Pension Schemes (Conversion of Guaranteed Minimum Pensions) Bill

Margaret Ferrier Excerpts

2nd reading
Friday 26th November 2021 Commons Chamber

[Margaret Ferrier (Rutherglen and Hamilton West) (Ind)]

I beg to move, That the Bill be now read a Second time.

First, I want to congratulate the right hon. Member for North Somerset (Dr Fox) on the progression of his Down Syndrome Bill, which I very much support.

My Bill makes changes to the legislation governing the way occupational pension schemes can convert guaranteed minimum pensions into other scheme benefits. The Bill is very technical looking, but it is extremely important. It will help occupational pension schemes to correct a basic issue of men and women being treated differently in those schemes because of the impact of having a guaranteed minimum pension. It will help enable pension schemes to ensure that people do not receive less pension income than they would have received if they had been the opposite sex. In other words, it will help schemes to correct a situation that has been judged since 1990 to be fundamentally unfair.

Guaranteed minimum pensions, or GMPs, are the minimum pension that certain occupational pension schemes have to provide to their members. This applies to occupational pensions contracted out of the additional state pension between April 1978 and April 1997. It ensures that members receive a broadly similar amount of pension income in retirement as they would have received had they not been contracted out.

However, guaranteed minimum pensions differ for men and women, reflecting historical differences of treatment in the pension systems based on sex. People with the same employment history can have different amounts of guaranteed minimum pension depending on whether are men or women, even if they do exactly the same job for the same time at the same salary. It is not even as straightforward as men getting higher guaranteed minimum pensions than women; in fact, both men and women can lose out on pension as a result of their sex.

Successive UK Governments have made it clear since 1990 that occupational pension schemes need to equalise pensions to correct for these effects of guaranteed minimum pensions. In 2018, a High Court judgment confirmed that occupational pension schemes must equalise pensions to address these differences. Speaking as someone who has worked and built up occupational pensions of my own, it seems wrong that people can lose out on even a small amount of pension income purely because of these differences. Occupational pension schemes are therefore required to do something called equalisation—going back and correcting people’s overall pension to ensure that it is not lower than it would have been had the person been of the opposite sex.

[Tom Randall (Gedling) (Con)]

I thank the hon. Lady for bringing the Bill forward. She is talking about the history of this technically complex issue, which goes back to 1990. Does she agree that the changes introduced by the Bill are well overdue and that, by bringing it forward, we will get the change that we should have had a long time ago?

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[Margaret Ferrier]

The hon. Member is spot on; the change is well overdue. I will come to that, and I am sure that the Minister will answer that point too. I think the pension schemes have found some difficulties; as I say, I will come to that.

It is important to be clear that no one will have money taken away from them as a result of the Bill when pensions are equalised. If it turns out that someone is entitled to more guaranteed minimum pension than they would be entitled to if they were the opposite sex, nothing happens; that advantage is not taken away. The Bill seeks only to increase pension income for those already losing out because of their sex due to the nuances of having a guaranteed minimum pension. It is also important to be clear that this is not about giving anyone extra pension that they are not entitled to; it is simply about making sure that no one loses out on pension income as a result of their sex.

If one person has a smaller guaranteed minimum pension than another purely because the first person is male and the second female, their overall pension entitlement needs to be corrected. However, correcting people’s pensions in this way is proving a very slow process, as the hon. Member for Gedling (Tom Randall) said. The Department for Work and Pensions, working with the pensions industry, tried to cut through the complexity by offering a methodology, set out in guidance, for pension schemes to use. The methodology involved converting the guaranteed minimum pension into what I will call normal scheme benefits, using existing legislation already on the statute book.

The industry agrees that this is a sensible approach, but has pointed out that the legislation supporting the conversion process contains some uncertainties that it believes will expose it to legal risk and potential accusations of not equalising correctly. For example, the way survivor benefits are treated in the conversion legislation needs to be clarified. The industry has pointed out that legal requirements for survivor benefits when guaranteed minimum pensions are converted are not sufficiently clear. Survivor benefits are the benefits paid out to a scheme member’s widow, widower or surviving civil partner when the member passes away, and are therefore extremely important.

