State Pension Top-up
Steve Webb Excerpts(10 years, 8 months ago)
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The Minister of State, Department for Work and Pensions (Steve Webb)
Following an announcement in the Budget, I am today providing further details on a new class of voluntary national insurance contribution—class 3A. We are calling this the state pension top-up and it is specifically designed to allow some of today’s pensioners and those close to pension age to boost their retirement incomes.
This change will allow existing pensioners and those reaching state pension age before 6 April 2016 the opportunity to gain additional state pension by paying class 3A voluntary national insurance contributions. It will provide an opportunity for pensioners to improve their retirement income by obtaining inflation-proofed extra additional state pension. This could be particularly beneficial to women and other groups such as self-employed people who have not done well under additional state pensions and have not previously been able to top these up. Along with the newly announced pensioner bond that will be available from National Savings and Investments in 2015, it further demonstrates the Government’s commitment to improving outcomes for those in retirement and providing increased flexibility for people to make the most of their savings.
There are two entitlement conditions—contributors must have entitlement to a UK state pension and must reach state pension age before 6 April 2016.
The rules on additional state pension will apply to entitlements resulting from class 3A contributions including inheritance—a surviving spouse or civil partner will be entitled to at least 50% of the additional state pension.
On 20 March 2014, the Department for Work and Pensions published the results of an online polling exercise conducted by Ipsos MORI, which was used to estimate potential take-up of the class 3A voluntary contributions. The online poll was conducted in February 2014 and 2,000 people at or close to state pension age took part. We provided them with indications of the class 3A contribution rates and what this would mean in terms of additional state pension throughout their lifetime. We found that one in five (20%) of those polled were either “very” or “fairly interested” in taking up this offer. The level of interest seems to differ by age group with those under age 70 showing the highest level of interest. I have placed copies of the report in the Library of the House and it is available on the gov.uk website.
These results have been used to make some assumptions about take-up rate using a proportion of those who said they were “very interested” and “fairly interested”. The Office for Budget Responsibility has agreed a conversion rate between levels of interest expressed through the polling and possible take up. Using these agreed assumptions we estimate that around 265,000 people may take up this offer.
This new measure is in addition to the existing class 3 voluntary national insurance contributions which allow people to fill gaps in their contributions record for basic state pension.
I have established the facility for people to register their interest so that they can receive updates in advance of the state pension top-up becoming available from October 2015. This includes a personal calculator for people to work out the contribution needed to increase their pension by a weekly amount. This will be available at www.gov.uk/state-pension-topup or by searching for “state pension top up”. A dedicated telephone line facility will also be available: 0845 600 4270 or 0345 600 4270 from mobile lines.
Primary legislation for this measure has been introduced in the Pensions Bill 2013. We also intend to bring forward secondary legislation covering the prices and features of the state pension top-up.
The following features will be defined in regulations, that:
£25 per week should be the maximum amount that contributions can provide;
class 3A VNICS will be available for 18 months from October 2015; and
there will be a cooling-off period of 90 elapsed days.
The state pension top-up has been set at an actuarially fair rate that ensures that both individual contributors and the taxpayer get a fair deal. The rates set out below show the contribution needed for £1 per week of additional state pension, according to age. The rates are the same for males and females. As an illustration, the contribution required for an extra £1 pension per week for a person aged 65 is £890. This means that for £4,450, the individual could receive an additional £260 per year for life, increased in line with prices and inheritable on death in the same way as existing additional state pension: with a minimum of 50% for the surviving spouse or civil partner. For a 70-year-old the rate reduces to £779 and at age 75 the rate is £674.
I will place a table in the Library of the House of the rates at which pensioners can make class 3A voluntary national insurance contributions.
Oral Answers to Questions
Steve Webb Excerpts(10 years, 8 months ago)
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David Mowat (Warrington South) (Con)
2. What assessment he has made of the Office of Fair Trading’s recent recommendations on the creation of independent governance committees in defined contribution pension schemes.
The Minister of State, Department for Work and Pensions (Steve Webb)
The Government announced last week that pension providers will have to implement new independent governance committees to oversee workplace pension schemes. This is part of the Government’s package of measures to ensure that workplace pension schemes are well run and deliver value for money.
David Mowat
I thank the Minister for that answer, and I congratulate him again on his brilliant announcement last week of a 0.7% cap, which is 50% of the cap that the Opposition imposed on stakeholder pensions. But the OFT report identified other governance issues with smaller pensions where trustees and fund managers come from the same organisations, and it suggested that these independent governance committees be set up quickly. Will he confirm that that will happen before auto-enrolment goes much further?
Steve Webb
I am grateful to my hon. Friend for his support for our robust action on pension scheme charges. On governance, we recognise that there is potential for conflict of interest in some master trusts. Therefore, in last week’s Command Paper, which I am sure he will have studied, we proposed that master trusts should be subject to the same independence requirements as independent governance committees. We are now consulting on that proposal.
Kevin Brennan (Cardiff West) (Lab)
What does the Minister make of the Government’s new Financial Conduct Authority’s first foray into the area of defined contribution pension schemes?
Steve Webb
The FCA will shortly announce details of plans to look at a raft of old pension and life assurance products, some of which have exit fees and high charges, and I think consumers will warmly welcome such an investigation.
Mr Julian Brazier (Canterbury) (Con)
I commend progress on this as well as the amazing wider package of pension reforms for which my hon. Friend is responsible. On the balance that trustees will look at, may I urge him to bear in mind existing people in the system, not just pensioners themselves, because with Sheerness Steel people who were still working were almost wiped out in order to protect those who had retired?
Steve Webb
My hon. Friend is quite right. As he knows, we have both the Pension Protection Fund and the financial assistance scheme to help those whose sponsoring employer has become insolvent. It is important that we make sure that sponsoring employers are in a robust position and that regulation is proportionate, which is why we are changing the remit of the Pensions Regulator so that it has regard, in its actions, to the sustainable growth of the sponsoring employer.
Gregg McClymont (Cumbernauld, Kilsyth and Kirkintilloch East) (Lab)
Last week, the Minister announced that the Government were adopting lock, stock and barrel Labour’s policy on the pension cap. That is welcome news for savers, but the Minister and the hon. Member for Warrington South (David Mowat) both know that governance is key to ensuring that savers get value for money all the way through the pensions system. Does the Minister therefore agree that allowing big insurance companies to appoint independent governance committees themselves is a little like allowing the home team to pick the referee in a football match?
Steve Webb
The hon. Gentleman raises an important point about governance and independence. He should know that the proposed terms of reference for IGCs include requirements that providers go through open and transparent recruitment processes, and that members be appointed for fixed terms, with limited numbers of reappointments. The requirements are designed to avoid any possibility that IGC members have incentives not to challenge providers in order to remain in post.
Mary Macleod (Brentford and Isleworth) (Con)
3. What assessment he has made of recent trends in employment figures.
Steve Baker (Wycombe) (Con)
11. What recent assessment he has made of the effect of withdrawing crisis loans on homeless people wishing to raise rent in advance to secure housing.
The Minister of State, Department for Work and Pensions (Steve Webb)
Crisis loans have been withdrawn, but DWP budgeting loans are still available for rent in advance. There is also a range of support available through local authorities, including discretionary housing payments and local welfare provision, and, as I am sure my hon. Friend knows, there is a rent deposit scheme in his constituency administered by Wycombe district council.
Steve Baker
I am most grateful to the Minister for his answer. Unfortunately, Wycombe Homeless Connection has stated categorically that the withdrawal of crisis loans has made it much harder for homeless people to get into flats and homes. Will he write to me to tell me exactly what he expects from Wycombe district council, so that we can ensure it is properly guided? May I also point out that I would support the Department restricting certain benefits to the wealthiest pensioners if that would enable homeless people to get off the streets and into homes?
Steve Webb
I am sure that my hon. Friend would want us to stick to the terms of the coalition agreement, which commits us to protecting pensioner benefits for the lifetime of this Parliament. However, he is right to say that we have to do right by homeless people, and I welcome the fact that the December quarter’s homeless acceptance figures were down by 5% compared with a year earlier. That covers the period in which the change was made, and there are now about 50,000 homeless acceptances a year, which is about half the level that we saw in the early years of the Labour Government.
Mr Barry Sheerman (Huddersfield) (Lab/Co-op)
Does the Minister find, as I do in my constituency, that when people in his own constituency get into a real crisis, the help that they used to be able to draw down is no longer there and that the community and third sector groups and charities are underfunded?
Steve Webb
On the contrary, the money that we were spending on crisis loans and community care grants, amounting to more than £170 million a year, has been devolved in full to local government. The hon. Gentleman should take the matter up with his local authority if is not spending it properly.
Chi Onwurah (Newcastle upon Tyne Central) (Lab)
14. How many IT specialists are working on the digital solution to universal credit.
Henry Smith (Crawley) (Con)
T2. What is my right hon. Friend’s assessment of how the Government’s triple lock guarantee for increases in the state pension has benefited thousands of pensioners in my constituency and across the country?
The Minister of State, Department for Work and Pensions (Steve Webb)
I am grateful to my hon. Friend for flagging the fact that we have increased the basic state pension by whichever of earnings, prices or 2.5% gives the best outcome for pensioners. Compared with the earnings link, which we think the Opposition would have restored from 2012, that is an extra £440 a year in state pension for pensioners in our constituencies.
Gavin Shuker (Luton South) (Lab/Co-op)
T3. A constituent of mine who is on jobseeker’s allowance wrote to me to ask for financial support to get feedback on her interview technique to find where she was falling down at interview. Instead, I gave her a mock interview and, I hope, some helpful feedback. She says of the jobcentre, “I have asked umpteen times for interview practice, but all I get is directed to tips on the web.” Why can that not be provided by the jobcentre?
Mr Dave Watts (St Helens North) (Lab)
Following last week’s Budget, will the Minister assure me that if people exhaust their pension pots they will still be entitled to the full range of pensioner income-related benefits?
Steve Webb
Unlike the Labour party, we actually trust people with their own money. The people we are talking about have saved frugally for their retirement; they are not the sort of people to blow the lot. We will, of course, look at all the rules on capital in our Department and in the Department of Health in the light of the announcement to ensure that they are up to date, but I think the hon. Gentleman’s view that older people will blow the lot is far from the truth.
Robert Halfon (Harlow) (Con)
Is my right hon. Friend aware that unemployment in Harlow is now 600 lower than it was at the general election, and that the number of apprenticeships in the past year has gone up by 86%? Will my right hon. Friend pay tribute to the Jobcentre Plus and the agencies that are working well with the Government’s Work programme to improve the unemployment and skills situation in Harlow?
Duncan Hames (Chippenham) (LD)
I congratulate the Pensions Minister on the radical reforms he announced last week, which will be warmly welcomed by the retired secondary cancer patient whose case I raised with him before the Budget. How soon will people like her be able to get their hands on what is, after all, their own money?
Steve Webb
I am grateful to my hon. Friend, who did indeed raise the issue with me before the Budget. Short-term changes came into effect last week to raise the limits on things such as draw-down and, in the jargon, trivially commuting small pension pots. Legislation will go through for much greater liberalisation to come into effect in April 2015.
Natascha Engel (North East Derbyshire) (Lab)
We read in The Guardian—it must be true—that the Secretary of State is considering charging for appeals against DWP decisions. If someone has their benefits stopped, with what money are they supposed to pay to get justice?
Quality Workplace Pensions
Steve Webb Excerpts(10 years, 8 months ago)
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The Minister of State, Department for Work and Pensions (Steve Webb)
With permission, Mr Deputy Speaker, I will make a statement setting out the actions that this Government are taking to ensure that the pension schemes into which workers are enrolled are of high quality and provide value for money. The steps I shall outline today are the latest in a sequence of groundbreaking changes that are revolutionising the pensions landscape.
As we move towards our goal of enrolling 10 million workers into pension saving, we need to ensure that those savings are invested in value-for-money schemes that are well-governed. So today, I can announce that this Government will introduce a package of measures to protect people against high and unfair charges; ensure schemes are well-run; and turn our pensions market into a world leader for disclosure and transparency. Through the new measures, this Government will be the first to get an iron grip on the issue of pension charges. We are going to put charges in a vice; and we will tighten the pressure year after year.
In our pre-Christmas consultation, we consulted on three options for capping pension scheme charges: an across-the-board cap of 0.75%; a comply-or-explain cap, allowing schemes to go up to 1%; or a simple 1% cap. You may be aware, Mr Deputy Speaker, that there were those who, to use a technical term, suggested that we might wimp out on these choices—that we might give in to the vested interests of the pensions industry. I hope that the announcements of my right hon. Friend the Chancellor last week show that the Government are without fear or favour when it comes to the financial services industry. I can tell the House today that of the three options, we have decided to go with the toughest of the three.
At the heart of our plan is a charge cap of 0.75% for the default funds of all qualifying schemes, with equivalent caps for schemes with combination charge structures. The cap will apply from April 2015, and it will apply to all schemes used for automatic enrolment. That means that we will deliver on the timetable in our consultation document to have a full cap in place by April 2015.
I can also confirm that we are today publishing a full impact assessment of these changes, which has received a green fit-for-purpose rating from the Regulatory Policy Committee. Over the next 10 years, the new charge cap will transfer around £200 million from the profits of the pensions industry to the pockets of savers. After the charge cap is implemented, we will make further changes, year after year, to tighten further our grip on unfair charges.
