Child Support Regulations
Steve Webb Excerpts(10 years, 7 months ago)
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The Minister of State, Department for Work and Pensions (Steve Webb)
On 5 November 2013, the Government published their response to the consultation “Supporting separated families; securing children’s futures” (Cm 8742). This response outlines important changes that we have made to our proposed strategy for closing existing Child Support Agency cases and introducing fees for the new 2012 child maintenance scheme.
Today we intend to lay the draft Child Support Fees Regulations 2014 and the draft Child Support (Ending Liability in Existing Cases and Transition to New Calculation Rules) Regulations 2014, the primary effects of which will be to introduce application, collection and enforcement fees for the 2012 child maintenance scheme and to begin the process of ending liability on all 1993 and 2003 scheme Child Support Agency cases.
These draft regulations are subject to the affirmative procedure and I look forward to discussing them with colleagues in the new year.
2012 Statutory Child Maintenance Scheme
Steve Webb Excerpts(10 years, 7 months ago)
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The Minister of State, Department for Work and Pensions (Steve Webb)
Today the Government will open the 2012 statutory child maintenance scheme, delivered by the Child Maintenance Service, to all new applicants. We will no longer be accepting new applications to the 2003 scheme, delivered by the Child Support Agency.
The flat rate of child maintenance will also increase from £5 to £7 for 2012 scheme cases only. This change will increase the amount of money flowing to children and restore approximately the value of the flat rate in real terms, compared with what it was when introduced in 2003.
Those wishing to make an application to the 2012 scheme will first need to go through a gateway conversation, delivered by the Child Maintenance Options service. This will ensure that applicants consider their alternatives before turning to the statutory scheme. This will be a tailored conversation appropriate to individual circumstances. For example, those who have been victims of domestic violence will be fast-tracked through the gateway.
The Government aim to ensure that parents who are able to make their own family-based arrangements are supported and encouraged to do so, while an efficient and effective statutory service is still available as a backstop for those who really need it.
Today’s changes to the statutory service represent a key milestone in our progress to reform child maintenance. But we are also aiming wider: our starting point is that children tend to do better when they have a positive relationship with both parents and we want to make working together the norm across all parenting issues, not just child maintenance. We are supporting separated parents to do this through the Help and Support for Separated Families (HSSF) initiative. As part of this, we have launched the Sorting out Separation web app; an HSSF mark; the HSSF Telephony Network; and an Innovation Fund to test and evaluate new interventions to help separated parents work together.
Oral Answers to Questions
Steve Webb Excerpts(10 years, 8 months ago)
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David Mowat (Warrington South) (Con)
7. What costs will be included in his proposed cap on pension charges.
The Minister of State, Department for Work and Pensions (Steve Webb)
As my hon. Friend knows, we are consulting on whether there should be cap on charges in workplace pensions and, if so, what costs it should cover. Without pre-empting the consultation, he can be assured that our presumption would be in favour of a broad definition of charges for those purposes.
David Mowat
I thank the pensions Minister for that answer and congratulate him on his consultation on introducing a cap that is 50% of the level of the cap for stakeholder pensions introduced when the Opposition were in government. That is a step forward. A further step forward across the whole industry would be to have better comparability and transparency of charges generally. We have acted to do that for energy companies by simplifying charge structures. Will we consider doing that for pensions?
Steve Webb
I thank my hon. Friend for being the only Member who managed to get a pensions question on today’s Order Paper. [Interruption.] I will make the most of it. He is quite right that the Office of Fair Trading identified 18 different sorts of charges, which are often baffling and hidden. One of its recommendations was that the committees that oversee pensions should be given transparent information about charges, and that is a recommendation we will be looking to take forward.
Andrew Miller (Ellesmere Port and Neston) (Lab)
Over the last generation the net size of employment units has shrunk as a function of technology and changes in society. That has meant smaller pension schemes that in net terms require a greater management effort to run them. What will the Minister do to try to bring together some of the smaller schemes to get better value for money overall?
Steve Webb
The hon. Gentleman raises an important point. In fact, consolidation is happening; the number of medium-sized schemes has declined quite significantly in the past few years. The quality standards that we will be putting in place will mean that running a small, substandard, sub-scale scheme will not be an option, so we anticipate that there will be much more consolidation. Together with the National Employment Savings Trust, the Government’s own scheme which already has over 500,000 members, we are moving towards better value for money.
Gregg McClymont (Cumbernauld, Kilsyth and Kirkintilloch East) (Lab)
Tonight on Channel 4, the Minister will accuse big pension companies of making excess profits at the expense of those who have worked hard and saved all their lives. “Dispatches” will claim that many savers are losing up to £10,000 per year every year in their retirement as the companies make excess profits, yet the Pensions Bill that the Minister has just taken through the Commons does precisely nothing to tackle rip-offs in annuities. When will he get a grip on the annuities market and end these rip-offs?
Steve Webb
I make no apology for defending consumers against an abuse that has gone on for far too long, with people buying annuities where they will get their money back only if they live until they are 90 or beyond. The Financial Conduct Authority, which was created only about six months ago, has already reported on annuities and will bring forward further proposals. We are working with our colleagues at the Treasury who lead on these matters to make sure that this issue, which has gone long unaddressed by successive Governments, is finally tackled.
Mr William Bain (Glasgow North East) (Lab)
8. What assessment he has made of the effect of universal credit on work incentives for lone parents.
The Minister of State, Department for Work and Pensions (Steve Webb)
Universal credit fundamentally simplifies support for working lone parents and our analysis shows that UC will create positive work incentives for lone parents.
Mr Bain
But does the Minister not accept that research for Gingerbread shows that two in every five lone parents will lose out in cash terms under universal credit, with lone parents in work fighting an uphill battle to make work pay beyond 20 hours a week? Are not this Government not only botching the introduction of universal credit but breaching the Secretary of State’s pledge that UC would make sure that work paid for each and every hour that people work?
Steve Webb
I am grateful to the hon. Gentleman for referring to the Gingerbread report, which I have here. It says:
“Universal credit increases the financial pay off from working of single parents”.
Mr David Nuttall (Bury North) (Con)
Does the Minister agree that regardless of any particular problems that might be thrown up by the introduction of universal credit, one of the biggest problems with the welfare system is that it is far too complex, which leads to all sorts of mistakes being made, and that regardless of the teething problems we must press ahead with universal credit?
Steve Webb
My hon. Friend is quite right. At the moment, people have to go to Her Majesty’s Revenue and Customs for their tax credits, to the local authority for their housing benefit, and to the Department for Work and Pensions for their jobseeker’s allowance. Having all this in a single system will improve take-up, and that is one of the things that the Gingerbread report did not factor in.
Dr Eilidh Whiteford (Banff and Buchan) (SNP)
The Gingerbread report does, though, warn that working single parents are likely to lose a higher proportion of their income than other household types. Why does the Minister think that the children of lone parents should lose out?
Steve Webb
As I say, the report makes some assumptions that it accepts are not true. One of its assumptions is that there is no impact on take-up; it assumes 100% take-up before and after. We know that that is not true—that take-up is partial—and rolling all three benefits into one will improve take-up for the benefit of the children of lone parents.
Graham Evans (Weaver Vale) (Con)
The introduction of new IT systems can be challenging for business as well as for Government Departments. What lessons have been learned from the mistakes of others as regards the introduction of the new universal credit and its new IT system?
Steve Webb
As my hon. Friend knows, the litany of failed IT systems under the Labour Government would fill the remainder of this Question Time. One of the key things that is often forgotten is that every day this Department pays pensions and benefits seamlessly to millions of people. All the IT projects that are developed without delay and without hiccup never make it on to the front page of the newspapers.
Seema Malhotra (Feltham and Heston) (Lab/Co-op)
Free school meals offer vital support to many lone parents in my constituency. When does the Minister plan to set out the eligibility criteria for free school meals under universal credit?
Steve Webb
The broad intent is to mirror, as far as possible, the current rules. I am grateful to the hon. Lady for stressing the importance of free school meals. She will therefore welcome the coalition’s decision to extend access to free school meals to all infant school children.
Chris Ruane (Vale of Clwyd) (Lab)
9. When he estimates the Work programme will provide the same number of job outcomes as the flexible new deal.
Mr Alan Reid (Argyll and Bute) (LD)
12. What plans he has to introduce the payment of pensions and benefits and begin accepting applications for universal credit through the Post Office.
The Minister of State, Department for Work and Pensions (Steve Webb)
I assure my hon. Friend that all Department for Work and Pensions benefits and entitlements, including universal credit, are normally paid by direct payment into a mainstream bank account, the vast majority of which can now be accessed over the counter at post office branches.
Mr Reid
Millions of people have chosen to collect their pensions and benefits at a post office through a Post Office card account, but the contract is due to expire in 16 months’ time. Will the Government end the uncertainty and announce that POCA will continue after April 2015 with, I hope, improved banking facilities?
Steve Webb
We are in active discussions with Post Office Ltd and our colleagues at the Department for Business, Innovation and Skills. Indeed, I am meeting ministerial colleagues later this afternoon to discuss that issue. I can assure my hon. Friend that I share his commitment to the post office network.
Mrs Anne McGuire (Stirling) (Lab)
How long does the Minister anticipate that post offices will have to wait before they are in a position to take applications for universal credit?
Steve Webb
Just to be clear, people can receive universal credit into an account accessible at a post office already. Universal credit obviously has an online application process, so if there is access to the internet at local post offices, that can be done already.
Stephen McPartland (Stevenage) (Con)
14. What steps he is taking to create more employment opportunities for young people.
Jesse Norman (Hereford and South Herefordshire) (Con)
T5. A recent report by the Office of Fair Trading identified no fewer than 18 different points at which charges can be levied on a pension. Does the Minister share my view that there should be radical simplification and disclosure on pension fees and charges—however and wherever they are levied?
The Minister of State, Department for Work and Pensions (Steve Webb)
My hon. Friend is right to raise this important issue. Over the last few years, we have taken expanded powers to cap charges and to require disclosure along the lines he describes. We will shortly act on our charges consultation and will publish quality standards, which will include requirements to disclose relevant information, including charges.
Graham Jones (Hyndburn) (Lab)
T3. Eleven parishes in Oswaldtwistle have come together to open Hyndburn’s four food banks, which often serve people who are in employment. Is the Secretary of State not concerned about these levels of poverty, particularly in constituencies such as mine?
Sir John Randall (Uxbridge and South Ruislip) (Con)
T6. We have heard about the excessive amounts being charged on pensions and annuities. Does my hon. Friend the pensions Minister agree that it is important for us to re-establish a real savings culture, and will he tell us what else he can do?
Steve Webb
I do agree with my right hon. Friend. We are establishing an economy that is based on savings rather than debt, and one of the most important measures that we are implementing is automatic enrolment in workplace pensions. By Christmas, about 2 million workers will have been enrolled. Nine out of 10 people are choosing to stay in workplace pensions, and it is encouraging to note that—notwithstanding what sceptics have said—young people are particularly likely to do so, thus establishing a culture of saving from an early age.
Diana Johnson (Kingston upon Hull North) (Lab)
Since January, the coalition has no longer been producing the statistics showing the number of people chasing every job vacancy in each constituency. Will the Secretary of State bring those statistics back, so that we can have information about what is happening in our own constituencies?
Tessa Munt (Wells) (LD)
Does the Secretary of State agree that a non-resident parent who has no declared income, but chooses not to claim benefits and is living on a loan, should be required by the Child Support Agency to contribute the flat rate of £5 rather than being party to a “nil” arrangement and not having to pay anything? Should not such people contribute to the considerable costs of raising their child or children?
Steve Webb
My hon. Friend will be pleased to know that when we bring all new claims into the 2012 child maintenance system, we will use information from Her Majesty’s Revenue and Customs relating not just to earned income, but to income from all sources. Provided that income is coming into the household and HMRC is aware of it, we shall be able to use that information in assessments.
Julie Hilling (Bolton West) (Lab)
Can the Minister tell us how many people have died as a result of illness or suicide between their being declared fit for work and the hearing of their appeals? If he does not know, does he not think that he has a duty to collect those figures?
Housing Benefit
Steve Webb Excerpts(10 years, 8 months ago)
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The Minister of State, Department for Work and Pensions (Steve Webb)
I beg to move an amendment, to leave out from “House” to the end of the Question and add:
“notes the substantial structural deficit which was inherited from the previous Government and the need to get the nation’s finances back into shape; further notes the need to bring expenditure on housing benefit under control; further notes that the proposed reversal of this policy would cost the Exchequer around half a billion pounds a year; regrets any exaggeration and misrepresentation of the effects of the policy; recognises the inequality of allowing social tenants to receive benefit for a spare bedroom whilst denying this opportunity to private tenants; supports the Government’s action to deal with this unfairness whilst protecting vulnerable groups such as pensioners and providing substantial funding through Discretionary Housing Payments to local authorities to support other tenants who would otherwise be adversely affected; further notes the Government’s continuing commitment to monitor the effects of the policy and the use of Discretionary Housing Payments; and welcomes the potential beneficial impact of this policy on those living in overcrowded accommodation and the 2.1 million families on waiting lists.’”
I begin by reasserting that the Secretary of State for Work and Pensions is meeting European leaders at a long-arranged summit to tackle the vital issue of youth unemployment. The hon. Member for Leeds West (Rachel Reeves) might not think that a priority use of his time, but we do.
The hon. Lady’s motion did not mention people living in overcrowded accommodation. Indeed, the voice of those in overcrowded accommodation has not been heard from the Labour Benches, and it is the coalition Government who are speaking for those people. This policy will help to address those long-standing needs.
Steve Webb
I will give way in a moment, but I want to make a little progress. Let me take the first line of the Labour motion and change one word so that it reads,
“this House regrets the pernicious effect on vulnerable and in many cases disabled people of deductions being made from housing benefit paid to working age tenants in the private rented housing sector deemed to have an excess number of bedrooms in their homes”.
The Opposition position seems to be that this is pernicious and evil when it affects social tenants, yet not merely acceptable but policy when it affects private tenants. There are two coherent positions: one is the Government position that asks anyone on benefits to contribute towards the cost of an extra bedroom, and the other is to state that anyone on benefits will receive housing benefit, regardless of the size of house they need; that would cost a lot of money but it would be coherent. The Labour party’s position is incoherent. It states that social tenants should not have to pay towards an extra bedroom, but that private tenants should. We have heard cases of people who need extra bedrooms, for example for dialysis machines. Social tenants need an extra room for that machine, but private tenants should have to pay for it. Surely some mistake.
Sheila Gilmore (Edinburgh East) (Lab)
One of the strangest things in this argument about the private rented sector is that during the passage of the Welfare Reform Bill I never once heard the Government mention it—it is one of those later justifications. The problem is that people in the private rented sector were not suddenly told one day, “Your house is too big; you have to start paying for the extra rooms regardless of whether you can move.” That is a huge difference and the two things are not comparable. If we want to talk about equalising, perhaps we should equalise rents.
Steve Webb
I am interested that the hon. Lady mentions rents, because if we compare private and social tenants, she is saying that social tenants, who already benefit from subsidised rent, should not have to pay for an extra bedroom, whereas private tenants paying a market rent should pay for it. That does not seem fair to me.
Steve Webb
I will give way in a moment. In an intervention on the hon. Member for Leeds West, my hon. Friend the Member for Birmingham, Yardley (John Hemming) pointed out something that has not hitherto been flagged up—Labour’s intention to extend the principle of the local housing allowance to social tenants. Let me quote Hansard from January 2004 when the late Malcolm Wicks stated:
“We hope to implement a flat rate housing benefit system in the social sector, similar to that anticipated in the private rented sector…We aim to extend our reforms to the social rented sector as soon as rent restructuring and increased choice have created an improved market.”—[Official Report, 19 January 2004; Vol. 416, c. 1075W.]
Interestingly, the Labour party planned to do that, yet when this Government do it, suddenly it is somebody else’s problem.
John Hemming
From what the Minister has said, the Labour party was quite happy to have a bedroom tax, not just in the private sector but also in the social rented sector as soon as rents had gone up.
Steve Webb
I congratulate my hon. Friend on drawing the House’s attention to the Labour party’s plans. Not only did the Labour party invent the principle of paying for an extra bedroom, it intended to extend it.
Hywel Williams (Arfon) (PC)
What research did the Government do into the flexibility of the housing market, in both the private and public sectors, before introducing this policy? Was it a case of introducing the policy now, researching it next year, and reporting on it in 2015?
Steve Webb
I am grateful to the hon. Gentleman for raising the flexibility of the housing market because to hear Labour Members one would imagine the market was static. When they talk about the availability of one-bedroom properties—someone said a moment ago that there were 10 available or something—those are empty one-bedroom properties. If one looks, for example, at social housing swap websites, significant numbers of social tenants are looking to free-up small properties and exchange with those looking for family-sized accommodation. There is plenty of evidence of fluidity. Tens of thousands of social tenants move house every year; this is not a static market.
Derek Twigg (Halton) (Lab)
The Minister said that we are ignoring the potential benefits of his policy on overcrowded accommodation. Will he tell the House why his amendment includes the words “potential beneficial impact” and say how many people have been helped to date?
Steve Webb
I am pleased to hear the hon. Gentleman refer to overcrowding, because strangely that was an omission from the Labour motion. It is almost as if the voice of the overcrowded has not been heard. To give him a sense of scale, based on the English house condition survey we estimate that more than a quarter of a million households in social accommodation are overcrowded. Census data, which offer a different definition, suggest there are getting on for 400,000 overcrowded households. The research the Government are undertaking as the policy is rolled out will monitor the extent to which people are trading down and moving from overcrowded accommodation, and the extent to which they take jobs, take in lodgers or use discretionary housing payments. People can respond to the policy in a whole raft of ways, but the idea that we can have hundreds of thousands of people in overcrowded accommodation while there are free spare bedrooms does not seem fair.
Mr Ellwood
There is a sense of déjà vu in this debate because we discussed this issue in 2008 with reference to the private sector. Going back to 2008, one major problem is the lack of housing stock and new builds. Just 30% of new houses are single dwellings, although the demand for that is 60%. Does the Minister agree that that imbalance needs to be addressed?
Steve Webb
My hon. Friend is right. Labour Members say there is a mismatch between housing stock and housing need, but who was doing the house building for 13 years? Why do we have that mismatch? On the volume of social housing construction, I was shocked when I saw that in many years of the previous Labour Government, fewer than 25,000 new units of social housing were built per year. Even in these difficult economic circumstances, the coalition Government are already building more social housing every year than in most years of the Labour Government, and that will only increase.
Steve Webb
My hon. Friend is right. The level of new housing association properties built was well below 25,000 in 2000, 2001, 2002, 2003, 2004, 2005 and 2006. The Government are already building well over 25,000 social houses a year, and have further plans for expansion.
Emily Thornberry
The hon. Gentleman began his contribution by talking about overcrowding, which is something Labour feels very strongly about, certainly in my borough. Part of the problem, however, is empty nesters—elderly people whose families have grown up. If the principle behind the bedroom tax is to free up homes and move people to smaller units, why does it not apply to pensioners?
Steve Webb
I am not sure whether the hon. Lady is encouraging us to apply the policy to pensioners.
Emily Thornberry
The hon. Gentleman will be surprised to hear that I am doing my job and probing the Government to find out the purpose of this policy. He began with the justification of dealing with overcrowding—something I feel very strongly about after what I have seen in my surgeries—but my borough authority has always had a policy of speaking to people as they retire, and encouraging them to move onwards, not doing this.
Steve Webb
At least an Opposition Member is talking about overcrowding, which is a start—we might be making progress. The hon. Lady is right that we need to do more to assist and support older tenants to move into more suitable accommodation. One thing we have discovered in the course of doing that work is how little many social landlords knew about their tenants. We were shocked to discover that. Part of the process is social landlords engaging with their tenants and helping them to move to the right sort of accommodation.
Graham Evans (Weaver Vale) (Con)
My hon. Friend mentioned the mutual exchange service, otherwise known as HomeSwapper. Is he aware that 56,000 one-bedroom properties, 147,000 two-bedroom properties and 104,000 three-bedroom properties are available?
