAG, and how many claimants in the WRAG is the new money expected to help? With half a million people in the WRAG, £15 million amounts to 50p a week on average.
As for those with progressive deteriorating conditions, increasing awareness of the right to seek reassessment is fine but is this not just what the system should deliver anyway? Perhaps the Minister can say a little more about how it works at present, what data there are on the numbers currently seeking reassessment from the WRAG, and what information there is on the timescales within which these assessment are delivered. If it is envisaged that this awareness-raising would lead to greater numbers of individuals being reassessed, what additional resource is being made available to cope with it all?
On permitted work, the proposition is that someone on ESA will in the future be able to undertake work for more than 52 weeks, which, as we have heard, is the current limit, as long as it is for fewer than 16 hours a week and earnings do not exceed £107.50. It is understood that such earnings would not be taken into account for benefit purposes, including housing benefit. Perhaps the Minister can confirm that. Can he also say what the position will be in relation to council tax support schemes?
Lord McKenzie of Luton
My Lords, as the Minister has anticipated, we have a sense of déjà vu on this drafting. We have lost count of the number of amendments and changes the Government have made to their own legislation. Again, the Commons are disagreeing with an amendment that the Government themselves laid in your Lordships’ House and replacing it with an alternative. So confident are they now that they will get it right on this occasion that they have decided to address the point at hand in regulations.
However, the substantive point is serious and it is important that the legislation is right. It is understood that the issue is to properly identify those cases where the 1% per annum reduction will apply to only the rent and to where it will apply to rents and the amount of the service charge. The former will apply to rents determined by a formula social rent approach; the latter to what is known as affordable rents, which are determined on a percentage of market value. It is understood that the sector is content with this differentiation—the Minister has confirmed that—and so are we. We look forward to the regulations in due course. There will, doubtless, be various iterations of them.
Lord Freud
I thank the noble Lord, Lord McKenzie, for being merciful in his remarks. As I said at the start of this brief debate, this Motion has been tabled as a result of representations made by the providers—I confirm that again—and the regulator. We welcome their input, as the noble Lord does. I urge noble Lords to support this Motion.
State Pension (Amendment) Regulations 2016
Lord McKenzie of Luton Excerpts(8 years, 10 months ago)
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The Minister of State, Department for Work and Pensions (Baroness Altmann) (Con)
My Lords, I shall speak also to the draft Social Security Benefits Up-rating Order 2016. In my view, the provisions in the order and the regulations are compatible with the European Convention on Human Rights. Together, these statutory instruments demonstrate the Government’s continuing commitment to support those who have worked hard all their lives, paid into the system and done the right thing to provide them with dignity and security in old age.
Let me first address the issue of those social security rates which are linked to the rise in prices. This includes the additional elements of the current state pension, working-age benefits, carer’s benefits and benefits which contribute to the extra costs that may arise as the result of a disability or health condition.
Last year, the relevant headline rate of inflation, the September consumer prices index, stood at -0.1%, which means that price-indexed benefits have retained their value in relation to the general level of prices. These benefit rates will therefore remain unchanged for 2016-17 and have not been included in the uprating order this year. For the same reason, the Government have not laid a draft guaranteed minimum pensions increase order.
I add that the Government intend to bring forward additional secondary legislation to adjust rates and thresholds within certain social security benefits that would usually be covered by an uprating order. These include adjustments to pensioner premiums within working-age benefits, pensioner amounts in housing benefit, the level of savings credit and non-dependent deductions. We will be laying these regulations, which will be subject to the negative procedure, before Parliament in due course.
As for those rates that are included in the uprating order, this Government continue to stand by their commitment to the triple-lock guarantee, by which the current basic state pension is uprated by the highest of earnings, prices or 2.5%. This year, the increase in average earnings has been 2.9%, more than inflation and more than 2.5%. This means that from April 2016 the rate of the basic state pension for a single person will increase by 2.9%—that is, £3.35, to £119.30 a week, the biggest real-terms increase of the basic state pension since 2001. Therefore, from April 2016 the full basic state pension will be more than £1,100 a year higher in 2016-17 compared to the start of the previous Parliament. We estimate that the basic state pension will be around 18.1% of average earnings, one of its highest levels relative to earnings for more than two decades and in contrast to the low of 15.8% which it reached in 2008-09.
