Pensions Bill

Sheila Gilmore Excerpts

Monday 17th June 2013 Commons Chamber

[Guto Bebb (Aberconwy) (Con)]

It is a pleasure to follow the right hon. Member for Birkenhead (Mr Field). I welcome the Bill as warmly as he did in his initial comments, but I suspect that my comments will carry on being positive throughout.

It is important to put the changes in context, because the truth is that we have a coalition Government, without a majority in this House unless the two parties work together, making significant proposals on the welfare state and changes to the state pension system. Every Opposition speaker so far has welcomed those changes before moving on to criticise various specific individual points that will, I suspect, be addressed in Committee. The important point is that, despite the terrible financial background, these changes have been taken on by the coalition Government after three years, whereas for 13 years under the previous Government we saw precious little change that would have allowed people to save for their own well-being in retirement.

[Sheila Gilmore (Edinburgh East) (Lab)]

I am, perhaps, risking making the debate more political than it needs to be, but cannot this reform be introduced now only because a lot of the platform is in place thanks to steps taken by the previous Government and, to a lesser extent, the Government before that?

[Guto Bebb]

That is a very interesting comment. As I saw it, the previous Government dealt with the worst circumstances faced by some pensioners, but only by creating the view that the only way to deal with people in retirement was to ensure that the state could provide through a means-tested system. The worst thing about the previous Labour Government was that those individuals in pension schemes within businesses who were saving up for retirement were punished for trying to do the right thing by ensuring that they provided for themselves in retirement. Yes, the previous Administration offered some benefits in dealing with the worst aspects of poverty for pensioners, but at the expense of the concept of self-reliance.

[Sheila Gilmore]

The platform I was trying to describe did not simply include the introduction of things such as pension credit, which has helped to finance the Bill by a considerable amount. The Labour Government introduced the state earnings-related pension scheme; a Labour Government introduced S2P. Those elements were part of the platform that makes it possible to move forward.

[Guto Bebb]

They were certainly part of the platform that created the degree of confusion and complexity that has resulted in people not saving up for their retirement. Yes, there was a state system imposed on the British public by the previous Administration but in many ways that was at the expense, I would argue, of the simple concept of a basic state pension that meant that anything and everything that a person saved above it would be beneficial to them. It should be noted that the only people who suffered significantly as a result of the changes introduced by the previous Administration were many of the self-employed and many of those in schemes operated by companies that stopped operating because of the tax charges that resulted from those changes.

The context is that this is an important and significant change. These changes to the pension provisions go hand in hand with what we are trying to do as a Government with the welfare state. All our welfare reforms are trying to ensure that work pays. In the current circumstances, it is not easy to make the changes as radical as we would like, but their implication is clear: the more someone works, the more they will benefit from that work. If they take on added hours, they will be better off. If they manage to get a promotion, they will be better off. That message is key to our proposed changes.

[Sheila Gilmore]

rose—

[Guto Bebb]

No, I will not take another intervention for the time being.

We need to send out the same message about pension saving. We need to ensure that people understand that they will be offered a basic level of state pension as a result of the changes, but—this is where the communication issue highlighted by so many Members needs to come into play—that that basic state entitlement will not be sufficient for most people to have the standard of living that they anticipate. People will understand that that basic state level of support will be there, regardless of any further savings they make towards their own retirement pots. Anything and everything above the basic level will be additional and that, in my view, will change people’s behaviour, simply because they will no longer feel that they will be punished for trying to do the right thing.

The shadow Secretary of State, the right hon. Member for Birmingham, Hodge Hill (Mr Byrne), gave some examples of where there would still be an element of means-testing in the system. We all regret that, but the truth is that we are moving significantly away from means-testing for pension provision. We should all applaud that because we want to ensure that people in work are encouraged to do the right thing, to do more for themselves and, at the same time, to save towards retirement. These are crucial changes that will change how the British public view the support offered by the state.

--- Later in debate ---

[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.

--- Later in debate ---

[Sheila Gilmore (Edinburgh East) (Lab)]

I am pleased to have the opportunity to speak in a debate on what is clearly a complex subject. Some of those who spoke earlier suggested that its complexity had reduced the number of Members wishing to contribute, but it is nevertheless hugely important. When we get pensions policy wrong, there are consequences for many years to follow. It is therefore necessary not simply to welcome a Bill such as this, but to make what I hope are constructive comments.

