Steve Webb
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Pensions Bill
Steve Webb Excerpts(10 years, 8 months ago)
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The Minister of State, Department for Work and Pensions (Steve Webb)
I beg to move, That this House disagrees with Lords amendment 1.
We are on the home straight of the Pensions Bill. It has been all the way through this House and their lordships’ House, and we have come back to it today to deal with amendments that, with one exception, make it a better Bill. I am grateful to my noble Friends Lord Freud and Lord Bates who, from the ministerial Benches, took the Bill through another place. I am also grateful to all my colleagues who have contributed to the Bill, and to peers on both sides of the House of Lords who have made insightful contributions and improved the Bill in a number of ways.
We have made a number of amendments in response to concerns raised by noble Lords, so I emphasise that our decision to ask this House to disagree with their amendment 1 is exceptional. Indeed, that is the only amendment with which we are asking the House to disagree, so I hope that we will be seen to have taken a constructive approach and that we have sought to improve the Bill on a cross-party basis wherever possible. For reasons that I will explain, however, we ask the House to disagree with this amendment.
As the House will know, access to the national insurance system through employment is dependent on earning above the lower earnings limit, which is currently £109 a week or, expressed annually, £5,668. People earning above the lower earnings limit but below the primary threshold of £149 a week receive a credit and do not pay national insurance but effectively build up national insurance rights. The issue raised by Baroness Hollis in another place related to the position of people who have more than one job, none of which, by itself, results in their paying national insurance but whose wages, if added together, would be above the lower earnings limit. It was suggested that there was apparent unfairness, because someone with a single job that pays £120 a week would get a year of national insurance, whereas someone with two jobs, each paying £60 a week, would not.
We are grateful to Baroness Hollis for raising the issue. We will set out the extent to which we think the issue is significant, the extent to which we think there is evidence for it and how the Government plan to address it. We ask the House to disagree with the amendment, but we accept the principle that we need a pensions and national insurance system that is fit for the modern age. Crediting and various other issues have evolved and need to evolve to reflect the fact that we are dealing with a changing labour market. I want to share with the House some examples of how that has happened and will continue to happen. One particular example is the introduction of universal credit.
At present, there is a set of low-earning individuals who do not get credits. When universal credit is fully in place and they come within its scope, they will receive credits. Potentially, some will be the very same people we are talking about in relation to the amendment. The House may not be aware that the introduction of universal credit will bring an estimated 800,000 additional low-earning households into the scope of crediting. That demonstrates that the Government are not complacent about the changing labour market, or the position of low earners and their access to the national insurance system. This is a concrete and substantive way through which people will gain access in future.
I understand the concern of Baroness Hollis that people might miss out on a qualifying year for national insurance. Why does that matter? If they were repeatedly to miss out on qualifying years, they might fail to build up a full single-tier pension. That requires 35 qualifying years, bearing in mind that these are years of contributions or credits. However, the mere fact that I have used the phrase “35 qualifying years” demonstrates the first reason why the problem might not be as significant as one might, at first sight, imagine. An 18-year-old might, for the sake of argument, have a 50-year working life, or possibly slightly more. Of that 50 years, only 35 years need to be qualifying years for a full single-tier pension. That person could, therefore, spend 15 years doing multiple small jobs—which is exactly what the noble Baroness is concerned about—and it would not make a jot of difference to their single-tier pension entitlement.
We do not know how many people spend how many years in this situation, and that brings me to one of my central points: we do not have the evidence base to know the scale of any potential problem, let alone to rush to solutions, which is what the amendment does. We have cross-sectional data. On the basis of surveys, we know how many people report having multiple jobs in any given year. We know what the wages are and we can have a stab at aggregating them. What we do not know very reliably is how that changes over time: whether the people who in any given year have multiple small jobs are the same people the next year and the next year. If it is just a transient phase that happens for a few years of someone’s working life and does not happen again, it may be entirely irrelevant to their state pension position.
Sheila Gilmore (Edinburgh East) (Lab)
This matter came to my attention through a constituent who was in exactly this position, and the Minister will be aware that I raised it in Committee. The amendment is an enabling amendment rather than a prescriptive amendment, and even if there are only a few people who will be in that position, is it not worth making provision for them? Not everybody will necessarily enter the labour force at 18, particularly with greater further education and so on, so reaching 35 years might be quite difficult for some people. If there is a small number, as the Minister keeps telling us, I do not understand the objection to the amendment.
Steve Webb
I am grateful to the hon. Lady who, as she says, has shown an interest in this issue. There will be an issue of proportionality in any change. We estimate that perhaps 50,000 people might at any given point be doing multiple small jobs that together take them over the floor, but do not on their own. If, for most of those people, this happened for a few years and did not happen again, and it was relevant to the state pension for only a handful of people, should we legislate for that handful? It could happen and it probably does happen to some people, but to make well-informed policy the Government ought at least to assess the scale of the problem.
In particular, we should not rush into specific solutions. The amendment advocates a specific model, but I believe that we must begin by identifying not just the number but the types of people who are doing multiple part-time jobs of this kind. For instance, are they people with children? Is that why they are doing such jobs? If they have children under 12, they will receive credits under the general system.
We must match our data on multiple small jobs with data from other sources. We must look at longitudinal as well as cross-sectional data in order to gain a sense of the scale of the problem and the types of people affected, rather than legislating for a single solution. We believe that the amendment is technically flawed for a number of reasons, but we certainly think that rushing to amend the Bill in order to give ourselves power to do something that we might or might not want to do because it is one possible solution to a problem whose scale we do not know would be premature.