As well as meeting the 0.75% cap, from April 2016 schemes will be prohibited from taking money from people's pension schemes to pay for sales commission. Schemes will have to end the practice of increasing the charges of people who are no longer employed by the sponsoring employer of the scheme—so-called active member discounts or more accurately deferred member charges. That is in line with the recommendations both of the Work and Pensions Committee and the Office of Fair Trading. It is not right that people should pay more in charges simply because they have moved employer and consequently stop contributing to a scheme. These charges are particularly unfair in the context of an increasingly flexible labour market, where people change jobs more regularly and are therefore more likely to become deferred members.
On transparency, the Office of Fair Trading uncovered 18 different names for and configurations of charges. The charges are often hidden and complex. Today, I can confirm that in a further measure to shine some light into the dark recesses of the pensions industry, we will introduce full standardised disclosure of all costs and charges that will make scheme comparisons a reality for the first time. The transaction costs hidden in complex and opaque investment chains will be exposed, giving new clarity about where members’ money is really going.
From April 2015, trustees and those who represent members’ interests in pension schemes will have a duty to obtain information on all scheme charges. We will start work straight away with the Financial Conduct Authority to develop standardised measures of transaction costs. We will use that information to consider whether another turn of the vice is needed in 2017 to take our reforms even further, potentially by including transaction costs within the default fund charge. In addition, in 2017 we will consider whether the base charge cap of 0.75% is to be reduced further.
As well as focusing on charges, we are strengthening the way in which schemes are governed. Our governance reforms will ensure that there are people running schemes in members’ interests and that they scrutinise the costs and charges that affect their members’ pots.
We want members of so-called legacy schemes as well as those people enrolled into schemes being sold today to receive good value for money. The OFT identified that charges are currently a quarter to a third higher in schemes that were sold before 2001. Those schemes have gone unscrutinised for too long. We therefore welcome the independent audit of legacy and other high-cost schemes put in place following the OFT’s recommendation, in which my Department is involved. The audit is scheduled to be completed by the end of this year and we will take any further action necessary in the light of those findings to address the poor value that has been allowed to persist in some of the older pension schemes.
The pension system we inherited was broken. The coverage of workplace pensions was declining. The value of the state pension was declining. The only growth area in pensions was the mass means-testing introduced by the previous Government as a last-ditch attempt to prop up a failing system. Through our bold and innovative changes, we will reverse that spiral of decline. We are following up our radical reforms to the state pension, the successful implementation of automatic enrolment and last week’s bold Budget announcements with another measure that will help to put pension provision back on its feet.
This is a full-frontal assault on poor value for money from a Government on the side of people who save. These changes are a major step in our wider programme of pensions reform, safeguarding the hard-earned savings of those who work hard and do the right thing. This truly is another landmark day for pensions policy and I commend our plans to the House.
Gregg McClymont (Cumbernauld, Kilsyth and Kirkintilloch East) (Lab)
I thank the Minister for notice of the statement.
Rare is the day when the Government appear to adopt an Opposition policy lock, stock and barrel. Rarer still is the day when the Government appear to adopt two of the Opposition’s policies lock, stock and barrel. Today, the two broken markets identified by my right hon. Friend the Member for Doncaster North (Edward Miliband)—energy and pensions—have been accepted by the Government, who have made concessions in that regard. They are two big wins for the Opposition.
We welcome those concessions. We welcome the Prime Minister’s announcement on Wednesday that an energy freeze from SSE is a good thing. Perhaps we will finally see the Government reversing their tax cut for millionaires, although that might damage the Minister’s new-found interest in the market in Lamborghinis. The Government have belatedly accepted that the market in pensions, as in energy, is not working for consumers. We welcome this historic change of Conservative and Liberal heart. It is a retreat from free-market dogma.
This is the second time—the Minister alluded to this—that I have welcomed a Government proposal to cap pension charges. The Minister refers in his statement to delivering on his timetable, but what he does not say is that it is a new timetable. In October, the Minister rushed into a four-week consultation with a view to capping pension charges from April 2014, five days from now, but his impact assessment was condemned as not fit for purpose by the Regulatory Policy Committee. Today, the Minister has confirmed that no charge cap will be in place until 2015, a year from now. That matters because in the Government’s own figures, someone who has worked hard to save £100,000 in their pension pot for retirement and is charged 1.5% for the next 12 months will pay a hefty £1,500 in charges, so why the delay, given the difference that will be made by a cap set at the level the Labour party suggested and given what the Minister has recommended today? Why the delay in not introducing it today? That £1,500 might not be enough to purchase a Lamborghini, but it could well amount to a deposit on the two-door Corsa that the whole world now knows the Minister drives.
This is so important because pensions market failure has significant consequences for millions of savers. The Minister knows that, by 2017, 11 million people will be auto-enrolled—3 million now and 4.5 million by the election. That is why it is so urgent. The Minister promised a full-frontal assault on pension charges in October. Whoever has heard of a full-frontal assault that comes with a 12-month notice period?
The Minister and I both know that governance is the key to better pensions, so when will the independent governance committees that the Labour party has called for be implemented? Will he give us clarity on that? In his review for the Business Secretary, another Liberal Democrat, Professor Kay concluded that excessive churning by fund managers was reducing the value of pension assets. Will the Minister pledge to the House today that all fund management costs, as set down in Labour’s amendment to the Pensions Bill, will be disclosed as part of the policy? Furthermore, to whom will the fund manager costs be disclosed? The statement mentions trustees and others, but who are these others?
Let me finish on a note of consensus: an Opposition are always delighted when a Government adopt their policy. To have two significant Opposition policies adopted in one day is truly a success for my right hon. Friend the Leader of the Opposition, and for the Labour party. We welcome the Government’s endorsement of our policy. It matters so much because of the difference it makes to pension savings, but we will continue to scrutinise the detail of the proposals as it emerges, because in pensions the devil is always in the detail, and this Government certainly have form on that point. We welcome this endorsement of Labour policy and we will look further at the detail.
Steve Webb
I understand why the hon. Gentleman wants to talk about energy and income tax rather than pensions: he has nothing to say on the pensions announcement.
The hon. Gentleman said that we have adopted Labour’s policy. I thought he might say that, so I thought I would have a little look at what Labour’s policy was. The first evidence we have is their record in office, when they had 13 years to cap charges and did precisely nothing. But we do have more recent evidence—he mentioned the leader of the Labour party and his views on the subject, so I have a done a bit of research. Clearly, The Guardian was briefed by Labour, and the leader of the Labour party called it an “all-out attack” on rip-off pension charges, so that is good. Patrick Wintour said in September 2012:
“Ed Miliband will promise to end rip-offs in the pensions industry”—
that is good, is it not?
—by putting a 1% cap on pension charges”.
I wonder whether he has moved a bit because he saw what we were doing. I get a slight sense that might be the case.
The hon. Gentleman asked about the timetable. Our consultation document made it clear that every scheme would have a cap in place by April 2015. We are today delivering on that timetable. [Interruption.] The hon. Member for Leeds West (Rachel Reeves) says, “What about April 2014?” If they are seriously suggesting that we should apply a charge cap with a few days’ notice, it shows how little they understand about how employers work and how the pensions industry works. Unless they are calling for us to announce a cap at a few days’ notice, which would be pretty irresponsible, we are delivering on the timetable that we set out.
The hon. Gentleman asked me some specific questions. The independent governance committees will have to be in place by April 2015, but the Association of British Insurers and the Office of Fair Trading have agreed that they will put them in place before that date. The legal requirement is April 2015, but we expect to see them in place before that.
The hon. Gentleman asked who the costs have to be revealed to. The trustees or the independent governance committees, who will act on behalf of the members and will have the technical expertise to understand all the detail, get the information, but they will form a judgment about the format in which they pass it on to scheme members. Scheme members need to understand about charges, but probably not in the full gory detail that trustees and governance committees would. The point is that for the first time there will be people in every pension scheme acting on behalf of the scheme member, and that is a radical step forward.
Dr Thérèse Coffey (Suffolk Coastal) (Con)
I welcome the statement, which is good news for the savers of Suffolk Coastal. Will my hon. Friend say a little more about how he is tackling the unfair active member discounts in workplace pension schemes?
Steve Webb
I certain will, and it was very much the savers of Suffolk Coastal we had in mind. Active member discounts have been going on far too long. They are one of the hidden charges, and people are ignorant enough already of the charges in their pension schemes, through no fault of their own, even when they are active members, but when they move on to a new firm and a new scheme they probably have no clue what the charges are in the scheme they have left. Therefore, from April 2015 even schemes that retain active member discounts will be unable to go above 0.75%, which will stop many of them, and by April 2016 they will have to have been worked out of the system altogether.
Dame Anne Begg (Aberdeen South) (Lab)
The shadow Minister failed to persuade the Minister that the Opposition might have been responsible for some of these changes, but I wonder whether he will acknowledge that many of the measures he has announced today were recommended by the Work and Pensions Committee. In particular, we hope that we have played some part in ensuring that costs and charges are capped and transparent. He said that transaction costs will not be part of the cap but that there is some action on them. How likely is it that transaction charges will be part of the cap at some time in the future?
Steve Webb
I am grateful to the hon. Lady and hope that I acknowledged in my statement the contribution her Committee has made to some of the measures. On transaction costs, from this time next year trustees and governance committees will have a legal duty to obtain information about all costs and charges; we will be working with the Financial Conduct Authority, staring immediately, to try to define them all. The shadow Minister came up with a list the other day, but there will be things missing from it. As soon as a phrase appears in an Act of Parliament, the industry will change the name of it. We must therefore ensure that we are as comprehensive as possible. We are certainly open to the possibility that that should go in a charge cap. We would not want to do that in a way that discourages transactions that are in the interests of members, but clearly we want to avoid gratuitous transactions intended only to generate charge income, rather than to further the interests of members. It is certainly something we will return to, particularly in the light of the transparent information that will become available for the first time because of these measures.
Nigel Mills (Amber Valley) (Con)
I welcome the charge cap, which shows how far we have come from the days of stakeholder pensions and the level of charging that was allowed. Will the Minister update the House on some of the other ideas for reform that are out there, such as defined ambition schemes and large aggregator schemes, which might also give savers a better deal?
Steve Webb
I am grateful to my hon. Friend. Stakeholder pensions were the previous Government’s one attempt to limit charges. He will recall that they initially introduced a 1% cap—again, we have seen the colour of their money—before going back on that and allowing 1.5% for 10 years. I have always wanted to say that we will take no lectures from the Labour party, and he has now given me the chance. On defined ambition schemes, we will be taking that agenda forward, and I hope to have more to say about that when we publish our response to the consultation document. With regard to large-scale pension schemes, the command paper we are publishing today included a section on scale that I think he will find interesting. We think that the pot-follow-member model is the best way of ensuring that people build significant pension pots with the person they are currently saving with.
Julie Elliott (Sunderland Central) (Lab)
Why is the Minister waiting a year to introduce the full cap and a further year to ban people taking money from pension schemes to pay for sales commission? Why is he not acting much sooner?
Steve Webb
There is a perfectly straightforward answer to the hon. Lady’s question. When we asked firms to enrol their staff automatically, we asked them to plan 12 months ahead, because it takes a long time to set up a pension scheme, to choose a pension scheme and to communicate with scheme members. A firm sitting down today to plan for April 2015 knows the rules of the game today so that it can choose its scheme in an informed way. She asked why we have allowed a further year for commission and active member discounts. Clearly, if either of those takes a scheme above 0.75%, which many do, they will have to comply immediately in April 2015, but many of those are based on complicated contractual arrangements in pension schemes. We have to strike a balance between unpicking all those and focusing the pensions industry on delivering automatic enrolment, which is a key priority for the next 12 months.
Richard Fuller (Bedford) (Con)
Whether the Select Committee or the shadow Pensions Minister wish to claim credit is of secondary importance to my constituents, who today can feel a little more confident that they are not being ripped off. I thank the Minister for actually doing something about this, rather than just claiming credit. One of the most important things is that people can easily see what charges will be imposed in future. How will his proposals help to make that clearer for people?
Steve Webb
I am grateful to my hon. Friend for his kind comments. The challenge with this market is that the people buying the pensions are essentially the employers of the firm, not the staff. We need to ensure that when firms are shopping around for pensions for their workers they get clear and straightforward information about what the charges will be and that they will be capped. Scheme members clearly need to be able to access information about charges in a straightforward and transparent way. It is a slightly odd market, because people are buying on their behalf and, because of automatic enrolment, scheme members cannot negotiate a different price; they just have to take the price they are given. Our focus is therefore very much on ensuring that the people who make the choices on pensions—in this context, the employers—have clear advice and the cap to ensure that they and their members cannot be ripped off.
Mark Durkan (Foyle) (SDLP)
The Minister has indicated that further work will be done to try to tackle the whole ecosystem of charges and combinations of charges. What does he believe will actually trigger a decision in 2017 to capture some of those charges in the cap?