Equalising someone’s pension to take account of the differences that arise because they had a guaranteed minimum pension is, as I have said, very important, but schemes need clarity and legal certainty before they are able to proceed with this essential process. That is what the measures in my Bill seek to provide. Similarly, before converting guaranteed minimum pensions, pension schemes are required to get the consent of the sponsoring employer that finds the scheme. That sounds entirely reasonable, since after all the sponsoring employer has invested a lot of money in the scheme to ensure that its employees have a decent retirement income.

Unfortunately, that is not as straightforward as we might expect because the current legislation does not cover all situations, such as where the original sponsoring employer is no longer in business. As a result of this lack of clarity in the legislation, some pension schemes have held off equalising for these effects of guaranteed minimum pensions. This Bill will help with that by rectifying those uncertainties and clarifying the legislation that schemes will use if they follow the methodology set out in the Department for Work and Pensions guidance.

I should make it clear to the House at this point that the Bill does not impose any new costs or requirements on occupational pension schemes or their sponsoring employers. Affected occupational schemes have known that they need to equalise pensions for the effect of guaranteed minimum pension for many years and should have been planning accordingly. The Bill will simply help pension schemes to do exactly what they need to do to stop people losing out.

I have engaged with representatives from the pensions industry, who welcome the provisions. The industry has long lobbied for the clarifications in this Bill to be made. I should hope that all here recognise the Under-Secretary of State for Work and Pensions, the hon. Member for Hexham (Guy Opperman) sitting opposite me today; I am delighted to say that the Government have decided to support my Bill. It is good to be working with the Government to make things easier for pension schemes.

[John Lamont (Berwickshire, Roxburgh and Selkirk) (Con)]

I congratulate the hon. Lady on bringing forward this Bill. She is speaking extremely well on a very technical area of pensions law. On the devolution point, she will know that Stormont has agreed to deal with the same issue, which is devolved to Stormont, through this Bill. Does she agree that that is a good example of where this Parliament and the devolved Parliaments can work together to achieve a desired positive outcome?

[Margaret Ferrier]

I thank the hon. Member; I am not sure I agree wholeheartedly with all his intervention, but the Bill extends to England, Wales and Scotland, and Northern Ireland, as he mentioned, has asked to be covered by it as well. This particular Bill extends to the whole UK and I am happy that it includes Scotland as well, unlike the Bill of the right hon. Member for North Somerset, which only covers England. As I said, it is good to be working with the Government to make things easier for pension schemes in fulfilling their obligations to their members and to ensure that benefits are paid correctly to members of occupational pension schemes.

I will not take up a lot of time, because the hon. Member for Meriden (Saqib Bhatti) is looking to give his Bill a Second Reading as well. But before I finish, there are quite a number of people on the DWP team who I would like to thank as they have helped me considerably: Narinder Clarke, Anna Smith-Spark, Gareth Thomas, Katy Marcus, Maria Burgess and David Brown. Of course I also thank my parliamentary assistant Kim Glendenning, who has helped me considerably in pulling all this together, the Pensions and Lifetime Savings Association and the Minister.

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[Mr Holden]

I thank the Minister for that intervention.

Some of the changes, particularly the lowering of the earnings threshold, could be introduced in secondary legislation, but primary legislation will be required to extend the auto-enrolment to 18 to 21-year-olds; I should let the Minister know that I have a date for a ten-minute rule Bill in the new year to do just that.

I very much hope that the Government will look at lowering the threshold. Low-paid women with multiple jobs in particular could be missing out on many thousands of pounds going into their pension pots. Low-paid women with multiple jobs in particular are potentially missing out on many thousands of pounds going into their pension pots due to issues around auto-enrolment. It is another inequality in the system that, as the hon. Member for Rutherglen and Hamilton West mentioned, tends to affect women disproportionately.

