Pensions Bill

Richard Graham Excerpts

Monday 17th June 2013 Commons Chamber

[Mr Liam Byrne (Birmingham, Hodge Hill) (Lab)]

It is a great pleasure to follow the Secretary of State. I shall attempt to do justice to his succinct speech. As he will know, yesterday was a very difficult day in Birmingham, and I know that the whole House will join me in sending thanks and good wishes to PC Adam Koch, who was so badly hurt on Saturday night. His extraordinary courage, together with that of local residents, helped keep worshippers safe at one of our local mosques. He is doing well in hospital. I know that the whole House will want to wish him a speedy recovery.

I am grateful for the note of consensus that the Secretary of State sought to strike in his remarks. As is appropriate for a Second Reading debate, this afternoon I would like to set out the principles on which we agree with the Government and then get stuck into a few of the details of some important matters that we think are still to be settled. We genuinely hope that the Government will listen during this debate and in Committee, not least because many of the issues I wish to raise touch greatly on the need for a comfortable and well-earned retirement for millions of people in this country.

I think that it is fitting to start my remarks with a quick word about history and the road to this afternoon’s debate. One of the chief reasons why the Labour party will not stand in the Bill’s way today is that we recognise the genuine effort to build on the strong foundations that we left. Indeed, our only disappointment today is that we think the Secretary of State is proposing to build only a halfway house on those strong foundations. We think that the Bill is merely half a reform. Therefore, the Opposition’s job during the course of the Bill’s passage will be to ask him not simply to fix some of the deficiencies we can see, but to be bolder and more radical and to seize the moment that we think is there for the taking. I want to set out a number of areas where I think he can do more to seize that moment.

I am glad that we bequeathed the coalition Government a strong foundation—an inheritance very different from what we found in 1997. The link to earnings had been snapped back in 1980, there were pension holidays for employers and the state pension had fallen from 20% of earnings down to just 14%. The pensions Minister himself said:

“Pensioners, rightly, do not trust the Conservatives on pensions.”—[Official Report, 6 November 2000; Vol. 356, c. 34.]

I am glad that he is working so closely in the coalition Government with the Secretary of State on their difficult task.

I have described the legacy that we tried to sort out. We genuinely wanted to leave the Government a different state of affairs. There is no better summary of our work than the research published by Her Majesty’s Government confirming that pensioner poverty had fallen to the lowest level for 30 years.

[Richard Graham (Gloucester) (Con)]

The right hon. Gentleman talked about building on the strong foundations left by the previous Government. If my memory serves me correctly, the last increase in the basic state pension was 75p. The coalition Government’s new increase in the state pension was worth £234, building on a new foundation of a triple lock, which will increase pensions by a significant amount. Will he comment on the difference between my interpretation of a strong foundation and his?

[Mr Byrne]

The hon. Gentleman will be as familiar as I am with the research published by the Institute for Fiscal Studies showing that, under Labour, £11 billion more was spent than if we had pursued the policies that we inherited in 1997. We lifted gross income for pensioners by more than 40%; 2.4 million pensioners had been lifted out of absolute poverty and nearly 2 million out of relative poverty by 2010-11. It was the IFS that confirmed that both the absolute and relative measures of income poverty fell markedly among pensioners. We inherited a tragic and grotesque state of pensioner poverty in 1997 and we set about dealing with it with focus and alacrity. We are proud of the inheritance and legacy that we left the Government.

[Mr Byrne]

We are very proud of the reforms that we set in place. They tackled the grotesque pensioner poverty that we inherited in 1997. That is not simply my conclusion; when the pensions Minister spoke in the House back in 2000, he pretty much confirmed the same line of argument and the same thesis. The job we did on pensioner poverty was important and we made great progress. The foundations that we left are those that the Secretary of State has built on.

The purpose of the Bill is, in essence, to address one of the matters flagged by Lord Turner in his report and one for which we legislated in 2007. As the Secretary of State mentioned, the noble Lord recommended a new pension supplement for the 21st century—one that is universal and, crucially, one that reduces means-testing, an important part of the Secretary of State’s argument. As the Secretary of State also rehearsed, the noble Lord recommended a system that provides clear incentives to save.

