Pensions Bill

Guto Bebb Excerpts

Monday 17th June 2013 Commons Chamber

[Mr Byrne]

The hon. Gentleman will be as familiar as I am with the research published by the Institute for Fiscal Studies showing that, under Labour, £11 billion more was spent than if we had pursued the policies that we inherited in 1997. We lifted gross income for pensioners by more than 40%; 2.4 million pensioners had been lifted out of absolute poverty and nearly 2 million out of relative poverty by 2010-11. It was the IFS that confirmed that both the absolute and relative measures of income poverty fell markedly among pensioners. We inherited a tragic and grotesque state of pensioner poverty in 1997 and we set about dealing with it with focus and alacrity. We are proud of the inheritance and legacy that we left the Government.

[Guto Bebb (Aberconwy) (Con)]

Does the shadow Minister accept that over the 13 years of the previous Administration, nothing whatever was done to improve the situation of the self-employed who depend on the state pension system?

[Mr Byrne]

We are very proud of the reforms that we set in place. They tackled the grotesque pensioner poverty that we inherited in 1997. That is not simply my conclusion; when the pensions Minister spoke in the House back in 2000, he pretty much confirmed the same line of argument and the same thesis. The job we did on pensioner poverty was important and we made great progress. The foundations that we left are those that the Secretary of State has built on.

The purpose of the Bill is, in essence, to address one of the matters flagged by Lord Turner in his report and one for which we legislated in 2007. As the Secretary of State mentioned, the noble Lord recommended a new pension supplement for the 21st century—one that is universal and, crucially, one that reduces means-testing, an important part of the Secretary of State’s argument. As the Secretary of State also rehearsed, the noble Lord recommended a system that provides clear incentives to save.

The commission proposed an approach different from that proposed by the coalition. It was in the interests of preserving the consensus that Lord Turner had so assiduously constructed that we chose to follow his approach rather than the one set out by the coalition today. Indeed, at the time Lord Turner flagged a number of risks in the strategy that the Government are now pursuing. The Government have taken an approach different from Lord Turner’s. That comes at the price of some big notional losses for state second pension members. The goalposts on the state pension age have now been moved three times in three years. However, there has been some improvement in means testing and potentially something about incentives to save. I want to touch on those.

Let us take means testing first, however, as it was an important part of the Secretary of State’s argument. Today, about 80% of people are free of the pension credit means test; that pension credit is now available for 20% of people. By 2020, that would have fallen to about 16% anyway. Under flat-rate pensions, there will be a further fall of about 8%. If we put savings credit to one side, the improvement is just 2%, and of course about 35% of pensioners will still be eligible to access council tax benefit, which is about 238,000 people, and 12% will be able to access housing benefit—84,000 people. We are still an awfully long way from the end of means testing, but none the less a small step forward has been taken and we welcome it.

The Secretary of State was anxious to stress the point about savings. The judgment of the IFS was that the effect of proposals on the incentive to save were complex and varied. As the Bill reduces the long-run generosity of the pension system—that is one reason why we support it—it should increase the incentive to save. However, although some will see lower effective marginal tax rates when pension credit and savings credit are withdrawn, some will see higher marginal tax rates. The IFS says, therefore, that the direction on the effect of savings is ambiguous.

Under the proposals, some pensioners who have saved absolutely nothing will be better off in real terms each week than those who have saved substantial sums. A pensioner who has saved nothing will enjoy the flat-rate pension of £144 a week and will be entitled to housing benefit and council tax benefit, which is another £94 a week. That is a total of £238 a week, which is considerably more than what someone who has saved £24,000 will receive. They might enjoy a notional income from savings of about 30 quid a week, plus the flat-rate pension, which is a total of £174 a week. That is much less—36% less—than what the pensioner who has saved nothing will get. In fact, the pensioner who saves nothing will be better off than someone who has put £50,000 away in the bank. So there are still problems and disincentives to save, but none the less, we think that, on balance, the Bill represents progress, which is why we support it in principle.

--- Later in debate ---

[Guto Bebb (Aberconwy) (Con)]

It is a pleasure to follow the right hon. Member for Birkenhead (Mr Field). I welcome the Bill as warmly as he did in his initial comments, but I suspect that my comments will carry on being positive throughout.

It is important to put the changes in context, because the truth is that we have a coalition Government, without a majority in this House unless the two parties work together, making significant proposals on the welfare state and changes to the state pension system. Every Opposition speaker so far has welcomed those changes before moving on to criticise various specific individual points that will, I suspect, be addressed in Committee. The important point is that, despite the terrible financial background, these changes have been taken on by the coalition Government after three years, whereas for 13 years under the previous Government we saw precious little change that would have allowed people to save for their own well-being in retirement.

[Sheila Gilmore (Edinburgh East) (Lab)]

I am, perhaps, risking making the debate more political than it needs to be, but cannot this reform be introduced now only because a lot of the platform is in place thanks to steps taken by the previous Government and, to a lesser extent, the Government before that?

