Personal Independence Payments

Baroness Buscombe Excerpts

Tuesday 23rd January 2018 Lords Chamber

[The Parliamentary Under-Secretary of State, Department for Work and Pensions (Baroness Buscombe) (Con)]

My Lords, with the leave of the House, I shall repeat as a Statement an Answer given to an Urgent Question in another place by my right honourable friend the Secretary of State for Work and Pensions on the High Court judgment on PIP—personal independence payment. The Statement is as follows:

“After careful consideration, I took the decision not to appeal the High Court’s judgment on this case. I informed this House of my decision immediately by tabling a Written Statement on Friday last week. This Written Statement set out my decision and the steps my department will now take to implement the judgment. I repeat once again my commitment to implementing this judgment in the best interest of our claimants and through working closely with disabled people and key stakeholders over the coming months.

The Department for Work and Pensions will undertake an exercise to go through all affected cases in receipt of the personal independence payment and all decisions made following the judgment in MH to identify anyone who may be entitled to more as a result of the judgment. We will then write to those individuals affected and all payments will be back-dated to the effective date in each individual claim.

In accepting the outcome of this High Court judgment, the department does not agree with some of the details made in the judgment. The 2017 amending regulations were introduced in response to an Upper Tribunal case that broadened the interpretation of eligibility for Mobility 1, which is the ability to plan and follow a journey. Our intention has always been to deliver the original policy intent through clarifying how symptoms of overwhelming psychological distress should be assessed. In order to provide certainty to our claimants, we are not appealing the outcome of the recent High Court judgment.

Our next steps will build on the positive work this Government are already undertaking, including the following. Spending on the main disability benefits—PIP, DLA and attendance allowance—has risen by £4.2 billion since 2010 and real-terms spending on disability benefits will be higher every year to 2020 than in 2010. The Government have commissioned two expert-led reviews and invested a record £11.6 billion into mental health services. The Access to Work mental health support service has been expanded with a two-year trial of targeted support for apprentices with mental health conditions. We have also accepted all the recommendations in the independent review by the noble Lord, Lord Stevenson, and Paul Farmer, including establishing a framework for large employers to voluntarily report on mental health and disability within their organisations.

With regard to the next steps following this judgment, the Department for Work and Pensions will write to those who may be entitled to a higher rate of PIP. Where relevant, all payments will be backdated to the effective date in each individual claim.

PIP is a modern, dynamic and fairer benefit than its predecessor, DLA, and focuses the most support on those experiencing the greatest barriers to living independently. At the core of PIP’s design is the principle that awards of the benefit should be made according to a claimant’s overall level of need, regardless of whether they suffer from physical or non-physical conditions. This Government are committed to furthering rights and opportunities for all disabled people and we continue to spend over £50 billion per year to support people with disabilities and health conditions”.

[Baroness Sherlock (Lab)]

My Lords, I thank the Minister for repeating that Answer. I remind the House that these regulations were rushed through after the tribunal specifically to deny the higher-rate mobility component of PIP to people who were claiming on grounds of psychological distress, affecting people with Parkinson’s disease, schizophrenia or various other mental health conditions.

In the High Court judgment, Mr Justice Mostyn said that these new criteria were “blatantly discriminatory” against those with mental health impairments and that they “cannot be objectively justified”. Ministers should have known that. On 27 March this House voted for a regret Motion in my name objecting to these regulations precisely because they discriminate against people with mental health conditions. I then wrote to Damian Green, with the support of the right reverend Prelate the Bishop of Durham and the noble Baronesses, Lady Browning and Lady Bakewell, asking him to conduct a review mandated by that Motion. He declined to do so, so we ended up in the High Court.

I am glad that Ministers are not appealing the decision, but it leaves many questions, of which I can ask only two. First, will there be an appeal process for PIP claimants who are not contacted by the department but who believe they should receive back payments? Secondly, will applicants be entitled to a reassessment if they were given only the standard rate of the PIP mobility component after the regulations came through, where the cause of the claim was “psychological distress”?

