Pensions and Social Security

Debate between Steve Webb and Oliver Heald

Thursday 23rd February 2012 Commons Chamber

[Steve Webb]

The draft Guaranteed Minimum Pensions Increase Order 2012 provides for contracted-out defined-benefit schemes to increase their members’ guaranteed minimum pensions that accrued between 1988 and 1997 by 3%. Increases are capped at that level when price inflation exceeds 3%. That, of course, is an entirely technical matter that we attend to on an annual basis, and not something that I imagine we shall need to dwell on today.

The second, smaller draft order comes about for a sequence of reasons. The Pensions Acts 2007 and 2008 gave the Government the power to abolish contracting out on a defined-contribution basis. A written ministerial statement set the point of abolition as 6 April 2012. In June 2011, the House debated and approved the Pensions Act 2008 (Abolition of Protected Rights) (Consequential Amendments) (No. 2) Order 2011, which makes consequential amendments to primary legislation, consistent with the abolition of defined-contribution contracting out. At the time of that debate, a minor defect in the operation of article 3 of the 2011 draft order came to light. I therefore made it clear to the House that I would return with a further amending order before the 2011 order came into force.

Accordingly, the Pensions Act 2008 (Abolition of Protected Rights) (Consequential Amendments) (No. 2) Order 2012 will remove the exclusion of protected rights payments from what counts as income for the purposes of income payments orders made under section 310 of the Insolvency Act 1986, and from the scope of section 159 of the Pension Schemes Act 1993, which provides that guaranteed minimum pensions and protected rights payments cannot be assigned or charged. The draft order will bring consistency with our original policy intention, namely that the tracking of protected rights should cease after the abolition of defined-contribution contracting out.

[Oliver Heald (North East Hertfordshire) (Con)]

Does my hon. Friend not think that it is really rather a tribute to his work that the orders are so non-controversial that there is not a single Opposition Back Bencher in the Chamber to discuss the uprating of all the benefits that this country has? I pay tribute to him and congratulate him on that stunning achievement, which I do not think has ever been replicated.

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[Steve Webb]

The hon. Lady is right that any single inflation measure will not capture the full diversity of circumstances. One of the main differences between RPI and CPI is that RPI includes mortgage interest, which is largely irrelevant to most pensioners. By excluding mortgage interest from its basket of goods, the CPI gives more weight to the things on which pensioners spend their money. Other things being equal, CPI will therefore tend to be a better fit with the spending patterns of pensioners.

The hon. Lady is right that rising fuel prices are an important issue. That is one reason why instead of simply doing our legal duty by the poorest pensioners, which was to uprate the pension credit by earnings only, which was 2.8%, we chose to do a full pass-through of the £5.30 basic state pension rise to the poorest pensioner on pension credit precisely because they have faced the pressures she describes. We are aware of that point and have sought to do something in this uprating measure to address it.

[Oliver Heald]

I am grateful to the Minister for being so generous with his time. Does he agree that some quite significant changes are taking place in the hierarchy of indexes that can be used for uprating? For example, earnings, which was always thought to be by far the highest measure, is at the moment the lowest measure. In addition, changes in the housing market have affected the CPI and RPI differential. It is therefore a moving picture. It is not as straightforward as saying, “History tells the whole story.”

[Steve Webb]

My hon. Friend is right. I noticed in the most recent figures that the gap between CPI and RPI was just 0.3%. That is historically low, but the numbers and relative values change a great deal. That is why our triple lock says of the basic state pension, “If it’s prices that give you the highest number, we’ll pay that; if it’s earnings, we’ll pay that; and if it’s 2.5%, we’ll pay that.” We were determined to ensure that pensioners got the best deal for the basic state pension whatever was happening to the relative value of those numbers.

As I made clear in my statement to the House at the end of last year, this Government will use the full value of the September CPI to uprate pensions and social security benefits from April 2012. At a time when the prevailing headline figure for CPI has already fallen to 3.6% and is forecast to fall further during this year, we shall be uprating the overwhelming majority of pensions and benefits by 5.2%.

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[Steve Webb]

Indeed. My hon. Friend is right that there were siren voices from some quarters suggesting that we could not afford, or that we should not go for, this inflation figure. He is absolutely right that the coalition parties decided that it was a priority. That is something that I am proud to be associated with.