This Government continue to protect the poorest pensioners. The pension credit standard minimum guarantee, the means-tested threshold below which pensioner income need not fall, will rise in line with average earnings at 2.9%, so that from April the single person threshold of this safety-net benefit will rise by £4.40 to £155.60 a week and will be the biggest real-terms increase since its introduction. Pensioner poverty now stands at one of its lowest rates since comparable records began. Despite the difficult economic decisions that we have had to take, I am pleased to say that this Government are spending an extra £2.1 billion in 2016-17 on supporting pensioners who have worked hard and done the right thing while continuing to protect the poorest pensioners.
The state pension regulations set the new state pension full rate that will apply from April 2016 at £155.65 per week, equivalent to more than £8,000 per year. This will mean that the new state pension will therefore stand at 23.6% of average earnings, and I am pleased to confirm that the triple lock will apply to this full rate for the remainder of this Parliament. Our reforms will see the complicated state pension system become clearer and fairer, providing a solid foundation on which people can build up their retirement savings. They will lift many more pensioner incomes above the basic means-tested threshold for the pension credit standard minimum guarantee.
The new state pension will see many groups better off than they would be on the current system. Around 650,000 women who reach state pension age in the first 10 years can expect to receive, on average, more than £400 a year more than under the current system. Around three-quarters of those reaching state pension age will be better off under the new system by 2030. Carers, lower-earners and self-employed people will also benefit under the reformed system. However, we are ensuring that the reforms in the new state pension cost no more than the present system.
In conclusion, these measures demonstrate the Government’s overall commitment to support current pensioners by increasing their basic state pension through the triple lock, to protect the poorest pensioners by raising their guaranteed minimum income and to reform the state pension system so that it is clearer and fairer for future pensioners. Despite the tough and difficult decisions we have had to take, the Government are rewarding pensioners who have worked hard by providing them with a secure and dignified retirement. On that basis, I beg to move.
Lord McKenzie of Luton (Lab)
My Lords, I thank the noble Baroness, Lady Altmann, for her explanation of these regulations and the uprating order. I thank the Minister also for the follow-up communication dealing with some outstanding points from earlier regulations and note the efforts to be made to publicise the availability of national insurance credits for spouses and civil partners who accompany Armed Forces personnel on overseas postings.
As we have heard, the regulations set the full rate of the new state pension at £155.65. I will say more about this later. The uprating order covers the obligation under Section 150A of the Social Security Administration Act 1992 for the Secretary of State to review certain benefits and uprate by reference to earnings if they do not maintain their value. We are advised that the annual growth in average weekly earnings for the quarter ending in July 2015 was 2.9%. This is therefore applied to relevant benefits.
As far as Section 150 of that Act is concerned, we are advised that the uprating order does not need to include any benefits because these benefits have maintained their value in relation to prices, given that the CPI for the 12-month period ending in September 2015—which was available from mid-October, I think—showed a marginal negative growth rate. This seems to overlap with the benefits freeze in the Welfare Reform and Work Bill, a freeze that extended for four years the previously announced two-year restriction on certain working-age benefits. The Minister will be able to confirm that not all the benefits that are not uprated in this order have been the subject of the freeze provided for in the Bill. These include—I think the Minister referred to them—attendance allowance, carer’s allowance, DLA, ESA, statutory adoption pay, statutory maternity pay, statutory paternity pay, and PIP.
When we discussed these matters the Government made much of certain disability benefits being outside the freeze. The briefing note provided to us when we were considering the Bill—at a time when the CPI rate must have been known—nevertheless stated:
“To continue to ensure we protect the most vulnerable we are exempting benefits for pensioners, benefits relating to the additional costs of disability and care and statutory payments”.
In the event, many pensioner and disability costs are not to be uprated, for 2016-17 at least. Can the Minister tell us what assessment has been made of the appropriateness of using CPI as a measure of the additional costs incurred by those with a disability, so that the Government can be satisfied that the vulnerable are being protected?
