Pensions Bill

Eilidh Whiteford Excerpts

Monday 17th June 2013 Commons Chamber

[Mr Duncan Smith]

My point was that although, of course, the charge will add to the amount they pay, overall they will get a better state pension over the lifetime of that pension. It is a trade-off, in a sense: they get more, but they have to pay a bit more. Whichever way we cut it, it would be complex and difficult to avoid that. During the passage of the Bill, we will be happy to hear more from the hon. Gentleman and to hear any ideas he has, but our principal position at the moment is to reduce it to the smallest level that we can.

[Dr Eilidh Whiteford (Banff and Buchan) (SNP)]

Another concern that has been raised about the potential problems with transferring small pots is that they could be moved from a well-managed, good-quality scheme into a lower-quality scheme. What assurances and protections will the Government put in place to ensure that that does not happen to people?

[Mr Duncan Smith]

We plan to head that off. We will have much more stringent quality standards, which will ensure that the process is properly managed. We will keep that constantly under review, to ensure that there is no opportunity for people to abuse the process. It is worth noting that we have already talked about areas where we want to ban and cap. For example, we announced our intention to ban consultancy charges in auto-enrolment schemes and we are considering how to do that. The Office of Fair Trading report is due in the summer, I think, and the Government will be consulting after that. We plan to publish our consultation, including on proposals to introduce a charge cap. Defined ambition pensions should also give us greater risk sharing and certainty. I hope that that answers the hon. Lady, and there will be more to come from my hon. Friend the Minister of State.

--- Later in debate ---

[Dr Eilidh Whiteford (Banff and Buchan) (SNP)]

I have followed this debate closely and it is important to say from the outset that simplification of the state pension system is an entirely laudable aim and that I think there is a great deal of consensus throughout the House on the move towards a more inclusive pension system.

It is also important to appreciate, however, that our starting point is one of the lowest levels of state pension provision anywhere in Europe. We have relatively high levels of pensioner poverty and pensions have consistently fallen behind and failed to keep pace with earnings over a number of decades. We also still have deep and persistent inequality not just between women and men, as has been mentioned, but between those who have occupational pensions and those who have not. Far too many people who worked very hard throughout their working lives still end up living on the breadline in later life. Meanwhile, the challenges of an ageing population and increasing life expectancy drive the need for reform.

I have talked in the House a number of times about the dramatic social and geographic disparities in life expectancy and healthy life expectancy, and I do not plan to rehearse those arguments again this evening. The bottom line, of course, is that we need pensions that are affordable and sustainable and fair to pensioners. Our pension system also has to provide us with long-term stability and security. When people look decades ahead, they need to know what they are likely to get back and that the sands will not shift every time we play musical chairs in the House of Commons.

In his opening remarks the Secretary of State made much of his so-called triple lock, but those of us who saw the Financial Times this morning could be forgiven for thinking that the pensions Minister has let the cat out of the bag by acknowledging that the triple lock is a short-term fix and that there is no certainty that it will continue beyond the life of this Parliament or that the value of the single-tier pension will keep pace in the longer term, given that all the modelling that has been done is predicated on the triple-lock guarantee.

Although today’s debate has focused heavily on those people who will gain in the short term—some certainly will gain in the short term, particularly, as has been said, the self-employed and those receiving a pension for the first time—there will be losers as well as winners in the transition. It is extremely difficult to work out which are which, because the side of the line on which an individual will fall depends on a wide range of factors, including how long they live after retirement, which few are able to predict.

We have heard a lot less this afternoon about the longer-term impact of the scheme, yet most commentators agree that it is less generous than that which it replaces and that many people, including most of those born since 1970, will lose out. The most positive claim that has been made for the single-tier pension is that it is undoubtedly less complex than the scheme it replaces, but if the new scheme has the virtue of simplicity, the transition process certainly does not.

