Pensions Bill

Lord Browne of Ladyton Excerpts

Monday 13th January 2014 Grand Committee

[Baroness Drake]

I was drawing to a close. I have a final point on the negative procedure. In response to my suggestion that there could possibly be time limits on consultation in order to meet the spirit of what I aspired to achieve before the constraint of April 2016, the Minister said that seemed too prescriptive and asked why one would want to put constraints on the consultative process. It seemed rather contradictory to say that one cannot go for negative procedures because affirmative procedures take too long and could push up against the efficient way in which employers could adjust in time for April 2016. If the balance were a trade-off between defined periods or timetabled periods of consultation with the employers and the opportunity to deal with the regulation by affirmative procedures, it would be fair.

[Lord Browne of Ladyton (Lab)]

Like my noble friends, I am grateful to the Minister for engaging more generally with the issues of statutory override in his remarks in support of Amendment 44. That has been of some assistance to the Committee. It is obvious from the engagement he has already had with my noble friends that they believe that to be the case. I, too, wish to be associated with the words of thanks to the Minister for the offers of further briefing and engagement. They will be taken up.

Before I take advantage of his generosity to ask him a few additional questions, one of the advantages of anticipating that he would do this—because he was gracious enough to indicate that he was prepared to do it—was that I was able to read the official record of the previous debate we had in Committee, and there are one or two things that occurred to me that he could expand upon.

Before I turn to that, I shall deal somewhat formally with government Amendment 44, which I accept is a consequential amendment. I have to say—I do not expect the Minister to engage very fully with this—that reading the statutory provision which he seeks to amend, the section of the Pensions Act 2004, I am slightly at a loss to understand why the amendment is necessary. It makes the precise provision more elegant, but I am not sure that it changes much of the content. It is genuinely consequential. Section 258(2)(c)(ii) already contains these words, although they are further qualified.

In the more general debate I shall try to be complementary to the points already made and not go back over the issues that my noble friends have addressed, although I have some notes here which are similar to some of their observations. I turn first to the issue of whether it is appropriate to deal with the regulations anticipated by these provisions by affirmative procedure in your Lordships’ House and in the House of Commons, or by negative procedure, and consequently whether it would be appropriate to deal with the limited issue of the extension of the period by negative or affirmative procedure. It seems to me, first, that it is improbable in the extreme, given the way the Minister has described these regulations in terms of their comprehensive nature, their complexity, and the difficulty associated with understanding them, that they will not be debated in some form in both Houses. It is unlikely that there will not be a desire to engage with some aspects of them to—at the very least—achieve some further clarification.

My second point to the Minister is that it seems to be counterproductive to the argument that negative procedure is appropriate to go to such length to explain just how complicated the regulations are. It seems to me that the more complicated the regulations are, and the more the primary legislation has to be supplemented by complicated regulations, the weaker the argument for doing this by negative procedure becomes. I suspect that that is why, reflecting on the Minister’s words, he referred again to the issue of parliamentary time. With respect to the Minister, getting parliamentary time in our current Parliament is the weakest argument possible.

I am struck by the number of times the House of Commons rises before what I consider to be its normal rising time. I do not know whether that is a function of the fact that the coalition Government have run out of agreement about what they can legislate on —that may happen; it is a perfectly natural thing with coalition government—but I am also struck by how much time is spent in the House of Commons debating what is now called “Members’ Business”. As far as your Lordships’ House is concerned, I am struck by the fact that we are all expecting—and I think we will see—that an extraordinary amount of time will be found to debate a Private Member’s Bill over the coming weeks.

If regulations are debated in the normal way, it seems to indicate an expectation that there will be no great competition for parliamentary time between now and the general election. In fact, I go so far as to suggest that the business managers of the respective Houses may have difficulty in filling the time they already have, so I do not think the argument about parliamentary time is all that strong. If the Minister is to continue to promote the idea that these regulations—complicated, difficult, comprehensive and substantial as they are—are still best dealt with by negative procedure, then, with all due respect, I think he will need better arguments than those he has already deployed.

Secondly, perhaps I may take advantage of the opportunity to debate these issues and ask the Minister to give some clarification about information that he gave us when we last debated these issues about the effect that the abolition of contracting out will have on people’s expectations. Early on in his contribution to our last Grand Committee, he came to engage with the issue of trustees and pension funds and their responsibilities. I will quote him fully, not in short. He stated:

“Referring to those private sector employees who are contracted out immediately before implementation, who reach state pension age in the first decade of single tier, around 75% of them will receive enough extra state pension to offset both the increase in national insurance contributions that they will pay over the rest of their working lives and any potential adjustments to their occupational pension schemes”.—[Official Report, 8/1/24; cols. GC 430–431.]

