Pension Schemes Bill [HL]

Baroness Janke Excerpts

Committee stage & Committee: 4th sitting (Hansard) & Committee: 4th sitting (Hansard): House of Lords
Wednesday 4th March 2020 Grand Committee

[Lord Warner (CB)]

My Lords, Amendment 86 is in my name and those of the noble Baronesses, Lady Altmann and Lady Janke. It is a rather simple amendment for tackling a complex problem that is, as the noble Baroness, Lady Neville-Rolfe, has said, causing a great deal of damage to the NHS and to patients.

I will not go into the intricacies of the interrelationship between pensions and tax policy, or repeat the data that I laid out at Second Reading about how this is affecting doctors. The noble Baroness, Lady Neville-Rolfe, has given a reprise of some of that data. There is plenty of data showing the impact on doctors and the NHS; you do not have to look very far to find it. Noble Lords will therefore be relieved to hear that I will not go over that ground again.

The point of this amendment is to address what is happening on the ground now in our NHS. We have arrived at a situation in which doctors can neither control their pension growth nor predict their tax bills; that is where we have got to. Tax bills cannot be calculated until the end of the tax year in which the tax has been incurred; by then it is too late for doctors to adjust their earnings. In some cases, the tax bill exceeds the entire take-home pay that the doctor would earn in a given tax year. We are getting to the point where doctors have to pay to work: that is the situation we have created.

The only way that they can avoid the tax bills is to reduce their work in anticipation, which is what they are doing. I have previously set out the implications of that form of workload reduction, so I will not repeat them, but they include, in many cases, taking early retirement. The serious implications this has for patients and the running of the NHS needs no exaggeration. Suffice it to say that there has been a very large decrease in NHS medical clinical capacity, with very serious implications for patients and the functioning of the NHS. The latest BMA survey of 6,000 doctors shows that even more doctors, in this year and in the past, are planning to reduce their work commitments in the tax year, which is only a month or so ahead. This is why the situation is incredibly urgent.

This problem was so serious that NHS England acted to take the unprecedented step of agreeing to cover annual allowance payments for NHS doctors for the current tax year to try to ease the significant winter pressures on the NHS. At present, as far as I know, there is no plan to suggest that this short-term mitigation will continue into next year, let alone the longer term. It is all very well for the Government to pass last week an NHS Funding Bill, but if there is a serious shortage of doctors, it will not do patients much good.

The Government have been reviewing this problem for some time, but my information from the BMA and others is that they have not so far offered any worthwhile mitigation scheme. All that is available is the option of paying these large tax bills from future pensions by generating a loan against your pension which attracts a high rate of interest and effectively reduces your pension. This option will not reduce the outflow of doctors. Amendment 86 requires the Secretary of State to extend the NHS England scheme on a permanent basis. It also prevents doctors incurring any interest-bearing loans that will reduce their eventual pensions. It has been prepared with the help of the clerks, for which I am grateful, and discussed and agreed with the BMA and other professional bodies.

I am not saying that my amendment is the only solution to the problem—the noble Baroness, Lady Neville-Rolfe, has given some other options—but it is an attempt to apply an urgent response to stop more doctors leaving the NHS or reducing their capacity. If the Government can come up with a better solution, I will be delighted. So far, there is no sign of a solution acceptable to the profession that would stop the NHS haemorrhaging doctors.

Let us remember again that the new tax year starts in a month, and that the coronavirus epidemic threatens all of us. I listened yesterday to the Prime Minister and the Health Secretary referring to bringing back retired doctors; that seems to be an important part of their emergency plan for dealing with a potential epidemic. I wonder how aware they and their No. 10 special advisers are of this own-goal lurking in the bureaucracy. We can ill afford to lose doctors from our NHS through a self-inflicted government muddle when a solution is to hand.

[Baroness Janke (LD)]

My Lords, I too have signed both amendments which, as has been said, relate to the current situation of the punitive pension taxation on doctors in the NHS. The annual allowance means that retired doctors working additional hours may incur large tax bills even if they have had only a modest rise in pensionable pay; and the taper results in a further problem, as there is an effective tax cliff edge where people can incur additional tax bills of up to £13,500 if they cross the threshold by as little as a pound.

This huge disincentive to retired doctors who are working to fill staff shortfalls in the NHS has exacerbated the existing pressure. As the noble Lord, Lord Warner, said, the impact was such that NHS England took the step of agreeing to cover the annual allowance payment for NHS doctors for this tax year as a temporary mechanism. As he also said, it seems that so far there are no plans for this to be a long-term solution.

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[Earl Howe]

My Lords, my answer to my noble friend and the noble Lord, Lord Warner, has to be exactly the same as that which I have already given. I can do no other than urge all noble Lords to wait for the Budget announcement. I cannot comment on what ideas the Chancellor has in front of him on this issue. Those ideas may or may not include those that have been articulated by my noble friend and the noble Lord—I do not know. I suggest that we get past next week and then take stock. No doubt noble Lords will consider how best to approach this on Report, if they feel that to be necessary.

[Baroness Janke]

The Minister said that these two reviews will be reported in the Budget. Is he talking about the intention to conduct a review or saying that the outcomes of reviews that have already been conducted will be announced in the Budget?