Steve Webb
We often hear from Opposition Members the refrain, “There aren’t the properties,” but my hon. Friend has exploded that myth. Significant numbers of people want to move from one-bedroom properties to two-bedroom properties, and from two-bedroom properties to three-bedroom properties. That will be facilitated by our measure.
Steve Webb
I will give way to my right hon. Friend the Member for Ross, Skye and Lochaber (Mr Kennedy).
Mr Charles Kennedy (Ross, Skye and Lochaber) (LD)
I am grateful to the Minister for giving way—it is characteristically generous of him, particularly because he knows my past record and that I have been unable to give my support to his policy. I have a specific question on how the policy will develop. The Select Committee on Environment, Food and Rural Affairs recommended some time ago that communities of fewer than 3,000 people could be exempted from the impact of the policy. I represent the largest geographic constituency in Britain, and that question is of great interest to the Highland council welfare committee. Will he please look at it?
Steve Webb
My right hon. Friend and his hon. Friends have been effective in lobbying for the needs of remote rural communities. That is why we specifically made available this year an additional £5 million, focused exclusively on remote rural communities, which face difficulty because of the distance people might have to travel to alternative accommodation. I hope that that Government decision this year has helped to address those concerns.
Mr Angus Brendan MacNeil (Na h-Eileanan an Iar) (SNP)
What solution does the Minister suggest for a Hebridean island where there are 105 houses, 50% of which are single occupancy, but only 20% of which have one bedroom? If people live on such islands, what is the solution?
Steve Webb
I am not sure whether the hon. Gentleman was listening a moment ago when I referred to the specific additional funding we have allocated to remote rural areas to respond to that problem.
Philip Davies
Does the Minister agree that the spare room subsidy is one reason why we do not have the right mix of housing? Social housing providers could build houses as big as they wanted, knowing that the Government would cover the full bill irrespectively. In that respect, does he deplore the social housing provider in my area, of which a Labour MP is a director? It complains on the one hand that it has too many three-bedroom houses—
Mr Deputy Speaker (Mr Lindsay Hoyle)
Order. Just to help hon. Members, we need shorter interventions. Many hon. Members wish to speak and the matter is important to all our constituencies, so we need short interventions.
Steve Webb
I am grateful, Mr Deputy Speaker, but my hon. Friend raises an important point on the responsibility of social landlords to build housing stock to meet the needs of local people. For too long under the previous Government, that did not happen.
My hon. Friend made the point that some social landlords have worked the system. One or two hon. Members have shouted, “No, that cannot be the case,” but I want to refer to the oral evidence given by Fife council to the Scottish Affairs Committee. Fife council saw the arrangements as a nice little earner. Apropos of two-bedroom properties occupied by a single person, Fife council said:
“we have under-occupied them to maintain an income from them”.
It also stated that the
“progress that we had made in maintaining our income by allocating properties with perhaps a spare bedroom is under risk now.”
I do not apologise for that. The purpose of housing benefit is not to subsidise social landlords who are using the system; it is to help people who are in need.
Mr Alan Reid (Argyll and Bute) (LD)
The extra money that the Government have given to sparsely populated councils for discretionary housing payments has been welcome. It has helped Argyll and Bute in particular and other sparsely populated councils. Can my hon. Friend give me reassurances that it will continue in future years?
Steve Webb
My hon. Friend has been a doughty campaigner for his rural constituency. I cannot commit the Government to a further £5 million—that is the amount allocated this year for remote rural areas—but I am aware that the Chief Secretary to the Treasury tends to be quite sensitive to the needs of remote Scottish constituencies.
Let me address the amendment, because the shadow Secretary of State did not mention the state of the nation’s finances—she used to be an economist, so I am surprised she did not mention the subject. The context of the debate is a deficit in 2009-10 in excess of £150 billion a year. The previous Government were spending £4 for every £3 they raised in taxes—that was not investment for the long term, but borrowing money to pay today’s bills. There is nothing progressive or fair about asking our children to pay the costs of current spending to benefit ourselves. That is why the context needed to be addressed.
Steve Webb
I am going to make progress.
The deficit was £150 billion. How can we address that? The biggest area of public spending is the Department for Work and Pensions. More than half of that budget goes on pensioners and pensioner-related benefits, which we had pledged to protect. That meant that a very substantial budget—the working-age welfare budget—had to be addressed. The biggest income-related benefit is housing benefit. The biggest group of housing benefit recipients comprises social tenants. We are told that the Labour party would have sought to address the budget deficit, but if we are looking to do so, housing benefit for social tenants must be looked at. If we have to make savings in that, where do we do it? We look at spare rooms in the social housing sector.
However, some people legitimately have a need for an additional room or should not be asked to move. The issue of adapted accommodation was raised. We could have dealt with adapted accommodation in two ways. First, we could have written in a long, complicated statutory instrument what is and is not adapted accommodation. Clearly, just a hand rail would not constitute adapted accommodation and a whole extension probably would, but what about the properties in the middle? Given that there are often no records of how much has been spent on adaptation, trying to write that into the law of the land would not have been an effective way to help those in need.
We therefore decided that we would estimate the cost of protecting those with substantially adapted properties—our estimate was £25 million—and allocated the money to local authorities to assist those in need. [Interruption.] From a sedentary position, the hon. Member for Manchester Central (Lucy Powell) says that it is not enough. Last year, we were told, if I remember rightly, that the discretionary housing payments we had made available for other housing benefits changes were “not enough,” but, at the end of the year, local authorities repaid to the Government £10 million of unspent discretionary housing payments.
Lucy Powell (Manchester Central) (Lab/Co-op)
I can absolutely guarantee that the Minister will not be getting any of his money back this year from any of the local authorities, and certainly not from Manchester. My constituency has among the highest number of people affected by the bedroom tax in the country. The money is fast running out, if it has not already run out, because there are far more people with adapted homes than there is money to go around. I can guarantee that he will not be getting any money back from Manchester city council this year.
Steve Webb
We have estimated £25 million to cover adapted properties. The hon. Lady might have better statistics than the Government on adapted properties, but I suspect that the default position of Labour Members is to say, “It’s not enough; it should be more.”
Let me address the issue directly to respond to the hon. Lady’s point. In 2012-13, we made available £60 million of discretionary housing payments. This year, we have trebled that amount to £180 million. That money is what we might call hard cash for hard cases—the cases to which hon. Members have referred. I say this sincerely to hon. Members: those who raise individual cases should be holding their local authorities to account. The Government have given local authorities the money to help people in need. In fact, we have gone further. Within year, we have allocated an extra £20 million for local authorities to bid for. If they have exhausted, or if they anticipate exhausting, their discretionary housing payments budgets, they can come to the Government for a top-up. So far, barely a dozen local authorities have asked for additional funding.
The hon. Member for Leeds West mentioned the strain being putting on her local authority’s discretionary housing payment. Leaving aside the fact that Leeds has an extraordinarily low rate of home swaps—in other words, is the local authority doing the right thing by its tenants?—it has not asked the Government for a share of the £20 million. If Leeds is so cash-strapped for DHPs, why has it not asked us for the money it says it needs, rather than turning away people it thinks are vulnerable?
Robert Flello
The Minister talks about cash-strapped authorities. Stoke-on-Trent has been the third hardest hit by cuts every year and simply cannot mop that up. He made a point about swaps. In Stoke-on-Trent, approximately 11,000 people are on the waiting list. Where are the one-bedroom flats? Where are the two-bedroom places? They do not exist in Stoke-on-Trent. Will he tell me where they are?
Steve Webb
The hon. Gentleman misses the point. He mistakes the issue of empty properties for properties that are currently accommodated. The social housing swap website indicates tens, if not hundreds, of thousands of people in smaller properties who want to trade up, while people in larger properties want to trade down.
In response to the hon. Member for Manchester Central, I am rather startled by this figure, but it appears that last year Manchester local authority sent back to the Government £595,000 of unspent DHPs.
Simon Hughes (Bermondsey and Old Southwark) (LD)
I am grateful to my hon. Friend and his colleagues for the extra allocation of money. My local authority has bid for an extra £600,000, which I hope it will receive. I supported the motion at the Liberal Democrat conference arguing for changes in this policy. [Interruption.] I will take no lessons from Labour Members. Will my hon. Friend look at exempting those who have applied and are eligible for a smaller property, and are waiting to be allocated?
Steve Webb
I am grateful to my right hon. Friend for referring to our policy motion, which is a darn sight better than the one we have been asked to consider by the Opposition. The Government are addressing many of the elements in our conference motion. For example, the motion calls for
“an immediate evaluation of the impact of the policy”
which we are undertaking, and
“A review of the amount allocated to local authorities for the Discretionary Housing Payment Fund”.
Lucy Powell
On a point of order, Mr Deputy Speaker. The Minister incorrectly gave figures for last year—the bedroom tax was introduced only in April. I was talking about money that will come back this year. I can guarantee that the Minister will not be getting any money back from Manchester this year—the year of the bedroom tax.
Mr Deputy Speaker (Mr Lindsay Hoyle)
Order. We do not need any help from those on the back row. That was not a point of order, but the hon. Lady has put her point on the record.
Steve Webb
I will come back to that in a moment.
I can assure my right hon. Friend the Member for Bermondsey and Old Southwark (Simon Hughes) that we are addressing many of the points raised in the conference motion, not least because the motion congratulates our colleagues on their role in securing additional discretionary housing payments—something they can all be proud of.
The hon. Member for Manchester Central says that I referred to last year’s figures. I did, because we have not got to the end of this year yet. Last year, we stood here and other Opposition Members said about last year’s budget exactly what she has just said. We allocated DHPs for other changes to housing benefits. They said there would not be enough money, but at the end of the year substantial amounts were repaid.
Steve Webb
I have no idea what that gesture means, but last year we allocated just under £1 million to Manchester, of which more than £500,000 was repaid. This year we have allocated nearly £2 million to Manchester to address those concerns. If it finds that it is still short of cash, despite sending back £500,000 last year, we will of course consider an application to our top-up fund, which we have not so far received.
We have heard nothing from the—[Interruption.]
Mr Deputy Speaker
Order. In fairness, a lot of people want to listen to this. All of our constituencies are affected and it is better if we all listen. The Minister has given way a lot. Hon. Members should indicate that they want the Minister to give way, but please accept it if he does not want to
Steve Webb
I am grateful, Mr Deputy Speaker. I am aware that a large number of hon. Members want to participate in the debate, so I will sum up the Government’s position.
The Opposition do not talk about the £150 billion deficit, because they are rightly embarrassed and are ashamed of the state in which they left our finances. They would have had to deal with the same deficit that we had to deal with, but we have no idea how they would have done so. The idea that they could reverse this change by finding £500 million from obscure corners is implausible. They could not raise anything like the sort of amounts they are talking about. We recognise that it is not appropriate to expect every person to move to a smaller property, which is why we have trebled the budget for discretionary housing payments. I say to Opposition Members and all my hon. Friends that if someone comes to see them with a legitimate reason not to trade down—they do not have an option to work, to take in a lodger, or to do the other things people do —the local authority should be asked to explain whether it has spent its cash and, if it has spent it, whether it has asked the Government for more cash. We can then have a conversation. Until that point, we need fairness between—
Mr Deputy Speaker
Order. I said that hon. Members should indicate if they want to intervene, but do not continue to stay on your feet, Mr Burden. It is for me to judge and for the Minister to give way. Please do not take advantage of the situation. That is not good for this Chamber.
Steve Webb
We need action on overcrowding, we need fairness between social and private tenants and we need action on the deficit. Those are the things we need. The Labour party has no answer to those problems. The coalition has addressed them. I commend the amendment to the House.
Ian Swales
I worry that housing policy tends to be dictated from inside the M25. It becomes less appropriate the further away from the M25 that we go.
My constituency has a discretionary housing payments problem. The last figures that I have seen show that there were 1,307 applications, but that only 358 awards were made. That happened because the money ran out, not because the applications were inappropriate.
We also have a one-size-fits-all penalty in the calculation for the amount of the spare room subsidy. In my constituency, the cost of an extra bedroom is about £7, but people are penalised by about £11. Therefore, people who should move from a three-bedroom property to a two-bedroom property get less housing benefit than they would get if they were in a two-bedroom house, which is deeply immoral.
Like many hon. Members, I have campaigned on various issues. I am pleased to welcome the Government’s concessions on foster parents, serving military personnel and disabled children. I also welcome the trebling of discretionary housing payments, but there is a lot of unfinished business. The hon. Member for Aberdeen South (Dame Anne Begg), the Chair of the Work and Pensions Committee, made some good points. I would make a plea for the exemption of disabled adults. Children are exempt when they need separate bedrooms for medical reasons. Let us do that for adults, instead of making people go through the demeaning process of applying. In my local council, people have to apply every quarter, and the application form is deeply intrusive.
As the hon. Member for South Derbyshire (Heather Wheeler) has said, many people are perfectly willing to move to right-size accommodation, but it simply does not exist anywhere in their area. In the north of England, we have a shortage of one-bedroom accommodation. In fact, some one-bedroom accommodation is being demolished in my constituency.
Steve Webb
My hon. Friend is making a thoughtful speech. I assume that he has a Labour-run local authority. If it has told him that the money for discretionary housing payments has run out, will he ask it why it has not applied for our additional funding? It appears not to have done so.
Ian Swales
I thank the Minister for that response. His announcement of that extra funding is the first I have heard of it. I will ask my local authority why it has not applied.
We need to recognise that some people simply cannot afford right-size accommodation and that it does not exist in their area. The Government should seriously consider a policy of treating those people as willing but unable to move and give them concessions in the system.
In my area, there have been some helpful consequences. I have been thanked by a number of families who have managed, owing to the policy, to get a bigger house in the area where they want to live. One social housing provider I met was surprised by the number of large families moving into their houses from overcrowded private rented accommodation. I do not know why that provider was surprised; surely, we ought to have expected that. Only the week before last, I was in an excellent hostel run by Coatham House, a charity in my constituency for homeless young people. It has said that it has seen a dramatic fall in the number of homeless young people. It put that down to the policy. Hon. Members might think there are bad reasons for that—I can think of those, too—but there might also be good reasons.
Many points have been made in the debate. The hon. Member for Gateshead (Ian Mearns) mentioned the financial stability of some of the stock transfer social housing providers. Some of them are highly leveraged and threatened by arrears, which will increase when direct payments begin. They could find themselves financially unstable.
I welcome the Government’s efforts to free up the system. One of the first cases that I dealt with as an MP was that of a single man living in a three-bedroom house. He wanted to downsize, but the system was so rigid that he was told that he would be moved to the bottom of the waiting list, with no guarantee of how and when he would get his next social house. Guess what? He did not move. I welcome that the system has, to an extent, been freed up and that exchanges are happening more often.
I welcome the continued commitment to review the policy, as it does need continual review. Despite the views that I have expressed in my speech, it is hard to welcome the hypocrisy evident from the Labour party on this issue. I look forward to the Minister’s response.
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)
Today I am publishing the Command Paper “Reshaping Workplace Pensions for Future Generations”. This sets out proposals to enable new forms of risk sharing in pension schemes. It builds on our strategy “Reinvigorating workplace pensions”, published in November 2012.
The current defined benefit and defined contribution pension arrangements place risk at polar extremes. In defined benefit schemes the risks are home by the employer who sponsors the scheme, whereas in defined contribution schemes the risks lie with the individual scheme member.
The shift away from traditional defined benefit is a long-term trend which, given the very different social and economic environment we are now in, is not going to change, unless we act now.
Automatic enrolment and the single-tier state pension will provide a firm foundation for saving for retirement. But if the current forms of defined contribution pension saving become the default alternative to traditional defined benefit pensions, scheme members will face uncertainty over the level of income they can expect in retirement.
Over the last year we have worked closely with employers and with representatives from across the pension industry to explore options for creating a new defined ambition pension category where risks (including inflation, investment and longevity) can be shared between a number of parties.
The consultation sets out our proposals for defined ambition pensions. These include:
Creating a new pensions regulatory framework that would allow for greater risk-sharing between parties, which could include employers, members, and insurers and investment managers.
Deregulating to allow a new flexible form of defined benefit pensions, that will enable employers to continue to offer pensions to members with a high level of certainty, but with much greater flexibility over the nature of benefits provided.
Enabling the development of new forms of defined contribution schemes that could provide more certainty for members without adding to employer liabilities.
Enabling new models of collective defined contribution schemes that could provide for risk sharing between members.
The Command Paper will also be available on the gov.uk website and the consultation closes on 19 December 2013. Subject to the outcome of the consultation, we aim to consult on draft legislation in the new year.
Child Maintenance Reform
Steve Webb Excerpts(10 years, 8 months ago)
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The Minister of State, Department for Work and Pensions (Steve Webb)
On 19 July 2012, the Government published “Supporting separated families; securing children’s futures” (Cm 8399), a public consultation on the draft Child Support Fees Regulations 2013 and the draft Child Support (Ending Liability in Existing Cases and Transition to New Calculation Rules) Regulations 2013. The consultation ran until 26 October 2012 and attracted a total of 90 responses.
On 20 May 2013, I tabled a written ministerial statement—Official Report, column 58WS—which outlined an initial response to this consultation. Later today, the Government will publish their full response. The response will provide further detail, setting out the main points made by respondents to each of the consultation questions, together with proposed next steps.
We have made a number of changes to our proposals in order to address the concerns raised by some respondents around the charging of fees and the closure of existing Child Support Agency cases.
First, we have reduced the proposed parent with care collection fee from 7% to 4%. Secondly, we have extended the list of organisations to which domestic violence can be reported in order to qualify for the application fee waiver. We have updated our definition of domestic violence to keep it in line with the current cross-Government definition, which includes financial abuse.
We have also changed the proposed order in which Child Support Agency cases will close. Nil-assessed cases will be closed first in order to minimise payment disruption. We estimate that around 50,000 cases could move from being nil-assessed to being positively assessed, should a new application be made to the Child Maintenance Service. Cases with an enforced method of payment in place, or where enforcement action is ongoing, will be closed last. These non-resident parents will be subject to a compliance test before they are allowed to choose the “Direct Pay” option.
We believe that these changes address the concerns raised by respondents, while preserving the Government’s intention to rebalance the overall child maintenance landscape. Our intention is to ensure that parents who are able to make their own arrangements are supported to do so, while a more efficient and more sustainable statutory service is still available as a backstop for those who really do need to use it.
We intend to lay amended draft regulations before Parliament later this year.
Pensions Bill
Steve Webb Excerpts(10 years, 8 months ago)
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The Minister of State, Department for Work and Pensions (Steve Webb)
I beg to move, That the clause be read a Second time.
Mr Speaker
With this it will be convenient to discuss the following:
Amendment (a) to Government new clause 1, line 6 at end add—
‘(2) In this section—
(a) “charges”; and
(b) “transaction costs”
shall be defined in regulations by the Secretary of State.
(3) Before making regulations under subsection (2), the Secretary of State must undertake a public consultation, which must include the views of—
(a) the Financial Conduct Authority; and
(b) the Pensions Regulator.
(4) With reference to paragraph (2)(a), any public consultation must consider the different elements which comprise charges and not just the annual management charge.
(5) Such charges, together with any transaction costs incurred by the funds in which qualifying schemes are invested, shall be declared on an annual basis to the Pensions Regulator, which shall maintain a public register thereof.
(6) The Secretary of State shall by regulations set the standards by which pension schemes must declare charges and transaction costs for the purposes of the register and for declaration to their members and their members’ employers.
(7) The standards set out in regulations under subsection (6) shall be reviewed every three years.
(8) The Secretary of State shall have power to make regulations ordering other disclosure arrangements on administration charges.
(9) Regulations under this section may not be made unless a draft has been laid before and approved by resolution of both Houses of Parliament.’.
New clause 7—Railways pension scheme—
‘(1) The Railways Act 1993 is amended as follows.
(2) In Schedule 11 (Pensions), after paragraph 11 there is inserted—
“Employers insolvency
11A (1) This paragraph applies if an insolvency event occurs in relation to the employer or former employer of a protected person.
(2) Where this paragraph applies the Secretary of State shall become liable to discharge any liabilities in respect of relevant pension rights, to the extent that they are not discharged by the trustees of a new scheme in which the employer was a participating employer.