If Ministers had, once again, only listened to this House, this confusion and distress for claimants could have been avoided. I dearly hope they do so next time.

[Baroness Buscombe]

My Lords, I shall respond robustly to what the noble Baroness opposite has just said by making it absolutely clear that this Government have been far more generous in supporting people with mental health conditions than the previous Labour Government, who put off any changes to disability support, particularly in relation to mental health conditions, until after the general election of 2010, which by then was too late.

This is not a policy change. We are going back to the heart of the policy intent and relates to those in psychological distress. We have accepted the Stevenson/Farmer recommendations, which shows that we are committed to supporting claimants with disabilities. We are also working with a range of disability charities to implement the judgment in the best way. We will look at appeals, to which the noble Baroness opposite made reference, but we want to make sure that we get the process right. We have already spoken with the charity Mind on how we implement the judgment. The Minister for Disabled People, Health and Work in another place talked only yesterday with a disability charity consortium to discuss the decision and to hear its views on implementation. We will reach out to claimants and look at every one of them.

To be clear, we are spending over £50 billion on disabilities. We are entirely committed to this issue—indeed, it is one of the Prime Minister’s top priorities. I can confirm that this was never a cost-saving measure. The judge in the case made references to cost saving but we do not agree with that. Indeed, we have focused on being more generous through the introduction of PIP and, as a result of the judgment, we will rightly become even more generous in supporting people with mental health conditions.

[Lord Kirkwood of Kirkhope (LD)]

My Lords, perhaps I may ask the Minister about the process. I fail to understand why, in March 2017, the Government did not have recourse to the power available to them under the Social Security Administration Act 1998 to suspend the implementation of adverse legal judgments pending further and better particulars. If they had taken that route they would have had recourse to the SSAC and a proper consultation, which would have prevented this adverse outcome from the High Court. Will the Minister learn from this and give an assurance that in such future circumstances, the Government will use the unique power the DWP has to prevent getting egg all over their face and causing adverse circumstances for many claimants who do not deserve that kind of treatment?

[Baroness Buscombe]

I hear what the noble Lord is saying. This is one of the reasons why the immediate response of my colleague the Minister for Disabled People—and indeed the Secretary of State—was not only to decide not to question the judgment but to do everything we can to help claimants. That is why we have already had early meetings with stakeholders and organisations who can help us think through how to ensure that we do not make mistakes going forward. It is important to say that the 2017 amending regulations did not represent a policy change. The distinction was based on the considered advice of highly qualified medical advisers, and the activities considered in PIP are used as a proxy for assessing a claimant’s overall level of need in daily life, which is what we were focusing on.

[Lord McKenzie of Luton (Lab)]

My Lords, the Minister on several occasions used the term “generous” in describing the Government’s position. By what yardstick is “generous” measured in these terms?

[Baroness Buscombe]

The noble Lord will understand that since 2010, spending on the main disability benefits comprising PIP, DLA and attendance allowance has risen by £4.2 billion. Disability benefits are at a record high this year. Indeed, as a share of GDP, the UK’s public spending on disability and incapacity is higher than in all other G7 countries bar Germany.

It is important to focus on the components in terms of spending on PIP and the DLA equivalence, which of course was what we had under the Labour Government. As at October 2017, 66% of PIP recipients with a mental health condition received the enhanced rate daily living component, compared with 22% receiving the highest rate DLA care component as at May 2013. Some 31% of PIP recipients with a mental health condition get the enhanced rate mobility component as at October 2017, compared with 10% receiving the higher rate DLA mobility component as at May 2013. I could go on with more figures. If one compares the percentage of spending by this department with other departments within the Government’s budget, we are, as we should be, strongly focused on how we can help those with physical and with mental health conditions to do a very dynamic thing that PIP stands for: have the independence to cope with their lives, whatever their condition.

