Pensions Bill [Lords] Debate
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Steve Webb
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Pensions Bill [Lords]
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Gregg McClymont
In my first foray from the Dispatch Box, I would like to say that I look forward to having a continuing dialogue with the Minister on this subject. He has a formidable reputation in this field. He told me at our first meeting that one of my former students is now his researcher; that, I think, makes him doubly formidable. I would also like to pay tribute to my predecessor, my hon. Friend the Member for Leeds West (Rachel Reeves). She, along with thousands of women, has led the campaign to highlight the burden being placed on up to 500,000 women by the acceleration of the timetable for the equalisation of the state pension age. I think we can all agree that she has done a very important job of work.
We welcome the Government’s concessions as laid down in the amendments, but we do not think they go far enough. The Government are no longer condemning 245,000 women to an extra waiting period of between 19 and 24 months, and that is welcome; but it is too little, too late. The cardinal fact about the Bill remains that 500,000 women will still have to wait up to 18 months longer, and 330,000 will have to wait exactly 18 months longer, before reaching their state pension age. The Government have chosen to break the all-party Turner consensus that women’s state pension age should not reach 65 before 2020, and they have also broken the coalition agreement, which promised that women’s state pension age would not reach 65 before that year.
The Minister of State, Department for Work and Pensions (Steve Webb)
I congratulate the hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East (Gregg McClymont)—this is the only time I am ever going to say that—on his new post. He mentioned Lord Turner. Is he aware that following the improvements in demographic projections that have taken place since Lord Turner produced his report, he is now on record saying that if he had been writing his report then, he would have gone much further much faster?
Gregg McClymont
The Minister is of course right. I believe that since the Turner report, longevity predictions have risen by 6.5% for men and 5.5% for women. There is no doubt that the issue is complex—no one is denying that—and there may well be a case for going further faster, but the burden of my argument involves the half a million women who must wait for up to 18 months. Our view is that that is a disproportionate burden, imposed without fair and due notice.
Malcolm Wicks
With respect, I think that what I have to say will be helpful to the hon. Gentleman, and I am sure that he will tell me where I get it wrong, if I do.
I want to analyse mortality by social class. I shall talk about men in particular, although there is a class difference among women too. People in social class 7 tend to be in routine occupations. For example, they might be labourers, van drivers, packers or cleaners; many women would be cleaners. We hear a lot about longevity and how we will all live to 100: the Minister keeps telling us—he issues a press notice every few months—that one fifth or one sixth of us will live to 100. It might surprise the House, therefore, that 19%—almost one fifth—of men from social class 7 die before the age of 65. Almost one fifth of these hard-working working-class people in tough jobs—no doubt they have had tough lives too—die before 65.
I put that point to the Minister and the House because, before glibly raising the pension age to 66 or 67, we need to recognise that many of our fellow citizens do not live to 65. Furthermore, 10% of women in social class 7 die before the age of 60, while among the professional classes, that figure is only 4%. I should have said earlier that, in contrast to the 19% figure, the proportion of men in the professional classes who die before the age of 65 is 7%. So there is a huge social class differential, and if we are not careful—we need to do the arithmetic very carefully—and if we glibly increase the pension age, we might rule out more and more people from ever getting their old age pension.
Steve Webb
The right hon. Gentleman raises some important issues. I do not think that he was Pensions Minister at the time, but he will be aware that it was the Pensions Act 2007 that ultimately raised the state pension age to 68. Why did he support that, given the points that he is making now?
Malcolm Wicks
I recognised the logic of demography and longevity and the need to raise pension ages, but since ceasing to be a Minister of any kind, I have had more opportunity to think about this and to study it—[Laughter.] The Minister might try thinking independently. It is not a bad idea. I would not giggle at the idea that we rethink our positions from time to time. I have rethought my position on this, not least because the Government are going helter-skelter towards raising the pension age in ways that the Labour Government never foresaw.
Fiona O’Donnell
I am genuinely grateful for the opportunity to support the amendment to which my hon. Friend the Member for Cumbernauld, Kilsyth and Kirkintilloch East (Gregg McClymont) spoke so eloquently. I welcome him to the Dispatch Box.
Many women in my constituency have contacted me about this issue, and none of those who have contacted me over the weekend, yesterday or today have expressed the view that the Government have gone far enough; they all support the amendment. I found it almost stomach-turning to hear the hon. Member for Cardiff Central (Jenny Willott) congratulate herself on winning this concession from the Government. I do not think that even Labour Members should take credit for the achievement—lacking though it is in ambition—and I certainly do not think that the Liberal Democrats should do so. I wish that some of the honourable and good Liberal Democrat members of the Bill Committee mentioned by my right hon. Friend the Member for Croydon North (Malcolm Wicks) had had the guts and the principle to propose similar amendments when they had the opportunity. This feels a bit like Groundhog Day: it is the Health and Social Care Bill all over again.
Credit for the victory, such as it is, lies with all the women who have written to us, e-mailed us, telephoned us, and come to the House to make their case. They have said, “We will not sit back and let the Government do this to us.” Every evening as I leave this place, I see a touching reminder in the poster in the tube station showing those women, although I must confess that at first I considered it rather strange that there was also a man in the photograph, and wondered what that could be about. The fact is that this change will have an impact not just on the women concerned, but on the families for whom they have made plans. In the light of the rising cost of child care, they have asked themselves, “When can I help my sons and daughters to make better lives for themselves and their families?” I have to say that I think my sons and my daughter have similar plans for me, which I intend to resist for as long as possible.
The Government, particularly the Liberal Democrats, have not just broken their promise to women; they have broken their promise to their families as well. What an appalling lack of ambition from a Government! They have repeatedly called on Labour Members to say how we would pay for our proposals, so let me give them a couple of examples. Through the future jobs fund, they could take a million young people off the dole queue so that they were back at work and contributing to the system. They could scrap their top-down reorganisation of the NHS. They could ask the Secretary of State for Communities and Local Government whether he has any money left in the pocket where he found the bin money. This is not about arithmetic; it is about political will. It is about the Government saying, “We believe that this is something worth doing, and it is something to which we will commit ourselves.”