Sarah Newton (Truro and Falmouth) (Con)
Is it not especially important to enable women to juggle caring for young children with part-time employment? Will the Minister reassure me that the great improvements that we have made in relation to credits will continue, so that women will retain the flexibility that so many of us really appreciate when our children are young?
Steve Webb
My hon. Friend is right. It is important to attribute value to the time that people—both men and women—spend at home bringing up young children, and I can reassure her that years spent doing that will count in full as qualifying years towards a single-tier pension. For the first time, more or less, since the introduction of the system—at least, since earnings-related pensions were introduced— those years will count just as much as years spent running a FTSE 100 company. A year is a year, and a qualifying year is a qualifying year.
The provision will apply to anyone who is looking after a child under 12 and entitled to child benefit—well, it is slightly more complicated, but that is the basic idea—and to anyone who is caring for an elderly relative and receiving carers allowance, or, in certain cases, caring for more than 20 hours a week. There is, rightly, a network of credits which bring people into the system. Those will remain, and, in many respects, will become more valuable in the single-tier context.
Sheila Gilmore
The Minister advanced exactly the same arguments on Second Reading and in Committee. He said on those occasions that he did not have enough information. Given that we last considered the Bill several months ago, may I ask what steps he has taken to obtain the information that he feels is needed?
Steve Webb
We have increased our earlier estimate of the number affected from about 20,000 to about 50,000. In 2010, the last Government reduced the scope of what used to be known as home responsibilities protection by reducing the upper age of children being cared for following the end of child benefit and not being covered by credits from 16 to 12, and that has slightly increased the number affected by our proposals. We also made a technical change in starting credits for 16 to 18-year-olds. Those two factors, combined with more recent data, give us an estimate of 50,000. So we have updated our estimates, but, as the hon. Lady says, we need to take the matter further. Although we do not accept the amendment, we do accept the need to build an evidence base, and I will explain in a moment how we plan to do that.
Steve Baker (Wycombe) (Con)
The Minister is demonstrating that for low-paid people the system is currently so complicated that they cannot tell whether or not it is worth working an extra hour. Will he make it simple for me? If the amendment were adopted, would low-paid people be worse off in that year while they were earning?
Steve Webb
The honest answer to the question is that because there is not enough information in the amendment, we do not know, but that might be so.
Let us take the example of someone with two jobs paying £75 a week, who does not currently pay national insurance. If the two sums were added together to make £150 and national insurance were levied on that basis, that person would then have to pay national insurance. Such people might turn out not to need the qualifying year, because they would already have 35 qualifying years. As the hon. Gentleman says, a set of people could be worse off if the amendment were interpreted to mean what we assume that it means. It may merely mean opting in for a credit, which would be a free entitlement and would therefore constitute pure gain, but in that case there would be a different unfairness. We would have people who did a single job at £150 a week who had to pay NI and somebody else who had two jobs paying £75 a week who did not have to pay NI but got a free year of national insurance. My hon. Friend highlights an important point, and I am grateful to him.
Sheila Gilmore
Does the Minister feel that there is a technical problem in including such people, however small a group he thinks they form, because he seems to accept that people might end up not making up the 35 years towards a pension?
Steve Webb
We have always been clear that there will be people who will not make the 35 years, particularly those who come into the country later in life, for example, but the link between multiple mini-jobs and not making the 35 years, which we are talking about here, is unclear at best. We simply do not know whether it is a transient phase for people or whether they are in a recurring pattern. Again, I counsel the House against rushing to policy conclusions in amendments that are not accurately drafted rather than saying, “Let’s get the evidence base together.”
As well as undertaking to update our own figures, we are happy to commit to a literature review of what is known about this end of the labour market, making sure we have access to all the available data. We are also content to convene what we have grandly called an analytical stakeholder forum—that is three words of jargon in one go, so it must be impressive. The point of that is to pick the brains of those who study this end of the labour market, and we will be very pleased to benefit from the insights of the noble Baroness Hollis, with whom I have already had an informal conversation about this matter. I should stress that she would like us to retain Lords amendment 1 to avoid misrepresenting her views. We are very keen to gain her insights and those of economists and others who study this end of the labour market to try to establish what more we might be able to find out through existing data and whether any further work needs to be done.
It seems to us that we need to take a step-by-step approach, rather than rushing to policy conclusions as the amendment would. If we found that there were lots of people in this situation and that something must be done, even the something that must be done might not be the thing proposed in this amendment, and it seems a bit odd to pick one option, which as far as we can see is a sort of opt-in crediting option, when there might be others. For example, one might think that lowering the lower earnings limit might be a better solution. That would reduce the number of people in this position because their combined wages would be more likely to be above that floor. It would not necessarily require an opt-in process, and it would be simpler. That might therefore be a better solution; there might be others. We might relax the rules on voluntary national insurance contributions and the deadlines for payment. One can think of a whole raft of solutions, but if we are not clear about the scale of the problem, the groups affected and the permanence or otherwise of the situation, putting just one such provision in primary legislation—giving ourselves a power we might not use through what is, at that, an ambiguous amendment—does not seem to us to be the way forward.
