State Pension Reform

Steve Webb Excerpts

Monday 14th January 2013 Commons Chamber

[The Minister of State, Department for Work and Pensions (Steve Webb)]

With permission, Mr Speaker, I would like to make a statement on state pension reform. I am pleased to announce that, as part of the coalition Government’s mid-term review, we shall be pressing ahead with our plans for a single, simple state pension, reassuring people that it pays to save, and making it easier for them to take responsibility for their own retirement planning.

Before I set out our plans for the future, I want to say a few words about the pensioners of today, who are and will always remain a priority for this Government. Within months of coming to power, we restored the earnings link with the basic state pension—something for which campaigners had been calling for 30 years. As a result, from April this year the basic state pension will reach its highest level as a percentage of average earnings for two decades. I should add that, on a freezing day such as this, the House will also welcome the fact that we have reversed the planned cuts in the cold weather payments, which are of so much value to poorer pensioners.

Last month was the 70th anniversary of the Beveridge report. The original idea from Beveridge was for a single, simple, decent state pension, paid at the end of a lifetime of national insurance contributions. We have drifted a very long way from that blueprint.

We now have two state pensions, entitlement to which arises under different terms, uprated according to different rules, with complex arrangements for people who are divorced or who become widowed. There are also special arrangements for married women that relate to a time when the prevailing wisdom was that men needed a pension and women needed a husband.

The state earnings-related pension scheme—often referred to as SERPS—is extraordinarily complex, with variable amounts paid out in retirement that no one is properly able to predict. This position is made even more complex by a system known as contracting out, whereby people in workplace pensions are able to opt out of the state second system.

The complexity in the current system means that, when it comes to telling people what they might get from the state, the Government have to write letters that include paragraphs such as this:

“At some time you chose to ‘contract out’ of the additional state pension by paying into an Occupational or Personal Pension. Because of this we make a contracted-out deduction (COD) from the maximum amount of additional state pension that we would otherwise pay you. We make changes every year to the additional state pension and the COD, but this may be at different rates. This means that your additional state pension could be different from the amount we have estimated and could actually be”

zero. This is nonsense.

Millions of people do not receive enough to live on from the two state pensions combined, so they rely on a third system of mass means-testing known as the pension credit. Those with small amounts of their own savings can find themselves little better off than others with no savings at all, and thousands more fail to claim the money they would otherwise be entitled to, some because they find it demeaning to do so. We can and must do better.

In 2011 we published our Green Paper, “A state pension for the 21st century”, and had more than 100 organisations and 1,600 individuals respond. There was a consensus that the state pension system needs to be simplified and strong support for the option of a single tier.

Today, the Government are publishing their plans so that the workers of today retire on a single, simple, decent pension, very much in line with the Beveridge model, but updated to fit with the modern age. This is a new pension system that reflects the fact that people are living longer and will be drawing their state pension at a later point in their lives, and that working patterns and family life have changed, with women much more likely to be working and becoming entitled through their own national insurance contributions. Working lives are more fragmented and people need to take more personal responsibility when it comes to planning and saving for their retirement.

Under our plans, someone who starts work under the new single-tier rules would become entitled to just one state pension set above the level of the basic means test. The full rate will be payable for 35 qualifying years of national insurance contributions. This reflects the fact that we are combining two pensions: a basic pension payable for 30 years and a state second pension based on national insurance contributions over a working life of up to 50 years.

Consistent with the current system, there will be credits for those who cannot pay national insurance because of caring responsibilities. Importantly, the new rules will be of particular benefit to many older women who have impaired pension records because they took time out to raise children during the 1980s and 1990s.

Every individual will qualify for a pension in their own right, with no complex rules about claiming pensions based on the NI record of a spouse. As the new single-tier pension will be set above the basic level of the means test, people who do the right thing by putting money aside during their working life will be far less likely to see it clawed back in retirement through the means-tested benefits system. This is particularly important in a world where millions of private sector workers are being automatically enrolled into workplace pensions, including many on lower incomes who will be saving for the first time.

The new system will be introduced in 2017 at the earliest. We need to let business know now that this is coming, but it needs time to adjust. When the new system is introduced, people will no longer become entitled to the state second pension, and so the whole complex system of contracting out will be abolished. Of course, national insurance contributions paid and that would, under the current system, have led to entitlement to a second state pension will be recognised. For example, when we introduce single tier, someone who retires in 2018 who has £160 in the current system will still get a pension of £160. Those workers who were previously contracted out will start to pay full national insurance contributions, like all other workers, but in return they will become entitled, potentially, to a pension at the single-tier level, rather than the much lower basic state pension today. For the vast majority of those people, the higher national insurance contributions that they pay will be more than offset by the higher state pension they receive.