Baroness Altmann
My Lords, I thank the noble Lord, Lord McKenzie, for his observations, and I would like to help set some of the record straight or clear up any confusion. He asked about what he called a “freeze”. The fact that some of the benefits are not changing is purely a reflection of the fact that they are linked to prices and prices fell. I assure him that uprating will continue as inflation picks up, so that these benefits will continue to increase in line with any rise in prices in the coming years. This is not a freeze on these particular benefits.
Lord McKenzie of Luton
It is not a freeze on these particular benefits, but they are not being uprated. How would the Minister describe that? That is the first point. On the perhaps more substantive point, which I recognise does not include the specific freeze in the Bill, what judgment have the Government made about the impact of not uprating and the extent to which CPI is relevant to the extra costs of those who claim DLA or PIP, not the generality of benefits?
Baroness Altmann
As I have said, benefits such as PIP, DLA and attendance allowance will be uprated in future years, when there is inflation, but prices have fallen over the past year. I can confirm, by the way, that SERPS, S2P and the other benefits are included in this. The official measure of inflation is CPI, and that is the measure required to be used for uprating benefits. CPI fell last year, so there is a 0.1% real-terms increase in these benefits, and as and when inflation increases in the future, these benefits will be increased to take account of the rise in prices, as is required. Earnings-linked benefits will rise in line with earnings or the triple lock, depending on the requirements of the benefit.
Lord McKenzie of Luton
I am sorry; I do not intend to get up again, unless really provoked. I think the Minister said that the benefits had to be uprated in line with CPI. If the Government judged that to be an insufficient uprating—zero, in this case—because of what had happened to the costs of those concerned, is she saying that the Government would be precluded from uprating further or beyond the zero? Are they bound by that?
Baroness Altmann
As the noble Lord is aware, the Government would have discretion to increase by more, but the judgment is that the appropriate requirement this year is that these benefits be changed in line with inflation, or slightly above the movement in prices over the past year. I reiterate that this is not a freeze. It is not part of any benefits freeze; it is purely a function of the fact that these particular benefits rise in line with the change in the price level, as measured by CPI, which is the Government’s official inflation measure. On his particular question, Section 150A of the Social Security Administration Act does not allow for inclusion of these rates in the order, so the rates that will be increased will be taken by alternative powers. There is nothing untoward or underhand in any way; it is merely a function of how the legislation is framed.
Turning to the new state pension, the noble Lord is absolutely correct: communication is very important. One of the big communication challenges we all face is the perception that if people are not getting what is called the full rate of the new state pension, they are losing out. That is a misperception, and it is important that we try to help correct and overcome that. It is important that we help people understand that the new state pension is a totally new system. The full rate will apply to those who are only in the new system, but for those who have built up state pension under the previous system—the existing system—an allowance will be made for years in which they did not pay full national insurance because they were building up a private pension with some of the rebate for national insurance they received.
Lord McKenzie of Luton
Will the Minister tell me what happens after 2030? What are the projections?
Baroness Altmann
I am coming on to that because it is important to understand that these reforms are designed to make the state pension system affordable and sustainable over the long term. We have an ageing population and an increasing number of expected future pensioners, which is good news. The proposal and the overall framework of our pension reforms, taken together, are to ensure that the state pension system is sustainable. Over the years from 2030 and certainly from the 2040s onwards, the general level of the state pension will be set at a base of around £8,000 a year in today’s money. On top of that, people will be expected to have built up a private pension under the auto-enrolment reforms. It is true that in the 2030s and mainly from the 2040s onwards, the general level of the state pension will not be as generous as it would have been if the current system had been sustained. However, the current system is not sustainable. That is expected to be combined with a better private pension to ensure adequate pension provision—indeed, better pension provision—for more pensioners in future because the state pension system will not penalise private savings in the way it currently does for those who are going to end up in the bottom half of the pensioner income distribution in later life.
