Pensions Bill

Lord McKenzie of Luton Excerpts

Monday 16th December 2013 Grand Committee

Moved by

[Lord McKenzie of Luton]

4: Clause 1, page 1, line 8, at end insert—
“( ) The Secretary of State shall ensure the timely provision of relevant data to persons who may become entitled to a state pension at a full, reduced or transitional rate.
( ) Relevant data shall include such information as will reasonably enable a person to be aware of state pension accrued at 6 April 2016, the basis of which it may be revalued and the number of further qualifying years, if any, required to achieve a full state pension.
( ) Such information shall be provided as soon as reasonably practicable after 6 April 2016 and from time to time thereafter.”

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[Lord McKenzie of Luton (Lab)]

My Lords, this is a gentle, probing amendment designed to give some respite to the Minister and to explore further the details of what is planned about the nature and extent of the communication strategy envisaged for the introduction of the single-tier state pension. The noble Lord, Lord Kirkwood, touched on this, as did the Minister in responding to the first group of amendments.

We have been provided with a certain amount of information in the various briefing packs and we have had the opportunity to peruse the overarching strategy for communicating the reforms, which has been made available in the Library. I take this opportunity to commend the Bill team. We do not want to heap too much praise on them, as this is just the start of our proceedings, but I think that we have had some genuinely good information packs, which have helped. The problem with good information packs, of course, is that they generate additional queries, so forgive me if I pursue some of them.

One objective of the strategy is, rightly, to inform people about the impact of the reforms on their individual circumstances and the actions that they may take to improve them. That aspect is of particular relevance to the amendment. It seems to me that the state pension statement is to be the key way in which this communication is delivered, so the Minister may wish to comment on the statutory underpinning of such statements, if it exists, and on whether this might be improved.

Although the amendment focuses on STP, it does not negate the need to communicate to those who retire before 6 April 2016, especially in relation to the extended arrangements for paying voluntary NICs and the new class 3A NICs to improve state second pensions. I ask the Minister specifically what is planned in this regard. I suppose, given our earlier debates, that the key communication issue for those who retire before 6 April 2016 is why they are in a separate category, although I do not want to revisit the debate that we have just had.

Issues relating to the new class 3A have obviously not yet been fully developed and those who might be eligible are a definable group of all those who reach state pension age before 2016. The group that are particularly in need of information are those who are entitled to a state pension at the transitional rate. If they are to be encouraged to make rational savings decisions, such information as their foundation amount, any protected payments, the rebate derived amount where appropriate or any derived and inherited entitlement is key. Individuals should be made aware of how the revaluation of the various components is to work and they will need to be alerted to their potentially not meeting the minimum qualifying period, having fewer than 35 qualifying years, as well as not being able to add further to their STP.

It is understood that this information is still to flow via state pension statements, but following implementation of the STP it is not planned to make it proactively available, either as soon as the NIC information is available up to 5 April 2016 or otherwise. A post-implementation statement will be provided on demand and digitally but not otherwise, as I understand it.

A number of questions therefore arise. Can the Minister clarify precisely what is to happen between Royal Assent and in advance of implementation so far as state pension statements are concerned? Will these be made available proactively or will individuals have to ask for them? It is understood why a digital service is to be developed for post-implementation—that is to be welcomed—but there will be some for whom the digital approach will be difficult. That is surely the experience of universal credit. What other support will be available to these people? There is clearly some merit in being able to take stock of one’s state pension provision as close to 6 April 2016 as possible, so can the Minister say how long it is expected to be before the 2015-16 national insurance data will generally be available at individual level? How long does it take for that to filter through to the records?

Given more complex situations, how quickly is it envisaged that individuals will be informed of all their pension components, including the rebate-derived amounts, after 6 April 2016? What, if any, capacity will there be in the system for individuals to query, challenge or even appeal the details that they receive? We are told that there is not the capacity in the system to provide full details to everyone proactively—like the noble Lord, Lord Kirkwood, I think that there is a measure of concern about that. Just what is the capacity to provide such details for those who would likely be entitled to a state pension at the transitional rate? We are told that, post-implementation, state pension statements are to be provided on demand. Those who are clued up and digitally savvy will cope, but what monitoring will be undertaken to see what is happening to those who are not? What particular communication strategies are to be focused on the self-employed, who will be brought more fully into the system than hitherto?

Although the components of the calculation will generally be more straightforward for those who grow up entirely in the new system, they will still need information so that they can be reassured on their likely level of state pension income and the desirability of saving. Of course, some may enter the new system part way through their working life because, for example, they had been working abroad or had just decided to join the labour market. What in terms of communications is planned for those in this position? I accept that much of this will be work in progress, but I do not want to miss the opportunity to get an update on the latest position before we leave Committee. I beg to move.