[Baroness Hussein-Ece (LD)]

My Lords, the number of applicants who fail to qualify run into the hundreds of thousands. Can the Minister say what is being done to recruit enough staff to deal with the backlog? I have seen a report which states that it will take decades before they finally get up to date and PIP applicants will receive their social mobility claims, as they duly should. What is being done about the backlog?

[Baroness Buscombe]

I can indeed respond to the noble Baroness because only last week I had a meeting with officials who are closely focused on this issue. I cannot give her the exact numbers, but we are bringing on board many more work coaches. We are training them and continually working to improve our systems to ensure that any backlogs in the waiting time for the initial assessment and reassessment are cut down; I think they have been cut by at least half over the past year. We recognised that the number of people coming forward was greater than we had initially judged, so we are responding to that as quickly and efficiently as we can. At the same time, we have to make sure that there is continuous improvement, that the PIP benefits process is working fairly and effectively and that it offers the best claimant experience possible. My honourable friend in another place, the Minister of State with responsibility for this issue, has given me a list of the different things we are doing to improve the assessment process and deal with any backlogs in the system.

[Baroness Altmann (Con)]

My Lords, I would like to congratulate my noble friend the Minister and my right honourable friend in the other place on taking this decision. It is the right decision, although I am sure it was a difficult one and will be difficult for the department to implement. Nevertheless, it is right and I welcome it.

[Baroness Buscombe]

I thank my noble friend for supporting us in what we feel strongly was the right decision. It was a difficult one because obviously, we need to take some time—not long, but some time—to make sure that we can respond in the right way and support a fair number of people whose assessments we need to re-evaluate. We will do that to the best of our ability, but very much at the forefront of our minds is the need to work with stakeholders, including Mind and other charities, to ensure that we get this right. Again, I thank my noble friend.

Financial Assistance Scheme (Increased Cap for Long Service) Regulations 2018

Baroness Buscombe Excerpts

Monday 22nd January 2018 Lords Chamber

Moved by

[Baroness Buscombe]

That the draft Regulations laid before the House on 18 December 2017 be approved.

[The Parliamentary Under-Secretary of State, Department for Work and Pensions (Baroness Buscombe) (Con)]

My Lords, these regulations will increase assistance payments for members of the Financial Assistance Scheme who may have been disproportionately affected by the cap on the amount of assistance payable to an individual member under the scheme. The cap is set at age 65 and is currently £34,229, reduced if a member opts to receive their assistance early. The cap helps to limit the costs of the Financial Assistance Scheme, which is funded by general taxation.

Individuals accrue high pensions for two reasons. Some were high earners, in which case they have generally had opportunities to secure alternative savings for retirement. Others have worked for a significant proportion of their working life to build up a pension with their employer and, consequently, may have little or no other private pension savings to offset against the shortfall between the capped assistance and what they had expected from the scheme. This change will benefit the second group of people.

Plainly put, these regulations will make changes to legislation to increase the current Financial Assistance Scheme cap for those with long service in a single eligible pension scheme. The provisions increase the cap by 3% for each full year of pensionable service over 20 years, subject to a new maximum of double the standard Financial Assistance Scheme cap. The new provisions will ensure that Financial Assistance Scheme members with long service will receive assistance which reflects a higher proportion of their accrued pension benefits.

It is estimated that 290 FAS members will benefit from the introduction of the regulations over the lifetime of the Financial Assistance Scheme. Although that is not many people, it is a significant proportion of the 500 people estimated to be affected by the cap. The change is expected to be widely welcomed by Financial Assistance Scheme members with long service, and their families.

Around £1.5 trillion is held under management in defined benefit pension schemes, which helps to fuel the UK economy through investment in UK government bonds, corporate bonds and equities. The pensions provided by these schemes are on average £7,000 per annum, which can be a vital source of income for around 11 million current and future pensioners. The majority of nearly 6,000 defined benefit pension schemes are run effectively, and we are fortunate to have a robust and flexible system of pension regulation in the UK. However, recent events affecting a number of high-profile schemes have shown that, while a robust system is in place, schemes can fail, and it was right to implement the regime of pension protection provided by the Financial Assistance Scheme and the Pension Protection Fund.