The new framework, with a base level of state pension that is not earnings-linked, topped up by a good private pension that comes from auto-enrolment, with help from the employer, which will be earnings-linked, is meant to make our system more sustainable and affordable. Having said that, as the noble Lord rightly said, there will be people who will need a safety net; for example, because they do not have the full 10 years required for any state pension and so end up with no state pension, or for other reasons. They will still have access to the means-tested pension credit, but that will be set below the full rate of the new state pension to maintain the incentive.
The question about the 5p differential between the pension credit minimum guarantee and the full rate of the new state pension was relevant to this point. We are committed to ensuring that the new state pension is above the pension credit standard minimum guarantee, but it is also important to remember that the 2012-13 illustrative rate for the new state pension was £144 a week, while the pension credit standard minimum guarantee for a single person was expected to be £142.70 a week. Since then, we have increased the pension credit standard minimum guarantee by the full cash increase given to the basic state pension, so that the poorest pensioners benefit from the triple lock as well. That means that the pension credit standard minimum guarantee has grown faster than the new state pension illustrative rate.
As far as the savings credit is concerned, it is true that the savings credit maximum rate is being reduced, but this should be more than offset by the increase in the basic state pension, and the triple lock. As well as being catered for, depending on what happens to each individual element of a pensioner’s income, the fact that the maximum savings credit is falling by approximately £2 a week will be more than offset by the £4 or £3.35 increase. Our forecasts are that pensioners will, on average, still be £2 a week better off in cash terms. I am assured that there will be absolutely no cash losers from this. The expectation is that the poorest pensioners will still see an increase in their overall income.
The noble Lord also asked about the rebate savings from contracting out. It is true that the additional national insurance revenue raised by the withdrawal of the contracting-out rebate will be received by the Government. However, it will be received by the Treasury; it will not flow to the DWP. It is not expected to be spent on the state pension; otherwise, it would mean that significantly more would be spent on new, rather than existing, pensioners, which was never the intention of these reforms. It is a matter for the Treasury how it allocates the departmental funds that it raises after the removal of the rebate and how that revenue is subsequently spent.
I think that that covers the points raised, if I am not mistaken.
Lord McKenzie of Luton
I am grateful to the Minister for a very full response on most issues. Unless I missed it, I do not think she dealt with those who may have no entitlement to the equivalent of the basic state pension, or with transitional protection. We touched on those paying reduced national insurance contributions before 1977, which might be one category, but is that it? Is that all the transitional protection that will be available?
Baroness Altmann
I apologise. I thought that the noble Lord had, in a way, answered his own question by saying that there is transitional protection for those women who have paid the married women’s stamp—the reduced rate election. There is also protection for Armed Forces spouses, who will get credits in the system. It is also the case that some people might have inherited a pension from a spouse but no longer will under the new system because the new state pension will treat individuals in their own right. It is very difficult for us to predict who will become widowed. However, as the noble Lord rightly said, this will form an important part of the communications on the new state pension: to explain that in future most people—as I say, there will be exceptions for the Armed Forces and the married women’s stamp—will be treated for state pension purposes on the basis of their own record, rather than being assumed to be able to inherit or transport an entitlement from a partner.
Lord McKenzie of Luton
Just to be clear on that point, my understanding is that the Government have estimated that up to 2030 some 290,000 people will be affected by the withdrawal of that opportunity. I understand what the Minister has said about those who paid reduced national insurance contributions before 1977 and those accompanying armed services personnel, but how many of those 290,000 people does that cater for? What is the level of the transitional protection likely to be for those who paid reduced national insurance contributions before 1977?
Baroness Altmann
I do not have the breakdown, but I am happy to write to the noble Lord with whatever figures we can give him to satisfy him on that particular request. Pension credit remains for anybody who does not have sufficient income to bring them up to the £155.60, which is usually far more than the pension that one would have inherited. Under the new state pension, widows or widowers will also inherit the protected payment that their previous partners would have been able to build up under the new state pension system rules.
I thank the noble Lord for his contribution to this important debate. This Government are taking the necessary steps to protect pensioners, many of whom have worked hard all their lives and are no longer in a position to increase their income through work. Our triple lock, our protections for the poorest pensioners and our new state pension reforms mean that we will be able to provide pensioners with dignity and security in their retirement.