Steve Webb
I am grateful to the hon. Gentleman. Our central interest in all this is the well-being and welfare of scheme members. We would not put transaction costs, for example, into a cap if we thought that might result in certain transactions that would benefit scheme members not taking place. On the other hand, if we thought that there was overtrading or that people’s money was being invested in a way that generated income that did not benefit them, we would need to take account of those issues. One of the challenges we face in making policy in this area is that so little is known about what is going on. Step one is therefore to get transparency so that we know the scale of what is going on and what sorts of charges there are out there, and then we can make an informed decision.
Andrew Jones (Harrogate and Knaresborough) (Con)
I warmly welcome the statement. Strong, quality workplace pensions are critical to dignity and security in old age. Who does the Minister think will be the big beneficiary of these changes?
Steve Webb
I am grateful to my hon. Friend. As I have said, we estimate that around £200 million over the next 10 years will go from the pensions industry to savers, which we think will cover around 2 million pension savers, many of whom will work for smaller firms, because we know that the biggest firms have been able to negotiate good deals with providers. That is good news for people who work for Britain’s small firms, in particular, who might not otherwise have got good value for money in their pensions.
Sheila Gilmore (Edinburgh East) (Lab)
I am grateful to the Minister for coming to the House to make a statement, unlike some of his colleagues who have slipped out an important announcement in a written ministerial statement today rather than coming to the House. Will he give us a little more detail on the changes he proposes to make to governance and say when we can expect to see them introduced, because they will be very important in allowing people to be confident that some other form of charging is not emerging to replace it?
Steve Webb
I am grateful to the hon. Lady. The principal change, although not the only one, is the introduction of the requirement for independent governance committees. With trust-based governance there are member-nominated trustees and a fiduciary duty on trustees, but with contract-based pension schemes provided by insurance companies there is a question, as has often been argued, of who is acting on the members’ behalf. The IGCs will have to be in place by April 2015 and they will have various duties. The way in which they are set up is described more fully in the document—I know she will not yet have had a chance to read it. I think that she will welcome the changes, which mean that whatever sort of pension scheme someone is in, there is somebody there looking out for them.
Mr Philip Hollobone (Kettering) (Con)
Residents of Kettering will welcome these measures to improve the quality of workplace pensions. The reason for automatic enrolment in the first place is that a lot of people are either frightened by pensions or do not understand them, or they might be young people who think that pensions are irrelevant. Under the quality scheme that the Minister has announced, may we have a stamp of quality on the documentation to reassure workplace employees? May we also have a common-sense, plain-English helpline that people can phone without any difficulty so that they can have the complexities of their pension arrangements explained? Can we also ensure maximum transparency of portability of pensions between workplaces?
Steve Webb
My hon. Friend raises a number of important points. On kitemarks and the like, we are placing a legal duty on firms to use for auto-enrolment only schemes of a requisite quality, so it will not be a matter of individual employees wondering whether their scheme is good enough—they will know it is good enough because their employer will not be allowed to enrol them into a scheme that is not so. All schemes will be of the requisite standard. He is right that people need places to go for advice in amongst the complexity. Our Department sponsors a body called the Pensions Advisory Service. I encourage all Members of the House to refer their constituents to TPAS, which is a free, expert and very good service. I must confess that I occasionally ring it myself.
Mr Gregory Campbell (East Londonderry) (DUP)
I welcome this move. The Minister said, in effect, “We are going to put charges in a vice and we will tighten the pressure.” That sounds as though it might bring tears to the eyes of some of the pension providers, which may be no bad thing. He also talked about shining “sunlight into the dark recesses”. Those are good clichés and this is a good, progressive move forward. However, what is he going to do to ensure that instead of the eyes of people who are enrolling, and will enrol in future, glazing over whenever they think about pensions, they know there is transparency and know what is the likely outcome whenever they come to retire?
Steve Webb
I assure the hon. Gentleman that so far the response to automatic enrolment has been excellent. Despite predictions to the contrary, nine out of 10 of those who have been enrolled have stayed enrolled, which is a tremendous vote of confidence. In general, people have more trust in their employer than in financial services providers or even—dare I say it?—politicians, so we are using the employer route such that employers will ensure that the schemes they are using for their workers are of requisite quality. I also assure him that the language I used in the statement, though designed to be colourful, is also backed up by some hard reality.
Mr Angus Brendan MacNeil (Na h-Eileanan an Iar) (SNP)
Many will welcome the overdue cap and the possibility of lowering it further. On the pre-2001 schemes, may I press the Minister to act as soon as possible, because far too many people have lost too much money already to countenance much further delay?
Steve Webb
The hon. Gentleman is right. One of the problems, as with transparency, is that we do not know enough about the nature of these schemes and what the charges are. In some cases, they are high-charging but come with guarantees, so people are getting something for their money. An audit is going on at the moment. The pensions industry is having to produce a lot of information about all these schemes. That is often very difficult because pension companies have been bought, sold and merged; just getting the data is the first challenge. As soon as we know exactly what is going on and what further measures we can take to improve the welfare of consumers, I assure him we will do so.
Nick Smith (Blaenau Gwent) (Lab)
We have heard today that the independent audit on legacy and older pension schemes is still in hand. When will the further reforms that the Minister is talking about be brought forward, because there are some very high costs in these schemes?
Steve Webb
I agree. I have already met the chair of the new audit committee, and one of my senior officials serves on it. This work is now under way. Providers are being asked for data. That represents a significant cost to them, but we need those data. The deadline for that work is the end of this year. I have talked about some measures being taken years down the track, but this work will be completed this year. We will not just sit and wait until a letter arrives on my desk on Christmas day, or whatever. We are keeping close to the review, and as we learn from it and decide what action we can take, we will do so as soon as possible.
Barry Gardiner (Brent North) (Lab)
The Minister spoke of the “bold” pension proposals in last week’s Budget. Now that the Chancellor has allowed people to cash in their pension pot instead of purchasing an annuity, can the Minister confirm that, under his Department’s rules on care costs, local authorities will now be able to insist that they do cash them in, thereby pushing them over the threshold where they have to contribute to their own care costs?
Steve Webb
The hon. Gentleman raises an important point, which is that these changes have a number of knock-on effects within our Department and the Department of Health. Of course, we will make sure that the spirit of the Chancellor’s announcement is carefully reflected in the way Departments carry on. These flexibilities do not come in for another year, so we still have time to work through detail of the sort that he properly raises.
Mr Deputy Speaker (Mr Lindsay Hoyle)
Last, but certainly not least, the voice of Middlesbrough South and East Cleveland—Tom Blenkinsop.
Tom Blenkinsop (Middlesbrough South and East Cleveland) (Lab)
Thank you, Mr Deputy Speaker.
I find the Minister’s statement fascinating given that he said only recently that putting a cap on pensions was like trying to put
“a price cap on a tin of baked beans”.
I wonder whether he read this in yesterday’s Financial Times:
“Labour led the way with criticism of the annuities market and high opaque fees on pensions, long before the coalition took action.”
Would he care to comment on that very good article?
Steve Webb
I would. It is no coincidence that that newspaper is printed on pink paper. It has run stories about our plans for a price cap which, now that we have made our announcement, will be shown to have been wholly inaccurate. Those who have subscriptions to that newspaper might wonder whether they can always believe what they read in it.
Pensions Strategy
Steve Webb Excerpts(10 years, 9 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Minister of State, Department for Work and Pensions (Steve Webb)
With permission, Mr Speaker, I would like to make a statement setting out the Government’s strategy for future pension provision in the light of the Chancellor’s bold and radical reform proposals announced in the Budget statement yesterday.
Our first priority has been to do the right thing by people who have already retired—people who have spent a lifetime paying in to the system and who now have a right to expect a decent income in retirement. That is why one of the first measures taken by this coalition Government was to implement the triple lock policy, which ensures that the basic state pension increases each year by the highest of the growth in earnings or prices, with a minimum increase of 2.5%. As a result of this policy, the basic state pension is now a higher share of the average wage than at any time in the past two decades. But we also need a system that works for tomorrow’s pensioners. That is why we have introduced the single-tier state pension. This will provide a simple, single, decent state pension, set above the level of the basic means test, so that working people will know what they will get in retirement from the state and can plan accordingly.
We also needed to reverse the decades-long decline in workplace pension provision. With barely one worker in three in the private sector building up any pension provision at all, urgent action was required. That is why in 2012 we began the process of automatically enrolling more than 10 million people into workplace pensions. That programme has been a stunning success. Last week, we announced that over 3 million workers have already been automatically enrolled. Only about one in 10 workers is exercising their right to opt out of the scheme, as most realise that the combination of an employer contribution and tax relief from the Government make this a very attractive proposition. Figures published at the end of last week for April 2013 showed the biggest rise in workplace pension coverage since figures began in 1997, and we expect the figures for 2014 to show a much bigger increase.
We need to make sure that these pension savings are invested in value-for-money schemes that are well governed, and we plan to publish next week measures to deliver this policy goal. We will also ensure that individuals do not build up multiple stranded small pension pots but that their pensions follow them when they change jobs so that they build up a worthwhile sum in their current scheme. In addition, we will create a new “defined ambition” framework for workplace pensions, enabling new forms of risk sharing between employers and employees.
Having ensured that the vast majority of workers build up a worthwhile pension pot on top of a simplified state pension, we now have a new opportunity to think about the choices people have in retirement. In the past, retirement was often a relatively short period of time, and the priority for most was to turn their pension savings into a regular income for as long as they lived. But in a world where people will routinely live for 25 years in retirement, we need to think more creatively and give people new options about what they will do with their own money. In the past, Governments were concerned that if people had freedom over their pension pots, they would run them down too quickly and then depend on state support in later life. The single-tier pension provides a game-changing opportunity to rethink this model. With people receiving a full single-tier pension already clear of the basic means test, the state need be much less prescriptive about how people use their accumulated pension savings.
That is why the Government have announced a plan for radical liberalisation of the retirement savings market with effect from April 2015. Gone will be the detailed rules on how quickly people can turn their pension pot into annual income. Instead, for the first time, we will treat people as adults, giving them the flexibility to choose how best to use their hard-earned savings in the way that suits their personal circumstances. People will still be free to take a tax-free lump sum and turn the balance of their pension pot into an annuity, providing a guaranteed income for life, but they will also be able to withdraw the whole of their pension pot as cash to spend as they see fit, subject only to taxation on the balance in excess of the tax-free lump sum. Or they can decide to allow their money to go on growing, drawing cash as and when they wish, perhaps as part of a phased retirement—something that we have talked about for years and are now delivering. By lifting the rules, we anticipate that industry will respond with new products that meet consumers’ income needs in new and innovative ways.
These reforms will increase the attractiveness of saving for retirement, and will allow people to shape their finances in retirement as they see fit, not as the Government tell them. To support people in making good choices we will introduce a guidance guarantee—a legal requirement on pension schemes to offer all scheme members a conversation about their options with someone who is impartial. This may lead them to take full independent financial advice, or it may enable them to make informed choices without further advice. As a down payment on these increased flexibilities, we will dramatically relax the rules on turning small pension pots into cash and the rules on existing drawdown products with effect from 27 March.
We anticipate that annuities will continue to be an important part of retirement provision and the FCA will continue with its review of the workings of the annuity market, to ensure that consumers get maximum value for money from their hard-earned pension savings. But we also expect that our reforms will pave the way for new financial products which will give people new freedoms over how they turn their retirement savings into quality of life in retirement, as well as potentially link to options for funding the long-term costs of social care.
The pensions system that was inherited by this coalition Government was broken. Declining coverage of workplace pensions and a declining basic state pension meant that mass means-testing had become the order of the day. We were determined to reverse that spiral of decline. We have done the right thing by today’s pensioners by starting to restore the real value of the state pension through the triple lock. We have reformed the state pension to provide a simple, decent foundation for retirement saving and have implemented automatic enrolment, leading already to millions more in workplace pensions. And now we have ripped up the red tape that prevented people in retirement from making their own choices about how they want to spend their own pension pot. This is truly a pensions revolution, and I commend this strategy to the House.
Gregg McClymont (Cumbernauld, Kilsyth and Kirkintilloch East) (Lab)
No one can say that pensions is not a fast-moving and exciting world. The Minister was halfway through his statement before yesterday’s announcements were mentioned. The reason for that is straightforward. The announcements yesterday cannot be bold and radical and also be a logical extension of the Government’s existing pensions policy, as the Minister strains to claim. Let us be clear about that.
There is a wider context to the statement. Given that so much time was spent on the wider pensions strategy, it is surprising that the Minister made no mention of his retreat, so far at least, from clamping down on fees and charges in individual pension schemes. The stridency of the Minister’s statement results from the fact that he knows that on that fundamental issue he has not delivered for the millions of people saving in the new pension schemes for which he claims all the credit. It is important to put that on the record.
We welcome greater flexibility and choice, especially in the announcements— which are easy to understand and the impact of which is easy to interpret—regarding the changes from 26 March this year. It makes sense to allow greater flexibility, particularly for those with small pots, which the new auto-enrolment system is producing. An annuity will not deliver value for money for these small pots, so we welcome the changes. With the increase to £30,000 in the trivial commutation rules and the changes to the number of pots that can be taken in cash, some individuals will be able to take, by my calculations, up to £60,000 as cash. That is to be welcomed.