That is an argument that was deployed by the Pensions Minister in the House of Commons, too, when addressing that issue. It is clearly designed to allay, and does allay, the concerns of a significant number of people about the denial of their expectations. However, in col. GC 433, when the Minister was discussing the issue of protected persons under statutory override, he deployed a similar but different argument. I shall quote it to him, because I am interested in the difference, and what it actually means. He said:

“We also have to factor in that the design of the single tier reforms means that those with a long history of contracting out will in most cases build up significantly more state pension. Around 75% of people in the private sector who pay higher national insurance contributions and reach state pension age during the first two decades following implementation will receive enough extra state pension over their retirement to counterbalance the increase in national insurance contributions”.

He went on to say:

“This is a very complicated issue with many different and conflicting interests”.—[Official Report, 8/1/14; col. GC 433.]

But we know that.

Were these different ways of saying the same thing, or were they different things—and, if so, what is the difference? Why does he say “two decades” in one case and one decade in the other, and why is there a reference only to counterbalancing the increase in national insurance contributions in one while there is a reference to eventual benefits in the other? It may not be easy for the Minister to answer that immediately, and I apologise if it is not, but I would be interested to know whether he intended those two things to mean the same—and, if not, why there is a difference.

On the issue of protected persons, in col. GC 433, the Minister addressed my question about the defeated expectation that the decision that the Government promised following the consultation would be made clear to Parliament. He told the Committee that a decision following the consultation about protected persons would be made as soon as possible, and that when it was made, Parliament would be informed. But what he did not say was important. The Pensions Minister in the other place said at one stage that it would be done in the summer of 2013—and we know that that is now long gone. No matter how generous one might be with Governments who use seasons to give an indication as to when something might be done—and having been a Minister myself I know how wise it is to do that sometimes—in no one’s view are we still in the summer of 2013.

The Pensions Minister gave both the Standing Committee and the whole House of Commons to believe that, at the very worst, a decision may be made when the Bill was still before Parliament. That is not a phrase the Minister used. Was that deliberate or can he repeat the phrase? It is important for the 60,000 people who consider themselves to be protected persons. Their expectation is that the decision and therefore some engagement with the consequences of that decision will still be a live issue while the Bill is still before Parliament.

--- Later in debate ---

[Lord McKenzie of Luton]

Indeed, I agree with my noble friend. It is the converse of that. A cynic might say that this is all to do with managing the deficit and the debt in the run-up to a general election, but that is for us cynics, I guess.

Looking at Amendment 62, I wonder whether the Minister can help me out on what will eventually be new Section 14B dealing with the arrangements for repayment of contributions. I am a little unclear about proposed new subsection 14B(4), which states:

“Regulations under subsection (1) may provide for benefits paid to a person because of the unit of additional pension to be recovered by deducting them from the repayment”.

I am not quite sure whether the benefits referred to there are the additional pension that has hitherto been received or whether there is something else because typically one would not expect extra benefits to be paid if somebody has extra income—quite the reverse. Perhaps the Minister can help me on that provision.

Proposed new Section 61ZA is headed “Shortfall in contributions”. I was a bit bemused by this. It states:

“This section applies to a person who has one or more units of additional pension if the person … is not entitled to a Category A retirement pension, but … would be entitled to a Category A retirement pension if the relevant contribution conditions were satisfied”.

It goes on:

“The relevant contribution conditions are to be taken to be satisfied”,

but in a sense it negates the impact of that in terms of payments as you get only the additional pension attributable to units of additional pension. I was trying to fathom what that was about because if somebody is not entitled to a category A pension presumably they would only be entitled at all if they had a category B or D pension. Or is this saying, basically, that even though you do not have a pension entitlement, we will treat you as having a pension entitlement for the purposes of being able to take up these provisions? That seems to undercut one of the two requirements—and there are only two requirements—to be able to access these arrangements.

I do not know why there needs to be consultation with the Government Actuary or the deputy Government Actuary—I do not know whether you can choose who to go to for advice. I would have thought that going to the Government Actuary’s Department would include going to the deputy if the Government Actuary is not available. But there may be good reason for that formulation. This may well be a nice little earner and deserve support on that basis, but until we know more detail it is difficult to judge. It is an odd formulation to attach this to the additional state pension in the way that is proposed.

[Lord Browne of Ladyton]

My Lords, I, too, thank the Minister for his explanation of these provisions. I take this opportunity to thank his Bill team on behalf of my noble friends and myself for the briefing that it provided to explain some of the issues that have been raised. When the Chancellor announced the scheme in the Autumn Statement there was much excitement among financial journalists, I recollect. It was hailed as a great deal for consumers by commentators, many of whom missed crucial words in the small print that it would be at a broadly actuarial fair rate. My understanding—and the Minister's explanation confirmed this—is that the price will vary according to age at purchase, much as an annuity would, and that it would be gender-neutral.