[Margaret Ferrier]

I just want to clarify that the rules around guaranteed minimum pensions are very complicated, so both men and women can lose out if pensions are not equalised because of indexation and revaluation. I am sure the Minister will cover that in his closing speech, but it is about two people. Sometimes women can have a higher pension and then the man will overtake it, or vice versa, because of the different ages of retiral. I just wanted to make it clear that both sexes can lose out.

[Mr Holden]

That is an incredibly important point. Both sexes can lose out and that is another element with auto-enrolment. There will be men in part-time work, maybe with caring responsibilities, who will also be in a similar situation.

The Minister has been a real reformer and is reforming an awful lot. I know there is a lot more to do. I encourage him to think broadly and work with Members across the House to continue the great reforming work he is doing. It has been great to see him working with the hon. Member for Rutherglen and Hamilton West. I hope to work with him in the future as I start to push for further reforms.

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[Margaret Ferrier]

I thank the Minister for his support in this important matter. He touched on the ballot for private Members’ Bills. I was delighted to be one of the successful 20; I am sure any Member who puts in for the ballot is keen to come out as one of those 20. I am grateful to all Members who have spoken today for their valuable contributions: the hon. Members for Stourbridge (Suzanne Webb), for Hastings and Rye (Sally-Ann Hart), for North West Durham (Mr Holden), for Gedling (Tom Randall), for Dover (Mrs Elphicke), for Stalybridge and Hyde (Jonathan Reynolds) and for Berwickshire, Roxburgh and Selkirk (John Lamont).

Correcting this basic issue of men and women being treated differently in these schemes because of the impact of having a guaranteed minimum pension that affects their hard-earned pension income is important. Although the Bill is small and technical, we should not underestimate its value. It should help schemes to use the guaranteed minimum pension conversion legislation to provide equality for affected pension scheme members by bringing much needed clarity for the industry that administers them. I am heartened and grateful that there is clear cross-party agreement on this issue, and I very much look forward to taking the Bill through its remaining stages.

Question put and agreed to.

Bill accordingly read a Second time; to stand committed to a Public Bill Committee (Standing Order No. 63).

Pension Schemes (Conversion of Guaranteed Minimum Pensions) Bill (Morning sitting)

Margaret Ferrier Excerpts

Committee stage
Wednesday 2nd February 2022 Public Bill Committees

[The Chair]

With this it will be convenient to discuss clauses 2 and 3 stand part.

[Margaret Ferrier (Rutherglen and Hamilton West) (Ind)]

It is a pleasure to serve under your chairmanship, Mr Efford. I am grateful to you and to Committee members for joining me today to look at the detail of this legislation, which, as I said on Second Reading, is very technical in appearance but has a clear and simple purpose.

The Bill will help occupational pension schemes to convert guaranteed minimum pensions, at the same time correcting the basic issue of men and women being treated differently in those schemes because of the impact of having a guaranteed minimum pension. This will ensure that people do not receive less pension income than they would have received had they been of the opposite sex. In other words, the Bill will help schemes to correct a situation that has been judged since 1990 to be fundamentally unfair.

On Second Reading, I was delighted to hear the Under-Secretary of State for Work and Pensions, the hon. Member for Hexham, and the hon. Member for Stalybridge and Hyde (Jonathan Reynolds) voice their support for the Bill. The hon. Member for Stalybridge and Hyde said,

“We should be doing everything possible to help the pensions industry to fulfil what are now its legal duties to deliver GMP equalisation, and that includes supporting the Bill.”—[Official Report, 26 November 2021; Vol. 704, c. 622.]

The Minister helpfully gave a brief history of guaranteed minimum pensions in his speech on Second Reading, but because of the technical nature of the Bill, it is necessary to give some background today.

The state pension used to be made up of two parts: the flat rate basic state pension and the earnings-related additional state pension. However, as many employees were already members of occupational pension schemes provided by their employer, building up an earnings-related additional state pension as well as an occupational pension was seen to be dual provision, so from April 1978 to April 1997, legislation allowed employers sponsoring a salary-related occupational pension scheme to contract out their pension scheme from the earnings-related additional state pension; in return, the scheme was obliged to pay a guaranteed minimum pension to its members. The intention was that the GMP would be broadly equivalent in value to the additional state pension forgone. In a contracted-out scheme, because the scheme was paying the equivalent of the additional state pension, both the employer and the contracted-out pension scheme members paid lower national insurance contributions.