The Pension Protection Fund provides compensation for pension scheme members whose employer became insolvent on or after 6 April 2005; the Financial Assistance Scheme provides assistance to members of schemes that started to wind up before that date. From its commencement, the Financial Assistance Scheme was criticised for providing less generous support than the Pension Protection Fund. However significant improvements have been made to the scheme by successive Governments.

On 6 April 2017, provisions for a long service cap were implemented in the Pension Protection Fund, and these regulations introduce a similar long service cap to the Financial Assistance Scheme. We estimate that the long service cap will increase the overall cost of the Financial Assistance Scheme payments by approximately £1.2 million per year in the first eight years before starting to slowly decrease over the following years. Unlike the Pension Protection Fund, which is funded by the residual assets topped up by a levy on pension schemes, the Financial Assistance Scheme is funded by general taxation.

--- Later in debate ---

[Baroness Buscombe]

My Lords, I thank all noble Lords who have taken part in this brief debate. What I sense is a general welcome for these regulations. I shall do my utmost to try to respond to a number of questions that were put forward, particularly by the noble Lord, Lord McKenzie. I am not sure whether my pen could work fast enough for me to respond to all the questions and if there is anything I leave out, which I suspect there may be, I will endeavour to write to all noble Lords to fill in the detail.

Perhaps I may reiterate that the important thing about the regulations is responding to the policy, which, importantly, is to treat members of the Pension Protection Fund and the Financial Assistance Scheme as consistently as possible, where possible. The long-service cap for the Pension Protection Fund came into force on 6 April 2017. These regulations will introduce an equivalent long-service cap for the Financial Assistance Scheme. This cap applies to any pension that is in payment or will be paid. For example, if a member’s pension from their scheme was £39,000 a year and that scheme could not pay anything, the Financial Assistance Scheme would work out as 90% of that £39,000, which is £35,100. As the Financial Assistance Scheme cannot pay more than the cap amount which applies to the member, the member in this example would receive £34,229.

Following the introduction of the long service cap, Financial Assistance Scheme members will have their cap increased by 3% for each full year of pensionable service above 20 years when they first become entitled to payments from the Financial Assistance Scheme, subject to a new maximum of double the standard cap. Only a full year of pensionable service will be counted. Part years will not be included in the calculation.

The increase is applied to the cap amount in place for the member at the time assistance is first put into payment. The increase is not backdated and takes effect from the member’s first payday on or after the regulations come into force, currently expected to be implemented on 6 April 2018. From 1 April 2018, the basic cap amount will be increased to £35,256.

In response to the noble Lord, Lord McKenzie, it is important to emphasise that all members of the Financial Assistance Scheme will receive 90% of the maximum, while PPF members who are already in retirement will receive 100%. The assistance is calculated differently.

I was asked to comment on the difference between actual and expected pensions. The Financial Assistance Scheme is not intended to meet all pension costs; it is 90% of pension costs subject to the cap. I will write to the noble Lord to give some detail on the difference between actual and expected pensions.

I hear what my noble friend Lady Altman says about the assets of an insolvent company being passed to the Pension Protection Fund, which administers both schemes, but the Financial Assistance Scheme is funded through general taxation. The long service cap will increase the overall cost of Financial Assistance Scheme payments by approximately £1.2 million a year in the first eight years before starting to decrease slowly. The actual costs will depend on a number of factors, including pensioner deaths and the fact that the Financial Assistance Scheme closed to new schemes in September 2016. The actual costs in future years may be lower than the £1.2 million quoted. The Financial Assistance Scheme has paid £1.1 billion to March 2017. The assets are passed to the PPF.