Steve Webb
I am very grateful. We let a lot of things past, but will the hon. Lady clarify one point? She mentioned—I think I quote her accurately—getting a million young people back to work through the future jobs fund. Can she tell the House how many permanent jobs young people actually got when Labour ran the future jobs fund?
Sheila Gilmore
The concession made by the Government is, of course, a welcome one. The fact that we are saying that it is not enough does not mean that it is not welcome, but I do ask why they have taken so long to arrive at this point. On Second Reading, back in June, not a single Government Back Bencher spoke in favour of the Government’s proposals on the acceleration in women’s pension age. They were clearly unhappy but were prevailed on at the time, it would appear, to vote for Second Reading by being told that some form of transitional arrangement would be forthcoming.
Those of us who were privileged to serve in Committee asked for the transitional arrangements so that we could debate and scrutinise them, which is what a Committee ought to be about, but we were told that they were not ready because they would be very complicated. “By the way,” said the Minister, “Where are your transitional proposals? Why have you not come up with any?” As a new Member, I thought that perhaps it was commonplace for the Opposition to be expected to come up with proposals for the Government because they have not thought them up yet—
Sheila Gilmore
We had amendments. We tabled amendments that were not a million miles away from those that we are proposing today, because we felt that, in the circumstances, a proposal to cap the period of time for which women would have to endure this change was the best thing to do. Our amendments were not supported by either Government party in Committee, but we had clearly made proposals that ranked as transitional, because—lo and behold—four days before this final chance to debate the subject in the House, a proposal was made. It is not some complex transitional arrangement that would take civil servants hours, weeks or months to work out but fairly straightforward and involves capping the period of time. In my view, that proposal could have been made in Committee without any difficulty and it could also have been made at any time over the months that have passed since the Committee stage ended in July.
I suspect that one of the main reasons this rabbit has apparently been pulled out of the hat at the last minute is to prevent any great campaign being restarted for further change and to prevent people asking for more. Like Oliver—most of us nowadays, unlike the cruel people in Victorian workhouses, think that Oliver was right to ask for more—the women who have contacted my colleagues and me over the past few days are still asking for more because they feel that the Government’s proposals remain unfair. They have alleviated the proposals for one group of women but not for all those who are affected and, in my view, those women are right to ask for more.
The Government have been extremely calculating. By not making their announcement until almost as late as possible while still making it in any way credible, they calculated that they would foreshorten the possibility that their Back Benchers might again be contacted by many of their constituents who would argue that the proposals are still not enough. The fact that they have given the shortest amount of time to this very successful campaign is clearly tactical.
In this debate, we always come back to the money question—it happened repeatedly in Committee and in many interventions on Opposition Members today. We are asked where we will get the money and told to come up with a specific statement about where we will find it. That happens not just as regards this proposal but day in, day out—[Interruption.] It is not unreasonable for us to say that we would not start from here. That is not unreasonable because we have a very different view about the choices and the fairness arguments that it is right to make and about how to progress our public finances over the next period.
Another argument that often comes up states that one cannot borrow one’s way out of a crisis or out of debt. It seems we cannot cut our way out of a deficit either, or out of more debt, because public borrowing, far from having come down in the past year and a half, is rising. We would not start from here because our entire economic strategy would be different. Our view—as we said a year and a half ago and as it remains—is that to attempt to reduce the deficit within this Parliament was reckless, that it would not be successful and that it would risk higher unemployment and the stagnation of the economy. That is what is happening. If the economy continues to stagnate, tax revenues will fall with fewer people in work and fewer businesses thriving. Falling tax revenues are a big reason why we have a deficit in the first place. This is not simply about Government spending, as is sometimes suggested.
Tax revenues will fall and benefits payments and other outgoings will rise, and those are very important considerations. In saying that we would not start from here, it is perfectly reasonable for us to make it clear that we would not want to be in the position that the Government seem determined to drive us into.
Yasmin Qureshi (Bolton South East) (Lab)
This is an incredibly important stage of the Bill, about which I have received hundreds of e-mails. I am sure that Members of the House from across the political divide have received e-mails specifically concerning women aged 58 and 56. We have had a number of discussions about this matter, including a Westminster Hall debate at which the Minister was present.
I know that I may sound very boring if I repeat again the concerns of those women and of Opposition Members about why this particular provision should not go through. Everyone accepts that the state pension age needs to rise in order to pay for a more generous basic state pension. This principle underpinned Labour’s Pensions Act 2007, which continued the 1995 timetable for equalising women’s state pension age with men’s by increasing it to 65 by 2020, and then legislated to increase both SPAs to 66 by 2027, to 67 by 2036 and to 68 by 2046. That was agreed and there was cross-party consensus on that.
The coalition agreement stated:
“The parties agree to....hold a review to set the date at which the state pension age starts to rise to 66, although it will not be sooner than 2016 for man and 2020 for women.”
However, the Bill proposes an acceleration in the equalisation for women by 2018 and increases both men’s and women’s state pension age to 66 by 2020. This will hit women aged between 56 and 58 particularly hard, as they will have very little time to prepare or amend their existing plans. As has been pointed out by my colleagues countless times, those women have worked very hard in their lives but often for not very high pay, so they will not be getting very generous pensions in any event, yet they are going to be hit even harder.
The proposal will affect 4.9 million people—2.6 million women and 2.3 million men. Some 500,000 women born between 6 October 1953 and 5 March 1955 will have their state pension age delayed by more than a year, and 300,000 women born between 6 December 1953 and 5 April 1954 will have theirs delayed by 18 months exactly. For the 300,000 women facing an 18-month delay, the loss of income will be around £7,500; for those in receipt of pension credit, the figure will be closer to £11,000. That sudden and dramatic change in women’s expectations regarding their state pension age and retirement income comes with just five to seven years’ notice, which simply is not long enough for them to make adequate alternative arrangements in their retirement planning.