The overall cost of the new system will be the same as that of the one it replaces. This is not a pensions giveaway for the next generation. A higher flat pension is affordable only because, in the long term, people will not become entitled to very large earnings-related pensions through the state system. In a world where everyone will be automatically enrolled into a workplace pension with a contribution from their employer, it no longer makes sense for the state to run its own separate earnings-related pension scheme. Higher earners are among those being automatically enrolled, with substantial employer contributions, so those who earn the most while they are working will continue to be the best off in retirement.

Later this week, we shall publish a draft Bill that will put our plans into law. I wrote to the Chair of the Work and Pensions Committee earlier today, asking whether her Committee will carry out pre-legislative scrutiny of our plans. I hope to receive a positive response to that request.

The White Paper also contains details of our plans for a more structured framework within which to consider future changes to the state pension age. However, I can confirm that there will be no further changes announced during the life of this Parliament. The plan is to review state pension age once every five years, starting in the next Parliament, based around the principle of maintaining a given proportion of adult life in receipt of state pension, as suggested by the Turner commission. Each review will be informed by analysis from the Government Actuary’s Department, with an independently led body reporting on wider factors that should be taken into account.

Our analysis shows that more than 10 million people who are at work today are not saving enough to generate the sort of income that they want to receive in retirement. The combination of a single, simple, decent state pension and the right to a workplace pension with a statutory minimum contribution from the employer will mean that, for the first time, there will be a firm foundation for retirement for the work force of today. I commend this statement to the House.

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

I thank the Minister for advance sight of the statement, although it was not as advanced as that of some newspapers over the weekend. However, he did have the decency to brief me as our paths crossed in a TV studio this morning.

Today was not supposed to be about pensions at all but about the unveiling of the Government’s flagship child care proposals, which took centre stage at the coalition relaunch last week. Unfortunately, the latest bout of coalition unity did not last even a week. The Government cannot agree on child care, but the Prime Minister was desperate to have something to talk about this morning other than Europe, so—voila—we have the pensions White Paper.

In all seriousness and in respect of the Minister’s commitment to this proposal, we will take the White Paper very seriously. However, I sound a cautionary note. The Government have form on pensions. We remember when the Government laid the 2011 Pensions Bill before the House. The Minister told the House that it was fair to all, but neglected to mention a huge unfairness. I talk, of course, of the targeting of women in their later-50s, who found that the goalposts for their retirement had been moved again at short notice. It took Labour’s digging to reveal that injustice and a Labour campaign to win Government concessions. There is therefore every reason to look closely at the detail.

The principle of a simplified state pension was laid down by the Turner commission and was supported by all parties. The Leader of the Opposition has reiterated our support for that principle. However, it is fair to note that Turner rejected an abrupt shift to a single-tier state pension, which is why the previous Labour Government adopted an evolutionary approach.

Even on my speed-reading of today’s White Paper, there will be heavy losers, steep cliff edges and significant costs if the proposal goes ahead as planned. For example, the briefing from the Government over the weekend was at pains to emphasise the women-friendly aspects of the measures. However, I want to ask the Minister directly about the 429,000 women born between 6 April 1952 and 6 July 1953. Is it the case that those 429,000 women will not qualify for the single-tier state pension, and yet men who were born between the same dates will?

Let me dig a little deeper. The Minister referred to existing pensioners. Is it the case that this proposal excludes all existing pensioners and all those who intend to retire before 2017? If so, what is his message to the 15 million or 16 million people, by my calculation, who will not be eligible for the new pension? How many pensioners does he estimate will remain on £107 a week rather than £144?

May I ask the Minister about the 1.4% national insurance tax rise on 6 million workers? As I understand it, the money raised by that tax hike will not be reinvested in the new state pension but will flow straight into Treasury coffers. If that is indeed the case, how much money will that tax grab raise, and why is the money not being reinvested in the new state pension?

More narrowly, will the de minimis 10 years of contributions be part of the process by which public sector workers and private sector defined-benefit contracted out workers will participate in the new pension? Specifically, will they need at least 10 years of contributions to the new state pension to get any pension whatever?

[Steve Webb]

indicated dissent.

[Gregg McClymont]

The Minister shakes his head, which is important. I would appreciate it if he referred to the matter in his response.

We also seek clarification on what the abolition of the state second pension means for savers. Will the state second pension part of people’s accrued rights be uprated by CPI, not under the triple lock that will apply to the single state pension? That is an important question. Furthermore, how many savers currently pay into the state second pension, and how many of them will receive a lower state pension than they would have done without this reform? In other words, how many losers will there be among those who currently save in the state second pension?