The GMP rules are set out in legislation. GMPs include important rights to survivor benefits, which I will touch on later. However, the way that GMPs work means that men and women in a scheme with the same pay and service history can end up receiving different amounts of GMP. That is obviously not right and needs to be corrected. It is not even as simple as women losing out on GMPs compared with men. Because the rules around GMPs are very complicated, both men and women can lose out.

The requirement to provide equal pensions for men and women in relation to pension benefits accrued since 17 May 1990 is set out in UK legislation—currently through the Equality Act 2010—and has been as far back as 1995 through section 62 of the Pensions Act 1995. Occupational pension schemes with GMPs are therefore required to equalise people’s pensions to correct for the effect of unequal GMPs for pensions accrued since 17 May 1990. That was confirmed by the 2018 judgment of the High Court in the Lloyds Banking Group Pensions Trustees Ltd case. However, as anyone who has had any involvement with this aspect of occupational pension schemes can tell you, equalising pensions to correct for the effects of differences in GMPs is not a simple process.

The Department for Work and Pensions worked closely with representatives from the pensions industry to develop user guidance on a methodology for equalisation, which was published in 2019. The methodology set out in the guidance involves converting the guaranteed minimum pension into other pension benefits that are not bound by the same complex rules as guaranteed minimum pensions. A person’s overall pension income from their occupational pension scheme can then be more easily corrected for the effect of the differences in retirement income for men and women that the complex guaranteed minimum pensions rules produce. The methodology uses what is known as GMP conversion, or the conversion of guaranteed minimum pensions. The law around conversion of GMPs is set out in the Pension Schemes Act 1993.

As ever with pensions, things are rarely straightforward, and true to type this aspect of pensions legislation is not simple. The pensions industry has long expressed concern that the conversion provisions in the 1993 Act contain uncertainties that could expose occupational pension schemes to legal risks if it is used to correct members’ pensions for the differences caused by the complex rules around guaranteed minimum pensions. Because it is about people’s pension income, it is very important that occupational pension schemes have the clarity they need if they are to be able to use GMP conversion to meet their legal requirement to equalise. Clause 1 clarifies and amends the conversion provisions in the 1993 Act to ensure that pension schemes have the clarity they need to use these provisions. It makes consequential amendments to other pensions legislation.

The pensions industry has expressed concern about certain areas of the guaranteed minimum pension conversion legislation. First, the industry is concerned that conversion legislation is unclear as to whether and how conversion applies to survivor benefits. Survivor benefits are extremely important to many people and are a key part of the concept of the guaranteed minimum pension. If a person has a guaranteed minimum pension, after their death a portion of that pension must be paid to their widow, widower or surviving civil partner. It is often a crucial source of income for someone who has been bereaved, and many people greatly value the knowledge that their surviving spouse or civil partner will receive some pension income in the event that they pass away. Providing financial security for those we leave behind is important to many of us.

Less emotive, but equally important, the pension industry is concerned that the conversion legislation does not make it clear what to do in circumstances where the identity of the sponsoring employer is not clear. The legislation requires an occupational pension scheme’s sponsoring employer to give its consent before the scheme converts guaranteed minimum pensions into other scheme benefits. However, the existing legislation does not cover some increasingly common employer circumstances. For example, if there were multiple sponsoring employers in the same pension scheme and one had ceased to exist, the scheme would have no means of getting the consent of all the sponsoring employers. It is unclear what the legislation requires in such cases.

Finally, the 1993 legislation requires occupational pension schemes to notify Her Majesty’s Revenue and Customs that they have carried out a conversion exercise. However, the introduction of the new state pension means that HMRC does not need to be informed about GMP conversion, because the new state pension no longer contains any kind of contracted-out provisions. That may seem trivial compared with survivor benefits providing a pension income to a person’s survivor, but it results in a lot of unnecessary paperwork for both occupational pension schemes and HMRC.