Women are already at a disadvantage in terms of pension provision. The median pension saving of a 56-year-old woman is just £9,100, whereas the equivalent figure for men is £52,800—almost 600% higher. It is not fair to speed up the equalisation timetable because it will hurt women disproportionately, especially those aged between 56 and 58. I know that we hear about the financial constraints, but if the Government can find £3 billion for the completely unnecessary reorganisation of the national health service, which nobody wants—we have not heard any practitioners in the medical field say that those provisions are right—are they really saying that they cannot find a bit of money for women who have worked hard for so long in their lives? The proposal is measly penny-pinching. The Government are hurting the people who are already the poorest in our society and hitting them even harder. If money can be found for the wasteful reorganisation of the NHS, I am sure money can be found for the provision to be deleted.
I urge the Minister to reconsider this aspect of the Bill and think about those women, who have worked hard all their lives. He should think for once about ordinary working people who are looking forward to some kind of pension, although they will retire later than they thought they would, and he should give them time to prepare for their pensions.
Steve Webb
It is a pleasure to support Government amendments 13 and 14 and to ask the House to reject amendment 1.
I welcome the hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East (Gregg McClymont) to his new role. With due deference to the good people of Kilsyth and Kirkintilloch East, I hope he will forgive me if henceforth I refer to him as the hon. Member for Cumbernauld—I hope they will not take offence at that. As he knows, his predecessor, the hon. Member for Leeds West (Rachel Reeves), to whom he referred in his speech, enjoyed a meteoric rise by shadowing me for 18 months. I hope to do the same for his career.
Before I move on to the amendments, I want to place on record my appreciation of one of the Department’s officials, Evelyn Arnold, who has worked for the Department for 36 years. I know that the right hon. Member for East Ham (Stephen Timms) will have enjoyed working alongside her as well. She is stepping down from a legendary career. It is not often that we pay tribute on the record to the officials who make us sound far better informed than we otherwise would, so I would like to do that formally today.
We have heard £1 billion described today as “window dressing”, “a bit of money” and “penny pinching”. That summarises the difference between opposition and government. It reminds us how we came to find ourselves borrowing £150 billion a year when £11 billion, which is the cost of amendment 1, is regarded as small change and not worth worrying too much about. When pressed about where the £11 billion would come from, the Opposition said, in effect, “We’ll find it at some point,” but there was no specific answer.
It was revealing that the hon. Member for Edinburgh East (Sheila Gilmore) said, “We keep being asked this question.” They keep being asked the question because they keep making unfunded promises. My right hon. Friend the Chancellor pointed out that last week’s Opposition amendment cost £20 billion. Today’s would cost another £11 billion and, as the man once said, “Soon you’re talking about serious money.”
The Government amendments are, as the Chair of the Select Committee graciously said, a huge achievement, which is to say that at a time when the public finances are, if anything—because of the global economic situation—under even more pressure than they were at the time of Second Reading back in June, to identify £1 billion is an important sign of the Government’s commitment to fairness in pension reform.
Sheila Gilmore
The Minister wants to make a great deal, and some of his supporters made a great deal, of having extracted that sum from the Treasury, but is he not again mistaking the position? He starts talking about the fact that we are apparently in a very difficult situation, worse than a year ago, and then says, “And we’ve managed to find a billion,” but this is a long-term planning issue—it is not about what has happened in the past year.
Steve Webb
I notice that the hon. Lady dismisses the odd billion here or there again as of no great consequence. We have to make these decisions in the context of the real world. That is the difference between government and opposition. The hon. Member for East Lothian (Fiona O’Donnell), who spoke in the debate, said that it would take guts—that was the expression she used—to support an unfunded £11 billion promise, which the Opposition know they will never have to fund and would not implement if in government. That is a very odd definition of “guts”.
Susan Elan Jones (Clwyd South) (Lab)
Is the Minister suggesting that the coalition agreement, which is fundamentally different from what is proposed in the Bill, was not made in the real world? That is what some of us suspect, but is he confirming it?
Steve Webb
As the hon. Lady knows, the coalition agreement referred to the possibility of raising the state pension age for men from 2016 and for women from 2020. Obviously, what we have done since that coalition agreement was produced is sought expert legal advice. We were advised that delaying the equalisation between men and women would have been illegal under European law. That comes to the heart of one of the questions that has rightly been asked, which is, why do the changes affect women more than men? The reason is that they are two separate changes brought together.
The first is the more rapid equalisation, and the second is the equal treatment of men and women from 65 to 66. The equal treatment of men and women from 65 to 66, not surprisingly, affects men and women equally, so the thing that affects women more is equalisation. That is what the Pensions Act 1995 does. It leaves men’s pension age at 65 and equalises women’s pension age, raising it from 60 to 65. Lo and behold, that Bill affected only women, because equalising the pension age so that women get the pension at the same age as men rather than earlier affects women. Not surprisingly, a change that was happening in any case, which we have speeded up and which affects only women, added to a change that affects men and women equally, produces the expected result.
Hywel Williams
The Minister is making a reasonable case, as ever. I am rather more interested in his justification for the acceleration of the change. I hope that he will come to that shortly.
Steve Webb
Let me address that directly. What is striking as soon as one looks at the evidence on longevity is just how far behind the curve we are. When the male state pension age was set at 65, it was not so much a case of Lord Hutton writing reports on pensions as a case of Len Hutton striding out at the Oval. That was the era that we were talking about. In that almost 100 years, there have been incredible increases in life expectancy, yet the male state pension age will still be 65 for another seven years. That shows how far behind the curve we are.
The views of Lord Turner were cited by the hon. Member for Cumbernauld and by others, with some suggestion that we are breaching the Turner consensus. However, Lord Turner has breached the Turner consensus, if I may say so. He said in a news interview a couple of years ago, and the world has moved on even since then:
“If I was redoing my report I would be more radical, arguing for an even faster increase in the state pension age.”
