Sheila Gilmore
Main Page: Sheila Gilmore (Labour - Edinburgh East)Department Debates - View all Sheila Gilmore's debates with the Department for Work and Pensions
(11 years ago)
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Sheila Gilmore
I want to speak on Opposition new clause 11 on annuities. The scandal of annuities was widespread and is well known. It has caused many people to suffer a much-reduced income in retirement.
The Minister, with all due respect, engaged in diversionary tactics when dealing with the Opposition proposal. He talked about other things that people might do when they are reaching retirement age and planning for their retirement. He spoke about other draw-down opportunities that might be better for them and said that people should get as much advice as possible. He failed to deal with the specific proposal.
It is not good enough simply to say that it would be good for people to have many different opportunities and a lot of advice. It is important to ensure that when people are deciding whether to annuitise, which they will ultimately have to do, they know all the options. It is not necessary for everyone to annuitise as soon as they reach retirement age; that decision can be postponed. The question is who should advise people about this matter and how we can ensure that people know all the options. The variety in the kinds of annuity that are offered and the deals that people can get is considerable.
Annuities are an important element in creating a retirement income that is adequate for people to live on. I urge the Minister to change his view and to accept that the arrangements that the Opposition are proposing do not fly in the face of his desire to explain other options to people and to give people those options. Many of the people who fare the worst do not have such substantial pension pots that they have a wide range of options and they cannot necessarily afford to postpone annuitisation, because they do not have much other income.
As ever, it is the role of Parliament and of Government to protect those who are in the weakest position. We must always have those people in mind. Those who have lots of options probably receive good advice anyway or could afford to pay for good advice. For many people, the whole matter of pensions is entirely baffling. Those people tend to go with the easiest or most obvious option.
The 20 to 30 years over which people—even those on relatively low incomes—have increasingly been expected to source their own pension provision and to take up pension options, such as the many money purchase or defined-contribution schemes that have been offered, have resulted in many people having very poor pension outcomes. One reason for that has been the charges and costs, which greatly reduce the pension pot that people end up with.
As the Minister has said, transparency is not enough. Transparency goes a long way, but action needs to be taken beyond that. I acknowledge that it is a step forward that on Report, although not before, we have a provision on capping charges. It would be better to be more specific about that and not to wait too long for a consultation process that could have been started a considerable time ago.
I know that other hon. Members want to contribute to the debate, but I want to say a little about the view expressed by the hon. Member for Gloucester (Richard Graham), who did not accept my intervention, that the last Government did not do much for pensioners. The subtext seemed to be that all our views and proposals could therefore be discounted. Hundreds of thousands of pensioners saw a substantial increase in their income, and therefore in their well-being and health, because of provisions such as pension credit that were introduced by the last Government. That is not to say that there were not problems with those provisions, or that they would have been needed in an ideal world.
Much of the debate at that time focused on restoring the earnings link because, unlike now, earnings were outstripping prices. Everybody who was campaigning on the issue focused on that. However, restoring the earnings link and letting things move up gradually would not have helped the many pensioners who had a very quick increase in their income and well-being. Many of those people were women, because women often end up being the poorest in retirement. Those people would tell us very clearly how important that was for them. It is not fair—indeed, it is quite wrong—to rewrite history and suggest that it was not helpful.
As I have said in previous debates, the fact that that expenditure was in place made the job of introducing the single-tier pension easier for the Minister. We will discuss the single-tier pension in due course. That expenditure is one of the underpinnings that has allowed him to introduce the single-tier pension, apparently without increasing the overall expenditure on state pensions. Indeed, it is predicted that the overall expenditure will decrease in the long term. I hope that everyone will accept that the Labour Government did a great amount of thinking and work on pensions.
We must remember that many people were paying into pension schemes of various kinds long before auto-enrolment, perhaps with the assistance of an employer or perhaps because they chose to do so themselves. We must ensure that we protect those people; otherwise they will lose out. The same is true of how we carry forward small pots for different individuals. There are still serious concerns among people who are knowledgeable about the industry that the Minister’s pot follows member proposal may lead to some people having to transfer savings that they already have into a scheme that has higher charges and, therefore, a less good outcome for them than the scheme that the savings are currently in or a scheme that they would have chosen to transfer their pension into.