Clause 1 clarifies the legislation to address these concerns. In subsections (2) to (4), it clarifies both the application of GMP conversion to GMPs paid to a member’s spouse or civil partner, and how survivor benefits must work once an earner’s GMPs have been converted. The clause makes it clear that the GMP conversion legislation can be applied to persons who are survivors at the time of the conversion as well as to the actual earners, and ensures the legislation is consistent in how it refers to that.

Subsection (4) removes the detailed and arguably unclear text in the 1993 Act about what survivor benefits following GMP conversion must look like. Instead, subsection (3)(c) contains a power to set out in regulations the conditions that must be met in relation to survivor benefits following GMP conversion. That means that the Secretary of State for Work and Pensions is being given the power to set out in regulations conditions governing how, when a member’s GMP has been converted, the converted pension must provide for survivor benefits to be paid to a deceased member’s widow, widower or surviving civil partner. That is appropriate because these issues are very technical and detailed. It is obviously extremely important when dealing with something as complex and emotive as the calculation and payment of survivor benefits from former GMPs now converted into other scheme benefits that the issues are considered in detail. The regulations will be able to set out a clear framework for the provision of survivor benefits after the conversion has taken place.

The other great advantage of regulations, of course, is that the Government can hold a full consultation on draft regulations before they are laid before the House. That will ensure that scheme members, scheme trustees, scheme administrators and anyone else with an interest in GMP conversion and/or the survivor benefits to be provided—many people in the UK, I am sure—can comment on, review and suggest changes to the draft regulations before they are finalised. As the content of the regulations will obviously be a matter for the Government, I hope that the Minister will discuss that further as and when he speaks in support of the Bill.

Subsection (5)(a) removes the reference to “The employer” where the 1993 Act requires

“The employer…to consent to the GMP conversion”.

As I said, this is to resolve the currently unsolvable situation that schemes can find themselves in whereby they want to convert GMPs and then equalise people’s pensions to ensure that everyone gets the pension income they are entitled to, but they find themselves unable to do so, for example because one of the sponsoring employers has ceased to exist or it is not clear whose consent is required.

Such problems are not particularly unusual for occupational pension schemes. Pension schemes have very long lifespans, and it is not difficult to see how a scheme set up in the 1980s may no longer be sponsored by the same employer. Subsection (5)(a) therefore replaces the term “The employer” with

“Each relevant person (if any)”.

Clause 1 then gives the Secretary of State for Work and Pensions the power to set conditions in regulations in order to identify “relevant persons”. Again, I expect that the regulations will be technical and detailed, so that they give more clarity than the existing primary legislation. Making such technical and detailed provisions in regulations is quite normal in occupational pensions legislation. As I have already explained, it is very important to ensure that those whose consent is required can be identified. By proposing to give the Government this power, I am holding them to consult on the conditions that will apply to identify “relevant persons”. It is important that the affected members, trustees, administrators and, of course, employers themselves are able to comment on and make suggestions about the Government’s proposed conditions before they are laid before the House.

Clause 1(5)(d) removes the requirement for pension schemes to notify HMRC when they carry out a GMP conversion exercise. As I said, that information is no longer needed by HMRC. It costs schemes time and money to notify HMRC, it costs HMRC time and money to process the notifications, and there is no need beyond the current requirement in the 1993 Act for any of that time and money to be spent.

In addition, subsections (6) to (12) make some consequential amendments to the Pension Schemes Act 1993, the Pensions Act 2007, the Marriage (Same Sex Couples) Act 2013 and the Pension Schemes Act 2015 to take account of the changes I have described.

The hon. Member for Gedling (Tom Randall) said on Second Reading that the Bill is “very technical”. I hope my speeches then and now have clarified what the very complex-looking clause 1 actually does.