The Government claim to have learned from the 2011 Pensions Bill. They say, and have briefed widely over the weekend and this morning, that the big winners in the new system will be stay-at-home mums. Some context is needed here. The Labour Government put female pensioners at the heart of their pensions policy. Most importantly, they massively reduced the number of years of contributions that both men and women needed to get a full state pension. It was reduced enormously to 30 years from 44 for men and 39 for women. The Government propose to put it back up to 35 years. What will be the impact of that five-year rise in contributions? Specifically, will it reduce the number of pensioners eligible for a full state pension, on Department for Work and Pensions estimates? That is an important question.

May I ask the Minister about the rising state pension age, which he mentioned towards the end of his statement? The Government seem to propose a new mechanism for increasing the state pension age. I have two questions about that. First, the difference in life expectancy between a manual worker and someone doing a non-manual job will play itself out both in the amounts saved in the new state pension and in the fact that non-manual workers will get it, on average, for much longer than manual workers. How will the system be made fair, given the difference in life expectancy, with a rising state pension age?

The second question is related to that. What if manual workers in particular cannot work for as long as any new mechanism sets out that they should when the state pension age is raised? If they cannot do hard, physical labour, how will that affect the Government’s claim that there will be a massive reduction in means-testing in the new system?

Those are only some of the questions that face us as we consider the detail of the White Paper. I suspect that the argument will not disappear overnight, because there is much detail to be considered. I hope that the Minister will give us some provisional answers on important matters that are affecting our constituents and his own.

[Steve Webb]

I thank the hon. Gentleman for what I would characterise as his broadly constructive response to my remarks. I welcomed his comment on the television this morning that

“the Labour party supports the principle of a flat-rate state pension”.

I welcome that because pensions are for the long term, and with two coalition parties united in support for this reform and support in principle from the official Opposition, we have a chance of stability in pensions policy, which would be good for all.

The hon. Gentleman says that the Government have form on pensions, and that is a fair cop: we restored the earnings link after 30 years, we ruled out 75p increases, and last year we introduced the biggest ever cash rise in pensions. He asked about women in their late 50s, many of whom are the very women who were penalised for time spent at home with their children. Although they got some protection on the basic pension, they did not get it on SERPS and the state second pension. The Government are putting that right for the very group of women about whom he asks.

The hon. Gentleman asked about women born in certain months, and the equivalent men. The changes are based on state pension age, and as he knows, that is different for men and women so the implications are also different. The April 2017 change is based on when people’s state pension age falls. He asked about people who “retire” but that is not really the right word—it is all to do with someone’s state pension age and whether it is before or after the change.

The hon. Gentleman asked how many pensioners are on £107. To be clear, someone who has worked in the public sector throughout their life—a teacher, for instance—would be on £107 because they contracted out of the other bit. In our system, from day one they would also be on £107 because we will take account of past periods of contracting out. Future service in the public sector at the full NI rate will add years to that £107. It is not a cliff edge; the exact day before or day after for those people is the same, but they can then work off that contracted-out deduction.

The hon. Gentleman asked about the national insurance rebate and—interestingly—suggested that we spend it on pensions. That is obviously a matter for a future Chancellor, but given that the public sector, the NHS and schools will pay significantly more national insurance, it would be interesting to know whether the hon. Gentleman’s position is that that money should go from the NHS and schools into higher state pensions. He asked about the 10-year de minimis. Let us be clear that we are not saying 10 years in the new system—the requirement is 10 qualifying years in someone’s lifetime. That is because there are backpackers who do a couple of years of bar work and 40 years later we are paying them a state pension for another 20 years. The sorts of people who would be excluded are those who come for a few years, do not really have any skin in the game and pay just a few years of national insurance. They will not get a pension—that is how we save money to spend on pensions.

On state second pension uprating, as I mentioned in my statement, for someone on £160, the first £144—at least earnings—will be triple locked in our White Paper and the balance will be linked to the CPI as SERPS is currently. The hon. Gentleman asked about people who pay into the state second pension, and except for about 5 million public sector workers and a couple of million private sector workers, everybody else pays into the state second pension. He said they were all losers—obviously they will not accrue S2P, but they will accrue a bigger flat-rate state pension.

The hon. Gentleman mentioned the April 2010 changes to qualifying years which he described as an “enormous” reduction. That is, therefore, also an enormous cliff edge of the sort he accuses the Government of making, and there were virtually no transitional arrangements for that. Someone who retired a day before that enormous cliff edge got nothing, whereas someone who retired the day after got the benefit of 30 years’ contribution. There are precedents for such things. When the contribution years were set to 30, women’s state pension age was still 60. In our world, and in the future, it will be 65, 66 or 67, and it is hard to see why in a working life of 50-odd years someone should get a pension for 30 years of contributions. We are merging a pension with a 30-year rule with another pension with a 50-year rule, and we have 35 as a sort of weighted average.

