Steve Webb
Main Page: Steve Webb (Liberal Democrat - Thornbury and Yate)Department Debates - View all Steve Webb's debates with the Department for Work and Pensions
(11 years, 4 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Mr Byrne
We were ambitious and wanted to focus our resources on tackling pensioner poverty. I am reluctant to take too many lessons from the Secretary of State. The 1986 cap introduced by Lord Lawson led to a huge drop in contributions to occupational schemes. In fact, the pensions Minister himself said:
“Pensioners have long memories. They remember the Conservatives’ record on pensions…That record is one of not believing in the state pension, of eroding the basic state pension…of attacking SERPS—the state earnings-related pension scheme—and of slashing entitlements.”—[Official Report, 6 November 2000; Vol. 356, c. 34.]
I am afraid, therefore, that I am reluctant to take lessons from the Secretary of State on the inheritance that he has been bequeathed. As I have said, the foundation was strong and that is why we are urging him to be a touch more radical. I think that, in his heart, the Secretary of State will share many of my concerns. I know that he has been trapped in difficult negotiations with the Chancellor and I have no doubt that he would otherwise have gone further than he has in the Bill.
My first question is about universalism. Every generation has to strike the right balance between universalism and targeted benefits. That was true of the post-war Government and it is true of this Government. The Opposition believe that there needs to be a different balance between universal and targeted benefits for older people in the future. We find ourselves in agreement on that not just with the pensions Minister in this morning’s Financial Times, but with the Deputy Prime Minister and possibly even the Secretary of State, although he will keep his own counsel.
Our biggest problem with the Bill is that if the flat-rate pension is so virtuous, its virtue should be enjoyed as widely as possible. It should be a universal pension, but it is not. In particular, we are very concerned about the 700,000 women who will reach the age of 65 in 2016 when the flat-rate pension starts but who, because they will have hit the state pension age of 63, will not enjoy the flat-rate pension, even though a man who was born on the same day will. There are many of those women in our constituencies. I know that this matter will be of concern to the Minister and the Secretary of State.
The Minister of State, Department for Work and Pensions (Steve Webb)
Will the right hon. Gentleman give way?
Mr Byrne
I will give way in a moment. I will just flag another issue that the pensions Minister might say a word about when he intervenes.
There is an uplift to 35 years-worth of contributions being required before 100% entitlement to the flat-rate pension is enjoyed. That was not the original plan that was presented to the House in the Green Paper. When the Minister gave evidence to the Work and Pensions Committee, he said that the change would save roughly £1 billion. Five years’ more contributions will now be needed before the full pension is enjoyed, so up to 100,000 fewer people will receive the full pension than if the current system had continued. For every year under 35 years, people will enjoy £4.11 less a week. Of course, someone with below about seven or 10 years of contributions will get nothing at all.
We recognise that the minimum income guarantee will remain in place, but we are concerned that the many people who fall short of 35 years and the women to whom I referred will be rather too close to the poverty line for the liking of everyone here.
Steve Webb
The right hon. Gentleman mentioned the position of women born between April ’51 and April ’53. Will he clarify whether the Opposition have a specific proposal? It has been suggested that his view and that of his colleagues is that such women should be allowed to opt into the single tier. Is he aware that the cumulative cost of that over 30 years would be about £4.5 billion? Is that an example of his laser-like focus on public spending control?
Mr Byrne
I suspected that the pensions Minister would want to play politics with this issue. However, I hope that we can engage on it constructively in Committee.
The DWP has published estimates that show that the cost of including those women will be about £220 million a year. I say gently to the Secretary of State that the change that he is taking through the House today will net the Chancellor £5.5 billion in extra national insurance contributions in 2016-17 and £5.4 billion in 2017-18. The Chancellor has obviously spent some of that money for the Secretary of State by funding the proposals for social care, which are scored at £1 billion in 2016-17, and by funding employment allowance, which is scored at £1.6 billion. There is therefore £2.9 billion left. The cost of remedying the position of these women would be about 7.5% of the remaining NICs windfall that the Secretary of State has kindly brought the Treasury and just 4% of the overall NICs windfall. We are looking forward to working with the pensions Minister in Committee to fix this injustice, which I suspect he also feels in his heart.
Mr Byrne
As the hon. Gentleman will know, many of these women have already been hit by the acceleration of the state pension age at very short notice, so no—we want to search during Committee stage for ways to include these women. I know there will be many women in such a position in his constituency, and I am sure he will want engage in that debate.
Mr Byrne
No—[Interruption.] I will certainly give way to the Minister in a moment, but I want to underline one final aspect of universalism and the increases in the state pension age to which the Secretary of State referred. The Opposition will not stand in the way of proposals in the Bill to move forward the state pension age, but we want to put it on the record that we are concerned about the proposal to review it every five years. The goalposts on state pension age have already been moved a number of times in this Parliament, which is not good for stability, certainty or long-term planning.