That is exactly what we are doing, in line with the Turner consensus.
Dr Whiteford
Does the Minister accept that although longevity has increased, healthy working life has not kept pace with longevity, and that there is a serious issue, especially for the particular group of women under discussion, many of whom will not be in the best of health in their late 50s and early 60s? That is one of the reasons why shifting the goalposts twice for this group of women is having such a disproportionate impact.
Steve Webb
The issue of health is certainly important. Almost all the figures that have been quoted through the debate assume that the women whose pension age is being delayed will have no money. If, as the hon. Lady rightly says, they are unable to work because of ill health and the household has no other resources, they will get a significant amount of that money through employment and support allowance and other benefits.
Clearly, there are differences between individual groups and, as the hon. Lady and the hon. Member for Arfon (Hywel Williams) pointed out, between different parts of the country, but if we look at England, Wales and Scotland, for example, in terms of life expectancy at 65, in England for men since 1981 life expectancy has increased by seven years. In Wales for men it has increased by seven years, and in Scotland for men it has increased by seven years. For women, each of those figures is six years, respectively. So although there are differences, there have been substantial increases across the board.
Yes, there is big variation. I accept that point, but there have been increases across the board and we cannot say that because they have not happened for every individual in every part of the country and in every social group, we will do nothing. That is what got us into the present mess in the first place.
Kate Green
I note that the Minister acknowledges that for some women with no other source of income, instead of receiving their state pension they may for a time continue to receive out-of-work benefits. Can he address two points in relation to that? First, what do the Government estimate will be the cost of those women receiving such benefits for an extended period? Secondly, does he not understand that for women who are at that age and stage in their life, being expected to claim something called jobseeker’s allowance is a tremendous insult or a tremendous concern because they know that they are not genuinely jobseekers? The labour market does not want or need them.
Steve Webb
On the hon. Lady’s first point, we have of course taken account of the fact that there will be some women, and indeed some men, for whom the changes mean that instead of receiving a retirement pension, they receive jobseeker’s allowance, employment and support allowance or another benefit. To give her an order of magnitude on that, without making allowance for that, the Bill would have saved around £33 billion. Taking account of that, we estimate a saving of around £30 billion, so getting on for 10% of the savings is lost through paying other benefits. That is entirely right and proper. In a way, her observation is backward-looking rather than forward-looking. We are moving to a world in which the idea of early retirement and drawing a pension at 60 years old or below, as in some public service schemes, is simply from another era, and the idea that someone should seek work, particularly if they are able-bodied, into their 60s is going to become entirely normal. The idea that it is somehow offensive to say that someone should look for work in their 60s is an idea from a bygone era; it is not the world that we are moving to.
Malcolm Wicks
I am interested in the arithmetic that the Minister has just presented on how his savings have been adjusted, because some people will not be in work. Given that many people in the year or two before retirement are not in work, will he publish the detailed figures so that the House can scrutinise them?
Steve Webb
As a former Minister, the right hon. Gentleman will know that the figures were published with the Bill in May: they are from the impact assessment.
We have had a number of contributions, and in the short time available to me I shall refer to some of the points that have been made. As I have said, the hon. Member for Cumbernauld stated that his £11 billion should be spent and regarded it as a small sum, because he took the annual equivalent, divided that by the national debt and came up with a small fraction, as though somehow one can make £11 billion disappear. Well, the Labour party did make £11 billion disappear regularly, so he is keeping up that tradition, I suppose.
My hon. Friend the Member for Cardiff Central (Jenny Willott) asked where state pension reform fits into the measures before us, and I am pleased to tell her that we remain entirely committed to such reform, but one irony of all this is that the very group of women whom we are most concerned about, and whom we have heard most about in this debate, are probably the single group who will most benefit from our ideas on state pension reform.
In particular, many women who spent time bringing up children, before either home responsibilities protection came in or the state second pension introduced crediting, would benefit substantially from such reform. So, yes, their pension age will rise, but as our reforms take hold such women will benefit substantially, and my long-term commitment to pensions justice for women will be delivered. That is certainly my goal.
The right hon. Member for Croydon North (Malcolm Wicks) made the point that he has made before about differences in life expectancy and about people who leave school earlier, but his proposal for starting the national insurance clock running at different ages would create different anomalies. He says that somebody who leaves school and goes into a manual job could get their pension earlier, but someone who leaves school and goes to a desk job would also get their pension earlier, and people would then say, “Is that fair?” There are anomalies whichever way we do it.
The right hon. Gentleman did, however, raise the issue of people in the lowest socio-economic groups, but I remind him that over a 20-year period to 2002 men in the routine class, the lowest—as it were—socio-economic group, saw life expectancy at 65 years old increase by 2.5 years, and, given that the Bill increases the state pension age for men by only one year, the improvement in life expectancy for men, even in the group whom he is most concerned about, is running ahead of our proposed increase in the state pension age.
I repeat to the right hon. Gentleman that his points about the differences between groups are an argument for doing nothing. He supported the Pensions Act 2007, which will raise the state pension age to 68 years old, and we need to address health and occupational inequalities, rather than do nothing while we wait. That is the Opposition’s counsel—let us wait another decade—but the trouble is that we have already waited a century to move the state pensions ages, so how long is long enough?
My hon. Friend the Member for Gloucester (Richard Graham) quite properly raised the important issue of notifying people of any changes, so I shall share with the House our plans. I very much welcome the fact that, subject to the House approving the Bill tonight and their lordships approving it in due course, we will be able to write directly to those affected to tell them exactly how they stand, thereby ending a period of uncertainty.
We will write to those women born between April and December 1953, just over 250,000 of them, early in the new year; to those born between December 1953 and April 1954, another 250,000 people, in February; and to another 250,000, born between April 1954 and April 1955, in March. The last group covers all women who would have been affected by the original equalisation timetable.