Welfare Reform and Work Bill
Lord McKenzie of Luton Excerpts(8 years, 10 months ago)
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Lord Freud
My Lords, the amendment to paragraph 3(5) of Schedule 2 is to address ambiguity in the drafting and clarify that, in a case where the tenancy begins after the beginning of the first relevant year but not at the beginning of the second or third relevant year, the rent should be calculated in the following relevant year. The amendment also removes a redundant cross-reference to paragraph 3(2), which is a drafting error we had regrettably not spotted previously.
I would like to inform the House that a number of social housing providers have alerted us to an unintended consequence of the government amendment brought forward on Report, which sought to enable continuation of existing policy that affordable rents are inclusive of service charge when determined on the percentage of market rent principle, but exclusive of service charge when determined on the social rent model. We have looked at this and agree there is an issue in the drafting that we need to address. The Government will therefore be seeking to do so during Commons consideration of Lords amendments. I thank the providers who raised that issue with us, and apologise to the House that this has come up at such a late stage, and that we are dealing with it in this way.
The Bill returns to the other place without the proposed changes to the ESA WRAG, and the limited capability for work element in universal credit. It also now places a requirement on the Government to publish and report on income measures of child poverty. In sending these amendments back, the Cross-Benchers, in particular, have sent a clear message and I will say only this: there will now be a process between the two Houses, as is conventional. We have discussed many other matters during the passage of the Bill. Many of them are important and we will continue to reflect on them and seek to obtain the best outcomes we can. I beg to move.
Lord McKenzie of Luton (Lab)
My Lords, I thank the Minister for his explanation of Amendment 5. It makes the drafting of this area somewhat less impenetrable. I was going to say that it would be churlish, given the occasion, to point out that this is the third or fourth attempt to get this drafting right but clearly there will need to be a fourth or fifth, from what the Minister has said, and we welcome the point to which he has alerted us.
I take this opportunity to welcome the Minister’s action in deferring the impact of the rent reduction policy for a period and holding back on the local housing allowance. We will have to see where that leads. Of course, this point was pursued rigorously by the noble Lords, Lord Best and Lord Kerslake. My understanding is that this has not necessarily allayed the concerns of providers sufficiently and there is the risk of holding back on some key projects in relation to supported accommodation, which would be a great pity. So I think there is a task for the Government there.
With regard to the amendments that go back with the Bill to the other place, all we can do is urge the Minister to send it on its way with his wholehearted support.
Baroness Manzoor
My Lords, we broadly support Amendment 5. It is a positive change. I take this opportunity to thank the Minister for the very constructive way in which he has allowed us to meet him, because there have been great challenges in the Bill. It has been a very difficult Bill and he has been a master at defending a very difficult piece of legislation. I sensed at times that he himself felt, “My gosh, what are we doing here?”. I may be putting words in his mouth but that is the sense I got.
Obviously, there are significant financial cuts to some of the most vulnerable in our society. As the Minister is aware, I have been very concerned about the issues relating to the work allowance and the cuts that will affect working people. We have looked at the Bill through the prism of work. I am also very concerned about the cuts to employment allowances for people with disabilities and progressive illnesses. I state again that I really cannot understand how cutting £30 a week from the employment allowances for people in the ESA group is going to make them better and fitter and enable them to go back to work. I say to the Minister: this is going back to the House of Commons but please could the Government look at this? It is so important as a sign of a compassionate, caring society that we look after the most vulnerable. But I thank the Minister, and the Bill team, for the time he has given to the Bill and the very constructive dialogue he has held with us.
Pensions Act 2014 (Consequential and Supplementary Amendments) Order 2016
Lord McKenzie of Luton Excerpts(8 years, 10 months ago)
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Lord McKenzie of Luton (Lab)
My Lords, I thank the Minister for her introduction of these regulations and the order and note that the two Motions are to be taken en bloc.
The draft Explanatory Memorandum reminds us that this is the second tranche of affirmative legislation which is needed to support the introduction of the single-tier or new state pension on 6 April 2016, and there is more secondary legislation to come. We have been asked today about taking some SIs on 22 February. Is that it or is there still more to be scheduled?
