Pensions and Social Security

Oliver Heald Excerpts

Thursday 23rd February 2012 Commons Chamber

[Steve Webb]

The draft Guaranteed Minimum Pensions Increase Order 2012 provides for contracted-out defined-benefit schemes to increase their members’ guaranteed minimum pensions that accrued between 1988 and 1997 by 3%. Increases are capped at that level when price inflation exceeds 3%. That, of course, is an entirely technical matter that we attend to on an annual basis, and not something that I imagine we shall need to dwell on today.

The second, smaller draft order comes about for a sequence of reasons. The Pensions Acts 2007 and 2008 gave the Government the power to abolish contracting out on a defined-contribution basis. A written ministerial statement set the point of abolition as 6 April 2012. In June 2011, the House debated and approved the Pensions Act 2008 (Abolition of Protected Rights) (Consequential Amendments) (No. 2) Order 2011, which makes consequential amendments to primary legislation, consistent with the abolition of defined-contribution contracting out. At the time of that debate, a minor defect in the operation of article 3 of the 2011 draft order came to light. I therefore made it clear to the House that I would return with a further amending order before the 2011 order came into force.

Accordingly, the Pensions Act 2008 (Abolition of Protected Rights) (Consequential Amendments) (No. 2) Order 2012 will remove the exclusion of protected rights payments from what counts as income for the purposes of income payments orders made under section 310 of the Insolvency Act 1986, and from the scope of section 159 of the Pension Schemes Act 1993, which provides that guaranteed minimum pensions and protected rights payments cannot be assigned or charged. The draft order will bring consistency with our original policy intention, namely that the tracking of protected rights should cease after the abolition of defined-contribution contracting out.

[Oliver Heald (North East Hertfordshire) (Con)]

Does my hon. Friend not think that it is really rather a tribute to his work that the orders are so non-controversial that there is not a single Opposition Back Bencher in the Chamber to discuss the uprating of all the benefits that this country has? I pay tribute to him and congratulate him on that stunning achievement, which I do not think has ever been replicated.

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[Steve Webb]

The hon. Lady is right that any single inflation measure will not capture the full diversity of circumstances. One of the main differences between RPI and CPI is that RPI includes mortgage interest, which is largely irrelevant to most pensioners. By excluding mortgage interest from its basket of goods, the CPI gives more weight to the things on which pensioners spend their money. Other things being equal, CPI will therefore tend to be a better fit with the spending patterns of pensioners.

The hon. Lady is right that rising fuel prices are an important issue. That is one reason why instead of simply doing our legal duty by the poorest pensioners, which was to uprate the pension credit by earnings only, which was 2.8%, we chose to do a full pass-through of the £5.30 basic state pension rise to the poorest pensioner on pension credit precisely because they have faced the pressures she describes. We are aware of that point and have sought to do something in this uprating measure to address it.

[Oliver Heald]

I am grateful to the Minister for being so generous with his time. Does he agree that some quite significant changes are taking place in the hierarchy of indexes that can be used for uprating? For example, earnings, which was always thought to be by far the highest measure, is at the moment the lowest measure. In addition, changes in the housing market have affected the CPI and RPI differential. It is therefore a moving picture. It is not as straightforward as saying, “History tells the whole story.”

[Steve Webb]

My hon. Friend is right. I noticed in the most recent figures that the gap between CPI and RPI was just 0.3%. That is historically low, but the numbers and relative values change a great deal. That is why our triple lock says of the basic state pension, “If it’s prices that give you the highest number, we’ll pay that; if it’s earnings, we’ll pay that; and if it’s 2.5%, we’ll pay that.” We were determined to ensure that pensioners got the best deal for the basic state pension whatever was happening to the relative value of those numbers.

As I made clear in my statement to the House at the end of last year, this Government will use the full value of the September CPI to uprate pensions and social security benefits from April 2012. At a time when the prevailing headline figure for CPI has already fallen to 3.6% and is forecast to fall further during this year, we shall be uprating the overwhelming majority of pensions and benefits by 5.2%.

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[Steve Webb]

Indeed. My hon. Friend is right that there were siren voices from some quarters suggesting that we could not afford, or that we should not go for, this inflation figure. He is absolutely right that the coalition parties decided that it was a priority. That is something that I am proud to be associated with.

[Oliver Heald]

Does the Minister agree that the Government have also gone further than they needed to on the pension credit? The requirement is to uprate by earnings but he has gone one better by increasing it by 3.9%. So not only were the siren calls resisted, but more generosity was shown to the poorest pensioners.

[Steve Webb]

There was indeed. My carefully structured speech is falling to ribbons. I was about to come to that achievement.

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[Stephen Timms]

That is a matter that the Minister may well want to comment on in his response to this debate. In my view, the triple lock is certainly not the wonderful device that the Government maintain it is. As I have said, it is leading to a lower uprating of the basic state pension in the year ahead than if the RPI mechanism was still being used.

[Oliver Heald]

Does the right hon. Gentleman agree that we need to exercise judgment about what the increase should be? One of the faults of the last Government was to be too rigid. My hon. Friend the Member for Meon Valley (George Hollingbery) has already mentioned the 75p increase, but there was also the freezing of the additional pension, which, again, was considered a mean act. Is it not right for the Government to take a judgment and—on pension credit, for example—to make increases well above the rate that they have to use, which is earnings, and instead use a higher measure, in order to be fair?

[Stephen Timms]

The hon. Gentleman’s argument is a different one from the Minister’s. The Minister says that because of the triple lock, pensioners are safeguarded and need not worry about what future judgments Ministers will make. In a way, I am rather more with the hon. Gentleman on this than with the application of the formula. Again, however, I would point out that last year—the first year that this supposedly wonderful mechanism was in place—the Government overrode it. I am therefore not quite sure what certainty pensioners would have for the future about whether, in the event of siren voices being heard—we heard about those earlier—the triple lock might be overrode in the other direction, if someone judges that to be appropriate.

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[Stephen Timms]

As I have said, in the first year that the triple lock was due to be put in place, it was overridden, so I am not sure about the certainty to which the hon. Gentleman refers.

[Oliver Heald]

The right hon. Gentleman is being a bit naughty. It is a general provision in many pension schemes that there is a method of indexation, and it is often permissible to exceed it. To exceed the triple lock is not to break it; it is simply to be more generous. I do not think that “overridden” is the right word to use.

[Stephen Timms]

I deny being naughty. I am simply making the point that the Government have been telling pensioners that they are now in a wonderful new era, thanks to the triple lock, yet it had to be overridden in the first year it was supposed to be in place because it was not delivering an adequate increase. I am not persuaded that the degree of confidence that Conservative Members believe to have been bestowed on pensioners is a reality.