Fiona O’Donnell
Will the Minister also advise those women of their right to employment and support allowance? Will he confirm that, if they claim ESA, are turned down, wait seven months—as some have in my constituency—for an appeal, and that period crosses over their entitlement date to the state pension, their appeal will still be heard and any benefits backdated?
Steve Webb
Perhaps the hon. Lady does not understand what I am saying. I am talking about people who will reach state pension age in seven or eight years’ time, so I am not sure that writing a letter, stating, “In the event you are on a certain benefit in seven or eight years’ time, and the delay in tribunals in such and such,” is germane to my point.
The Chair of the Work and Pensions Committee, the hon. Member for Aberdeen South (Dame Anne Begg), in a characteristically balanced contribution—[Interruption]—I spotted the balance even if nobody else did. She described the changes we are making today as a huge achievement, then said, “Well why don’t we go the whole hog,” but there are 11.1 billion reasons why we are not going to go the whole hog, and I am sure she understands that point.
The hon. Member for Edinburgh East said, “Well, I wouldn’t start from here”—and so say all of us. I do not think that any one of us would have chosen to inherit an annual deficit of £150 billion that had to be cleared up—[Interruption.] Members say from a sedentary position, “This isn’t about the deficit,” but a sequence of deficits creates a debt, which will be £1.4 trillion at the end of this Parliament, and that is both a capital sum and the interest that our children and grandchildren will have to pay, so we should take responsibility for it and tackle it.
The hon. Member for Stretford and Urmston (Kate Green) said that the Work programme does not do anything for older women, but its beauty is that providers do not get paid unless they tailor what they do to the individual in front of them. For example, we find that the biggest barrier for many potential older workers is IT skills; they are entirely job-ready but not necessarily up to speed with technology. So, if that is the barrier, the Work programme provider does not need to come to my right hon. Friend the Secretary of State for approval, as in the old days, asking whether it is on a departmental checklist; they just get on with it, help the person obtain the skills and are rewarded only if they get that individual a job.
Kate Green
I understand how the Work programme proposes to reward providers, but does the Minister not accept that older women are particularly disadvantaged when seeking to access the labour market? Can he tell us, therefore, whether there will be an incentive payment to such providers in dealing with those older women?
Steve Webb
The incentive is clear: the providers do not get any money at all unless they help someone into work.
The hon. Member for Llanelli (Nia Griffith) mentioned grandparents: women in the age group under discussion who by taking care of grandchildren enable their sons and daughters to work. That is an important point, and that is why I was pleased to carry through in office proposals that had previously been brought forward on national insurance credits for grandparents—when their daughters are not using them—to ensure that their state pension rights do not suffer.
The hon. Member for Edinburgh East asked why we did not do all that earlier and referred to Second Reading, but I remind her that in that debate my right hon. Friend the Secretary of State said that the basic principle of the Bill is right—that we move to equality sooner and to aged 66 in 2020. We have been entirely consistent with what he said, but he also said that we need to make sure that the transition is fair and that those most adversely affected are helped. That is exactly what we deliver on today with the amendments.
We have identified, notwithstanding the difficult fiscal position, £1.1 billion to ensure that half a million people face a shorter increase in their pension age, and that a quarter of a million women who could have faced up to 24 months will now face a maximum of 18 months. It is worth keeping in context the fact that nine out of 10 people affected by the Bill will see an increase of one year or less in their state pension age.
The hon. Member for Bolton South East (Yasmin Qureshi), who spoke last, said, “Well, it’s only a bit of money,” and, “It’s penny pinching,” and all I can say is that many people think that £1.1 billion is a lot of money. I know that it is a naïve observation, but I am in that category as well.
It was important to allocate to this issue a large amount of time for debate today, but we have simply had a repeat of what we heard in Committee: “Find £10 billion or £11 billion—it’ll come from somewhere, it’s not really a lot of money.” From the Government, however, we have seen a serious balance struck between introducing the fiscal responsibility that was all too often lacking under the previous Government and listening and responding to the needs of those most affected by the Bill—and I commend our amendments to the House.
Gregg McClymont
This been a very important debate. I thank the Minister for his reply, but he has not satisfactorily answered the question repeatedly asked by Labour Members, which is fairly straightforward. Why are these 500,000 women paying a disproportionate price? Why are they having disproportionately to carry the burden?
Our amendments, if accepted, would mean that not one of the half a million women affected by this Bill would have to wait more than an extra year for their state pension, and, importantly, that they would have at least nine years’ notice of the rise in their state pension age. At the same time, the state pension age of 66 for men and women would be brought forward to 2022. That would be a fair package, and it would keep the Government to the promise made in the coalition agreement. I should like to withdraw amendment 1 and test the will of the House on amendment 3.
Amendment, by leave withdrawn.
Amendment proposed: 3, page 1, line 8, leave out subsection (4).—(Gregg McClymont.)
Question put, That the amendment be made.
Mr Deputy Speaker (Mr Lindsay Hoyle)
With this it will be convenient to discuss the following:
New clause 1—Obligation to inform scheme members about provider and product options—
‘Providers of Qualifying Schemes under section 16 of the Pensions Act 2008 (c.30) must, when informing members of their own range of annuity and similar products, explain clearly that alternative and more suitable options from other providers may be available.’.
New clause 9—Duty to establish a review into transfers into the National Employment Savings Trust (NEST)—
‘Within two years of the passing of this Act the Secretary of State shall establish a review into allowing transfers into the National Employment Savings Trust (NEST).’.
New clause 10—Duty to review any order on contribution limits in the National Employment Savings Trust—
‘In section 70 of the 2008 Act (Contribution Limits) at the end of subsection (1) insert—
‘(1A) Any order under this section shall be reviewed by the Secretary of State within two years of the Pension Scheme being opened to members.’.
Amendment 18, in clause 6, page 6, line 37, leave out ‘three’ and insert ‘one’.