One problem, which may be partly of the Government’s own making—the hon. Member for Rochester and Strood (Mark Reckless) alluded to it—is that the Bill has been sold on the basis of it being a great leap forward. I would describe it as a step forward, but not necessarily as great a leap as others may think.

Many of our constituents have expressed, in their correspondence, the fear that they will miss out substantially, and that they face a cliff edge. The other side of the coin is that once the new system has been introduced, Members of all parties will be approached by people saying “Hang on a minute! I thought that we were all going to receive £144 and keep all the pension that we had built up in the meantime, but now you are telling me that that will not be the case.” Of course it will not be the case.

Anyone who observes that all this will be contained in the existing cash envelope—and, possibly, in an envelope containing a diminishing amount of cash in years to come—will conclude that there must be some explanation. The explanation is that many of the building blocks that allowed this step forward to be taken are already there, in terms of Government expenditure. I would argue, and indeed did argue in an intervention earlier, that much of this Bill has been built on an existing platform, consisting partly of the development of an additional state pension over the years.

It is many years since the only provision available from the state was the state pension. Initially there was the state earnings-related pension scheme, which has been described as one of the great legislative achievements of the 1974-79 Labour Government. I am a great fan of SERPS, which was pushed through by Barbara Castle. If it had been allowed to mature, it would have had very beneficial effects. It offered the prospect of greatly improved pensions—not far short of half pay—for those who were not in an employer’s scheme. The aim was to close a gap that had existed previously and that, sadly, has existed subsequently.

[Mark Reckless]

I am puzzled by the hon. Lady’s suggestion that the Government are building on some great platform left by Labour. Surely we can either have a system with a single decent pension, or we can have the system developed by Labour, involving separate types of pension and complex arrangements whereby people pay in various sums and possibly receive more. I do not see how the former can be building on the latter; it is clearly moving in an entirely different direction.

[Sheila Gilmore]

In financial terms, it is clearly building on that platform. Had the previous system not been in place, if any Government had come along and said “We will create a flat rate pension for everyone”, the expenditure involved would have been huge. It would not have been possible to achieve this if all the other bits and pieces had not been there already. That is why many people will find that the amount they receive is not hugely different from the amount that they might have received before.

[Mark Reckless]

Surely we would otherwise have had a single state pension that would already have been a great deal higher, and nearer to the level for which we are aiming now.

[Sheila Gilmore]

I think the hon. Gentleman is suggesting that all parties—and I am not sure this had come from his party any more recently than quite recently—suggested that should be the case. What then happened was that the state earnings-related pension scheme was dismantled under a previous Conservative Government. In my view at least, the worst thing that happened was that people were given the freedom to opt out of SERPS and go into personal pension provision. In many respects, that has proved to be a disaster for a lot of people. It was an illusory freedom. I suspect that a lot of people who took that path now regret that they were ever given the freedom to do so. Although SERPS was a very good scheme and will have left people in a much better position than anything suggested since, it was dismantled.

That was one of the changes in pension provision that the then Government made, but it was not the only one. From 1995, the state scheme stopped underwriting contracted-out schemes, for example, whereas previously it had provided preservation and inflation-proofing of the guaranteed minimum pension. There are lots of ways in which pensions have been interfered with and changed, therefore. I do not think any Government have a monopoly in being able to say they have got this right or the changes they have made have been helpful.

The much-maligned—by certain people, certainly—pension credit system is another relevant measure. A considerable amount of Government expenditure has been laid out on that. The debate at the time and subsequently on pension credit was not for the most part—there were exceptions—about saying, “Everyone should get a flat-rate pension credit level.” The big debate was about the link to earnings being restored. The incoming Labour Government in 1997, faced with very severe pensioner poverty, took the route of concentrating on those in most need, and they succeeded in quickly alleviating pensioner poverty. That would not have happened if there had simply been restoration of the earnings link, as that would have taken many years to alleviate that level of pensioner poverty, nor would it have happened even in relation to the introduction of a flat-rate pension, because the pension credit system applied to all pensioners whenever they had retired, which a lot of the prospective reforms, including this one, do not do. That is why a lot of people will still be receiving means-tested top-ups for many years to come.

The last Government also introduced the revised additional state pension through the state second pension, which was particularly beneficial to low earners, and which did build in credits for people with caring responsibilities, as, indeed, did SERPS, as it was based— or would have been, if it had ever gone through to maturity—on the best 20 years of people’s earnings, which would have been particularly beneficial not just for those with caring responsibilities, but for other people with interrupted work patterns, perhaps through illness or unemployment. That issue has not been resolved by any other proposal.