Let me try to draw these threads together, because we have a lot to get through. We are concerned that the amendment itself is unclear, and I have run through a number of reasons why, such as the reference to the lower earnings “level”, not “limit”, and the reference to “income”, not “earnings”. National insurance liability is based on earnings, so the wording would have to be thus changed. The lower earnings limit figure is currently a weekly figure, whereas the amendment refers to an annual figure. Of course, all these things could normally be tidied up, but we do not have the opportunity to do so because if the House accepts the amendment, that is it: it is the end of the parliamentary process, the Bill becomes law and a deeply flawed amendment is on the statute book.
It is unclear exactly how the amendment is meant to work. As was said earlier, would people have to opt in and get credited, or would there be a duty on Her Majesty’s Revenue and Customs to combine these incomes and then levy national insurance, which might be to the detriment of some? There are a great many issues to be examined, but it is not our view that we should not look at them. We should, and as I said at the outset I absolutely accept the principle that we should have a system of pension rights and national insurance that reflects the current labour market, rather than the one in existence after the second world war. We are making a number of changes in that regard, but as I have said, the amendment as it stands is flawed in a number of respects and ambiguous in others. It rushes to a single solution to a problem whose scale and nature we simply are not year clear about, so we believe that—
Steve Webb
A poetic conclusion was nearly reached; but before I conclude I give way to the hon. Lady.
Sheila Gilmore
I understand that the Minister is anxious not to rush to a conclusion, but can he tell us what time scale he has in mind?
Steve Webb
We envisage updating our own estimates by the summer and would be very happy to do that, and bringing together experts and trawling through the related literature in the latter part of this year. We do not want to kick this into the long grass. If we concluded that further data-gathering was needed, and it was qualitative rather than quantitative, that would take some time, but well-informed evidence-based policy making sometimes does take time, frustrating though it may be, and that is the approach the Government wish to take.
I urge the House to disagree with the Lords in their amendment 1.
Gregg McClymont (Cumbernauld, Kilsyth and Kirkintilloch East) (Lab)
I shall of course be disagreeing with the Government’s disagreement with Lords amendment 1.
Let me begin by putting the amendment and the labour market issues it pertains to into some context. Since 2008, only one quarter of the jobs created in this country have been permanent. There are hundreds of thousands of short-hours contracts and, according to some figures, approximately 1 million zero-hours contracts, in addition to other non-standard job patterns. Some 40% of all jobs are not the permanent, full-time positions that we traditionally associate with the UK labour market. That context is important to bear in mind: the Minister rightly referred to the need for the pensions system to keep up to date with changes in the labour market, and that is the reality of the labour market we are now all living with and working in.
Steve Webb
For the avoidance of doubt, I think the hon. Gentleman will find that the record shows that I did not say there were 17 logical flaws in the amendment. I said that there were 17 logical flaws in leaping from the assertion that there are lots of zero-hours jobs nowadays, to this amendment. My point was that it takes an awful lot of logical assumptions, all of which are false, to get to the amendment.
Gregg McClymont
Of course Hansard will tell this story, but it was a short quote and I think I managed to get it down correctly. If the Minister is saying that it was not that there were 17 flaws in the amendment, I am sure the whole House is delighted to have that clarification.
Let us probe a little further into the Minister’s argument. He says that on the Government’s estimates only about 50,000 people are affected, that there should be no “rush to solutions” and that the amendment is flawed technically for many reasons—but perhaps not 17. He says that the Government need to build their evidence base on the issue. Interestingly, he said that the Office for National Statistics has urged caution about the notion of an upsurge in zero-hours contracts. His point was, and the ONS’s point is, that it might be that individuals are more aware that they are on such a contract than that the upsurge has been so great. If that is the case, it does not negate the point that there are a significant number of these sorts of contracts around, and that has significant implications for a state pension system based on contribution.
I asked the Minister about the 17 logical flaws, but his argument also was that we do not know enough to go forward with an amendment to solve the problem. However, he also said he understands that the average zero-hours contract gives an individual between 15 and 20 hours of work a week. Is that his estimate or is it based on research? In a world where we are not precisely aware of the figures involved, there is a danger of bandying around our own figures without a relevant citation.
What situation are we trying to deal with through this amendment? As I said, we have an increasingly fractured and insecure labour market, and the question is whether individuals in that labour market and the pension system relating to that market are appropriately structured and linked. The amendment, introduced effectively in the other place by Baroness Hollis, seeks to deal with what is, on any measure, a significant problem. We welcome the fact that the Bill brings 4 million self-employed individuals into the state pension without an employer’s contribution, and of course those self-employed people pay £2.70 a week. The amendment’s thrust is that we need a similar approach for short-hours workers. The Minister rightly said that this is not just about zero-hours contracts; it is about the insecurity of short-hours working in the labour market more broadly and matching that up effectively with a universal state pension—the Minister is keen on that.
Gregg McClymont
As usual, my hon. Friend makes a pertinent intervention.
There is an issue to address and the question is how to do it. The Minister suggested that Baroness Hollis’s amendment, which my colleagues and I agree with, prescribes a specific solution, but of course it does not; it is a permissive amendment. As the Minister, using that fertile mind of his, started to think about different solutions, one could see the point of the amendment even more: to give him and his colleagues in the Department for Work and Pensions the authority to think carefully about how to solve this problem. He gave a number of ideas as to how it might be solved, which was when we particularly saw the function of this amendment. It would bring the best minds in the DWP together to deliver a solution, and it would remove the need for subsequent primary legislation. So, by his own words, the Minister gives succour to the amendment.