Clause 2 replicates clause 1 but for the parallel Northern Ireland legislation. It does everything clause 1 does, but for occupational pension schemes in Northern Ireland. To be strictly accurate, I should say that clause 2 does not quite do everything clause 1 does, as it does not contain amendments equivalent to those made in clause 1(11) and (12) to the Marriage (Same Sex Couples) Act 2013 or the Pension Schemes Act 2015. That is because they are consequential, tidying-up amendments. Clause 1(11) amends a provision that is in primary legislation for England, Wales and Scotland, but in secondary legislation for Northern Ireland, so any equivalent amendment for Northern Ireland would also be made in secondary legislation; and subsection (12) refers to legislation that extends a provision for England and Wales to Scotland, so is not relevant to Northern Ireland.

Rather than going through the entire clause again, I should perhaps explain why clause 2 is concerned with Northern Ireland. As hon. Members may know, private pension legislation is a devolved matter for the Northern Ireland Assembly. However, the convention is that the Northern Ireland Assembly makes pension legislation that mirrors the law in England, Wales and Scotland. It would therefore seem entirely sensible to ensure that pension schemes do not have to operate two different systems depending on whether someone is in Belfast, Birmingham, Bannockburn or Bangor. On this occasion, because of time pressures, the Northern Ireland Executive asked for Northern Ireland to be included in the Bill by amending the relevant parts of Northern Ireland’s pensions legislation. The Northern Ireland Assembly has passed a legislative consent motion agreeing that the UK Parliament can legislate on the matters contained in clause 2.

Clause 3 is known as a “back of the Bill clause”. It sets out vital but standard information on how clauses 1 and 2 are to be brought into legal effect. It also sets out the territorial extent of each clause. Importantly, the cluse also enables the Secretary of State to make transitional or saving provision in regulations in connection with the coming into force of clause 1, and for the Department for Communities in Northern Ireland to make transitional or saving provision by order in connection with the coming into force of clause 2. This will enable provision to be made about pension schemes that have already used the conversion legislation or are in the process of doing so when the amendments come into force, to ensure the amendments do not affect what has already been done under the current legislation.

Successive UK Governments since 1990 have made it clear that occupational pension schemes need to equalise pensions to correct for these effects of guaranteed minimum pensions. It seems wrong that people can lose out on even a small amount of pension income purely because of those differences. That is why I am extremely pleased and proud that my Bill will help schemes which want to use GMP conversion to correct for the effects of this issue. I am delighted by the cross-party support I have received again today.

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[Margaret Ferrier]

I thank all those who have contributed to this short, constructive debate and all Members who agreed to serve on the Committee. I also thank all those who contributed more widely to the small but incredibly important changes made by the Bill, and ask that everyone continues that cross-party support until we get the Bill over the line. I also thank the Minister for his support throughout, and I thank the hon. Member for Reading East.

Question put and agreed to.

Clause 1 accordingly ordered to stand part of the Bill.

Clauses 2 and 3 ordered to stand part of the Bill.

Bill to be reported, without amendment.

Pension Schemes (Conversion of Guaranteed Minimum Pensions) Bill

Margaret Ferrier Excerpts

3rd reading
Friday 25th February 2022 Commons Chamber

[Margaret Ferrier (Rutherglen and Hamilton West) (Ind)]

I beg to move, That the Bill be now read the Third time.

As I said on Second Reading, the Bill will help occupational pension schemes correct a basic issue of men and women being treated differently in contracted-out defined benefit occupational pension schemes because of the impact of having a guaranteed minimum pension, or GMP. It will help pension schemes to meet their legal obligations and ensure that people do not receive less pension income than they would have done had they been the opposite sex. In other words, it will help schemes to correct a situation that is fundamentally unfair.

I am proud to have brought the Bill before the House. I was delighted to hear the Under-Secretary of State for Work and Pensions, the hon. Member for Hexham (Guy Opperman) announce on Second Reading that the Government would support it. The support that the Bill has attracted from across the House is testament to both its importance and its essential simplicity. It makes a few changes to pensions legislation that will help occupational pension schemes to resolve a long-term issue of unequal treatment.

