Pensions (Extension of Automatic Enrolment) (No. 2) Bill

Baroness Altmann Excerpts

2nd reading
Friday 14th July 2023 Lords Chamber

Moved by

[Baroness Altmann]

That the Bill be now read a second time.

[Baroness Altmann (Con)]

My Lords, I am delighted to sponsor the Bill before the House today. It brings to fruition the hard work of dedicated colleagues across the Chamber, who have advocated tirelessly for the improvement of workplace pension coverage and adequacy, especially for younger workers and low earners.

I thank and pay tribute to my honourable friend Jonathan Gullis MP, who championed the Bill in the other place and saw it through its stages there earlier this year. His hard work paved the way for the Bill to come to us today and has been praised fulsomely, with cross-party support welcoming these improvements to retirement provision for millions of our fellow citizens. I also pay tribute to my noble friend the Minister, who I am very pleased to see today, and to my honourable friend the Pensions Minister in the other place, Laura Trott MP, and the department officials who have done so much work and are supporting the Bill.

The Bill has two main objectives: first, to pave the way for extending auto-enrolment to workers under the age of 22, the current minimum age for automatic enrolment to a workplace pension; and, secondly, to allow the Government to abolish the lower earnings limit of the qualifying earnings band, which will increase the overall amounts being saved, as pension contributions under auto-enrolment will be calculated from the very first pound of earnings rather than from £6,240, which is the case now.

Auto-enrolment into workplace pensions has been a celebrated success, bringing 10.9 million more people into pensions since the programme started in 2012, with 2.2 million employers complying with their duties and an extra £33 billion being invested in pensions in 2021, relative to 2012. I pay tribute to the noble Baroness, Lady Drake, for the seminal work she contributed in the Pensions Commission in 2008, which led to auto-enrolment in the first place.

It is now time to move on to the next stage of this successful programme. In 2017 there was a year-long major review of the policy, which recommended, among other things, the two measures put forward in the Bill today. The aim is to allow the Government to help improve people’s private pensions. There are several benefits of extending auto-enrolment to workers under the age of 22: it will improve inclusivity and will give younger generations longer to benefit from the power of compounding long-term investment returns, giving them a chance to build bigger pension funds. It can also simplify the administration of workplace pension schemes, which will save money and reduce the risk of errors if a minimum age is no longer in place—although that will be determined in due course by regulations.

The Bill should also help lower the likelihood of 22 year-olds opting out of an employer pension scheme, which is the risk at the moment, as their take-home pay suddenly falls due to pension contributions starting to be deducted as they pass their 22nd birthday. It is expected that 600,000 private sector workers aged 18 to 21—and, as I said, there could be more if the age is somewhat lower—could benefit from these measures. I hope that the consultation for regulations will include not a minimum age of 18 but a removal of the limit altogether, so that every worker, even those who leave school at 16 and start work at that age, can start a pension.

There are also significant benefits from removing the lower earnings limit, the other important strand of the Bill. Employer contributions for lower earners who want pensions will be significantly higher as a result. Currently, those who are under 22 also have to request to join their employer pension and do not benefit from the powerful behavioural nudge that sees those over 22 automatically enrolled into the pension scheme. While younger workers can ask their employer to join, the estimates suggest that only 32% of those eligible workers are actually paying into a pension at work—far less than the nearly 90% of eligible workers over 22, who are building a pension at work after being auto-enrolled.

There will also be the opportunity to help people to start the pension habit earlier, establishing even more clearly the principle that workers in this country can expect their employer to cover tax, national insurance and pension for them. This Bill will therefore particularly pave the way to help underpensioned groups, including lower earners, women, people from ethnic minorities, the disabled, multiple job holders, young workers and those in the gig economy.

Helping to narrow the gender pensions gap is an issue that many of us across this House have been exercised with for some time and is another reason to support these measures. Of course, this alone will not close it entirely. The ABI estimates that, at the moment, the average woman aged 65 has a pension pot worth just one-fifth of the value of that of a man of the same age. Due to lower-paid work, lower lifetime earnings, interrupted careers and more part-time jobs, women have always lost out on this earnings-related private pension system. By ensuring that all their earnings are used to calculate contributions in future, even lower-earning women will build much bigger pensions. Instead of someone on, say, £10,000 receiving contributions on just £3,760 of her earnings, she will—once this Bill and subsequent affirmative resolutions are hopefully passed—be able to receive nearly twice as much again, as the full £10,000 will be used to calculate her and her employer’s contribution. This means that, instead of receiving £300 a year into her pension, it will be £800 a year.