Last week, the Association of Consulting Actuaries, the National Association of Pension Funds and the Association of Pension Lawyers briefed the all-party group on pensions at a meeting chaired by the hon. Member for Gloucester (Richard Graham). One of their chief concerns was the complexity of the transition process and, in particular, the extremely tight time scales within which the Government are seeking to enact the Bill and its attendant regulations. Establishing the foundational amount for everyone with a national insurance contribution record who has not retired by 6 April 2016 will be a huge and challenging project in itself, and there are real concerns about how the end of contracting out will be managed within the proposed time scale.

[Dame Anne Begg]

I am interested in the hon. Lady’s comments on the complexity of the transition. Will she clarify for those us who live in Scotland what that complexity would mean for the SNP’s plans for the state pension, should there be a vote for independence?

[Dr Whiteford]

The most important point I can make in response to the hon. Lady is that Scotland is spending a lower proportion of its GDP on social protection than the UK as a whole, and that has been the case for every one of the past five years. Moreover—I have made this point several times in the House—Scotland has lower life expectancy by almost two years, and that is not simply a geographical disparity; it goes across every social class. To my mind that means that we have to look at tailored solutions for Scotland and understand that the scheme will not result in equal benefits for people who are likely to live two years less than the average in the UK.

[Dame Anne Begg]

The hon. Lady said that it would be complex to find out people’s national insurance contributions in the UK, but surely it would be even more complex for Scotland to negotiate that as an independent country. Does she envisage that happening easily?

[Dr Whiteford]

I do not think that that is beyond the wit of Members in this Chamber or those in Holyrood. We have a lot of able people who will be able to do that. In fact, as we move into a new system, actuaries and pension fund managers are raising pragmatic questions about how the change will be managed. A new, simpler system will be significantly easier to unravel and manage than the current one, which is why I have said that I welcome the general direction of travel.

On the fundamental issue of uncertainty, the key thing arising from the pensions Minister’s intervention in this morning’s Financial Times is that there is no certainty. We do not know how the modelling will play out or what our decisions will mean for the future.

[Mark Reckless]

Will the hon. Lady give way?

[Dr Whiteford]

I will not for the moment, because I have been carried off track from the debate about single-tier pensions and am keen to discuss the consequences of the administrative hold-ups, particularly for defined benefit pension schemes.

About 6,000 defined benefit schemes are still operational in the UK, but half of them are now closed to new members. Even given the proposed employer override, there is a pressing need for the regulations to be introduced for consultation at a very early stage. The ACA estimated the time scale required and it has already brought it forward by a year. It says that it will need time to do actuarial work and consult properly with scheme members. Will the Minister outline the time scale for the introduction of the draft regulations, and will he confirm that the Government remain committed to meaningful consultation with the key stakeholders and those who will have to deal with these issues in practice?

The Government argue that the proposals will incentivise saving. Certainly, it will become easier to save for retirement, but it would be more accurate to say that the proposals remove disincentives for savings. We should scrutinise the claim that there will be significantly better incentives to save and temper our expectations.

On the face of it, the single-tier pension should, in theory, encourage people to save for retirement, but I have a few reservations about how that will work in practice, simply because we have had a succession of pension reforms in 1998, 2002 and 2006, all of which have shifted the goalposts for certain cohorts. The reforms have had a cumulative effect, in that they have eroded some people’s confidence in the value of saving for retirement. That has been compounded in the past few years since the financial crash by extremely poor annuity rates and poor terms for draw-down pensions, while older people trying to derive an income from their savings have been hit on all sides by historically low interest rates and the value of their capital being reduced by quantitative easing. People who thought that they were doing the right by saving are seeing little reward for their efforts. From speaking to people of working age, I know that many are looking at their parents’ experiences and thinking twice about how to save for the future and, indeed, whether it is worth doing so.

I hope the Government are right that people will be encouraged to save for retirement, but we must be wary because my sense is that public trust in state pension provision is at a low ebb. That uncertainty will continue to play out with people who are set to retire many years from now, but who are looking at this reform thinking that there is not an awful lot in it for them.