Finally, the hon. Gentleman asked about differences in life expectancy. I gently point out, however, that when the previous Government legislated for a pension age of 66, 67 and 68, they did precisely nothing about differences in life expectancy. We are recommending an independent panel to look at the issue and advise the Secretary of State.

[Jane Ellison (Battersea) (Con)]

I thank the Minister for his statement. Does he agree that the task of tackling complexity is vital and that this arrangement seeks to address those many older pensioners who do not seek means-tested top-ups because it is too complex and they are often to dignified to do it?

[Steve Webb]

My hon. Friend is right. In every interview I have done today, we have had to spend about 20 minutes explaining how the current system works before we deal with the change. I welcome the fact that consumer organisations such as Age UK, although it has questions about the details, has warmly welcomed the principles of our reform.

[Dame Anne Begg (Aberdeen South) (Lab)]

I thank the Minister for his statement and for listening to the most recent report on pensions by the Work and Pensions Committee. When we looked at auto-enrolment, we said that a flat-rate state pension was important. On behalf of the Committee, I accept his invitation to conduct pre-legislative scrutiny.

The final outcome of the pension reform will, we hope, be a simple and easy-to-understand state pension, but already, from this afternoon’s exchange, it sounds as though getting there will be incredibly complicated. Will the Minister give us an idea of how long the transitional arrangements will be in place? I suspect that the Committee will spend a great deal of time analysing those arrangements to ensure that they are fair.

[Steve Webb]

I am grateful to the hon. Lady both for her Committee’s report calling for the state pension to be sorted out and for her willingness to undertake the scrutiny. We will work closely with, and support, her Committee in doing that. She is absolutely right: transition is the messy bit. With pension reform, it would be lovely to start with no history and a blank sheet of paper, but we cannot do that. The straight answer to her question, however, is that transition is particularly important for those closest to pension age, who will have a complex history and rights built up. For younger workers, it is straightforward: they will do the 35 years and get the £144. Transition is complicated and messy in the early years, but it quickly works its way through the system, and we have worked hard on the statements we will send to people. They will be clear and say, as it were, “Under the bonnet, the workings might be complicated, but you’ve got this so far. Do this many years, and you’ll get £144.”

[Graham Evans (Weaver Vale) (Con)]

Does the Minister agree that the current pensions system is not working and does not guarantee pensioners the financial security to which they are entitled? Will he confirm that the triple lock guarantee will still apply to the new single-tier pension, thus avoiding the 75p increase fiasco we saw under the last Labour Government?

[Steve Webb]

The current position is that we are obliged by law to uprate by at least earnings, and our policy is to go further and have the triple lock, as is mirrored in the White Paper. The legal position in the draft Bill will be at least for earnings uprating, but all our illustrative estimates in the White Paper are indeed based on the triple lock.

[Mr Frank Field (Birkenhead) (Lab)]

I congratulate the pensions Minister and the Secretary of State on delivering the White Paper against the restriction the Treasury imposed on them—that the reform be delivered at no extra cost. So that the House and the country can understand how successful they have been in driving a coach and horses through the restriction, might the Minister tell us the largest increase in contribution that any worker will face under his scheme?

[Steve Webb]

I enjoyed the right hon. Gentleman’s column in The Guardian today. He imagined that we would make this pension reform work by not making it contributory, but I hope that I have clarified for him that people will still need 35 years of contributions or credits to draw the pension. The straight answer to his question is that the rebate is 1.4% and applies to a band of earnings from the lower earnings limit of about £5,500 to the upper earnings limit of about £40,000. It is 1.4% of that band.

[Greg Mulholland (Leeds North West) (LD)]

I commend my hon. Friend for the biggest state pension reform for 50 years, but how will it tie in with the other big development, which is auto-enrolment in workplace pensions?

[Steve Webb]

I had the great pleasure of joining my right hon. Friend the Secretary of State at Asda this morning—when he caught up on a bit of his shopping—and meeting shop workers who had just been automatically enrolled by Asda. It was fascinating talking to them, because some were in the scheme already, but many were not. Those who had been auto-enrolled were going to stay in, and one said, “It’s not that much money. To be honest, I drink more than that in the pub over a month.” People are being brought into workplace pensions. We do not want them opening their newspapers and being told, “Don’t bother saving, because you’re just going to be means-tested.” We believe that we have dealt with that problem today, which will make auto-enrolment work as well as state pension reform.

[Dr Eilidh Whiteford (Banff and Buchan) (SNP)]

The Institute for Fiscal Studies has said today that the proposals will mean

“a cut in pension entitlements for most people in the long run.”

I am also concerned that they touch on public sector pensions and other areas of devolved competence. Will the Minister ensure that his Department engages in constructive technical discussions with the Scottish Government on the transitional process?