The Bill provides regulation-making powers to amend the automatic enrolment framework set out in the Pensions Act 2008. The Secretary of State for Work and Pensions will be required to carry out a public consultation on the proposed use of these powers to lower the minimum age and abolish the lower earnings limit, with the findings having to be reported to Parliament before regulations are made. It is promised, I believe, that the consultation will be later this year, so I do not think that we will have to wait too long. All noble Lords will therefore be able to consider and vote on the detail of the proposals for secondary legislation before they become law. I hope that noble Lords will therefore be able to support these enabling measures in the Bill today.

Colleagues across the House may have concerns about bringing more people into pensions and increasing contributions for lower earners if they are going to be put into pension schemes that administer tax relief by the net pay system. However, the Treasury has announced a new system, which will make top-up payments to low earners in met pay schemes—many of whom are women, of course—to address the net pay and relief at source anomaly. This is planned to be introduced for contributions from the 2024-25 tax year onwards, so should time well with the start of measures provided for in this Bill, following the laying of regulations. I am therefore delighted that the Bill before us today will set us on the path to the next successful chapter—I am sure—in the story of automatic enrolment. It will bring undoubted benefits of pensions savings to younger people and to those hard-working, lower-paid workers, including women with caring responsibilities, who deserve the opportunity to build a more secure retirement for themselves and their families.

As the Government have promised, this measure will be in place—or the intention is that it will be in place—by the mid-2020s. Of course, there is more to do, including extending auto-enrolment to workers with earnings in any one job below £10,000 as well, but that can be covered elsewhere, and to the self-employed. However, these measures are an important start. I welcome the improvements, and I hope that noble Lords across the House will do so. I commend the Bill to noble Lords.

--- Later in debate ---

[Baroness Altmann (Con)]

My Lords, I am grateful to all noble Lords and to my noble friend for their contributions to this excellent debate. I have just a few brief words.

The noble Baroness, Lady Drake, expressed her concerns about younger workers perhaps being off-payroll. She is right in the warnings that she has put on record, and about the issue of the national minimum wage for a part-time female worker, for example, who might still be excluded because of the £10,000 trigger. Indeed, the issue of small pots will grow as a result of these measures. I know the Government will look at ways to solve that. I urge my noble friend to proceed with the measures currently under consideration and the consultation.

The noble Lord, Lord Davies, is absolutely right to raise the issue of the gender pensions gap, which I think all noble Lords who have spoken will have concerns about. He is right that more women being on low pay means that fewer women will have as good pensions as men, but I hope he might be persuaded that the fact that we will be taking earnings contributions from pound zero will make a difference. It might be a small one, but it will make a difference in the right direction to the gender pensions gap. As I said, someone on £10,000 per year, who is more likely to be a woman than a man, will suddenly have £800 going into their pension instead of £300. That will help to build a better amount over the long term, but he is clearly right that more can and should be done.

The noble Lord, Lord Palmer, is right that there is more to do on auto-enrolment, but I appreciate the welcome for these measures. I also welcome him to our merry band of pension Peers. As he pointed out, it is always the same individuals across the House.

The noble Baroness, Lady Sherlock, is right to celebrate the success of auto-enrolment. She asked about the opt-out rate. As far as I am aware, the DWP published some research in August 2022 which suggested that there was a slight uptick in the auto-enrolment opt-out rate for newly enrolled workers, rising to 10.4% from 7.6% in January 2020. In contrast, for the workers who stopped contributing once they were in, there was actually a reduction to 3.1% in August 2022, down from the figure of about 5% that she mentioned. As a previous Pensions Minister, Steve Webb, has written, the auto-enrolment programme so far seems to be remarkably robust, but we clearly had not had the worst of the cost of living crisis in 2022. This needs to be monitored, but I am pleased that the DWP is doing that.

My noble friend the Minister is right to say that the Secretary of State can review the trigger each year. Therefore, there is a potential for those earning below £10,000 a year to also be included at some point.

I thank all noble Lords who have spoken today.

Bill read a second time and committed to a Committee of the Whole House.

Pensions Dashboards (Amendment) Regulations 2023

Baroness Altmann Excerpts

Wednesday 12th July 2023 Grand Committee

[Baroness Drake (Lab)]

I thank the Minister for so clearly setting out the purpose of the regulations. I enjoyed the reference of the noble Lord, Lord Young, to his previous contribution in the debate on this issue, which was well made. My position is that it is not disappointing that the Government’s enthusiasm for such an early launch has been tempered; I always considered that it would be a very complex project and I am delighted that there is now a much greater focus on the complexities and ensuring what is delivered. I never really wanted it delivered two years ago because I did not think that it would be well delivered then. It needs to be well delivered, because of the scale that it covers.