The amendment has a clear purpose: it is a permissive amendment to enable the Government more finely to match the state pension reform that the Minister is introducing with the nature of the modern labour market. He talked about estimates of the number of individuals involved. As he will know, Baroness Hollis has come to a different conclusion about the number affected and is very clear that the universal credit, which he mentioned, will not help the largest group—single people—nor, usually, will it help women without younger children or households where the joint income, including the man’s income, floats them off universal credit altogether. She calculates the number of individuals affected as being 250,000, which is a very different figure from the one the Minister gives. Universal credit, which he said would ameliorate the problem, will not help single people, women without younger children or households where the joint income, including the male income, floats them off universal credit. It is important to put that on the record. If a significant number of people are affected by this and if the Minister wants to make the state pension as universal as possible, as the Opposition believe he does, it would seem sensible for him to accept a permissive amendment allowing him to go forward on the basis of his thoughts about the various ways in which this might be taken up by the Government and to get cracking on it. The fundamental point is: why should those who, through no fault of their own, are in short-hours working or zero-hours contracts—those various kinds of flexible employment contracts—be denied the benefits of a full state pension?
The Minister said that the problem is not as significant as Baroness Hollis has suggested and that someone would need only 35 of 50 years in the labour market to qualify, but the issue is that where people spend significant parts of their life on these contracts, what is meant to be a universal state pension does not necessarily become one.
Steve Webb
I sense that the hon. Gentleman is concluding. The amendment is flawed in a number of respects. For example, it refers to a lower earnings level, but there is no such thing. Does he not have any qualms about the fact that if his vote were to succeed, he would be putting flawed legislation on to the statute book?
Gregg McClymont
The Opposition’s view is clear: the issue of job insecurity, of short-hours working and of zero-hours contracts is a significant problem for the pensions market and, specifically, for the state pension. In that context, it seems wise to us to allow the Minister to crack on with solving this problem. I have confidence that he will ensure that this amendment, if agreed to by the House, provides the basis for matching up the state pension with people on these insecure and flexible employment contracts. On that basis, we disagree with the Minister’s disagreement, and we intend to support the Lords amendment.
Steve Webb
Let me respond briefly to the debate. On the issue about the typical number of hours worked by someone on a zero-hours contract, I said 15 to 20 from memory, but the exact figure is 20 hours. The ONS estimates that the average number of hours worked by people on zero-hours contracts in 2013 was more than 20 hours. There is a danger that when we hear the words “zero hours” we assume that it means there is no money coming in. However, it simply refers to the number of hours guaranteed under the contract. Lots of people with zero-hours contracts are building up full qualifying years.
Gregg McClymont
Of course the Minister will be more than aware that averages can hide a multitude of sins; I am sure he accepts that.
Steve Webb
Yes, I do. The point is that 20 hours on a minimum wage would get someone above the lower earnings limit. If half of everyone on zero-hours contracts are doing more than 20 hours, we can immediately say that they will qualify, and those doing slightly fewer hours will also qualify. The link between zero-hours contracts and multi mini-jobs, which is the subject of the amendment, is, at best, unclear. In extremis, it could be that no one on a zero-hours contract is even covered by this amendment, if they have only one job at a time and no other job. We do not know and nor does the hon. Gentleman. Our sequencing is evidence first and policy next; the Opposition’s is the other way around.
The hon. Gentleman refers to the emerging labour market, and chose 2008 as his base because that enabled him to get a figure that worked for him. However, let me bring him right up to date. In the past year, the number of women working full-time increased by 270,000 while the number of women in two jobs, which is germane to the amendment, decreased by 25,000. The suggestion that there is some sort of inexorable rise might be wrong. If we were to update our figures, we might find that the number has continued to go down. There is a whole raft of statistics I could give the hon. Gentleman, but to assume that this is a vast issue and that the numbers are inexorably rising is far from the case.
The case of the hon. Member for Edinburgh East (Sheila Gilmore) is that even if only one person were in this situation, we should fix it, but there is an issue of proportionality here. To set up the lightest touch crediting regime based on past precedent would probably cost about £1 million and more than £1 million to run. One must always ask the question—as least we do on the Government Benches—about value for money. That is why we need to know how many people are affected, who is affected and the best way to deal with the issue.
Finally, when the hon. Gentleman was asked whether he cared about putting flawed amendments in the Bill, he essentially said that he did not; he simply wanted to make a political point. That is regrettable. As legislators, we are voting today on legislation. This is not an Opposition day debate where he can make a point. This is deciding what goes into the law of the land. I am rather disappointed that he feels that it does not matter if an ambiguous and unclear amendment, which uses terms that have no meaning in reality, should just go in the Bill, so that he has the chance to have a vote and put out a press release. That is obviously where he is coming from. I regret that, and urge the House to disagree with the Lords amendment.
Question put, That this House disagrees with Lords amendment 1.
Mr Deputy Speaker (Mr Lindsay Hoyle)
With this it will be convenient to discuss Lords amendments 3, 12, 13 and 19 to 27.
Steve Webb
Following that brief moment of disagreement with their lordships, I am pleased to say that we encourage the House to agree with all other Lords amendments to the Bill. Some amendments in this group were initiated by the Government all on their own, while others are constructive amendments that we tabled in response to concerns raised by noble Lords and others. That shows our willingness to improve the Bill when we think that valid arguments have been made.