The noble Lord, Lord McKenzie, asked why 3% was chosen as the escalation amount. It was chosen because we believe it is sufficient to lift a substantial number of the target group out of the compensation cap entirely, while still being affordable for the taxpayer. Lower percentages did not achieve this outcome. Of the 500 people affected by the cap, 290 will benefit from this measure.

On the Hampshire legal challenge going to the Court of Justice of the European Union, the noble Lord, Lord Kirkwood, is correct. A hearing in the European Court of Justice is set for 8 March 2018. For the benefit of all noble Lords, this legal challenge by Mr Hampshire contends that article 8 of the EU insolvency directive requires the UK to ensure that every pension scheme member gets at least 50% of their accrued benefits in the event of the insolvency of the sponsoring employer.

It is possible for the capped amount of compensation or assistance to be less than 50% of the member’s accrued pension, for example where a member has a large pension due to a high salary and/or long service within the same pension scheme. However, we believe the numbers affected to be very low. Only around 400 PPF and 500 FAS members are currently affected by the cap, which represents around 0.3% of the total membership of both schemes as at April 2017. We estimate that a very small proportion of these capped members are not receiving at least 50% of their accrued pension, and the increased FAS cap for long service will further reduce the number of members affected.

--- Later in debate ---

[Lord McKenzie of Luton]

What struck me when I looked at the data was that for the last year, up to March 2016, there were still some 23 schemes transferred into FAS, notwithstanding that it was 10 years or more since the obligation to commence winding up. If I understand correctly and there were 23 schemes for that period, how many were left out of the subsequent period and have been chopped off? This is particularly an issue if the failure—if it is a failure—to pick up that detail was with the trustees or the scheme administrator, because the consequence would fall on the individual member of the scheme.

[Baroness Buscombe]

I understand the question posed by the noble Lord; indeed, when I was discussing this with officials, I was amazed that it took 10 years. To begin with, I could not understand why the scheme closed to new entrants as late as 2016. I cannot say whether the figure of 23 schemes is correct for the final year but I will check and respond to the noble Lord; I shall seek to find out how many were left out and how many individuals might thereby have lost out. I also have a little more information regarding Tata: because this provision applies to schemes wound up before 2005, it is relevant not to Tata but to the PPF scheme.

The noble Lord, Lord Kirkwood, asked why the Government have taken so long to introduce the long service cap. There have been significant reforms to pension legislation over the last few years, and the introduction of the FAS long service cap is the latest change in a programme of work to treat members of the FAS and PPF schemes more consistently. I hope the noble Lord will accept that pension legislation is complex. It was important that we consulted on draft FAS long service cap regulations to ensure that the legislation operated as intended and did not have any unintended consequences. As a result, December 2017 was the earliest that we could lay the regulations. I appreciate that members of the FAS will be frustrated by the perceived delay but we had a legal obligation to consult on the regulations. The public consultation helpfully identified some small changes that were required to ensure that the regulations operate as intended for eligible FAS members.

We also had to ensure—I think this brings us on to the next question posed by the noble Lord—that the costs were proportionate and to structure the long service cap to ensure that no further costs would be incurred. The noble Lord was very concerned about the administrative cost. I share that concern; it seems like an enormous amount of money for the relatively few people affected. At least I can confirm that the costs are less than had first been forecast. It would be fair to say from the department’s perspective that we are continually looking at where costs can be kept to a minimum, not least because those costs fall on the taxpayer.

While in the past there has been much criticism and scepticism around the introduction of digital systems to support more effective, efficient and cost-effective systems for the administration of such schemes, it is fair to say that systems are proving more robust as technology advances and becomes more understood by users. However, it is incumbent on all of us to keep an eye on that in terms of ensuring that we do all that we can to reduce costs. The trouble is that we are talking about checking records of individuals. That takes time and sometimes it is easier to do manually for such a small number of people. I accept the noble Lord’s point: in some ways, one might question whether it is simpler and more cost effective to do it manually. I take very much on board what he has said.