These regulations replace the pension schemes staging profile, staging deadlines and connection window with a single common deadline for connection of 31 October 2026. I want to reflect on the guidance to schemes on a new connection staging timetable.

The DWP’s description of the purpose of that guidance has varied according to which document is read—there is not an absolute consistency. The documentation ranges between encouraging schemes to meet the new timetable to threats of a breach of the regulations if they do not, and “having regard to” the guidance is a concept that is a little unclear. Can the Minister clarify what exactly is the status of that guidance and when a breach—and a breach of what in regulation terms—would be triggered?

I will move on to an issue that we probably have not debated a great deal in previous discussions of the dashboard. The Explanatory Memorandum refers to the monitoring and review of this legislation, saying that the approach to be adopted is

“to put in place a multi-strand evaluation strategy, the details of which are being explored”.

This strategy will

“ensure the critical success factors can be successfully tested with learning helping to further develop dashboards over time”.

The plans include research into dashboard usage, outcomes from that usage and information provided by providers. However, I cannot see any reference to key pensions public policy outcomes in those critical success factors. I did not see them when the previous regulations came with the Explanatory Memorandum and I cannot see them now.

To take it at its most basic, if, for example, as a result of dashboard usage, greater numbers of people took out more of their pension savings in their 50s or early 60s, is that a success because they have engaged, or undesirable because more people will have a lower income when they get to state retirement age? We have to be very clear what are the public policy aspirations we are seeking from that greater usage. Clearly, it is not set out, as far as I can see, in the critical success factors and the multistranded evaluation strategy—although I recognise that that is work in progress. Will any of those critical success factors identified in the Explanatory Memorandum be benchmarked against desired public policy outcomes over the long term?

Staying with that concept, what long term do we want as the outcome—not only from dashboards but a whole range of other things, although dashboards are before us today? Yesterday we saw eight papers on pensions, including analysis, consultations and consultation responses, all published in one go. I cannot let that moment pass without asking the simple question of the Minister: was any consideration given to how those eight papers and sets of proposals would impact on the multistrand evaluation strategy for the dashboard? I appreciate that the Minister may not be able to answer that today but it is an important question that needs answering.

For me, the decision by the department and the FCA to proceed with a gross investment performance metric in the proposed VFM framework, as announced yesterday, rather than net of all costs and charges, together with the continued dithering by the FCA over the transparency of costs and charges value reporting in decumulation products, is a backward step which does not resonate with the pension savers’ interest and informed decision-making. That was a deeply disappointing element of that VFM framework to read. We know from the FCA’s own findings that a wide range of charges are applied in the decumulation market, which should be rigorously assessed in a joint FCA/DWP/VFM framework. That has just been sidestepped.

Yesterday, the Chancellor referred positively to the Australian supers, but I point out that they have a tough regulatory requirement to report investment returns net of fees. If the Government are going to promote private market investment, where charges are higher, transparency of returns net of fees is essential if the saver is not to end up paying back the excess returns to the industry. The link to the evaluation strategy and the dashboard is: what information will be provided, what influences on behaviour are we expecting and how will that produce better outcomes? I must admit that, when I read that VFM framework, I thought it disappointing and rather contradicted the idea that members using the dashboard will make more informed decisions. I did not want the moment to pass without making that point.

[Baroness Altmann (Con)]

My Lords, I, too, thank my noble friend for his clear exposition of the regulations. I am very supportive of them and I think they have general support around the Committee. Indeed, they are pretty essential, as my noble friend described. If we do not pass them, there is a danger that schemes currently required to load data to the dashboard by the end of August will be in breach, and there will be nothing they can do.

Replacing the statutory staging timetable with a single end date of October 2026 is understandable. It is also welcome that the reference date for the dashboard requirements of pension schemes is being moved to 2023-24 so that it can include some of the newer pension schemes, which will then have to go on to the dashboard. However, I would be grateful if my noble friend could help me with a few questions. It is fine if he would like to write to me; I do not expect him necessarily to have all the answers, although he may not be surprised by the questions.

My first question relates to the Government’s intention to publish a new timetable in the form of guidance. When will it be published? Also, my noble friend said that it will not be mandatory, although trustees must, as the noble Baroness, Lady Drake, said, have regard to the guidance and will get at least six months’ notice. What is the penalty for non-compliance with the guidance, if it is not mandatory? If it is struggling, a scheme may simply say, “We’re not going to do it because the amount of money we need to spend to get on the dashboard is not worth our while”. The customers and members of those organisations would then not benefit from the dashboard.