We know that part of what is to come will cover national insurance credits for spouses and civil partners of Armed Forces personnel to cover past periods of accompanied service overseas. We obviously support this but recall that when we debated this before there were concerns, surprisingly, about the data. Perhaps the Minister will confirm how these have been satisfactorily addressed.
The scope of these regulations is a reminder of the complexity which is still very much a part of our pensions system—state and private—and whatever the promise of simplicity to come from the new state pension, that simplicity is, frankly, some way off. The need for effective communication could not be greater, especially as the change comes in the midst of other pension changes, including the accelerated changes to the state pension age, particularly hitting women, and the so-called flexibilities for private provision. This complexity also requires particular diligence in drafting. I am bound to say that slipping through regulations just before a Summer Recess, which have to be unpicked subsequently is not an efficient way to legislate. However, we acknowledge that eventually the new state pension will simplify matters and bring forward the point at which women get equivalent state pension outcomes to men, but not until the 2040s. We also note that the IFS concluded that in the long term the new pension will be less generous than the current system to almost everyone.
We have heard this afternoon that the regulations cover four main topics: deferral of the new state pension; transitional arrangements for inheriting graduated retirement benefit; pension uprating for those living abroad; and technical amendments relating to contracted-out occupational schemes. As we have heard, Regulation 3 deals with the deferral of the new state pension. The opportunity to do this exists, of course, under the current system and is something we support. It is an encouragement to those who wish to stay in the labour market and earning. However, the terms are to be less generous in the future, with the reduction in the accrual rate from 10.4% to 5.8% a year and no opportunity, outside transitional arrangements, to take a lump sum. Any increase is applied to the weekly rate of pension immediately before the end of the deferral period, but this is now to be reduced when there has been an increase other than through uprating. As regards what has been described as an anomaly, does this happen under the current system? What has changed in the need to back out these issues?
The Explanatory Memorandum tells us that the most likely cause of such upratings is where someone has inherited an amount on the death of a spouse or civil partner, so could the Minister please tell us what percentage of entitlements to inherited amounts on death accrue to women rather than men? What is the estimated saving to the Treasury from this measure? Although for those wholly in the new scheme there will not be opportunities to inherit a percentage of a late spouse or civil partner’s additional state pension, we can at least support the transitional arrangements that enable someone to qualify for a survivor’s pension in respect of additional state pension entitlement built up in the current scheme. We also support the new provisions introduced by Regulations 4 and 5 enabling the inheritance of graduated retirement benefit, including deferral payments. Even though amounts are likely to be small, as has been said, it is reasonable that the transitional arrangements are consistent.
With regard to the uprating of pensions paid abroad, I confirm that what the Minister said is correct: in government we, too, resisted calls to uprate the state pension payable abroad other than to those territories set out in the Explanatory Note. This, too, was largely on the grounds of cost, as well as the uprating factors. Carrying over these provisions to the new system is therefore reasonable. We note, however, that one small change is to include Sark in the reciprocal arrangements. Where on earth did that come from? Can the Minister tell us why and say what representations have been received and from whom in respect of this matter? The definition of an overseas resident is somebody,
“not ordinarily resident in the UK”.
But can the Minister confirm that a person could be ordinarily resident in the UK but still not domiciled in the UK? As we have heard, the substantive change to the arrangements relates to the deferral rights of overseas residents. It is understood that the position is to back out the uprating component of the deferral calculation to prevent a benefit being received which would otherwise not be available if there were no deferral. We have no problem with that.
We note that the legislation is deficient in other respects in not allowing a disapplication of uprating where a survivor’s benefit is not to be uprated because the deceased person’s pension was not to be uprated—perhaps the Minister could expand a little on those circumstances. So I ask: can we therefore look forward to another Pensions Act if that is what it is going to take? The provisions generally relating to contracted- out defined benefit occupational schemes, the GMP requirement and the right to convert to ordinary scheme benefits take us back to the challenges of the 2007 Act. What was essential for conversion was the need to enable a survivor to have benefits at least equivalent to the survivor’s GMP. This looks to have eventually been achieved under the new arrangements by paragraph (6) of these regulations and Regulation 27A of the 2015 Regulations. However, this reminds us that contracting out is no longer available from April 2016, with higher rates of national insurance contributions being payable by individuals as a consequence. We have probed before what this means in terms of extra tax and perhaps the Minister would like to take this opportunity to update us on precisely how much the Treasury expects to garner from the switching off of contracting out.
