Debate on the Address

Debate between Anne Begg and David T C Davies

Wednesday 8th May 2013 Commons Chamber

[Dame Anne Begg]

I am delighted to hear that and perhaps we will come back to the Bill if it is not amended enough.

We welcome the single-tier pension because it will generally mean more state pension for those who have the least. Groups that have lost out in the past with regard to the state pension will benefit—they will generally be women, carers, people with broken work records, and those such as the self-employed who have been unable to build up any kind of second state pension. They will see the immediate benefits of the introduction of this system.

There will, however, be those who lose out, and one main change will affect those who have already made decisions about their retirement. At the moment, someone can qualify for a full state pension after 30 years of national insurance contributions. The Bill increases that to 35 years, but there is already a group of people who have decided to retire although they have not reached pensionable age. They will not necessarily be in a position to build up 35 years of national insurance contributions before they reach the new single-tier pension. The Committee makes recommendations about buying back national insurance years and contributions, but a huge communications job will be necessary to ensure that people are aware that the number of qualifying years has now changed. I will say more about communications in a minute.

It was interesting that the Minister went on the airwaves earlier this week with regard to one group of people who will definitely lose out—women who get only a pension derived from their husband’s contributions. I am not sure why the Minister spoke about that in terms of the wives of expats, but it was possibly because a large number of those who will be affected by this measure live abroad. The measure will, of course, also affect women in this country. That seems to have come as a complete surprise to many and perhaps explains why a lot of people think they will be better off under the new system when in fact they will not because their spouse will not qualify for any of the new derived rights. Basically, what used to be known as the married woman’s allowance is going for everyone.

The Committee has a recommendation for the Government:

“We welcome the Government’s sensible transitional solution to the potential adverse impact on employed women who chose to pay reduced NI contributions under the Reduced Rate Election—”.

That was often called the small stamp or the married woman’s stamp. It was a long-running sore that had never been cured, so good on the Government because it has now been solved. They have come up with a transitional arrangement that will allow women who paid the small stamp to get full credits and qualify for the single-tier extension.

That does not apply, however, to those who will get nothing as a result of the abolition of their derived rights. The Committee report states:

“We believe that it should also be possible to find a solution for another small group of women: those who did not build up their own NI record because they had a legitimate expectation that they would be able to rely on their husband’s contributions to give them entitlement to a Basic State Pension. One option might be that women in this position who are within 15 years of State Pension Age should be able to retain this right. We recommend that the Government assesses and publishes the cost of providing this option for the relatively small number of women affected. We believe that, for those further from retirement, there is sufficient time for them to plan on the basis of the new rules.”

One reason we chose the period of 15 years from retirement was that it had to be more than 10 years. The Bill says seven or 10 years, but the Committee recommends that it should state anything up to 10 years, because people will probably need to have 10 years’ worth of contributions before they get any state pension—they will get nothing for less than 10 years’ worth of contributions. The Committee believes that people within 15 years of retirement with no national insurance contribution, who would have expected to get their pension through their spouse, should be protected, and that there should be transitional arrangements for them. Anyone further away can make up some of the shortfall—not all of it—in the intervening time.

[David T. C. Davies (Monmouth) (Con)]

I am grateful to the hon. Lady for giving way and for the reasonable way in which she makes her points. Without trying to jump ahead, what does she make of suggestions that the Government will prevent spouses who have never set foot in the UK from receiving a state pension? I suspect most Government Members fully support those proposals, but does she support them?

[Dame Anne Begg]

The Committee did not say that we were against the abolition of derived rights in principle for future pensioners. We accept the Government’s argument that people should have a state pension in their own right, and that they should accrue their own credits to get it. The consequence is that there will be no married woman’s allowance in future. The problem I have addressed is how we get from the current position to that one without being unfair on the group of women who are within 15 years of reaching their pensionable age. As the Bill stands—we hope it might change by tomorrow—that group of women will get nothing from April 2016. The Committee believes that that is a particularly harsh cliff edge. We have no problems with what happens in future. Because women work or because of changes made by the previous Government in how national insurance can be credited for caring—not only for children, but for disabled adults or elderly relatives—women are more likely to have credits towards their own pension, which previous generations did not have. We accept that the world and society have changed and that, as a result, women who have not been in this country and who have not been in a position to build up credits will not get a pension in the long run.

The Government face a problem in getting over to people exactly what the pensions Bill means. They have concentrated on saying that the new arrangements are much simpler and easier to understand, which is understandable. They have said, “The new single-tier pension will be £144, and that’s it. That’s all you need to know.” However, as a result of that simplification of the message, people have got the wrong end of the stick with regard to what it means in their individual cases. That is why it is crucial that the Government think again on a clear communication strategy. That should start as soon as possible, and not wait until the Bill has become an Act of Parliament. In anything to do with pensions, planning is so long term that people have to be sure about what they may expect. If things are going to change, people have to know they are going to change. That is especially true of the group of women born in 1952 and 1953, as they have suffered a double whammy with the increase in the state pension age. Many of them are worried that they will lose out, but they may not. The point is that they do not know, and the Government have not been able to give them enough information or explain what will happen.

This week I got a letter from a lady who was convinced that she will get only £144 a week because she will reach pension age after April 2016. She has paid SERPS all her life and she is convinced that the Government will steal her SERPS from her. She does not know that she will get whichever is higher—SERPS or the single-tier pension. One gentleman thinks that it is really unfair that he has paid SERPS all his life, but will get only £144, whereas his next-door neighbour, who was contracted out and gets an occupational pension—and has been paying less national insurance—will also get £144, but of course that is not true. The person who has been contracted out will lose out, depending how the calculation goes. The calculation is a complicated one and the headline message has continued to be that everyone will get £144 for their state pension, so many people think that the introduction of the new scheme is unfair.

I have to say that initially some people who had already reached pension age were keen to get on to the new system until they realised that they would not necessarily be much better off. They are not quite so keen now to get on to the single-tier pension. It is worth pointing out that the Govt are doing this only because it is cost-neutral. The Treasury does not have huge extra wads of money sitting around somewhere to pay to people who reach pension age after April 2016. The worry of many women born in 1952 and 1953 is that they would have qualified for pension credit anyway.

The Committee was concerned that the single-tier pension was being set only £1 above pension credit levels. We thought that the Bill should include a provision that would always ensure that the single-tier pension would be above the level of pension credit. We were disappointed that the gap between pension credit and the single-tier pension was so narrow. It would help to allay some of the fears if there was a guarantee that the single-tier pension would always be above the basic level.