My hon. Friend tempts me to make commitments that I am unable to make. The Government have said that they will introduce the measure by the mid-2020s. It requires primary legislation and there is no doubt that there have been issues in its introduction because of the 2018 and 2019 increases. The impact of Brexit and the pandemic also clearly makes it more complicated to introduce such changes for employers.
It is still several years until the next general election, perhaps as much as two and a half years. My hon. Friend will be aware that the Government have to go through various processes to bring forward future legislation, including a Queen’s Speech setting out the Bills that will be brought forward in the third and fourth Sessions. He makes an eloquent point, however, as he always does—I assure the House that he is a massive improvement on the previous occupant of North West Durham, my neighbouring constituency—which I am certain will be heard not just on the Treasury Bench by the assiduous Whip, who is noting down his every word, but all the way in the Treasury, where I know he is making the case.
The practical reality is that the Bill of the hon. Member for Rutherglen and Hamilton West proposes a technical change. I will try to set out the position, which genuinely dates back to the 1970s and the last days of the Callaghan Government. Guaranteed minimum pensions were introduced to help employees to save affordably for an income in retirement, which is clearly a great concept. The state pension used to be made up of two parts: the flat rate basic state pension and the earnings-related additional state pension.
The flat rate state pension was simply funded through national insurance and paid at the full rate to those with sufficient qualifying years of NI contributions or pro rata for those with a partial record. The earnings-related additional state pension, also known as the state second pension or state earnings-related pension scheme, was linked to a person’s earnings. National insurance contributions were paid by an employee and their employer and gave the employee the right to an additional earnings-related state pension.
Many employers, however, were already offering their workers company pension schemes, so many people were building up an occupational pension and an earnings-related additional state pension. That was rightly thought to be overly onerous and potentially unaffordable for employers and employees. In effect, it was seen as a double provision and immensely overcomplicated.
To clarify the situation, the Callaghan Government introduced the system of contracting out and the provision of guaranteed minimum pensions in 1978. At that time, although I realise it may be hard to believe after hearing the description in the opening speech, that was considered a simplification. How they work is not simple, but I will attempt to explain it to the House to put it on the record, particularly for usage in Committee.
Employers who sponsored a salary related scheme were allowed to contract out their occupational pension schemes from the earnings-related additional state pension. Because employees in contracted-out employment were taken out of the additional state pension, the employer and pension scheme members paid lower national insurance contributions. Salary related contracted-out occupational pension schemes were required to take on the responsibility for paying their members the GMP as part of the occupational pension from the scheme.
The intention was that, on reaching retirement age, the amount of guaranteed minimum pension that the individual member would have built up would be broadly equivalent in value to the additional state pension that they would have received. However, the guaranteed minimum pension was literally that—a minimum.
Most employees would also have built up an occupational pension, but the scheme pension could not be lower than the guaranteed minimum. In addition, widows, widowers and surviving civil partners of members with a GMP received valuable survivor benefit rights—this goes to the point raised by several colleagues about ongoing survivor rights. Some of the technical details are complicated, but the crux of the idea is simple: rather than paying additional NI to the state to build up additional state pension, people built up a similar amount of occupational pension through a workplace pension scheme. The workplace pension scheme ultimately, of course, became automatic enrolment, as the Deputy Speaker, the right hon. Member for Doncaster Central (Dame Rosie Winterton), knows. The system ran in this way from 1978 to 1997.
Although the basic idea was simple, the technical details were extremely complex. I will not take the House through all the complexities, but, for example, GMPs can be subject to both revaluation and indexation. They are revalued before coming into payment to ensure they are protected against inflation, but once in payment any GMP accrued between 1988 and 1997 must also be protected against inflation, through indexation. Although revaluation and indexation are both intended to protect against the effects of inflation, the rates of revaluation and indexation are not the same, and, as the hon. Member for Rutherglen and Hamilton West set out, the reality is that men and women with the same employment history could receive different GMPs. That is what we seek to address.
So the GMPs were abolished in 1997. The whole system of contracting out was finally ended in 2016, with the introduction by the Conservative Government of the new state pension. But of course many of the people who worked between 1978 and 1997 still have a right to a GMP. We are talking about a significant number of our constituents—this is a very large figure. Some will already be retired, but some are still working. There have been a variety of court cases on this, which I am not going to go through in copious detail, but the first key one was something that has affected this House and all matters of state pensions dramatically since 1990. I refer to the European Court of Justice ruling in the case of Barber. It ruled that pensions were deferred pay and, as such, must be treated and paid equally to men and women. The Barber judgment was not specifically about GMPs but it meant that the impact of the differing rules for men and women had to be corrected. When we have come to a decision, as we have in his House on multiple occasions, about the state pension age correction exercise and the increases from 60 to 65 and 66, it can be traced back to the Barber judgment and the equality legislation that followed thereafter.