My second question relates to the vital issue of data accuracy, which is essential for dashboards. I hear what my noble friend said about accuracy requirements in the GDPR. Following our briefing meetings, I was grateful to him and his officials for a follow-up letter that clearly explained that the Pensions Regulator has set out in guidance expectations on data quality, record-keeping, measuring data once a year and trustees ensuring that processes and controls are in place so that data standards are of good quality. Master trusts are supposed to have processes for rectifying errors they have identified and then reconciling them. This is all in place and is most welcome, but I have to ask my noble friend: where does responsibility lie for checking the data, ensuring its accuracy and then correcting and reporting back that those data have been assessed and corrected? If that does not happen, on whom would penalties fall? To whom can members and the dashboard turn to ask, “Are you sure these data are correct?” Who is ultimately responsible for signing off on that or carrying responsibility for penalties if that does not happen?

I have another question, in the light of the comments from the noble Baroness, Lady Drake, about the number of releases we have just had from the DWP. I admire the work that has been done by the department—it has clearly been extremely busy—and a lot of it is really useful. However, how will the dashboard dovetail with the reforms proposed for small pots? The Government rightly want to help people—as is part of the intention of the dashboard—to merge pots and not leave small amounts of money in legacy schemes. What are the plans for integrating the dashboard rollout with the small pots reforms?

Pension Funds: Investments and Tax Relief

Baroness Altmann Excerpts

Thursday 29th June 2023 Lords Chamber

Asked by

[Baroness Altmann]

To ask His Majesty’s Government, further to tax relief provided to pension funds, what assessment, if any, they have made of the actions taken by pension trustees to ensure their investments (1) effectively manage climate risk, and (2) comply with treaties on human rights.

[The Parliamentary Under-Secretary of State, Department for Work and Pensions (Viscount Younger of Leckie) (Con)]

My Lords, the Government have introduced legislation and published guidance alongside the TCFD requirements to help pension schemes improve the quality of governance and manage climate risk. DWP committed to review the requirements in late 2023. These reviews will utilise insights from the regulator’s review of early reports and will also consider clarifications of fiduciary duty. DWP also launched an industry-led task force on social factors, which aims to produce a guide for industry by this November.

[Baroness Altmann (Con)]

I congratulate my noble friend the Minister and the Government on their work so far, but as at least 25% of all pension fund assets originated from taxpayer reliefs, does he agree that the Government have ample justification to expect pension funds to invest responsibly, supporting national objectives? Does he share my concern that this seems not to be happening? For example, Corporate Adviser magazine’s February 2023 ESG report shows that the three largest pension providers invest in cluster munitions, even though the UK is recent president and signatory of the international agreement to end their use, and that investment in domestic companies and green projects has been weak. Will the Government encourage or ensure that more of the taxpayer contribution to all pension funds helps UK markets and supports UK sustainable growth and climate and nature protections, to meet social or national objectives?

[Viscount Younger of Leckie (Con)]

I hope I can answer a number of the points that my noble friend made. On her general push, she is right: there is a lot more we need to do to encourage pension funds to invest in net zero. The introduction of the TCFD reporting requirements for pension schemes was pioneering; these regulations are still relatively new and it would be premature to judge their effectiveness, but a lot more is happening in this space, as my noble friend will be aware. As well as the task force, we have a stewardship review, which will assess the effectiveness of the guidance, and alongside this the Financial Reporting Council, which works alongside the FCA, my department and the regulator.

State Pension Underpayment Errors

Baroness Altmann Excerpts

Tuesday 16th May 2023 Lords Chamber

[Viscount Younger of Leckie (Con)]

Of course they are important. Any underpayment is incredibly important, as I am sure the noble Baroness would agree. The department became aware of issues with state pension underpayments in 2020 and, as mentioned earlier, the issues go back several decades and through different Governments. We have taken immediate action to investigate the extent of the problem and are carrying out highly complex scans of computer systems. Correction activity commenced on 11 January 2021; I say again that this is an important matter and we are moving at pace.

[Baroness Altmann (Con)]

My Lords, as the exercise is focusing on women, and women’s state pensions are still noticeably lower than those of men, are those who are entitled to arrears also entitled to some kind of compensation or consolation payment? How is my noble friend’s department prioritising the work?

Pension Protection Fund and Occupational Pension Schemes (Levy Ceiling) (No. 2) Order 2023

Baroness Altmann Excerpts

Wednesday 26th April 2023 Grand Committee

Finally, is it possible to update the Committee on the DWP’s view on the maturing of the PPF, which is a kind of shift in its position? I appreciate that it may not be possible to make a verbal response to that, but a written response would be helpful.