[Guto Bebb]

That is a very interesting comment. As I saw it, the previous Government dealt with the worst circumstances faced by some pensioners, but only by creating the view that the only way to deal with people in retirement was to ensure that the state could provide through a means-tested system. The worst thing about the previous Labour Government was that those individuals in pension schemes within businesses who were saving up for retirement were punished for trying to do the right thing by ensuring that they provided for themselves in retirement. Yes, the previous Administration offered some benefits in dealing with the worst aspects of poverty for pensioners, but at the expense of the concept of self-reliance.

[Sheila Gilmore]

The platform I was trying to describe did not simply include the introduction of things such as pension credit, which has helped to finance the Bill by a considerable amount. The Labour Government introduced the state earnings-related pension scheme; a Labour Government introduced S2P. Those elements were part of the platform that makes it possible to move forward.

[Guto Bebb]

They were certainly part of the platform that created the degree of confusion and complexity that has resulted in people not saving up for their retirement. Yes, there was a state system imposed on the British public by the previous Administration but in many ways that was at the expense, I would argue, of the simple concept of a basic state pension that meant that anything and everything that a person saved above it would be beneficial to them. It should be noted that the only people who suffered significantly as a result of the changes introduced by the previous Administration were many of the self-employed and many of those in schemes operated by companies that stopped operating because of the tax charges that resulted from those changes.

The context is that this is an important and significant change. These changes to the pension provisions go hand in hand with what we are trying to do as a Government with the welfare state. All our welfare reforms are trying to ensure that work pays. In the current circumstances, it is not easy to make the changes as radical as we would like, but their implication is clear: the more someone works, the more they will benefit from that work. If they take on added hours, they will be better off. If they manage to get a promotion, they will be better off. That message is key to our proposed changes.

[Sheila Gilmore]

rose—

[Guto Bebb]

No, I will not take another intervention for the time being.

We need to send out the same message about pension saving. We need to ensure that people understand that they will be offered a basic level of state pension as a result of the changes, but—this is where the communication issue highlighted by so many Members needs to come into play—that that basic state entitlement will not be sufficient for most people to have the standard of living that they anticipate. People will understand that that basic state level of support will be there, regardless of any further savings they make towards their own retirement pots. Anything and everything above the basic level will be additional and that, in my view, will change people’s behaviour, simply because they will no longer feel that they will be punished for trying to do the right thing.

The shadow Secretary of State, the right hon. Member for Birmingham, Hodge Hill (Mr Byrne), gave some examples of where there would still be an element of means-testing in the system. We all regret that, but the truth is that we are moving significantly away from means-testing for pension provision. We should all applaud that because we want to ensure that people in work are encouraged to do the right thing, to do more for themselves and, at the same time, to save towards retirement. These are crucial changes that will change how the British public view the support offered by the state.

[Hywel Williams (Arfon) (PC)]

I agree entirely with the hon. Gentleman about the virtue of making the system less complex and more understandable and about the requirements for better information that have already been mentioned by Members on both sides of the House. Will he concede, however, that there is a regional element? As a Welsh Member, he will know of the long-term mass unemployment in parts of our country that means that some people will just not have had the opportunity to amass the national insurance contributions required to qualify for the pension. That is a regional effect.

[Guto Bebb]

That will need to be considered. As I am well aware, parts of north Wales have long-term unemployment issues that might have an impact on the changes. We need to consider the detail, but the changes should still be welcomed. As I conceded in my opening remarks, some issues will need to be considered in Committee, but the overall direction of travel should be warmly welcomed, whether one is a Member in Wales or in any other part of the United Kingdom. A key point that should be mentioned is that there has been no mention from Government Members of a regional level of state pension. Having heard some of the comments from Opposition Members in recent weeks, I shudder to think what the Labour party might propose in due course on a regional level of basic state pension.

[Mark Durkan (Foyle) (SDLP)]

The hon. Gentleman has made the point that he wants work to pay and for people to know that doing the right thing will not cost them. Does he accept that we must take care with the transitional arrangements in that regard? People could find that they lose out in the tight transition, not least because of the costs that could be imposed on schemes that might force their closure—for example, those schemes that were contracted out would now have to be contracted in. The opportunity to simplify those schemes does not really exist, as such direct benefit schemes are notoriously complicated and some people could find that their schemes close as a result of the costs imposed.

[Guto Bebb]

I will come back to some of the important points about the transitional changes, but I suspect that I will have to allow the hon. Gentleman’s specific points to be debated in Committee.

In introducing pension changes, this Government have tried to deal with the excessive level of support offered to public sector workers. At the time we were constantly accused of wanting to level down pension provision in this country, but it is clear that with auto-enrolment being brought forward by this Administration and with the single-tier state pension, we are trying to ensure a more level playing field between those people who are doing extremely important work in the public services and those who are earning a living differently. We are trying to make sure that there is a more equitable system for both.