(3) For the purposes of this paragraph—
(a) “insolvency event” has the meaning set out in section 121 of the Pensions Act 2004;
(b) “relevant pension rights” means the relevant pension rights referred to in paragraph 6(3) above.
11B The duty referred to in paragraph 11A also applies if an insolvency event has occurred in relation to the employer or former employer of a protected person on or after 1 October 1994.”.’.
New clause 9—Fiduciary duty of independent trustees—
‘(1) The Secretary of State may by regulations—
(a) require any pension scheme, which is not already overseen by independent trustees, to appoint a board of independent trustees; and
(b) set out the powers and duties of a board appointed under paragraph (1)(a).
(2) Regulations under this section—
(a) shall be made by statutory instrument; and
(b) may not be made unless a draft has been laid before and approved by resolution of each House of Parliament.
(3) The board of independent trustees shall have a fiduciary duty towards members of the scheme overseen by them.
(4) The fiduciary duty set out in subsection (3) shall take precedence over any duty to—
(a) the shareholders in, or
(b) other owners of,
the operators of the scheme.
(5) In relation to any matters of member interest, decisions of the board of independent trustees shall be binding on the board of directors or other analogous management board of any undertaking operating a pension scheme.’.
New clause 10—Promotion of good value in scheme size—
‘(1) The fiduciary duty of pension scheme trustees shall include a duty to consider whether the scheme has sufficient scale to deliver good value for members.
(2) Where trustees take the view that the scheme has insufficient scale, they must consider whether merger with another scheme would be in the members’ interests.
(3) The Pensions Regulator shall have power to direct merger of pensions schemes where it would be in the interests of the members of each of the relevant schemes for merger to take place.
(4) The Pensions Regulator shall exercise this power in accordance with a methodology on which it has publicly consulted and which has been agreed with the Secretary of State.
(5) The methodology set out in subsection (4) shall be kept under regular review and revised when necessary, subject to further consultation and agreement from the Secretary of State.’.
New clause 11—Decumulation—
‘(1) Any qualifying money purchase scheme must direct its savers to an independent annuity brokerage service or offer such a brokerage service itself.
(2) Pension schemes shall ensure that any brokerage service selected or provided meets best practice in terms of providing members with—
(a) an assisted path through the annuity process;
(b) ensuring access to most annuity providers; and
(c) minimising costs.
(3) The standards meeting best practice on decumulation shall be defined by the Pensions Regulator after public consultation.
(4) The standards set out in subsection (3) shall be reviewed every three years and, if required, updated.’.
New clause 12—Sustainability of private pensions: review of implications of climate change and natural resource constraints—
‘(1) The Secretary of State shall commission an independent review of the implications of climate change and natural resource constraints for the sustainability of private pensions.
(2) In particular, the review must consider the implications for long-term investment outcomes for members of work-based pension schemes of potential—
(a) systemic risks posed by high levels of exposure to fossil fuels and other carbon-intensive assets;
(b) economic and physical impacts of climate change under various climate mitigation scenarios; and
(c) constraints on the availability of non-renewable resources.
(3) In subsection (2)(c), “non-renewable resources” includes food, water, land and energy resources.
(4) A report of the review’s findings, including recommendations to government, must be laid before Parliament no later than 30 October 2014.
(5) The government must lay before Parliament its response to the review’s recommendations no later than 30 January 2015.’.
Government new schedule 1—‘Work-based schemes: power to restrict charges or impose requirements.
Amendment 38, in clause 29, page 15, line 24, leave out from ‘scheme’ to end of line.
Government amendments 5 to 10.
Amendment 53, in clause 34, page 18, line 22, at end insert—
‘(5) Regulations under this section shall not exempt entire classes of business or businesses, such as small and medium-sized businesses, from automatic enrolment.’.
Government amendment 11.
Amendment 54, in clause 42, page 23, line 7, at end add—
‘“(czb) to promote, and to improve understanding of long-term and sustainable investment amongst work-based pension schemes,”.’.
Amendment 39, in schedule 16, page 84, line 37, leave out from ‘of’ to ‘transfer’ in line 1 on page 85, and insert
‘a transferable benefits scheme, the cash equivalent of the transferable benefits—
‘(a) is transferred to a nominated’.
Amendment 40, page 85, line 3, leave out ‘automatic transfer’ and insert ‘transferable benefits’.
Amendment 41, page 85, line 8, leave out from ‘an’ to end of line 9, and insert
‘a transferable benefits scheme, means a member of the scheme who is no longer having contributions made to their benefits.’.
Amendment 42, page 85, line 22, leave out sub-paragraph (5) and insert—
‘(5) In this Schedule “nominated transfer scheme” means—
(a) a work-based pension scheme which is registered under Chapter 2 of Part 4 of the Finance Act 2004 and is a money purchase scheme;
(b) a scheme in which the qualifying member is a member, or that has been nominated by the member or the transferable benefits scheme for the purposes of transferring pots;
(c) a pension scheme which meets quality standards as set out by the Secretary of State;
(d) a pension scheme that meets any other requirements set out in regulations.’.
Amendment 43, page 85, line 38, leave out from beginning to end of line 29 on page 87, and insert—
‘Transferable benefits scheme to transfer to nominated transfer scheme
2 (1) The regulations must require the trustees or managers of a transferable benefits scheme to establish an agreement with a nominated transfer scheme to make provision—
(a) for the transfer of qualifying members’ benefits to the nominated transfer scheme; and
(b) describing how and when steps are to be taken in order to effect the transfer.
(2) The regulations may make provision for a protocol through which a transferable benefits scheme may establish an agreement with a nominated transfer scheme.
(3) The regulations must ensure that where the duty to transfer qualifying members’ benefits to a nominated transfer scheme, has arisen, the member may opt out of the transfer or identify an alternative nominated transfer scheme to which the members’ benefits will be transferred.’.
Amendment 44, page 88, line 25, at end insert—
‘Nominated transfer schemes: quality requirements and administration charges
10A (1) The regulations may impose requirements that must be satisfied by any nominated transfer scheme.
(2) The requirements may in particular relate to—
(a) the governance of the scheme;
(b) the administration of the scheme; and
(c) the certification of the scheme by the Regulator.
(3) The regulations may make provision limiting or prohibiting any administration charge that may otherwise be imposed on a member of an automatic transfer scheme.
(4) Regulations made because of sub-paragraph (3)—
(a) may make provision for the manner of, and criteria for, determining whether an administration charge exceeds any limit or is prohibited; and
(b) may provide for the determination to be made in accordance with guidance issued from time to time by the Secretary of State.
(5) The requirements that may be imposed, and the charges that may be limited or prohibited, because of this paragraph need not relate to things done under the regulations.’.
Amendment 45, page 88, line 27, leave out paragraphs 11 and 12.
Government amendment 28.
Amendment 55, page 88, line 38, at end insert—
‘(c) the ability of the scheme to generate sustainable investment returns.’.
Amendment 46, page 89, line 39, leave out ‘an automatic’ and insert ‘a nominated’.
Amendment 47, page 90, line 1, leave out ‘current’.
Amendment 48, page 90, line 2, after ‘member’, insert ‘in a nominated transfer scheme’.
Amendment 49, page 90, line 3, leave out sub-paragraph (2).
Government amendment 29.
Amendment 50, page 91, leave out line 11.
Amendment 51, page 91, line 21, at end insert
‘“nominated transfer scheme” has the meaning given by sub-paragraph 1(5);’.
Amendment 52, page 91, leave out lines 36 and 37.
Government amendments 30, 31 and 12.
Steve Webb
This group of amendments contains a long list of disparate topics. To give the House a feel for what we are discussing, it includes an attempt to limit the scope of automatic enrolment, the transfer of small pension pots, short service refunds, the vexed issue of pension scheme charges, issues with governance and administration, the decumulation of pension pots, the specific issue of rail pensions and the pension protection fund compensation cap. I shall do my best to whizz through all those issues to minimise or obviate as far as is possible the need for me to return to the Dispatch Box on this group.
I should start on a note of consensus. This part of the Bill deals with private pensions and I think that the House would agree that the process of automatic enrolment into workplace pensions is going exceptionally well. The process started a year ago. British industry has automatically enrolled about 1.7 million employees into workplace pensions. The rate of not opting out, or of staying in, has been far better than anybody predicted. Our survey evidence suggests that of the order of nine in 10 workers have chosen to remain in their workplace pensions. That is something that we should all welcome.
The Bill is designed to improve that situation further and to deal with some unfinished business. Although the principle of automatic enrolment was legislated for in the previous Parliament, many issues were not dealt with. If those are not dealt with, it will undermine the success of automatic enrolment.
Amendment 53 relates to the scope of automatic enrolment. Clause 34 gives the Government the power to exclude some people from the employer duty for automatic enrolment. I will give the House a flavour of the sorts of people that we might be talking about. In automatic enrolment, we have sought to strike a balance between setting out the rules at the start and giving employers and the industry certainty, and learning and listening and then changing the rules when we have got something wrong or when something needs to be refined or streamlined. We could have changed the rules and constantly tweaked things, or we could have said at the start, “These are the rules for the next five or six years until everybody’s in. Go and deal with it”, but we tried to strike a balance.
As we have learned, the rules require employers to put a certain set of people into workplace pensions who may immediately opt out. For example, people with what is called enhanced or fixed tax protection status—high net wealth individuals—could face a tax surcharge if their pension pot exceeds the lifetime allowance. In general, such individuals will want to opt straight back out of the scheme, and their employers have said, “Why are you making us put these people into pension schemes? We all know they are going to opt out, and indeed they will be cross with us if they fail to opt out and later face a tax penalty.” At the moment, the Government do not have the power to enable firms not to enrol those people, so clause 34 provides the power to exempt them from enrolment.
The second example concerns those who have already given notice. Someone may have given a month’s notice, but in the middle of that period the Government require the employer to put them in a pension scheme. As Members will understand, that is silly, because that person will probably opt out immediately. In any case, asking firms to enrol people who have already given notice does not do much for our relations with the CBI. Those are examples of where we have given employers a comprehensive, rigid legal duty that creates perverse outcomes. Clause 34 therefore allows employers to exempt certain categories of workers, and I have mentioned the sorts of examples it would cover.
Amendment 53 says, “That’s all very well, but we don’t want you using the power to exempt categories of business such as small and medium-sized firms.” Leaving aside the fact that the amendment does not define an SME and it is not clear who would be covered, and that any amendment with “such as” suggests it is a bit vague to begin with, in responding to the spirit of the amendment I assure the hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East (Gregg McClymont) and the House that the Government have no intention of using the power to exclude small and medium-sixed firms. That is not what this is about.
Amendment 53 is otiose, because if we were the evil Government that the hon. Gentleman thinks we are and wanted to exclude small and medium-sized firms, we could do that anyway. The staging schedule is set in statutory instrument, subject to negative procedure. Therefore, if we wanted to exclude Britain’s small firms, we would have only to produce a statutory instrument that would say that small firms will be required to stage in 2099. That would not even be subject to a vote in the House. If the amendment seeks to stop the Government doing something that, in any case, we do not want to do, it would not work; we could still do it even if the amendment were successful. I hope I have reassured the House that amendment 53 is unnecessary, because we do not plan to do such a thing. Secondly, the amendment is not well drafted because it is not clear who it means. Thirdly, even if passed, it would not achieve the desired objective. An unnecessary, poorly drafted amendment that does not work should probably not be approved by the House.
Amendments 38 to 52 concern what happens to small pension pots—an issue that was not addressed when the original legislation for automatic enrolment was drawn up. People change jobs perhaps 10 or 11 times in their working life, and they leave behind small pension pots. From the Australian experience, we know that can mean lots of people losing track of their pension pots and not engaging with pension saving because they have large numbers of small, silly pension pots all over the place.
Australia is often mentioned as having one of the world’s best pension systems, and the Australians say that the one thing they wish they had addressed at the start was small dormant pension pots. The Australian Government have been going at this for longer than we have, and they estimate that they have 5 million lost pension accounts containing 20 billion Australian dollars. It is a serious issue. Clause 29 in schedule 16 sets out the Government’s response to the issue, which is what we call pot follows member. When someone moves from an auto-enrolment defined contribution pot to another one, their pot—as long as it is below a £10,000 threshold—automatically follows them unless they opt for that not to be the case.
Interestingly, Nick Sherry, former Australian superannuation Minister and highly regarded in the field, said of pot follows member:
“It’s the only practical way. It’s better off”—
because the money is in the worker’s last account—
“which is why I think it’s the only practical solution”.
We are delighted to have Nick Sherry’s support for our approach, as well as that of the Association of British Insurers. In the briefing sent to hon. Members the ABI welcomes the fact that the Bill includes provisions for the automatic transfer of small pension pots, which will lead to greater engagement and help people make savings decisions that are right for them and should lead to greater income in retirement. That is a welcome level of support for the proposition.
The Opposition amendments suggest a different route and would mean that when someone changes job, the dormant pension pot is automatically transferred to a third-party pension scheme called an aggregator. As I understand it, there would not be just one aggregator but multiple aggregators, and I have multiple concerns about that. First, such a policy would clearly lead to greater fragmentation of pension saving—it must do. Let us imagine the simplest example in which someone moves from firm A to firm B, and works only for two firms in their working life. In our model, the small dormant pension pot follows them from firm A to firm B—or scheme A to scheme B—and they end up with a single pension pot. In the model suggested by the hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East, the dormant pension pot gets shunted off to some third-party provider with whom the employee has never engaged. They therefore have a pot with the current employer and with the third-party provider.
We are trying not just to hoover up small pension pots but to get people engaged in pension saving. The problem with someone shunting their money off to a third-party provider, perhaps one they did not choose—there is not much detail in the hon. Gentleman’s model, but I do not think it involves a person choosing a third-party provider, although perhaps it does—is that they get a letter from a pension company they have never heard of saying, “Guess what, we’ve got your dormant pension pot.” It is not exactly a ransom note, but it might be the first that someone knows about it, and that will not lead them to becoming engaged.
Under our model, someone’s pension savings are with their current employer. That is what they are interested in and where workplace pension engagement takes place. We therefore believe that our model provides better consolidation of pension saving and better engagement. Our model also saves on the cost of running pension schemes, compared with the model set out in the amendments. With a pot size limit of £10,000—obviously our published research relates to the £2,000 pot size limit on the aggregator model—which is the same across the two systems, we still estimate that the aggregate approach will achieve only half the cumulative administrative savings by 2050 of our pot follows member system. While aggregators are worth a look—we considered that option—it is clear that pot follows member is the best solution.
There is an issue of what happens if money is automatically transferred from a “good” scheme to a “bad” scheme, and I accept that point. That is why we are regulating for scheme quality. It should not just be a worry that someone’s small pension pot gets auto-transferred to a bad scheme; it should be a worry that an entire work force have been auto-enrolled into a bad scheme. We should not have bad schemes and must deal with that. That is why we are tackling pension scheme quality, which includes a range of issues such as governance, investment, costs and charges. In a few moments I will have news for my hon. Friends and the House about what action we are taking on charges. For those reasons, we are not convinced by the multiple aggregator model, as it is catchily known. We believe that the someone changing job and their money following them is a simple, attractive notion that I commend to the House. I therefore ask the House to reject amendments 38 to 52.
Amendments 5 to 10 are largely technical and deal with short service refunds. There is a category of money purchase pension schemes through which someone who has worked for a firm for under two years can have their money back when they leave. That is not in the spirit of what we are trying to achieve through our pension reforms. We want people, even those who put in relatively small amounts of pension savings, to accumulate that, build up what I call a big fat pot, and have a decent retirement. Short service refunds fly in the face of the view that even modest pension savings are worth having, and we therefore propose to eliminate them. The danger with the current legislation is that although someone joined to a pension scheme through a contract has 30 days to opt out, under the Bill they would be in the scheme on day one, and a day’s or month’s worth of pension contribution would be lodged. On purely pragmatic grounds we took that view that we ought to apply the same 30-day rule to short service refunds. Clause 32 abolishes short service refunds, and technical amendments 5 to 10 deliver a 30-day breathing space so that someone who is a member of a scheme for fewer than 30 days can receive a refund of what are essentially nominal contributions. I hope that amendments 5 to 10 will be welcomed across the House.
David Mowat (Warrington South) (Con)
I thank the Minister very much for the announcement that he will consider a 0.75% cap in the consultation. Will he ensure that, in the consultation, there is clarity about what the 0.75% includes? As he is aware, there are an awful lot of different interpretations of costs by different people. That is part of the problem.
Steve Webb
My hon. Friend is right. The consultation document discusses what should be included in the charge cap. My instinct is to prefer a comprehensive definition of charges. Clearly, we do not want to cap annual management charges and find out that the industry has cunningly managed to get its money back by some other route or a disguised charge. We therefore discuss what should be included.
My instinct is to go for a broad measure. There is an issue with transaction costs—we clearly want to know about them. Including transaction costs in the cap could lead to a slightly odd situation. Towards the end of the financial year, the fund and the trustees might believe that conducting a transaction is the right thing to do for the benefit of the pension fund. However, they might be unable to do that because the transaction costs would take them over the annual limit. We would be grateful for feedback on that and need to address those issues. One reason why we are having a consultation rather than laying down a definite answer is that we want insight on the fine detail, as my hon. Friend says. The basic principle is that we are looking at ensuring that 99p-plus of every £1 put into a pension goes into a pension. I am grateful for his comments.
I should add that there has been a suite of activity on charges. To remind the House, we announced a ban on consultancy charges earlier in the year. Government new schedule 1 and Government new clause 1 give us the power to put a set of powers to cap and regulate charges and quality all in one place. That includes automatic enrolment schemes, qualifying schemes and closed schemes. Lots of people have lots of money tied up in closed schemes. Without those measures, we would not necessarily have the powers we need to regulate the charges they pay. In some ways, the charges that people in closed schemes are paying—they are often old, high-charge schemes—are worrying, because people are often not engaged with their pension saving in a closed pension scheme.
Prompted by the OFT and working with the ABI, we are looking at legacy schemes—schemes introduced before 2001. The average charges in legacy schemes are 26% higher than charges in schemes sold after 2001. This is a full-frontal assault on pension scheme charges. We have banned consultancy charges; we are taking powers in the Bill to go further for auto-enrolment schemes; and we are looking at legacy schemes, charges and charge caps. We are taking effective action on issues that previous Governments have only dabbled with. That is why I urge my hon. Friends to support our new clause and our other proposals. They deliver, whereas the Opposition’s proposals mess about around the edges.
On governance and administration—in the context of new clauses 9, 10, 11 and 12, and amendments 54 and 55—quality in pension saving is not only about charges. How well schemes are governed and administered is important. Interesting issues are raised by the Opposition’s proposals—obviously, they are flawed, but I acknowledge that they raise important issues. New clause 9 would impose a trust-based structure for all pension schemes, with independent trustees across the board. But interestingly, the Office of Fair Trading’s project leader on the workplace pensions report that has just been published was recently quoted as saying that although trusts feel like an intuitively better way of looking after people’s pensions, that
“is largely dependent on the quality of the trustees.”
Given the many pension schemes we have at the moment, including many defined-benefit schemes, a requirement for every scheme to have a particular sort of trustee could be a real challenge, especially for smaller DB schemes.
Some of the Opposition’s suggestions may not be in the interests of members of schemes. I think the hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East was at the recent conference of the National Association of Pension Funds, where he would have heard Fiona Reynolds, the chief of the Australian Institute of Superannuation Trustees—our friends the Australians again—commenting on his suggestion. She said:
“Looking at the Australian system, we conducted a lot of research into whether there should be more independent trustees but in actual fact we found there was a greater alignment of interest within trust based schemes, and these schemes outperformed other schemes where independent directors were present.”
In other words, these are interesting ideas, but they have been tried elsewhere and they are not a panacea or golden bullet.
Gregg McClymont (Cumbernauld, Kilsyth and Kirkintilloch East) (Lab)
If that is the case for Australia—and I looked very closely at Ms Reynolds’s comments—why are the Australian Government giving the regulator and trustees a duty to consider how to improve the Australian pension system in the future?
Steve Webb
I do not see any incompatibility. The specific finding in Australia that independent trustees are not a magic bullet is not inconsistent with requiring schemes to ensure they are doing a good job. We will require schemes to meet quality standards that we will set out shortly.