With regard to transaction costs, going on from what I have just said—sorry to string this out—the PPF, which administers the FAS, is currently in-sourcing member data from Capita. The FAS data is currently out of date, incomplete and often paper-based, requiring manual processing and checking, and that is not a one-off cost. We should continue to look at that and encourage those who administer the scheme to do the same, although I am sure they are cognisant of these considerable costs.

The regulations will ensure that individuals who have worked hard for a single employer for many years are not penalised by the cap. This group of savers have built up a large pension pot, not because they are high earners but because they have worked for one employer for the majority of their working lives and, as a result, will not have had the opportunity to secure additional income in retirement.

The decision to increase the total amount of assistance that this group can receive has not been taken lightly, as the Financial Assistance Scheme is funded by the taxpayer. As my noble friend Lady Altmann said, a considerable amount of consultation, lobbying, and so on, was undertaken to encourage the Government to introduce the regulations. But to leave the situation unchanged would create an inequitable situation where those with long service in the Pension Protection Fund were treated more favourably than those in the Financial Assistance Scheme and break our commitment made in another place on 15 September 2016.

I reassure all noble Lords that no new funding commitments have been or will be made in respect of the scheme. Since 2005, employer insolvencies have fallen under the jurisdiction of the Pension Protection Fund. Unlike the Financial Assistance Scheme, the Pension Protection Fund is mainly funded by an industry levy and is therefore not reliant on the public purse.

I believe that the correct balance has been struck between securing meaningful income in retirement for members compensated by the Financial Assistance Scheme and the cost to the taxpayer. I have outlined in detail the issues that the regulations will address and why the Government have decided to act. Now is the right time to correct this problem, and I ask that the Motion be approved.

Motion agreed.

Private Sector Pension Abuse

Baroness Buscombe Excerpts

Monday 22nd January 2018 Lords Chamber

[The Parliamentary Under-Secretary of State, Department for Work and Pensions (Baroness Buscombe) (Con)]

My Lords, with the leave of the House, I shall now repeat in the form of a Statement the Answer given by my right honourable friend the Secretary of State for Work and Pensions to an Urgent Question in another place on private pension schemes. The Statement is as follows:

“The vast majority of employers do the right thing by their pension schemes and members can expect to receive the pension benefits they have paid for throughout their working lives. The Pensions Regulator and the Pension Protection Fund were set up in 2004 to provide pension scheme members with a safety net to ensure that their pension benefits received some protection when things go wrong—it is a fact that some businesses will fail. This PPF approach has been supported on a cross-party basis since 2004. To prevent irresponsible employers offloading pension liabilities to the PPF, the Pensions Regulator was given a wide range of powers, including the ability to recover significant assets where employers had failed to take account of the scheme. There are around 6,000 defined benefit schemes and cases like these are few and far between.

It is the responsibility of the Pensions Regulator to strike a balance between protecting members and PPF levy payers, and minimising any adverse impact on the sustainable growth of an employer when it comes to the regulation of defined benefit funding. The Pensions Regulator does not have the power to stop businesses paying out bonuses to executives or dividends to shareholders. However, if it sees a situation where it believes a scheme is not being treated fairly, the Pensions Regulator will investigate to see whether use of its powers is appropriate. However, this Government are clear that where sponsoring employers are able to meet their pension promises, they should, and must, do so, and that is why we have suggested ways that the current system could be strengthened to enable the Pensions Regulator to be more proactive.

In February 2017, we published our Green Paper, Security and Sustainability in Defined Benefit Pension Schemes, which included suggested measures that would strengthen the powers of the Pensions Regulator by introducing punitive fines for actions that harm a pension scheme. We also set out powers to enhance the regulator’s ability to demand information to ensure effective governance and spot issues before damage is done.

