Pensions Bill

Baroness Hollis of Heigham Excerpts

Tuesday 8th April 2014 Lords Chamber

[Baroness Hollis of Heigham (Lab)]

My Lords, first, I thank the Minister and his honourable friend in the other place, Steve Webb, for briefing me on their position before our amendment went to the Commons to be overturned. I appreciated their courtesy then in the same way that I appreciate the Minister’s generosity today. I also appreciate above all—that is what matters—their recognition—sort of, at any rate—that this issue is not going to go away. Obviously, my regret is that the Minister did not feel able to come back with an appropriate amendment in lieu, but of course I welcome the detailed review announced today.

What was the point of the original amendment? The state pension has been a national insurance pension built on men’s full-time working lives, where wives and widows largely derived their state pension entitlement through him. However, as family structures have changed, as motherhood has become divorced from marriage, as disabled people have lived into retirement, as mothers have joined the labour force, as grandparents in their 50s have become carers of even frailer parents in their 80s, so governments over the years have credited those in unwaged work—mainly women—into the NI system. Noble Lords—many of whom are here today—have helped enormously to make all that possible.

However, though the state pension has responded flexibly and appropriately to the changes in our demography, in my view it has failed to respond flexibly and appropriately to similarly profound changes in the labour market, such as the growth in self-employment, part-time work, agency work, zero-hours contracts, the 24/7 working world and the fact that nearly 40% of all people in the labour force no longer work a standard labour contract, on which our pensions are still largely based.

We have, alongside the US, probably the most flexible and deregulated labour market in the developed world—for good and for bad—but our pension structures have not caught up. Therefore, along with insecurity, uncertain income and hours, issues of sick pay, holiday pay and childcare needs—the dark side of the flexible labour market—almost always overlooked is, for some, the lack of pension entitlement. We who benefit from the labour market, including me, should ensure that appropriate safety nets are in place.

After all, if you are unemployed and on JSA, you are in the national insurance system and build a pension; if you are on disability benefit, you are in NI; if you are a carer of children or frail elderly relatives, you are in NI; if in future you are self-employed, you are in NI; and if you work 20 hours a week on the minimum wage in a single job, you are in NI and you build a pension. That is good. However, if you are in a non-standard work pattern, working 30 hours a week on the minimum wage but with two 15-hour jobs or three 10-hour jobs, you are excluded from national insurance.

If your earnings fluctuate across the year, when you can be sent home 10 minutes before your shift starts, you may not even know whether at year’s end you have crossed the LEL line and built your pension. If you strive to come off JSA, as we would wish, by patching together mini-jobs, which may be all that is available and with all the effort, travel costs and risk that that requires, you may get punished for it by losing the state pension that you would have got by simply staying on JSA. That is perverse. We are punishing people for doing what is right—those who are taking risks to do what is right—and public policy which does that must be wrong.

A woman may be cleaning offices early in the morning and late at night, as well as other offices late in the day, and doing domestic cleaning, travelling for hours by bus and building her working week. She may be working at a department store late on a Thursday evening and all day Saturday, alongside working in a laundrette during the week. A man may be doing three hours each weekday in a sandwich shop alongside some delivery work or part-time security work in Tesco. Multiple jobs are hard work.

Steve Webb in the other place was puzzled as to why such workers do not find jobs with longer hours. Disappointingly, he cannot have read the research. Students and pensioners may want those limited hours, but nearly half the workers in the MASS1 survey wanted longer hours and could not get them, sometimes because, I am afraid, employers want to dodge paying NI. Such workers need a second or even a third mini-job to make ends meet. They work 30 or 40 hours a week, fractured between several jobs. They may earn £11,000 or £12,000 a year and they may pay tax. We are quite happy to amalgamate their earnings for tax, through which they contribute to other people’s pensions, but we refuse to allow them to do it for NI, which would build their own state pension. This is so wrong.

We do not know precisely how many people are in this situation but my own best estimate—and it is only that—is that the figure is some 250,000 and growing. The obstacles over the decade in which we have been arguing this have basically been two. First, it is fiddly getting fractions of employers’ contributions from different companies. Secondly, there is an assumption, which I know the Minister does not share and which I am sure his right honourable friend does not share, that those with a couple of part-time jobs are mostly older women who can rely on their husbands and work for pin money; for them, the situation is short term and they do not matter. Well, they do. The changing world of work has made this a real issue.