Our call for evidence earlier this year sought views on provider-level governance structures, and the OFT has announced that the Association of British Insurers will work on independent governance committees for the big insurance-based schemes. We welcome that development and will consider our own proposals in detail in our response to the call for evidence.
The second set of governance issues relates to fiduciary duty and sustainability, addressed in new clause 12, tabled by the hon. Member for Brighton, Pavilion (Caroline Lucas) and amendments 54 and 55. By happy coincidence, I took part in a conference this morning organised by ShareAction. The hon. Lady was on the attendance list—perhaps she was sitting at the back heckling, but I did not see her there. The conference was to launch ShareAction’s green light project, which aims to get pension funds to take sustainability and climate change seriously. I was delighted to take part in that conference and I am very supportive of that agenda.
Clearly, the duty of trustees to their members is a cornerstone of trust-based governance, but we are looking at whether we have got the definition of fiduciary duty right. I welcome the fact that the Law Commission has consulted on this. Its interim conclusion is that fiduciaries should look at longer-term issues, and it is legitimate for them to look at environmental, social and governance—ESG—issues. The Government are therefore considering what the fiduciary duty on trustees means and how far we can deal with it through a better understanding of that work.
One of the issues that came out of the conference this morning—I shall try not to deviate too much from the new clauses, Mr Speaker—was that the trustee toolkit that the Pensions Regulator provides could be amended to take account of some of these concerns. One of the challenges is to try to ensure that the trustees do their job properly and have a broad understanding of what it entails. As I say, the Law Commission’s interim conclusion was that trustees should—note “should”, not just “may”—consider
“in general terms, whether their policy will be to take account of ESG factors in their decision-making”.
Caroline Lucas (Brighton, Pavilion) (Green)
I am grateful to the Minister for his positive comments. I take the point that the pension aspect is not the full picture, but it is a big part of it. If we want to make quicker progress on this issue, can he advise where we should best table our next amendments?
Steve Webb
In someone else’s legislation—[Laughter.] Just between ourselves, I encourage the hon. Lady to keep up the pressure across Government, including at Business, Innovation and Skills questions, Energy and Climate Change questions and Work and Pensions questions. To be frank, this issue is not always at the top of the pension agenda, so I welcome the amendments for that reason. I am reluctant, however, to amend the Bill in a piecemeal fashion, when I hope that we can have a more overarching framework affecting company law, business regulation and the duties of trustees not only in pensions but beyond. I am sympathetic to what she is trying to achieve, but we want to do it in a systematic, cross-Government way rather than dealing with just a bit of the issue. I look forward to hearing what she has to say, but I hope that she will withdraw new clause 12.
Scale is important. I do not think anyone doubts that, on average, bigger schemes produce better outcomes than smaller schemes, in the sense that, typically, bigger schemes have lower costs; they have the potential to diversify and pool risk; they have access to investment vehicles that smaller schemes perhaps do not; they have access to better quality investment advice; and they have more experienced trustees. We can see why, on average, a big scheme will probably do better than a small scheme. Just as the hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East is searching for golden bullets on independent trustees—
Tom Blenkinsop (Middlesbrough South and East Cleveland) (Lab)
Silver bullets.
Steve Webb
Apparently he is searching for silver bullets. In any case, we are already seeing consolidation. To give the House a sense of scale, let us consider small and medium occupational defined-contribution schemes for between 12 and 1,000 members. The number of such schemes fell by more than a third in three years—a dramatic fall—from 3,300 to 2,110. The number of micro-schemes, with between two and 11 members, fell by a fifth over the same period, from some 45,000 to 36,000. In a sense, the Opposition amendments seek to force the pace on scale, but it is already happening quite quickly. That is a welcome development, and once we implement our measures on scheme quality—which, subject to consultation, may include tough action on charges—there will be a seismic effect on the pensions industry.
If a scheme cannot be used for auto-enrolment unless it delivers seriously low charges, many small, sub-scale schemes will fall by the wayside. The trends are already in that direction, and the measures we shall implement will substantively accelerate that. Rather than presume that scale is the right answer, we have to regulate the quality. If a small scheme can demonstrate that it is, for example, tailored to the characteristics of its membership and is delivering for them, great.
We do not want to kill good-quality small pension schemes, which is what the Opposition’s slightly bureaucratic amendment could do. Instead, we will say, “This is what we think good looks like. If you, as a big or small scheme, can deliver that, we will not tell you what to do. We will set parameters for what good looks like and you have to deliver.” Consolidation is already happening, and the quality requirements we are putting in place will deliver the outcomes that the hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East wants.
Moving on—I apologise for the jargon—to decumulation, or “turning pension pots into retirement income,” as I think I am required to call it, new clause 11 suggests that it should be a requirement on schemes to feed in an annuity broker at the end. The hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East touches on an important issue, albeit again in an overly rigid way. Getting pension pots into a good profile of retirement income is crucial, which is why we at the Department for Work and Pensions are working with our colleagues at the Treasury on annuities and decumulation. Decumulation is about more than annuities. That is not a snappy soundbite, but in other words, turning a pension pot into a retirement income has to be about the whole process of retirement, not just a single event on a single day that fixes one’s retirement income for perhaps 30 years.
The danger with the rigidity of new clause 11 is that it presumes a backward-looking annuity model. Annuities in their current form were designed for a world where people lived for 10 years with pensions and then died. We now have a world where people might annuitise in their early 60s, or want to stop contributing to their pension pot in their early 60s, and live into their 90s. There are serious questions about the suitability of annuities for everybody. For example, people with big pension pots might want to look at a mixture of draw-down. They might want to look at alternatives, deferral or a range of options. It would be a backward step to hardwire into primary legislation that the only good thing that can be done with a pension is to annuitise through this particular model. We should give people new options at decumulation, not hardwire them into the annuity model. Of course, even an annuity broker may not necessarily guarantee that someone will get, for example, an impaired life annuity or enhanced annuity for disability or low life expectancy.
There is a lot that needs looking at in this section of the market. The initiatives that the industry has already taken—for example, the ABI code that came into practice earlier this year—are welcome, but we need to go further. We need a creative approach to turning pension pots into pension income, not a single product hardwired into a primary legislation model. I understand where the hon. Gentleman is coming from and I believe that the annuity market is in need of further reform, but hardwiring into primary legislation does not seem to us to be the way to go.
The House will be pleased to know that there are two final sections left, both of which are brief. The hon. Member for Hayes and Harlington (John McDonnell), who does not appear to be in his place, tabled new clause 7, on rail pensions. The new clause relates to whether the Government should underwrite the shortfalls in the pension funds of employees who worked for the nationalised rail industry, which was then privatised, and where some companies, such as Jarvis Facilities, Relayfast and Fastline, went to the wall. We sympathise with any worker whose firm goes to the wall, but I say to the hon. Gentleman in absentia that the notion of protected persons in this case was simply that the terms of the pension scheme of the private employer would be as good as in the public sector. It was never a guarantee against the insolvency of the sponsoring employer. All private sector employees are covered by the Pension Protection Fund, provided that their firm pays the PPF levy. That is how these workers will get all or most, depending on their circumstances, of the pensions they were expecting. It would be wrong to give special treatment to that group when many other people work for firms that went to the wall and will not get that treatment.
Katy Clark (North Ayrshire and Arran) (Lab)
Does the hon. Gentleman not accept that to enable privatisations to go ahead—we are not just talking about the railways; the electricity sector and the miners were affected in similar ways—promises were made that people’s pensions would not suffer any detriment as a result of privatisation? Our experience is that privatised companies go bust more often than others. Surely we are reneging on those promises.
Steve Webb
Just to be clear, new clause 7 makes a specific suggestion regarding a private sector employer going to the wall. The promise was never, “You’ll get absolutely everything, even if your firm goes bankrupt”; it was that the terms of the pension would be as good as in the public sector. Clearly, in this case people are working for a private sector firm and could, if they wish, transfer their pension rights to somewhere else. They chose to keep them with the sponsoring employer.
Bear in mind that the money to pay for any shortfall in those pensions will come from the general taxpayer. Somebody is paying for that shortfall and many general taxpayers have no pension provision at all. If a private company knows that the pension fund is completely insured by the Government, that may influence its behaviour in a way we would not want. If feels unfair to say, “If your private employer used to be nationalised not only do you still have access to a very good pension scheme, but it is absolutely protected, whereas if you worked for any other private firm you are not protected.” I can understand why the hon. Member for Hayes and Harlington, given his trade union links, supports the railway workers—that is fair enough—but it seems like special pleading for that industry and I think there are many others who might make the same argument.
David Mowat
I am sorry to take my hon. Friend back to annuities, but I have been reflecting on his remarks. I agree with the need for us to be more creative in that interface as annuities are taken out, and he is right to say that the annuity broker is overly prescriptive. However, it is also true, as I think he said, that there are market abuses in the annuity system. Is there any more we can do in the consultation to look at the transition from pension fund to annuity and ensure that, for example, the Association of British Insurers code of conduct is more rigorously applied than it has been? It has not been very successful up till now.
Steve Webb
Although the ABI code, for example, no longer requires the providers to send the application form with the wake-up letter, I gather the early evidence is that it has not substantially changed the proportion of people who shop around and then move to a new provider. I agree with my hon. Friend that there is a big agenda on decumulation—I apologise again for the word. It is not just about annuities. The new clause is too narrow and too prescriptive, but I assure my hon. Friend that we do not regard decumulation as a job done—on the contrary.
Katy Clark
I have been contacted by a number of constituents who are in difficulties because of the current regime. The Minister clearly accepts that there is a need for change. When will he come forward with proposals? He has been in post for a number of years and is clearly on top of his brief. We need the Government to act. When will they do so?
Steve Webb
My particular responsibility is automatic enrolment. We are about to put 10 million people into mainly defined-contribution pensions, the vast majority of whom, all things being equal, will then buy an annuity at the end. For understandable reasons, our focus in the past few years has been to get the infrastructure in place to get those 10 million people into pension saving and building up pension pots. Then, when they have a pension pot, we will ensure that they receive good value at the other end. There will be a set of people who will be auto-enrolled today and will retire tomorrow, but they are a minority. We need to get to grips with this issue. Annuity policy is led by our colleagues in the Treasury, which is why we are working closely with them. We hope to make further announcements soon.
Government amendment 31 relates to the Pension Protection Fund compensation cap. In Committee, we amended the Bill so that workers entering the PPF would have a more generous cap if they had been long-serving employees. The amendment applies the same provisions to people who are already in the PPF. We will not go back years and increase pensions retrospectively, but once the Bill and secondary legislation are passed we will increase their pensions going forward in line with the provisions we have already made for new employees going into the PPF.
Dame Anne Begg (Aberdeen South) (Lab)
Will the Minister explain what the position will be with regard to the cap for those who are in the financial assistance scheme and are not yet in the PPF?
Steve Webb
I am grateful to the Chair of the Select Committee. As she knows, the PPF scheme is funded by the PPF levy, and the financial assistance scheme is funded directly by the taxpayer. I think the FAS will be moving next year to the Department’s annually managed expenditure budget, so we will then have to find taxpayers’ money to make a parallel change to the FAS. We are continuing to reflect on whether we should do so. No final decision has been made, but I understand the case for some matching change.
To conclude, the change to the compensation cap will mean that relatively small numbers of people—who, having worked for their firm all their life, should have got a good pension, but on whom the cap was biting particularly harshly—will now get a fairer pension, which has been widely welcomed by those affected.
In summary, this section of the Bill deals with making automatic enrolment and private pensions work. Automatic enrolment has been a great success so far, but there have always been a lot more aspects to sort out, small pension pots being one in particular, scheme quality another. I am delighted to say, therefore, that this is the week we finally tackle the scourge of excessive pension charges, and I commend the Government amendments to the House.
Gregg McClymont
I thank my hon. Friend for her shrewd intervention.
The Minister has been slow to understand the depth of the problems in the pensions market, and the House does not have to take my word for that. Earlier this week, I wrote to the Conservative MPs in the 40 most marginal Conservative seats, who have recently published a manifesto-cum-policy document. The language therein is—how shall I put this?—tougher on the private pensions market even than mine. The document, “40 Policy Ideas from the 40”, describes it as a failed market. It also states:
“Pension providers still refuse to clearly identify hidden charges such as churn and related fees…91% of retirees buy their pension annuity from their fund manager without checking other market options…the problem is that the private pensions market in the UK is a failed industry with higher charges than in any other country.”
That was not written by the Labour party. It was written by the Conservative MPs in the 40 most marginal constituencies. It seems a bit odd that they should take a tougher line on the pensions market than the Liberal Democrat Pensions Minister.
The way to explain that conundrum—I will not call it a paradox—is to say that anyone who believes in markets and thinks that they should work properly will support Labour’s proposals on reforming the private pensions industry. We want to reform it to ensure that the 10 million new savers going into automatically enrolled pensions get a fair deal. This pertains in particular to clause 29 and schedule 16, and the amendments thereto. It comes down to whether we believe that the pensions market is ready and able to proceed with pot follows member, given its fragmentation. The evidence shows that it clearly is not. Again, Members need not take my word for that. The National Association of Pension Funds has made it clear that we need to move to an aggregator system.
Given that the Minister was kind enough to spend a considerable period of time talking about the Labour amendments, I will do the same. I want to say a little about why aggregators are important. When the Minister addressed the NAPF, he gave a lucid, walk-around-the-stage performance that I enjoyed very much. He referred to two songs from “Les Misérables”. It would be unfair of me to sing either of those songs to him now. I have to confess that I am not a musicals man, although I suspect that the Minister might be a man for musicals—
Gregg McClymont
It seems that he is, and that is fair enough. I myself am not. Musicals are not my thing. He quoted from the innkeeper’s song, which I am certainly not going to sing. For one thing, I do not know the words. He used the song as a basis to talk about 2% here, 3% there and charges everywhere, and presented that as the problem in the UK pensions market. That is very different from what he was saying not long ago. It is just over a year since he accused Labour of scaremongering about pension charges, but he has moved a long way since then—rhetorically, if not perhaps substantially. He talked about that ditty and made it clear that there was a problem, but he still does not grasp the fact that pot follows member is impossible because of the fragmentation in the pensions market.
Labour’s new clauses would enable the restructuring of the UK pensions market so that savers’ interests would be appropriately represented. The Minister referred to our new clause 9, which deals with trustees, and he quoted the OFT’s view that the trustees would have to be good ones. He also quoted someone from Australia who is over here at the moment, who had said that in some cases trustees were not the answer.
Our proposals involve having trustees in every scheme, the scaling up of the UK pensions industry to reduce the fragmentation born of 200,000 different schemes—it is the most fragmented private pension system in the world—and the reform of the annuities market. Our amendment (a) to new clause 1 proposes that all costs and charges should be disclosed. Those measures need to be taken together as a package, as a Labour Government would do, and they would provide a starting point for tackling the fundamental problem in the UK pensions industry.
Our proposals would deal with the first problem, the system’s fragmentation. Secondly, they would deal with the problem that, as history tells us, pension savers are not the same engaged, informed consumers as those who buy tins of beans. The Minister seems to have undergone a damascene conversion on the merits and demerits of comparing the pensions market to the tin of beans market, and I will come back to that point. Savers are not informed and engaged in that way.
Buying a pension is not like buying a tin of beans. The consumer does not exert the same pressure. Someone buying a tin of beans might be given a choice of five different kinds. With pensions, such a choice would not be available to the saver anyway, because the employer buys the product. But let us use the Minister’s metaphor and compare the pensions market with the tin of beans market. First, if there were a pensions market in a supermarket, the saver would not choose the pension themselves; their employer would do so. That would be an odd arrangement in the tin of beans market. Secondly, the buyer of beans can taste the various kinds, from the cheaper ones to the more expensive, and come to a judgment based on taste relative to cost. It would be difficult for them to make a similar comparison with pensions; historically, it has never happened. Thirdly, I return to the point that it is the employer who makes the purchase of a pension.
The Minister has done something significant in the state pension sphere. He and I have been exchanging views across the Dispatch Box for almost two years now, and I say to him gently that he is still approaching the private pensions market on the basis that it has the ability to function like other markets, including the market for beans, even though, as he looks at it more closely, he can see that there are big problems. It cannot function like that. If we are to make it work properly, we have to ensure that the people acting in the pension saver’s interests are muscled, scaled and resourced.
That is what our new clauses would achieve. They would enable the scaling up of the pensions system, so that schemes would be able to get an effective deal from providers. Let us be clear: the providers in the pensions market have scale. In that sense, it is a bit like the energy market. They are large-scale, efficient organisations. It is the people saving into pensions who do not have scale, and that is because there are 200,000 pension schemes. They do not have the necessary representation because the smaller employers, in particular, who are auto-enrolling their employees are not pension experts. I know that the Minister is aware of those facts—we have discussed them a number of times—and I urge him to think about how all that relates to restructuring the private pensions system so that it takes cognisance of that reality. It is in that area that he is not taking on what the Opposition are saying.
We are clear that we need to move to an aggregator system, because otherwise pot follows member will not work and because if we enable the creation of aggregators, we have a chance to bring down charges in the auto-enrolment market. We know that there are millions of stranded pension pots, and the Minister rightly and repeatedly talks about them. How do we use the stranded pots issue to generate some change in the interests of pension savers, particularly the 10 million new savers automatically being enrolled in pensions for the first time? How do we do that? That is what our new clauses wink towards.
Steve Webb
The hon. Gentleman is making a thoughtful contribution, but what he seems to be saying is that if I have a small amount of money, I can have a 50 basis points pension fund, but his proposal for the charge cap for active members is 100 basis points or 1%. If I have a lot of money in pensions, I have to pay 1%, but if I go off to an aggregator, it is 0.5%. Why is that a good deal?
Gregg McClymont
I thank the Minister for that thoughtful intervention. I am coming on to the issue of the charge cap and the rate at which it will be set, so I shall take up the point when I discuss our amendment (a) to new clause 1. He refers to small pots, but that takes us into territory we have previously discussed about getting aggregators to take them on. Why does he believe that only small pots that are stranded should automatically be transferred? My view is that all stranded pots should be liable for automatic transfer. I am grateful for his intervention, because it reminds me of something I intended to say. The Government’s position on the pot follows member system appears to be supported only by the Government, the Minister and the ABI. First, the only pots liable for automatic transfer will be those for less than £10,000, and secondly no pots that are stranded before the date on which the legislation takes effect will count as stranded pots. [Interruption.] The Minister shakes his head. I will give way to him if I am wrong on that point. He does not want to intervene, so I shall continue on the basis that what I am saying is correct.
This is an important issue, because I am building a case that the Minister does not realise how substantial the problems in the private pensions market are. He continues to think it can be treated like better-functioning or well-functioning dynamic markets. Actually, the market is more like the one in energy. I say that because when, under the Minister’s leadership, the Department for Work and Pensions looked at how to consolidate pots, it gave as a reason against aggregators the fact that they would disrupt the current market structure.
The Minister talks about new clause 1 and the need to take very strong action. Implicit but also explicit in what he says is that there are really serious problems with this market. If that was not explicit in what he said today, it was certainly explicit in his “Les Misérables” ditty at the NAPF. He knows about these problems, and he knows that we need significant change. We are going to be in a position, however, whereby all currently stranded pots will continue to be stranded. The Minister is shaking his head again. Does he want to tell me that I am wrong? I am happy to accept it if I am wrong, but on the basis of our Committee debates, I do not think that I am. Am I wrong? The Minister will not stand up to say so, so I shall assume that I am not and that he wants to keep the currently stranded pots still stranded and will not take action to deal with the problem. He also sets a £10,000 limit. Why? The answer is that he continues to be unprepared to stand up to the vested interests in the pensions market.
The Minister said several times that the ABI is doing this, and the ABI is doing that. That is welcome; we like to see the industry engaged. However, a time must come—and it is now—when the Government must get on and make the changes necessary to reform the pensions system. I put that on the record, and if he wishes to correct me, he can. As I say, currently stranded pots will not be encompassed by clause 29 and schedule 16, and no pot above £10,000 will be considered to be a pot eligible for automatic transfer. I think that says something significant—that he does not understand the necessity for significant change in this market.