[Baroness Altmann (Con)]

My Lords, I congratulate the noble Lord, Lord Davies, on securing this debate; it is an important one. At the outset, I say that I believe that the Pension Protection Fund has done and is doing an excellent job, and member experience in the PPF seems to be very positive—for me, that is one of the big tests of whether this is working well. The administration is very efficient, and the amount of compensation being paid is reaching those who need it, and are entitled to it, well.

I also congratulate the noble Lord on his foresight in 1995. I recall first becoming involved with Allied Steel and Wire and the various other pension schemes whose members had lost their entire pension very close to the point at which they were expecting to start receiving it, together with all their other life private savings —in those days, if you wanted to have any extra pension contributions you had to put all of it into your employer’s pension scheme. I remember reading about the proposals for a central discontinuance fund and thinking, “If only”. It informed my conversations with the No. 10 Policy Unit, the Treasury and the economic advisers to the Prime Minister at the time as to which way we needed to go to improve the situation the country faced. Over the subsequent two to three years, more and more pension schemes failed, and more and more members started losing their pensions; it was a serious and heartbreaking time. Members, having been told that they were fully protected, would have expected that all their money was safe. They were told that, regardless of what happened to their employer, their money was safe and that their pension was protected—but it turned out not to be the case.

Instead of the proposal from the noble Lord, Lord Davies, of a central discontinuance fund, we got the actuarial profession’s minimum funding requirement. Unbeknown to members—and, indeed, to most pension professionals outside actuarial circles—that was designed to deliver only a 50:50 chance of people receiving their full pensions, and yet members, trustees and employers were told that, on that basis, their fund was fully funded or in surplus. Unfortunately, what happened subsequently, around the end of the 1990s, with the market crash, was that those surpluses melted away. It looked as though the benefits had been secure but, suddenly, the market crash made that position unsafe. We saw that those so-called surpluses were in fact buffers against bad markets, rather than real surpluses—you could judge that only with hindsight in the end.

This is my concern about the Pension Protection Fund. I absolutely want to try to ensure that anyone who has a pension insured by the Pension Protection Fund receives as much as possible. If there were a secure way of ensuring that they did not fall behind while we are suffering this cost of living crisis, I would be the first to support it. My thinking has perhaps been coloured by my experience during those dreadful years, before we got the Financial Assistance Scheme sorted out in 2007—it started around 2008—of seeing people who thought that their pensions were in surplus and that their position was secure finding that, because markets had moved suddenly and unexpectedly and in a way that had never been properly forecast, their pension had disappeared.

I also believe that, although the PPF looks as though it is in surplus now, we need to address what happens should there be a severe economic dislocation causing some of the huge pension schemes, which currently seem safe—and even some of the open schemes —to fail and fall into the same problem. This is an insurance policy rather than a pension, which, for me, is an important distinction.

I would love the Government to find a way to underwrite more generous increases for the Pension Protection Fund. I am particularly mindful of the fact that, before 1997, benefits had no inflation protection at all, yet many schemes—but by no means all—offered full inflation linking, or at least up to 5%. In that pre-1997 period, the older the member was when their scheme failed, the more pension they lost as a result of the failure, because they would have had more accrual.

I support the concept that the noble Lord, Lord Davies, is promoting: that in a time of economic difficulty, with inflation roaring away, we do not want to leave pensioners behind. It is clearly the case that the Pension Protection Fund is, to some degree, leaving pension members behind in real terms. To some degree, it was modelled on the American PBGC, the Pension Benefit Guaranty Corporation. Generally speaking, in America there is no inflation protection at all on these DB schemes, so the UK has always been a little unusual in that regard. Having said that, it makes sense to look at the structure of the levy and I echo the questions for my noble friend about plans for the future management of it.

Charitable Sector: Food Provision

Baroness Altmann Excerpts

Monday 27th March 2023 Lords Chamber

[Viscount Younger of Leckie (Con)]

I fully understand that some people prefer to use cash, and that is certainly possible. I will have to write to the noble Baroness on the spread of where cash can be used.

[Baroness Altmann (Con)]

My Lords, I do congratulate the Government on all the work that they have done in this area to try to help the most disadvantaged. I know that my noble friend cares deeply about these issues. Of course, the working poor have a real need, but can my noble friend tell the House what evidence there is that pensioners are using food banks, and what action the Government are taking to address pensioner poverty?