The pensions industry has itself been asking for the measures in this Bill, and as a result of those measures, schemes will be better able to use the GMP conversion process to correct for the differences in pension outcomes for men and women that have arisen as a result of GMPs. It is very pleasing that hon. Members from across the House have recognised and responded to this need.

For the benefit of those who were not present for the previous stages of this Bill, I will give a short recap of its background and purpose. GMPs are the minimum pension that certain occupational pension schemes must provide to their members. Occupational pension schemes that were contracted out of the additional state pension on a salary-related basis between April 1978 and April 1997 are required to pay their members GMPs as a floor that the occupational pension cannot fall below. The intention was that when reaching the age at which GMPs become payable, the amount of GMP that a member of a contracted-out scheme would have accrued would be broadly similar in value to the additional state pension they would have received if they had not been contracted out. Rather than paying a higher rate of national insurance contributions to build up rights to additional state pension, members of salary-related contracted-out schemes built up rights to a GMP.

However, the way that GMPs were accrued by people means that they differ for men and women, due to historical differences of treatment in the pensions system based on people’s sex. People with the same employment history can therefore have different amounts of GMP depending on whether they are a man or a woman, even if they do exactly the same job for the same length of time at the same salary. Both men and women can lose out on pension income in retirement as a result of their sex: it is not as simple as one sex losing out consistently over the other. I have discussed this issue in this House several times now, and I still find it difficult to believe that people can lose out on even a small amount of pension income purely because of these differences.

Fortunately, successive UK Governments have made clear for over three decades that occupational pension schemes need to equalise pensions accrued since then to correct for these effects of GMPs. The High Court confirmed in 2018 that occupational pension schemes must equalise pensions accrued since 17 May 1990 to address the effects of those differences. Occupational pension schemes are therefore required to undertake a process known as GMP equalisation, correcting people’s overall pensions to ensure that they are not lower than they would have been had the person been of the opposite sex. That is why the Department for Work and Pensions published a suggested methodology based on the overall value of the pension, which relies on the process of converting GMPs to normal scheme benefits. It is elements of this process that the Bill before us addresses.

Unfortunately, correcting people’s pensions in this way is proving a very slow process. There are a number of ways in which the task of GMP equalisation could be approached. One way, for example, would be to look at the pension in each year and compare what a man and a woman would have received, and pay the higher of the two. The problem with this approach is that it would result in members getting more overall than either a man or a woman would have received before the equalisation process. This would have been prohibitively expensive for schemes, and would in itself be unfair.

The DWP, working with the pensions industry, proposed a methodology based on the overall value of the pension, set out in guidance for pension schemes to use. This methodology involved converting the GMP into normal scheme benefits using the existing legislative framework. The industry agrees with that approach, but is worried that the current legislation that supports the conversion process has some gaps that the industry believes will leave it exposed to legal risk or potential accusations that it has not equalised correctly.

For example, we need to clarify the way in which survivor benefits are treated in the conversion legislation. The industry has pointed out that the legal requirements for survivor benefits when GMPs are converted are not clear enough. Survivor benefits are the benefits paid out to a scheme member’s widow, widower, or surviving civil partner when the member dies. Schemes need legal certainty and a clear framework before they can move forward with this process. This Bill seeks to provide that essential certainty to schemes.

[Virginia Crosbie (Ynys Môn) (Con)]

In the last 10 years since it was introduced, the automatic enrolment scheme has enabled 4,000 of my constituents on Ynys Môn to establish a pension. I congratulate the hon. Member on this important Bill. Does she agree that it addresses uncertainties in the current legislation and removes the risk of misapplication?

[Margaret Ferrier]

I thank the hon. Member for her intervention and I absolutely agree. This Bill is set to remove those uncertainties so that these occupational schemes can get on with the equalisation process that they have always known they should be carrying out anyway.

The Bill removes the text in the Pension Schemes Act 1993 that sets out what survivor benefits following GMP conversion must look like, and replaces it with a power to set out those conditions in regulations. When this provision was discussed in Committee, I asked the Under-Secretary of State for Work and Pensions, the hon. Member for Hexham (Guy Opperman) to confirm that the Government would consult on the content of those regulations. I am pleased to say that he agreed to that.