[Steve Webb]

I have written to the devolved Assemblies and the Scottish Parliament about our announcement today. On the hon. Lady’s question about costings, let me say that for the next couple of decades or so we will be spending pretty much the same as now—it is within the same cost envelope—but we will be getting the bill down for younger workers by the middle of the century. It will not be down relative to today—the share of national income going on pensions will be substantially bigger than today—but it will not be rising quite as fast. We are ensuring that workers in their 20s will be automatically enrolled so that they have a savings culture as well as state pension.

[Nigel Mills (Amber Valley) (Con)]

I warmly welcome this announcement, and I think we will get to the right place. How long does the Minister expect that the current complex system will have to remain in place? Will we have to keep paying people pension credits for 40 years or more, or will there be a taper so that everybody will eventually receive the new pension?

[Steve Webb]

I am afraid that the taper is sometimes called the grim reaper. The process is that everybody who has already reached pension age by 2017 will have their rights under the current rules. I have every anticipation that those rights will be honoured for as long as people are in a position to draw them.

[Graham Jones (Hyndburn) (Lab)]

Could the Minister expand on people who have SERPS that sit with private pension companies? What will happen to those pensions? He says that some who have opted out into SERPS may not qualify for the single tier. How will he explain to people the relationship between those with SERPS who have a private pension and how they will qualify for the single tier? It sounds a little complex to me.

[Steve Webb]

At the moment, we have a two-tier work force: those who are paying full national insurance and drawing a basic pension and a SERPS pension; and those who pay a reduced national insurance, who just build up a basic pension. In the future it will be simpler: there will just be workers who pay national insurance and build up rights under the single tier. We have to honour the past and deal with its complexity, but going forward every year will be a year’s worth of single-tier pension—a thirty-fifth of £144 for everybody. Whether they were previously contracted in or contracted out, it will be the same for everybody.

[Paul Uppal (Wolverhampton South West) (Con)]

I welcome the statement. Out there in the real world my constituents are heartened by us in this place seeking to simplify an aspect of financial payment for once. In relation to young entrepreneurs and many of those who are self-employed, can the Minister assure me and the House that those who pay into the national insurance pot will, under the single-tier system, see full payment and full benefit from the contributions they make?

[Steve Webb]

I am grateful to my hon. Friend for mentioning the self-employed. At the moment, the self-employed build up rights under the basic pension—the £107—but not the equivalent of the £144. In our world, there are just people who pay national insurance, build up qualifying years and build up a pension. The self-employed are therefore potentially substantial beneficiaries of the new and simpler system.

[Sheila Gilmore (Edinburgh East) (Lab)]

Will the Minister confirm that workers currently in the private sector who contracted out may also see, in addition to having to pay higher national insurance contributions, either higher contributions towards their private pension or a reduction in benefits?

[Steve Webb]

Yes, the hon. Lady is right. We have talked to the CBI, the National Association of Pension Funds and major pension employers. They are clear that they do not simply want to take the national insurance rise on the chin; they want the freedom to adjust their private sector pension scheme in response. However, we have calculated that, even allowing for that, the bulk of people who are within 20 to 25 years of pension age will still get more back, from the extra national insurance and any reduction in their private pension, through the enhanced state pension than they have lost.

[James Morris (Halesowen and Rowley Regis) (Con)]

Does the Minister agree that a modern pension system needs to reflect the changes in a modern work force, and that what he is announcing today will help self-employed people, and women who have not been able to work and have a variable contribution record?

[Steve Webb]

Yes, the new system is designed to treat people as people, rather than as dependants. It removes the distinction between employee and self-employed, contracted in and contracted out. Given that these boundaries are somewhat permeable—people might be self-employed one year and part time the next and so on—this will streamline the system and make it easier for people to build up the 35 years they need.

[Mr Jim Cunningham (Coventry South) (Lab)]

Somebody mentioned the 75p increase earlier. The reason for that was that the previous Conservative Government broke the link and then it was related to prices, so let us be clear about that. Secondly, the problem with pensions actually started when the previous Conservative Government, in terms of industry, gave incentives to people to opt out of SERPS and into private schemes—that is how we got ourselves into this mess today. How many people will lose out under these proposals?

[Steve Webb]

We are publishing later this week, along with the Bill, a detailed impact assessment of the changes over a series of decades. In the White Paper we have published today, the hon. Gentleman will see a chart that shows that, for I think at least 35 to 40 years, a majority of people affected by the changes will gain rather than lose.

[Miss Anne McIntosh (Thirsk and Malton) (Con)]

I congratulate my hon. Friend on what the Government have achieved and seek clarification on two points. From which budget will the NHS and other public sector employers have to find the additional national insurance contributions? Are small employers in constituencies such as Thirsk and Malton being asked to increase national insurance contributions as well as contribute towards a private pension scheme?