[Viscount Younger of Leckie (Con)]

My noble friend will not be surprised to hear me say that we are committed to action that helps alleviate levels of pensioner poverty. In answer to one of her questions, the HBAI statistics recorded that fewer than 100,000 pensioners were living in households where a food bank had been used. However, despite those figures, there is more to do.

The figures show that there are 200,000 fewer pensioners in absolute poverty than in 2009-10. Pension credit provides a vital financial support to pensioners. This is one of the actions that has been and is being taken by the Government, and it is proving to be very successful, with a 73% uptake in the last 12 months.

Pension Schemes: Guidance

Baroness Altmann Excerpts

Monday 13th March 2023 Lords Chamber

Asked by

[Baroness Altmann]

To ask His Majesty’s Government, further to the report by Pensions For Purpose One year on—TCFD reporting for pension funds, published on 1 February, whether they intend to produce guidance for pension schemes in relation to their fiduciary duties.

[The Parliamentary Under-Secretary of State, Department for Work and Pensions (Viscount Younger of Leckie) (Con)]

My Lords, by October 2022 occupational pension schemes with assets above £1 billion fell into scope of DWP’s requirements to report in line with the task force on climate-related financial disclosures, the so-called TCFD recommendations. The department published guidance alongside the requirements to help pension schemes improve the quality of governance and manage climate risk. DWP committed to review the requirements in late 2023 and will consider whether pension schemes require additional guidance in relation to their fiduciary duties.

[Baroness Altmann (Con)]

My Lords, I thank my noble friend for that Answer and declare my interests as set out in the register. The Pensions for Purpose report highlighted a dilemma, in which some say that considering the real-world impacts of pension fund investments, including green or net-zero assets, infrastructure and housing, could be portrayed as trading off risk-adjusted returns against doing good. But does my noble friend agree that this is a false dichotomy? A failure to consider the climate and nature impacts of investments is likely to increase long-term risks and reduce returns, as opposed to pension funds that typically look at short-term performance measures. Can my noble friend ask relevant Ministers in the Treasury whether they will consider accepting relevant amendments that have been laid to the Financial Services and Markets Bill?

[Viscount Younger of Leckie (Con)]

Well, I will not be drawn on that by my noble friend, but the comments that she makes are broadly correct. It is very important that pension schemes, particularly those for purpose, encourage investments that align with the environment and society, and that includes climate change. I believe that the report, One Year On, outlines some pointers, insights or challenges. For example, most funds are using their investment consultants, while some are not yet using or including carbon offsets in their TCFD reports, but nothing in the findings so far is unfamiliar to DWP. We know there is work to do to improve the reports and build an element of expertise across the industries more generally.

Employment: Disabled People

Baroness Altmann Excerpts

Monday 6th March 2023 Lords Chamber

[Viscount Younger of Leckie (Con)]

Yes, indeed, I am aware of the question. Although I do not have an answer to that point, I will certainly write to the noble Baroness about it. I am not sure that she has asked it three times, but maybe she did so with my predecessor.

[Baroness Altmann (Con)]

My Lords, employment figures show that a significant number of older people have left the labour market. There is a large differential in healthy life expectancy across the country. Many people in their fifties and sixties are not well. Some may have left work due to ill health or disability but would be able to work part time. What more can the Government do to encourage flexible working to provide more help in this area?

[Viscount Younger of Leckie (Con)]

As my noble friend will know, all employees have the legal right to request flexible working provided they have worked for the same employer for at least 26 weeks. As she will know, under the Equality Act, employers must make reasonable adjustments to ensure that workers with disabilities are not substantially disadvantaged when doing their jobs. This could include a flexible working arrangement; for example, a change to the timing, hours or location of work. I assure her that in December 2022 the Government responded to a consultation that considered changes to this legislation to provide employees with better access to flexible working arrangements.

Pensions Dashboards (Prohibition of Indemnification) Bill

Baroness Altmann Excerpts

2nd reading
Friday 3rd March 2023 Lords Chamber

[Baroness Altmann (Con)]

My Lords, I congratulate my noble friend Lord Young on his excellent introduction and sponsorship of this important but limited Bill. I also congratulate our honourable friend Mary Robinson on introducing it in the other place. I am delighted that the Government and my noble friends on the Front Bench are supporting this Bill.

As my noble friend Lord Young has explained, the pensions dashboard should be, and I hope will be, an important element of the pensions landscape for ordinary people who have pensions savings and perhaps wish to know more about what they have in their pension fund. Given the complexities of pensions, and even with contributions going into them, so many people do not really understand or know quite how much money is going in on their behalf or how much is accumulating for them. So there is a job of work to do on financial education.

