Pensions Bill

Lindsay Hoyle Excerpts

Monday 17th March 2014 Commons Chamber

[Steve Webb]

I beg to move, That this House agrees with Lords amendment 2.

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

With this it will be convenient to discuss Lords amendments 3, 12, 13 and 19 to 27.

[Steve Webb]

Following that brief moment of disagreement with their lordships, I am pleased to say that we encourage the House to agree with all other Lords amendments to the Bill. Some amendments in this group were initiated by the Government all on their own, while others are constructive amendments that we tabled in response to concerns raised by noble Lords and others. That shows our willingness to improve the Bill when we think that valid arguments have been made.

Lords amendments 19 and 21 will affect the spouses of service personnel. In the context of our motion to disagree with Lords amendment 1, which was tabled by Baroness Hollis, it is appropriate to say that Lords amendments 19 and 21 respond to a concern that she helpfully raised during the Commons Public Bill Committee’s oral evidence sessions about the position, under the single-tier state pension, of wives of service personnel who have served overseas.

Lords amendment 21 places a duty on the Secretary of State to legislate for a new retrospective national insurance credit for spouses and civil partners of armed forces personnel who accompanied their partner on postings outside the UK from 1975-76 onwards. We promised to think about the matter as long ago as last June—have we really been considering the Bill for that long?—after it was raised in our oral evidence sessions. As we know, the single-tier pension is essentially based on one’s own record of national insurance contributions and credits, rather than a derived entitlement from a partner. However, that creates a problem for women who were posted overseas with their husband and, for entirely legitimate reasons—because, say, they did not speak the language of the country they were in—were unable to work, or could not build up national insurance rights because of their role supporting their husband.

It is right that we take action for that group. There is a cross-Government commitment in the armed forces covenant to removing the disadvantages caused by military life, and we recognise the difficulty that spouses and civil partners would have faced in maintaining their national insurance record while on an overseas posting. Their prospects of securing employment during the posting would have been significantly hampered by language barriers, for example, and they may have been unable to accrue UK qualifying years while abroad. Since last June, we have worked closely with colleagues in the Ministry of Defence to devise a workable solution, and we are pleased to offer an approach that addresses this unique difficulty faced by the service community.

Under the Lords amendments and subsequent regulations, credits will be available for people who reach state pension age on or after 2016. Those credits build on the prospective credits in place from 2010-11, and help to ensure that people will not be prevented from gaining a full single-tier pension, even if they are in the now rare situation of having spent their entire working life accompanying their spouse abroad. The detailed design of the scheme, including the application process and information on when applications may start to be made, will be set out in regulations. Although it is difficult to give a precise figure, we estimate that about 20,000 people could benefit from the credits. Lords amendment 19 is a technical measure to accommodate the retrospective credits in the calculation of an individual’s foundation amount.

Lords amendment 2 deals with the issue of a statutory override for protected persons. The single-tier pension means the end of contracting out, so employers will have to pay more national insurance. The Bill provides for a statutory override to allow employers to change future contribution levels or accrual rates in order to recoup that increased national insurance when they would otherwise be prevented from making changes by their scheme rules. During the Bill’s passage through this House, the Government consulted on whether protected persons should be within the scope of the statutory override. We think that a relatively small group of individuals—perhaps 60,000—are affected.

The responses to the consultation were polarised, as employers wanted the flexibility to apply the override, while trade unions and others representing employees did not. We took the balanced judgment that we should honour promises made at the time of privatisation—promises that, in many cases, were subsequently confirmed by Ministers when legislation providing for pension protection was enacted. Lords amendment 2 makes it explicit that the statutory override cannot be used in relation to protected persons. Regulations will specify the details of who is considered to be a protected person, but the intention is to include all the people set out in our consultation response, especially rail workers, including Transport for London employees, and workers in the electricity, coal, and nuclear waste and decommissioning industries.