I represent one of the poorest communities in the country and there is a 16-year gap in life expectancy between my constituency and Lichfield, a little way up the road. The mortality figures published by the Library over the past few days show that 1.2 million citizens die between the age of 65 and 69, and 60% of those are in the bottom three income groups. Mortality rates for the poorest in our country are twice the level of the richest, and we must take great care, not just with projections about life expectancy, but also about healthy life expectancy. The Secretary of State is asking for the power—unfettered —to review the state pension age every five years, which we think will promote uncertainty and instability, and damage the pensions savings rate that he seeks to increase.
Steve Webb
I believe the shadow Secretary of State has inadvertently misspoken. Will he confirm that no women born between 1951 and 1953 have had their state pension age changed by this Government, that any changes to their state pension age were made under the Pensions Act 1995, and that they have not had their pension age changed at short notice?
Mr Byrne
The Minister is right. I was referring to the problem that the state pension age has been moved a number of times in the past three years. The Opposition believe that it is unwise of the Secretary of State to ask for the right to review the pension age every five years because it will promote instability.
Nigel Mills (Amber Valley) (Con)
It is a pleasure to be called in this debate and to welcome this much-needed reform. I served on the Work and Pensions Select Committee when we conducted pre-legislative scrutiny of the Bill, so I have already gone through the detail once. The Secretary of State issued an open invitation to Members to serve on the Bill Committee, and I sense that I might be so honoured.
Nigel Mills
It is unusual for Ministers to welcome that, given my record of moving amendments, so the Minister might want to be a little careful, before he gets too excited. [Interruption.] Yes, it might spare me.
We all share the Government’s vision for pension reform. We want predictable, non-means-tested state pension provision, so we know roughly what we will receive when we retire; then we want to encourage private saving in high-quality, fair, low-cost schemes and to know what we will get for our money when we pay into such schemes and how that will convert into retirement income when we reach retirement age, whatever that might be—being 38, I dread to think what mine will be: I suspect it might begin with a 7, which seems an awfully long way off.
The Bill addresses some of those aspirations—it will make it much clearer what state pension some will get when they reach the happy age and it will improve the private pensions system—but will do nothing to improve the final part of the journey and make it clear what will happen when someone reaches that happy retirement age and is told they need to convert their pension pot into a pension income. There remains a big weakness in the system around how fair a deal someone gets when they default into the annuity their pension provider offers them—that was something the Select Committee raised in our pensions governance report. Action is needed. In my view, we should not allow a pension provider to provide an annuity to the same customer. That might be too radical a market restriction for most people, but there is a real problem if people, having saved for years, see their retirement income reduced because they do not know that they can shop around and choose their annuity.
The Bill is clear that people who will retire a good few years after 2016 will get £143 plus indexation, whatever that is, but it is less clear for those retiring in 2016 or the first few years thereafter. For them, there is a complicated calculation involving what they built up under the current scheme and how that is added to under the new one. We need to educate people about the pension they will get and what the change means. In my surgeries, I hear many concerns and fears from people who thought this was some kind of big bang—that if they retired on the new date, they would get a much bigger state pension than those retiring the day before—and did not want to miss the start date. I suspect that for many people the difference will not be huge, however, so those concerns should not be there.
Mr Iain McKenzie (Inverclyde) (Lab)
I will focus my comments on issues raised with me by women from my constituency who were born in the early 1950s and who perceive an injustice in the changes proposed for state pensions. We are all well aware—especially at this time—of the great importance the public place on pensions, as evidenced by the reactions we have seen to any proposed changes. Perhaps we need a requirement that any changes to pensions should give as much notice as possible to those affected, so that they can plan for and address those changes. We can, therefore, appreciate the apprehension displayed by people up and down the country when further changes to pensions were announced, including the intention to introduce a single-tier state pension for future pensioners from April 2017. I support the single-tier pension, but seek to highlight what I believe is an unfair outcome for one group of our constituents.
The problem with implementing the single-tier pension on 6 April 2017 is that a group of women born in the early 1950s will not be eligible for it. Around 700,000 women born between April 1951 and July 1953 will miss out. They will be deprived of many hundreds of pounds a year on average—money they could well do with in these austere times. Women born in this period are, quite rightly, angry at what they see as a dual adverse impact of the increase in their pension age and their non-eligibility for the single-tier pension. They will be forced to wait longer to retire, and will miss out on the new £144 pension. Instead, they will receive around £127 a week. Even the DWP’s own research concluded that that
“could have a significant impact on the state pension received over the course of a lifetime, in comparison to a man with an identical national insurance contributions”.
It is so obviously unfair that women born between 6 April and 5 July 1953 have been particularly disadvantaged by the changes to the state pension. Not only have they had a second increase in state pension age imposed on them—this time at very short notice—they will now not receive the improved pension.