The House has already heard that the ECJ subsequently made the Allonby judgment, which enables schemes to use a scenario to work out whether someone has lost out or not, rather than being dependent on having a member of the opposite sex in the scheme to compare against. The Government are clear that in light of the Barber judgment, and subsequent decisions, including the Allonby judgment, occupational pension schemes need to equalise pensions, taking account of the effect of GMPs. Subsequently, the UK passed the Equality Act 2010, which also requires equal treatment between men and women for all pension accrued from the date of the Barber judgment. As has been said on several occasions, the Department for Work and Pensions has attempted, under successive Governments, to try to fix this problem without primary legislation. It is totally right that that there was a consultation, following which guidance was published. However, as the hon. Lady rightly set out in opening, it is simply not the case that all schemes can proceed on the basis of the guidance that has been prepared. The reality therefore is that schemes need to equalise the amount of pension their members receive to correct for the problems caused by the complex rules and the differences in retirement income these rules produce. This process is known as “equalisation”. How an occupational pension scheme corrects members’ pensions is up to the individual scheme, provided it is done properly. There are various methods of equalising that occupational pension schemes can use. However, the process can be very complicated and is specific to the individual scheme, and there are a lot of schemes. Some schemes have already felt very nervous and they have been concerned not just by the costs and the complexity, but by the judicial process that could follow and the perceived uncertainty about exactly how to undertake the process and be sure that they have met their legal obligations. As a result, as she set out, many schemes have still not equalised for the effects of GMPs.
What the Bill does is key. It makes it clear how the conversion legislation applies to people who are survivors, as well as to the earners. It also gives the Government the ability to set out in regulations the details of how survivor benefits will work for surviving spouses or civil partners of people with guaranteed minimum pensions. As my hon. Friend the Member for Berwickshire, Roxburgh and Selkirk (John Lamont)—who represents a constituency across the Border from me that includes Jedburgh and Galashiels—said, it is a piece of legislation that applies throughout the United Kingdom, and clause 2 includes specific regulations in relation to Northern Ireland that were requested by the Stormont Government.
Clauses 1 and 2 both clearly state that converted schemes must provide survivor benefits. One of the key purposes of the Bill is to make it easier for pension schemes to know the right amount that survivor benefit schemes using the conversion legislation must pay. The Bill also gives the Government the ability to set out in regulations details about who must consent to the conversion of guaranteed minimum benefits. Finally, the Bill removes the requirement to notify HMRC once a scheme has converted its guaranteed minimum pensions.
I opened by saying that debates on private Members’ Bills can be significant and serious days, and I genuinely appreciate the contributions that we have heard from a variety of colleagues. I thank my hon. Friend the Member for Stourbridge (Suzanne Webb) for her enthusiastic but pithy support, and my hon. Friend the Member for Hastings and Rye for an eloquent speech that set out in great detail her grasp of the issue. As always, my hon. Friend the Member for North West Durham is never backwards in coming forward on so many different issues, including his passion for automatic enrolment.
My hon. Friend the Member for Dover (Mrs Elphicke) raised a number of points and spoke with great experience. I am not of the view that this very specific Bill on very specific points would address the individual problems that she raised regarding her constituent, but I am happy for her to write to me about the issue and I will give her a detailed reply to confirm whether it is within the scope of the Bill. I suspect that it is not, but I want to be absolutely sure when I reply to her, which I will do prior to our entering Committee so that the House can be clear.
I cannot stress what a wonderful campaigner and asset to the House my hon. Friend the Member for Gedling is. He has made a tremendous impact through the work that he has done. It is great to see him here, and an honour and privilege to answer some of his points.
The hon. Member for Stalybridge and Hyde and I have clashed before—I think that this is our fourth Bill—but it is great that he and the House are in full support of this one.
The Department for Work and Pensions is attempting to make pensions safer, better and greener. We are doing a huge amount, including: the Pension Schemes Act 2021, with collective defined contributions, which will provide the third way of pensions; the pensions dashboard, which will be like a banking app that brings our pensions to our mobile phones, iPads and laptops, so that we have total access and knowledge of what we have; the reforms and support of defined benefit; action to prevent the investment scams that we know are out there and are trying to stop; the huge work that we are doing to develop on the environmental, social, and governance reforms that we introduced after the 2017 elections; and putting pensions at the heart of climate change by building on the work of COP26, and being the first country in the world to introduce climate-related financial disclosure, giving consumers—all our constituents —full understanding of what is being invested in on their behalf through pensions.
With respect, although this is a smaller Bill than the 125 clauses of the Pension Schemes Bill that we took through the House earlier this year, it affects a significant number of our constituents and I am genuinely keen to progress it. I can therefore confirm that it is with pleasure that I give the Government’s backing to the hon. Member for Rutherglen and Hamilton West, her Bill and the work that she has done. Excellent points have been made in debate that I will discuss in more detail in Committee. If I have missed any particular points, I will endeavour to write to colleagues in the intervening period. The Government support the Bill. We wish it well in Committee. I want to take the time to thank the hon. Lady, because it is not easy dealing with a highly technical and difficult Bill such as this. She should be very proud of the way she ensured that she got cross-party support and then introduced the Bill and outlined its provisions with great eloquence. I thank her for all the work that she has done.