State Pension: Women

Lord McKenzie of Luton Excerpts

Thursday 3rd December 2015 Lords Chamber

[Lord McKenzie of Luton (Lab)]

My Lords, I thank my noble friend Lady Bakewell for initiating this short debate and for bringing to our attention some of the distressing communications she has received in her postbag. I also thank the noble Baroness, Lady Jenkin, and the noble Lord, Lord Stoneham, for their contributions. We are a small but select band on this occasion.

The focus is the new single-tier state pension, which is due to come into effect in April 2016, and in particular how it is being communicated to people about to reach state pension age. This is brought into sharp focus as its introduction looms and the spotlight falls on the detail of what the changes mean to individuals. The issue is also to an extent entangled with the changes to the state pension age and the different ages at which men and women will gain entitlement to a state pension. It is also relevant to the changes to private pension provision and the new freedoms concerning access to pension pots if decisions are to be based on robust information about future income in retirement. It is also relevant, as we have heard, to progress on auto-enrolment.

The single-tier pension has been promoted as the route to speeding equalisation of pension outcomes between men and women a decade earlier than would be achieved under the 2007 legislation. Despite significant improvements under that legislation—in particular, the reduction of the number of years needed for a full basic state pension to 30, and more generous credits for carers—we know that women have continued to be at a disadvantage compared to men. They have been less likely to be in work, more likely to work part-time, often in multiple jobs, and more likely to be on low pay and therefore historically inherently less well treated by the mechanisms determining state pension entitlement. We know that life expectancy is increasing and that life expectancy for women is greater than for men. The majority of today’s pensioners are women, and this is projected to be the case into the long term.

Therefore, the prospect of accessing a new single-tier pension with the promise of greater simplicity and a shorter period before an equalised outcome with men is obviously to be welcomed. These changes are driven by the ending of the earnings-related state second pension and because a new single-tier year is worth more than the current basic state pension year. However, it is not all good news: 35 years of contributions are needed for a full single-tier pension and there are restrictive rules concerning reliance on a spouse’s national insurance contributions.

Despite the new arrangements offering the prospect of eventually leading to a simpler, more understandable pension system, the transition certainly has its complexities. We should acknowledge that the Minister is on record as recognising as an early issue on taking office that more needed to be done to communicate what these changes mean, and we look forward to an update when she replies.

The Minister will have heard from my noble friend about the confusion, frustration and disappointment that abounds on this issue, especially among women. That confusion is not only about what level of pension will be payable. There is frustration about the precipitate changes to the state pension age. These issues potentially make more difficult the choices, usually falling on women, about leaving employment to take up family caring responsibilities, for example.

My noble friend is right to challenge whether more could be done to encourage realistic expectations of what will flow from the single-tier pension. In this context, it is helpful to remind ourselves of the overall impact of the proposals. The DWP’s impact assessment produced for the Pensions Act 2014 showed that over the long term the overall expenditure on pensioner benefits from the state is projected to be lower than under the current system. It is broadly the same as the current system in overall costs through to 2040 but with savings thereafter. This includes pensions as well as pensioner benefits, pension credit in particular. However, we should not forget that the Exchequer will gain massively from the ending of contracting out next year and the consequent increase in national insurance contributions. This benefit was due to be applied to meet the proposed changes to the funding of social care, and perhaps the Minister will tell us whether that is still the case and how it is being put into effect.

The very helpful Library briefing reminds us that the Work and Pensions Committee concluded that the overall impact of the reforms, whether people gained or lost, is likely to be marginal. Reference is made to a Joseph Rowntree Foundation report which concluded that gainers from the new system will include the self-employed and those not qualifying for the additional state pension prior to 2002, but the conclusion is that overall and in the longer term the new single-tier pension will be less generous than the current system for most people. Do the Government accept this analysis?

Of course there are a host of reasons why from April 2016, contrary to many people’s expectations, there will not be a single-tier pension of £155.65 per week for all pensioners. For a start, the single-tier pension will apply only to people who reach state pension age on or after 6 April 2016 and, because state pension ages will not have been equalised by then, the starting point for a man is those born after 6 April 1951 but for a woman it is those born after 6 April 1953. Not all will have achieved the required number of national insurance contributions, by payment or crediting, for a full pension, which is to be increased to 35 years, and if at least 10 years’ contributions have not been earned then there will be no entitlement at all. Not all will have the opportunity to close gaps in their national insurance record, and those who have been contracted out of the additional state pension will suffer a deduction which can be made good in whole or in part only by post-April 2016 payments before state pension age. Some will have a starting amount under the current pension rules which provides for a protected payment in the new scheme.

These are just some of the factors which will determine entitlement or lack of it. Recent press reports, which were referred to by my noble friend Lady Bakewell, highlight the impact of these issues on the early years of the scheme. It is suggested that of the 400,000 expected to claim the new state pension next year only 20,000 women will get the full rate of £155.65. Do the Government accept these figures? What is the Government’s analysis of the actual reasons why individuals are not receiving the full rate?

The National Federation of Occupational Pensioners reinforces the point that its members are confused about which system they are in. It also points out what it says is an anomaly—that the triple lock applies to the entirety of the single-tier pension, whereas it applies to just the basic state pension under current arrangements. The federation also emphasises the difficulty which the increases in the state pension age have presented for women born in the 1950s.

As the noble Lord, Lord Stoneham, said, in October 2014, the previous Pensions Minister, Steve Webb, launched a service to provide individuals with a written estimate of what they might expect to receive under the single-tier pension. This is to be available for those reaching state pension age between April 2016 and August 2021. Will the Minister tell us how many such written estimates have been requested and provided to date? Will she say whether the information provided contains a comparison with the existing pension system and whether the projected levels of pension could be enhanced by, say, the payment of voluntary national insurance contributions? The papers we have provide further details of the single-tier communication strategy. Will the Minister update us on progress on the strategy and, in particular, on whether phase 3 is under way and on schedule?

Pension issues can be complicated, even for the sophisticated practitioner, as the noble Baroness, Lady Jenkin, acknowledged. It is clear that the Government are failing to communicate effectively with potential pensioners on these very significant changes to the system. My noble friend Lady Bakewell should be congratulated not only on bringing this issue before us today but for her continual support for those women—WASPI—whom this Government are letting down.