The campaigner Louise Fox, born on 23 June 1953, says:
“In principle, I welcome the move to a flat-rate pension because it will bring to an end the poor state pension deal that most women get, but we have been left on the sidelines.”
She goes on to say that the Government could do a number of things such as allow women in that group who retire before April 2017 either to switch to the new single-tier pension after that date, or to delay taking their pension until 6 April 2017 and then enrol in the new single-tier pension scheme.
Steve Webb
I understand the confusion because we did originally propose to introduce these measures in 2017. Since then, however, we have brought forward the start date to 2016, meaning that the constituent to whom the hon. Gentleman refers will get the single-tier pension if she was born in June 1953.
Mr McKenzie
I thank the Minister for that information. Louise Fox is not my constituent, but she will find that intervention very welcome.
One further worry is that April 2017 is still not set in stone as the date for the start of the new system, and we have been told that it has now changed. Women in this disadvantaged group want to know why they have to wait until age 66 to claim their pension, and some cite losses of £30,000. They ask, “Can this really be true? Why have we been so penalised? Why are the Government treating us so badly? What have we done to deserve this?”
The Government claim that they must be “absolutely transparent” about who will lose out, yet they failed to make clear the full consequences of the planned reforms. The Work and Pensions Committee undertook pre-legislative scrutiny of the Government’s proposals, and heard from many women born between 1951 and 1953 who believed that they would suffer. There was concern about some 85,000 women born between 6 April and 5 July 1953 whose state pension age increased a second time under the Pensions Act 2011, and who will just miss out on eligibility for the single-tier pension if implemented in April 2017, although that has now changed.
In evidence to the Committee, Professor Jay Ginn argued that because women in that group were having their state pension age increased and were typically heading for relatively low state pensions, it would not be unreasonable for them to receive the single-tier pension when it is introduced.
Those women must pay national insurance for several extra years and will receive their state pension later than women for whom the state pension age was 60 and they will receive a lower pension than men and women whose state pension age is a few years later. That is a double-whammy for women born at the wrong time. The stated intention of single-tier pension proposals was to reduce gender inequality in state pensions, but it will be magnified.
As men were allowed to receive winter fuel payments at women’s state pension age, it would not be unreasonable for that relatively small group of women to receive the single-tier pension when it is introduced. Age UK has suggested that that they could be given the option of being treated equally with men of the same date of birth. My hon. Friend the Member for Aberdeen South (Dame Anne Begg), the Chair of the Work and Pensions Committee, was in favour of ensuring that women caught in the transitional group are protected.
Department for Work and Pensions analysis has shown that most women in the group—85%—would receive more in lifetime state pension and other benefits under the current system than they would receive if their state pension age was 65 and they received the single-tier pension. Obviously, its argument was centred on a long life expectancy, and it ignored the fact that the situation would be different for those who died relatively shortly after retirement. Life expectancy can vary by 10 years from one side of my constituency to the other. We can realistically assume that many of those who die early are among those who were least well paid during their working lives.
A group of women in Inverclyde who are affected by the changes come to see me regularly. They are angry that they will lose out because they will reach pensionable age prior to the proposed date. One such constituent, Mrs Christine Houston of Port Glasgow, told me she was made redundant and experienced economic hardship as demand for her company fell. She managed to find a part-time job but works unsocial hours. Her benefits, which act as a safety net to allow her to live, have been cut, and now she will be unfairly affected by the Government’s pension reforms. Despite having started work at 16 and having paid her share of taxes ever since, she has no idea how she will plan for her retirement as a direct result of the Government’s actions. Another lady, Mrs McKay, also of Port Glasgow, will lose out when the single-tier pension is introduced. She believes the Government are discriminating against her. At least 600 women in my constituency will be affected by that double-whammy. Two wrongs do not make a right.
My opinion has always been that the measures are unfair for two reasons. First, they give no chance for those people to prepare for their retirement and adjust to changes in the state pension age. As I have said, as much warning as possible should be given before any change in pension age. Secondly, the measures disproportionately affect a group of people—women in their late 50s—who are among the least well equipped to bear the brunt of the Government’s failed economic policy. A woman in her mid-50s will have average pensions earnings of just over £9,000, but, on average, a 56-year-old man has more than £52,000.
The women hit by the changes are the backbone of the UK. They are mums who took time off work to bring up children, daughters who helped their parents as they got older, and grans who help their children to have a work and family life by providing child care for grandchildren. Frankly, the measure is a disgrace, and the Government should have regard to that group of women, who have done nothing wrong except to be born in the early ’50s. I call on the Government to play fairly and reasonably with those women. I hope that there is a consensus in Committee and that we can find a way of righting that injustice for those women.