As far as the order is concerned, we support the provisions enabling credits for parental and caring responsibilities awarded after but relating to pre-6 April being included in a person’s “starting amount”. We wonder why HMRC has to take over the Secretary of State’s authority in connection with entitlement to credits but note that this is not a new provision. As for extending the factors that the Secretary of State can take into account to trigger auto-enrolment and set the band of earnings to include the full rate of the new state pension, can the Minister please explain what practical effect it is considered that this change will have?
Paragraph 9 of the Explanatory Note refers to the multichannel communications campaign. Perhaps the Minister can tell us how this is is going. Mention is made of a new online service to be rolled out in 2016, which will provide a projection of the new state pension at state pension age. Is this on schedule? What volume of inquiries is currently being experienced and what are the response times?
The regulations and order are complicated but we thank the Minister and officials for a very detailed Explanatory Memorandum. Overall, we judge that they contribute to making the new state pension work properly, and we will not oppose them.
Baroness Altmann
My Lords, I am grateful to the noble Lord for his contribution to this technical debate. He has raised several questions, and I will attempt to answer some of them. If he requires further answers, I will of course write to him.
It is indeed the case that the analysis conducted by the department shows that the majority of those reaching state pension age between now and 2013 will receive more from the new state pension than they would have done under the old system. In the long run, the aim is that the rollout of automatic enrolment will provide a supplement to that state pension for future generations of retirees. Therefore, in the long run, the overall amount paid out by the state may reduce, but that is to be offset by the impact of automatic enrolment.
Women will get more state pension, on average, under the new system than they would have done under the old one. Notwithstanding the equalising of state pension ages, over their lifetime women will on average get 10% more state pension in total than men of the same age. The idea that women are losing out needs to be modified by some of the data that we have already produced.
Lord McKenzie of Luton
I was not suggesting that women were going to lose out. My point was that there is movement towards equalisation with men, although that is some time in the distance—I think that the 2040s has been the calculation.
Baroness Altmann
The equalisation between men and women of state pension payments may come in the future but, in the mean time, notwithstanding whether they get slightly less than men—the gender gap will be much narrower—over their lifetime they will get more, because the average woman lives longer than the average man. Once equalisation occurs, the gender favour to women will be even greater. In the mean time, the new state pension will put women in a much stronger position under the new state pension rules relative to the old ones. This is a significant improvement in the position of state pension payments for women on average, who, as we all know, have lost out in the past; we are remedying that to a large degree.
The noble Lord asked about contracting out. The idea of removing contracting out is not so much about cash flow or increasing the amount of money that comes to the state, because contracting out merely replaces what the state would have otherwise paid out in the state pension. By ending contracting out, the national insurance payments that are increasing will be offset over the long run. Indeed, depending on the average life expectancy, it could perhaps end up meaning that the Government pay out more in state pension as a consequence of ending contracting out than they do under the current system, where part of the state pension is contracted out to an employer who promises to replace the additional state pensions.
Therefore, it is not clear to me that there is a cost saving. It is clear to me that it is absolutely essential that we move to a simpler state pension system, which people can understand and deal with, because currently they cannot do so. At present, the existence of contracting out means that part of people’s state pension builds up in a private pension, which confuses the messages and the planning. Therefore, the principle of the new state pension is that everybody pays the same type of national insurance without some people being able to pay less than others because they are in a particular type of private pension scheme, and that everybody, regardless of their earnings, the type of credit they have or the type of national insurance contribution they pay, will be able to build up the same state pension each year as they accrue another year on their contracting-out record.
Lord McKenzie of Luton
In relation to the year we are just about to enter—2016-17—is the Minister saying that there will not be extra net revenue in the system that year from the abolition of contracting out?