[Oliver Heald]

Does the Minister agree that the Government have also gone further than they needed to on the pension credit? The requirement is to uprate by earnings but he has gone one better by increasing it by 3.9%. So not only were the siren calls resisted, but more generosity was shown to the poorest pensioners.

[Steve Webb]

There was indeed. My carefully structured speech is falling to ribbons. I was about to come to that achievement.

State Pension Reform

Debate between Steve Webb and Oliver Heald

Monday 4th April 2011 Commons Chamber

[Steve Webb]

I did write the hon. Lady’s words down—in principle, she welcomed the Green Paper, so I am grateful for her warm comments about our proposals. She asked a number of specific questions, and I shall try to respond to them.

The hon. Lady seemed to imply that women would get £145 anyway, so wondered why we needed to do anything. That, however, is decades away. Equality between men and women in the state pension system is decades away, and we think that is too slow. Many women who did their child rearing in the ’80s and ’90s got no state second pension protection because it did not exist at that time. They will be retiring over the coming years and we are now bringing forward that protection for them. We do not want to wait 20 years for equality.

The hon. Lady asked an important question about passported benefits and we will need to consider the implications of these changes for those benefits. She had the cheek to suggest that the winter fuel payment had been cut in comparison with what she would have provided if she were in office. She will be well aware that we are sticking precisely to the budgets that her right hon. Friend the Member for East Ham (Stephen Timms), the former Chief Secretary to the Treasury, wrote. He will know perfectly well how much he put aside for the winter fuel payments, and we are doing exactly what he planned.

The hon. Lady asked about the Pensions Policy Institute and its estimate that a £140 flat-rate pension would cost 1% of gross domestic product. What she may have misunderstood from the report is that the question it asked was what it would cost if that amount were paid to everybody. That is where its figure came from. We are saying that we will create this for new pensioners, because new pensioners face a new world in which they will work longer, retire later and have fewer final salary pension schemes, so we need a system that is fit for them.

The hon. Lady sought reassurance on two points and the answer is yes to both of them. We will honour past service and we will make an adjustment, as I said in my statement, for contracted-out periods.

The hon. Lady asked about the future of final salary pension schemes after 13 years of decline under Labour. She will be pleased to know that the National Association of Pension Funds—the trade body for company pensions —welcomes these reforms and supports them, but we are in dialogue with those operating large final salary pension schemes to discuss how these changes will impact on them and how we can work with them to move towards the sort of simpler scheme that they and we want to see.

The hon. Lady asked about merging what the Chancellor referred to as the operation of the tax and national insurance system, which is certainly at an exploratory stage, but he has made it clear that pensions will be protected under these changes and that the contributory principle will remain.

Finally, the hon. Lady asked about the mechanism for raising the state pension age. She referred to a crude formula, but there are options in the Green Paper. One is to have an automatic mechanism for raising the pension age as longevity increases; the other is to adopt a more nuanced approach to take account of a range of factors. We would welcome feedback on that.

Overall, I think the hon. Lady welcomed our proposals, particularly the fact that they will benefit women and self-employed people and will lead to a fairer system. She said that she wanted to see a fairer system; in office, the Labour Government never delivered one, but through this Green Paper, we will.

[Mr Oliver Heald (North East Hertfordshire) (Con)]

In welcoming the statement and the Green Paper, I congratulate the Minister on achieving a long-held ambition in the pensions world of creating much more certainty and transparency about the state pension system so as to encourage saving in the longer term, as well as on helping the more vulnerable groups he mentioned, such as women, who will get help that much earlier. Will he say more about the time scale? He talked about the long distance we still have to go before achieving justice for women, so what improvement will these changes bring and what is the Minister’s time scale?

[Steve Webb]

I am grateful to my hon. Friend, who brings his great knowledge of these issues to the House and to the Select Committee of which he is a member. As he says, we need a simpler system. He will appreciate that these things take time; we will need to consult and then respond. In due course, we hope to legislate to re-programme the computers and so forth. As the Chancellor said, we are talking about some years to implement the reforms, but we are clearly keen to move forward as fast as we possibly can.