It is not just me referring to private pensions as a failed industry. As I said, the group of 40 Tory MPs in the most marginal constituencies have done so too. They do so because they understand that if 10 million people are to be automatically enrolled into the new workplace pensions, every scheme must provide value for money. The Minister needs to take the necessary action and accept that.
Steve Webb
The hon. Gentleman’s central thesis seems to be that he should claim credit for Labour’s 2008 auto-enrolment legislation. He likes to say that auto-enrolment is a Labour thing. However, he has spent the last three quarters of an hour telling us how fatally flawed that legislation was. It contains no standards relating to quality or to annuities. I would have asked myself on day one, “How can we get value for money?” Why did Labour think that it was good enough to legislate for auto-enrolment without addressing any of those issues?
Gregg McClymont
The Minister took a similar approach when he talked about stakeholders. I shall say more about the stakeholder issue later, but let me first make it clear to him that I have never claimed that all the credit for auto-enrolment should go to Labour; in fact, I have said a number of times that the Minister and the Government deserve credit for taking it on. The Minister is simply wrong to say that that is my “thesis”, as he put it. My thesis is that the Minister has underestimated the scale of the problems in the private pension market, and that the Bill and his comments on our new clauses suggest that he continues to do so. He says that Labour should have done this and should have done that, but I assure him that had I been pensions Minister in 2010, the first task on which a Labour Government would have focused would have been making the changes to auto-enrolment that were necessary to ensure that every saver was given value for money. [Interruption.] The new Whip, the hon. Member for Croydon Central (Gavin Barwell), of whom I am extremely fond, has just said something that I could not hear because I was talking at the same time as he was mumbling, but I am sure that it was shrewd and thoughtful.
The Minister talks of views. This is the Opposition’s critique. He has announced, “I want to carry out a radical reform of the state pension. I want to move from a very slow merging of the state second pension and the flat rate state pension to a hard and fast wind-up.” That is a complicated process that will take up a great deal of time. Meanwhile, he has been focusing on another issue, that of “defined ambition”. He spoke about that to the NAPF as well.
My specific critique of the Minister’s approach is to do with sequencing. Given his intentions and actions in respect of the state second pension, he should have made sure that there is nothing in the auto-enrolment market that could end up with any of the 10 million savers who are going to be automatically enrolled getting less than value for money. At one level the Minister does not disagree with that, because he told the NAPF that we will look back at this period as either one when something happened that was for the long-term good or as one when the problems in the private pension market were not dealt with. The Minister has been too slow to get on to this and, based on what he has said today, he is still not taking the necessary action. He is saying he might take action, but his words, which I will examine shortly, reveal it is in fact the appearance of action without the reality of action.
Let me develop that argument with reference to new clause 1 and our amendment (a). The Minister announced that there will be a consultation on a possible charge cap. We all knew that was coming: the Minister trailed it extensively. What did the Minister say about this consultation? First, it is important to note that it is a consultation, which, of course, does not commit the Government to doing anything. A consultation is not the same as legislation. The Minister became more engaged as he was speaking, and he finished by saying that this is a full-frontal assault on pension charges. The problem is he also said, “We will look at how far we can get.” A whole range of activity on charges has been undertaken, but, when he lists them, it is clear that they are mostly consultations. I give him credit on consultancy charges. The Minister acted decisively on that, but he needs to take similarly decisive action on the wider pension charges problem.
The Minister’s language was instructive. He wanted to dress up a consultation as action, but it is not action. He floated the possibility that one consultation option will be a cap of 75 basis points, but he did not say what the other options would be. Given my knowledge over two years of the way the Minister proceeds, I doubt that this will be a consultation with only one option, so will he tell us what the various options for a charge cap will be? He is probably giving the House only partial information by noting there will be one option of 75 basis points.
So the Minister announces a consultation, cherry-picks, for the benefit of his statement this afternoon, some of the things that will be in it, but no one in the House has yet seen the consultation and been able to examine it. That suggests the Minister is under pressure to get going on reforming the private pensions market, specifically in terms of costs and charges. That was what one felt when listening to the Minister. Not only did he spend a lot of time rebutting Labour’s vision for private pensions, but he felt the need to oversell what the Government are doing. I would say he felt that need because he feels under pressure on this issue. [Interruption.] The Minister suggests I am psychoanalysing him. As a historian rather than a psychoanalyst by trade, I will now present some evidence to support this view of the Minister.
Just over a year ago, when Labour pointed out the problems with charges, the Minister said we were scaremongering. However—to take us back to the issue of the tin of beans, as I promised—the Minister said in his statement that the pensions market is not like a tin of beans and that is why we have to look at a charge cap, but he also said in January this year, “I’m not sure a charge cap’s the way to go because the pensions market is like a tin of beans.” First, that suggests an obsession with tins of beans, which one would never have expected of the Minister, but it also suggests a little confusion in the Minister’s mind about what kind of market the pensions market is.
The Minister now says categorically, “The pension market is not like a tin of beans, so a charge cap has to be consulted upon”, but in January 2014 the Minister is quoted by AOL Money UK as saying there is no case for a pension charges cap and
“he is not yet persuaded that the Government should cap pension charges.”
The Minister can say he has changed his mind. I have absolutely no problem with that. He says he was not persuaded and now he is persuaded. That is a perfectly defensible position, but it gives credence to the Opposition argument that the Minister has been slow to realise just how dysfunctional this market is. The Minister said in January:
“Why does the Government not set a price cap on a tin of baked beans? We do not need to because there is a vibrant market; people have lots of choice”.
Yet today the Minister used the baked beans example himself and said categorically that the market is not like a tin of beans. That suggests the Minister has moved on this issue, which we welcome, but it raises this question: if he did not get it nine months ago, does he get it now? The way to test that is to look at what he said about charges, disclosure and caps in respect of new clause 1.
The Minister made it clear that the consultation is happening and it is important, and he pointed back to stakeholder pensions and said, “The Labour Government brought in stakeholder pensions in 2001, but look at how high the charges were capped.” I think the Minister will agree that he and this Government, by taking on the Turner consensus developed by the last Government, are grappling with fundamental legacies of pension policy decisions made by previous Conservative Governments in particular. [Interruption.] The Minister says Labour ones, too, but let me develop this argument.
The Thatcher Government did—I am sure for the best of intentions—a couple of things, one of which was breaking the link between earnings and the state pension, but we can come on to that when we talk about state pensions later. Specifically pertinent to the clauses and amendments currently under discussion, however, the Thatcher Government decided to encourage the taking out of personal private pensions and thereby encouraged—I will put it no stronger than that—5 million people to leave the state earnings-related pension scheme and/or occupational schemes. The Minister knows about pension pillars. The state pension is one pillar, and additional pension saving is another. What the Minister is trying to do in this Bill is reform the first pillar radically and make sure the additional pillar delivers effectively. That was the approach the Turner commission set out, and I am pleased to see the Minister nodding in agreement. The Turner commission reached that conclusion because it recognised that both pillars had to be rebuilt after the policy mistakes of the 1980s.
Gregg McClymont
I assume the hon. Gentleman is referring to the decision to remove the dividend—[Interruption.] I say to him, first, that I do not know where he gets that figure from. I have heard it from Conservative MPs, in particular, but I would be delighted if he explained where he got it from. I would be interested, because anyone who has looked at the matter closely would say that the figure had been plucked out of nowhere. Pensions are a long-term business, and I am not suggesting that the only Governments who ever made a mistake were previous Conservative Governments. However, the fundamental policy decisions that set the UK on a slippery slope regarding additional pension savings were the mistakes the Thatcher Government made through the enormous encouragement given to personal private pensions.
The hon. Gentleman might remember, or might have read about, the way in which an army of pension salesmen was unleashed to persuade people that they should leave high-quality occupational schemes or the high-quality second state pension—the state earnings-related pension scheme—and go into personal pensions. They were offered enormous lump sums, not realising that such sums, up front, actually came out of their pension savings. They were promised enormous returns, and they were promised that they could pay less into a pension and get a much better retirement income. Where did that lead? It led directly to the private pension mis-selling scandals, whose legacy of public mistrust of pensions we all live with today.
That relates back to my point about the Minister’s approach. He is trying to build back up and deliver, or try to deliver on, a consensus around the Turner proposals—that is the right thing to do. However, if he is going for a hard, fast wind-up of the second state pension, with the losers being low-paid private sector workers, he has to be clear and convinced that every auto-enrolment scheme—10 million people are going into these schemes—delivers value for money. That is where my view, and that of Opposition Members, that he has not moved fast enough comes from, and it is evident in his change in view that I have cited. His view on the private pensions market has evolved. We welcome his movement, but we say to him that he has to move faster, and that leads me to amendment (a).
We have to draw a distinction between costs and charges. Our amendment would, in particular, make possible the disclosure of all transaction costs. The Minister alluded to that, saying, rightly, that we cannot have transaction costs in the cap. I absolutely agree with that; I do not know anyone who would say that transaction costs could be included in the cap. However, we need to ensure that the transaction costs are disclosed to employees and employers. He suggested that it was odd that the Opposition would want there to be a statutory record of costs and charges, but that is not odd; it is central to reforming the private pensions market.
Steve Webb
A few minutes ago, the hon. Gentleman rebuked me for saying that engagement was important, because for most people this is all about inertia, but he is now saying that employees are going to go to the pensions regulator’s website to look at transaction cost charges on their pension. Those two things cannot both be right.
Gregg McClymont
That is not what I was saying, and I will explain why. I am not surprised by the Minister’s response, because it probably explains why he was reported as saying at the NAPF conference that transparency “gets you virtually nowhere”. I assume the basis for that view, which at first glance appears odd, is that he takes the point that I have been making throughout this debate that seeing the pensions market as one where the saver is always is in charge or can always be in charge is simply wrong. I just put that on the record, but now let me deal with his point directly.
First, I do not see any basis on which one can be against the full disclosure of everything that has an impact on pensions, including transaction costs. Secondly, if we had the disclosure of transaction costs, that would enable everyone with an interest in ensuring good pension outcomes, including the Government, to have the evidence at their fingertips to say to interested parties, stakeholders and, in particular, pension companies and fund managers, “That’s what you are charging? That’s not on.” How can the Minister not want to have all the evidence at his fingertips? He is taking a strange position. He says that he is carrying out a consultation on charges. We know that is a shift in his position, for the reasons I have set out and given his previous comments, but he is still behind the curve because he does not support the full disclosure of transaction costs—he certainly will not support our amendment (a), which will make such disclosure a reality.
Let us be clear about this: we simply do not know what happens on costs when pension moneys are put into the “investment chain”. That seems an obscure term, but I am talking about where someone saves into a pension, their pension provider passes the pension savings to fund managers—they are often in the same organisation, because, as with the energy sector, there is a lot of vertical integration—and then the savings are invested. There is no comprehensive disclosure of all the costs that accrue in that process, and that cannot stand for much longer in the 21st century.
The Minister was quoted as saying at the NAPF conference—if he has been quoted unfairly, I urge him to intervene to say so—not only that transparency “gets you virtually nowhere”, but that one had to strike a “balance” between the public’s right to know about transaction charges and the costs to fund managers of disclosure. We hear that argument a lot across political debate. It is not a foolish argument in some cases, but it is in this case, because fund management is such an opaque business and, according to the things we hear—without access to the facts we cannot know for sure—the costs can be significant. Hon. Members should not take my word for it. The Secretary of State for Business, Innovation and Skills commissioned the Kay report on equity markets and “long-termism”, and Professor Kay made it clear that all transaction costs should be disclosed.
Professor Kay was clear about that, on behalf of the Government—or, certainly, at the behest of the Minister’s Liberal Democrat colleague the Business Secretary—because of the evidence he had gathered that fund managers can over-churn pension fund savings. What do I mean by “over-churn”? The incentives lie in commissions for trading, and so rather than hold on to assets for the long-term—what one might call the “Warren Buffett” approach, which is a very successful long-term approach to investing and is consonant with the long-term nature of pensions—fund managers have a big interest in constantly trading, because that generates commissions. That might be the case, or it might not. We simply do not know, because those things are not disclosed. The Minister trumpets new clause 1, but it does not include any disclosure of transaction costs. If we want to move to an auto-enrolment system and have in mind the 10 million people who will be automatically enrolled, as a sine qua non of reform we must ensure that the transaction costs are disclosed.
I am not sure whether you are aware, Madam Deputy Speaker, but just over a year ago the Royal Society of Arts investigated what pension providers understand by “the costs and charges” of a pension. It contacted 25 big providers and the vast majority told it that the full costs and charges of a pension scheme were simply the annual management charges, not the total expenses ratio and not transaction costs. Our argument is that the Minister has been too slow to recognise how dysfunctional the private pension market remains. We welcome the fact that he is moving, but he is doing so far too slowly. As evidence of that, we cite the fact that he will not commit the Government today to the provision on the disclosure of transaction costs. Our amendment (a) to new clause 1 would ensure the disclosure of transaction costs.
Our other amendments, as they pertain to the scale and value of pension schemes, to trustees and to annuities, would make a significant difference in the market. They would start to make the changes that are necessary to ensure that everybody gets value for money.
Richard Graham
I welcome your advice, Madam Deputy Speaker.
Before the shadow Minister intervened, I had been referring to scale. I touched briefly on the fact that size is not everything when it comes to the management of pension funds, as with so much else in life, Madam Deputy Speaker. In order not to delay you further on that point, I will move swiftly on to annuities.
Annuities matter. We are in a new world, as the Minister said, because we are living longer and we need more options. There is more to annuities than simply a need for more competition, choice and help, although that is important and the code of conduct from the Association of British Insurers is a promising start. I agree with the Minister, though, that we should go further. At the heart of the matter is transferability—being able to trade annuities at different periods of life when different circumstances crop up and when there is different pricing in the marketplace. What we certainly do not want is a single product solution. I was lobbied heavily at the Conservative party conference by an annuity provider who was keen to impress on me the importance and relevance of their single product solution, but my instinct—I hope that the Minister is with me on this—is that such solutions are precisely what we do not need in the world of annuities.
Those were the six main points I wanted to cover—auto-enrolment, small pots, aggregators, charges, scale and annuities—and I have done so in about seven minutes. There is no need to go on for much longer, but I will try to bring my speech to some sort of rounded conclusion by asking the Minister to note three queries that constituents have raised with me.
The first query, which I think is important for Members across the House, relates to bereavement support payment. It is clearly an emotional issue, as all families who have had to deal with tragedy will understand, particularly when it comes to bereaved children. Winston’s Wish is a charity headquartered in the constituency of the hon. Member for Cheltenham (Martin Horwood), but it has a significant presence in mine. It has made a number of points, not all of which I agree with, but one is that the tax status of bereavement support payment is slightly unclear. I would be grateful if the Minister could say more about that and whether it will be tax-free, because that would be hugely appreciated. Given that the trend of his proposals on bereavement support payment is effectively to increase the amount of money but have it paid for a shorter time, having that payment tax-free would be hugely helpful for families affected. There is a second point from Winston’s Wish that I want to raise with the Minister. I understand that unmarried partners are currently ineligible for BSP, so perhaps he will confirm whether people in civil partnerships are eligible.
The second query from a constituent relates to changes to occupational schemes, which my constituent believes can be done under the Bill without agreement from either members or trustees; currently trustees would have to approve it. My instinct is that long-standing defined benefit schemes, such as that of the major nuclear power operator headquartered in Barnwood in my constituency—formerly British Energy but now EDF Energy—are most unlikely to close without any form of consultation or discussion with members or trustees, but I would be grateful if the Minister would comment on that.
Steve Webb
It might benefit the House to know that the measure in the Bill to which my hon. Friend refers is the statutory override, which simply allows employers to recoup the loss of national insurance rebate. The state pension changes imply a change to the national insurance regime, so his constituency employer would lose some money. The Bill simply allows them to recoup that cash and nothing else, for example by changing the accrual rates in the scheme. It is designed to help employers cushion the blow of the loss of the rebates.
Richard Graham
I am grateful to the Minister for that clarification. If I understand it correctly, the employer will recoup the cost of the national insurance but nothing else.
John McDonnell (Hayes and Harlington) (Lab)
My hon. Friend the Member for North Ayrshire and Arran (Katy Clark) has addressed the spirit of new clause 7, which stands in my name. It may well be that we are not able to discuss amendment 37, but she has addressed the core principle behind the new clause.
Parliament has a moral responsibility that is separate from government. When Governments give promises to people, Parliament has a role in ensuring that they are adhered to. That is what new clause 7 is all about. As my hon. Friend said, on privatisation, the principle should apply across the piece.
We have discussed the background to new clause 7 before in a wider debate about what happened to the Jarvis workers when Network Rail withdrew its contracts and the company collapsed. As many involved in that debate know, the Jarvis workers, many of whom were not transferred to successor companies, suffered greatly: they lost their jobs and could not find alternative employment, and some have become nomads, circling the country trying to pick up work to bring in at least some income. In addition, they lost their pension protection, and that is what the new clause deals with.
As my hon. Friend mentioned, section 134 of, and schedule 11 to, the Railways Act 1993 enabled the Secretary of State to create a new pension scheme for the railways industry, to transfer the assets and liabilities of the old British Rail pension scheme to the new scheme and, above all, to protect the rights of members of the scheme once they became members of the new scheme. The debate was extensive. Few Members now were in the House then, but as Hansard shows, there were extremely heated, but detailed debates about the principle and detail of the legislation, particularly the protections for individual workers.
Three orders were introduced. First, the Railways Pension Scheme Order 1994 created the railways pension scheme, set out its rules and designated it as the successor industry-wide scheme replacing the British Rail pension scheme. Secondly, the Railway Pensions (Transfer and Miscellaneous Provisions) Order 1994 transferred the assets and liabilities of the British Rail pension scheme to the new railways pension scheme. Thirdly, the Railway Pensions (Protection and Designation of Schemes) Order 1994 set out the protection to be afforded to members of the British Rail pension scheme who transferred involuntarily to the railways pension scheme.
After months of debate in the House and negotiations between the Government and the sector unions, members of the British Rail pension scheme who were already pensioners or deferred pensioners were transferred to a special pensions section and had their rights guaranteed by the Crown. Their rights have never been put at risk and are not at risk, but that is not true for members still employed in the industry who were contributing at the point of privatisation. Their accrued rights were transferred to the section of the railways pension scheme applicable to their new employer, and a matching share of the assets from the British Rail pension scheme was also transferred to the relevant section, but nothing was done in those debates and negotiations, and eventually the orders, to protect their transferred rights in the event of their new employer becoming insolvent.
The actively contributing members were also given the right to participate in the new railways pension scheme on a basis that entitled them to accrued rights for future service and which was no less favourable than the basis of the former British Rail pension scheme. They have to contribute to the scheme to accrue their rights, and so must their employer, in the normal way. Active members are also protected if they move involuntarily between railway employers. In law, they must be permitted to transfer their accrued rights to their new employer’s section of the railways pension scheme and be permitted to accrue future pension rights on the same basis as before.
That also applies to involuntary transfers. As one franchise moves between companies, so do the pensions and the pension rights and responsibilities. A member who moves employer of his or her own volition retains the right to be a member of the pension scheme, but the right to accrue future service rights on the same basis is lost. So those protections were thought to be relatively robust at the time; transferring from the old British Rail pension scheme into the new scheme, and then, as the franchises moved and new employers took over the staff, their rights would transfer as well.
When a railways employer enters administration, its undertaking—the franchise—is usually transferred to another employer and, again, what happens is that the employees working for that employer are generally protected. Even when a company becomes insolvent and employees are transferred to a new company, if there are sufficient assets those are transferred and the employees are protected again. The problem we now face as a result of the Jarvis incident is what happens when an employer becomes insolvent and there are insufficient assets. That is what happened with the Jarvis workers, who were transferred to Babcock Rail or Volker Rail. Because the Jarvis section of the railways pension scheme is not in a position to transfer the accrued rights on a fully funded basis—because Jarvis never had the assets—a pension transfer could not be made at all. Instead, what the Jarvis workers now have to rely on is the pension protection fund, which does not provide what they would have gained as members of the full pension scheme.