Baroness Altmann
Of course that is not what I am saying. I am saying that we have to look at the state pension over the long term. National insurance is paid now but it relates to liabilities that will be paid over a long period of time, and Governments, quite rightly, have to plan for that with regard to the money flowing in now and the liabilities that will ensue from that over the longer term. As we know, the new state pension is expected to be cost-neutral to the taxpayer. Given that, I am not convinced that it is appropriate to consider contracting out as a money-saving exercise.
I am delighted that the noble Lord supports Regulations 4 and 5. Most of the measures that are being put in place here are indeed technical in nature and try to maintain the principles of the new state pension as well as protect people when we move from the old system into the new system—in particular, as we said, widows or widowers who inherit parts of the state pension entitlements that they would be able to inherit today.
The noble Lord also mentioned the importance of communications, and I completely agree with that sentiment. Indeed, as he alluded to, we are engaged in a widespread campaign to inform people and improve communications around state pensions. An enormous amount of time, effort and money has been put into this exercise, and we will continue that over the coming period. I assure the noble Lord that we have very much adopted the idea of communications being particularly important and will continue to work in that way.
The noble Lord also mentioned the complexity of the new state pension rules and some of the issues that have arisen with the drafting of the regulations. Of course it is a matter of regret that we had to come back with an affirmative regulation, which should have been done in the appropriate way in the first place. However, the debate is now taking place, as required.
We must not forget that the old state pension is what is so complicated. Dealing with past complexity is imposing difficulties when moving to a new state pension system. We have not been able to just sweep away the old system; we have to carry people into the new state pension system. That means carrying with it the complex rules and the many adjustments that were made over the many years for which it has existed. Once that new system is in place, the scale of complexity will be vastly reduced. For most people, it really will be a simple system, but we have to get from the old system into the new one, when it is fully up and running, and that will take some time before we can reconcile all the records as at April 2016 to know what everyone is starting the new system with.
As for national insurance credits for spouses and partners of people in the Armed Forces, we will be providing data when we bring forward those regulations. As the noble Lord said, we plan to have that debate on 22 February. We believe that we have reliable data that we can put before the House. Unfortunately, as I explained, the old system is very complicated. We need to bring in a huge number of moving parts from the current system to try to ensure that people do not lose out.
The noble Lord mentioned inheritance. In the new state pension system, widows will be able to inherit the additional pensions of their late spouses or partners. That inheritance currently exists and will be carried forward. I can reassure the noble Lord on that matter.
The noble Lord asked me about digital state pension statements. At the moment, they are in testing. The testing will be carried out over the next few weeks, and we will then be gradually rolling out the new digital statements, which will be much clearer and more helpful, so that people can see forecasts of what their new state pension will be able to give them.
As for the issue of deferral, as I said, the regulations will correct an anomaly that exists. The new state pension will ensure that the deferral for those who live in overseas countries which do not have a reciprocal arrangement with us, and those countries in which pensions are not uprated at the moment, will apply only to the pension at the date at which the person reached state pension age. That is the increment that will be added for deferral, rather than adding an increment to an increased state pension, which would otherwise give them a double benefit.
The debate has ranged rather widely—probably more widely than the provisions—so it may be helpful if I remind the Committee of what the regulations do. They enable a widowed person whose late partner was in the old state pension scheme to inherit the graduated retirement benefit. They provide for increments from state pension deferral to be based on the amount of new state pension the person would actually have been entitled to if they had been receiving their pension instead of deferring it. They maintain the long-standing policy of not uprating the state pension for people resident in certain countries overseas. They replicate a provision relating to survivor benefits that was in an old set of regulations in the new set that replaces them. The order simply makes consequential amendments that result from the introduction of the new state pension. I therefore commend the regulations and the order to the Grand Committee.
Lord McKenzie of Luton
Would the Minister mind looking at the record after this and perhaps writing where she has not been able to cover matters this afternoon?
Baroness Altmann
Yes. As I said, I am more than happy, if there are issues that have not been covered, to write to the noble Lord.