It is interesting to note that the vast majority of people whose employers might need to pay more in national insurance contributions as a result of these changes are in the public sector. Only today I received a briefing on the issue from the National Union of Teachers. For the National Union of Teachers to state that it has no real concerns about the impact of these proposed changes on its members says a lot about the fact that the changes are very beneficial. I had not previously seen a single press release from the National Union of Teachers that had not attacked this Administration. Despite the 1.4% average increase in national insurance contributions that would have to be made by those who are currently contracted out of the system, there is an acknowledgement that a higher level of pension will then be enjoyed. That comment was made clearly by a union.

I want to emphasise how extremely welcome this change is for the self-employed, and express my amazement at the comments from the right hon. Member for Birkenhead (Mr Field). If it is said that the pensions Minister is introducing these changes for the self-employed because he believes there are votes in it for Liberals, long may he continue to bring in changes that will benefit the Liberal vote. In my constituency of Aberconwy and in many parts of rural Wales, a significant percentage of the population are self-employed, and a significant percentage of the population were paying their 9% class 4 contribution and did not know what they were getting for their money. The class 2 contributions made by the self-employed ensured that they got the basic level state pension. Anything that they paid into class 4 was deemed to be on top. That could amount to a significant sum and there was no feeling that anybody was getting anything for that contribution.

In an area such as mine, where about 27% of the population are self-employed, it is imperative that they feel that the state is treating them fairly. It is not their fault that they have had to create their own job in order to stay employed in their own community, and it is unreasonable to argue that because there is no employer making a contribution on their behalf they should be treated worse than other employees. If the self-employed are contributing on a par with or at a similar level to the employed, we should not bring into the equation the employer contribution, because the employee, the worker, the person making an effort to pay their way, support their family and ensure a future for themselves should have the confidence that when they come to retire, they will be treated by this Government in the same way as any employee.

[Mark Reckless (Rochester and Strood) (Con)]

My hon. Friend is right to note that some people who are self-employed might prefer to be in employment. Others do it because they are entrepreneurial and it is what they want to do, but the problem at present is the complexity of the system. One great benefit for those who are sometimes self-employed, then employed and then go back to being self-employed is that they will now have clarity.

[Guto Bebb]

I agree with that point. It is an important consideration, especially for people who, because of family connections and so forth, after a period of unemployment decide to take the option of self-employment as a means of staying within their community. They will value greatly the certainty that there will be a basic level of support in the future. A divide exists between those working in the public sector in parts of rural Wales and those working in a self-employed capacity. The change will not make it a level playing field, but it will reduce the inequalities.

There are a few other points that I would like to make. There has been some comment about the increase from 30 to 35 in the number of years of contributions required. That must be seen in the context of the significant increase in the state retirement age that has been accepted reluctantly by hon. Members on both sides of the House. Somebody starting work at 21 would be expected to work for the next 44, 45 or 46 years, depending on their age. Therefore to expect 35 years of contribution is not unreasonable and should be considered.

Another issue that I would like to touch on is the fact that, despite the changes being comparatively cost-neutral, the savings implied may not be as significant as stated by the right hon. Member for Birkenhead. We are moving from 8.5% to 8.1%. It is a reduction, but not a huge one. In that context, to come up with a system that is better for the worse-off or the less well paid in society, and which is better for women and carers than the current system, is not a bad record for the Government. The Bill is moving in the right direction. It tries to protect and enhance the support for those who are less well treated by the system, and that should be welcomed.

On the subject of transition, there has been some discussion about the issue of women born between 6 April 1951 and 5 April 1953. When I started receiving e-mails on the issue—I have now received a couple of dozen—it appeared on the face of it to be a very unfair situation. But we need to bear it in mind that this could be an issue of communication rather than of the change in the legislation. Making a comparison between a woman born between those two dates and a man born between those two dates takes out of the equation the fact that they will be retiring at different times.

If women born between those two dates decided to defer their retirement, about 85% of the women affected should be able to retire with a level of pension support equivalent to that enjoyed by a man born during the same period. There is therefore a message to be conveyed. Does somebody retire before the age of 65, which is the relevant age for men at that point, or do they opt to retire a couple of years earlier and accept a slight reduction in their pension? We need to ensure that the DWP takes that type of communication into account so that when people see what they perceive to be an unfairness, they see the issue in context rather than on the basis of a campaigning e-mail.

The Bill is a huge step forward in ensuring that people understand that the state is there to support them, not to be responsible for them. That is a crucial difference. People need to be aware that the state will ensure that they have the basic level of protection. More importantly, the state should make sure that it provides the focus for an individual to make decisions that will allow them to help themselves. That is what we are doing throughout our welfare changes, and I am glad to say that it is what the Bill does. Yes, there are some details that need to be looked at in due course, but in general the House should welcome this brave and ambitious proposal to make sure that the state’s pension system is fair to the vast majority of the people who pay their national insurance contributions.