Amendment 19, in clause 8, page 8, line 1, at beginning insert ‘Subject to subsection (2A),’.
Amendment 20, page 8, line 4, at end insert—
‘(2A) An order made under subsection (2) must not increase the amount in section 3(1)(c) by more than—
(a) the general level of earning; or
(b) in percentage terms by more than the percentage increase in the Lower Earnings Limit for national insurance purposes.’.
Government amendments 15 and 16.
Steve Webb
This is a broad group of proposals relating to private pensions. I shall speak in support of Government new clause 2 and Government amendments 15 and 16. As we have a relatively short time to discuss these issues I will also deal with the other amendments in the group, and do not anticipate making a further contribution to the debate.
Government new clause 2 deals with charges. Obviously, charges are important, as I am sure the whole House will agree, because money that goes on charges does not turn into pensions. The Government are therefore keen to ensure that charges are at a reasonable level and are transparent. For example, following on from the policies of the previous Government, we have gone ahead with the introduction of the National Employment Savings Trust, which will be a low-cost provider designed to ensure that charges across the market are brought down. There is evidence that new entrants to the market and existing providers are already looking at charges significantly lower than many people have experienced on their pensions in the past.
In Committee, concerns were raised about whether the Government should be capping charges. As the right hon. Member for East Ham (Stephen Timms), who is responding for the Opposition, is well aware, the Government do have powers to cap certain pension scheme charges. In considering this issue, we became aware of the anomaly that we do not have that power in relation to people who are no longer active members of pension schemes but who are deferred members, and in particular deferred members of qualifying schemes for auto-enrolment. If we want to cap charges—I will come back to that issue in a second—we do not currently have the power in primary legislation to cap them for deferred members of qualifying schemes for auto-enrolment. The purpose of Government new clause 2 is to give us that power, so that if we want to impose charge caps, we can do so systematically and without unintended omissions.
Our thinking on charge caps is that in general, we do not believe there will be a problem with charges. Particularly in the early years of auto-enrolment, it will be the very largest firms that come into the system. They will have the resources and time to shop around, they will be able to strike good deals, and they will have the National Employment Savings Trust available to them. We expect that for big and medium-sized firms, relatively low charges will be the norm.
Kevin Brennan (Cardiff West) (Lab)
Why have the Government decided to raise the level at which auto-enrolment will come in? By their own figures, that will affect about 600,000 people, mainly women.
Steve Webb
I will come on to that, because Opposition amendments 19 and 20 relate to it. As I said in my introduction, I shall deal with all the amendments in this group, so if the hon. Gentleman will forgive me I will explain our thinking on that matter later.
Glenda Jackson (Hampstead and Kilburn) (Lab)
The Minister has referred to the transparency of the current charges in the pensions industry, yet in his evidence to the Work and Pensions Committee, the gentleman who advised the Government on the matter—I regret that I have forgotten his name—made the point, which I am sure everybody in the House would endorse, that existing pensions provision is extremely cloudy. It is extremely difficult to know what the charges are, because the wording is imponderable in many instances. Why is the Minister so sanguine about what will happen in future? It certainly has not happened in the past, and it certainly is not happening now.
Steve Webb
There are two significant differences between past and future provision. First, we have established NEST, which did not exist before. It has been set up as a low-cost provider, so we have guaranteed that there is such a provider out there, particularly for small firms, which are the least likely to shop around. Secondly, there is a saying that pensions are not bought, they are sold. In other words, individuals tend not to go out and look for a pension but instead have one sold to them. In a world of auto-enrolment, the opposite is the case. Employers have a legal duty to select a provider, and that makes providers’ costs much lower. Rather than having to bear the huge costs of individual salespeople going out and selling to individual policyholders, employers will instead seek out providers. The costs of the whole process will be much lower, so that will be a significant step in the right direction.
Steve Webb
I will not, if the hon. Lady will forgive me, because I am going to try to cover about six topics in not very much time, so as to give everyone else a chance to respond.
Government new clause 2 has been tabled in response to our discussions in Committee, and will give the Government a power that I think previous Governments either thought they had or would have wanted to have. It is the power to cap charges for deferred members of qualifying auto-enrolment schemes. I think that is probably a relatively uncontentious power. Were we to bring it into force, that would clearly be the subject of separate debates and discussion in the House, but I hope the House will be happy that the Government should have that power.
Government amendments 15 and 16 are technical amendments to clause 14, dealing with what would otherwise have been a problem in section 30 of the Pensions Act 2008. Although that section currently allows employers to use a defined benefit, hybrid or money purchase scheme as an alternative scheme, it does not allow them to use a workplace personal pension scheme. Clause 14 corrects that omission, but there is a risk that an individual might be automatically enrolled into a personal pension scheme, and then required to pay contributions immediately for up to four previous years. The amendments protect individuals from that scenario. They correct what we believe to be an error in previous legislation. I hope that the House will find my explanation helpful, although I can go into far greater detail if threatened.
I welcome new clause 1, tabled by my hon. Friend the Member for West Worcestershire (Harriett Baldwin), who serves on the Work and Pensions Committee. I believe that, in a rather intimidating fashion, it has been signed by pretty much all the Committee’s members, so I think I have to give it a fair wind. It is about what is known in jargon as the “open market option”—in other words, the fact that people often forget that when they save for a pension, they are doing two things. First, they are building up a pot of money—the accumulation stage—and then they are turning it into a pension, which is the “decumulation” stage. Those are two entirely separate processes.
All too often, someone can save with provider A—I will not use the name of a company—and think that they have to take their pension from provider A, which they do not. Broadly speaking, as a rule of thumb, it is estimated that the market can be divided into thirds. Roughly a third of people shop around and go somewhere else, a third of people shop around and stay with their original provider, and a third of people do not shop around at all. There is clearly a danger that at the crucial point when somebody sets their income for the rest of their life, they may not be getting the best value. The open market option reminds people that they can shop around, and indeed prompts them to do so. However, as I have just indicated, take-up of that option is not as high as we would wish, or as I believe the insurance industry would increasingly wish, so we need to do more.