Lords amendments 19 and 21 will affect the spouses of service personnel. In the context of our motion to disagree with Lords amendment 1, which was tabled by Baroness Hollis, it is appropriate to say that Lords amendments 19 and 21 respond to a concern that she helpfully raised during the Commons Public Bill Committee’s oral evidence sessions about the position, under the single-tier state pension, of wives of service personnel who have served overseas.
Lords amendment 21 places a duty on the Secretary of State to legislate for a new retrospective national insurance credit for spouses and civil partners of armed forces personnel who accompanied their partner on postings outside the UK from 1975-76 onwards. We promised to think about the matter as long ago as last June—have we really been considering the Bill for that long?—after it was raised in our oral evidence sessions. As we know, the single-tier pension is essentially based on one’s own record of national insurance contributions and credits, rather than a derived entitlement from a partner. However, that creates a problem for women who were posted overseas with their husband and, for entirely legitimate reasons—because, say, they did not speak the language of the country they were in—were unable to work, or could not build up national insurance rights because of their role supporting their husband.
It is right that we take action for that group. There is a cross-Government commitment in the armed forces covenant to removing the disadvantages caused by military life, and we recognise the difficulty that spouses and civil partners would have faced in maintaining their national insurance record while on an overseas posting. Their prospects of securing employment during the posting would have been significantly hampered by language barriers, for example, and they may have been unable to accrue UK qualifying years while abroad. Since last June, we have worked closely with colleagues in the Ministry of Defence to devise a workable solution, and we are pleased to offer an approach that addresses this unique difficulty faced by the service community.
Under the Lords amendments and subsequent regulations, credits will be available for people who reach state pension age on or after 2016. Those credits build on the prospective credits in place from 2010-11, and help to ensure that people will not be prevented from gaining a full single-tier pension, even if they are in the now rare situation of having spent their entire working life accompanying their spouse abroad. The detailed design of the scheme, including the application process and information on when applications may start to be made, will be set out in regulations. Although it is difficult to give a precise figure, we estimate that about 20,000 people could benefit from the credits. Lords amendment 19 is a technical measure to accommodate the retrospective credits in the calculation of an individual’s foundation amount.
Lords amendment 2 deals with the issue of a statutory override for protected persons. The single-tier pension means the end of contracting out, so employers will have to pay more national insurance. The Bill provides for a statutory override to allow employers to change future contribution levels or accrual rates in order to recoup that increased national insurance when they would otherwise be prevented from making changes by their scheme rules. During the Bill’s passage through this House, the Government consulted on whether protected persons should be within the scope of the statutory override. We think that a relatively small group of individuals—perhaps 60,000—are affected.
The responses to the consultation were polarised, as employers wanted the flexibility to apply the override, while trade unions and others representing employees did not. We took the balanced judgment that we should honour promises made at the time of privatisation—promises that, in many cases, were subsequently confirmed by Ministers when legislation providing for pension protection was enacted. Lords amendment 2 makes it explicit that the statutory override cannot be used in relation to protected persons. Regulations will specify the details of who is considered to be a protected person, but the intention is to include all the people set out in our consultation response, especially rail workers, including Transport for London employees, and workers in the electricity, coal, and nuclear waste and decommissioning industries.
The group includes several technical amendments. Lords amendments 20 and 22 amend the Social Security Contributions and Benefits Act 1992 to make it clear that funds for paying the single-tier pension are provided by national insurance contributions, and that references to “benefit” include the single-tier pension. Lords amendment 23 repeals redundant provisions in the Marriage (Same Sex Couples) Act 2013, while Lords amendment 24 removes a redundant reference in legislation to the contracting-out compliance standard. Lords amendment 25 deals with the application of the statutory override to shared-cost arrangements. Lords amendment 26 is a response to a recommendation made by the Delegated Powers and Regulatory Reform Committee. It removes the power to create exceptions to the limit on the amount that employers may recoup under the override. The Bill originally allowed regulations to be made to create exemptions to the limit to deal with unconventional funding arrangements, but we are now making provision for such a power in primary legislation under Lords amendment 25.
In response to points made by the Delegated Powers and Regulatory Reform Committee, Lords amendments 12 and 13 provide that several regulations under the Bill will be subject to the affirmative procedure, rather than the negative procedure. Lords amendment 13 specifically provides that frozen-rate regulations should be subject to the affirmative procedure on every use.
Lords amendments 3 and 27 create a new class of voluntary national insurance contributions—class 3A. As the concept of the contributions was introduced in the other place, it is worth my spending a moment explaining more about it, as the House has not yet had the chance to consider it. The new class of contributions will allow pensioners to top up their additional state pension. It will be available to people who reach state pension age before the introduction of the single-tier pension on 6 April 2016. Details of the scheme, including the pricing, the maximum number of units and the administrative processes, will be set out in regulations. We will make details of the prices available shortly, but they will be set on an actuarially fair basis using the latest longevity figures. We envisage that the scheme will open in October 2015 and run for 18 months. It will help groups who have only modest amounts of additional pension, if any, such as women and the self-employed whose social and economic contributions were not captured in the state earnings-related pension scheme and are not fully reflected in the state second pension.