This group of workers accepted the assurance of the Government on privatisation that their pensions would be fully protected. They have entered employment with a new employer and have paid their contributions, and they expect the same pension as every other worker around them in the industry. They are now faced with a pension that is significantly less. I think that that is grotesquely unfair. It certainly flies in the face of the promises that were given on the Floor of the House to railway workers when privatisation was being advocated and when legislation was going through the House.
Steve Webb
The hon. Gentleman is obviously very knowledgeable about the history of the matter. Can he point to a specific assurance that was given about what would happen in the event of the insolvency of the private employer?
Steve Webb
I am grateful for the chance to respond to the debate. I hope the House will forgive me if I focus my response to the shadow Minister on only the first hour of his speech, as I believe everything that followed had already been covered.
The gist of the remarks by the hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East (Gregg McClymont) was: when I was appointed in 2010, I should have looked at my in-tray, cleared it out and said, “It is essential we ensure value for money in workplace pensions.” By implication, action was needed because the previous Government, after 13 years, had not put pension savers in a position in which they would get value for money in workplace saving. Indeed, the hon. Gentleman suggested in his narrative that all the evils of pensions happened in the preceding 18 years of the Conservative Government. Again, by implication, Labour comes to power in 1997 ready to put right the failures of the previous Government; they have 13 years to have a go at it, yet the first job of a new Liberal Democrat Minister appointed in 2010 is to sort out the mess in pensions. There is, I think, a bit of a logical flaw in that argument.
I enjoyed the hon. Gentleman’s psychoanalysis of me—it is cheaper than therapy, that is for sure. He said, “We do not want consultation; we want action”. That was powerful, emotional and gut-wrenching stuff, except when we look at his amendment (a) we realise that, as my hon. Friend the Member for Leeds North West (Greg Mulholland) pointed out, in the midst of a clarion-call for action, it provides that, before action, or
“Before making regulations under subsection (2), the Secretary of State must undertake a public consultation”.
When the Government do it, then, public consultation is a substitute for action, but when the Opposition call for it, it means dynamism and standing up for the consumer. I do not know whether the hon. Gentleman will be a Minister one day, but he will know that Governments are required to consult before they legislate. That is what we are doing, and he can be assured, as my hon. Friend the Member for Leeds North West said, that consultation is a precursor to action.
The hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East said that pot follows member was not a good idea here because whereas there are not many pension schemes in Australia this country has very large numbers of them. He massively understates, however, the extent of concentration and consolidation in the pensions markets. The Office of Fair Trading has said that the four largest providers hold the majority of schemes, assets and members. The four largest providers on their own have 68% of the assets, 76% of the schemes and 61% of the members. The hon. Gentleman believes that the vast number of schemes means that pot follows member cannot possibly work because everybody is in a small pension scheme; actually, the opposite is true. Most people are in big pension schemes, which is why pot follows member works perfectly well. Consolidation is already happening—I mentioned the fall of a third in the number of medium-sized pension schemes—and, moreover, when we implement measures on scheme quality, which will include action on charges, that will trigger substantially more consolidation. So the hon. Gentleman is, in a sense, being backward-looking in referring to the large number of tiny pension schemes.
Gregg McClymont
I thank the Minister for giving way to me again: he is being very generous with his time. Is he not conflating providers with schemes? Is he not really saying that there are big pension providers, rather than schemes, in the United Kingdom? Big pension providers may service 200,000 schemes, but there will be many different schemes within their overall provision .
Steve Webb
That was powerfully put, if I may say so. However, the hon. Gentleman is trying to portray a workplace pensions sector that is ludicrously fragmented and all over the place, and in which most people are in tiny schemes. In fact, most people are in big schemes. The number of medium-sized schemes is falling, and the quality standards that we are introducing will accelerate an existing trend. Pot follows member will be even more fitting as time goes by, because we are overseeing and hastening a process of consolidation in the pensions industry.
I will not say too much about baked beans, with which the hon. Gentleman seems to be even more obsessed than I am, but the point of the baked beans analogy is that the baked beans market works. As the hon. Gentleman said, in the pensions market the demand side is weak, and leaving everything to market forces is not the answer.
The model that the hon. Gentleman has embodied in his amendments and new clauses is a very confused one. He seems to be suggesting that small pension pots will go off to the new aggregator schemes, which are really good, so a silly little amount of money will automatically go to a really good scheme, whereas in the case of large amounts, the quality standard will be more relaxed. I understand that his party advocates a 1% charge cap, but he wants a 0.5% charge cap for the aggregator. That would bring about bizarre circumstances in which people with serious amounts of pensions money could pay 1% charges, but people with small amounts in a scheme that they never chose pay 0.5%. How is that coherent? I am happy to give way to the hon. Gentleman, but he cannot explain how it is coherent because it ain’t.
We need to ensure that high quality standards apply not just to small pension pots in an aggregator, but across the board, so that when people’s pots follow them from scheme to scheme, they move from a good-quality scheme to another good-quality scheme. The hon. Gentleman quoted the National Association of Pension Funds. The association is, of course, right. If we were simply going to allow money to be transferred automatically from a good scheme to a bad scheme, we would have a problem, but because we will regulate for quality, no bad pension schemes will be used for the purpose of automatic enrolment.
The hon. Gentleman said that nothing was happening about annuities. In fact, the Financial Conduct Authority is reviewing them. It has already surveyed the rates offered to existing customers and those offered to customers accessing rates through the open market option, and is trying to establish whether profits in the internal annuities market are too high because too few people are exercising that option. Action on annuities is not just about what my Department does; the FCA is considering the issue actively, and we are working with our colleagues in the Treasury.
New clause 11 requires savers people to consult an annuity broker. The hon. Member for Edinburgh East (Sheila Gilmore), who is no longer in the Chamber, said that that would mean that people were given advice, but annuity brokers do not give regulated advice; people must pay for that. The broker will no doubt charge a fee, and those who want advice will either have to consult someone else or pay again for the broker’s advice.
The hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East wants to require those in charge of auto-enrolment schemes to send people to brokers who may charge, so those people may have to go elsewhere for advice. He says that that must happen in order for a scheme to qualify as an auto-enrolment scheme. We consider his to be a backward-looking and restrictive model. Let me give an example. What about pension schemes that annuitise internally—which, in other words, provide the annuity themselves? They may provide a guaranteed annuity rate, but in the hon. Gentleman’s world people will still have to go off to an annuity broker and shop around, rather than taking advantage of the product that is in the scheme already. That is an example of where he is trying to be over-prescriptive. [Interruption.] He says it is all in my head; I am not quite sure what he is talking about. The point is that we are trying to provide forward-looking provision for decumulation. Annuities is one model, with deferring taking a pension, for example, or draw-down, or enabling people to swap their annuities around, as my hon. Friend the Member for Gloucester (Richard Graham) said. We need to be examining all these things, but the hon. Gentleman wants to hard-wire into primary legislation a single model for a single product, which is not the future of decumulation.
Steve Webb
I will certainly give way to the hon. Gentleman, but will he just clarify this? He mentioned in his speech a 0.5% cap for the aggregator and said, “There won’t be many of these. We can control them. We can guarantee quality. Quality equals 0.5%.” Then he says—he has said this publicly before—“The Labour party favours a 1% charge cap for schemes people are members of.” So why does he want to have half the charging level for people’s small amounts of money in an aggregator than for people’s active pension funds?
Gregg McClymont
I cannot respond at length as this is an intervention, but the Minister continues not to understand our proposal for aggregators. [Interruption.] He says, “It’s funny, that is”, but he just does not get it and I will discuss it with him further. We are very pleased the Minister takes Labour’s proposals so seriously that he is spending so much time and effort responding to them, but the aggregators would not only deal with the stranded pots. Pension providers can become aggregators if they meet governance, quality and charge standards, so it would not be deferred members from small pots alone who would be in these schemes as there would be larger schemes than that.
Steve Webb
I would love to say that clarified matters. Let me put this challenge to the hon. Gentleman. He says we do not understand his proposals, but I have not seen his proposals. He has not set out specifically his alternative proposals, and I am spending time on this is because no one is arguing about the Government amendments; it is the Opposition amendments that we are arguing about.
I challenge the hon. Gentleman to set down in some detail what exactly he is proposing and what kind of pensions market he envisages, because one of the confusing features of his vision—as it were—is that it is something like the energy market. He seems to envisage a small number of very large regulated providers who presumably get together with each other and maybe do not always have the consumer interest at heart. That is what the energy market that his party leader oversaw has delivered for consumers. I do not want to see the same thing in the pensions market.
Gregg McClymont
The Minister says he wants to take great action through a cap on charges, but after three years all he can do is introduce a consultation whose findings he will publish at some stage in the future. That is not a Government taking action, and he is doing that from the position of having all the powers of government at his disposal. I do not think we should take any lessons from a Government who are acting so sluggishly in sorting out the problems in the private pensions market.
Steve Webb
When the hon. Gentleman says we will publish that at some point in the future and he knows we are publishing tomorrow, we can understand why he feels vulnerable on this issue. I am simply suggesting that his reluctance to set out an alternative model shows the paucity of alternatives being offered to us.
On a specific point, the hon. Gentleman suggested we could deal with only small pots created after Royal Assent. That is not correct. We have the power to specify a prescribed date, and that date would in the first instance be likely to be the point at which auto-enrolment began. So in the first instance automatic enrolment pots from when this process began, rather than when we secured Royal Assent, would be within the scope of pot follows member. I just want to put him straight on that.
Gregg McClymont
Again, the Minister says he has a power but does not tell us how he is going to use it; that is common throughout the Bill. Will he categorically state that all pots stranded since auto-enrolment will be included within the Bill?
Steve Webb
I thought that was what I just said. Let me be clear: we want to get this thing going. The hon. Gentleman raised the issue of the £10,000 pot size limit. Clearly I would like to go further, and we look at a £20,000 pot size limit in our consultation document, but we have to get the thing going. May I tell hon. Members who were not here at the start of the debate that he said he had sat and watched a video of a speech of mine? I commend him for that, as watching videos of me speaking shows real devotion to the world of pensions. In my speech last week, I made it clear that we see this as the beginning of a process. The pot size limit could go up and the scope of pot follows member could be increased, but we envisage beginning with auto-enrolment pots. I am clear about that, and there is no ambiguity: we are beginning with auto-enrolment pots.
The hon. Member for Brighton, Pavilion (Caroline Lucas), who is not in her place, asked when further action would be taken on fiduciary duties. For the record, in case she should happen to read it later—or watch a video—I can confirm that the Law Commission’s final report on the issue will be published in June 2014. Obviously, further debate will take place at that point.
I wish to respond to the related issues raised by the hon. Members for Hayes and Harlington (John McDonnell) and for North Ayrshire and Arran (Katy Clark). The hon. Lady asked about the important issue of the position of protected persons, on which we have consulted and on which I hope we will shortly reach a conclusion. We think that slightly more workers are involved than she suggested, but certainly tens of thousands of workers are affected. One challenge we face is that this is not just a matter for our Department. For example, if we place a cost on the energy employers through the abolition of the national insurance rebate and if we exclude their employees because they are protected persons, that has the potential to feed its way into energy bills. Her party leader has a view on energy bills, as do we, but the knock-on effect of a decision we take on energy bills has to be thought through. The same applies in the transport sector, to which the hon. Member for Hayes and Harlington referred. If railway and other employers cannot pass on through the pension scheme the costs we are imposing on them through the ending of the rebate, that will find its way through into fare increases and to consumers. So we have to think through a wide range of consequences of these decisions. That is why this is taking a while, but I appreciate the need to get on with it.
The hon. Gentleman said that there was a special case for the railway industry. His new clause 7 does not provide any protection in respect of any of the other privatised utilities; there is no suggestion that if any of those employers went to the wall pension protection should apply—it would just apply to the rail industry. If he feels so strongly about the justice of this issue for rail workers, why does his new clause not say that any protected person should be protected if the sponsoring employer goes bankrupt? I know his affiliation, and I have spoken to him in his role as leader of the group on rail workers, but if Parliament were to accept his new clause, we would have to deal with the question about why we did not do this for everybody else, too.
John McDonnell
I have a lot of time for the hon. Gentleman, but I find that beneath him. He knows that I have been involved in this campaign for a number of years, since Jarvis went into administration as a result of the network intervention. We faced a specific issue that could be dealt with very speedily; it does not have to await further consultation with other industries. That does not mean that I do not concern myself about other industries and other workers, but this particular campaign is related to my constituents and to a specific industry in which I have taken an interest over time.
Steve Webb
I know that the hon. Gentleman has taken a particular interest over time in this industry. My point is that his argument about justice—his argument that pension protection should mean not just the same terms and conditions, which was what it did mean, but protection against insolvency—should apply equally across other industries, and should not just apply to the rail industry, if that is what he believes. When John MacGregor made the promises that the hon. Gentleman quoted, he was saying that the terms and conditions of the pension scheme would be the same with the privatised employer as they were with the state employer. Subsequently, a pension protection fund was created. Jarvis paid pension protection fund levies and that is why the employees are in the pension protection fund. The three privatised railway firms paid—
John McDonnell
On a point of order, Mr Deputy Speaker. There comes a time when accuracy is important in this House. John MacGregor, as Secretary of State, gave assurances that when British Rail was privatised pensions would be protected. He said not that they would have the same protections as private companies but that pensions would be protected. There is a point of accuracy, so that Ministers do not attempt to mislead this House.
Mr Deputy Speaker (Mr Lindsay Hoyle)
I am sure that nobody would deliberately mislead this House—let us clear that one up. That is not a point of order but it has certainly been corrected for the record, which will be read tomorrow.
Steve Webb
Further to that point of order, Mr Deputy Speaker. That was not a correction, because what I said was not incorrect.
Mr Deputy Speaker
I did not say that. I also said that the first point was not a point of order, and neither is the Minister’s.
Steve Webb
Let me reiterate: Jarvis and the other firms paid the pension protection fund levy.
Mr Deputy Speaker
Order. I understand that tensions are running high, but we will have an orderly debate.
Steve Webb
Jarvis, as an employer, was paying an insurance policy. It was paying into a fund so that if it became insolvent its employers would get the payout, and that is exactly what has happened.
The pension protection fund was created nearly a decade ago and every year Jarvis paid in on behalf of their employees so that in the event of insolvency those employees, and those of the other two former nationalised rail industry firms who were spun off, would get protection. That is exactly what has happened. In other words, to come along in 2013 and say, “Oh no, we did not expect this to happen. We should get special treatment and we should get 100% protection,” when other people who work for private firms do not get that when they pay the protection fund levy and get a payout—[Interruption.]
Steve Webb
Other people who work for private firms get a payout according to how the pension protection fund works.
The hon. Member for Edinburgh East, who is not in her place, talked about annuities. She seemed to think that requiring people to go to an annuity broker was the answer to the problems and I think she missed the point. We want to see a much wider range of options for people when they want to turn their pension pot into a pension income. Rather than putting into primary legislation a single model for a single product, we must ensure that people have choices so that they can choose an annuity, consider draw-down products or consider deferring and so that they can try to ensure that they get the best value for money. I certainly accept that the annuity market is not working as well as it should.
This debate has gone on for the best part of four hours and the recurrent theme has been that when the coalition Government took power in 2010, there was a huge amount of unfinished business on automatic enrolment. What happened with small pots, charge caps, decumulation and governance had not been dealt with. The Opposition have spent the past however many hours asking how we could possibly not have acted on all the issues they failed to address in 13 years, but we are addressing them. We have taken effective action and tomorrow we will take a further step when, for the first time, we consider capping the charges on automatic enrolment pension schemes. This Parliament will be seen to implement vital pension reform in the state and private sectors and to be doing the job properly and I commend our amendments to the House.
Question put and agreed to.
Clause read a Second time.
Amendment proposed to new clause 1: (a), at end add—
‘(2) In this section—
(a) “charges”; and
(b) “transaction costs”
shall be defined in regulations by the Secretary of State.
(3) Before making regulations under subsection (2), the Secretary of State must undertake a public consultation, which must include the views of—
(a) the Financial Conduct Authority; and
(b) the Pensions Regulator.
(4) With reference to paragraph (2)(a), any public consultation must consider the different elements which comprise charges and not just the annual management charge.
(5) Such charges, together with any transaction costs incurred by the funds in which qualifying schemes are invested, shall be declared on an annual basis to the Pensions Regulator, which shall maintain a public register thereof.
(6) The Secretary of State shall by regulations set the standards by which pension schemes must declare charges and transaction costs for the purposes of the register and for declaration to their members and their members’ employers.
(7) The standards set out in regulations under subsection (6) shall be reviewed every three years.
(8) The Secretary of State shall have power to make regulations ordering other disclosure arrangements on administration charges.
(9) Regulations under this section may not be made unless a draft has been laid before and approved by resolution of both Houses of Parliament.’.—(Gregg McClymont.)
Question put, That the amendment be made.
The House proceeded to a Division.
Mr Deputy Speaker (Mr Lindsay Hoyle)
I ask the Serjeant at Arms to investigate the delay in the Aye Lobby.
Mr Speaker
With this we will debate the following:
Government new clause 4—Preserving indefinite status of certain existing assessed income periods.
Government amendment 13.
Steve Webb
Unlike the debate on the previous group, the debate on this short group need not detain us too long. It relates to a feature of the state pension credit system known as the assessed income period. The basic idea was to avoid the need for people on pension credit to keep reporting changes in their circumstance—the basis was that older pensioners in particular have less frequent changes of circumstance. The basic idea of the assessed income period was a perfectly reasonable one but, unfortunately, it has not worked in practice and has raised a lot of issues.
To give an example, if someone in retirement inherits substantial wealth from the generation above them, they can continue to get pension credit for five years or even indefinitely, despite having very substantial wealth. If someone retires, has an assessed income period and then starts to draw a new stream of pension income, they can go on getting pension credit despite the fact that their living standard is well above the level of pension credit. We have given this a good go, and it was a reasonable thing to try, but in practice it has created anomalies, with payments to people who, if they were assessed on their current circumstances, would not be entitled to benefit.
Gregg McClymont
I thank my hon. Friend for that intervention. I agree that there is a specific set of circumstances around these pension schemes. I am certainly not saying that accruals and the terms and conditions of a pension can never be changed in any circumstances, but there is a specific set of politically charged circumstances to do with the privatisation of these industries. Specific undertakings were given to the members of those schemes to encourage them to accept, if not actively support, the privatisation of the industries in which they worked. I urge the Minister to tell us this evening, if he can do so, whether he intends to use the power he is giving himself in the Bill to honour the promises made to the members of those schemes. If he will not do so, we will force a Division to test the opinion of this House on amendment 37, which would mean that the promises made to the 50,000 or so men and women in those protected schemes were met.
I am conscious of the time and allowing the Minister appropriate time to respond to the broader debate. I noted closely what the hon. Member for Brighton, Pavilion (Caroline Lucas) said about her new clause 6 and her belief that the 700,000 or so women in the group born between 1951 and 1953 will not get the new state pension, because they are the last pension cohort before the equalisation of the pension age, whereas men of precisely the same age will get it. Let me put it in simple terms: if there were twins, one male and one female, in that age cohort, the male twin would get the new state pension in 2016 but the female twin would not, having retired a little earlier. Such issues do emerge when we are involved in pension reform. The Minister and I have gone back and forth on the matter on a number of occasions, and I will not anticipate his arguments because we have gone through them some time before. However, we have to look at the issue in the context of a view that has grown up among many women that this Government’s attitude to their pension provision is not as generous as they believe it should be.
When considering the 2011 legislation, we had to deal with the issue of a significant number of women having very little time to prepare for retirement and short notice. They would have had to work for longer but some of them would have had only five years to prepare for that. They were five years from when they thought they would be retiring and then found out that they might have to work for seven more years. I am pleased that the Minister made a concession on that, although he did not go as far as we wanted. That group of women—a slightly different group from those we are dealing with here—who were also approaching retirement, felt that they were being unfairly treated. Not only did they feel, rightly, that they were being unfairly treated, but we have also had to deal with the Minister’s approach to auto-enrolment, which is excluding more than half a million women—and rising—from the benefits of auto-enrolment, because of the raising of the threshold for auto-enrolment in line with the personal allowance. A general sense has developed that this Government do not quite get it with women and pensions.