A number of people have talked about the single-tier pension extending the state pension to more women. It is true that most women will be entitled to the state pension in their own right, but the Bill is far from a panacea for the historical problem of women facing an impoverished old age. Even under the new arrangements, women will be less likely than men to receive the full pension. If the main drawbacks of the proposed scheme are that in the long term, the majority of people will have reduced pensions, the fact that the state pension will constitute a lower proportion of people’s income, will be lower as a proportion of average earnings and will be less money in real terms than pensioners have now means that we risk inscribing existing inequalities into the single-tier pension.

The Government hope that a lower state pension will encourage a greater reliance on occupational pensions. Although there is protection in the Bill to allow those who take time out to look after young children or frail elderly relatives to get credit for the single-tier pension, there is no equivalent protection for full-time parents and carers in private pensions. As the value of the state pension erodes and people become more reliant on what they have saved in their occupational pension to maintain a decent standard of living, disproportionate numbers of women are once again likely to be poorer because it is predominantly women who punctuate their working lives with breaks to care for others.

Many women take low-paid jobs so that they can juggle family and work responsibilities. There is also a persistent gender pay gap, so even women who have not taken breaks find that their pay, on average, is lower than that of their male counterparts. That is by no means a new problem, but much of the income inequality between men and women in later life can be attributed to more men having private and occupational pensions. I am far from convinced that the introduction of NEST and auto-enrolment will make much difference to the gender gap in private pension provision or do enough to help women secure a comfortable lifestyle in old age, given that they will be more dependent on what they have saved.

I also have concerns about people who do so-called mini-jobs. Many women with young children work two or three low-paid part-time jobs to support themselves and their family. The Government have encouraged such patterns of work. There is a danger that somebody who works only a few hours a week for a number of employers will miss out on both the threshold for national insurance contributions and auto-enrolment. Again, in the long term, women are likely to be disproportionately affected.

I want to ask the Minister about one last point. Under the current legislation, one way in which full-time stay-at-home parents earn state pension entitlement is by being in receipt of child benefit for a child under 12. When child benefit was a universal benefit, that was a good way of ensuring that mums and dads who took a break from work to care for children did not lose out. Now that child benefit has been withdrawn from higher-income families—often it is higher-income families who have a stay-at-home parent—what mechanism will the Minister use to ensure that a stay-at-home parent in a high-income household does not miss out? With single-tier pensions being unique to the individual and not transferable between spouses, it is more important than ever that such parents are not disadvantaged and are not pushed into total dependence on a high-earning partner.

It is clear that we cannot look at the single-tier pension outwith the context of other changes to the tax and benefits system. The changes will potentially impact on other forms of pension provision. I am aware that many of these matters will be covered in Committee and in regulations that are still to be brought forward. I seek assurance from Ministers that they will heed the concerns of the professional bodies that will have to put the legislation into practice and keep the unresolved issues on their radar.

[Jim McGovern (Dundee West) (Lab)]

rose—

[Dr Whiteford]

I will not give way because I am just finishing.

Every round of pension reform over the past few decades has been touted as the last for a generation. I am not persuaded that what is being proposed today is the final chapter in the pension reform on which we are embarking. I wonder how it will stand the test of time. I fear that in a few years’ time, the goalposts may shift yet again, notwithstanding the reviews that the Government have built into the system. I hope that the Government will look carefully at the equality issues in the Bill and do more to ensure that pensioner poverty for women, as well as men, becomes a thing of the past.

--- Later in debate ---

[Steve Webb]

The hon. Gentleman raised a lot of questions, which it is his job to do obviously, but did not offer any solutions. He gave a case study of someone born between 1951 and 1953 and said how unfair the system was. I want to stress that the person he gave an example of will get exactly the pension she was expecting on exactly the day she was going to get it, so we have not changed anything about that person’s pension. We have, however, triple locked her pension, which is better than she might have expected under the last Government, so I think we have done the right thing.

Opposition Members drew a comparison between women in that age group and men born on the same day. Let us try a thought experiment: if we were to impose a sex change on all 700,000 women in this group, 95% of them would not thank us—financially at least, although perhaps for other reasons as well. Getting on for 95% of them would say, “Why did you do this to me? Yes, I might get another six quid a week, but I’ll have to wait two or three years longer for it.” That is not a good deal. We have worked out that it would take many of these women 30 years of retirement to recover what they lost through waiting longer for their pension.