David Mowat (Warrington South) (Con)
Like many other Government Members, I strongly support the Bill. My hon. Friend the Member for Aberconwy (Guto Bebb) described it as bringing simplicity and fairness. He also described it as a “brave” Bill, although I assume that he did not mean that in the “Yes, Minister” sense. It will reduce complexity and regularise the treatment of women, but I want to talk about the way in which it will interact with the private sector pensions industry. I also want to build on some of the comments made by the hon. Member for Edinburgh East (Sheila Gilmore).
There is an elephant in the room when we talk about pensions provision in this country. The fact is that, even when the Bill has increased the basic state pension, that provision will not be enough for most people unless it is supplemented by the private pensions industry. Broadly speaking, pension provision in this country can be divided into thirds: one third of people are in public sector pensions, one third are in the private sector, and a third have no pension provision at all. For that middle third who are in the private sector, it is almost certain that their pension pot will not be large enough.
We have heard Members talking about the comparison between private and public sector pensions, and Parliament has debated public sector pensions endlessly. We have probably ended up in a good place in that regard. Someone cashing in an inflation-proofed pension of £15,000 a year—a self-invested personal pension, for example—at the age of 65, would have a pot of £400,000. For most people in the public sector, the value of their pension is likely to be higher than the value of their house.
The size of the median pot in the private sector is about £10,000. That is partly due to poor savings ratios. This matters, because our country has chosen to go with a pension system that is different from those in most of Europe, where there is higher basic state provision and no assumption that, by paying out tax relief, the private sector will somehow come through. The fact that the private sector has failed in this country represents a time bomb, and I shall analyse why that is the case. We need to look at that time bomb, even though there are some good things in the Bill.
One reason that people are not saving is that there is massive distrust of the industry. I have many colleagues in the private sector who would almost cut their arms off than invest in the pensions market. They would do anything to avoid doing that. They would buy houses to rent, for example. Perhaps that is a rational response to a market that has failed. I am a free marketeer. I sit on this side of the Chamber and I believe in markets. If they work, they get rid of supernormal profits and unfair advantages, and all that goes with that. However, they will not do that when there is an asymmetry of information in the market, and when that market has failed. I would contend that the market for private sector pensions falls into that category.
We have the highest pension charges in the world, according to Cass business school’s pensions institute. I know that we are coming out of a period of relatively low returns and that the numbers are therefore suspect, but someone could be spending 50% of their pension pot on charges, and 2.5% compounded over a few years does that to someone unless things are going up. There is absolutely no evidence of economies of scale in our larger funds, which is completely unlike the situation in the United States, where charges come down as the size of funds goes up.
We have too many pension funds. When I open the Financial Times, I see that there are more funds than there are equities, which is extraordinary. That is indicative of a market that has not had to consolidate because it has not been put under pressure by market forces. We also have exploitative techniques. I will not go into that in great detail, but the fact that active member discount has gone on for so long—there are now proposals to get rid of it—is extraordinary.
The way to make a market work better is to make it transparent. I have spoken with the Minister about the industry and I know that he is trying to make it move in that direction, and I respect that. The industry—I used to work in business, and in fact in the same business as the shadow Secretary of State—in my opinion is doing what we sometimes did: playing it long. It knows that it is making unacceptable profits and that that will have to change, because eventually this place will get around to fixing it. In such a situation, it plays it long. It is beginning to regularise charges and to talk about annual management charges, but of course that is different from total expense ratios. There are entrance fees, exit fees, churn fees and trailing commissions. I have a double maths A-level, an engineering degree and I am a chartered accountant, and I can just about understand this stuff. The idea that most people who are having to buy pensions could be educated to such a degree that they could make the market work is ridiculous. The market knows that and the result is a median pension pot of £10,000. It is a crisis, even with the welcome response that Government Front Benchers are putting forward tonight.
Auto-enrolment is clearly the right thing to do, but it makes it even more important to fix this issue, because we are now semi-making people invest their money in a market, and if the market is not working because we cannot be bothered to fix it, that is a moral issue. I talked earlier about NEST. I think that a low-cost passive tracker is exactly what is needed. I do not have a particular liking of state-based solutions, but I return to the fact that the market has failed. I understand that the Office of Fair Trading is conducting an inquiry into fund charges—the Minister nods his head—which I welcome. By my remarks I am not implying that we are doing nothing; I am implying that this remains an issue. The words I used—I would like them to be remembered—is that the industry is playing it long and that this is now a moral issue.
There is new stuff coming out, and I think that the Association of British Insurers has said that the charge is 0.54%, and that that is reasonable. It would be reasonable if it were not for the fact that so many people are being auto-enrolled into old funds that have much higher profit ratios. I really wonder what that 0.54% even means. Is it a total expense ratio or an annual management charge? How many of the other millions of charges that generally are not included are counted within that figure? The whole thing needs to be fixed.