The scheme has just two simple entitlement conditions: first, a person must reach state pension age before 6 April 2016; secondly, they must be entitled to a UK pension. Even if someone has the full 30 qualifying years for a full basic state pension, they will not be debarred from paying class 3A contributions and boosting their state pension because they will be buying additional state pension, not basic state pension. I stress that that distinguishes the contributions from class 3 national insurance contributions, which fill gaps in the basic state pension.
We intend to cap the amount of additional pension payable as a result of class 3A at about £25 a week. As that extra pension will be additional state pension, it will be uprated according to the consumer prices index. The pension will be inheritable and people will be able to defer it in line with existing rules. More details of the scheme will be announced shortly, but the main regulations will be subject to the affirmative procedure, so Members will have the opportunity to debate the detail.
We have undertaken research and polling to gauge interest in the scheme. We expect to publish more information on likely interest and take-up shortly after the Budget, but our first poll suggests that 14% of pensioners might be interested. People’s ability to pay class 3 voluntary national insurance contributions to cover gaps in their contribution record for the basic state pension will be unaffected by the introduction of class 3A. We will put in place administrative arrangements to ensure that individuals who apply to pay class 3A contributions are made aware that they should first check their eligibility to pay class 3 contributions. People will need to consider whether making class 3A contributions is the best option for them. We believe that class 3A will allow some people to boost their state pension income with a secure, inflation-proof income that has the added advantage of survivor benefits.
I hope that the House, like their lordships, will support the Lords amendments. They improve the system for military wives and offer protection for protected workers. They tidy up several technical aspects of the Bill and, for people reaching state pension age before April 2016, introduce a new option of paying voluntary national insurance to top up their additional state pension. I commend the Lords amendments to the House.
Grahame M. Morris
I, too, will not detain the House for long, but there are a few points that I wish to place on record. I thank the Minister for meeting the trade unions on a number of occasions, and the Department for its active engagement in the consultation exercise.
I shall not rehearse the arguments about the importance of maintaining trustee consent, which were made by my hon. Friend the Member for Cumbernauld, Kilsyth and Kirkintilloch East (Gregg McClymont) from the Front Bench. The workers concerned are those in former nationalised industries, including coal mining; electricity transmission workers; workers in Transport for London and the train operating companies; and workers in the nuclear waste and decommissioning industries. An important principle is at stake, and I am grateful to the Minister for accepting the Lords amendments. As was pointed out, it is important that we have ongoing discussions, and I hope that the Minister will commit to that. If he would engage with the trade unions, which have undisputed expertise in this area and could assist the Department in the drafting of the regulations, that would be much appreciated.
Steve Webb
I am grateful to both hon. Gentlemen who have spoken for their constructive responses. The amendments relating to protected persons have been welcomed, and I am grateful for that. I welcomed the opportunity recently to meet the hon. Member for Easington (Grahame M. Morris) and his colleagues from the relevant trade unions. I am pleased to assure him that we will be happy to have that ongoing dialogue when it comes to drafting the regulations that will implement these changes. As he knows, we take the view that a statutory override is not a statutory override if trustees have the power to block it. We differ on this point—I understand that—but we are imposing a substantial cost on employers, and we believe that they need to be able to recoup that. We hope and believe that many will do so in a constructive and collaborative way, with engagement with trustees and others.
The hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East (Gregg McClymont) mentioned what might loosely be called the army wives provisions. As he says, they are an attempt to do right by our armed forces personnel and their families, and again, the measure seems to have attracted wide support. I am grateful for the support from across the House for these amendments from their lordships, which we accept. I commend Lords amendment 2 to the House.
Lords amendment 2 agreed to.
Lords amendment 3 agreed to, with Commons financial privileges waived.
Clause 37
Automatic Enrolment: powers to create general exceptions
Mr Deputy Speaker (Mr Lindsay Hoyle)
With this we may consider Lords amendments 5 to 8, 9 and amendment (a) thereto, 10, 11, 14 to 18 and 28 to 38.
Steve Webb
We move to the final group of amendments and, as I mentioned earlier, we urge the House to agree with their lordships in all of them. For reasons that I shall explain, we do not accept Opposition amendment (a) to Lords amendment 9.
I shall run through the categories of amendment before us. I shall deal at the end with the charges and disclosure amendments, where there appears to be the remaining lack of agreement. I apologise in advance for the fact that it might take me a moment or two to work my way through the amendments as some of them are quite technical, but at this stage in our proceedings it is important not simply to nod these measures through. In some cases quite substantive changes were made in another place—welcome changes, we believe, but they are ones to which this House should give proper scrutiny.
I shall begin with amendments 5 and 6 and then 4, which relate to automatic enrolment. It is worth putting it on the record that automatic enrolment is already a huge success story, with 3.2 million people now enrolled. I had the pleasure last week of visiting Upton Park to meet someone who I am told is the three millionth person to be automatically enrolled. I have my doubts, but one never knows. I have to declare in some sort of register somewhere that I was given a West Ham shirt with the squad number 3 million on the back, which may be my transfer fee—I do not know. We have certainly reached an important stage in the process. It is one of the almost unsung success stories of this coalition Government to implement automatic enrolment in an effective way, to see more than 3 million brought in and to have very high levels of staying in—of the order of 90%—which means that getting on for 3 million people are now in workplace pensions who were not in such pensions just a couple of years ago. All the signs are that this will continue to be a success.