I take new clause 1 as a probing amendment, and it is important in getting the issue on the table. As drafted, it would have one or two problems. It would bring some schemes within its scope that should not be, such as final salary schemes. Those are qualifying schemes for auto-enrolment, but we do not want to give final salary scheme providers a duty to tell people about their right to buy an annuity. That would not be appropriate. The new clause also duplicates some existing duties. For example, the Occupational Pension Schemes (Disclosure of Information) Regulations 1996, as I am sure my hon. Friend is well aware, state that when members have the opportunity to select an annuity, they must be informed of their right to buy one on the open market. They must also be advised that there are different types of annuities available, which may have different features and different payment rates. There are also 1987 regulations that relate to contract-based business. So there are rules about the open market option, but I think we would all agree that they are not working as well as they should. I am sure that is the point of my hon. Friend’s new clause.
The Government welcome the opportunity to discuss the open market option. We believe that it is critical for consumers to think about the shape of annuity that is most appropriate to their circumstances and compare rates across providers. There are comparison websites available, which is a helpful development, but people have to know about them to look at them. They have to consider the option in order to know what questions to ask.
I am pleased to say that, in an example of joined-up government, we are working closely with our colleagues at the Treasury on the matter. I regularly meet my hon. Friend the Financial Secretary, who leads on it, to discuss the open market option, and we have a joint working group examining that very issue. My hon. Friend the Member for West Worcestershire will be pleased to know that earlier this year, we asked that working group to consider what is called a default open market option arrangement—in other words, whether we could make shopping around the default, so that people would have to make an active choice to stay with their current provider. There are practical issues to consider, such as what would happen to someone who failed to shop around, whether there should be a point at which their own provider paid them a pension, and what information people should have. However, the principle is attractive, and certainly my hon. Friend the Financial Secretary is keen to go as far as we can.
Progress has already been made. One might say that a working group is often the last refuge of a scoundrel—not the Financial Secretary, I should add; I meant myself. However, this is a working group with teeth. To give one example, the Association of British Insurers, which has engaged actively with us on the matter, has already said that its members will cease sending out to people, with the letter saying that they can get an annuity, the application form from their own provider. They will stop saying, “You can shop around, but here in the same envelope is a form to get an annuity from us.” Instead, a person will actively have to say, “I want my annuity from you; give me a form.” That is a small step in the right direction, but I believe we need to go further.
I will be pleased to hear the arguments and concerns of my hon. Friend the Member for West Worcestershire, but we are certainly seized of the importance of this issue. We do not believe the new clause is quite the way to deliver what is needed, but the Government very much welcome it, and the spirit of what she is trying to achieve.
Glenda Jackson
I am extremely grateful that the Minister welcomes new clause 1, but with all due respect, he spoke earlier of pensions being not bought, but sold. He is now talking about the buyer being in the driving seat, but as we know full well, and as we see in the papers every day in relation to energy prices, people do not seem to have the capacity to shop around in their best interests. I do not think that the Government have had a great deal of success in encouraging companies to make the situation better. Will he learn from those mistakes, and will there be a better method?
Steve Webb
As I think I said a moment ago, we have asked the working group to look at making shopping around—[Interruption.] Before the hon. Lady heckles me, she might like to listen.
Steve Webb
The working group will look at making shopping around the default situation. Somebody who does not actively choose to stay with their current provider will shop around by default. That is the difference between pensions and energy suppliers. Whereas people are stuck with their energy suppliers unless they choose to shop around, people will not get a pension unless they shop around. That is a pretty good incentive to shop around.
Steve Webb
I hope that the hon. Lady will forgive me if I do not; I have given way to her twice already.
New clauses 9 and 10 relate to the role of NEST, which I mentioned a moment ago. New clause 9 suggests that in a couple of years’ time we should review transfers into NEST, and new clause 10 suggests that we review contribution limits at the same time. It is worth reminding the House why NEST was constrained when it was established. There was a recognition that there is a market for big firms and higher earners—pension providers are willing to provide at a reasonable cost and to go to such firms. However, for small firms and lower-paid workers, there was a market failure. NEST was designed to fill that gap in the market.
First, the Government created a legal duty for firms to enrol people, so we ensured that there was something to enrol people in. That is what NEST is for. Secondly, we could have created NEST and imposed no constraints, and it could have been just another provider, but because we constrained NEST to consider lower-paid workers and smaller firms, it has innovated in an impressive manner. The previous Government envisaged such constraints. The Work and Pensions Committee has visited NEST and was positive about what it found. Forcing NEST to focus on lower-paid workers, smaller firms, and people who do not speak “pensions” or who are uninterested in them, has created impressive product, investment strategy and technological innovation, which is entirely welcome. Creating NEST with constraints was the right thing to do, and it has been beneficial.
Dame Anne Begg
If NEST is to work, people must have confidence in the products that are going to be delivered. However, there is a danger that other providers muddy the waters of what is on offer. For instance, a Federation of Small Businesses booklet says that it will offer a comparable pension provider with which firms can auto-enrol their workers. The charge is 0.75% to FSB members and 1% to non-members, but they are not comparable prices. What can the Minister do to ensure that such misinformation does not divert people away from NEST?
Steve Webb
I am grateful to the Chair of the Work and Pensions Committee for drawing my attention to that document, and I am keen to see a copy. Pensions selling is, broadly speaking, regulated by the Financial Services Authority. Claims about pensions need to be accurate. NEST charges are the equivalent—on an average pension—of around 0.5%, as the hon. Lady knows. The suggestion is that a charge of 0.75% or 1% is “comparable”. We can compare anything with anything, but the comparison is not always favourable. She raises an important point, and the pensions regulator and the FSA will seek to ensure that people are given accurate information about pensions.