What would I like the Government to do? Well, we should strengthen NEST. As I have said, I would prefer the private sector to come up with solutions to make the market work, but it has failed to do so and the time has come to act. Denmark has very low charges on pensionable assets, and it has achieved that through something very similar to NEST, and other countries are moving in that direction.
I have not yet talked about the portability of pensions. I read the Select Committee report on the issue. I am surprised that we have gone for the solution of having the pension follow the employee into their next job. I have not done the analysis, and the issue requires a lot of that, but that does not feel to me to be the optimum solution for the employee.
I do not often agree with the TUC, but I believe that its representatives have said that, based on their analysis, an aggregator would appear to have been a better solution. If we have done what we have done because of the survey cited in the Select Committee report and other sources, that is not a good reason. If we ask 100 people, 98 of whom might understand the fundamentals, whether they would like to take their pension to the next job or to an aggregator, I really doubt that they would understand.
If the survey is the basis of the analysis that has been done, it is a cop-out. That said, if there is analysis out there that says that what has been chosen is the right way, so be it.
David Mowat
The Minister is nodding, so I will not push the point. However, we are in the new world of portfolio careers, where people change jobs eight, nine or 10 times, with entrance and exit charges every time. I find the point hard to see, but okay.
I have four suggestions for the Bill Committee; if any Whips are listening, I should say that I will not be a part of it. I think there is a case for a cap. The industry sometimes says that a cap would drive down innovation, but we do not need more innovation—we need solid, passive investments that we leave and let go for a long time.
I would like there to be more enforced simplicity. We should look at what the Department of Energy and Climate Change has done with electricity and gas charges. It has insisted that bands should be brought in so that there is comparability and consumers can say, “I’ll go with them” rather than being swamped in a myriad of complexity. Pensions are massively more material to the well-being of most people than utility bills, yet they are massively more complex. Perhaps we could consider standard charges and standard comparisons of the annuity market, so that when people choose an annuity they are much more able to make a reasoned decision. The Cooper reforms in Australia are an example of that, and I would like us to move down that route.
I have given annuity transfers a great deal of thought. I know that the market is saying that people will be sent letters to ensure that they have checked out the market before they go with their base supplier. Personally, I think there is a case for saying that the base supplier should not be allowed to provide an annuity. If we really want to force the market to work, we should do something such as that. If we are going to leave the matter with the base supplier or the organisation that the person has saved with, we could ensure that they register so that we know that people have properly considered the option of going elsewhere.
Finally, I turn to tax relief. I said at the start that our pension system has a structure different from that of a lot of countries in Europe. We have smaller basic provision; we then give a lot of tax relief and hope that the private market will take care of the situation. We spend about £30 billion a year on tax relief.
The Minister of State, Department for Work and Pensions (Steve Webb)
We have had five hours to talk about pensions—what could be better? The debate has been unusual in the sense that the Government have had support for the Bill and its principles from Members on both sides of the House. That is vital, as the Chair of Work and Pensions Committee and others have said. Pensions reform that will last and that will not be blown about by changes of Government—in the long term, obviously—is a good thing. I welcome the fact that hon. Members on both sides of the House have welcomed the Bill and its central measure, the single-tier pension.
My right hon. Friend the Secretary of State began the debate in characteristically statesman-like fashion and in a non-partisan way. Unfortunately, that was not immediately followed. This reform deals with fairness, gives decent pensions to women, and tackles the poor pension position of the self-employed, which is vital. The right hon. Member for Birkenhead (Mr Field), who is no longer in his place, set hares running. He seemed to believe that assisting the self-employed is pork-barrel politics because, apparently, the massed ranks of the self-employed are all Liberal Democrats, which I was pleased to hear.
I am pleased that my coalition colleagues and my hon. Friend the Member for Leeds North West (Greg Mulholland) welcomed the measures on the self-employed, who for many years have been excluded from the full state pension. The previous Government recognised that there was a problem and did a research report. I am not sure whether the right hon. Member for East Ham (Stephen Timms) was the Minister with responsibility for pensions at the time or which of my 10 predecessors was, but I found the report on the top shelf when I moved in. It had been put in the “too difficult” box, which was overflowing. This Government have grasped the nettle and provided for the self-employed to be full members of the state pension system. I have never heard a Government measure described as too good to be true, as that measure was described today, but I can assure the House that the deal is that the self-employed are full members. Low-earning self-employed people pay more national insurance than their low-waged counterparts. It therefore is not a freebie—the self-employed pay national insurance, and they should be part of the system.