Let us probe a little more deeply, especially the new developments surrounding the changes from April 2015, which the Minister dealt with in the second half of his statement. He made great play of the fact that there will be a statutory right to guidance via pension providers. We welcome that. It is our policy, which the Government have taken. After all, imitation is the sincerest form of flattery. Is the guidance to be mandatory for all those approaching the point where they turn their pension pot into retirement income? If not, how does it deal with the cardinal feature of the current annuities market, which is that the majority of people do nothing other than take the current offer from their provider? Government Members have gone quiet now. When we get into the detail, which they do not understand, the picture looks a little different.
We need clarity on that guidance. We need to know what protections there will be for savers in the new investment products that are to be developed. What is the track record of the investment industry in delivering innovative new products that deliver value for money at low cost? [Interruption.] The Secretary of State says something but he has no idea of what he speaks.
What will be the safeguards around the guidance? Will it be mandatory? Will it ensure that people get the best possible deal for their cash? These savings measures are supposed to be part of a Budget that is meant to be for savers. Why, then, does the OBR forecast that the savings ratio will fall? Will the Minister tell us what these changes will mean for savings in future? There is nothing in the Budget about the savings ratio. More widely, how many people will continue to annuitise? The Minister talks of a radical liberalisation, but if a significant number of individuals continue to annuitise, surely the priority should be to ensure that that annuity market also delivers value for money.
Finally, the Minister made great play of his defined ambition agenda, which is buried in his statement. How can one develop the collective pensions to which he subscribes when they depend on intergenerational risk-sharing? As we understand it, intergenerational risk-sharing becomes extremely difficult, if not impossible, if people exit the system at the age of 55. On all these questions—the safeguards surrounding the guidance, and the recognition that the Minister has, to some extent, taken our policy, which we welcome—how do these reforms marry with the wider pensions agenda? We look forward to the Minister’s response.
Steve Webb
I am grateful to the hon. Gentleman for his wholehearted endorsement of our plans. The guidance guarantee is as it says on the tin: it is guaranteed. It is a right of members of the scheme. It is a duty on schemes to make sure, for the first time, that people coming up to retirement have a conversation with someone who is independent and who is on their side, and the schemes will have to make that happen. The Financial Conduct Authority will oversee that process. We will look into whether we can involve the voluntary sector and the advice sector in that.
We often hear the phrase “advice gap”. The hon. Gentleman suggests that we started from a blank sheet of paper, but we did not. We started from a situation where many people coming to retirement were making the wrong decisions and buying poor value products. This is the sort of thing that we have had to address.
The hon. Gentleman asks whether the Budget was really one for savers. To me the increase in ISA limits sounds like good news for savers. The new pensioners bond coming in next year sounds like good news for savers. New freedoms for pensioners with regard to how they can use their pensions sounds like good news for savers. Perhaps the hon. Gentleman wanted still more, but I quote to him Dr Ros Altmann, who said that yesterday was like London buses—all the good news for savers came at once.
The hon. Gentleman asked the question I thought he might ask. If I paraphrase it loosely, his question, as a former academic, was on “the consistency of the defined ambition framework with liberalised decumulation”. I think that is what he wanted to know about. It is perfectly reasonable for people to have collective provision in accumulation. People can build up pensions collectively and many people will go on buying annuities. Many people will still want an income, but we are giving them new options. Plenty of people will want a scheme in which to go on investing their money into retirement. That will be their choice. Our whole agenda is about new models and new options, not just going from one extreme to another.
The hon. Gentleman asked about action on charges. I assume that he had written his questions before he read my statement. Given that we gave him the statement well before the speech, I am surprised at that. I confirm that next week we will announce the conclusions and the action we are taking—action to tackle problems that were never tackled in 13 years of a Labour Government.
The hon. Gentleman says that guidance is Labour’s policy. I am delighted to hear that, but why was there none in place when his party was running the country? It is good of him to support the plans.
This is bold and radical stuff. People will have guidance for the first time and new flexibilities. Some Labour MPs are saying that this should be blocked because we cannot trust people to spend their own money. I think we should.
Mr Mark Hoban (Fareham) (Con)
I welcome the reforms announced by my right hon. Friend the Chancellor yesterday and the further detail my hon. Friend the Minister has given today. I urge him not to overlook the Pensions Advisory Service and the Money Advice Service as potential sources of advice for people approaching retirement. How will he take forward discussions with the industry and the regulator to ensure the availability of good quality products for new pensioners that not only represent good value for money but are properly regulated?
Steve Webb
My hon. Friend has great knowledge of these matters from his time at both the Treasury and the Department for Work and Pensions. He is absolutely right to say that we need to make sure that people have guidance that enables them to make informed choices. They will still be able to proceed to formally regulated independent financial advice, but the industry will have to up its game, because now people will have much more choice to take cash, and if they want to take an annuity they will have to be persuaded that it is good value for money. That will be a market impetus to provide better quality products. We have asked the FCA to make sure that a good guidance regime is in place, potentially involving groups such as the excellent Pensions Advisory Service, to which my hon. Friend referred.
Gavin Shuker (Luton South) (Lab/Co-op)
As a result of these changes, will taxpayers pay more or less to the Exchequer?
Steve Webb
The beauty of theses proposals is that individuals will choose: if they want to spread their income over their retirement they will pay less tax, and if they bring forward their cash they will pay more tax. We think people will take advantage of those freedoms, which will bring forward taxation revenue in the shorter term, and there will be a reduction later on. People will be able to make free choices, something I hope the hon. Gentleman is in favour of.
Dr Julian Lewis (New Forest East) (Con)
I am genuinely not sure what the previous position was on whether the pension pots of elderly people going into residential care contributed towards the total assets they were allowed to retain before they got help from the state. If that was separate and did not count, will the fact that pension pots can now be turned into cash disadvantage people going into residential care in terms of the assets they can retain, or will the situation remain unchanged from their point of view?
Steve Webb
The interaction between these measures and the funding of long-term care is important. There are various rules. If someone takes their pension pot as income, it will be counted as income in the means testing for residential care. If they have capital assets, we assess them on a different basis. We have to make sure that these measures are joined up with our policy on long-term care so that we have the right outcome. What we hope will happen is that new financial products will allow people to use their pot to possibly get care insurance as well. The industry has asked for this; now it has to raise its game.
Mark Durkan (Foyle) (SDLP)
Beyond the guidance guarantee, will the Minister assure us that when these innovative products are offered for sale, the regulator will be able to guarantee that it will in effect have pre-assured them, not least regarding the transparency of charging schemes?
Steve Webb
As the hon. Gentleman knows, we are taking steps to make sure that charges in the pension sphere are made much more transparent. Any new products, particularly if they are sold, will be regulated by the FCA. The guidance is simply a conversation, as it were, with someone who will enable people to get basic information. People will still be able to take regulated independent financial advice, and that will be a regulated process.
Paul Burstow (Sutton and Cheam) (LD)
The Minister has rightly championed the triple lock, making sure that the pension goes up by whichever is highest: earnings, prices or 2.5%. That is making a huge difference to pensioners in my constituency and, I suspect, the constituencies of hon. Members across the House. Will he confirm that it is the Government’s intention to make that very important change a permanent feature of the pension landscape so that it gives people certainty for the future? As part of the guidance guarantee, will he ensure that a linkage is made to the duty in the Care Bill to provide information and advice in respect of care?
Steve Webb
I am grateful to my right hon. Friend for making the crucial point about the link between this new freedom and the level of the state pension. If we are able to keep the triple lock going, what will happen with a means-tested earnings-linked pension credit is that there will be more and more clear blue water between the means test and the triple-locked pension, which will greatly reduce the risk of anyone falling back into means testing in retirement. I would certainly like to see that continue beyond this Parliament.
On guidance on care, we will liaise with our colleagues at the Department of Health to make sure we are taking best advantage of this conversation.
Sheila Gilmore (Edinburgh East) (Lab)
Given the track record of the DWP and the Government on universal credit, the employment and support allowance, the personal independence payment and universal jobmatch, I think people might be a little sceptical about a proposal that appears to have been drawn up on the back of an envelope. The Red Book expects the savings ratio to fall from 7.2% to 3.2% by 2018. How will these proposals help savers?
Steve Webb
We heard earlier that these are Labour policies, but now we hear that they were drawn up on the back of a fag packet. Perhaps both statements are true—I do not know. Just to be clear about what the Labour party has been demanding: it has been demanding not a guidance guarantee, but annuity brokers. It wanted everyone to buy an annuity. This is about freeing people up. That is why it will be good news for saving. Let me give the hon. Lady a brief example. Under auto-enrolment, the people most likely to opt out are the oldest—people in their 50s and beyond—partly because they do not want to tie up their money late in life. This will give them a guaranteed return, in cash, within a few years, and we think it will lead to more pension saving and that it will be a boost to savers.
Penny Mordaunt (Portsmouth North) (Con)
The older someone is, the higher their cost of living. Does the Minister agree that our reforms of the state pension and these new freedoms in private provision should result in increased income and opportunities for people in retirement, and that it is therefore vital that they get good quality financial advice?
Steve Webb
My hon. Friend is right. The key word she used was “opportunities.” If people want to take more of their pension wealth earlier in retirement—perhaps when they are more fit and able—they should be free to do so. As she says, however, they need to make informed choices, which is why the guidance guarantee is so important.
Mr Mike Weir (Angus) (SNP)
Although I am generally supportive of the changes to the private pension—they are sensible, especially for those with smaller pots—I wonder what the difference is between one of these new pensions and other savings vehicles. Will there be any impact on the assessment of someone in their late 50s who unfortunately finds themselves seeking means-tested benefits? Will they be looked at differently compared with the current pension plans, given that they will now be able to draw down money at any time and it will no longer be necessary for them to purchase an annuity at the end of the scheme?
Steve Webb
The hon. Gentleman is right to say that we are going to have to think about pensions and retirement saving in a new way. One of the differences between workplace pensions and other forms of saving is the employer contribution. Whereas someone of working age can save through any savings vehicle they like, it is only through workplace pensions that they get not only tax relief but the employer contribution. They will, therefore, remain particularly attractive products, including for people on low wages.
Mr Crispin Blunt (Reigate) (Con)
Thousands of people in my constituency work in this industry, from the blue-chip leaders working for Legal & General and for Fidelity to those working for two companies that have led the way in innovative products, namely Partnership and Just Retirement, whose share prices took a hammering yesterday because of the language being used about the future of annuities. Will the Minister make it absolutely clear that the delivery of good guidance is essential—that would reinforce the position of those who are delivering innovative products—and that annuities will be an extremely important part of the industry in future provision?
Steve Webb
We know that many people will still choose to have an income for life rather than a capital sum, so we do not think this is the death of the annuity. We think it will give a bit of a jolt to the annuity market and make providers do better. For example, Standard Life, a major annuity provider, said yesterday:
“Today’s wide ranging reforms of the UK savings and pensions regime have the potential to provide the simplicity, choice and flexibility for savers we have been calling for.”
A representative of the Association of British Insurers was on the radio this morning, and the providers are realising that this is an opportunity. They will have to up their game, but this is a chance for them to provide new and innovative products and we are happy to work with them on that.
Debbie Abrahams (Oldham East and Saddleworth) (Lab)
How will the Government’s measures protect people like a constituent of mine who is a baker in his mid-70s? He had a lump sum pension pot of £250,000 and received independent advice, but that advice was poor and he lost almost everything. He is in his mid-70s and does not think he will ever be able to retire.
Steve Webb
As the hon. Lady knows, there are redress mechanisms for people who receive poor quality independent financial advice. It is a regulated process. [Interruption.] I cannot hear what she is shouting at me. When there is a process of regulated advice, there are compensation mechanisms, which is right and as it should be.
Dr Thérèse Coffey (Suffolk Coastal) (Con)
I have to thank my hon. Friend because the statement and what was announced in the Budget yesterday take pensions to a whole new level. Now we have the single-tier state pension, we can free people to make their retirement decisions. Frankly, the Opposition do not seem to recognise the issues that people on defined contribution schemes have had or how annuities have fallen, so I really welcome what he has said today. In particular, will he tell us a bit more about when pensioner bonds will come into effect?
Steve Webb
Certainly. My understanding is that National Savings and Investments will bring forward pensioner bonds next January. The Chancellor has indicated that the gross interest rate will be about 2.8% for a one-year bond and about 4% for a three-year bond, but that will be reviewed later in the year. It depends on market movements between now and then, but it is designed to be a market-leading rate to recognise that people who have worked hard and saved hard should get a decent return on their money.
Alison Seabeck (Plymouth, Moor View) (Lab)
It is interesting that the consultation is coming after the facts in this case. Will the Minister place in the Library a list of all the people he consulted prior to the announcements today and yesterday, as well as the risk assessment of where the Treasury will benefit or lose out from the proposal and, importantly, of the impact on women, because I suspect that women will yet again be net losers?
Steve Webb
There is a risk of being rather patronising to women in saying that giving them new freedoms will somehow result in their losing out. The hon. Lady will have seen that the markets moved following the announcement yesterday, so there is a sense in which such decisions have to be made through a confidential process. We are in constant dialogue with trade bodies and providers, and we will continue to be so. It is a three-month consultation, so we want to ensure that we get it right. On the principle of giving people freedom, she is shaking her head; I think that Labour Front Benchers might support it, but I really cannot tell.