But ongoing success is dependent on being able to learn as we go and to make changes where necessary, and amendments 5 and 6 are tabled in that spirit and relate to defined benefit schemes. In general, DB schemes are high-quality pension schemes provided by employers who take pensions seriously, and we would not want employers to feel that they could not use a DB pension scheme for auto-enrolment because of some technicality or because in some way we provided a higher hurdle for a DB pension scheme to be used for automatic enrolment than for a defined contribution scheme. Amendments 5 and 6 allow for simpler alternative quality requirements for employers providing good quality DB schemes.
The amendments will allow DB schemes to meet either the existing test for money purchase schemes, or a test based on the cost of future accruals. More work has to be done on adding the detail in regulations, and we look forward to working with our stakeholders on that. The simpler tests will help those employers providing good schemes to meet their automatic enrolment duties. This is important because of the end of contracting out. Contracting out itself had a set of standards that schemes that wanted to contract out had to meet, and once contracting out has gone and those standards have gone we can use the opportunity to set simpler equality requirements for employers wanting to use DB schemes. I hope that that will be welcomed by the House.
Also in the context of making automatic enrolment work, amendment 4 relates to the power to ensure that employers do not have to enrol individuals for whom it makes no sense. We tabled a clause at the beginning of the process that would give us the power to exclude a small group of people where it would not make any sense for employers to have a legal duty automatically to enrol them. For example, employers said to us that they had employees who were high earners or who had exhausted their lifetime tax limits and had some protected or enhanced status who were asking not to be put into a pension scheme because that could jeopardise their tax status, and having been auto-enrolled they would have to opt out straight away. That would be a waste of employers’ and employees’ time. If they failed to opt out, they could lose valuable tax protection, which would create unnecessary bureaucracy for the employer and hassle for the employee, and we do not want to do any of that when it comes to auto-enrolment.
We always envisaged that we would exclude tightly defined and limited categories of employees from the auto-enrolment duty. Following consultation, we have now indicated specifically which groups of people those are. I have mentioned those with tax protection status and another would be those on the brink of retirement or leaving. Someone might have said that they were about to leave the company, but the legal requirements on automatic enrolment or re-enrolment meant that the firm had to put them in the pension scheme, perhaps days before they left. Clearly, we do not want to bring automatic enrolment into disrepute. We do not want firms to be required to do things that are not common sense, that have a cost to the firm, perhaps create hassle for the individual and are unnecessary, and we always envisaged that the exceptions would be limited in scope.
Gregg McClymont
I know the Minister believes that God is a Liberal, but does he really have to be so pious?
Steve Webb
I usually sound grateful to the hon. Gentleman for his interventions, but I am not sure I am for that one. There is a bit of a pattern here. Labour has already called one vote on an amendment that was flawed, but it decided to vote for it anyway in order to make a point. I am explaining why amendment (a) is flawed, even according to the terms of what the Opposition want it to achieve, and it is obvious that the message has hit home, given the tenor of the hon. Gentleman’s response.
Richard Graham (Gloucester) (Con)
On the charges that will be outlined later and the requirement for them to be disclosed, how does the Minister envisage that process being taken forward? Will there be a consultation? Within what sort of time frame does he imagine the charges being outlined?
Steve Webb
I am grateful to my hon. Friend who, as chair of the all-party group on pensions, has great knowledge and expertise on these issues. We need to take forward the matter in partnership with the FCA. As he knows, the Pensions Regulator regulates defined benefit and occupational defined contribution schemes, while the FCA works on group personal pensions, for example, but we want to make sure that, as far as possible, parallel regulations apply to both. We will, indeed, consult on exactly what should be included. We certainly want to get a move on with it all, so we will move as fast as we can, but we want to do so in partnership with other regulatory bodies. I hope that that offers him the assurance he seeks.
Gregg McClymont
I rise to speak to amendment (a), but let me start with Lords amendment 4. In Committee, the Opposition argued strongly that clause 37, as drafted, was far too widely drawn and left a possibility that those with an agenda to exempt smaller businesses from auto-enrolment could do so. We therefore welcome the Government’s concession. Among the Minister’s rather curious language, he said that I “got very excited” and that there was “almost universal cynicism” from the Opposition, but within that odd framing he has actually accepted what we said in Committee. That is very welcome, because it makes the Bill better.
Let us think about amendment (a) in the context of the wider debate. The issue of costs and charges for pensions has shot up the political agenda for obvious reasons. If the Government are enrolling millions of people into a pension scheme for the first time, they had better make sure that the schemes are all value for money.
Steve Webb
I agree that the Government had better make sure that the schemes are value for money. Why, therefore, did Labour not legislate for that when it could have done so?
Gregg McClymont
The Minister made that point in his speech, as he has done repeatedly, and he has now put it on the record again. Let me pick him up on something he said. In what has become his quite common style, he suggested that it was rather peculiar to give the Secretary of State powers to ensure that transaction costs are disclosed. However, he must be aware—in fact, he alluded to this—that the FCA already has powers to require transparency of transaction costs, but has never exercised them. Making the Secretary of State responsible does not mean that the Government should not use the FCA’s expertise. Indeed, the Government’s amendment states that the Secretary of State must consult the FCA when setting transaction costs for those pensions over which he wishes to retain responsibility, so why could the same model not be maintained for contract-based pensions? Of course it could be so maintained.