What is so important is that, once people can see all their pension information, they can be assured that the system in place to oversee the dashboards protects them. This Bill is an added element of the armoury that is so important in ensuring that rogue operators of a pensions dashboard would not be able to cover up their mistakes or pay for their mistakes by taking money out of individuals’ pension funds. It is hard to see how someone would argue against the measures in the Bill, which simply will mean that, if the person providing the dashboard or responsible for the dashboard is fined by the regulator for doing something against the rules, they cannot just take money out of the ordinary customers’ pension funds but would have to pay it themselves. Although my noble friend considers the penalties significant, one might argue whether a £5,000 fine, or even a £50,000 fine for a corporate, is sufficient to deter wrongdoing. I think the level of penalties is applicable across pensions and will, I hope, be sufficient to ensure that we have a safe system.

I have given my noble friend notice of a few questions I have about the dashboard, which are very important in terms of the programme itself, especially after the announcement yesterday by our honourable friend Laura Trott, the Pensions Minister, that the dashboard programme is going to be reset—whatever that might mean; we will find out soon.

The first question, which relates to the clear need to delay the introduction of this long-awaited measure, is on the security of Verify, or its alternative system, which is designed to protect members’ data. I do not know if my noble friend could update the House on that. Some of the problems were due to what we have learned recently about the errors in state pension records, especially for women, where many women have found that the information is incorrect and, in some cases, has been for many years—they were already in retirement and still had not had the correct amount. How is the department getting on with its correction exercise?

The other concern might be around the records and readiness of public sector pension schemes to connect to the dashboards. With the McCloud remedy needing to be implemented, there are going to be significant administration issues. Could my noble friend give us any comfort on that or an indication of timescales? I hope he can assure us that at least the Nest Pensions fund is ready for connection. That is a very large one, set up by the Government to cater for low-paid workers and people with small amounts of pension.

Finally, I ask for clarity from my noble friend on an issue I have raised so many times in this House, and have tried to insert in the legislation as it has been going through. What is the status of the checks on the accuracy of all pensions data? I understand that the fines we are discussing may be imposed if people fail to connect to a dashboard or do not have a service that works properly on the dashboard, but are there also fines and penalties for people who load incorrect data? It is not just about loading the information. Is there any requirement in law—and who would it fall upon and what would be the penalties for failure—to ensure that the pension information for each person has been checked and verified and is as accurate as that process could produce?

Overall, I welcome the Bill and am pleased that the Government are supporting it. I wish it safe, quick passage through the House.

Bereavement Benefits (Remedial) Order 2022

Baroness Altmann Excerpts

Tuesday 17th January 2023 Grand Committee

I have only one question for the Minister, about something I raised with his predecessor and her officials when she had a meeting on this subject. How will potential beneficiaries get to know that they are entitled to this benefit? The lady who got in touch with me decided to take a parliamentary route so has obviously seen every twist and turn and will know to apply, but there must be many people who simply accepted that they were not eligible and had no idea that this whole debate was going on, change would come and they were potentially entitled to a substantial lump-sum payment. I would be grateful for any further information that the Minister can give me on how this will be publicised, including what the interaction with citizens advice bureaux and MPs will be, to ensure that everyone who has not been able to claim this benefit from 2018 will now be able to do so.

[Baroness Altmann (Con)]

My Lords, I too very much welcome this order. I am most grateful to my noble friend the Minister for his excellent introduction and explanation.

Enabling co-habiting bereaved partners to be treated the same way as those who are legally married in claiming the widowed parent’s allowance or bereavement support payments is something for which I think there is unanimous support. Indeed, I have found it extraordinarily difficult to justify denying these payments to cohabiting couples in the past when, in other tax and benefit calculations, there is no differentiation in this way; often, that can be to their financial detriment. This order is most welcome.

Echoing the words of the noble Baroness, Lady Hayman, I pay tribute to my noble friend Lady Stedman-Scott and welcome my noble friend Lord Younger to his position. I am most grateful to the Low Incomes Tax Reform Group for its briefing and the work it has been doing on this change and want to raise a few issues relating to the potential tax and benefit consequences of surviving partners receiving backdated lump-sum payments pursuant to this order. If the Minister does not have the answers today, I am happy for him to write to me.

The first issue relates specifically to the widowed parent’s allowance, as this benefit is taxable, unlike bereavement support payments. Lump-sum back payments could well give rise to tax demands for the recipients, when they are applied to past tax years for which they were due. In many cases, recipients are unlikely to have a tax adviser to help them look back over past years. They may have spent the money and, as a consequence of this order, face sudden tax demands and penalties for which they are unprepared. The documents accompanying this order state that the DWP will flag cases to HMRC, but how will this work in practice? Could it give rise to a potential problem for the claimants which, after all the years they have been waiting for this money, seems to be something to be avoided—if we can?