Our June 2017 manifesto reaffirmed this intent by proposing to give the regulator the power to impose a punitive fine alongside a contribution notice so that pension scheme members are fully protected. The details of the fine would be worked through with all relevant stakeholders but it would represent a significant strengthening of the deterrent.

Also we intend to make certain corporate transactions subject to mandatory clearance by the Pensions Regulator, but we must take care to ensure that these measures do not have an adverse effect on legitimate business activity and the wider economy.

I should also tell colleagues that we have received 800 responses to the Green Paper, and these are currently being reviewed by the department. The White Paper is in progress and will be published this spring.

Effective regulation is dependent on a prompt flow of information between parties concerned and compliance with rules and processes. Following the publication of the White Paper, we will introduce new legislation to ensure that the regulator gets the information it requires to conduct investigations and casework effectively and efficiently. It remains the case that this Government support free markets and capitalism but this has to be conducted responsibly”.

[Lord McKenzie of Luton (Lab)]

My Lords, I thank the Minister for repeating the UQ asked in the other place. Yesterday, the Prime Minister chose to announce via the media that, in part in response to the collapse of Carillion, the Government plan to introduce tough new rules to stop private sector pension abuse—so we are to play catch-up again, it seems, following the pensions freedoms debacle. Carillion had 13 defined benefit schemes in the UK, with some 27,500 members and a combined pensions deficit of some £600 million.

We know that, according to its chief executive, Carillion had been on the radar of the PPF “for some time”, and it was on the watch-list by autumn 2017. Carillion gave its first profit warning in July of that year and its second on 29 September. The Pensions Regulator reported the close monitoring of risks and that it had had “heightened engagement” with the company since July’s profit warning. It apparently had some discussions with Carillion on a regulated apportionment arrangement but these came to naught.

Given the level of engagement and knowledge, which particular tightening of the regulatory framework are the Government considering? Precisely what additional powers for the regulator are contemplated, and what difference does the Minister think these would have made in the Carillion circumstances now faced?

More generally—I think that the Minister has confirmed this—in accordance with the Work and Pensions Select Committee recommendations, there will be a number of recommendations concerning mandatory clearance powers for corporate activities that put pension schemes at risk and new powers to fine those who act in an irresponsible manner. If the Government support those recommendations, how quickly does the Minister consider they will reach the statute book?

[Baroness Buscombe]

I am grateful to the noble Lord for mentioning that the Prime Minister clearly takes this situation extremely seriously. He reiterated that we intend to strengthen the regulator’s powers. Importantly, we have done that with care, introducing a Green Paper last year, and we have committed to the publication of a White Paper in the spring. Although the Pensions Regulator and the Pension Protection Fund manage the process of company insolvencies, and while most pension schemes are managed successfully and very robustly, we accept that there are instances where it might be possible to improve and strengthen the powers. We have received more than 800 responses to the Green Paper. The department is analysing these and will bring forward proposals as quickly as possible.

It is important to emphasise—I sense that the noble Lord opposite appreciates this—that it is hypothetical to suggest that a different set of powers for the Pensions Regulator, such as the ability to clear corporate activities, would have necessarily made a material difference to the pension schemes. Having said that, there has been strong communication between the regulator and Carillion since the middle of last year, when a profit warning was announced. But of course, a profit warning is a warning as opposed to a transaction, so it was not necessarily a sign that the company overall was in such difficulty.

It is important to stress that we are very keen to strengthen the powers but, at the same time, we need to ensure that the new measures we introduce build on existing measures that to a large extent have worked extremely well since 2004, as I said before. However, we want to strengthen the Pensions Regulator’s anti-avoidance framework and information-gathering powers.

I am afraid that as yet, I cannot be certain about when legislation will be forthcoming. Obviously, we will look forward to and welcome the consultations and responses to the White Paper.