I would argue, therefore, that much of what has made this step forward possible has been done already, and that this would not be financially viable otherwise. That is not to say that a means-tested top-up is the best system to go forward with for ever. When I was campaigning for election prior to 2010, there were complaints and issues about pension credit, with people feeling that those who had saved or contributed to a pension scheme were relatively disadvantaged, even if they were not actually disadvantaged. That and the work capability assessment were two issues I picked up strongly from constituents, and I came here determined to argue for change, whoever won the election. I, for one, would certainly have been seeking to move us towards a system that was not so dependent on means-testing. We have to accept, however, when we look at all the impact assessments carried out by the Government, that there will still be a substantial element of means-testing even with the changes that are proposed. That will go on for many years and we have to take it into account.

Reference has been made to some, but not all, of the issues of detail in the Bill, which are important and we have to get them right. Constituents have contacted me about the changes to bereavement benefit. I know they were flagged up some time ago, in a White Paper and so on, but it is often only when these things get close that people realise they are really about to happen. The concern is that 90% of claimants of this new bereavement benefit would be worse off under the reforms and, in particular, that parents who have the misfortune to lose their partner while their children are young will be particularly badly affected. The feeling is that the current system gives parents an opportunity to be there for their children, who have already been through the trauma of losing a parent, and to resettle them without the stress of having to go back to full-time work quickly or to enter the labour market, where previously they had not been there. Although people will be able to get universal credit in that situation if their income is particularly low, it has been pointed out that the conditionality requirements could be difficult for families going through a trauma.

One thing that I had not picked up on—perhaps the Minister will say this is wrong—is that kinship carers have been promised a relaxation of the conditionality requirements for a year after taking on the care of their grandchildren, whereas widows or widowers would have only six months’ relaxation of the conditionality. If that is the case, why are widows and widowers not being dealt with in the same way as kinship carers? That is a good question to ask.

There are also issues to deal with in relation to the changes being made to contracting out, some of which have been referred to—I am not sure this one has, although it has been brought to the attention of the Select Committee. Some people who were previously in the public sector but now work in industries no longer in that sector had been told that there would be protection for their position, and they are concerned that that will change. Private sector employers have the ability, through the override provisions that are part of the Government’s proposals, to make changes, either to contributions or to benefits, to counteract the impact of having to pay higher national insurance contributions. This particular group of former public sector workers are concerned about promises made to them previously—indeed, until fairly recently—that their protections under the protected persons regulations would never be interfered with. They fear that those may now be interfered with because of this change and they are asking for clarification from the Government.

There are other worries about the change from the contracted-out situation and the national insurance contributions. Some people have referred to the issue of public sector employers—including the NHS—facing these higher levels of national insurance contributions and the promise the Government have made that there will be no ability to change the benefits or contributions. How that will be paid for? What effect will that have on public spending in general? Are we, perhaps, simply robbing Peter to pay Paul? Will it have an impact on services in the future?

The other issue is the speed at which some private sector employers have to make changes to take all the provisions into account. I am not sure whether the Government changed the date from 2017 to 2016 simply, as has been suggested by some speakers, to allow them to understand the needs of some of the women affected by the changes or whether it was something that the Treasury wanted. The Select Committee had previously been assured by the Minister that it would not be possible to make the changes until 2017 and that it would not be practical to have an earlier start date, but suddenly an earlier start date has been put in place. The more cynical take the view that that might have had as much to do with generating additional income for the Treasury as it had to do with compassion for the women affected by the changes to their pension.

The matter is serious because the one thing that nobody wants to see is any further diminution in the provision of defined benefit pension schemes in the private sector. There are concerns that some employers, rather than going through the changes that would have to be made even with the benefit of the override, might simply decide that the time has come to close their defined benefit schemes entirely. That would mean that even fewer people would benefit from such provision and we must be clear that that should not happen. The industry is looking for some reassurance—including through early sight of regulations and of how all this will be organised—that we will not look back on these provisions, as we sometimes do on others, as another nail in the coffin of defined benefit schemes.