[Baroness Hollis of Heigham]

My Lords, I want to comment very briefly. I declare an interest, which I know is relevant to this amendment, as a board member of the Pensions Advisory Service. TPAS has recently completed a survey of just under 1,000 women on their pensions which makes the point absolutely for my noble friend’s request for an information and communication strategy to go out to prospective pensioners and pensioners. Of that 1,000 women, 36% did not know when their state pension would be paid; 74% did not know how much they would receive; 57% did not know whether there was a shortfall in their NI record; 25% do not know that the age is likely to change again; 54% have made no changes to their retirement plans; 27% wonder whether they will have to work longer; and 76% do not expect to be financially comfortable in retirement. I have before me a lot of quotes, some of which I may choose to use later on. Those figures suggest how wilfully uninformed far too many women are about what will happen to them over the next couple of years. That evidence from a TPAS sample substantiates my noble friend’s points.

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[Lord Freud]

The cost of providing it to absolutely everyone in the country would be large and, in capacity terms, would be too great to be able to cover everyone on that basis.

[Lord McKenzie of Luton]

If there were increased demand because of the changes that are taking place in the broader communications strategy, what is the capacity to deliver individualised statements? How many could the department cope with?

[Lord Freud]

One of the issues here is that we will need to talk, or write, to people who cannot get the information in the digital way that we are planning as our primary way of communicating. Clearly we will be in a position to do that but, until we have the service up and running, it is difficult to estimate what the underlying demand might be.

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[Lord McKenzie of Luton]

As ever, I am grateful to the Minister for his full reply. I think that I have ended up slightly more concerned than when I started on this amendment. I also thank all noble Lords who have participated in this debate. First, specifically the Minister referred to the opportunity to challenge a statement to see whether the information was right, which is not routinely done at the moment. I can understand that. Is there technically a right of appeal or does that arise only when the pension falls due for payment?

I do not think that we got an answer to the point made by my noble friend Lady Sherlock as regards at what point someone would receive a communication. I think the answer to that is that it would be only at the point at which they asked for it. I can see that an educational policy, financial literacy, and all those issues dealt with by the noble Baroness, Lady Greengross, and the noble Lord, Lord German, are important and may give an enhanced understanding for people. I am trying to understand what would happen if there is no proactive approach. You could end up with very few people asking for a statement, and the percentage of people in the new system getting an early statement seems to be low. I still do not think that we have the answer to the question about the capacity of the department to respond to queries if there are more than the current 600,000 requested statements. I would have thought that there is at least some prospect of a bit of a flood of inquiries at least at the start when people seek to understand the new position, particularly if the broader education approach is to help and encourage people to understand what their potential provision will be in due course and, therefore, what additional saving they might, if they are able, undertake.

I am grateful to my noble friend Lady Hollis, as ever, about some very helpful data which really underlines the importance of getting these communications right. The noble Lord, Lord German, made the point that this is not just for people who are retired or just about to retire. This is a broader issue about helping young people as well to understand the importance of saving. I had not heard the figure of the 2 million people who auto-enrolled. I am grateful for that. It is a huge achievement and it is great to have it announced while sitting next to my noble friend who was so instrumental in getting that under way.

Obviously, I will withdraw this probing amendment. I hope that the Minister may be able to fill in some of the gaps but I am still left very uncertain as to how most people will get that information expeditiously. I would have thought that most would want it.

[Baroness Hollis of Heigham]

Will the Minister think about the possibility of, say, when someone hits the age of 50, a pension statement or whatever being sent out? The whole push of the Government’s programme has been that people should have enough time to be able to make good any shortfall in their record.

They cannot do it six months before they are due to retire. If a statement was sent at 50 and then the usual one was sent a year before retirement when people may or may not be in a position to consider voluntary NICs or something like that, even that would be helpful if a statement cannot be sent out each and every year. I take the point about cost and effort but people need some snapshots so that they know what the position is as they go along at the ages of 50, 55, 60, 64 or whatever. Otherwise, we will find that a hell of a lot of people are going to remain on pension credit and two legacy systems will be running for 40 years.

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[Lord McKenzie of Luton]

My Lords, before I withdraw the amendment, can I check on two points? The Minister said that it would be possible to go to the previous year’s statement on the normal basis by 6 April 2016. Would that statement include any estimate of what life would be like under STP or would it just be on the old basis? I accept entirely the Government’s intent to communicate effectively on this. It would be crazy to develop a policy like this and then let it fall because there had been inadequate communication, so there is not a challenge on the Government’s intent here. However, how will they spot the difference between those who are digitally able and those who are not? How long will it take for them to realise that there is a group of people here or there who have not accessed the system and that they therefore need to do something else?

[Lord Freud]

I shall take the noble Lord’s second question first. We realise that some people today are not necessarily digitally able or on the net, but this is the way of the future and we are looking to increase digital take-up and access and a lot of investment is going into that. It is interesting that the divide currently seems to be at age 45, with people pre-45 tending to be relatively familiar and people post-45 tending to be less so—this tells us something about the nervousness in Lords committees. However, clearly, as the system moves ahead over the decades, more and more people will take digital involvement for granted. For those who cannot today, we will need to supply other means of support and we have said that we will do that.

Statements before April 2016 will contain information to help people understand what the amount stated will mean if they reach state pension age after 2016—in other words, what the foundation amount that they could expect represents.