[Steve Webb]

In answer to my hon. Friend’s first question, the NHS as an employer already pays the reduced rate of national insurance from its own resources; it will have an increased rate of national insurance. Obviously the Exchequer will have an increased revenue. It will be a matter for the Chancellor of the day to decide what to do with that increased revenue, but the NHS as an employer will pay more national insurance—that is a fact.

In answer to my hon. Friend’s question about small firms in her constituency, very few small firms run contracted-out defined-benefit pensions, so the only people paying increased national insurance will be those who are contracted out who run these special final salary schemes. We have allowed those schemes to adjust their rules to offset the cost if that is how they choose to proceed, but most small firms will not be affected.

[Chris Leslie (Nottingham East) (Lab/Co-op)]

Crucial to these proposals is the notion that parents who take time off work to bring up children—stay-at-home mums—will register for national insurance pension credit in order to get their cumulative 35-year tally of contributions. However, surely the Government are not saying that the only way to get these credits is to apply for child benefit, because from 7 January not everybody has been eligible for child benefit payments. That would be ridiculously complex and confusing, would it not?

[Steve Webb]

There are two groups of people. First, those who are currently receiving child benefit that will cease because of the changes for people with higher-earning spouses will continue to get credits under this system—they are in the child benefit system with a zero award. For people who have their first child under the new regime, we already put information in what is called the bounty pack—which new mothers get—to encourage them to claim child benefit, not least because even if their spouse is a high earner at the moment, that might not always be so, so they should always claim child benefit anyway, to ensure they get their credits.

[Oliver Colvile (Plymouth, Sutton and Devonport) (Con)]

What impact will these changes have on private occupational pension rebates?

[Steve Webb]

The remaining contracted-out final salary pension schemes currently receive a 3.4% national insurance rebate. That will go, which will be a cost to those employers. We have talked to the pension funds, the CBI and so on. They have said that a fair response is to allow the schemes to reduce accrual rates—for example, to offset any additional cost—and that will be a provision in the pensions Bill that we publish later this week.

[Bridget Phillipson (Houghton and Sunderland South) (Lab)]

The Minister just referred to women applying for child benefit, even though they might not be entitled to any award. Does he not think that we are potentially storing up a big problem for the future, in that many women will see no reason to register for a benefit to which they will not be entitled?

[Steve Webb]

Just to be clear, even if we were not doing any of this pensions stuff, although someone might be the partner of a high earner when their baby is born, people’s relationships change. It is therefore always advisable for them to claim their child benefit anyway—even if, in the end, they receive a zero award—which also sorts out the pension credits problem.

[Sarah Newton (Truro and Falmouth) (Con)]

Along with tens of thousands of other women in their 50s who took a career break to raise their children, I very much welcome these measures, but can the Minister explain to me and other women returning to work how they will interact with the auto-enrolment pension scheme?

[Steve Webb]

Where a mother spends time out of the labour market and then returns to work, her pension rights at the £144 rate will be fully protected. If those women are not in an auto-enrolment scheme, they are not contributing, the employer is not contributing and they are not building up rights under that scheme, but we are ensuring that there is a firmer foundation. If those women carry on receiving, for example, maternity pay during maternity leave, then pension contributions can be taken from maternity pay, which can keep their pension contributions going.

[Paul Flynn (Newport West) (Lab)]

Will the Minister emulate the splendid example of Barbara Castle in 1975, who secured all-party support for the introduction of SERPS? Will he also consider a reform whereby retirees who are fortunate enough still to be in work while receiving the basic pension should continue to pay national insurance? That would be fair, affordable and acceptable and would bring in between £2 billion and £3 billion a year.

[Steve Webb]

I would certainly warmly welcome all-party support. I have tried to approach the issue in as constructive a way as I can, because we want an element of stability in the pension system. I am not convinced that levying national insurance contribution on working pensioners is the way forward. Clearly, what we want is some flexibility in retirement. We want to get away from this cliff edge where people are either working or retired. We are interested in a model of phased retirement, partial drawing of pensions, deferring retirement and part-time work. As soon as we say, “You are either working or retired; you pay national insurance or you do not”, we get back to the cliff-edge model that we are trying to move away from.

[Stephen Mosley (City of Chester) (Con)]

I welcome this statement, which will reduce the complexity of the pensions system, reduce means-testing and reduce the uncertainty for future pensioners. Will the Minister say whether it will also reduce administration costs within the Department for Work and Pensions?

[Steve Webb]

It will indeed. To give a flavour of the scale, at the moment nearly half of all pensioners are entitled to some sort of means-tested benefit. That is an extraordinary and absurd situation. If I tell the hon. Gentleman that by the time the system is fully implemented, we will be down to one in 20 pensioners being entitled to pension credit, that provides an example of the scale of the change we are bringing in.