I must respond to the general comments made by the hon. Member for Gloucester, who is no longer in his place, about the previous Government wanting to introduce change or reform. He referred specifically to pension credit and, inadvertently perhaps, he misquoted my right hon. Friend the Member for Edinburgh South West (Mr Darling)—he is my parliamentary neighbour; our constituencies touch at one point within Edinburgh—who said not only that the previous Government looked at the possibility of a system like universal credit, but that the overwhelming advice was that it was too difficult and would be extremely expensive to implement. The cost-effectiveness of such a system, and its benefit to claimants, was therefore put in some doubt.
It ill befits anyone to suggest that the current Government have solved the problem of universal credit. As we are seeing at the moment, all the predictions made by those who have previous experience suggest that such a system is proving extremely difficult, extremely slow, and no doubt extremely expensive. Whether it will benefit people receiving benefits we have yet to see. One must therefore be cautious in suggesting that the previous Government were wrong in not going ahead with such a scheme. We will see what transpires over the next few years although experience to date has not been all that healthy. I urge the Minister to consider annuities in a great deal more detail, as they are crucial for people’s retirement income and well-being during those years of retirement.
Mr Speaker
With this it will be convenient to discuss the following:
New clause 6—State pension entitlement for women born between 6 April 1951 and 5 April 1953
‘(1) Women born between 6 April 1951 and 5 April 1953 have the right to choose to receive their state pension and associated benefits under the new state pension system, set out in Part 1, from its introduction.
(2) The Government must ensure information about the full range of entitlements under the old state pension rules and the new state pension is available to allow women in subsection (1) to make a comparison of total weekly income.
(3) The responsibility for making a choice under subsection (1) lies fully with the individual.’.
New clause 8—Review in relation to women born on or after 6 April 1951
‘(1) The Secretary of State shall conduct a review to determine whether all women born on or after 6 April 1951 should be included within the scope of the new state pension arrangements established by this Act.
(2) The Secretary of State must prepare and publish a report on the review within six months of Royal Assent of this Act and must lay a copy of the report before Parliament.’.
New clause 13—Pensionable age: differential effect in England, Wales and Scotland
‘Part 2 of this Act shall not come into force until the Secretary of State has laid a report before both Houses of Parliament containing an assessment of the differential effect and impact of the pensionable age in England, Wales and Scotland due to varying levels of life expectancy and gross value added.’.
Amendment 1, page 10, line 1, leave out clause 20.
Amendment 35, page 11, line 34, clause 24, leave out ‘An’ and insert
‘With the consent of the trustees, an’.
Government amendments 2 and 3.
Amendment 37, page 11, line 40, clause 24, at end insert—
‘(c) a scheme in respect of any of its terms which relate to persons protected under the terms of—
(i) the Electricity (Protected Persons) (England and Wales) Pension Regulations 1990;
(ii) the Electricity (Protected Persons) (Scotland) Pension Regulations 1990;
(iii) the Electricity (Protected Persons) (Northern Ireland) Pension Regulations 1992;
(iv) the Railway Pensions (Protection and Designation of Schemes) Order 1984;
(v) the London Transport Pensions Arrangements Order 2000;
(vi) the Coal Industry (Protected Persons) Pensions Regulations 1994; or
(vii) the nuclear industry employees protected by Schedule 8 of the Energy Act 2004.’.
Government amendment 4.
Amendment 36, page 12, line 10, clause 24, at end insert—
‘“trustees or managers” has the meaning given in section 178 of the Pension Schemes Act 1993 and regulations made thereunder.’.
Government amendments 14 to 20.
Amendment 34, page 79, line 5, schedule 14, leave out paragraph 11.
Government amendments 21 to 24.
Sheila Gilmore
One of the issues that has come up in the course of all the debate about the single-tier pension is the decision that the Government have taken to bring to an abrupt end to the provisions that previously existed for women in particular—I shall talk primarily about women, although men could be in this position—to be able to derive a pension or years towards a pension from the contributions of their spouse. That dates back to a different world. When the state pension system was set up in the post-war period, there was an assumption that the standard pattern for married people was that one person, normally the man, would be the main breadwinner, and the woman would spend considerable periods out of the labour force, and perhaps not even work at all after marriage. Indeed, although they were about to go, there were still marriage bars on certain types of employment, so time out of employment was not just a question of choice; it was sometimes a question of necessity.
