Pensions
Debate between Baroness Winterton of Doncaster and Paul Maynard(10 months, 3 weeks ago)
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The Parliamentary Under-Secretary of State for Work and Pensions (Paul Maynard)
I beg to move,
That the draft Guaranteed Minimum Pensions Increase Order 2024, which was laid before this House on 15 January, be approved.
I feel almost like a Netflix series, in that people can now binge-watch two episodes of me in a row. I hope none the less that this matter is worth equal consideration.
The Guaranteed Minimum Pensions Increase Order sets out the yearly amount by which a guaranteed minimum pension pot of an individual’s contracted-out occupational pension earned between April 1988 and April 1997 must be increased. Occupational pension schemes are required to increase GMPs that were earned during that period and are in payment by 3% for the 2024-25 financial year.
As this is quite a technical matter, I will provide a little background information on GMPs, and what they are and are not. GMPs were created to help make occupational pension provision more affordable and more secure. As many Members present will be aware, the state pension used to be made up of two parts: the flat-rate basic state pension and the earnings-related additional state pension. The flat-rate state pension was funded through the national insurance scheme, and paid the full rate to those with sufficient qualifying years of NI contributions, or pro rata to those with a partial record. The second part of the state pension, the earnings-related additional state pension, was linked to a person’s earnings. The national insurance contributions paid by both the employee and their employer gave the employee the right to an additional earnings-related state pension. That was designed to ensure that as many workers as possible were able to save for their retirement through a work-based pension.
However, many employers already offered their workers a company pension through their own scheme, so many people were already building up an occupational pension, and an earnings-related additional state pension in effect replicated that provision. That was considered onerous and potentially unaffordable for both employers and employees. It was seen as double provision and over-complicated. In order to simplify the situation, the Government of the day introduced in 1978 the system of contracting out, and the provision of guaranteed minimum pensions, which are the subject of this order.
Between April 1978 and April 1997, employers sponsoring a salary-related occupational pensions scheme could “contract out” their occupational pension schemes from the earnings-related additional state pension. People who were members of a contracted-out scheme were taken out of the additional state pension, so as a result both the employer and the pension scheme member paid lower-rate national insurance contributions. In return, salary-related contracted-out occupational pension schemes were required to take on the responsibility for paying their members a guaranteed minimum pension as a part of their occupational pension from the scheme.
The guaranteed minimum pension that the member built up in the scheme would be broadly equivalent in value to the additional state pension that they would have received had they stayed in the state system. The majority of employees would also have built up an occupational pension over and above the guaranteed minimum pension amount, but the scheme pension could never be lower than that guaranteed minimum. The crux of the idea was that, rather than paying additional national insurance to the state in order to build up an additional state pension, people could build up a similar amount of occupational pension through a workplace pension scheme. The system ran in that way from 1978 to 1997. Having set out the detail, which I accept is complicated, let me turn to the order before us.
The order provides a measure of inflation protection for the guaranteed minimum pension part of an occasional pension built up between April 1988 and April 1997. Legislation stipulates that, when there has been an increase in the annual level of prices as measured the previous September, the order must increase the guaranteed minimum pension part of the occupational pension by that percentage or 3%, whichever is lower. As the September 2023 figure was 6.7%, the increase for the financial year 2024-25 will be 3%. The cap of 3% aims to achieve a balance between providing some measure of protection against inflation for members and, crucially, not increasing schemes’ costs beyond what they can generally afford, in order to avoid undermining the viability of some schemes and seeing them go into the Pension Protection Fund.
An obvious question comes to mind: what happens when inflation is above 3%, as it is currently? Most members who reached the state pension age before 2016 will still get the same inflation protection for their post-1988 guaranteed minimum pensions as if they had never been contracted out. That is achieved through an uplift that they receive in their additional state pension. For those reaching state pension age after April 2016, who are therefore receiving the new state pension, there are transitional arrangements in place, which are particularly beneficial for people who are contracted out. These members will therefore still get the 3% increase from their occupational pension schemes.
I recognise that this is perhaps a very complex and technical area, but I am satisfied that the order ensures that the burden placed upon schemes is an appropriate one, but also one that ensures that recipients get an increase in their pensions that gives them some measure of protection against inflation. I therefore commend it to the House.
Social Security
Debate between Baroness Winterton of Doncaster and Paul Maynard(10 months, 3 weeks ago)
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The Parliamentary Under-Secretary of State for Work and Pensions (Paul Maynard)
I beg to move,
That the draft Social Security Benefits Up-rating Order 2024, which was laid before this House on 15 January, be approved.
The draft order will increase relevant state pension rates by 8.5%, in line with the growth in average earnings in the year to July 2023. It will also increase most other benefit rates by 6.7%, in line with the rise in the consumer prices index in the year to September 2023. Subject to parliamentary approval, the changes will take effect from 8 April and will apply for the tax year 2024-25. [Interruption.]
Madam Deputy Speaker (Dame Rosie Winterton)
Order. May I ask those not participating in the debate to leave quietly? It is difficult to hear the Minister.
Madam Deputy Speaker
Order. Minister, I have just been asked to clarify that you are moving motion 3 on social security.
Paul Maynard
For the information of the House, this order covers state pensions. Motion 4 covers the guaranteed minimum pension, which is a sub-element of the pensions issue. As I will explain, the different elements—
David Linden (Glasgow East) (SNP)
On a point of order, Madam Deputy Speaker. Can I clarify whether we are taking motion 3 on social security and motion 4 in one debate, or will we scrutinise the orders separately? It would be helpful for the House to have clarity on exactly what is happening.
Paul Maynard
Indeed, a few days ago I was asking those questions about whether to take the motions separately or together. They are being taken separately.
Social Security and Pensions
Debate between Baroness Winterton of Doncaster and Paul Maynard(1 year, 10 months ago)
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Paul Maynard
I am grateful to my hon. Friend for that intervention. He used the phrase “local welfare assistance scheme” which, sadly, could provoke me to speak for even longer than the hon. Member for Glasgow East (David Linden), because it is my specialist topic, but I ought not to go there—[Hon. Members: “More!”] Perhaps Members should wait for me and the hon. Member for North East Fife (Wendy Chamberlain) to finalise our report into emergency food aid, where they will be able to see exactly what I think.
To finish on perhaps a more fundamental point, one strength of our benefits system is that sufficient incentives are built into the structures of in-work benefits, along with conditionality—I am sorry to say that to the shadow Minister—to ensure that, as far as possible, work is seen to pay. However, that has been distorted through the more complex pattern of financial support that has emerged during covid and the wider cost of living crisis. Those living just below a particular threshold that qualifies them for extra state support get large payouts, but those just above the threshold feel greatly aggrieved. They regard it as unfair because they are being punished for being seen to do the right thing. The bedrock of our benefits system is a belief in its fairness, not just to those who need support at any one time, but to those who have to fund the system and may one day, of course, require it. Although I strongly welcome the Government’s decision to uprate benefits, we must bear in mind the needs of, and treat fairly and responsibly, not just those who are in receipt of benefits, but those who fund the system and are in work, day in, day out. They are two sides of the same coin.
Madam Deputy Speaker (Dame Rosie Winterton)
I call the Chair of the Work and Pensions Committee.