Pension Schemes (Conversion of Guaranteed Minimum Pensions) Bill

Darren Henry Excerpts

3rd reading
Friday 25th February 2022 Commons Chamber

[Darren Henry (Broxtowe) (Con)]

I congratulate the hon. Member for Rutherglen and Hamilton West (Margaret Ferrier) on bringing forward this Bill and I thank her for allowing me to participate in her debate.

Pensions are integral to our society; they are a means whereby individuals can reap the benefits of their hard work throughout their life, in old age. When someone reaches an age where they are no longer earning, they need an income to survive, and this is where a pension kicks in. It is a payment that, we hope, allows a retired individual to have economic freedom. It is a point in our lives we should all be looking forward to. People often fall into the trap of thinking that they are able to save enough money to comfortably live when they are no longer earning. Unfortunately, a lot of the time they do not save enough to enjoy the standard of living they hoped for in retirement.

A state pension is a great starting point but if, like me, they want to enjoy the luxuries of old age, they would need to think about investing in a pension scheme. It is a long-term savings plan with additional benefits. There are many benefits of pension schemes such as tax relief, contributions made by the employer and tax-free lump sums when the person retires. If they pay contributions into a pension scheme, some of the money that they would have had to pay the Government in tax is in fact paid into the pension instead. The employer may match or pay more than the person contributes to the pension scheme. That is money that they would not have gained had they put their money into a savings account. Finally, they will usually be able to take up to a quarter of their pension savings as a tax-free sum.

Having expressed the importance of pensions, it is integral that both men and women can benefit from them equally. That is why I am very pleased that hon. Lady has brought this Bill to the House. It is recognised that there were disparities between pensions on the basis of sex, as a result of differences in retirement age. As she mentioned, a GMP is a pension that a workplace normally provides, and it applies only to people who contracted out of the additional state pension scheme. A GMP is usually the same, if not more, than the additional state pension had the person not contracted out of it. Previous legislation required GMPs to be determined on an unequal basis. A woman’s GMP is normally accrued at a greater rate than that of a man, to ensure that there is recognition of a woman’s working life being five years shorter than that of a man.

It is important to understand the terms “revaluation” and “indexation”. Revaluation is an increase in the value of someone’s pension before they start drawing it, whereas indexation is the rise in value of their pension while they draw it. The Government have set a rate of revaluation that schemes can use at 3.5% and there is a minimum indexation rate of 3%. Therefore, some pension schemes’ revaluation rate is higher than their indexation rate. Women used to have an earlier retirement age, and therefore they were getting indexation while men were receiving revaluation. In this instance, a woman would usually get a higher pension rate until they started claiming their pension, which would remove their revaluation rise and replace it with an indexation rise, whereas a male would be entitled to a revaluation rate for a further five years until their rate, too, was switched to an indexation rate.

Schemes are required to remedy that through equalisation, but it has never been clear how to go about that. The Bill seeks to clarify that. The current situation is the perfect example of de facto change but not necessarily de jure change. The Bill clarifies that the legislation is to remedy the disparity as it applies to survivors as well as earners. That is important, because the sad reality is that it is common for individuals to become widowed and it is vital that the surviving spouse can claim the disparity for which the deceased spouse was eligible.

The Bill provides a power to set out in regulations the conditions that must be met in relation to the survivor’s benefits, making it clearer and easier for survivors to claim the remedy. It provides for a power to set out in regulations detail about who must consent to the conversion, giving further clarification on what is needed to claim the remedy. Finally, it will remove the requirement to notify HMRC. I am told that HMRC needs to be notified but may not be doing anything with that information. It therefore makes sense to remove that bit of red tape which, in practice, makes no material difference.

My constituents in Broxtowe will benefit from the Bill, which will allow them remedy on the disparity to which they are entitled. That will be achieved by removing red tape around pension regulation and providing further clarity. Through that, we will ensure that more individuals understand the logistics of their pensions. It should not be necessary to be an expert in finance to understand the rights and responsibilities that come with pensions, and I hope that these changes will go some way towards beginning to make that happen. I congratulate the hon. Member for Rutherglen and Hamilton West (Margaret Ferrier) on introducing the Bill.