Real-time information allows HMRC to track them—that is now straightforward. The new state pension—and I am so pleased about this—brings 4 million self-employed people into national insurance without an employer’s contribution, so that is not necessary. In addition, there are in any case millions of unemployed people on benefits or earning above the LEL of £5,700 but below the point at which they pay NI at £7,500 and who are credited into NI for free, yet because someone is earning £12,000 from three £4,000 jobs, they are outlawed and get nothing. We should be supporting their work effort and applauding their effort to patch together a wage under difficult circumstances, not undermining it.

Neither is this some short-lived rite of passage. What little survey material we have suggests that 40% of people in zero-hour contracts have been with the same employer for five years or more and 20% for 10 years or more, to the detriment perhaps of their future state pension. We know, for example, that many low-paid people cycle between employment, self-employment and no employment, but we do not fail to support the self-employed because their self-employment may last only a few years and theoretically there is time to build a full NI record. These non-standard work patterns are not some temporary phenomena but a fundamental shift in the nature of employment where demand for labour and services will ebb and flow by the hour, the day, the week, the season. With a Pensions Bill before us, we could do something about it and bring the state pension into line with this new working world.

The House agreed. On 24 February it supported this entirely permissive amendment. The Minister in the Commons who overturned it made three points: it was technically defective; we did not know the real stats—the Minister used that argument today—and universal credit would sort it; and, therefore, it was premature to act. I agree with the Minister on most of that, but not on the last point. The amendment is probably technically deficient. I have had many technically deficient amendments run against me. If the House and Government agreed, it was my responsibility, with consent, to bring back an amendment that in the words of the honourable Steve Webb could “normally be tidied up”. He simply chose not to.

Secondly, I agree with the Minister that we do not know what the facts or stats are. We have no definitive figures. Research on the topic is limited and they use different data bases. Of the primary pieces of research, one samples employers and one samples employees. One looks at only zero-hour contracts and the other at short-term contracts as well. They have different wage bands and different hour bands. The reason is that they were researching the work conditions behind zero-hour contracts, not the question of pension entitlement to NI. I am afraid that those questions did not arise. We can only make informed assumptions about the number of those at risk who will be covered by UC.

I am delighted that today the Minister has committed himself to decent research on the subject over and beyond what we already know. A full review of the existing literature, as I am sure the Minister knows, will take him precisely 10 hours. What I do not know, and what the chartered institute or MASS1 could tell us, is whether their data can be cut in different ways to answer some of the unknowns or whether we need fresh survey material that focuses specifically on the NI and pension entitlement issue. If we do need fresh survey research material, is the Minister in a position today to give us the guarantee that he will use departmental resources to find out what else we may need to know?

However, none of these considerations need stop the Government following through on the amendment, in my view. Why? How? We could, for example, treat such workers in pension terms like the 4 million self-employed, coming into NI for the first time, leaving open the status of their employment. Or we could encourage voluntary NICs, but the employee will not know until retirement how many years she has missed, and by then voluntary NIC rules do not allow her to make good the missing years from 25 years earlier. Aren’t we clever? We could treat her like those on JSA, in that by working more than 20 or 30 hours a week, she was indeed meeting work conditionality and was credited in. We could reconsider the LEL—lowering it perhaps, as Steve Webb suggested, to bring in more mini-jobs or, as the IFS has proposed, raising the primary threshold, perhaps to the tax threshold with which it was previously bracketed. That comes at a cost.

We need departmental resources to determine how best to proceed, but it is not rocket science. We could do it quite easily with political will. We need to do it because the new state pension—this is also different—is financially more generous but it has scrapped the married woman’s pension and scrapped the widow’s derived pension. The widow or the wife can have absolutely nothing. Universal credit is a household test and the husband’s income may float them off it. If she were doing too many jobs that took her above the LEL, and was not allowed to bring them together, she could fail to get a pension through her own work; she could fail to get a pension through her husband’s national insurance; and she could fail to get a pension through UC. Unless we tackle this issue she will get no pension at all for those years in which she ran together many jobs. No state pension at all—none.

Let me make one final point. Of course I welcome the review and I am delighted that the Minister has spelled it out today. However, we are perhaps making heavy weather of what might be quite a modest change in crediting rules. Yet—I hope the House will forgive me for saying this—we have just had a Budget where, as far as I know, without any research, consultation, briefing or preparation but simply by fiat of the Chancellor, we have turned the annuity market upside down, affecting up to 400,000 people a year, with unknown, possibly disastrous, effects on retirement income, housing and social care.

Why are we bothered? Why is this House bothered with the private sector parts of the Pensions Bill? I really do not know. We have all, including the Minister, wasted countless hours on it. I do not in the least accuse him of bad faith on this because he may well have been in the position—I do not know—that the rest of us were in. However, we have certainly had enough departmental time to have this issue sorted. None the less, I welcome the review and the Minister’s generosity in outlining it today.