I shall try to address the specific issues that arose during the debate. Several members of the Work and Pensions Committee spoke. I am grateful to the Chair of the Committee, the hon. Member for Aberdeen South (Dame Anne Begg), my hon. Friend the Member for Amber Valley (Nigel Mills), the hon. Member for Edinburgh East (Sheila Gilmore) and their Committee colleagues for their pre-legislative scrutiny of clause 1. They suggested a number of amendments, including putting the start date of 2016 in the Bill, which we have done, and making 10 years the maximum minimum for a pension, which was welcomed by my hon. Friend. He pressed me mercilessly when I gave evidence, and we were pleased to give him what he wanted. I was keen on having him on the Public Bill Committee, but went a bit cool on the suggestion when he said he likes to table amendments.
I will address a number of the substantive issues raised in the debate in turn, the first of which is the move from 30 to 35 years. To be clear, 30 years currently gets people a basic state pension of £110 a week, and 35 years gets people a full single-tier pension of £144 a week. We are therefore not comparing like with like. As my right hon. Friend the Secretary of State has said, the Government are merging a basic pension for which people work for 30 years with a second pension, for which people might work for 50 years. Thirty-five for the merged pension is therefore hardly ungenerous. If people who have already retired on the expectation of 30 years would have got more under the old rules than they will get under the new rules, they will get what they would have got under the old rules, so nobody in that situation will get less than they were expecting.
That brings me on to women born between 1951 and 1953. To be clear, they will receive their state pension on the day they would have got it if Labour had continued in office. We have not changed their state pension age. They will receive the pension they would have got had Labour continued in office. We have changed, with one exception, neither their pension age nor their pension amount. To hear Opposition Members talk about this group of women, one would think we have ripped them off, taken money off them and created losers. They are getting the pension they were going to get on the day they were going to get it.
There is one exception to that. We have changed something for this group: we have given them a bigger pension, because of the triple lock. If the Labour Government had continued in office, their pension would have been price indexed. We introduced the triple lock, so each one of those women born between 1951 and 1953 will receive a bigger pension under this Government’s policy than under the continuation of the previous Government’s policy.
Steve Webb
Let me be absolutely clear: the triple lock, as a concept, was in the 2010 Liberal Democrat manifesto. It was agreed and implemented by the coalition, and I want it to carry on after the next election. There is no question about it. I should add that all the figures in the coalition’s impact assessment on the Bill are premised on the assumption of the continuation of the triple lock.
Steve Webb
Just to be clear, the single tier comes in in 2016, which is not within the scope of the spending review, as the right hon. Gentleman probably knows. I was interested in what he had to say about pension spending, because apparently pensions will be included in the cap on welfare. As I understand it, if a Labour Government had a bad year on housing benefit, they would take some money off pensions. How would they do that? We were told this week that they would not undermine the triple lock, so what is left? They are in favour of raising the state pension age. As I understand it, if they have a bad year on housing benefit they will jack up the state pension age in the next year to make up the shortfall—that does not make any sense.
Steve Webb
I have given way to the right hon. Gentleman twice already, so I will make some progress.
A number of hon. Members raised matters of detail. I thank my hon. Friend the Member for Rochester and Strood (Mark Reckless), who said that he had approached the Bill in a spirit of scepticism. He is right to have done so. We should approach all new pension reforms in a spirit of scepticism, because there have been so many of them. One of the nicest things anyone has ever said to me is that the more he found out about the Bill the more he liked it. I am grateful to him for that.
My hon. Friend the Member for Rochester and Strood asked a specific question on whether someone who defers under the current system past 2016 will continue to receive the current generous terms after 2016. He also paid tribute to the staff in the House of Commons Library—he mentioned Djuna Thurley specifically—who have to wrestle with complex legislation. I echo that tribute. A lot of legislation is complex and difficult, and I think all of us accept that the Library provides us with great support.
My hon. Friend the Member for Thurrock (Jackie Doyle-Price) asked about another group and the whole issue of derived rights. The single-tier pension is designed for the future, whereas the current state pension system is rooted in the 1940s when men had jobs and women had husbands. We cannot go on like that. We have introduced a lot of transitional protection. For example, there was an option for women to pay something quaintly called the married woman’s stamp. If they did that at any point in the 35 years up to their pension age, we would protect them and pay them the pension they would have got. There is extensive transitional protection.
My hon. Friend raised the question of what she described as homemakers. People who are not in the paid labour force can still receive protection for their pension rights in a number of circumstances. If they are at home with children, caring for an elderly or disabled relative, or are unemployed and looking for a job, they receive credits. If they are too sick to work, they receive national insurance benefits credits. So a whole raft of circumstances are covered.
My hon. Friend mentioned a specific and narrow group of people—childless homemakers. Interestingly, at the start of her speech, she said how important the contributory principle was—I agree with that—and she was right that in many ways the Bill reasserts that principle. To reassert it, however, and then say that someone who has paid no national insurance, not been a carer, not been looking for work and not been too sick to work should none the less get a significant pension creates a tension. I can reveal to the House that she and I discussed this issue in the Tea Room before we got here, and she said, “But aren’t you changing the rules late in the day?”, as she also said in her speech. We have to strike a balance between moving to a new system and protecting people as we move, and not setting in aspic every single corner of the old system.
The hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East (Gregg McClymont) said, “You can’t go on running two separate systems”, and then demanded that we keep various bits of the old system going for another 15 years while running two separate systems. I would say to my hon. Friend the Member for Thurrock, then, that there is extensive protection. If the lady in question were widowed, for example, there would be pension credit of £145, so if she had nothing else she would be brought up more or less to the same level. Extensive protections are in place. I cannot promise that every single person will be protected in every single respect, and nor should I, but there is extensive protection.
Gregg McClymont
I want to correct the Minister. I did not suggest that we could not run two systems in parallel; I was merely pointing out that when we talk about the simplicity of this new pension, we have to take it into account that two systems will be running in parallel. I did not say it was an argument against the Bill in toto, but it is a point that we must all bear in mind when considering a simple pension system.
Steve Webb
The hon. Gentleman raised a lot of questions, which it is his job to do obviously, but did not offer any solutions. He gave a case study of someone born between 1951 and 1953 and said how unfair the system was. I want to stress that the person he gave an example of will get exactly the pension she was expecting on exactly the day she was going to get it, so we have not changed anything about that person’s pension. We have, however, triple locked her pension, which is better than she might have expected under the last Government, so I think we have done the right thing.
Opposition Members drew a comparison between women in that age group and men born on the same day. Let us try a thought experiment: if we were to impose a sex change on all 700,000 women in this group, 95% of them would not thank us—financially at least, although perhaps for other reasons as well. Getting on for 95% of them would say, “Why did you do this to me? Yes, I might get another six quid a week, but I’ll have to wait two or three years longer for it.” That is not a good deal. We have worked out that it would take many of these women 30 years of retirement to recover what they lost through waiting longer for their pension.
The hon. Member for Glasgow North East (Mr Bain) mentioned people with short life expectancies, as did the hon. Member for Inverclyde (Mr McKenzie). People who do not live long after pension age want to have their pension as early as possible, and again the last thing these women want is to get their pension when men do, because if they are not going to live long past the pension age, they will want their pension straight away, not later. The comparison with men born on the same day, therefore, is a false one. Overwhelmingly, these women will do better than a man born on the same day.
The hon. Member for Banff and Buchan (Dr Whiteford) made a thoughtful speech. I was impressed with almost all of it, expect the bit when she was pressed by Scottish colleagues about independence, at which point she became shifty and evasive. [Laughter.] I think that is just about parliamentary. It is clearly that independence would mess up pensions big time. The whole debate today has been about simplification and people knowing where they stand. How on earth would we splice together different countries’ national insurance records, cross-border deficits—
Steve Webb
Just a minute. I am enjoying this too much.
How would we splice together different countries’ national insurance records and cross-border deficits? It would suddenly be an international scheme, so we would have to fund it immediately. This is a classic case of where we are better together. It is a simpler system and one where people know where they stand. Reinventing another system north of the border and then trying to splice it back together, particularly when so many people work north and south of the border, would create a great deal of disruption for people. We have spent the last five hours saying how we need to make things simpler.
Dr Whiteford
Does the Minister accept that Scotland is currently spending a smaller proportion of its GDP and revenues on pensions and social protections than the rest of the UK, so there is no question of the affordability of pensions? Does he also accept that on average people in Scotland live two years less than those in the rest of the UK?
Steve Webb
The hon. Lady raises the issue of pension spending in Scotland. She will know that Scotland is ageing at a faster rate than the rest of the UK, so the long-term spending pressures there are greater, and that would need to be addressed.
On the important issue of differences in life expectancy across different areas, clearly there are differences. I accept that, but across the board we are seeing a rising tide that is lifting all boats. For example, over the last quarter of a century, life expectancy at 65 has risen for men in the least privileged class by 21% and for those in the most privileged by 22%. In other words, we have seen significant increases across the board. Therefore, although we absolutely have to tackle the causes of differences in life expectancy, that cannot be a reason for paying pensions at a rate that was set a century ago.
My hon. Friend the Member for Warrington South (David Mowat) got great praise from those on the Opposition Front Bench, which I hope will trouble him. He asked whether there is any analysis that underlies our decision; I can assure him that there is. He asked why we do not shunt all those with small pots to NEST—that was the proposition. We are talking about a pot limit of £10,000, so if all the small pots in a single year went to NEST, it would be become enormous and unbalance the market. Unless we wanted NEST to become huge, we would have to have a low pot size limit to make it work, with NEST becoming the home of small lost pots. However, if we did that, we would end up with significant fragmentation. In other words, with a low pot size limit, people might have something in NEST, a few thousand pounds they can do nothing with in another provider, their current pension—[Interruption.] What I can suggest to my hon. Friend, if I may—I have only a few minutes—is that he looks at our Command Paper, Cm 8402, which provides the analysis that underlies this, and if he is not satisfied after that, I am happy to have a coffee with him.