[Earl Howe]

The reviews are under way. They have not yet been concluded, but the conclusions will be announced on Budget Day.

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Moved by

[Baroness Janke]

87: After Clause 128, insert the following new Clause—
“Automatic enrolment age
In section 3(1)(a) of the Pensions Act 2008, for “22” substitute “18”.”

[Baroness Janke]

My Lords, I have three amendments in this group. Amendments 87 and 88 relate to auto-enrolment to reduce the lower age limit to 18 and introduce a review of auto-enrolment which could also examine the possibility of removing the lower earnings limit.

As many noble Lords have said, the success of auto-enrolment is clear, with 87% of eligible employees participating in a workplace pension in 2018. However, by reducing the lower age limit to 18 and removing the lower earnings limit, a further £2.5 billion could be added to savings.

There would also be advantages for younger people in starting to save for pensions earlier in their working lives. It is estimated that the average 18 year-old will end up with a pension pot at retirement around £18,000 lower if they have to wait until 22 to be automatically enrolled. Given that we want people to start saving for a pension as soon as possible, an age limit of 22 seems increasingly hard to defend. Even employers would generally have a simpler system were they to enrol everyone, rather than having different rules for those above and below different age thresholds.

Moreover, further extending the coverage of auto-enrolment by reducing the earning threshold to the national insurance primary threshold would bring 480,000 people, mostly women, into pension-saving. It would also help to improve the gender pensions gap, which is the subject of Amendment 96 in the same group and a growing matter of concern. A woman aged 65 has one-fifth of a 65 year-old man’s pension.

Private pension schemes seem to be the main reason for the gender gap, placing women at a disadvantage, mainly due to domestic roles and lower pay. Among 65 to 74 year-olds, median private pension wealth is £164,700 for men and £17,300 for women, who have just over 10% of the private pension wealth of men. Among the population as a whole, women’s median pension wealth is £4,300, less than a quarter of the £19,800 held by men.

Although auto-enrolled private pensions include all employers, they exclude low-paid employees. Like other private pensions, they make no allowance for periods of caring, hence they perpetuate further the pensions gender gap. New modelling has shown that a family carer top-up in an auto-enrolled pension would substantially boost women’s private pension wealth. Also, the suggestion of a voluntary earnings-related state pension addition—a fully portable auto-enrolled option that allows carer credits—would be simpler and would better meet women’s need for extra pension savings. Amendment 96 provides the opportunity for an early review of issues affecting the pensions gender gap in CMP schemes.

I support the amendments in the group in the name of the noble Baroness, Lady Drake, which address similar and related issues. I beg to move.

[Lord McKenzie of Luton]

My Lords, Amendment 95 in this group is in my name. It seeks to press the Minister to make three important changes to the current auto-enrolment scheme—there are some overlapping issues in this. The changes are: to remove the threshold requirement for earnings over £10,000 to be auto-enrolled; to remove the qualifying earnings deduction; and to extend the threshold down to the age of 18 for workers. As NOW: Pensions points out, these would be positive steps in helping to narrow the pensions gender gap and would be a significant step in boosting participation in pension saving. This should be uncontroversial, as it goes with the flavour of the deliberations of the 2017 automatic enrolment review.

However, on timing, the Government’s ambition is to phase in the abolition of the LEL, with broader changes to the framework, until the mid-2020s. We suggest that this is a weak ambition and urge the Government to reconsider. We recognise that the changes cannot all happen overnight, but the longer we wait, the more difficulty there will be in getting younger people into the savings habit. Abolition of the LEL and making contributions payable from the first £1 of earnings will help to build financial resilience. If implemented, these measures would eventually—I stress “eventually”—bring an additional 910,000 workers into auto-enrolment with, as we have heard, an additional £3.8 billion of pension savings. It would be a good first step in addressing the pensions gender gap.

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[Earl Howe]

I understand from officials in the Ministry of Justice that there has been a relatively small number of cases where the pension scheme member has taken advantage of the pension freedoms to act in a way that frustrates the intention of an attachment order. However, I would like to establish what evidence there is of the scale of the wider problem, as outlined by my noble friend Lady Altmann and the noble Baroness, Lady Drake, in our debate on Monday, before deciding on the appropriate government response. I can tell the noble Baroness that my officials will work with others across government to gather the available evidence.

[Baroness Janke]

I thank the Minister for his assurances and for the information he gave. I am sure that the Government want to pursue the evidence-based approach, but the actual situation is very hard for many women at this moment. I welcome his offer to work with the Government on this. As the noble Baroness, Lady Drake, said, many groups will be interested in doing so; I hope that we can engage them in positive working on this issue.

A much larger proportion of those now in pensioner poverty are women because their caring responsibilities were never represented in the past. I feel that there has to be a recognition of the current situation while agreeing that we must move forward and take people with us on this.

On the amendments in the name of the noble Baroness, Lady Altmann, it is not only a question of spousal consent to an attachment order. It is often not possible to make a pension settlement because it takes place before the process reaches that stage. Spousal consent is essential because, as others have said, once the money has gone, it is extremely difficult to recover it. The ABI has written a briefing on divorce and pensions; I recommend it to the Government. Pensions in divorce is another issue that is extremely important to women.

Again, I thank the Minister for his response. I beg leave to withdraw the amendment.

Amendment 87 withdrawn.