Before converting GMPs, pension schemes are required to get the consent of the sponsoring employer that funds the scheme, which might look to be reasonable, considering that the sponsoring employer has invested a lot of money to ensure that scheme members receive a decent retirement income. Unfortunately, it is not that straightforward, because current legislation does not account for all possible situations, such as where the original sponsoring employer is no longer in business. Again, the Bill removes the requirement for employer consent in the Pension Schemes Act 1993 and replaces it with a power to set out in regulations the details of the relevant persons who must consent to the conversion. I am again pleased to say that the Minister confirmed in Committee that the Government would also consult on the content of those regulations.

Finally, the Bill removes the requirement that pension schemes have to notify Her Majesty’s Revenue and Customs when they carry out a GMP conversion exercise. In Committee, the hon. Member for Reading East (Matt Rodda) very reasonably asked what checks would be in place if HMRC no longer had to be notified that people’s GMPs have been converted into other scheme benefits. I would like to reassure the hon. Member that the removal of the requirement that a scheme must notify HMRC if it converts GMP rights into other rights was requested by HMRC. The notification requirement was not a check by HMRC on whether an individual scheme had carried out a GMP conversion correctly. Responsibility for the accuracy of the conversion lies with the pension scheme’s trustees, and they must take advice on certain matters from the scheme actuary.

The requirement to notify HMRC if a conversion has been carried out is simply a legacy of the time when members of occupational pension schemes paid a lower rate of national insurance if they were contracted out. Because both the employer and the scheme members were paying lower national insurance contributions, HMRC used to need to keep detailed records of all contracted-out schemes. However, when contracting out ended for all occupational pension schemes in April 2016, with the introduction of the new state pension, employers and members no longer paid a lower level of national insurance. HMRC therefore no longer needs to be notified.

As this information is no longer required by HMRC, from 2019 it has said to schemes that it no longer requires them to notify it if GMP conversion has been carried out. However, because it is still a requirement of the Pension Schemes Act 1993, schemes should normally still submit such information to HMRC, despite its having no use or need for it. As I said, it costs schemes time and money to notify HMRC, it costs HMRC time and money to process the notifications, and there is no need beyond the current requirement in the 1993 Act for any of this time and money to be spent.

I reiterate to the House that the Bill does not impose any new costs or requirements on occupational pension schemes or their sponsoring employers. As I said, affected schemes have known that they need to equalise pensions for the effect of GMP for many years, and they should have been planning for equalisation. The Bill will simply help pension schemes that decide to use GMP conversion to do what they need to do to ensure payments are fair. I have engaged positively with representatives from the pensions industry, who have long called for these changes and welcome the Bill’s provisions. I am extremely pleased and proud that my Bill will help schemes that want to use GMP conversion to correct for the effects of this issue, and I am delighted by the cross-party support I have received so far and again today.

--- Later in debate ---

[Margaret Ferrier]

With the leave of the House, I thank the Minister for his support today and throughout each stage of the Bill. I also thank all hon. Members who have spoken and who have intervened on Third Reading including the hon. Members for Ynys Môn (Virginia Crosbie), for Broxtowe (Darren Henry), for East Surrey (Claire Coutinho), for Hastings and Rye (Sally-Ann Hart), for Darlington (Peter Gibson) and for Meriden (Saqib Bhatti).

I also take the opportunity to thank the team at the DWP for all their assistance throughout to get to this stage and for their expertise in helping me to understand more of what I was talking about. It has been a privilege to have the opportunity to take a private Member’s Bill through the House, and I encourage all hon. Members to enter the ballot when it comes round again. A private Member’s Bill slot is highly sought after, and it has been a great experience. I look forward to watching the Bill pass through the other place and into law, and I greatly look forward to seeing some of my constituents, and constituents across the UK, finally receive the equalised pension income to which they have been entitled for service since 1990.

Question put and agreed to.

Bill accordingly read the Third time and passed.