The hon. Member for Glasgow North East (Mr Bain) mentioned people with short life expectancies, as did the hon. Member for Inverclyde (Mr McKenzie). People who do not live long after pension age want to have their pension as early as possible, and again the last thing these women want is to get their pension when men do, because if they are not going to live long past the pension age, they will want their pension straight away, not later. The comparison with men born on the same day, therefore, is a false one. Overwhelmingly, these women will do better than a man born on the same day.

The hon. Member for Banff and Buchan (Dr Whiteford) made a thoughtful speech. I was impressed with almost all of it, expect the bit when she was pressed by Scottish colleagues about independence, at which point she became shifty and evasive. [Laughter.] I think that is just about parliamentary. It is clearly that independence would mess up pensions big time. The whole debate today has been about simplification and people knowing where they stand. How on earth would we splice together different countries’ national insurance records, cross-border deficits—

[Dr Whiteford]

rose—

[Steve Webb]

Just a minute. I am enjoying this too much.

How would we splice together different countries’ national insurance records and cross-border deficits? It would suddenly be an international scheme, so we would have to fund it immediately. This is a classic case of where we are better together. It is a simpler system and one where people know where they stand. Reinventing another system north of the border and then trying to splice it back together, particularly when so many people work north and south of the border, would create a great deal of disruption for people. We have spent the last five hours saying how we need to make things simpler.

--- Later in debate ---

[Dr Whiteford]

Does the Minister accept that Scotland is currently spending a smaller proportion of its GDP and revenues on pensions and social protections than the rest of the UK, so there is no question of the affordability of pensions? Does he also accept that on average people in Scotland live two years less than those in the rest of the UK?

[Steve Webb]

The hon. Lady raises the issue of pension spending in Scotland. She will know that Scotland is ageing at a faster rate than the rest of the UK, so the long-term spending pressures there are greater, and that would need to be addressed.

On the important issue of differences in life expectancy across different areas, clearly there are differences. I accept that, but across the board we are seeing a rising tide that is lifting all boats. For example, over the last quarter of a century, life expectancy at 65 has risen for men in the least privileged class by 21% and for those in the most privileged by 22%. In other words, we have seen significant increases across the board. Therefore, although we absolutely have to tackle the causes of differences in life expectancy, that cannot be a reason for paying pensions at a rate that was set a century ago.

My hon. Friend the Member for Warrington South (David Mowat) got great praise from those on the Opposition Front Bench, which I hope will trouble him. He asked whether there is any analysis that underlies our decision; I can assure him that there is. He asked why we do not shunt all those with small pots to NEST—that was the proposition. We are talking about a pot limit of £10,000, so if all the small pots in a single year went to NEST, it would be become enormous and unbalance the market. Unless we wanted NEST to become huge, we would have to have a low pot size limit to make it work, with NEST becoming the home of small lost pots. However, if we did that, we would end up with significant fragmentation. In other words, with a low pot size limit, people might have something in NEST, a few thousand pounds they can do nothing with in another provider, their current pension—[Interruption.] What I can suggest to my hon. Friend, if I may—I have only a few minutes—is that he looks at our Command Paper, Cm 8402, which provides the analysis that underlies this, and if he is not satisfied after that, I am happy to have a coffee with him.

A number of other issues were raised in this debate. The hon. Member for Edinburgh East made an exhausting—sorry, exhaustive—speech. To be fair to her, she made some quite important points. She said that the single tier was not a windfall or a great leap forward. When she quizzed me in the Work and Pensions Committee, she said—and I quote—that it is not exactly “fandabbydosey”. She is right: it is not fandabbydosey; it is a simplification. It is about spending the money that we were going to spend, but better. She also said that SERPS was great and asked whether it would not have been better to continue with it. However, the fundamental problem is an unfunded pension promise. We already have a very large unfunded basic state pension, which will represent a rising share of national income even with these reforms. If we had added a massive unfunded SERPS to that, those promises would not have been kept. It is nice to think they would have been, but they would not. Future generations of working taxpayers would have had to pay so much tax to meet all those unfunded promises that the system would not have survived.