The group includes several technical amendments. Lords amendments 20 and 22 amend the Social Security Contributions and Benefits Act 1992 to make it clear that funds for paying the single-tier pension are provided by national insurance contributions, and that references to “benefit” include the single-tier pension. Lords amendment 23 repeals redundant provisions in the Marriage (Same Sex Couples) Act 2013, while Lords amendment 24 removes a redundant reference in legislation to the contracting-out compliance standard. Lords amendment 25 deals with the application of the statutory override to shared-cost arrangements. Lords amendment 26 is a response to a recommendation made by the Delegated Powers and Regulatory Reform Committee. It removes the power to create exceptions to the limit on the amount that employers may recoup under the override. The Bill originally allowed regulations to be made to create exemptions to the limit to deal with unconventional funding arrangements, but we are now making provision for such a power in primary legislation under Lords amendment 25.

In response to points made by the Delegated Powers and Regulatory Reform Committee, Lords amendments 12 and 13 provide that several regulations under the Bill will be subject to the affirmative procedure, rather than the negative procedure. Lords amendment 13 specifically provides that frozen-rate regulations should be subject to the affirmative procedure on every use.

Lords amendments 3 and 27 create a new class of voluntary national insurance contributions—class 3A. As the concept of the contributions was introduced in the other place, it is worth my spending a moment explaining more about it, as the House has not yet had the chance to consider it. The new class of contributions will allow pensioners to top up their additional state pension. It will be available to people who reach state pension age before the introduction of the single-tier pension on 6 April 2016. Details of the scheme, including the pricing, the maximum number of units and the administrative processes, will be set out in regulations. We will make details of the prices available shortly, but they will be set on an actuarially fair basis using the latest longevity figures. We envisage that the scheme will open in October 2015 and run for 18 months. It will help groups who have only modest amounts of additional pension, if any, such as women and the self-employed whose social and economic contributions were not captured in the state earnings-related pension scheme and are not fully reflected in the state second pension.

The scheme has just two simple entitlement conditions: first, a person must reach state pension age before 6 April 2016; secondly, they must be entitled to a UK pension. Even if someone has the full 30 qualifying years for a full basic state pension, they will not be debarred from paying class 3A contributions and boosting their state pension because they will be buying additional state pension, not basic state pension. I stress that that distinguishes the contributions from class 3 national insurance contributions, which fill gaps in the basic state pension.

We intend to cap the amount of additional pension payable as a result of class 3A at about £25 a week. As that extra pension will be additional state pension, it will be uprated according to the consumer prices index. The pension will be inheritable and people will be able to defer it in line with existing rules. More details of the scheme will be announced shortly, but the main regulations will be subject to the affirmative procedure, so Members will have the opportunity to debate the detail.

We have undertaken research and polling to gauge interest in the scheme. We expect to publish more information on likely interest and take-up shortly after the Budget, but our first poll suggests that 14% of pensioners might be interested. People’s ability to pay class 3 voluntary national insurance contributions to cover gaps in their contribution record for the basic state pension will be unaffected by the introduction of class 3A. We will put in place administrative arrangements to ensure that individuals who apply to pay class 3A contributions are made aware that they should first check their eligibility to pay class 3 contributions. People will need to consider whether making class 3A contributions is the best option for them. We believe that class 3A will allow some people to boost their state pension income with a secure, inflation-proof income that has the added advantage of survivor benefits.

I hope that the House, like their lordships, will support the Lords amendments. They improve the system for military wives and offer protection for protected workers. They tidy up several technical aspects of the Bill and, for people reaching state pension age before April 2016, introduce a new option of paying voluntary national insurance to top up their additional state pension. I commend the Lords amendments to the House.

--- Later in debate ---

[Steve Webb]

I beg to move, That this House agrees with Lords amendment 4.

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

With this we may consider Lords amendments 5 to 8, 9 and amendment (a) thereto, 10, 11, 14 to 18 and 28 to 38.