On the subject of concerns about raising the pension age, the hon. Member for Arfon (Hywel Williams) mentioned the contributions made to previous debates by the late Malcolm Wicks, who paid considerable attention to the problems of people who had had to leave work early and who were not always able to build up their pension contributions. The Joseph Rowntree Foundation has pointed out in some of its most recent work on poverty among different groups that one group in which poverty remains unchanged is those aged between 55 and 64. Pensioner poverty among the over-65s is down from 25% 10 years ago to 15%, but in the 55-to- 64 age group the figure has stayed static at 20%. The report from the foundation states:

“For some older working-age adults, the best hope of escaping poverty is to wait for state retirement age, an age which is set to rise steadily.”

One in three people between 50 and 64 is economically inactive and a fair number either have poor health or are caring for somebody with poor health or a disability. Those people are already out of the labour market, are not contributing towards pensions and might not have the opportunity to contribute. We must consider their problems, especially as the pension age is going up. The assumption that everybody will be fit and able to work, not just to 65 but to 66, 67 and potentially beyond that, is belied by reality. A substantial group of people are already unable to remain in the work force up to that point. Provision must be made for them and thought must be given to them. They should not be left in a limbo land, as they often are at present.

The hon. Member for Aberconwy (Guto Bebb), who is not in his place at present, viewed the measure as a companion to welfare reform and suggested that it would ensure that people benefited from savings made through their lifetime contributions to pensions in the same way as universal credit would make work pay, but the irony is that at the same time as saying how good it is that means-testing will be reduced for older people, the Government have been pursuing a path that increases means-testing for those of working age. The taper in universal credit is set much higher than the current taper for tax credits, which means that people lose benefit much more quickly. One of the groups who will not benefit at all from universal credit are those who work full time but are not necessarily on high incomes and who, because of the taper change, will lose benefit much more quickly.

Working households with some capital will be subject to a test. This is again a change from tax credits. People who have relatively low incomes but have some savings will not be eligible for benefits. That is means-testing. The restriction of employment support allowance to one year for those in the work-related activity group also exposes a group of people to means-testing who were not previously exposed to it. Somebody in that situation who loses their contributory ESA after a year, who has savings, who has a working partner or who has an early retirement pension is subjected to means-testing in a way that did not happen previously. So we need to look at the different ways in which people are treated, and we should not take comfort by saying, “We’re dealing with means-testing here”, when in fact means-testing has been expanded for other groups.

Some of those people are the same people that I have already described as being in limbo when they reach the age of 55 or 60 and are unfit and unable to work. They are precisely the people—the Secretary of State seems to think this is extremely amusing—who are likely to find themselves hit by the loss of contributory benefit and the means test that is applied. Those are the sort of households who may find that they have to use up their savings in order to get to retirement age, and they will require a means-tested pension in due course. [Interruption.] It is relevant because these are the same people, and they may still end up in retirement dependent in a way that the Government say they are trying to prevent.

Will the new system help people to save and stop them feeling that it is not worth saving? The issues associated with saving for retirement are wider than simply means-testing. I am not entirely convinced that people now in their 30s and 40s are sitting at home and thinking, “If I don’t save, I’ll get pension credit so I’ll be fine. That’s why I’m not going to save.” There are many other factors involved in pension saving or the lack of it. One of those is a lack of trust in the financial services industry and concerns that saving in pension schemes in particular has not been well rewarded in recent years.

People see the low product of many of the private pensions that people join, and the defined contribution schemes that many people are in do not yield particularly good results. People are aware of that and they are not particularly trusting of the financial services industry after its recent history. Some parts of the Bill—I would argue not enough—ensure that if people are saving into private pensions, they are well protected and get a good result at the end. That means that the Government consider putting a cap on pension charging. There is still an opportunity to amend the Bill to include that. The Government have indicated recently that they are coming round to looking further at the issue. We must ensure that people are not paying into schemes where too much of what they contribute is taken out by way of fees and charges, and they end up with much less than they thought they were going to get.

There are also issues about the annuity market, and about what happens when people get their defined contribution pot and go out into the market to get an annuity. Do they know enough about where to get an annuity from? Do they have enough information to make comparisons? Is there enough control over the level of annuities that people are getting? These have been major factors for people who get their private pension pot and try to create an income from it on which they can live. That is the other side of the coin. If people are going to have enough faith and trust to save towards a pension, we must ensure that that pension will protect their interests.

I hope that the Government will take the opportunity of having the Bill before the House to expand that part of it and to put in further elements to improve the situation for many people. People would then be more willing and able to save for their retirement, which is what we all want them to do.