Steve Webb
The hon. Gentleman’s new clause 8 calls for a review. Obviously, having a review is not the same as having an opinion, so what does he actually think should be done?
Gregg McClymont
I certainly think the Minister should undertake a review.
The perception I am talking about has developed, so let me quote something that the Minister might be aware of. I cited it a couple of years ago, but he has probably forgotten.
Hywel Williams (Arfon) (PC)
Let me say first of all that I support amendment 1, which I was very glad to put my name to.
My new clause 13 delays introducing part 2 until the Secretary of State has reported an assessment of the differential effects and impacts of the pensionable age in England, Wales and Scotland. People are now living longer and the better-off live longer than the worse-off, who work more years and start working earlier. The latest evidence suggests that the gap is widening and that is certainly the case as regards the differences between England and Wales. Wales has the lowest gross value added of the UK nations and regions. Welsh workers in general are less able to save for their pensions, which means that many people in Wales are reliant on the state pension. Life expectancy in Wales is also lower than it is in England. In my constituency, life expectancy is 78.3 years for men whereas in Dorset it is 83 years. Wales also has the appalling legacy of large-scale de-industrialisation and subsequent long-term worklessness. That means that many people have broken employment records and a disproportionate number might not qualify for a pension because of their lack of contributions.
The Government have stated that they intend to review changes in life expectancy every five or six years, and I think Lord Turner suggested that they did so every seven years. I have proposed a new clause to encourage Ministers to ensure that the panel reviewing life expectancy looks further and also considers Britain’s human geography of low incomes, no incomes, long-term unemployment, sickness and disability. That broader inequality must be addressed, as it will certainly persist.
Steve Webb
In a short time we covered a wide range of issues, and in the 10 minutes or so remaining, I shall try to respond to as much as I can, although I apologise in advance to hon. Members whose amendments I do not reach. I shall deal with amendments in the order in which they were raised.
New clause 5 was dealt with by the hon. Member for Edinburgh East (Sheila Gilmore) and touched on by her colleague, the Chair of the Work and Pensions Committee, the hon. Member for Aberdeen South (Dame Anne Begg). It addresses the position of the derived rights of people who are shortly coming up to pension age and the fact that we are ending the ability to derive pensions from a spouse. The spirit of the new clause implies transitional protection, but we have included comprehensive transitional protections in the system.
In particular, those who paid the married woman’s stamp and as a result have a poor contribution record will, notwithstanding the fact that we are ending derived rights, continue to be able to receive a 60% spouse’s pension or a 100% widow’s pension, because that was the basis of the deal that they did with the state. They signed the married woman’s stamp, which said, “I’ll pay less NI, but I understand that when I reach state pension age I’ll be able to get a pension based on my husband’s contribution record.” We took the view that because that was the basis of the deal, we could not change the rules. We have made sure that the limited number of women in that position are protected.
The issue is whether we should go further. It is worth bearing in mind that to get a £66 pension, which is the derived pension for a married woman, because of the rate of the single tier pension, such a woman needs 16 or 17 years in the system. For someone who has spent their life in this country, it is very difficult not to have achieved that or thereabouts.
Sheila Gilmore
There is an acceptance that for most people it would be unusual for that circumstance to arise, but according to the Department’s own figures, some women are in that position.
Steve Webb
Indeed. The hon. Lady is right. Some women are in that position, but a significant proportion of them have had very limited contact with this country. This is the point that she touched on. Derived rights arise to people who have never even been to the country. They can get a 60% pension or a widow’s pension because their spouse is part of the UK pension system. She is asking us to keep, for another 15 years, an extraordinarily complex bit of the system rolling into the new system. We are trying to deliver a simple and effective new state pension system and we have already introduced transitional protection for the most obvious group, the married woman’s stamp pensioners, which we think needs to be protected. We could have kept the whole of the old system rolling on for another 15 years, but that would have created enormous complexity when we are trying to move to a simpler system.
Were we to follow new clause 5 and the Select Committee’s recommendation and choose 15 years as the cut-off, we could be as sure as anything that we would be under judicial review for someone who was 16 years shy of the line. In other words, if we have a cut-off date, we must have an objective basis for it, and we can find no objective basis for choosing 15 years. I take the point made by the hon. Member for Aberdeen South that because 10 years is the de minimis, 15 years is a bit more than 10. I get that, but so is 16 or 14.
The hon. Member for Edinburgh East said that someone some years ago was told not to buy missing years and now it is too late. I stress that the ability to buy missing years has been substantially relaxed by HMRC so people can buy back as far as 2005-06 on relatively favourable terms. Even by the end of the decade they will still be in a position to buy back missing years. If they have spent the money and they do not have it any more, they cannot do it, but that aside, the ability to buy back missing years still exists. Although buying 10 years costs a lot of money, very few people will be starting from zero. So to reach the 10-year de minimis would not necessarily involve a huge outlay. Many will be over that level already and for those who are not and who have been in this country, the chance to buy one or two missing years will be important.
What we are trying to do is, yes, recognise where we need transitional protection, but we want to avoid such great complexity that we recreate the complex old system for well over a decade in the new one. That is why we reject new clause 5.
Sir Peter Bottomley
Did not the Minister’s last point—that we do not want to continue the kind of discrimination that we had in the past—answer why he should accept amendment 1 and drop clause 20?
Steve Webb
My hon. Friend, as ever, is sharp on these matters. Amendment 1, which stands in his name and that of my hon. Friend the Member for North Thanet (Sir Roger Gale), would delete clause 20. As the Chair of the Select Committee pointed out, that would do nothing for any of the overseas pensioners who have contacted us as their MPs; it would only remove the freezing for single-tier pensioners. I am sure that my hon. Friend the Member for Worthing West (Sir Peter Bottomley) understands that point, but I just want to be clear that if we voted for the amendment, all we would be doing is creating a new anomaly.
In a sense, the Chair of the Select Committee urged us to create that new anomaly. She said that we cannot defend the old one and that we should at least not carry on with it, but by doing that we would create a new anomaly. It is not just about which side of the Niagara falls one happens to live on, because single-tier pensioners would get indexation but nobody else would. I think that we all know what would happen: we would end up back in court. My hon. Friend the Member for Worthing West referred, quite properly, to the extensive legal background to the issue, because it has been tried and tested by the International Consortium of British Pensioners in a range of courts, and all have found that in many cases what the Government are doing is implementing the law of the land as it has stood for decades.
My hon. Friends the Members for Worthing West and for North Thanet went to see the Prime Minister, and I am grateful to them for doing so. My hon. Friend the Member for Worthing West referred to the reply he received today from the Prime Minister—I am pleased that he replied in advance of the debate—who stated that, having reflected on their arguments, he did not feel that a further review was appropriate at this point. Obviously, the context he referred to is the £700 million cost of indexing those pensions. My hon. Friend the Member for North Thanet said that they were not asking for that to be backdated, but I speculate that as soon as we start indexing pensions and stepping them back up to where they would have been, the next court case will come when someone says, “Hang on a minute. Since you froze my pension I have missed out on X amount of money, so I expect that to be paid back as well.” These wedges have a knack of having thin ends. The cost of addressing this, at £700 million a year, is already substantial, but backdating would lead to far more substantial costs, which is difficult to justify at present.
Kate Hoey (Vauxhall) (Lab)
As another signatory to amendment 1, I am disappointed by the Prime Minister’s response. Will the Minister at least admit that he personally feels that this is a terrible injustice that will have to be addressed sooner or later, because the longer we leave it the more difficult it will be?
Steve Webb
I was asked about the issue when I appeared before the Select Committee, and I said that I sympathised with the pensioners we were talking about. I commented that my sympathy would butter no parsnips, meaning that it would not be worth a huge amount to the people involved, but I was vilified for using that phrase. I am not quite sure what to say, but I sympathise with the point that was made.
My hon. Friend the Member for Worthing West gave an example of someone on a pension of a few pounds a week being topped up by the Australian Government. I do not know about the individual case, but in general if all we did was increase that pension, we would not necessarily increase the pensioner’s standard of living, because all that would do is take money out of what they get from the Australian Government. If we are concerned about their standard of living, increasing their pension in a means-tested system would not necessarily help.
The hon. Member for Brighton, Pavilion (Caroline Lucas) asked about giving women between 51 and 53 a choice, and when the shadow Minister was asked for his opinion, he said that it was that we should have a review. Obviously that plays to the gallery and sounds sympathetic, but it is not actually suggesting a solution. The complexity that the hon. Lady and I have talked about is not so much that we could not give people all the information, because we could, although it is complicated to put across; the problem is that nobody knows what their future is. A woman could choose to take the single-tier pension on day one, which would look like the right thing to do because she would get more than she does under the current system, but if her husband died the next day she would not get a derived widow’s pension and she would have made herself worse off as a result.
Caroline Lucas
I take the Minister’s point, but my point is that it should be for that woman to decide. Yes, there is a risk, but she is better placed to make the judgment than he is. Many women would want that change, and he has not given a good reason why it should not happen.
Steve Webb
In addition to the issue of people who will subsequently be bereaved is that of people who will flow on to savings credit, and nobody can possibly know whether, at some point during the course of their retirement, they will move on to that. Although I understand the concerns that have been raised, that group of women have actually benefited from the triple lock that we have introduced. Far from doing them down, as the hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East (Gregg McClymont) has suggested, we have improved their pension position. On his more general point about the position of women in the pension system, this whole Bill is about improving that position. That is why I urge the House to reject the amendments and to support the Bill.
Sir Peter Bottomley
On a point of order, Mr Deputy Speaker. Am I right in saying that, under the procedure of the House, amendment 1, which would remove clause 20, will not be called because of the guillotine?
Steve Webb
I beg to move, That the Bill be now read the Third time.
One of the problems on Report is that we get back into the weeds and the detail and lose track of the big picture. I think we can all be proud of producing a Bill that will be seen by history as a lasting and valuable reform to the pensions system, even if I say so myself.
To begin on a note of consensus, I thank the Select Committee on Work and Pensions and its Chair, the hon. Member for Aberdeen South (Dame Anne Begg), who is in her place, for its pre-legislative scrutiny of the draft Bill, or at least the parts relating to the single-tier pension. We are grateful for that input and made changes in the light of its recommendations, including putting the start date in the Bill and setting the maximum and minimum qualifying period at 10 qualifying years. We have discussed further some of the Committee’s recommendations as we have proceeded. We are grateful for its constructive and swift scrutiny of the Bill.
The reason for the Bill is that we have a state pension system still grounded in the models of the second world war, a system where men went out to work and women depended on men, and a system of mind-numbing complexity that made it impossible for people to plan rationally for their retirement. Each change by successive Governments has been made with the best of intentions, but, grafted on to the previous lot of changes, they left people with a system that nobody could hope to understand. That mattered in its own right, but it matters particularly in a world of automatic enrolment if we are to expect another 10 million people to save, in some cases, relatively small amounts for their retirement. They have to be able to do so confident that they will not see their hard-earned savings means-tested away. That is why the single-tier state pension, a single, simple decent state pension set above the level of the basic means test, is such a fundamental reform.
The Secretary of State for Work and Pensions has been supportive of this principle from day one. I am grateful to him and to my colleagues in the Department for the fact that the coalition has been able to introduce this reform, which is long overdue and will, I believe, stand the test of time. While we have had our differences with the Opposition, I am grateful to them for their support for the principle of the single-tier pension. We all want to see a pension system that is not constantly chopped and changed, but stands the test of time. I believe that the single-tier pension, subject to any further refinements their lordships might wish to make, will indeed stand the test of time and will provide a firm foundation for retirement saving.
The Bill does not only deal with the single-tier pension. Part 2 brings forward the increase in the state pension age to 67 and sets out a process for dealing with these things in a more rational and measured way. We envisage that as life expectancy increases, the majority of that time will be added to working life, but a period will be added also to retirement. It is a measured, balanced and systematic approach that will allow people to plan for their retirement in a way that all too often they cannot.
Part 3 reforms the bereavement support payment, which we have not been able to discuss today, and which is designed to focus support for bereaved families on that point immediately after bereavement and in the year thereafter, when bereaved families have told us they need the most support and cash. That is the purpose of the reform.
Martin Horwood (Cheltenham) (LD)
Like my hon. Friend, I welcome the Bill, which is an important, historic and long-overdue change in the pension system, but will he acknowledge that charities such as Winston’s Wish, based in my constituency, and the Childhood Bereavement Network have expressed concerns about the bereavement support arrangements in the Bill, particularly for parents who still need that support after one year—
Mr Deputy Speaker (Mr Lindsay Hoyle)
Order. This is meant to be an intervention, not a speech. It is unfair on the other Members waiting to speak. In fairness, Mr Horwood, you ought to give a little more consideration and make shorter interventions.
Steve Webb
The charity in my hon. Friend’s constituency, Winston’s Wish, was referred to earlier by the hon. Member for Gloucester (Richard Graham), and we take its concerns seriously. I stress that what we have put in place is a structure of reform that will involve us actually spending slightly more over the coming years on support for bereaved families, but there is a debate to be had about how long the support should last. For various reasons, going beyond a year raises difficult issues. For example, a short-term benefit can be disregarded for universal credit, whereas a long-term income replacement benefit almost certainly would not be. By delivering the money in this way, therefore, the lump sum is tax free and the short-term payment is not counted against people’s universal credit, whereas a long-term payment would be, meaning that bereaved families might end up getting less support were we to extend the period. So there are trade-offs and reasons why these balances have been struck.
Lady Hermon (North Down) (Ind)
The Minister will know that as the Bill is drafted, and moving towards its final phase in the House, the bereavement support payment does not apply to Northern Ireland. Will he clarify whether, were it to be introduced by the Northern Ireland Assembly, it would be paid for centrally?
Steve Webb
I would be happy to provide the hon. Lady with the clarification she seeks, either while I am still at the Dispatch Box or subsequently, if that would be helpful.
Part 4 of the Bill, which occupied the majority of our time in the House, deals with automatic enrolment and one of the many issues not addressed until this coalition Government came to power—the issue of small stranded pension pots. We anticipate that there could be tens of millions of small stranded pension pots, which is not something any of us want. I think that the prospect of the pot-follows-member system, under which people change jobs and the small pension pots go with them and build into what I have called a big, fat pot, is a better model. It will engage people with pension saving and result in people knowing where their pensions are and getting better value for annuities. That will be of great value.
It would be fair to say that a Bill such as this does not just happen, but depends on the work of an army of officials with expertise in both state and private pensions, on parliamentary counsel and on the many stakeholders who have given us advice and encouragement and enabled us to refine the Bill. I put on the record my appreciation to all of them.
Julian Sturdy (York Outer) (Con)
Like the Minister, I support the Bill, but I have constituents concerned about the 35-year rule, as they fall a few years short of it. There is genuine concern for them. What reassurances can he give me on this issue?
Steve Webb
My hon. Friend raises an issue that has caused a little confusion, but I can reassure him that although the single-tier pension is based on a 35-year contribution, 35 years buys someone a £144 pension, so each year has been valued at a more generous rate than the 30 years for the £110 basic pension. Under the new system, nobody will lose out from the change because we compare someone’s entitlement under the current system with their entitlement under the new system, and their foundation amount going forward is the higher of those two amounts. If the move to 35 years prejudices any of my hon. Friend’s constituents, they will get the figure they would have got under the current system, and if it benefits them, which it will in many cases, they will get the higher figure. I hope that that offers him the reassurance he seeks but I am happy to respond to him in writing.
Julie Hilling
Is the Minister saying that those people who fall short of the 35-year rule will receive their £144 a week pension or that, for life, it will be less than that?
Steve Webb
To be clear, someone with 30 years and no SERPS under the current system gets 30/30ths of £110, a basic pension. Under our system, they get 30/35ths of £144, which is more. The fact they have not got 35 years does not matter. They get a bigger pension. It does depend on how much SERPS someone has, which is why I say that some will get more. But no one will get less because our starting point for the calculation is the better of the two numbers. The move to 35 years for people already in the system cannot give them less pension than they have already built up but does give them the opportunity to build up more.
The opportunity to talk about the Bill is enticing and I could go on at great length, but the key point is that notwithstanding the differences we have had about the detail, this is a Bill of which the House can be proud. It introduces—for the first time, essentially, in 50 years—a single, simple and decent state pension that provides a firm foundation for auto-enrolment. It rationalises the process of raising state pension ages. It reforms the bereavement support system. It gives us a private pension system that is fit for purpose for the world we are moving into and it is with considerable pride that I commend it to the House.
Julie Hilling
I am grateful for this opportunity to speak briefly in the debate. I want to speak up on behalf of Maureen Davenport and the many other women who have contacted me about what is happening to their pensions. Let me start by quoting Maureen Davenport, a retired head teacher. She says:
“I have worked all my life and paid taxes and other contributions, as required. I also have an occupational pension. I have just turned sixty years of age and I am fully aware of the Pensions Act 1995 which twice deferred the age at which I could access my state pension. What I am currently told is that I am now in the age bracket where I am not able to access the new flat rate higher pension as I was born between 5 April 1952 and July 1953. As is said by many in the media, I am one of many women facing a ‘State Pension Double Whammy’: deferred pension and a potential loss of nearly £40 per week for life. It would seem logical and fair to have grouped all women who have a deferred pension into the higher flat rate pension rather than penalise this age group. I feel very strongly that I have, once again, been penalised at a time when I cannot affect my retirement income and have very little voice and opportunity to affect change.”
Maureen is typical of the many women who have contacted me, and they are just a few of the 720,000 women who will be worse off as a result of the Government’s changes to the state pension.
Steve Webb
In the event that the record might suggest that the hon. Lady’s constituent will be worse off, I want to confirm that the only change we have made to her constituent’s pension is to introduce the triple lock, which will give her more generous indexation than she would have had. That is the only change that we have made to that lady’s pension.
Julie Hilling
My understanding is that that is not the only change: my constituent will not be able to access £144 a week because the second state pension has been done away with and she will not be entitled to that money. If I am wrong, perhaps the Minister will tell me that my constituent will receive the equivalent of £144 a week. No, she will not receive that, so she is being penalised by this action, because she will not be able to receive her second state pension. [Interruption.]
I will continue to make progress. Like me, these women are angry and upset because they have done the right things all their lives, yet will be disadvantaged in comparison with a man born on exactly the same day as they were.
This is not the only issue that hurts women. Raising the number of necessary years for national insurance contributions to 35 again disproportionately hits women. We know that women are the ones who normally take time off to look after children and, indeed, to look after ageing parents and ageing parents-in-law. This Government will undo the good work done by the last Labour Government to improve the lot of women’s pensions, with a further 100,000 fewer qualifying for a full pension. This is particularly unfair to those who are close to retirement age, who will not have the opportunity to make up the extra years—unless they work well into their 70s.
I wrote to the Minister about Maureen and my other constituents. The letter I received back was illuminating and, frankly, complacent. Let me quote some of it:
“It is important to note that we are not proposing simply to increase the pension from £110 per week for today’s pensioners to around £144 week for new pensioners…Future pensioners will simply build up towards a flat rate pension of around £144—there will be no additional State Pension on top of this figure, so the maximum State Pension attainable under the new system will be significantly lower than under the current system. I should also add that in some ways the new system will be less generous for those who retire after April 2016.”
The letter went on to say:
“While women born shortly after your constituent may receive a single-tier pension, they will have to wait several months longer than your constituent before they can start to draw a pension. Furthermore, the average entitlement for women reaching State Pension age shortly after the new system’s introduction is projected to be £131 per week and not the illustrative single-tier full rate of £144 per week. In comparison, women reaching State Pension age shortly before the new system is introduced will receive an average of £125 per week under the current system, made up from a combination of basic and additional State Pension.”
It seems clear to me that women born in that age bracket will be disadvantaged, yet the Government announced their proposed changes with a grand fanfare about how much better off all pensioners would be under the new system. They have failed to tell people, particularly women, that some of them would be worse off. I just wonder why everything this Government do seems to make things worse for women, who are hit by so many things—hit twice as hard, for example, by the Budget and three times as hard by other Government actions.
