Oral Answers to Questions

Debate between Steve Webb and Jonathan Evans

Monday 5th November 2012 Commons Chamber

[Steve Webb]

I agree that we need to support kinship carers, such as grandparents. One change that our Department has made is that, for example, where a mother is going out to work and is not using the national insurance credits that she would have gained for receiving child benefit, they can be passed to a grandparent, who may not be of pension age, to make sure that they are not financially disadvantaged. That is just one of the things we are doing to support that important group.

[Jonathan Evans (Cardiff North) (Con)]

18. What steps his Department is taking to ensure that older workers with little private pension provision are not disadvantaged by the introduction of auto-enrolment.

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

Our research shows that even under the current rules 99% of savers will get back at least as much as they put in under auto-enrolment, and around 70% will get back twice as much. In addition, our state pension reforms will support planning and saving for retirement by delivering a simpler, single, flat-rate pension set above the basic level of the means test.

[Jonathan Evans]

I accept that those were the calculations made in 2010 as part of the auto-enrolment review, but since that time we have seen investment returns fall so much that the Financial Services Authority is ordering the industry to downscale its forecasts and we have also seen annuity rates fall. Have the Government recalculated their figures to take account of that?

[Steve Webb]

The short answer to the hon. Gentleman’s question is no. However, one important point I would raise is that if someone only builds up a very small pension pot, they have a legal right to take it, in most circumstances, as a cash lump sum with a quarter tax-free. Even someone later in life can get an employer contribution tax relief—a lump sum taken with a tax-free contribution. That will be attractive, even in later life.

Pension Protection Fund

Debate between Steve Webb and Jonathan Evans

Tuesday 22nd November 2011 Westminster Hall

[Steve Webb]

If my hon. Friend will forgive me, I will not, out of respect for my hon. Friend the Member for Cardiff North, who secured the debate, but only because I want to respond to his comments.

To be clear, it is not the case, therefore, that some financial slack is available for the financial assistance scheme.

My hon. Friend also mentioned deemed buy-back, which is complex, so I will not say, “Here is one I prepared earlier.” Essentially, deemed buy-back is treating the scheme as if it had not contracted out of SERPS. On the face of it, we would assume that that is better, but it turns out that the situation is rather more complicated than that. At the moment, people in the financial assistance scheme have a level of certainty: they know what the rules are and they know what 90% is and is not. I entirely accept my own point from a few years ago that we have to be careful when we say, “It’s 90%,” because clearly the matter is much more sophisticated than that and there are limits, as he rightly said. However, those people have the certainty of knowing what the scheme rules are. Under deemed buy-back, they would not have that certainty while some people would get more than 100% of their scheme pension and some people less.

[Jonathan Evans]

Would there not be a responsibility on the trustees to form a view as to whether they wished to action that? My hon. Friend the Minister is indicating that some circumstances could be advantageous and others not, but that would be a judgment made in each case. Currently, no one can exercise such judgment.

[Steve Webb]

The answer might be different for each individual rather than for each scheme. How would a trustee judge? If the trustees chose deemed buy-back for the scheme and we agreed with that, might they put some members in a worse position and others in a better? How would a trustee balance the different interests of the different members? This is complex.

The other thing about deemed buy-back is that under the financial assistance scheme there is some flexibility as to when the payments are made. My hon. Friend the Member for Cardiff North thinks that the ill-health provision is too rigid, but there is no ill-health early access to SERPS, so, again, the current system has a measure of flexibility that deemed buy-back would not have. Deemed buy-back, therefore, is complex and technical, and not a silver bullet. We have looked at it—in fact, we have looked at just about everything imaginable to try to find ways to provide better value to those individuals.

My hon. Friend mentioned annuities. All the way through, Dr Ros Altmann has argued that one reason that we did not get good value in the first place was that many of the schemes were annuitising, and if we had got in there quicker, we could have done better. That is absolutely right and why the so-called FAS 2 schemes, in which the Government have taken over the assets, have enabled us to improve to a baseline of 90% compared with what was previously on offer.

To try to take that further, I had a personal meeting with the chief executive of Legal & General—no reason why I should not mention it—which is far and away the company with the most of those books still going. He was content to transfer the schemes across to us on the basis of the book value in his annual accounts. His comment was, “I don’t want to profit from this, but I can’t show a loss, so it goes across at the book value.” I am not sure we have said this before, but Andy Young, who was involved in the Government Actuary’s Department and has been instrumental in all this, helped us considerably, of his own free will, to analyse all the facts and figures and so on. We have had discussions with the Government Actuary and with the Treasury. The short answer is that the book value of those contracts has already got the profit in it. Therefore, we take across something from which the profit has already been made, and the view of the Treasury, which I understand, is that there simply was not the confidence that we would get extra value—that the Government doing this would provide added value. In fact, there was a risk that we would be net losers.