The right hon. Member for East Ham (Stephen Timms), who speaks for the Opposition, will be well aware that the Government already have a duty to review NEST after the five-year roll-out of auto-enrolment. New clauses 9 and 10 would not repeal the other duty, so they would mean a review in two years and another one three years after that. The earlier review would be premature and unhelpful in the middle of the roll-out. One might want to tweak 1,001 things, but a review in the middle of roll-out would create uncertainty when the next tranche of firms is choosing which provider to go for. Will NEST have its limit lifted? Will the transfer ban go? Those questions would mean yet more turmoil. An element of certainty in the auto-enrolment process, which has been iterated quite a lot, would be welcome.
The right hon. Gentleman will know that the Government had our own review—“Making automatic enrolment work”—last summer. It said that in the end, in 2017, the restrictions should go. I am entirely sympathetic to that proposition, but deciding that today, or reviewing the situation in the middle of the roll-out, is not the best way forward.
Stephen Timms (East Ham) (Lab)
May I ask the Minister a wider question on auto-enrolment? As he will know because it has been widely reported in the past few days, a report from Mr Adrian Beecroft recommends that the Government postpone the implementation of auto-enrolment altogether. Has the Minister seen that report? If so, what is his response to it?
Steve Webb
The right hon. Gentleman is right that a draft report has been produced and reported in the press, but I can assure him that—as we once famously pointed out—2012 will definitely happen next year. In other words, we do not believe that this important programme should be delayed. Interestingly, the CBI does not believe in a delay, either. It recognises that the biggest firms, which will come in next year, are already planning. In many cases they have already chosen their providers. They are getting on with it, and the last thing we need is new uncertainty about the start of auto-enrolment. We will, therefore, be pressing ahead.
Waiting periods are clearly a trade-off, but today more than ever, we need to realise the impact of what we are doing on smaller firms and businesses more generally.
Mrs Jenny Chapman (Darlington) (Lab)
I understand the Minister’s point and the benefits to a payroll department in a small firm, but does he accept that people who change jobs frequently throughout their careers could be disadvantaged? If people change jobs 11 times, they could end up losing about three years’ worth of benefits.
Steve Webb
The hon. Lady raises an important issue. That is one of the arguments against a six-month waiting period, but those things are a matter of judgment. She used an interesting phrase when she mentioned the payroll departments of small firms, but of course a typical small firm does not have a payroll department, and will struggle with those provisions. We are trying to ensure that the scheme has flexibility, so that we take small firms with us rather than have them resenting the scheme. The waiting period is important in that respect.
Finally, on amendments 19 and 20 and the earnings trigger, which the hon. Member for Cardiff West (Kevin Brennan) mentioned, the Bill originally proposed that we auto-enrol at around about the national insurance floor, which is a bit more than £5,000, uprated in today’s prices. There were two problems with that. First, there was no de minimis provision, so employers would have auto-enrolled people for pennies a week. If the floor were £5,000 and a person earned £100 a week—£5,200 a year—they would be enrolled on the £200 above the £5,000. Under the legislation that we inherited, the contribution at the start would be 1%—£2 a year, or 4p a week. There might have been the odd adverse newspaper story had we required small firms to enrol people for 4p a week, so we took the view that we had to put the threshold up.
The obvious threshold to use—common thresholds are attractive to employers—is the PAYE threshold. Although we will look at the prevailing situation and make a judgment each year, the broad idea behind aligning with the PAYE threshold is that if businesses have to run PAYE for somebody, auto-enrolment will be a reasonable duty. Below that level, it is inappropriate.
Kevin Brennan
Further to that point, if the Government raise the PAYE threshold, as they have previously announced, will auto-enrolment be triggered at that higher threshold? Would not that deny millions of people—those who would benefit the most—the benefits of auto-enrolment?
Steve Webb
As we have made clear, people still have the right to opt in to auto-enrolment, but obviously the bulk duty will be at the tax threshold. There is a trade-off: we can have a low threshold, but that results in people being brought in for what are technically known as piddling amounts of money, for which the costs are disproportionate. The tax threshold appears to us to be broadly the right level, but as the hon. Gentleman will be aware, we have discretion in the Bill to look each year at the labour market and at what has happened to earnings and prices, and to make a judgment. That is the broad direction of travel, as recommended to us—
Dame Anne Begg
The concern that some of us have is not that the tax threshold will go up to £10,000—although that is the avowed intention of the Government—but that the gap between £7,400 and £10,000 is about £2,500. That group of workers earning under £10,000 might be ruled out of auto-enrolment, when they are the very people who should be auto-enrolled. The situation would be different if the threshold were going up by the rate of inflation, but can the Minister give some assurance that if there is such a leap, he will reconsider the threshold?
Steve Webb
It will clearly vary from individual to individual, but for many people, earning £8,000 or £9,000 is a transitory phase in their labour market experience, and they will move on to earn more than the tax threshold and so come within the scope of the provision. So even if the threshold is not raised, it will not make a lot of difference if someone is not in the scheme for that year. For some people, they or their household will already have pension rights accrued and it might even be right for them to opt out. People will have the chance to opt in to pension provision if it is particularly important for them, and it is right that they should. I accept that there are issues for that group, but for any line drawn one can ask, “What about the people just below?” If we enrol people for trivial amounts of money, we will undermine the whole credibility of the scheme.
We have now had a whistle-stop tour through half a dozen private pensions issues, and I look forward to hearing hon. Members’ comments. I commend new clause 2 to the House.
Steve Webb
This is obviously a balancing act, but one reason for going beyond one month is seasonal workers. Given that the summer lasts longer than four weeks—perhaps not in Britain, but in general—the right hon. Gentleman’s proposals would bring fruit pickers into auto-enrolment. Does that not bother him?
Stephen Timms
No, it does not bother me. The people in that kind of employment might well fall into the category that the Minister mentioned earlier—people who progress later in their working lives, and the earlier that they start their pension saving the better. If they are in a job for more than one month, I would welcome giving them the ability to start saving for their retirement.