A number of other issues were raised in this debate. The hon. Member for Edinburgh East made an exhausting—sorry, exhaustive—speech. To be fair to her, she made some quite important points. She said that the single tier was not a windfall or a great leap forward. When she quizzed me in the Work and Pensions Committee, she said—and I quote—that it is not exactly “fandabbydosey”. She is right: it is not fandabbydosey; it is a simplification. It is about spending the money that we were going to spend, but better. She also said that SERPS was great and asked whether it would not have been better to continue with it. However, the fundamental problem is an unfunded pension promise. We already have a very large unfunded basic state pension, which will represent a rising share of national income even with these reforms. If we had added a massive unfunded SERPS to that, those promises would not have been kept. It is nice to think they would have been, but they would not. Future generations of working taxpayers would have had to pay so much tax to meet all those unfunded promises that the system would not have survived.
What we are doing in this Bill is being responsible for the long term. This system will cost more as a share of GDP than we spend now—significantly more—but the rate of growth will be slower. Crucially, given the long-term health, social and pension costs in the decades to come, a Government who are acting now—taking difficult decisions about things such as the state pension age, but giving people time to plan—are doing the right thing for the long term.
On the private pension side of things, automatic enrolment has started incredibly well. For example, McDonald’s—just one employer—has found that the opt-out rate among some of its low-paid employees is as low as 3%. From memory, that means that 10,000 lowly paid employees at McDonald’s are now in pensions, with fewer than three in 100 opting out. That is a real achievement. One of the reasons for that is the communications work we have done—the “I’m in” adverts that we see on the tube, on television and so on.
Communications was a key issue. We absolutely have to communicate this change effectively. We are doing fieldwork over the summer on how best to communicate it and to whom. We are working with partners such as Age UK, the Money Advice Service and the Pensions Advisory Service. The one constraint we have is that we cannot presume exactly what the scheme will look like, because the House will consider it. We cannot write to people now telling them what will happen, because it might not happen—it might be changed by the House. That is a frustration for us, but as soon as this is determined and settled, we will be out there.
I have long looked forward to the moment when I can say with pleasure, along with my right hon. Friend the Secretary of State, that I commend this Bill to the House.
Question put and agreed to.
Bill accordingly read a Second time.
Pensions Bill (Programme)
Motion made, and Question put forthwith (Standing Order No. 83A(7))
That the following provisions shall apply to the Pensions Bill:
Committal
(1) The Bill shall be committed to a Public Bill Committee.
Proceedings in Public Bill Committee
(2) Proceedings in the Public Bill Committee shall (so far as not previously concluded) be brought to a conclusion on Thursday 11 July 2013.
(3) The Public Bill Committee shall have leave to sit twice on the first day on which it meets.
Consideration and Third Reading
(4) Proceedings on Consideration shall (so far as not previously concluded) be brought to a conclusion one hour before the moment of interruption on the day on which those proceedings are commenced.
(5) Proceedings on Third Reading shall (so far as not previously concluded) be brought to a conclusion at the moment of interruption on that day.
(6) Standing Order No. 83B (Programming committees) shall not apply to proceedings on Consideration and Third Reading.
Other proceedings
(7) Any other proceedings on the Bill (including any proceedings on consideration of Lords Amendments or on any further messages from the Lords) may be programmed.—(Mr Syms.)
Question agreed to.
Pensions Bill (Money)
Queen’s recommendation signified.
Motion made, and Question put forthwith (Standing Order No. 52(1)(a)),
That, for the purposes of any Act resulting from the Pensions Bill, it is expedient to authorise the payment out of money provided by Parliament of:
(1) any expenditure incurred under or by virtue of the Act by the Secretary of State; and
(2) any increase attributable to the Act in the sums payable under any other Act out of money so provided.—(Mr Syms.)
Question agreed to.
Pensions Bill (Ways and Means)
Motion made, and Question put forthwith (Standing Order No. 52(1)(a)),
That, for the purposes of any Act resulting from the Pensions Bill, it is expedient to authorise:
(1) the imposition of charges to income tax in respect of benefits payable under or by virtue of the Act;
(2) the levying of charges under the Pension Schemes Act 1993 for the purpose of meeting expenditure of the Secretary of State under or by virtue of the Act;
(3) the imposition of levies under or by virtue of the Pensions Act 2004 in respect of past periods;
(4) the imposition of levies under or by virtue of the Companies (Audit, Investigations and Community Enterprise) Act 2004 towards the expenses of grant-aided bodies concerned with preparing guidance for pensions illustrations; and
(5) the payment of sums into the Consolidated Fund.— (Mr Syms.)
Question agreed to.