On the Minister’s suggestion that it is somehow peculiar in his world to list the transaction costs that must be disclosed in amendment (a), I have to tell him that we used Lord Lawson’s amendment in the House of Lords, where it was commended by Members on all sides, including by the Government spokesman, Lord Freud. [Interruption.] The Minister is mumbling, but he suggested that the amendment was peculiar, although Lord Lawson’s amendment was along exactly the same lines. I am afraid that the Minister is disagreeing not just with the Opposition, but with Government Members.
Let me say a little about our additions to Lord Lawson’s list. I make it very clear that our list of transaction costs is the same as that tabled by Lord Lawson in the Lords, with two additions—transaction costs in underlying funds; and interest on client cash balances or profits from stock lending retained by the fund manager. The reason for including such additional transaction costs is that it needs to be strongly signalled to the body setting the rule—whether the FCA or the Secretary of State—that those items should be declared.
Let us remember that the Investment Management Association has deliberately failed to include those items in its draft statement of recommended practice. Amendment (a) should be discussed in that context, not the diversionary trail thrown up by the Minister. It is important that transaction costs in underlying schemes are disclosed because a transparency regime can otherwise easily be bypassed by any fund manager that operates multiple funds. The fund receiving moneys can simply use them to purchase units in another house fund. The IMA SORP recognises that the fixed charges in underlying funds should be reported, but it fails to apply the same principle to transaction costs, which is why they are laid down in the amendment.
The House should be aware of the wider context. The Government have previously left it to the fund managers’ trade association to decide what, if any, transaction costs should be declared. The IMA has put forward a draft statement of recommended practice, which would require fund managers to declare some transaction costs in their annual accounts. The SORP must be agreed by a Government quango called the Financial Reporting Council. The concern that the SORP failed to include significant types of transaction costs led a cross-party group of MPs and peers to write to the FRC to say that it would be inappropriate for it to agree to a statement of transaction costs that omits significant types of transaction costs. That was widely reported at the time. It is common knowledge that a number of critical submissions were made to the FRC. Unusually, those submissions were not released at the end of the consultation period, and we still await them.
Steve Webb
I will respond briefly to the hon. Gentleman. However, I suspect that he decided to press for a vote on amendment (a) a good deal earlier this afternoon, so I do not think that anything that I say will have the power to change his view.
For the record, the hon. Gentleman seems to be confusing a power and a duty. He says that the FCA has the power to require transparency, but it has not done so. If he reads Lords amendment 9, which I encourage him to do, he will see that it states in subsection (2):
“The FCA must make”.
That is the bit that he wants to take out—the bit that requires the FCA to do the thing that he wants it to do—so his amendment (a) is incoherent. Instead, he would give the duty to the Secretary of State, but the Secretary of State does not have the same powers as the FCA over the schemes that it regulates. The hon. Gentleman wants to take the duty away from the body that has the sanctions and give it to somebody who does not have the sanctions. That would not achieve what he wants to achieve.
Gregg McClymont
Will the Minister confirm that the Government’s amendment states only that
“some or all of the transaction costs”
should be disclosed? Will he put that clearly on the record?
Steve Webb
The text of Lords amendment 9 is before the House. The whole point is that we want all sorts of pension schemes—those that are regulated by the Pensions Regulator and those that are regulated by the FCA—to ensure that there is effective disclosure. His amendment (a) is defective because it would take the duty away from the FCA, which regulates one category of schemes, and give it to the Secretary of State, who does not have the sanctions to enforce the very thing that he wants to happen. I know that he does not care that his amendment is flawed, because he wants to make a point, rather than to pass good law, but for the record, his amendment would fail to achieve what he says he wants.
The hon. Gentleman said that the noble Lord Lawson, who has made a valuable contribution to this debate, came up with a list and that we should therefore have a list. Of course, the noble Lord Lawson did not pursue his amendment because he accepted that we did not need all the detail in primary legislation. If the hon. Gentleman lists the name of a charge in primary legislation, all it would take is for the ever-inventive investment industry to give it another name and we would need regulations anyway. Including a list would achieve nothing.
The hon. Gentleman asked about the words “some or all”. To clarify, the intention is to require full disclosure of all costs and charges. The reason for that wording is that it will future-proof the legislation—something that he has called for—by providing the flexibility to deal with new costs as they arise. That is all that we are trying to do by using that wording.
Gregg McClymont
I thank the Minister for that clarification. Has he spoken to the FCA and asked what its view is about the disclosure of all transaction costs? Does it support that?
Steve Webb
The hon. Gentleman will know that the FCA is regulated by Ministers from the Treasury, rather than the Department for Work and Pensions. However, I have met the FCA on a number of occasions, as have my Treasury colleagues, and we have corresponded on these matters. We are agreed that there should be full disclosure, as under the terms of the Bill, of all categories of pension scheme that are covered by the legislation.
The hon. Gentleman avoided the question I asked on an intervention. His amendment (a) appears to contradict what he has said in the past, and it brings transaction costs into the scope of any potential charge cap. That was not his policy this morning, but it appears to be his policy this afternoon. Quite how he would set such a cap when we do not have the data on transparency is beyond me. Clearly, amendment (a) is not about how the law of the land should be written; it is simply about making a political point and doing so rather badly. On that basis, I urge the House to reject amendment (a), and to agree with Lords amendment 9.
Lords amendment 4 agreed to.
Lords amendments 5 to 8 agreed to.
Amendment (a) proposed to Lords amendment 9.—(Gregg McClymont.)
Question put, That the amendment be made.