The commission proposed an approach different from that proposed by the coalition. It was in the interests of preserving the consensus that Lord Turner had so assiduously constructed that we chose to follow his approach rather than the one set out by the coalition today. Indeed, at the time Lord Turner flagged a number of risks in the strategy that the Government are now pursuing. The Government have taken an approach different from Lord Turner’s. That comes at the price of some big notional losses for state second pension members. The goalposts on the state pension age have now been moved three times in three years. However, there has been some improvement in means testing and potentially something about incentives to save. I want to touch on those.

Let us take means testing first, however, as it was an important part of the Secretary of State’s argument. Today, about 80% of people are free of the pension credit means test; that pension credit is now available for 20% of people. By 2020, that would have fallen to about 16% anyway. Under flat-rate pensions, there will be a further fall of about 8%. If we put savings credit to one side, the improvement is just 2%, and of course about 35% of pensioners will still be eligible to access council tax benefit, which is about 238,000 people, and 12% will be able to access housing benefit—84,000 people. We are still an awfully long way from the end of means testing, but none the less a small step forward has been taken and we welcome it.

The Secretary of State was anxious to stress the point about savings. The judgment of the IFS was that the effect of proposals on the incentive to save were complex and varied. As the Bill reduces the long-run generosity of the pension system—that is one reason why we support it—it should increase the incentive to save. However, although some will see lower effective marginal tax rates when pension credit and savings credit are withdrawn, some will see higher marginal tax rates. The IFS says, therefore, that the direction on the effect of savings is ambiguous.

Under the proposals, some pensioners who have saved absolutely nothing will be better off in real terms each week than those who have saved substantial sums. A pensioner who has saved nothing will enjoy the flat-rate pension of £144 a week and will be entitled to housing benefit and council tax benefit, which is another £94 a week. That is a total of £238 a week, which is considerably more than what someone who has saved £24,000 will receive. They might enjoy a notional income from savings of about 30 quid a week, plus the flat-rate pension, which is a total of £174 a week. That is much less—36% less—than what the pensioner who has saved nothing will get. In fact, the pensioner who saves nothing will be better off than someone who has put £50,000 away in the bank. So there are still problems and disincentives to save, but none the less, we think that, on balance, the Bill represents progress, which is why we support it in principle.

[Richard Graham]

Did I hear the right hon. Gentleman right when he said that the Bill’s move to axe the means-tested pension credit was a small step forward? This is a huge and significant step forward that recognises that the means-tested pension credit was deeply flawed and was not implemented for many of the people who were eligible for it. A single-tier pension will set our pensions on the right track. Will he confirm that the Labour party now accepts that this is the right way forward and that it is a huge step?

[Mr Byrne]

I will leave it to the hon. Gentleman to provide his own definition of the word “huge.” He will have read chapter 4 of “The single-tier pension: a simple foundation for saving”, published by the Department for Work and Pensions, which clearly says that under the current system, the number of people reaching state pension age after 2016 who will be eligible for means-tested benefits for pensioners will fall to 16%, and that the figure will fall to 11% by 2060. Under the single tier, eligibility for means-tested benefits will fall by 7.5%. The hon. Gentleman will also have read, as I have, Age UK’s evidence, which states, strikingly, that the great bulk of that change results from the elimination of savings credit, rather than from any increase in generosity. If we put savings credit to one side, we will see that the change in the percentage of pensioners eligible for means-tested benefit is just 1% or 2%. If he chooses to define that as huge, that is his right.

I want to flag concerns in three further areas and I hope this will provide us with material for debate and amendments—some probing and some to be voted on —in Committee.

--- Later in debate ---

[Richard Graham (Gloucester) (Con)]

It is a great pleasure to speak in this debate. The Bill is a major piece of legislation that is ready to make us more fit to face the challenges facing pensioners in the 21st century. Of course, the complexity of the subject is responsible for the reduction in the normally large number of Members in the Chamber—it also baffles most of our constituents. Therefore, the major goals of this Bill must surely be to make pensions simpler and clearer, to reduce the amount of means-testing, which is responsible for much of the complexity, and, above all, to implement the pledge that it always pays to save. That mirrors the other important work of the Department for Work and Pensions: implementing the promise that it will always pay to work. Those two pledges, I believe, are the two most important things the Government are trying to achieve. It is a great shame that the Labour party, which was in power for so long, contributed to a system in which it certainly did not always pay either to work or to save. Surely the major goal of this Bill is to put that dire situation right.