Nigel Mills (Amber Valley) (Con)
I warmly welcome the reforms, which are a great step forward for the pensions industry. The solution to the annuities problem is perhaps more radical than even the Work and Pensions Committee envisaged. May I urge the Minister to make sure that the new guaranteed guidance arrives before people reach retirement age, so that they can have a plan in their mind about what they want to do and what is there for them to choose before they reach that date?
Steve Webb
My hon. Friend is a distinguished member of the Select Committee, which has scrutinised the issues very effectively. He is quite right that the guidance must come at the right time. We want people to think about their retirement planning much earlier. Certainly, when they are thinking about buying financial products—or, in the jargon, decumulating—we need to make sure that there is someone on their side to give them impartial guidance. We will make sure that that happens.
Mr Andrew Love (Edmonton) (Lab/Co-op)
The Financial Conduct Authority is not only a process regulator but a product regulator. Will the Minister ensure that it is seized of the need to look carefully at new, innovative products, because the group of people with whom it is dealing are very vulnerable, and it is important for the regulator to keep an eye on the market?
Steve Webb
The hon. Gentleman is quite right that products must be properly regulated. The difference between the current situation and what we propose is that, under our proposals, before going to independent financial advisers, people are guaranteed to have a conversation with somebody who is independent and on their side to talk them through their options. All too many people simply do not get that at the moment, and they risk making the wrong choice as a result. We will put that right.
Henry Smith (Crawley) (Con)
Despite the Labour party’s scaremongering since the Budget yesterday, will my hon. Friend confirm that other countries—such as the United States, Australia and Denmark—do not restrict access to pension funds for those seeking to access them on retirement?
Steve Webb
Yes. My hon. Friend is quite right. Many countries have different systems, but the presumption that as soon as someone has a pension pot, they are forced to take annual income is far from universal. We clearly need to make sure that people have proper guidance before they do so, but giving people freedom is what my right hon. Friend the Chancellor’s announcement was all about.
Richard Graham (Gloucester) (Con)
I welcome the further detail given by the Minister on the savings and pensions elements of yesterday’s Budget. By contrast, we have had the bizarre spectacle of the shadow Pensions Minister chuntering—yak, yak, yak—like an excited tourist on a Tibetan plateau. Clearly, there are huge elements that will help savers in all our constituencies. Will the Minister say a little more about one of the most important of those elements, which is the axing of the 10p tax rate on savings income of up £5,000, which I believe will affect 1.5 million low earners in all our constituencies?
Steve Webb
Gladly. My hon. Friend is quite right. The Opposition have asked, “Where are the measures for savers in the Budget? How does it help savers?” We have already gone through a list, and he has kindly added another element, which is the abolition of the 10p tax rate. As my right hon. Friend the Chancellor said yesterday, when this Government abolish a 10p tax rate, we take it to zero, not double it as others have done.
BILL PRESENTED
Wales Bill
Presentation and First Reading (Standing Order No. 57)
Secretary David Jones, supported by the Prime Minister, the Deputy Prime Minister, Mr Chancellor of the Exchequer, Secretary Alistair Carmichael, Secretary Theresa Villiers, Danny Alexander, Mr David Gauke and Stephen Crabb, presented a Bill to make provision about elections to and membership of the National Assembly for Wales; to make provision about the Welsh Assembly Government; to make provision about the setting by the Assembly of a rate of income tax to be paid by Welsh taxpayers and about the devolution of taxation powers to the Assembly; to make related amendments to Part 4A of the Scotland Act 1998; to make provision about borrowing by the Welsh Ministers; to make miscellaneous amendments in the law relating to Wales; and for connected purposes.
Bill read the First time; to be read a Second time on Monday 24 March, and to be printed (Bill 186) with explanatory notes (Bill 186-EN).
Mr Deputy Speaker (Mr Lindsay Hoyle)
We now come to the main business of the day, but may I ask for brevity? There are 30 Members down to speak, so I also make that appeal to Front Bench speakers.
Ways and Means
Pensions Bill
Steve Webb Excerpts(10 years, 9 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
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.
Pensions and Benefits Uprating
Steve Webb Excerpts(10 years, 9 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Minister of State, Department for Work and Pensions (Steve Webb)
I beg to move,
That the draft Guaranteed Minimum Pensions Increase Order 2014, which was laid before this House on 27 January, be approved.
Mr Speaker
With this we shall discuss the following motion, on the draft Social Security Benefits Up-rating Order 2014:
That draft Social Security Benefits Up-rating Order 2014, which was laid before this House on 27 January, be approved.
Steve Webb
Let me deal first with what is an entirely technical matter that we attend to each year, and not one that I imagine we shall need to dwell on today. The Guaranteed Minimum Pensions Increase Order 2014 provides for contracted-out defined benefit schemes to increase their members’ guaranteed minimum pensions that accrued between 1988 and 1997 by 2.7%, in line with the increase in the consumer prices index to the previous September.
I should like to turn now to the Social Security Benefits Up-rating Order 2014. As part of his autumn statement, my right hon. Friend the Chancellor of the Exchequer announced the rates of tax credits for 2014-15, and today we are debating the order that will uprate those social security pensions and benefits for which my Department is responsible. As the House will be aware, we are not here to discuss the Welfare Benefits Up-rating 2014 Order, which was made on 24 January. Those rates increased by 1% under that order, and were debated in Parliament during the passage of the Welfare Benefits Up-rating Act 2013.
Turning to the benefits and pensions in the Social Security Benefits Up-rating Order 2014, I shall deal first with the basic state pension. Despite the current tough fiscal context, this Government remain committed to protecting those who have worked hard all their lives, which is why we have stood by our triple-lock commitment to uprate the basic state pension by whichever is the highest of earnings, prices or 2.5%. This year, as prices were greater than average earnings and greater than 2.5%, the basic state pension will increase by CPI at 2.7%. The new rate of basic state pension will therefore be £113.10 a week for a single person, an increase of £2.95 from last year. That means that the basic state pension is forecast to be around 18% of average earnings from April 2014, a higher share of average earnings than at any time since 1992. Our triple-lock commitment means that someone on a full basic state pension can expect to receive £440 a year more than if it had been uprated by earnings since the start of this Parliament.
On pension credit, we have continued to take steps to ensure that the poorest pensioners will benefit in full from the effect of our triple lock. Each year, the standard minimum guarantee must, by law, be increased at least in line with earnings. That means that the minimum increase this year would be 1.2%. However, to ensure that the poorest pensioners benefit from the full cash value of the increase in the basic state pension, we decided again to increase the value of the standard minimum guarantee credit, in this case by 2%, so that single people will receive an increase of £2.95 a week and couples will receive an increase of £4.45 a week. Again, consistent with our approach last year, the resources needed to pay this above-earnings increase to the standard minimum guarantee have been found by increasing the savings credit threshold, which means those with higher levels of income will see less of an increase.
Let me now deal with additional state pensions. This year, the state earnings-related pension scheme—SERPS—and the other second pensions will rise by 2.7%, which means that the total state pension increase for someone with a full basic state pension and average additional pension will be about £3.75 a week, or just under £200 a year. Unlike under the Labour party, which froze SERPS in 2010, this will be the fourth year in a row that the coalition has uprated SERPS by the full value of CPI.
In these debates, we discuss the most appropriate measure of inflation by which to uprate benefits. I have had the pleasure of such exchanges with the right hon. Member for East Ham (Stephen Timms) several times, and I want to refer him back to something he said three years ago in the corresponding debate. We were using CPI rather than RPI—the retail prices index—and it is CPI which underlies these motions. He described the move to CPI as “ideological”; that is an interesting description of a choice of price index, but he regarded it as an ideological shift. He went further in expressing his distaste for this measure, saying:
“As for the view of my party, I simply refer the Secretary of State to what the leader of my party has said, which is that the suggestion that the change should be made for a period—perhaps up to three years—would be something that we could consider. If that proposition were on the table, we would be happy to consider it.”—[Official Report, 17 February 2011; Vol. 523, c. 1187.]
So his position three years ago was that, perhaps for three years, we might use CPI because it saves a bit of dosh but that the Labour party was committed to RPI.
I therefore hope that when the right hon. Gentleman responds and gives his party’s position on these motions he will clarify whether that is still his position. He will realise, first, that RPI has now been dropped by the Office for National Statistics as an official statistic because of methodological concerns. So I would be surprised if he remained committed to going back to RPI. Perhaps he thinks we should use CPIH, as he complained that we did not have owner-occupier housing costs in the measure that we are using. If that is his position, he would obviously be arguing for a lower increase in benefits this year, because at the moment the level of CPI is above that of CPIH. Given that he was opposed to a permanent switch to CPI, given that RPI has been dropped as an official statistic and given that some of the other measures are lower than the one we are using, I am slightly puzzled by his position—I am sure that by the time we have heard his speech we will no longer be puzzled.
On disability benefits, this year the coalition will ensure that those who face additional costs because of their disability, and who perhaps have less opportunity to increase their income through paid employment, will see their benefits increase by the full value of CPI. So disability living allowance, attendance allowance, carer’s allowance, incapacity benefit and personal independence payment will all rise by the statutory minimum of 2.7% from April 2014. In addition, those disability-related and carer premiums paid with pension credit and working-age benefits will also increase by 2.7%, as will the employment and support allowance support group, and the limited capability for work and work-related activity element of universal credit. Pensioner premiums paid with working-age benefits will increase in line with pension credit.
At a time when the nation’s finances remain under real pressure, this Government will be spending an extra £3.3 billion under these orders, and related orders, in 2014-15. We will thus continue to help support those who are not currently in work, first, by increasing the main rates of working-age benefits by 1%, and by ensuring that pensions, and benefits that are designed to help with the additional costs of disability, are protected against the cost of living. Of that, we will be spending about £2.7 billion extra on state pensions, including an above-inflation increase, and more than £600 million on people of working age. Nearly £600 million will be going to disabled people and their carers. Our decisive action to limit to 1% the increases in the main rates of most working-age benefits is part of our overall economic strategy, which has substantially brought down the deficit.
In this order, we continue: first, to maintain our commitment to the triple lock, meaning that the basic state pension will reach its highest level as a percentage of average earnings for two decades; secondly, to protect our poorest pensioners with an over-indexation of the standard minimum guarantee, so they too will feel the benefit of our triple lock; and, thirdly, to protect the benefits that reflect the additional costs that disabled people face as a result of their disability, through increases to disability living allowance and attendance allowance, carer’s allowance and the main rate of other disability benefits in line with CPI. I have set out our ongoing commitment to ensure that no one is left behind, and I commend these orders to the House.
Stephen Timms (East Ham) (Lab)
I thank the Minister for his explanation and confirm that I do not intend to express concerns about the draft Guaranteed Minimum Pensions Increase Order 2014. However, I do wish to make some comments about the draft Social Security Benefits Up-rating Order 2014. As he has said, this is a rather thinner debate than the corresponding ones he and I have enjoyed in previous years, because a big chunk of what we have debated previously is now covered by the Welfare Benefits Up-rating Act 2013, which imposed a 1% uprating this year and next, and so is outside the scope of these orders.
One thing I have not entirely understood—the Minister touched on this and I would be grateful if he explained it—is how the corresponding order for tax credits will be dealt with. Some elements of tax credits uprating are not covered by the 1% constraint. Clearly, with so few people in receipt of universal credit, he is not the Minister responsible for in-work benefits—that responsibility remains with the Treasury—but I wonder whether he could explain how the parliamentary process dealing with those tax credits is to be handled.
This is the fourth year since the announcement of the triple lock for the basic state pension. In rhetorical terms the triple lock has, no doubt, been successful, but, unfortunately, the reality has been rather different, because, once again, the increase in the state pension is less this year than it would have been if the uprating method previously used was still in place. In RPI terms, this is a real-terms cut for the third year in a row in the value of the basic state pension. The RPI last September was 3.2%, whereas the pension uprating delivered by this order is 2.7%. So in RPI terms, this is quite a big cut of 0.5%—a full half percentage point—in the value of the state pension, which is a bigger real-terms cut than last year. If the basic state pension had been uprated in line with RPI since 2010, the weekly rate for a single person would be more than a pound higher than the figure we are debating today, at £114.21.
Steve Webb
Clearly RPI is bigger than CPI—that is a statement of fact—but does the right hon. Gentleman think that RPI is a good measure of inflation?
Stephen Timms
I will come on to deal with that. The point I wish to make is that the triple lock is frequently presented to us, as the Minister did again today, as being extraordinarily generous to pensioners. It is presented as some great superlative, whereas in fact it has delivered a lower uprating than the previous formula—the one in place before the last election—in every one of the three years when it has been used, and in the first year it was due to be used it would have delivered such a low uprating that the Minister chose to override it. He was sensible to do so, but if he had used the triple lock in that first year, the gap between his uprating and the value of the basic state pension under the old method would now be almost £3 per week. So it is important in this debate to put on the record the extent to which the triple lock has delivered less than the long-established formula that was in place until the general election.
It is worth examining the history of the triple lock. In its first year, it was announced but not actually implemented, because it would have delivered a very small increase. So at its first outing, it failed.