[Cathy Jamieson (Kilmarnock and Loudoun) (Lab/Co-op)]

In his statement, the Minister made much of the need for plain language, so will he confirm that under the proposals a significant number of women will not receive the new higher-rate single-tier pension in 2017, even though men born on the same date would receive it? Will he also confirm that that potentially affects some 430,000 women across the UK, including 39,000 in Scotland?

[Steve Webb]

I think I have already dealt with that point. Pension ages are changing, and they will not be the same for men and women until 2018. If we have a system based on pension age, it will be different for men and women by definition until they are equalised. It seems to me that the only way to run a system is to base it on people’s actual state pension age—rather than have an actual state pension age and then bring single tier in on a different day for a set of people born in different periods. That would introduce extra complexity, which we are trying to stop.

[Nicola Blackwood (Oxford West and Abingdon) (Con)]

I welcome this statement, as the problems of complexity and inequality that have been identified are all too familiar to my constituents, and they have without doubt undermined this country’s savings culture. Will the Minister explain, however, how the new proposals would affect carers in my constituency? Can he guarantee that his commitment to simplicity would go all the way down to user level?

[Steve Webb]

I am grateful. Carers receive the carer’s allowance, and there are other sorts of carer’s credits. Carers will thus end up with credits for the full £144—or whatever the final rate ends up being—so this has the potential to be a significant benefit to them. The hon. Lady is absolutely right that it is all very well for us to talk about simplicity, but people need to experience simplicity. That is why the White Paper provides an example of a pension statement. It is a single piece of paper saying, “You have built this amount up; if you do this many more years, you will get the full pension.” Everybody will know the rate: it will be a standard figure, and much harder for future Governments to tinker with.

[Andy Sawford (Corby) (Lab/Co-op)]

I have been contacted by my constituent, Mrs Slater. She is a widow, aged 59. She tells me she was informed on her husband’s death that she would benefit from his working life and national insurance contributions. She is now concerned that a flat rate will mean that his hard work will no longer be counted when she retires. Will Mrs Slater will be better off or worse off under these proposals?

[Steve Webb]

I am grateful to the hon. Gentleman, because I understand the concern that any change creates for people. In 2017, I assure him, we will work out people’s pension rights under our new system— 35 years for the full £144, with deductions knocked off for past periods of contracting out—and if that figure amounts to less than the rights someone has already built up, they will start from the higher one. We will honour the past. People will not build up new rights under those sorts of arrangements, but those they already have will be honoured.

[Mr Marcus Jones (Nuneaton) (Con)]

I have been contacted by many of my constituents over the last few months who have been concerned about the investment that they have already made in SERPS and in the state second pension. Will the Minister confirm that contributions already made will be honoured and that pensions will not be rounded down as a result of this policy?

[Steve Webb]

Yes, I can give my hon. Friend the assurance that he seeks. If a pension document says, “You have already built up a pension of £160, £170 or whatever”, people will get at least that amount. Going forward, people will not be able to build up those sorts of pensions in the future, but when they have built them up already, we will recognise those contributions.

[Mr William Bain (Glasgow North East) (Lab)]

The 1.4% rise in employee national insurance contributions and the 3.4% rise in employer contributions appear to involve an initial windfall of about £6 billion a year for the Treasury. What guarantees will there be in the Bill that current members of public and private sector pension schemes do not lose out in real terms as a result of these changes?

[Steve Webb]

We have already given a guarantee that, having renegotiated the public sector pension schemes, we will make no further changes in rights under those schemes for 25 years. While we are changing the national insurance state pensions of public sector workers, we are not touching the public sector pension. Private sector workers may—indeed, probably will—find that their employer adjusts the private sector scheme in response, but, as I have said, even with that adjustment—even with the higher national insurance payment—the vast bulk of workers, certainly those within 20 to 25 years of pension age, will still be net beneficiaries.

[Rehman Chishti (Gillingham and Rainham) (Con)]

How will the new system affect those on low earnings?

[Steve Webb]

In the past, the state provided a flat basic pension and then an earnings-related second pension. By definition, low earners received low earnings-related pensions. What we propose is simply a flat pension, which means that low earners will, on average, tend to benefit.

[Mark Durkan (Foyle) (SDLP)]

As well as engaging with the devolved authorities as he has promised to do, will the Minister take time to proof his detailed proposals to ensure that no untoward difficulties arise for cross-border workers? I represent a border constituency, and I know that it is quite normal for people to work on a cross-border basis. Their jobs often move across the border. However, that can create a number of difficulties, including some relating to pensions. Will the Minister minimise those difficulties?