I welcome the entirely new state pension system outlined by the Secretary of State, which has a single state pension that is much easier to understand, and the contracting out of defined-benefit pensions, which takes away one area of complexity that is potentially open to abuse. I also welcome the new state pension age, which incidentally is lower than those of four other European Union countries and a great deal closer to the reality of life expectancy, which is that we all need and expect to work longer.

That raises the interesting issue of intergenerational fairness, which has not yet been mentioned in the debate. As many of us here draw closer to retirement age, and access to a pension, than to our time at school, college or university, it is vital that we do not inadvertently preside over a system that is grossly unfair to our children and to the next generation. It is also valid to remember Age UK’s response when the new state pension age was first raised in the House, which was to focus on the opportunities available to older people as well as the reassurance needed by those who feared that they would have to work longer in demanding occupations.

Another aspect of the Bill that I think deserves a brief comment is the new framework on the retirement age for the state pension, which gives clarity. Some Members have asked whether that inadvertently raises an expectation that the retirement age will be increased every five years at the reviews, but I am sure that that is not the intention of the provision. Perhaps the Minister will clarify that.

The Bill also covers bereavement, focusing more on short-term support and the 40,000 recipients—those with children—who will benefit from a one-off payment of £5,000, following an injection of £120 million. There is a longer-term issue in that regard that I will return to later when I will refer to a letter from a constituent.

On the consolidation of the so-called small pots—the defined-contribution pots—I think that many people will welcome the auto-transfer proposed in the Bill. Clearly some of the bodies representing pension schemes fear that some of their members might lose out as a result of being transferred into weaker schemes, but it seems to me that, in general, that provision, which is broadly welcomed by the National Association of Pension Funds, the Association of Consulting Actuaries, the Association of British Insurers and the CBI, will benefit many of our constituents, because at the moment there are too many pots that are unlooked at and unknown. The provision will make it easier for our constituents to engage with the whole business of saving and to have a greater understanding of what their savings really are.

The Bill also provides for the abolition of refunds for short-service membership of defined-contribution funds, which means that someone who has been in a scheme for less than two years will not be able to demand that the employer refunds their contributions. I think that that will be welcomed, because it reduces complexity for future pensioners and ties in with the consolidation of the small pots that I mentioned earlier.

The details of the Bill’s provisions complement the earlier introduction of the auto-enrolment scheme, which in itself should be responsible for introducing an additional £11 billion in savings and between 6 million and 9 million new savers. The object of the exercise is clearly to widen the pool of those constituents who are saving and make it easier for them to have savings that they can later draw on in their retirement. The Bill complements that earlier work in helping to meet the challenges of a century in which we will all live significantly longer than our parents, let alone our grandparents.

An important point that I would like to highlight, in particular, is the improved situation for many women. The right hon. Member for Birkenhead (Mr Field) suggested that those born between April ’51 and April ’53 appear to be disadvantaged. I would be grateful if the Minister could confirm some of the figures, because they are complex and, as several Members have mentioned, need to be communicated. My understanding is that there are currently 2.8 million women receiving less than £80 a week in pension—the comparable figure for men is 474,000—so there are huge numbers of women on low pensions. My understanding is that 750,000 women who will reach pension age in the decade after the introduction of the Bill—after 2016—will get an extra £9 a week. Over a lifetime, that is a significant amount of money. I would be grateful if the Minister could confirm that.

Will the Minister also confirm that 90% of the women born between April ’51 and April ’53 will actually get more than the “men’s deal”—men at the moment reaching retirement age later—and up to £26,000 more over the average retirement period? Those are quite difficult figures, but I would be grateful for confirmation. I think that the point made by right hon. Member for Birkenhead was that a group of women appear to be worse off, but actually they are being considerately treated, not least as a result of the coalition Government’s earlier amendments, and that needs to be communicated, particularly through bodies such as Age UK.