Stephen Timms
The hon. Lady makes an important point. I hope she will support Labour’s energy price freeze, which will have an important benefit for people on low incomes. She is also right to draw attention to the particular difficulties of pensioners on low incomes. It is for that reason that pension credit is so important. Pension credit, which is in the order in front of us—I believe that my hon. Friend the Member for Cumbernauld, Kilsyth and Kirkintilloch East (Gregg McClymont) will say more about that when he responds to the debate later—is being uprated at a significantly lower rate in percentage terms than the basic state pension.
I was talking about the history of the triple lock. In the first year, it was overridden, so it failed. In its second year, it was implemented and delivered an increase in line with CPI, along with working age benefits. Last year, it was applied again and, for the first time, it delivered something better than CPI, but that was only by 0.3 percentage points. This year, the Government propose to uprate the basic state pension by CPI, which, as of September last year, was 2.7%. That is only a 0.2 percentage point increase on the absolute bare minimum that would be possible under the triple lock. Had the previous uprating RPI mechanism been in place, there would have been a larger pension increase this year, and in the last two years, than has been delivered.
It was in 2011 that the Government first uprated pensions by CPI rather than RPI. In the debate then I pointed out that this was a direct hit on the income of pensioners, and it still is. In 2011, a contributory deal, understood and signed up to by pensioners, was broken. That was compounded last year, and the Government want to do it again this year. On the other side of the coin, it is worth noting that RPI will continue to be used for the uprating of a great many other things. The Minister has correctly quoted my comments on that in the past. There could well have been a case to uprate by CPI as a deficit reducing measure for a period. However, we do not accept that Ministers should have tied themselves to CPI indefinitely, and that remains our view.
As announced in 2010, the Government have also made a permanent switch to CPI uprating. Thanks to the Welfare Benefits Up-rating Act 2013, most working age benefits were capped at 1%, with provisions for them also to be capped at 1% for the following two years, and so are outside the scope of this order. As we have said in previous years, there would have been a reasonable case for the Government to make a temporary change to the methodology, but unfortunately they went further.
Steve Webb
Sometimes we ask for a one-word answer. I want a three or possibly four-letter answer. Were the right hon. Gentleman introducing these motions today, which index would he use?
Stephen Timms
Sadly, I am not in the happy position that the Minister describes. I hope that I will be before very long, in which case I will gladly give him the answer that he seeks. However, I am not in that position today.
Steve Webb
I am listening with care to the hon. Lady. Just to set the record straight, one of her objections to the use of CPI is that it does not include housing costs. In fact, it does. It includes rents. Were we also to include owner-occupiers’ housing costs—the CPIH measure—we would have a lower measure than the one we are using.
Katy Clark
Obviously the Minister is aware that the range of factors taken into account has been smaller every year since the change was brought in. I oppose the orders not necessarily because they do or do not include housing costs—I understand the point he makes; he has made it before and we have debated it previously—but because the method does not reflect the real cost of living that people who rely on these benefits experience.
Every year since 2010 RPI has been higher than CPI and the gap between those figures has made a real difference to pensions and benefits. The danger with the change is the cumulative impact over many years. In 2010 the RPI figure was 4.6%. That went up to 5.6% in 2011, down to 2.6% in 2012, and was 3.2% last year. But the equivalent CPI figures were 3.1%, 5.2%, 2.2% and 2.7%. Every year there has been a gap, which has meant that some of the poorest and most vulnerable in our society have ended up with less money in their pocket.
The Prime Minister has made much of his decision to introduce a triple lock guarantee for the basic state pension. He has already pledged to retain it throughout the next Parliament should he have any success at the next general election. The guarantee ensures that the basic state pension will always rise in line with whatever is the greatest as between inflation, wages or 2.5%. The uncomfortable truth, however, as the Minister must accept, is that the triple lock was introduced alongside the change from RPI to CPI, so the basic state pension increases in 2012 and 2013 were lower than they would have been if the previous system had been used. By 2015, the basic state pension will therefore be £1.11 a week lower than it would have been if it had risen in line with RPI, so pensioners will be £106.60 worse off as a result.
That is how just one group is affected. If we look at other groups, such as carers, the situation is even worse. Next year, carer’s allowance will be £1.69 per week lower than it would have been under RPI, with carers £255.84 worse off by April 2015 as a result. Those receiving both the higher rate mobility and care components of disability living allowance will be £571.48 worse off by the same date.
Steve Webb
With the leave of the House, I shall be grateful for the chance to respond to the three speeches that we have heard. I cannot help reflecting on the fact that we cannot manage to talk for even an hour about spending £3.3 billion, but I take it from that that the House thinks that we are doing a good job.
Before I respond to the detailed points that have been raised, I want to be clear about what we mean by above inflation, real terms and all the rest of it. The April increase in the basic state pension will be in line with inflation at 2.7%. Of course, we now know that CPI is below 2%, so despite the population experiencing inflation at that rate, we are putting up the pension by 2.7%—
Steve Webb
In a second.
That explains the reference at the end of my speech to an above-inflation increase although, as we have discussed, there will be years in which the trend goes in the opposite direction.
Sheila Gilmore
The Minister anticipates the point I was about to make. The situation to which he refers could apply in any year. People suffered greatly in previous years because the uprating was set at a low point for inflation, yet they experienced real rising prices, so the increase is hardly a great virtue on the part of the Government.
Steve Webb
It is interesting to look at what has happened to benefit rates over the long run. In the seven years since the 2008 crash, the rate of jobseeker’s allowance has increased by more than the growth in earnings. While people with jobs—people would obviously far rather have jobs than not—have seen their wages grow over that period, the rate of JSA, which I still quaintly think of as unemployment benefit, has risen by more than that growth.
The hon. Member for North Ayrshire and Arran (Katy Clark) talked about pitiful increases and slashing benefits, but I can tell her that the Labour Government spent £181 billion on tax credits, benefits and pensions in their final year in office, yet in the first year of the next Parliament, we envisage spending not £181 billion, but £211 billion. Spending £30 billion more than six years previously is an odd definition of “slashing”, so we need to keep a bit of perspective in the debate. I respect the hon. Lady’s sincerity and clearly she wishes that the increases were greater but, as she well knows, her Front-Bench colleagues will not vote against the orders, and that is not because of a technicality, but because they would not allocate money for larger increases. I know that she disagrees with her Front Benchers. If she ruled the world, she would put in place greater increases—she would tax people more and spend more—but that is not her party’s position.
Stephen Timms
What is the Minister’s response to last week’s comments by the Cardinal Archbishop of Westminster about the significant number of people who find themselves in destitution as a result of the changes that have been made?
Steve Webb
I have great respect for the Cardinal Archbishop, whom I met some years ago, and I do not doubt his compassion for those in need, which is shared by Members on both sides of the House. However, I do not think that anyone believes that people were not in severe and urgent financial crisis before we saw the current network of food banks; they simply went somewhere else. The idea of urgent financial need has not suddenly arisen. As the right hon. Gentleman will know, people turned to charitable sources and churches. It was not uncommon for people to knock on a vicarage door to ask for a sandwich, and that is not very different from a food bank—it is a precursor to that. There were always people in urgent financial need, and we can debate the impact of a global economic downturn on the level of need. Church leaders who comment on such matters are sometimes briefed with partial information. It is sometimes suggested to them that there is a mad slash and burn on the welfare state, but I think that they would be surprised to learn that, at the start of the next Parliament, we will be spending £30 billion a year more on benefits, pensions and tax credits than in the final year of the previous Labour Government.
Stephen Timms
Surely the Minister accepts that comments such as those made by the Cardinal Archbishop of Westminster and in last week’s letter signed by 27 bishops are based on actual experience of what is happening in communities. Surely he cannot maintain, as he appeared to do, that nothing has changed and that things are carrying on as they were before—clearly that is not true.
Steve Webb
No one is suggesting that nothing has changed. The global economic downturn was far deeper than was originally thought, and we have had to recover from that. We had to make changes to the benefits system to try to balance the books, which the previous Government failed to do.
The hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East (Gregg McClymont) said that he felt uncomfortable when I talked about over-indexation. Let me make it clear that under the pensions legislation that the Labour Government put in force, there is a legal duty to uprate pension credit by earnings, but we are doing more than that. The hon. Gentleman implied that we were doing less and that we were somehow putting in place a worse increase, but we are paying a £2.95 increase on the basic state pension, and we do not want to follow Labour’s approach of making an earnings increase to the guarantee credit because that would give the poorest pensioners less than £2.95. In our jargon, we are passing through the full £2.95. Far from paying less than the law requires, we are paying more, because we put the biggest priority on the poorest pensioners.
Gregg McClymont
The Minister is well aware that earnings have been in decline, so setting out the Government’s approach as some sort of virtue is a bit like the argument that was made when he had to override the triple lock on its first day because it would have produced so little. However, does the Minister not accept that the situation has implications for the level at which the flat-rate state pension will be set?
Steve Webb
I would like to suggest that the colleague who just whispered in my ear was saying how much he was enjoying our debate on welfare and urging me to keep it going, but that may not have been the tenor of his remarks. What we are trying to do is ensure that we do the right thing by the poorest pensioners. Had we simply done what Labour required us to do by law, which was to index in line with the growth in average earnings—it was Labour’s law, not ours—the poorest pensioners would now be getting less. I assume that the hon. Gentleman is not suggesting that we should do that. We have therefore overridden Labour’s law and been more generous to the poorest pensioners. I do not know whether that is socialist enough for him, but it is what I think is the right thing to do.
Gregg McClymont
Let us be very clear that pension credit has been uprated by less than the basic state pension. That is a judgment the Minister can make, but let us be clear about what it means for the poorest pensioners: they are not getting the same increase as other pensioners. That is a judgment the Government can make, but they should at least be clear about what is happening.
Steve Webb
The hon. Gentleman is completely wrong, because they are getting exactly the same increase—£2.95—as in the basic state pension. He seems to want it both ways. If he is saying that the increase in pension credit should have been the 2.7% on the basic state pension, can he tell us where he would get the money from?
Gregg McClymont
The Minister is an intelligent man, and my point is a simple one: an increase of 2% is less than an increase of 2.7%. I think that we can all agree on that.
Steve Webb
I did not hear the hon. Gentleman say where the extra cash would come from—the bankers’ bonus tax, perhaps? Is he saying that it should be 2.7% or not? As a debating point he is saying that it should, but he has no idea where the money would come from. [Interruption.] He says from a sedentary position that he wants me to be straight about this. Being straight with the electorate means that if he stands up in Parliament and says that the increase should be bigger, which he has every right to do, he must say where the money would come from. That is the nature of choice in government.
The right hon. Member for East Ham (Stephen Timms) asked about tax credit. Tax credit rates will be set out in affirmative statutory instruments in the usual way and debated in the usual way, so there is no difference there. He talked about the triple lock, which we are very proud of. In fact, we understand that the Opposition are going to copy it. On one level he was mocking and deriding it, but when the Prime Minister said that he would continue it in the next Parliament if re-elected, the leader of the Labour party said that
“nobody should be in any doubt about our commitment to the triple lock”.
The right hon. Gentleman ought to have a word with his leader, who thinks that the triple lock is really a rather good thing.
I want to respond to the right hon. Gentleman’s attempted demolition job on the triple lock that is now his policy. He implied that had Labour been in office, pensions would have gone up by more. There are two possible ways that could have happened. One is if Labour had continued the RPI link. We all know that the statisticians do not think that RPI is a particularly good measure of inflation, and I refer to what the hon. Member for North Ayrshire and Arran said earlier. I entirely accept that RPI is generally, although not always, bigger than CPI, but we are not trying simply to pick a bigger or smaller number. In having these annual debates, we are trying to compensate for average inflation. If society thinks that benefit rates are too low, we can do something about benefit rates. What we do not do is just pick an inflation measure because it is bigger or smaller.
We chose CPI because it is a robust and internationally standard definition. The statisticians have dropped RPI as a national statistic because they do not think that it is a good measure of inflation. When the Secretary of State looked at the increase in the general price level this year, CPI was the only number he could realistically have used because RPI is no longer regarded as an official statistic and the other new measures have not even been properly implemented yet. It is entirely open to the hon. Member for North Ayrshire and Arran to persuade her Front Benchers that we should tax people more and increase benefits, but that should be done by making a decision, not by using a measure of inflation that even the statisticians no longer think works.
Sheila Gilmore
I suspect that the Minister will therefore be disappointed to learn that landlords appear to think that RPI is an appropriate measure for calculating their tenants’ rent increases.
Steve Webb
Clearly a whole raft of decisions are made about increases. The right hon. Member for East Ham mentioned rail fares, for example, and the train operators’ revenues and some of their costs are determined by RPI. The task that the Department for Work and Pensions has once a year is to look at what has happened to the general price level, and I have not heard a single argument in this debate that CPI is not the best single measure to use for that purpose.
Katy Clark
Surely the Minister accepts that benefit increases are at least in part about social justice. Since 2010 we have seen this Government take a range of steps that have increased inequality in this country. Surely he must accept that choosing CPI simply because it seems to be a smaller amount will push the poorest people even further below the poverty line.