Things have changed and, although it can still be a necessity, for many women the amount of time out of employment can be very short. The arrangement in the original proposals was that a woman could receive a derived pension from her husband’s contributions—currently approximately 60% of the full state pension—or receive benefit if she was widowed or divorced. For someone widowed after retirement who was receiving only the 60% pension—sometimes referred to as the married couples pension when both bits are put together—it would be increased to a full single person’s pension, regardless of whether she had made contributions during her working life. For those who are divorced, there is currently provision in the system to inherit and carry over a spouse’s contribution record if it is better than one’s own. That can be beneficial to women, and some men, in building up a pension record.
Other changes that have taken place include crediting certain types of contribution that are not entirely financial. As well as the credits people receive during periods of unemployment when they are claiming benefit, successive Governments have introduced credits for periods of child care and for caring for other relatives, and that can make up some gaps. There are still some people—a decreasing number, without a doubt—who will end up in a position where they do not build up sufficient contributions in their own right. If the right to obtain these so-called derived benefits is taken away, there will be a group of people, primarily women, who, post-2016 when the new arrangements come in, will have less than they would have expected to get before that date. They will be in a worse position than they would have been previously, and that will have all sorts of consequences.
People have reasonable expectations of the rules. Age UK gave an example of someone who had specifically asked the Department for Work and Pensions for advice on whether she should start making contributions relatively late in her working life. She was told not to do so, because she would not be able to work to receive nearly as much as she would be getting in any event. That advice was given in good faith and at the time she accepted it in good faith, but it is now too late for her to make up the difference.
The Government estimate that there are 40,000 women in this position. I am not sure whether there is certainty about that figure, because I do not know whether a full survey has been carried out. However, 40,000 is not a huge number. New clause 5 asks for a full review to ascertain how many women are in this position and what the cost would be of allowing them to continue to benefit from derived rights for a transition period—it would not be for ever.
Mr John Redwood (Wokingham) (Con)
Does the hon. Lady have any idea how much money, on average, these ladies might be losing?
Sheila Gilmore
I do not know off the top of my head, which is why I am asking for a review. We might be talking about 40,000 women who clearly will not be getting a full pension, but certain of them will have made some contributions; it is not that they will have no contributions. The Work and Pensions Select Committee looked at this and recommended transitional arrangements for those within 15 years of the state pension age when the new arrangements came into force. It is not for ever, it would not go on and on, with a very long tail; but it would provide for those who quite reasonably made plans on the basis of particular expectations.
I have heard two arguments from the Government. The first was a generalisation about how the world had changed. Yes, of course it has changed, and we are not talking about most or all women doing this for ever. Just saying, “Well, the world’s changed”, is not a good enough answer to the fact that some women will suffer detriment if transitional arrangements are not put in place. The second argument was that apparently—I am not sure any figures have been offered up—an increasing number of these women were living abroad. It conjured up images of women much younger than their husbands and living abroad—I do not know whether the Minister had Filipino brides in mind. Nevertheless, it cannot be beyond the ingenuity of the DWP to ensure that people do not take undue advantage. Like I said, these arrangements would not last for ever.
There are a variety of reasons why somebody might not have contributed. They might have made a positive choice not to contribute or they might have been doing voluntary or care work before credits were allowed or without appreciating that they were allowed—we know that a lot of people are eligible for carer’s credits who have not claimed them. There are a variety of reasons. Others will have been in very low-paid or short-hours part-time work and earning below the level of contribution, and they might have concluded that it did not matter too much because of the derived right.
We debated this matter in Committee and I hope that the Government will this time be prepared to accept my new clause. Then, when we have carried out the review, a decision could be made about whether to proceed with transitional arrangements.
Sir Peter Bottomley (Worthing West) (Con)
I hope the hon. Member for Edinburgh East (Sheila Gilmore) will forgive me if I do not follow her line of debate, but we have less than 50 minutes left to deal with something that is complicated, important and a matter of justice.
I pay tribute to my right hon. Friend the Prime Minister for saying in the Commonwealth that the Commonwealth is about fairness and justice, and I am going to argue for a significant review of what we do with overseas pensioners. I hope the House will forgive me for reading out a paragraph from Lord Hoffmann in the Carson case concerning regulation 5 of the Social Security Benefit (Persons Abroad) Regulations 1975:
“The general rule, subject to limited exceptions, has always been that social security benefits are payable only to inhabitants of the United Kingdom. A person ‘absent from Great Britain’ is disqualified: section 113(1) of the Social Security Contributions and Benefits Act 1992. But there is a power to make exceptions by regulation. Regulation 4 of the Social Security Benefit (Persons Abroad) Regulations 1975 (SI 1975/563) (deemed to have been made under the 1992 Act) makes such an exception for retirement pensions. But regulation 5 makes an exception to the exception. In the absence of reciprocal treaty arrangements, persons ordinarily resident abroad continue to be disqualified from receiving the annual increases.”