Today we have heard what I would describe as a “glass half full” response from the Opposition, and about an issue on which it should surely have been possible to achieve consensus.

[Mark Reckless]

Does my hon. Friend not mean that we have heard a “glass half empty” response?

[Richard Graham]

My hon. Friend is probably right, in the sense that the overwhelming response from the Opposition was one of ambiguity. It was ambiguous because they would neither oppose, nor strongly support. It was ambiguous because the shadow pensions Minister, the hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East (Gregg McClymont), who is in his place, said in February 2013 that the triple lock

“was a triumph of rhetoric over reality”

and that, three years into its operation,

“the increase in the state pension is less than it would have been if the uprating method used by the previous Government was still in place.”—[Official Report, 13 February 2013; Vol. 558, c. 1002.]

[Gregg McClymont (Cumbernauld, Kilsyth and Kirkintilloch East) (Lab)]

The hon. Gentleman has enticed me from my sedentary position. Can he confirm what his colleague the pensions Minister, the hon. Member for Thornbury and Yate (Steve Webb), said in the Financial Times this morning—that the triple lock is guaranteed only for the lifetime of this Parliament and that neither the Conservative party nor the Liberal Democrat party is committed to it beyond 2015?

[Richard Graham]

Alas, I was not at the pensions Minister’s meeting with the Financial Times. However, the hon. Gentleman has raised a rather different question from the one I asked; I had mentioned his description of the current triple lock as a triumph of rhetoric over reality. Most of my pensioner constituents would describe it as a triumph of financial reality for their pensions.

[Sheila Gilmore]

The hon. Gentleman’s history appears to be slightly at odds with reality. The infamous 75p increase—nobody would say that it was particularly happy—was based on certain rules. It happened, I think, in 2000, so it was not the last time that the previous Labour Government raised pensions. The arrangement applied in every year of the Conservative Government after the earnings link had been broken. If inflation had provided for a 75p increase in 1996, doubtless that increase would have been given. Nothing was particularly different from what had been in place during the 18 years of Conservative Governments.

[Richard Graham]

I read modern history, not ancient history, at university. My clear recollection of recent and modern history is that the hon. Lady’s party contributed three things to the evolution of pensions. First, there was the abolition of the advance corporation tax on dividends, which has been estimated to have cost occupational pension schemes about £100 billion. Secondly, although the hon. Lady’s Government made great play of criticising the breaking of the link between pensions and earnings by an earlier Conservative Government, over 13 years her Governments failed to do anything at all about it.

Thirdly, the contrast between the 75p increase and the £234 that I have just described represents, by any standards, a pretty compellingly disappointing story for the Labour party. I will not dwell on the Labour party’s shame on the matter of pensions, because it is well known to the House. However, the shadow Minister, the hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East, recently described his Government’s approach over 13 years as “evolutionary”. Evolving an approach towards a single state pension over 13 years is different from putting forward a Bill and implementing a single state pension, which is what this coalition Government are doing today.

[Gregg McClymont]

rose—

[Richard Graham]

The shadow Minister rises again from his place. I welcome him.

[Gregg McClymont]

I thank the hon. Gentleman. I note that he did not clarify whether the pensions Minister had indeed said in the Financial Times this morning that neither party is committed to the triple lock beyond 2015.

Let me take the hon. Gentleman up on a specific point. He is a reasonable man, so does he not accept that the breaking of the link with earnings meant that by 1997, when Labour came into office, there was a genuine crisis of pensioner poverty for a significant section of the pensioner population? Pension credit was a significant and substantial response targeted on those most in need. Given the hon. Gentleman’s comments today, that would seem to fit his own approach to pensions more generally.

[Richard Graham]

The hon. Gentleman is correct. The break between pensions and earnings caused considerable upset across the country and was the reason why the Gloucestershire Pensioners Forum was founded some 30 years ago during that earlier Conservative Government. However, let us imagine the forum’s disappointment that nothing at all was done about the matter in 13 years of Labour Governments. The Gloucestershire Pensioners Forum had to continue into a coalition Government to see the wrong righted. The hon. Gentleman’s party had a great opportunity to resolve that disappointment from ancient history, but, as with so much, it has been left to us.