[Steve Webb]

The hon. Gentleman is right to raise the issue of cross-border workers, for which we have had to regulate in the automatic enrolment scheme. We are not aware of any specific issues that would arise from our proposals, because they are built on the national insurance contributory principle. They turn contributions into pensions in a different way, but the system is basically the same. However, if the hon. Gentleman becomes aware of any such issues and wishes to draw them to my attention, I shall be happy to look into them.

[Margot James (Stourbridge) (Con)]

I greatly welcome the simplification of the existing scheme, the introduction of a flat-rate state pension, and the credits for people who have undertaken caring responsibilities and women who have taken career breaks. My hon. Friend has corresponded with me about current pensioners and people who will retire before 2017. What more can he say to reassure my constituents who fall into those categories that they will not lose out terrifically to people on the new system?

[Steve Webb]

My hon. Friend has raised a crucial question. There is some anger and some suspicion that somehow we are throwing money at future pensioners and ignoring today’s, but I can give a categorical assurance that that is not what we are doing. The budget for the new system is the same as the current budget. It is important to note that we are not simply taking the basic pension of £107, sticking 30-odd quid on it, and ignoring all today’s pensioners. We are combining the basic pension, the state second pension and the savings credit into a single flat payment. It is not comparing like with like just to compare the current basic pension with the £144 pension; it is a much more complex process.

[Mr Speaker]

Order. I always listen intently to what the Minister says, but in a bid to make face-to-face contact with his hon. Friend the Member for Stourbridge (Margot James), he is standing sideways. Facing the Chair is always to be preferred.

[Charlie Elphicke (Dover) (Con)]

Does the Minister agree that pensions means-testing seriously undermined a culture of savings built up over many decades? Will he assure us that, following this reform, people will not be punished for making proper provision for their old age, as they were under the last Government?

[Steve Webb]

My hon. Friend is quite right. The nightmare scenario under automatic enrolment would be people opening their newspapers and reading, “Don’t bother to save small amounts of money; the Government will just claw it back.” We are confident that by sorting out the state pension we will not only deal with the position of people at the bottom of the pile, but will make auto-enrolment the success that we all want it to be.

[Gavin Barwell (Croydon Central) (Con)]

I congratulate the Minister, who has demonstrated his mastery of a highly complex subject. In particular, I warmly welcome the decision to reduce means-testing significantly. Under this Government—unlike the last one—those of my constituents who put small sums away for their retirement will not find themselves little better off than those who do not save.

[Steve Webb]

I am grateful to my hon. Friend for his generous comments. Just as my right hon. Friend the Secretary of State is trying to make work pay through the universal credit, we want to make savings pay through the single-tier pension. I believe that if we can do both those things, we shall have done a good and important job.

[Jeremy Lefroy (Stafford) (Con)]

I welcome the statement. At present, British citizens who work overseas can build up a contribution record by making voluntary contributions. Will that continue under the future system?

[Steve Webb]

We do envisage that there will be a system of voluntary contributions. We will have to examine issues such as the price for a year of voluntary contributions, because obviously the pension is bigger, but we envisage that the idea that someone can fill gaps will still be a part of the system.

[Andrew Stephenson (Pendle) (Con)]

I very much welcome today’s statement that a single-tier pension is going to apply to new pensioners after 2017. On Sunday, I met a constituent at my supermarket advice surgery in ASDA in Colne who is in receipt of the basic state pension and pension credit but is unsure whether, as part of wider reforms, pension credit would be replaced by the new universal credit and other pensioner benefits. Will the Minister give clarification on that point?

[Steve Webb]

There will be knock-on effects when the universal credit is introduced: because housing benefit will no longer be paid for people of working age, we will have to incorporate housing benefit for pensioners in the pension credit system. There will be knock-on changes, but we envisage, certainly for the foreseeable future, a continuing separate pension credit system.

[Mr David Burrowes (Enfield, Southgate) (Con)]

I, too, welcome the value these reforms will give to people who have taken time out to care for children and, in particular, for elderly relatives. Does this not send out a clear message that this Government are indeed on the side of families and value them in retirement?

[Steve Webb]

We do indeed believe that, as with a year of paid work paying national insurance, a year bringing up a young child or looking after an elderly or disabled person is an equally valuable contribution to society and should be recognised as such going forward.

[Bob Stewart (Beckenham) (Con)]

As I understand it, 750,000 women will be £9 a week better off under these pension reforms. Will a widow who married early, spent the vast majority of her life looking after the home and children and whose husband then died be better off under these reforms?

[Steve Webb]

As I said in reply to a question a moment ago, where someone has already become a widow and acquired prospective pension rights because someone has died, we will not take those away from them. In future, we want to make sure that every man and every woman builds up a pension in their own right, rather than depending on the contributions of a spouse. But where people have already got those entitlements, they will retain them.