Paying the lump sums gross runs the risk of the money being spent. What measures can the Government implement in practice to protect claimants? Could my noble friend tell us, for example, how the DWP might work with the Treasury to jointly identify those who may be affected, perhaps by using national insurance numbers to link up records, and help people to understand how much tax they need to pay? The JCHR recommends that recipients should be clearly reminded, but might my noble friend consider going further and, perhaps, more proactively involving MoneyHelper or some other direct communication that clearly warns that tax may be due on this money, so that it does not come as a surprise?

The second issue relates to recipients of back payments who are on means-tested benefits. I welcome my noble friend’s confirmation that the lump sums resulting from this order will indeed be disregarded, but I hope he can also reassure us on a point that has been raised—it may already have been catered for—about whether, as I hope, there is a sensitive interpretation of the deliberate deprivation of capital rules. People who suddenly have a change in lifestyle because they have received a lump sum that they should have had over a period should not then be considered as deliberately depriving themselves of capital or should not lose out in some other way.

How will backdated lump-sum awards be treated for tax credits? I thought I heard my noble friend say that these are disregarded for universal credit and means-tested benefits, but is that the same for tax credits? I suspect it is not, from listening to my noble friend. It seems wholly unfair for the DWP to treat the payments as capital and disregard the income, other than that relating to the current year, when HMRC treats them as income in that year for the purpose of tax credits.

I know that tax credit legislation is complicated, and it refers to the amount of widowed parent’s allowance being payable. That may be what is driving some of this, but as this relates to past years, it was actually payable previously rather than being—one could argue—payable today. It seems like a grey area. I wonder if the Government might consider building a specific income disregard into regulations if the current position cannot be remedied.

Finally, I echo the comments of the noble Baroness, Lady Hayman, on the importance of reaching out to potential claimants, particularly as there is a time limit, to ensure that people know that they can claim and come forward with their claims. This could be through some national advertising campaign, or maybe the Government already have a database with some indication of cohabiting couples or past claimants who were turned down who can be contacted. Overall, I very much welcome this order and thank my noble friend for his introduction.

[Lord Davies of Brixton (Lab)]

My Lords, I thank the noble Viscount for his useful introduction and give a more general welcome; I suspect that we will be endlessly discussing a series of regulations over the coming months. I thank the noble Baroness, Lady Hayman, for reminding us that there are people involved here. It is easy when you just have a printed set of regulations to think it is just shuffling paper, but there are real people out there who will benefit from these changes. Clearly, we have to welcome that.

Part of the problem is—I take the points raised by the noble Baroness—the mechanics of how this is operated: not what is set out in the regulations but how it will be applied in practice by the officials involved. It should be done as sensitively and practically as possible. I am particularly interested in taxation and how tax is applied to these payments. This is a particular problem which is going to get bigger, and we will be discussing it again. It is a result of the fact that, for all intents and purposes, state benefits are outside the PAYE system.

The problem is that we know the personal allowance will be frozen for a number of years, at a time when inflation is at high levels. With benefits tied to inflation and a frozen personal allowance, more and more pensioners are going to be dragged into the PAYE system on relatively limited amounts of non-state pension income, which will have to be used to pay the tax, potentially, on their state pension. Many people have state pensions in excess of the personal allowance given their credits under SERPS. I think this is going to be a growing problem. It is one I hope the DWP will be able to discuss with HMRC.

My personal situation is that I suffer from this. I have a pretty good state pension and I have to pay tax on quite a large slice of that income out of other income. I manage it because I have the resources to do so, but people on the margin are going to find it increasingly difficult. The example mentioned is one where the closest co-operation between DWP and HMRC is crucial. Politically, it would be advantageous to get the situation sorted, because it will lead to a lot of concern and debate.

My final point relates to the evidence requirements for cohabitation. Most rules applied in the social security sphere about cohabitation tend to be there to take away benefits rather than grant them. Will the department apply the same rules that it applies when it comes to means-tested benefits about cohabitation, or will there be a separate set of rules? If there is a separate set of rules, is there a possibility that it will work against the individual at both ends? To just put in the Explanatory Memorandum that the evidence requirements will be produced “in due course” rather misses the sharp end of this legislation. How it works in practice will depend on the evidence requirements, and it would be useful if we could be told a bit more about where the evidence requirements will fit as compared with other examples where cohabitation affects benefits of different sorts.