Steve Webb
I fundamentally do not accept that. The hon. Lady says that we chose CPI simply because it is lower. As of the year to last September, we had only two possible measures to choose from—CPI and RPI—because the other variants of CPI and RPI were not established at that point. RPI has been discontinued as an official statistic, so how could we use it as the measure for the general increase in the price level? CPI is the target of the Bank of England and an internationally standard and accepted measure. If she thinks from a social justice point of view that benefits should be higher, which is an entirely legitimate thing to think, she should do that by setting them at whatever level she thinks is right, not by trying to pretend that inflation is something other than what the statisticians tell us it is. Those are two separate questions.
Katy Clark
Does the Minister not accept the point that has been made in a number of debates in recent years, which is that the inflation that the poorest experience, and indeed that pensioners experience, is far higher than CPI?
Steve Webb
There are clearly differences in inflation over time and between different groups. We use one number across the board. There will be years when pensioner inflation is higher than the figure we use and years when it is lower. At the moment, there are particular pensioner price indices, but they do not include all pensioners. We simply use one number that, on average and over time, captures inflation, but spending patterns differ. This Government have clearly taken steps to help people at the bottom of the pile. To counter what the hon. Lady said, inequality rose under the previous Labour Government and has fallen under this Government. [Interruption.] She shakes her head because the statistics and the evidence do not fit her presumptions, but the fact is that Labour presided over growing inequality in this country.
The hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East seemed to imply that pensions would be higher if Labour had remained in government, but he knows perfectly well that before the general election the previous Government mooted moving to earnings indexation from 2012. Had they done so, we would now have a lower state pension than we have now. Would they have carried on with a prices index that nobody really thinks is a good measure of inflation? Where would they have found the billions of pounds to do that? He has implied that they would not have done that and that they would have accepted use of CPI for three years, in which case the state pension would not now be higher. There are lots of “what ifs”, but it is fairly clear.
My right hon. Friend the Deputy Prime Minister has suggested that Labour has started to get it on the public finances, but I am afraid that the right hon. Member for East Ham is still in the Brownite mode from when he was in charge of the nation’s spending. People always ask me whether the triple lock is affordable, but it is just not good enough for him. He wants something more generous. I think that we need a dose of realism in this debate. He asked some specific questions, and my right hon. Friend the Secretary of State responded to his questions on universal credit yesterday. Practically every benefit that exists is listed in these orders and we could debate them all, but that is not the focus of this debate. Suffice it to say, universal credit will lift people out of poverty, which is why I am proud to support my right hon. Friend’s plans.
The right hon. Gentleman asked about ESA. I will not comment on documents that he said have been leaked, but I can say that we are taking action to tackle the backlog in the system. I would have thought that he, when wearing his constituency hat, would want us to do that, but he is welcome to table questions to the Minister of State, my hon. Friend the Member for Wirral West (Esther McVey), for further information.
The hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East asked about the role of pension credit. He hails pensions credit as some sort of salvation. Let us be clear that pension credit was, primarily, a rebranding. We had national assistance, then we had supplementary benefit, then we had income support, then we had the minimum income guarantee, and then we had guarantee credit. They were all basically the same thing—a line below which people were not meant to fall. Therefore, the guarantee credit bit was, in essence, a Brownite rebranding. The new bit of pension credit was savings credit—one of the most tortuous, complicated and obscure benefits ever created.
Steve Webb
In a second; I have not finished my rant yet.
Savings credit is such a lottery that of those entitled to savings credit only, half get it and half do not. I am afraid that I do not regard a system where one tosses a coin and half the people get it and half do not as a firm foundation for security and dignity in retirement. That is why we have introduced the single-tier state pension.
Gregg McClymont
I have a simple question for the Minister: is it or is it not the case that pension credit took 1.3 million pensioners out of poverty?
Steve Webb
I do not believe that for a minute, because at the same time as pension credit was implemented, other changes were happening. For example, SERPS—the state earnings-related pension scheme—was maturing, so each successive generation of retiring pensioners was getting higher levels of state pension, thereby reducing pensioner poverty, and people had longer service in final-salary pension schemes. A whole raft of long-term trends will lead to a reduction in pensioner poverty, so to say that it was due to pension credit on its own, one would need to know what else would have happened even without it.
Clearly, savings credit is extra money, and I am sure it is very welcome to those who receive it. We have gone on indexing—in fact, as I have said, rebalancing—pension credit to give more to guaranteed credit and less to savings credit, because people claim guaranteed credit. That is why we have focused on the very poorest pensioners.
Gregg McClymont
Let me reframe my question. Does the Minister agree that 1.3 million pensioners were taken out of poverty during the time of the previous Labour Government?
Steve Webb
The hon. Gentleman will know that the level of pensioner poverty has fallen in the long run because of the factors that I have described. [Interruption.] He says that it has happened since 1997. Had the previous Labour Government done precisely nothing, the level of pensioner poverty might well have fallen anyway because SERPS was maturing. SERPS came in in 1978 and had been running for only 19 years by ’97. In each succeeding year, more and more people have got more and more state pension under SERPS as it matures, so as the oldest pensioners with no SERPS die off, the newly retired pensioners come in with bigger and bigger SERPS. That would be a long-term reason for the change, and real earnings growth would have been another factor. It is complete nonsense to say that it was due solely to pension credit, and he ought to know that.
Gregg McClymont
The Minister appears to get tense under questioning and uses the words “complete nonsense”. Is he really standing at the Dispatch Box and saying that pension credit did not make a significant difference to pensioner poverty in the UK?
Steve Webb
As ever, the hon. Gentleman tries to misrepresent what the record will show that I said. I am not saying that pension credit was irrelevant; I am saying that his claim that pension credit reduced the level of pensioner poverty by 1.3 million is patently false.
Where does that leave us at the end of this debate? We have a set of orders that spend an extra £3.3 billion on benefits and pensions, overwhelmingly on pensioners. This Government will deliver a state pension that represents a bigger share of average earnings than in any year under the previous Labour Government. The point of pensions is to replace lost earnings, so they cannot do their job if they have fallen relative to earnings, as they did in almost every year of the previous Labour Government, most notoriously when they thought that 75p was enough for pensioners. We do not; we think that a £2.95 increase this year is fair and appropriate. We are proud of our record in protecting the most vulnerable and, in particular, in focusing additional spending on pensioners. I commend the orders to the House.
Question put and agreed to.
Resolved,
That the draft Guaranteed Minimum Pensions Increase Order 2014, which was laid before this House on 27 January, be approved.
Social Security
Resolved,
That the draft Social Security Benefits Up-rating Order 2014, which was laid before this House on 27 January, be approved.—(Steve Webb.)
Pensions
Steve Webb Excerpts(10 years, 9 months ago)
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The Minister of State, Department for Work and Pensions (Steve Webb)
I am pleased to announce the Government will be introducing new measures to require transparency for transaction charges in pension schemes. Later today we intend to table an amendment to the Pensions Bill 2013 to introduce this latest step in the Government’s wider plans to ensure consumers receive value for money from their pension savings.
Transparency of costs and charges is fundamental for good scheme governance and to enabling comparison between schemes. Our amendment, which is intended for debate at the Report stage of the Pensions Bill 2013 in the House of Lords this Wednesday, will place a duty on the Secretary of State to make regulations requiring greater transparency around the transaction costs incurred by work-based defined contribution schemes.
Requiring increased transparency is the latest step in the wider Government programme to see fair charges for people who are automatically enrolled into workplace pensions. Last year, we consulted on whether to cap charges in the default funds of schemes used for automatic enrolment, and the Government remain committed to seeing this policy through during the life of this Parliament. Accordingly, our response to the consultation on charges, and further proposals on quality and transparency in workplace pension schemes, will be published soon.
Oral Answers to Questions
Steve Webb Excerpts(10 years, 9 months ago)
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Lorely Burt (Solihull) (LD)
6. What steps he has taken to help those reaching retirement age before the introduction of the single-tier pension.
The Minister of State, Department for Work and Pensions (Steve Webb)
For those who will reach pension age before the introduction of the new state pension, we have introduced a new class of national insurance contributions, which will allow those pensioners the opportunity to increase their state pension in retirement. More details of the scheme will be announced later this year.
Lorely Burt
I am grateful for that answer and it is extremely encouraging. Can my hon. Friend the Minister say what the Government have done to ensure that pensioners in my constituency are able to manage the cost of living rises in this Parliament?
Steve Webb
As my hon. Friend knows, the manifesto on which she and I stood proposed a triple lock, which was implemented by this coalition Government. It means that each year the pension will rise by the highest of the growth in average earnings or prices or by 2.5%, so the state pension is now a higher share of national average earnings than at any time in more than 20 years.
Gregg McClymont (Cumbernauld, Kilsyth and Kirkintilloch East) (Lab)
The Minister has today laid before the House a pensions written ministerial statement that intimates that following a year-long Labour campaign the Government intend to ensure that pension fund managers in the City disclose the fees that they charge for trading all of our pension assets. That is welcome, but of course the devil will be in the detail. On that basis, can he confirm today that that disclosure will include the number of times that fund managers churn our pension assets for a fee?
Steve Webb
I know that the Opposition like to bluster a lot to cover their embarrassment at taking no steps at all on this in 13 years in government. By contrast, this week this Government are legislating to shine a light in the murky corners of the pensions industry, so that value for money is finally achieved for pension savers.
Mr Andrew Turner (Isle of Wight) (Con)
9. How many people have had their benefits reduced to the maximum of £26,000 (a) nationally and (b) on the Isle of Wight to date.
Annette Brooke (Mid Dorset and North Poole) (LD)
10. What assessment he has made of the effectiveness of councils’ use of discretionary housing payments in this financial year.
The Minister of State, Department for Work and Pensions (Steve Webb)
Details of how local authorities used discretionary housing payments in the first half of this year were published on 20 December. That report gives an early indication of how that funding is supporting people, including disabled people living in specially adapted accommodation, and of the type of choices that people are making in response to the changes, such as seeking to move to alternative accommodation or looking for work.
Annette Brooke
Does the Minister agree that councils should use all available funds provided by his Department to offset the ending of the spare room subsidy for those who are disabled and have a clear need for two bedrooms or more, and those who cannot find smaller accommodation? Will the underspending this year affect next year’s allocation?
Steve Webb
I entirely agree with my hon. Friend that the funding being made available to local authorities for cases where it would be inappropriate for individuals to make up the shortfall should be spent. In addition, this Government have made available an extra £20 million, in-year, but less than a quarter of local authorities bid for that money. We want local authorities to spend the money being made available, so that those who can move do so, but those for whom that would be inappropriate have the top-up that they need.
Ms Karen Buck (Westminster North) (Lab)
One of the worst cases that I have dealt with recently was of a homeless mother with a severely disabled child who receives disability living allowance. That allowance was taken into account in deciding their discretionary housing payment, which left the family with virtually nothing to live on. Will the Minister issue guidance to local authorities saying that they should not take into account disability living allowance when making DHP payments?
Steve Webb
The hon. Lady is very knowledgeable about these matters, and she will know that local authorities make their decisions on a case-by-case basis. Clearly, they do not have to include income from DLA, but they are free to do so. If she believes that her local authority should not have done so in an individual case, she should make representations to it.
Mr Clive Betts (Sheffield South East) (Lab)
Following on from that question, the Minister must know that in assessing entitlement to income-related benefits, entitlement to disability benefits is not taken into account. The one exception to that policy is discretionary housing payments. It is specifically in the guidance that local authorities can take them into account and means-test them in the way that he described. Will he change and reissue the guidance, so that this one area where disability payments are means-tested is removed from the scene?
Steve Webb
As the hon. Gentleman knows, the key is in the word “discretionary”. Local authorities can ignore DLA if they think that that is appropriate, but they have the freedom to judge on a case-by-base basis; that seems to be the right way to respond to individual need.
Andrea Leadsom (South Northamptonshire) (Con)
11. What progress he has made on implementation of the pot-follows-member model of automatic pension transfers.
The Minister of State, Department for Work and Pensions (Steve Webb)
I can announce that we have been working closely with Her Majesty’s Revenue and Customs to examine the feasibility of using the pay-as-you-earn data and system to deliver a secure, efficient and straightforward pot-matching element to the pot-follows-member system. A pot-follows-member system leads to more efficiency, potentially better member engagement, greater consolidation and better outcomes in retirement.
Andrea Leadsom
I am grateful to my hon. Friend for his answer, but as we are all living longer, which is great news, it is an ever greater priority to ensure that people save for their retirement. Is he looking at options such as the auto-enrolment system in place in Australia? Will he also consider a savings and retirement account for future pensioners?
Steve Webb
My hon. Friend will know that our auto-enrolment programme, which we are in the middle of rolling out, has been highly successful, with nine out of 10 people choosing to stay in that programme. The Australian version is compulsory; we have chosen not to do that in this country. The fact that most people are choosing voluntarily to stay in pensions saving is a judgment that we have made the right choice. I should add that the Australians have said that they wish that they had introduced from the beginning the pot-follows-member system that we are introducing.
David Mowat (Warrington South) (Con)
The pensions Minister is consulting on a charges cap. For the avoidance of doubt, will he confirm to the House that he still plans to introduce the cap during the lifetime of this Parliament?
Steve Webb
I refer my hon. Friend to the written statement that we issued today, which confirms precisely that we will shortly bring forth our announcement, and that we will see through our agenda during the course of this Parliament.