Oral Answers to Questions
Steve Webb Excerpts(10 years, 9 months ago)
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Sir Bob Russell (Colchester) (LD)
8. How many individual cases were raised with the Child Support Agency by hon. Members in 2012.
The Minister of State, Department for Work and Pensions (Steve Webb)
Out of 1.1 million cases registered with the Child Support Agency, hon. Members raised 7,540 with the agency. That is still too many, but I am pleased to tell my hon. Friend that 12% fewer letters were received in 2012 than in 2011.
Sir Bob Russell
I think that that is a bit of an underestimate. The figure is certainly lower than I expected it to be, given that the hon. Member for Colchester has raised more than 1,000 cases in the past 16 years. Does the Minister agree that if a Member of Parliament is having to make representations to the CSA, those cases constitute failures?
Steve Webb
I do not have figures showing how many of the 7,000 or so letters came from my hon. Friend, but I suspect that a fair proportion of them did. However, he is right to say that matters should not have to reach the stage at which a Member of Parliament has to raise a case. We are reforming the CSA for that reason, and we believe that the new 2012 system will provide much better customer service.
Philip Davies (Shipley) (Con)
When dealing with CSA cases raised by constituents, one is left with the feeling that the CSA has strayed from its original remit, which was to chase absent fathers. It seems that the agency has filed that under “too difficult”, and is now pursuing people who are already paying in an attempt to extract more money from them. Can the Minister find a way of restoring the CSA’s original purpose, which was to chase absent fathers rather than hounding people who are already trying to do the right thing?
Steve Webb
My hon. Friend will be pleased to know that the thinking behind our reforms is to ensure that when families can sort things out for themselves, they do so. That will enable the CSA to pursue the remaining cases involving absent fathers—or mothers—much more vigorously, so that those who are refusing to pay feel the full force of our enforcement action.
Steve Brine (Winchester) (Con)
9. What steps he is taking to reduce waiting times for work capability assessments.
Jesse Norman (Hereford and South Herefordshire) (Con)
14. What steps the Government are taking on pension charges.
The Minister of State, Department for Work and Pensions (Steve Webb)
We have already banned consultancy charges in automatic enrolment schemes and, in the light of the recent report by the Office of Fair Trading, we will shortly be publishing a consultation setting out plans for a cap on pension scheme charges.
Jesse Norman
It is extremely difficult for pensioners, and indeed fund trustees, to obtain accurate and timely data about transaction costs, which can have an enormous impact on fund performance. Does the Minister share my view that managers of both private and public funds should be required to publish that information?
Steve Webb
My hon. Friend highlights the important point that we need a great deal more transparency about the many different pension scheme charges—the OFT report identified 18 different sorts of charges. We will be looking at its recommendation that the fees he refers to should be reported to governance committees, which will be best placed to act upon them.
Gregg McClymont (Cumbernauld, Kilsyth and Kirkintilloch East) (Lab)
It was the Leader of the Opposition who led the way in exposing the pension charges rip-off, only for the Minister to respond—I have the press cutting to hand—by accusing Labour 15 months ago of scaremongering. Now that the OFT has published its damning report, does he not accept that Labour was right all along and that pension charges must be tackled in a serious and timely fashion?
Steve Webb
May I first congratulate the hon. Gentleman on keeping his post in the Labour reshuffle, which I understand was codenamed the Blair Ditch project? He says that we need to cap pension scheme charges. What I do not understand is why they were not capped at any point when Labour was in office. Why has it decided to cap them only now? The OFT did not recommend a cap on pension scheme charges. I am sure he was disappointed when he read its report, because he thought that it would. That is why we are now consulting and gathering evidence. We will act where the previous Government did not.
Andrew Stephenson (Pendle) (Con)
T6. As this month marks the first anniversary of automatic enrolment, will the Minister update the House on progress so far?
The Minister of State, Department for Work and Pensions (Steve Webb)
Yes, as my hon. Friend says, it has been a year since the first firm automatically enrolled. This has been a striking success. Over 1.5 million employees have been automatically enrolled and the staying-in rates have been far higher, with over 90% of employees who have been placed in a workplace pension remaining in it. It is a superb start and I congratulate all those who played a part in it.
Henry Smith (Crawley) (Con)
Will the Secretary of State update the House on the innovation fund and how it is helping separated families?
Steve Webb
This is money designed to help and support separated families. We have spent £6.5 million so far on seven projects in the voluntary and private sector designed to help with things such as mediation. Although it is early days, we have anecdotal examples whereby we have enabled families to function together for the benefit of the child, and whereby the child’s performance at school is improving as well as maintenance flowing.
Huw Irranca-Davies (Ogmore) (Lab)
T4. Housing associations in Ogmore are carrying a rising level of debt on their balance sheets as a result of rent arrears. They have a desperate scarcity of one and two-bedroom properties to rent, and yet they have three-bedroom properties lying empty. Is this just a necessary but painful adjustment to the Secretary of State’s benefit and bedroom tax changes?
David Mowat (Warrington South) (Con)
The pensions Minister mentioned earlier that the Office of Fair Trading report highlighted some of the abusive practices in the private pensions industry, such as active member discount and charges of up to 3% on many schemes. I welcome his consultation, but does he agree that it will be important to put a cap in place before auto-enrolment is rolled out at volume?
Steve Webb
My hon. Friend raises the crucial issue that, while the largest firms have been able to negotiate very good charging levels, we cannot be certain that the smaller firms will even be offered them or, indeed, that employers will necessarily be interested in charging levels when it is the employees, rather than the employers, who pay them. Our consultation will touch on that issue and on that of active member discounts.
Kerry McCarthy (Bristol East) (Lab)
T5. The Government continue to disregard warnings from the likes of Oxfam and Church Action on Poverty that many of the 500,000 people being forced to use food banks are doing so because of delayed, reduced or withdrawn benefits. The Department seems not to be interested in collecting any statistics behind the reasons for that referral. Will the Secretary of State look into this to see what impact his benefit changes are having on people who simply cannot afford to feed themselves?
Mike Freer (Finchley and Golders Green) (Con)
What estimate has been made of the annual number of surviving civil partners who qualify for widow and widower pensions?
Steve Webb
As my hon. Friend knows, our data on the pension rights of people in civil partnerships are very patchy, but I can tell him that, in response to the Marriage (Same Sex Couples) Act 2013, we have committed to a statutory review. We are gathering data as we speak and we will report back on our proposals by next July.
Steve Webb
To be clear, we have made one change to the pension position of the women to whom the hon. Lady refers: we have improved the indexation of their pensions by introducing the triple lock. I make no apology for that.
Cold Weather Payments Scheme 2013-14
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 that later today we intend to lay regulations to amend the cold weather payment scheme. The changes detailed in these regulations will come into force on 1 November this year, in time for the beginning of the winter period.
Following advice from the Met Office, for winter 2013-14, no new weather stations are recommended. However Rostherne weather station has been upgraded and given a permanent status at the same location and Church Fenton weather station is no longer listed as the alternative station for Linton on Ouse and has been replaced with Bramham weather station.
Also, and as a result of MPs’ representations, a few postcodes will be reassigned to suitable weather stations.
This will ensure that the weather stations to postcode links are as representative as the current arrangement.
I am writing to each Member who made representations about the administration of the scheme last winter to make them aware of the advice from the Met Office.
Cold weather payments are separate from, and in addition to, winter fuel payments.
The amendments resulted from the Department’s annual review of the cold weather payments scheme. The review drew on expert advice from the Met Office and took account of representations from benefit claimants and Members of Parliament.
For winter 2013-14 the cold weather payment rate will continue to be £25 for each seven-day period of very cold weather.
Women’s Pensions
Steve Webb Excerpts(10 years, 9 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.
This information is provided by Parallel Parliament and does not comprise part of the offical record
The Minister of State, Department for Work and Pensions (Steve Webb)
Good afternoon, Mrs Main. I congratulate the hon. Member for Inverclyde (Mr McKenzie) on securing the debate. He took part in the Second Reading debate on the Pensions Bill.
I want to start by addressing some of the factual errors in what the hon. Gentleman said. I believe that he was speaking in good faith, but some of the central arguments he advanced were factually wrong, and it is important to get the facts on the record. He talked of the 700,000 women who were born between 6 April 1951 and 5 April 1953, and I am pretty sure he said that the Government had put their pension age up; in fact, he probably said it several times. However, this Government have not put their pension age up at all—that is a statement of fact. The Pensions Act 1995 began the process of equalising the pension ages of men and women at 65 over the decade from 2010 to 2020. The increase in pension age beyond 60 for these women was therefore legislated for in 1995. It was not a short-notice change, although I accept that some women did not know about it, and not everybody heard about it at the time. Although it was all over the papers at the time, these women were a long way from pension age and probably turned the page when they saw the word “pension”, so I accept that some women did not know about this. However, the idea that these women have had a short-notice change to their pension is completely factually incorrect; they have not, and their pension age was set 18 years ago. It is important to put that on the record.
The Government have indeed changed some pension ages for women who reach pension age after 6 April 2016, and every woman for whom we have increased the state pension age will get the single-tier pension. There are therefore two sets of women: those who will not get the single tier, but whose pension age has not increased beyond that which was legislated for 18 years ago, and those who have had a further increase, but who will get the single tier.
The hon. Gentleman said that we should treat men and women the same, but he will understand that men and women have different state pension ages. Under the previous plans, that would have continued until 2020, and under our plans, it will continue until 2018. If we treated men and women the same in relation to single tier, it would be hard to argue that we should not treat them the same in relation to state pension age. It would be hard to say that men get single tier but have to wait until they are 65, while these women do not get single tier but can get a pension at 63 or earlier. It would be hard to say that these women should have the good bit of the deal—the single tier—but not the bad bit that the men have.
That goes to the nub of the hon. Gentleman’s point about his constituents. I entirely accept that many of them have worked in physically demanding jobs and may therefore have reduced life expectancy. As a result, however, being treated as a woman and getting a pension at 61 is far better than being treated as a man. If, hypothetically, I accepted the hon. Gentleman’s argument, and we said to every one of these 700,000 women, including his constituents, “It’s not fair. You can have men’s rules, not women’s rules,” we would make those women wait up to an extra four years for their pensions. Given everything the hon. Gentleman has said about their likely life expectancy, that would be absolutely perverse. It is dreadful that these women have a reduced life expectancy to the extent that they do, but given that they do, it is far better for them to have the women’s rather than the men’s state pension regime. The comparison with men does not, therefore, help the hon. Gentleman’s case.
The hon. Gentleman compared someone—he gave the example of Angela—who reaches state pension age just before April 2016 with someone who reaches it just after. He came up with a figure of £884, and it took me a while to work out where he got it from. He compares £127, which is the pension of someone such as Angela, with £144, which is the single tier, and he multiplies the difference by 52—I think that is where he gets his number from. However, that is not the right comparison. The reason someone such as Angela gets £127 is that, on average, women get smaller pensions than men, and they have fewer qualifying years and less from the state earnings-related pension scheme. Even if we apply the single-tier rules to someone with Angela’s contribution history, therefore, she would not get £144 on average, because she would get about another £6 a week, not another £17. The hon. Gentleman therefore trebles the difference that the single-tier calculation would make. That is the second thing to say.
The third thing is that there is an issue about people qualifying just before and just after midnight on 5 April 2016. However, in general, the 700,000 women the hon. Gentleman discusses will, on average, draw their pension—yes, it may be £6 a week less—for anything between two and four years longer than a man born on the same day. Indeed, women who reach pension age after April 2016, who he feels are treated favourably relative to the 700,000 he talks about, will have state pension ages of 63, which will soon rise to 64, then to 65 and then to 66 not longer after that. With their slightly younger sisters, I take the point that there is the “minute to midnight, minute after midnight” issue, as there inevitably is with any change, but the next cohort of 700,000 women and the cohort after that will overwhelmingly have to wait many years longer for their pensions. It is therefore quite hard to argue that the 700,000 women the hon. Gentleman is talking about are in some sense uniquely discriminated against, when another 700,000 who are coming down the track will have to wait years longer for their pensions, and when their older sisters had a tougher regime previously. Let me explain what I mean by that.
The 700,000 women the hon. Gentleman is talking about get a full basic state pension for 30 years of contributions or credits, but a woman who reached state pension age just before 6 April 2010 needed 39 years. Constituents who are just a couple of years older than the women he is speaking for might well be aggrieved that their younger sisters, who he feels have had a rough deal, get a pension after 30 years, when they had to do 39 years. He talked about hard-working women in his constituency, but how does the woman who retired on 5 April 2010, after 39 years, feel about the woman who retires on 6 April 2010 and who gets a full pension after 30 years? She might well be very aggrieved.
I happen to think, broadly speaking, that reducing the number of years required was a move in the right direction. We have balanced things up in the single tier. The reduction from 39 years was a good thing, but that was a cliff edge too—much more of a cliff edge than what we are doing in 2016, because that reduction was pure windfall: from 6 April 2010, it was 30 years, not 39, for a full pension, and there was virtually no transition and no difference in state pension age to speak of. If we put the pre-April 2016 women through the new system, on average they get £6 a week more—we think the figure will be about that. However, on average, those 700,000 women are working fewer years than the post-2016 women, because state pension ages have been going up. That seems broadly fair, in my judgment.
The hon. Member for Strangford (Jim Shannon) raised the issue of women’s longer working lives, and asked whether that was bad news for the young unemployed. That is an argument that we hear a lot. This country and other countries have tried pensioning off older workers. In the 1980s we had something called the job release scheme, for example, which tried to do that. All that it did was put lots of men in their early 60s on pension, while it did nothing for youth unemployment. On the whole, young unemployed people are not very good substitutes for the recently retired. They do not slot into the vacancies. I appreciate that it could be argued that everyone would move up, but the evidence is that the older worker, on average, is a highly productive, valuable member of the work force. Pensioning off older workers who still make a contribution means that the economy as a whole suffers. The Institute for Fiscal Studies considered schemes for getting rid of older workers and encouraging younger workers in countries across the developed world, and there is no evidence that the younger workers benefit from pensioning off the older ones. If anything, the evidence is that the economy benefits from older workers, and that young people benefit, too.
Jim Shannon
I appreciate the Minister’s detailed response, but the idea of someone leaving early and creating a job is that the jobseeker would move into the lower echelons of the job market, and those in the middle rank would move up; it would be a sort of circle.
Steve Webb
That is what I meant—I was gesturing, but that will not be in Hansard. It could be argued that the person retires and everyone else moves up a step, and the young unemployed person comes in at the bottom; but what has been lost is the productivity, skills and experience of the older worker. If that worker has not been adding anything to the firm, then fine—get rid of them—but they are. That is the point. On average—not in every case—older workers are, by definition, the most experienced; they are often very productive and less likely to take time off sick than slightly younger people. They contribute a huge amount. The evidence from around the world—not from Government research but from work by the Institute for Fiscal Studies and others—is that pensioning them off does not benefit younger workers. There is not a battle between the generations; in many ways they are complementary, because the older, experienced worker can mentor, and use their skills to bring on, younger workers.
Mr McKenzie
I thank the Minister for his detailed response, but I cannot help but think that his argument about elderly workers not retiring to release jobs to younger workers implies that employers should hold on to employees as long as possible, even when they are near retirement age and want to retire.
Steve Webb
The hon. Gentleman is putting words into my mouth. I am saying that older workers, on average, are very productive. Clearly there comes a point when our productivity declines, as we get much older. We should bear in mind that the 700,000 women who are the subject of the debate are in their early 60s. I think that many of the hon. Gentleman’s constituents would be offended at the suggestion that they are not productive, valuable members of the work force. We do not say that employers should be forced to go on employing them if they want to stop working, but the evidence from the IFS has debunked what has been called the lump of labour fallacy—the idea that there is a lump of labour to be done, and so it is possible to knock out an older worker and slot in a younger one. That neglects the valuable contribution of older workers.
Clearly there is a limit. The hon. Gentleman mentioned the age of 72 or 73, although the statute book takes us only to 68 at the moment, so I am not sure where he got that from.
Gregg McClymont (Cumbernauld, Kilsyth and Kirkintilloch East) (Lab)
I am pleased to serve under your chairmanship, Mrs Main. I was going to ask the Minister about the lump of labour, which comes down to the argument that there is a fixed amount of labour in the economy. My view is that it is probably much more complicated; will the Minister expand on that a wee bit? Is there a demand issue as well? I take the point made by the hon. Member for Strangford (Jim Shannon) about people moving up a rung, but if we assume it is more complicated and stickier than that, there is a demand issue to do with the goods and services that older, wealthier workers are likely to buy.
Steve Webb
The very complexity of the issue is the reason for the IFS examining what happens across the developed world. It looked at different sorts of labour markets and different labour supply and demand conditions. Systematically, it found no evidence for the hypothesis that getting rid of older, more experienced, productive workers benefits the young unemployed.
Steve Webb
I hope that the hon. Gentleman will forgive me, but as this is the debate of the hon. Member for Inverclyde, I will continue to respond to his speech.
The hon. Member for Inverclyde raised the issue of what it would cost to bring the women in, and he suggested some inconsistency in the figures. To make things clear, typically a woman who reaches state pension age will draw a state pension for more than 20 years. There is a profile to the costs, but on average the extra spending would be a couple of hundred million per year; £200 million times 20 is £4 billion, so there is no inconsistency in the numbers. One is an annual figure and one is cumulative. I hope that that clarifies that point.
The hon. Gentleman asked about bringing forward the single tier. Of course, in an ideal world I would do it tomorrow. It is a good reform, and I am grateful for the Opposition’s support for the principle, but there are many things that need to be sorted out before we bring it in. The biggest of those—apart from programming our computers, which I am advised takes a while—is the impact on company pension funds. Having a single pension means there is nothing for people to contract out of. We have two pensions, at least, at the moment. There is a second state pension that big firms’ employees can contract out of. With a single pension, there is nothing to contract out of, so we abolish contracting out.
That means that the biggest pension funds in the land, which are currently contracted out, will contract back into the state pension scheme, and will face an increase in their national insurance costs—because they will lose the rebate—and then will have the option, under our Bill, of re-jigging their company pension scheme to recoup the cost. So, for example, because people will now be getting more from the state, rather than relying on the company scheme, the company might reduce the accrual rate of its scheme, or something like that. To do that, it will need actuarial valuations and will conduct long consultations with its employees.
We are advised by the Confederation of British Industry, the National Association of Pension Funds and others that even doing it in 2016 is tight. They argued at one point that 2017 was tight. Even if it were reasonable to bring the change forward for the reason that the hon. Gentleman has given, I think that 2016 is as soon as we can reasonably do it, not least because the primary legislation, subject to the will of Parliament, will not be through until Easter 2014. Secondary legislation will then be needed on the abolition of contracting out. We will have to consult on that, and it all takes time. I find it frustrating; there is always far more of a lead time on such reforms than one might imagine.
There is one other thing that I want to deal with. It is not a point that the hon. Gentleman made, but it has been made about the group of women in question. People sometimes ask why they cannot just be allowed to choose—perhaps to retire on the current pension, reach single tier, and then choose the better pension, if it would be better. One of the difficulties is that single tier does not cost any more overall. It is not a windfall. We have not found some money down the back of a sofa, which we want to pump into some pensions but not others. It is the same money, but it is being spent better. As a result, there are bits of the system that are less generous, and an example that I can give relates to widows.
Under the current system, when a woman’s husband dies the widow can claim a state pension based on his contributions and, in many cases, get a full basic state pension of £110 a week or so. Under single tier, the claim will be on the basis of someone’s own contributions, so a woman who, for example, opted into single tier because she would get £133 and not £127, but whose husband died the next day, would find she could not claim quite the same combination of widow’s benefits that she could under the old system; or she would not be able to claim the savings credit, whereas her sister, a few years earlier, could, because she was under the old system. I have no idea—I could not advise a woman on 6 April 2016—what it would be best to choose, because I do not know when her husband will die, or whether the savings credit will come into play, not just on the day when she claims but at any point through her whole retirement. We just do not know. If we gave people that choice and they made the wrong one, would we have to opt them back in again? Would we have to advise them? It would create great complexity.
In sum, we believe that the reform is a good, positive one, spending the planned budget in a better way. The women in the age group in question have had no state pension age increase from the Government. What the Government have given them is the triple lock, which means that they will get a bigger pension under our policies than if those of the previous Government had been carried forward.
Question put and agreed to.