I move on to other aspects of the Opposition’s response today. Many of us will recall that the shadow Secretary of State has promised us a laser-like approach to public expenditure, but it was not clear today whether he was advocating that the 700,000 women born between April ’51 and ’53 should be given the additional £4.5 billion that it would cost to put them on precisely the same footing as those born later. Perhaps in his winding-up speech the shadow Minister will confirm whether the laser-like approach to public expenditure will revert to the “Sorry, there’s no money left” approach for which the shadow Secretary of State is so renowned.

What we have heard from Members across the House today is an extraordinary amount of unanimity and consensus on the fact that, although means-tested pension credit was well intentioned, it is not the solution and should be replaced. Many Members, including the distinguished Chair of the Work and Pensions Committee, have welcomed the approach of a single state pension and the doing away with the means-tested pension. For many of us, the means-tested pension has caused sad arguments between neighbours, some of whom have small amounts of savings. Someone needs only more than £10,000 not to qualify for the means-tested pension credit; the income generated from £10,000 is tiny in a low-interest-rate environment. The consensus has been encouraging, but some things have clearly not been covered in the Bill today. It is worth touching on those; perhaps the Minister will address some of them in his summing up.

I start in no particular order. In the creation of a new single-tier state pension, it is clear, as always, that there will be losers as well as winners. Some members with private sector pension funds will be affected and it would be interesting to hear more from the Minister on who those losers will be. Then there is the question of the defined ambition pension, which the pensions Minister has advocated. We are promised a Government paper on that soon. Will the Minister confirm when it will come? Sometimes “summer” is taken to extend all the way through to November; it would be helpful to have an idea of what stage of the summer is meant.

I understand from some of the professional associations that the business of contracting out requires a statutory override, so there is a question of when that will come in secondary legislation. Will the Minister say something on that? One or two Opposition Members rightly raised the National Employment Savings Trust, the restrictions on it and its competitiveness against other products in the marketplace. None of us would wish NEST to be penalised as the Post Office was inadvertently by the previous Government in respect of private sector competition. NEST must not be prevented from succeeding as we all wish it will.

On the small pots, there is an issue about a cost assessment of bundling them all together. What sort of safeguards might there be in moving from a strong scheme into a weaker one?

On the issue of bereavement, I would like to read a small part of a letter I have received from a constituent. She raises the question of whether the regular income available to widows from the widowed parents allowance, which will be replaced by a bigger but shorter-term amount, could

“leave future widows and widowers worse off than most other single parents who can claim child maintenance from the other parent in the case of a relationship breakdown.”

She goes on:

“It seems so unfair that in future someone like my husband who has worked for 20 years will never claim a state pension but the government would not support his children either.”

Perhaps that issue can be raised in Committee and a discussion had on the potential unintended consequences of the changes for those affected by bereavement.

Lastly, there is the new objective laid down for the pensions regulator

“to minimise any adverse impact on the sustainable growth of an employer”.

That raises the question of the definition of an employer. Charities and non-governmental organisations with pension schemes, for example, do not necessarily focus on growth. Perhaps some clarity on precisely what changes are implied by the new objective for the pensions regulator could be discussed in more detail.

The Chair of the Select Committee and the right hon. Member for Birkenhead—both of whom have huge experience of this sector and the world of pensions—welcome the Bill and I welcome it, too. I think that there should be consensus on pensions and that this is a great opportunity for the Opposition to say, as my hon. Friend the Member for Rochester and Strood (Mark Reckless) has said, that the glass is not half empty, as I mistakenly suggested, but half full. They should be enthusiastically supportive of the fact that there is a lot in the glass and we want more: we want a single state pension and we want it to succeed.

I am delighted that Opposition Front Benchers are wriggling—some more comfortably than others—towards a recognition that this coalition Government are taking the right steps to simplify and clarify pensions and, above all, to enable all our constituents to believe that it will always pay to save. The value of that is enormous and it is this Government’s duty to return us to that principle and remind the whole House of why we should endorse this Bill and its objectives.