[Lord McKenzie of Luton]

I am grateful for those further clarifications. I have just one final point—I promise no more. Is there a statutory underpinning for state pension statements? If there is not, should there be one?

[Lord Freud]

I complained about razor blades before. I am pleased to be able to inform the noble Lord that, no, there is not a statutory underpinning. I am not utterly sure as to why there should be one and whether that is a loss to the system.

I should be very interested if the noble Lord can explain why there should be one and to think about that.

[Lord McKenzie of Luton]

Perhaps I could write to the noble Lord. It just seems to me that one would have assumed that the Government were authorising some formal way to produce this information, or have an obligation to. Perhaps that is the difference here: the more we move to a statutory basis, it imposes a stricter obligation on the Government. We might reflect on that, but we have cantered around the issue, so I withdraw the razor blade and beg leave to withdraw the amendment.

Amendment 4 withdrawn.

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[Baroness Hollis of Heigham]

I am sure that the Minister will understand our need for clarity on some of these issues—whether it is net or gross; mean, median or average and so on—because they completely reshape the statistical base on which some of us are trying to base some of our contributions. The Minister is patient in taking our comments on this point, but we really need to know and we have not always had the statistics in ways that have allowed us to read across in a straightforward and simple form. This is not the fault of the Box; it is simply because that is the way in which, classically, statistics have been collected.

I am grateful to my noble friend Lady Drake, who emphasised both the need to deliver the Green Paper promises of a substantial headspace between the pension credit regime and the new state pension, and the way in which this is becoming narrowed. As my noble friend Lady Sherlock said, it is becoming very hard to calculate. I was checking back on what the Select Committee on Work and Pensions actually called for, and I really do not understand why the Minister cannot do this for us. The committee said in paragraph 34:

“There is no certainty about how long the triple lock will be in place and we believe that it is important that there is as much clear water as possible between the rate of the STP and that of Pension Credit. There appears to be scope for a bigger differential (either at the outset or over time) given the increased National Insurance revenue that the Government will derive from the ending of contracting-out and the overall long-term savings which will be made on”,

pension credit,

“expenditure as a result of the introduction of the STP. We therefore recommend”—

and I do not understand why the Minister cannot go along with this—

“that, when the Bill is before Parliament in the summer”—

that is, in the prior discussions at the other end—

“the Government publishes an analysis of (a) the cost of setting the STP rate at a range of higher levels; and (b) the level at which the STP could be funded if the additional NI revenue was used for this purpose”.

The Minister says that the whole of this project has to be cost-neutral. Yes, to an extent, but of course it is cost-neutral within a growing demographic population. When he talks about it being cost-neutral, I am never sure how much he is looking at the rise in life expectancy and so on and therefore at the number of claimants coming through, particularly for the post-war bulge. After all, the GDP figures show a drop for this group in going to pensions of something like 8.9%—I think I am right; I am doing this from memory—or about 8.23%. That is a significant drop in projected GDP going to a cohort that will actually have increased in number. When the Government say that this has to be cost-neutral, therefore, it seems to me that in practice, unless I have misunderstood the Minister, that could be achieved only by allowing the real value of the new state pension to fall simultaneously with the real value of pension credit. Perhaps he might like to write to us to confirm whether that is the case. However, as I have said, I do not understand why he cannot respond to what seems to be an entirely appropriate piece of analysis that was recommended by the Select Committee. Perhaps he could write to us and explain why it cannot be done.

[Lord McKenzie of Luton]

Before my noble friend sits down, does she agree that the drop in the share of GDP would have been even greater had the uprating been by way of earnings rather than by the triple lock? It is maintained even at that 0.6% drop because of the triple lock assumption, which is far from guaranteed, as I understand it.

[Baroness Hollis of Heigham]

My noble friend is exactly right and I thank him for that. Perhaps the Minister could write to us on why this is not possible. Why we cannot follow previous legislation in doing pension Bills, I do not understand.

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[Lord Freud]

My Lords, I thought that I had just said that we had made that concession a general one in practice.

[Lord McKenzie of Luton]

My Lords, I wonder if I could help my noble friend Lady Hollis here, although on this issue I am not sure why I should, as I was the Minister dealing with this and she was on the Back Benches giving me a hard time. My recollection, although I have not gone back over the detail, is that there was the opportunity to buy back outside of the six years, but you had a limited period in which to do that. I have forgotten what the deadlines were and I do not know whether that time has expired now; maybe it has and we are therefore back to the usual six years, with the extension that the Minister has explained. There were two systems and there was a limited opportunity to go back—for any length of time, as I recall—and you had to go back within a fixed period of time.

[Lord Freud]

Without indulging in too much nostalgia, particularly as I was not present in 2008—or was not present here—that relaxation was because of the change from 39 qualifying years to 30. That was specifically introduced to exclude the cliff edge, and the concession was only for people reaching their state pension age before 2008. As I said, I do not think that we need to get over-nostalgic. As they move through into the new single-tier system, both before and afterwards, people now have a broad ability to purchase extensive voluntary national insurance contributions, and of course we are adding to that capability with the new class 3A voluntary contributions. Therefore, there will now be a substantial opportunity for people to buy state pension.