Jessica Morden (Newport East) (Lab)
12. What assessment he has made of the effectiveness of the implementation of personal independence payments.
Workplace Pensions
Steve Webb Excerpts(10 years, 10 months ago)
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The Minister of State, Department for Work and Pensions (Steve Webb)
Integral to the single-tier reforms is the closure of the state second pension. Contracting out of the state second pension for defined benefit schemes—giving up entitlement in return for a broadly similar occupational pension and payment of lower national insurance (NI) rate for employer and employee—will therefore come to an end. All employees will pay the same rate of national insurance and become entitled to state pension in the same way. The state pension system will be significantly simpler as a result.
The Government’s objectives for managing the end of contracting out are to minimise the impacts on employers, schemes and individuals, ensuring that the administrative processes of ending contracting out are as smooth and as simple as possible; to ensure amounts built up in schemes to 2016 continue to be paid; and to ensure that the sustainability of defined benefit pension schemes is not undermined. The Government are allowing private sector employers who face paying an increased rate of national insurance to make limited changes to their pension scheme rules to recoup some or all of the additional costs they face subject to the will of Parliament.
There is a small group of individuals (approximately 60,000) employed in some formerly nationalised industries (rail including Transport for London, electricity, coal, nuclear waste and decommissioning), where the employers and trustees are limited in their ability to change scheme rules by legislation made during privatisation.
On 18 January 2013, the Government published a public consultation “Abolition of contracting out—consultation on a statutory override for Protected Persons Regulations”. The consultation invited views from stakeholders as to whether or not these employers should be permitted to use the statutory override to change their pension scheme rules for employees covered by the protected persons legislation. The consultation ran until 14 March 2013 and attracted 145 responses.
We had to consider the best and fairest course of action in an area where the arguments are both finely balanced and highly polarised. The Government have decided that it should honour the promises that were made at the time of privatisation and which, in many cases, have been affirmed by Government Ministers subsequently. The Government think it is reasonable that issues arising from the end of contracting out for this small number of workers should be resolved through negotiation. Therefore the Government propose that employers should not be allowed to use the statutory override to alter their pension schemes in relation to members with protected person status.
We intend to table an amendment to the Pensions Bill for debate at Lords Report stage to ensure the statutory override cannot be applied in respect of scheme members with protected person status.
The full response and the related impact assessment will be published later today and these will be available on: https://www.gov.uk/government/consultations/possible -statutory-override-for-protected-persons-regulations.
I will place a copy of the Government response and the impact assessment in the Library of the House of Commons.
Welfare Reform
Steve Webb Excerpts(10 years, 10 months ago)
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Westminster Hall is an alternative Chamber for MPs to hold debates, named after the adjoining Westminster Hall.
Each debate is chaired by an MP from the Panel of Chairs, rather than the Speaker or Deputy Speaker. A Government Minister will give the final speech, and no votes may be called on the debate topic.
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The Minister of State, Department for Work and Pensions (Steve Webb)
indicated assent.
Jim Sheridan (in the Chair)
You have permission, but I ask you to leave some time for the Minister.
The Minister of State, Department for Work and Pensions (Steve Webb)
I congratulate my hon. Friend the Member for Dover (Charlie Elphicke) on securing this wide-ranging debate, which has actually been quite refreshing, because we so often get caught up in the minutiae of a clause, amendment or fine detail and it is good to get back to first principles and the context of what the Government have done over the past four years. I also enjoyed his blue-skies thinking about workplace and maternity benefits and so on. I will try to address both those issues, while providing some reflections on his idea for workplace benefits.
The context that my hon. Friend described was one where, for every £3 that the Government received, they were spending £4. There is nothing progressive or fair about saying that we will pay for a higher standard of living for ourselves now and expect our children to meet the bill. The biggest task that we faced—as my hon. Friend the Member for Spelthorne (Kwasi Kwarteng) said, this was one of the reasons for forming the coalition— was to provide the country with a stable Government at a time of economic crisis and to try to get the nation’s finances on an even keel, which has required a series of difficult decisions, particularly because social security spending is the biggest area of Government spending, every one of which was opposed by Labour, but only one of which it now says that it will reverse. There is a distinct lack of consistency.
I am pretty sure that the record will show—the hon. Member for Rhondda (Chris Bryant) will correct me if I am wrong—that Labour voted against the Welfare Reform Act 2013 on Second Reading. He may not recall, but I am pretty sure that Labour did—it may have voted against it on Third Reading, which is even worse. The 2013 Act introduced universal credit, so it is a bit rich to say that Labour supports universal credit when it voted against the legislation that introduced it. That shows no credibility.
The hon. Gentleman may say that Labour has been engaged in welfare reform for the past four years, but it has only said what it is against. It is against our getting the books balanced by the measures that we have taken, but the positive agenda has largely been avoided. On the odd occasion that we get a positive suggestion, it often involves spending more money, not less. A humane welfare system during a time of austerity is a challenging task. One would have hoped that the party that paints itself as progressive would have engaged constructively over the past four years in how to design such a system, but we have essentially heard nothing on that front.
My hon. Friend the Member for Dover is right that the driver of the reforms that my right hon. Friend the Secretary of State for Work and Pensions and the ministerial team have brought forward has absolutely been fiscal rectitude, but it has also been about more than that. My right hon. Friend has said—I do not think that I am revealing any secrets here—that he did not come into his present role simply to cut, but rather to reform. During difficult times, we are reforming and bringing together a fractured system. Why should people have to go to Her Majesty’s Revenue and Customs for tax credits, to the local council for housing benefit and to the Department for Work and Pensions for income support? Why should there not be a single system? One of the fatal flaws of tax credits, which the hon. Member for Rhondda praised, is that, because the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown)—the previous Chancellor and then Prime Minister—wanted to pretend that it was not welfare, it was claimed that they were negative tax. They were nothing of the sort. They were social security benefits, but paid over the course of a year. People’s needs, however, arise on a weekly or monthly basis. They cannot wait for end-year reconciliation and a following-year clawback.
The beauty of universal credit is that it is real time. It meets people’s needs when they happen, rather than saying at the end of the year, “Oh, guess what? We underpaid you,” or, more often, “Guess what? We overpaid you three years ago by several thousand quid. Please may we have it back?” That shambles will be over as we introduce universal credit.
Steve Webb
I will not, because it is the debate of my hon. Friend the Member for Dover. I want to respond to some of his specific ideas on workplace benefits. I agree with his goals. I absolutely agree that we need a system that is fair for women; that we need to think hard about anything in the system that makes an employer less likely to employ a woman of childbearing age; and that we clearly want the system to work for self-employed women. He has made some important points.
As the system currently works, however, 93% of the cost of statutory maternity pay is refunded to employers. In fact, more than 100% is refunded to small firms. Small firms that take on a woman who becomes pregnant and goes on maternity leave will get back all the maternity pay that they pay out, plus what is essentially a handling charge—another 3% on top. Even a large employer gets 92% or thereabouts of reimbursement.
If an employer is reluctant to take on a woman who might have a child, therefore, the pure finances should not make a huge difference. Clearly, there is a bureaucracy issue with the reclaiming and so on, and we are happy to look at whether that can be streamlined, but the basic principle is that the employers get the lion’s share of the money back. The thing that might put them off, as my hon. Friend said in his speech, is the thought, “Well, I employ this person. They might not be there in some months’ time. I might have to provide maternity cover, retraining and so on,” but however we reimburse maternity pay, that will still be a feature of the system.
I am not therefore sure that having a collectivised—I hesitate to use the word, but my hon. Friend knows what I mean—system of insurance is any different substantively for the employer. Either way, employers are getting reimbursed—the costs are being met and are not in essence falling on the employer.
My hon. Friend’s proposal is interesting and I am grateful to him for suggesting it, but one of my worries arises from something that I have learnt as a Minister. Whenever we set up a new scheme, we have new infrastructure, bureaucracy and sets of rules. If we had the levy—the at-work scheme that he described—we would have to define the new tax base, have a new levy collection mechanism, work out who was in and who was out, have appeals and all that kind of stuff. There is always a dead weight to such things. Simply setting up new infrastructure costs money. I would have to be convinced that we were getting something back for it.
In essence, my hon. Friend is proposing that, instead of the general taxpayer paying into the pot and employers handing out statutory maternity pay, which is reimbursed by the Government from the general taxpayer—the current system—we have a new levy on employers, although he recognises that he does not want a new jobs tax, so that it is offset by a reduction in something else that employers pay and the tax in that world is neutral overall. However, he then says that he wants the rate not to be some £130 a week, but to be £200 and something a week.
My hon. Friend was commendably brief, so I apologise if I misunderstood, but I was not clear where that extra money would come from. If we pay women on maternity leave double, someone must pay for it. If he does not want that to be an extra burden on firms, paying for it will simply be a tax increase. That might be the right thing to do—increasing taxes to pay for it—but it is an increase.
Charlie Elphicke
Part of the reason for raising the rate is to bring it into line with the self-employed position. Also, however, most work places have the extra maternity leave as well, yet a small number of less good employers do not top up the statutory amount. The idea is to raise the threshold, so that women on maternity leave are overall in a better position.
Steve Webb
I appreciate that my hon. Friend would like to make the scheme more generous, but my sense is that that is potentially quite a substantial cost. If we spend £2 billion already and he wants to double the rate, is that another £2 billion? I do not know. Without more detail, I could not say, but it might be a substantial cost that we have to think through.
On the important issue of self-employed women, the dilemma is that if they have chosen to be self-employed, they are paying class 2 national insurance of about £2.70 a week, while their employed sisters are paying national insurance of 12%, or whatever the rate is, as an employee, while their employer is paying another 13.8%. The best part of 25% of wages is raised in national insurance from the employed earner, while £2.70 something a week comes from the self-employed—or at class 4, depending on how much she is earning. The amount going into the system from the self-employed is vastly lower; the maternity provision for the self-employed, however, is only a bit lower for some women.
In that first six weeks, when we are on 90% of earnings, the employed earner could get more, but some self-employed women get more than their employed counterparts, because of the detail of the rules. There is an issue about some women who pay voluntary class 2 at two or three quid a week for a period of time, but then become entitled to maternity allowance running into thousands, having only put in £50 or £100 into the system. There is a worry that the system is possibly too lax in that area and we might need to think about it.
It is absolutely right that self-employed women get proper maternity provision, which is what the maternity allowance is for. Relative to what they put into the system, however, what they get out of it is a fantastic rate of return compared with an employed earner. An employed earner is putting far more in, while the employer is also putting in.
On the tax base for my hon. Friend’s idea, he proposes that all firms should contribute. Unless the self-employed are also going to contribute, they will either benefit without contributing, or we are talking about another levy on the self-employed as well. Having chosen to be self-employed, people often change, because of the lack of burdens, costs and levies of being an employed earner. We would have to think about whether we are distorting the choice between becoming an employed earner or a self-employed person if we made those changes.
I do not want to end on a discouraging note, because my hon. Friend has raised an important challenge. We do not want to be in a situation in which employers, through prejudice or for other reasons, are disinclined to employ women of childbearing age. That is clearly an important issue. We must ensure, however, that the social security system reflects the labour market as it is now and not as it was after the second world war. We need to reflect on the fact that there are growing numbers of, first, women working and, secondly, self-employed women. The Department is not currently doing work in this area, because we have our hands full with reform, but it is always good to look at such things.
Charlie Elphicke
Part of my thinking is that we are about to have a revolution with the whole concept of shared parental leave, so that issue of men versus women in the workplace will tend to blur. That might be a good time to look at reworking the system in this way, to encourage and help parents in the workplace.
Steve Webb
My hon. Friend is right, and the coalition can be proud of the shared parental leave approach and for rethinking the nature of what happens after a child is born and whether it is mum, dad or a combination of the two who take time off. My hon. Friend is also right to encourage us to think outside departmental silos: the Department for Business, Innovation and Skills does parental leave, but the Department for Work and Pensions does maternity pay, and so on. He makes a welcome link. I am not convinced that his scheme is necessarily affordable, because of the additional cost involved, but he makes an important link.
I have a final word of encouragement to employers, who may be listening to our proceedings. About 10 years ago, less than half of mothers who went on maternity leave came back and worked in the same job; that figure was about 40%, but it is now 80%. The norm now for an employer who takes on a woman who goes on maternity leave is that—four times out of five—she will come back to the job for which she was trained, in which she is experienced and to which she can contribute.
Likewise, we now find that three quarters of women return to work within 12 to 18 months of having their baby. There is a norm: if someone takes on a woman of childbearing age, the odds are that she will come back to the same job within 12 to 18 months. We need to educate employers about the fact that, if they do not employ women of childbearing age, they are depriving themselves of talented people who contribute to the work force. Not employing such women is clearly a bad thing, not only from a social point of view, but from an economic point of view.
I congratulate my hon. Friend on raising the issue and my hon. Friend the Member for Spelthorne, who serves on the Select Committee now and is thinking hard about such issues, on his contribution. We have done a huge amount of reform in this Parliament, and we want to see our reforms through and deliver them, because we want our legacy to be a system that, as my hon. Friend the Member for Dover said, encourages independence, not dependence, that is fiscally responsible, but that works with the grain of people, so that those who want to work hard and get on are encouraged and enabled to do so, rather than being trapped on benefit, which was the risk of the system that we inherited.