The Minister has effectively confirmed that the only factor that will be taken into account in pricing a class 3A contribution will be age. No account will be taken of any regional or occupational differences in life expectancy, which are issues that will engage the Committee later in this evening’s debate. As that is not going to be the case, have the Government done any work on the likely distributional effects of this scheme? If this scheme is broadly actuarially fair in pricing and the proposal is that over time the policy will be broadly cost-neutral as the briefing paper says, if some people are getting a good deal others must be losing out. Those who lose out will be those with shorter than average lives, and there is a clear socioeconomic correlation there.

There is much that we do not know about the scheme and the Minister was absolutely candid about that. In fact, there is much that the Government do not know about the scheme because they have not worked it out. We know, however, that it will start in October 2015 and that the Government are minded to run it for 18 months or two years only. I digress here to point out to the Minister the irony of telling us in one short unqualified sentence that the affirmative procedure will be used for the regulations for this in a scheme that is due to start in October 2015 when he spent a significant amount of his last contribution to the Committee explaining that it would be very difficult to find time for affirmative regulations in this Parliament. That irony was not lost on the rest of us. He may find that fact being played back to him at some time in the not-too-distant future.

We do not know the range of prices, but the illustrative price given in the briefing paper sent to Peers showed a charmingly named couple, Mr and Mrs Average, who will be 65 in 2015. They could be expected to live for another 24 years. It suggests that they would have to find £1,248 to acquire another one pound a week. That would be a better deal for them than going to the market, said the briefing, because the extra pension that it would buy would be uprated by CPI and without charges, and would be inheritable under the additional state pension rules. I am not sure whether that was meant to be the price for them to receive an extra £1 per week each because it seems in the polling reports that the prices tested were between £300 and £800 to buy an extra £1 per week, depending on age. I make this point because the value of polling is of course dependent on the nature of the questions asked. If the questions that were asked in the polling were on an expectation that one unit per week would cost between £300 and £800, and in fact it is likely to cost £1,248 to acquire, that polling may need to be redone as it will be of limited value.

--- Later in debate ---

[Lord Freud]

It does not count. I can answer that straightaway because the discussions on the welfare cap have been around working-age benefits, not pension benefits. The Labour Party may have been discussing a wider pension cap but that is not what we—

[Lord Browne of Ladyton]

It is the pension cap that this Committee is discussing. I am grateful for that clarification, which was appropriate at this time.

Finally, there are the decision points for individuals. Will they get advice on whether they should buy class 3A contributions? After all, there are significant considerations for individuals, such as their life expectancy, which may be significantly affected by where they live in the United Kingdom; whether they are married or in a civil partnership, or likely to be so; and what other income or savings they have—and, therefore, whether it is a good idea, if it may affect their entitlement to incapability benefits, for example. After all, if someone with £10,000 in savings decided to spend £4,000 of those in buying another £5 in income, would they not simply lose that in pension credit and have 40% less of their savings? For all the reasons that we have discussed, those savings may be necessary at later stages in their life. Crucially, who would sell this to them? In the context of the briefing that we received from the Minister’s team, we were told that engagement between the purchasers of this and the Government would be through the Treasury. Does that mean that the Treasury will have certain responsibilities to people who call to inquire about buying these class 3A contributions? If so, how will they be discharged?

There are many questions to ask. The Committee will not be surprised if the Minister cannot answer them all now, because, with respect, he was unable to answer even any of his own questions on his introductory remarks. We may have to wait and see about some of the detail. I understand the reasons for haste; this legislative vehicle is important for this initiative and, if it proves to be positive, that is a good thing. But the scheme was rushed out in the Autumn Statement and added on to the Bill when it had gone through another place. We have no costings or details on price, and no idea how it will be administered—but we still look forward very much to the Minister’s reply.

[Baroness Hollis of Heigham]

Can I ask a question following on from my noble friend about the interaction of pension credit, which I was trying to tease out as he was going along? At the moment, if you have savings of more than about £40,000, the first £10,000 of pension credit capital is disregarded for pension credit purposes. Thereafter, you have the tariff income of £1 for every £500, which means that if you have savings at the moment of about £40,000 and you are single—I am not sure how it would work for a couple, because I do not have the figures in my head—you would be just about ineligible for pension credit, because your tariff income would float you above it. But turn that capital into a pension, given the fairly unattractive rates for annuity purposes, and I think as a result you would come into pension credit. I shall try to do some more work on this as the discussion moves on, but, if I am right, what the Minister will get in upfront savings he will lose not only in payments in perpetuity while those people live, through his additional pension, but also the immediate payments he will have to make in pension credit—because, having disbursed their capital, they will now come within the pension credit income rules.