The House might expect that pensioners abroad who do not get the increases are the exception; were the House to think that, it would be wrong. Some 650,000 overseas pensioners get the increase, and they include pensioners in countries such as the United States and Jamaica. More than 500,000—it could be 530,000 or 570,000—do not. They are predominantly in Australia, Canada, New Zealand, South Africa, India and Pakistan, with Yemen and Japan being two others in the top ten. No one can claim that there is rhyme or reason in that.
Steve Webb
In a short time we covered a wide range of issues, and in the 10 minutes or so remaining, I shall try to respond to as much as I can, although I apologise in advance to hon. Members whose amendments I do not reach. I shall deal with amendments in the order in which they were raised.
New clause 5 was dealt with by the hon. Member for Edinburgh East (Sheila Gilmore) and touched on by her colleague, the Chair of the Work and Pensions Committee, the hon. Member for Aberdeen South (Dame Anne Begg). It addresses the position of the derived rights of people who are shortly coming up to pension age and the fact that we are ending the ability to derive pensions from a spouse. The spirit of the new clause implies transitional protection, but we have included comprehensive transitional protections in the system.
In particular, those who paid the married woman’s stamp and as a result have a poor contribution record will, notwithstanding the fact that we are ending derived rights, continue to be able to receive a 60% spouse’s pension or a 100% widow’s pension, because that was the basis of the deal that they did with the state. They signed the married woman’s stamp, which said, “I’ll pay less NI, but I understand that when I reach state pension age I’ll be able to get a pension based on my husband’s contribution record.” We took the view that because that was the basis of the deal, we could not change the rules. We have made sure that the limited number of women in that position are protected.
The issue is whether we should go further. It is worth bearing in mind that to get a £66 pension, which is the derived pension for a married woman, because of the rate of the single tier pension, such a woman needs 16 or 17 years in the system. For someone who has spent their life in this country, it is very difficult not to have achieved that or thereabouts.
Sheila Gilmore
There is an acceptance that for most people it would be unusual for that circumstance to arise, but according to the Department’s own figures, some women are in that position.
Steve Webb
Indeed. The hon. Lady is right. Some women are in that position, but a significant proportion of them have had very limited contact with this country. This is the point that she touched on. Derived rights arise to people who have never even been to the country. They can get a 60% pension or a widow’s pension because their spouse is part of the UK pension system. She is asking us to keep, for another 15 years, an extraordinarily complex bit of the system rolling into the new system. We are trying to deliver a simple and effective new state pension system and we have already introduced transitional protection for the most obvious group, the married woman’s stamp pensioners, which we think needs to be protected. We could have kept the whole of the old system rolling on for another 15 years, but that would have created enormous complexity when we are trying to move to a simpler system.
Were we to follow new clause 5 and the Select Committee’s recommendation and choose 15 years as the cut-off, we could be as sure as anything that we would be under judicial review for someone who was 16 years shy of the line. In other words, if we have a cut-off date, we must have an objective basis for it, and we can find no objective basis for choosing 15 years. I take the point made by the hon. Member for Aberdeen South that because 10 years is the de minimis, 15 years is a bit more than 10. I get that, but so is 16 or 14.
The hon. Member for Edinburgh East said that someone some years ago was told not to buy missing years and now it is too late. I stress that the ability to buy missing years has been substantially relaxed by HMRC so people can buy back as far as 2005-06 on relatively favourable terms. Even by the end of the decade they will still be in a position to buy back missing years. If they have spent the money and they do not have it any more, they cannot do it, but that aside, the ability to buy back missing years still exists. Although buying 10 years costs a lot of money, very few people will be starting from zero. So to reach the 10-year de minimis would not necessarily involve a huge outlay. Many will be over that level already and for those who are not and who have been in this country, the chance to buy one or two missing years will be important.
What we are trying to do is, yes, recognise where we need transitional protection, but we want to avoid such great complexity that we recreate the complex old system for well over a decade in the new one. That is why we reject new clause 5.