I was keen to pursue that avenue and I hoped that it would provide a way for us to squeeze some extra money into the financial assistance scheme, but, unfortunately, it has proved fruitless. I am disappointed about that, which I told the Pensions Action Group members when I met them a few weeks ago. I was keen not to string them along. The very least that they are owed is a firm statement of the Government’s position. It was suggested that we might have a review, perhaps when the Government have more money, but I was keen not to create a false hope or an expectation, because those group members have been through so many stages. However, considering the state of the public finances, it would have been dishonest and dishonourable of me to suggest that we might find a little pot of money to address their concern.

As I hope is apparent from all that I have said today and through the months that I have dealt with the group, I have huge sympathy for the situation in which they find themselves, but I do not believe that I can offer any realistic prospect of improvements beyond the current financial assistance scheme.

Benefits Uprating

Debate between Steve Webb and Jonathan Evans

Wednesday 8th December 2010 Commons Chamber

[Steve Webb]

I am grateful to the hon. Lady for her questions. The CPI

“is more reliable because, taking account of spending by all consumers, this consumer prices index gives a better measure than the old RPIX measure of spending patterns. It is more precise because… it takes better account of consumers substituting cheaper for more expensive goods.”—[Official Report, 10 December 2003; Vol. 415, c. 1063.]

How right the previous Prime Minister was when he said those words.

There is a sensible debate to be had about the most appropriate price index. The hon. Lady said that pensioner inflation is always higher. I did not notice the previous Government using a higher inflation measure for pensioners in the 13 years during which they decided these things. In fact, over the past 20 years—not the past five, which Age UK used—the average pensioner inflation and the average non-pensioner inflation were the same. In other words, there are times when it is higher and times when it is lower, as we would expect, but in the long run they are the same. Previous Governments never used pensioner-specific inflation rates; nor do we propose to.

It was good of the hon. Lady to say that she would consider the CPI for this Parliament. Obviously, we are announcing today the benefit rates for next April, so I am assuming that, in the event that the House comes to vote on these matters, she will support the benefit rates that we are proposing. It was not entirely clear to me whether she was for them or against, but I hope that, in due course, it will be clear.

The hon. Lady asked about the use of the RPI and felt, I presume, that it is a better measure of inflation. Does she believe that in the year to September 2009 pensioner inflation was negative? I have never met a pensioner who thought that their inflation was negative. The goal is to use an index that matches inflation experiences, and that is what we have done.

The hon. Lady mentions the IFS and its views on the issue. The main difference between the CPI and the RPI is not the basket of goods but how the two indexes respond to price increases. The IFS found that the substitution effect used in the CPI is a better measure for lower-income households, so its judgment is that, on that key difference, the measure that we are using better fits the inflation experience of lower-income households. I am glad she cited the IFS, because it was right on that point.

The hon. Lady raises the issue of people meeting their fuel bills, and, as my right hon. Friend the Prime Minister said, the cold weather payment is one of Labour’s ticking time bombs. This winter, it was due to fall to £8.50 a week. That was in the spending plans, but my right hon. Friend the Chief Secretary to the Treasury and my right hon. Friend the Secretary of State for Work and Pensions agreed that it was not fair—that paying people £8.50 a week this year would not be acceptable. So, we found the money to set it at £25 a week not just this winter, but for the whole Parliament, and pensioners on low incomes are better off as a result.

The hon. Lady asks about the net effect of the changes, glossing over the earnings link, which, mysteriously, was Labour policy but never implemented in 13 years. It is funny how things become implementable in opposition but not when one controls the levers of power. The earnings link on average gives about 2% a year above prices; the CPI change on average gives about 1% a year less than the RPI. So for those with low and modest occupational pensions, the net effect on pensioners of the two taken together will be positive.

We have a package of measures to protect the interests of pensioners. The earnings link over the long run will give a newly retired pensioner an extra £15,000 in state pension over their retirement, compared with the prices indexing that Labour, when it had the levers of power, applied for 13 years. That is what it applied in office for 13 years: the prices link. Within months, we have gone to the earnings link, and pensioners will appreciate what we have done for them.

[Jonathan Evans (Cardiff North) (Con)]

Does my hon. Friend have constituents like mine, who are looking forward to increases in SERPs, and who have looked at what they received last year when the RPI was negative and the CPI was positive? Labour Members back then proposed no increase whatever in those pensions. At the same time, looking over 10 years, is it not a little disingenuous to fail to take into account what has happened to house prices over the past decade? It is unlikely to be replicated in the next decade.

[Steve Webb]

I am grateful to my hon. Friend for that point. Many of the letters that I signed as a new Minister were to people complaining about the April 2010 non-increase in pension rates because they were linked to the RPI, which was negative. One of the worst things about using something that is so heavily affected by mortgage interest rates is that a pensioner with savings not only fails to benefit from falling mortgage rates, but is penalised by falling savings rates, so they get a double whammy. Neither factor will affect the CPI.