What we are doing in this Bill is being responsible for the long term. This system will cost more as a share of GDP than we spend now—significantly more—but the rate of growth will be slower. Crucially, given the long-term health, social and pension costs in the decades to come, a Government who are acting now—taking difficult decisions about things such as the state pension age, but giving people time to plan—are doing the right thing for the long term.

On the private pension side of things, automatic enrolment has started incredibly well. For example, McDonald’s—just one employer—has found that the opt-out rate among some of its low-paid employees is as low as 3%. From memory, that means that 10,000 lowly paid employees at McDonald’s are now in pensions, with fewer than three in 100 opting out. That is a real achievement. One of the reasons for that is the communications work we have done—the “I’m in” adverts that we see on the tube, on television and so on.

Communications was a key issue. We absolutely have to communicate this change effectively. We are doing fieldwork over the summer on how best to communicate it and to whom. We are working with partners such as Age UK, the Money Advice Service and the Pensions Advisory Service. The one constraint we have is that we cannot presume exactly what the scheme will look like, because the House will consider it. We cannot write to people now telling them what will happen, because it might not happen—it might be changed by the House. That is a frustration for us, but as soon as this is determined and settled, we will be out there.

I have long looked forward to the moment when I can say with pleasure, along with my right hon. Friend the Secretary of State, that I commend this Bill to the House.

Question put and agreed to.

Bill accordingly read a Second time.

Pensions Bill (Programme)

Motion made, and Question put forthwith (Standing Order No. 83A(7))

That the following provisions shall apply to the Pensions Bill:

Committal

(1) The Bill shall be committed to a Public Bill Committee.

Proceedings in Public Bill Committee

(2) Proceedings in the Public Bill Committee shall (so far as not previously concluded) be brought to a conclusion on Thursday 11 July 2013.

(3) The Public Bill Committee shall have leave to sit twice on the first day on which it meets.

Consideration and Third Reading

(4) Proceedings on Consideration shall (so far as not previously concluded) be brought to a conclusion one hour before the moment of interruption on the day on which those proceedings are commenced.

(5) Proceedings on Third Reading shall (so far as not previously concluded) be brought to a conclusion at the moment of interruption on that day.

(6) Standing Order No. 83B (Programming committees) shall not apply to proceedings on Consideration and Third Reading.

Other proceedings

(7) Any other proceedings on the Bill (including any proceedings on consideration of Lords Amendments or on any further messages from the Lords) may be programmed.—(Mr Syms.)

Question agreed to.

Pensions Bill (Money)

Queen’s recommendation signified.

Motion made, and Question put forthwith (Standing Order No. 52(1)(a)),

That, for the purposes of any Act resulting from the Pensions Bill, it is expedient to authorise the payment out of money provided by Parliament of:

(1) any expenditure incurred under or by virtue of the Act by the Secretary of State; and

(2) any increase attributable to the Act in the sums payable under any other Act out of money so provided.—(Mr Syms.)

Question agreed to.

Pensions Bill (Ways and Means)

Motion made, and Question put forthwith (Standing Order No. 52(1)(a)),

That, for the purposes of any Act resulting from the Pensions Bill, it is expedient to authorise:

(1) the imposition of charges to income tax in respect of benefits payable under or by virtue of the Act;

(2) the levying of charges under the Pension Schemes Act 1993 for the purpose of meeting expenditure of the Secretary of State under or by virtue of the Act;

(3) the imposition of levies under or by virtue of the Pensions Act 2004 in respect of past periods;

(4) the imposition of levies under or by virtue of the Companies (Audit, Investigations and Community Enterprise) Act 2004 towards the expenses of grant-aided bodies concerned with preparing guidance for pensions illustrations; and

(5) the payment of sums into the Consolidated Fund.— (Mr Syms.)

Question agreed to.