[Lord Kirkwood of Kirkhope (LD)]

My question is further to the important one raised by the noble Lord, Lord McKenzie, about timing. Whereas the Statement is correct to say that big insolvencies happen infrequently, when they do happen they strike at the confidence among employees about occupational pension savings altogether. I hope the Minister shares the House’s concern about the indirect impact this may have on auto-enrolment. As the Minister knows, some important steps are being introduced in the next phase of auto-enrolment in the near future but, if there is a White Paper in March, it may be 2020 or 2021 before the regulations are available to regulators, auditors and others. Will the Minister undertake to do everything in her power to push forward proper and sensible consideration of the regulations to be introduced, with as much dispatch as it is possible to muster?

[Baroness Buscombe]

I thank the noble Lord for his question. I share his concerns about the direct impact this might have on those who have pension plans and on those who are retired and in receipt of their pensions. Our drive on auto-enrolment has been extremely successful thus far. More than 9 million people have enrolled, via the auto-enrolment scheme, up to the end of last year. We will push this issue with as much dispatch as is sensible. Having said that, at the same time we do not want a knee-jerk reaction. We will publish our White Paper in the spring. We want to be sure that we make the right decisions and do not compromise the established, robust and, to a large extent, successful scheme that exists for the current powers of the Pensions Regulator. Yes, we must do all that we can. I am pleased to say that, as I speak, colleagues in another place are now debating the Second Reading of the single financial guidance body Bill, which I hope will support giving people advice and good counsel. The Pensions Advisory Service and others are already working on the Carillion issue. We are looking all the time to improve the system, to reassure people and to give them good advice and guidance on their pensions. We will legislate to do the right thing as soon as we can.

[Lord Cotter (LD)]

I am a non-expert in the field—a member of the public, if you like. The Statement talks about a,

“significant strengthening of the deterrent”,

and states that,

“employers have failed to take account of the scheme”.

As an outsider, I am concerned about those two important aspects of the Statement.

[Baroness Buscombe]

I agree with the noble Lord. It is important that we strengthen the deterrent to the best of our ability. That will be a signal to the behaviour of those who are charged with the responsibility of protecting the interests of their employees with regard to pension schemes. We must do all we can to reassure them. That said, it is important to emphasise that the system is—and must be—independent of government. There is a limit to what we can do to ensure that the right thing is done once the framework is in place. Indeed, I think that noble Lords opposite will agree that the introduction of the Pension Protection Fund in 2004 has gone a long way to reassuring people and has been incredibly effective in protecting people’s pensions, both current and into the future. But in response to the Carillion case, we take seriously the need to do what we can to improve or increase the deterrent. However, we must do that with care so as not to fetter the ability of business to be a successful, effective and important part of building our economy.

Poverty and Disadvantage

Baroness Buscombe Excerpts

Thursday 14th December 2017 Lords Chamber

[The Parliamentary Under-Secretary of State, Department for Work and Pensions (Baroness Buscombe) (Con)]

My Lords, I thank the noble Lord, Lord Bird, for securing this debate and all noble Lords for contributing to this vital Question, just six months on from the appalling Grenfell Tower tragedy. I also thank the noble Baroness, Lady Sherlock, for her apology.

Tackling poverty, and the root causes of poverty, is a key priority for this Government. As the Prime Minister has said, we are committed to building a country that works for everyone, not just the privileged few. It is for this reason that we are pushing ahead with the most ambitious reform to the welfare system in decades, delivering real and lasting change to the lives of many of the most disadvantaged people in our society.

Previous Governments have varied in their approach to this vital task; ours is based on a clear understanding of what works. We know that for most people, work represents the best route out of poverty. For example, adults in workless families are four times more likely to be in poverty than those in working families, and children in workless households are five times more likely to be in poverty than those in households where all adults work. Our reforms have acted to ensure that this principle is reflected in the service that we provide.

Through the introduction of universal credit, we have acted to transform a benefit system hindered by bureaucracy and welfare dependency into one which places personalised assistance for individuals and their families—families, I stress—at its very heart. People entering universal credit have access to more tools than ever before to underpin their search for work and receive a tailored package of support to meet their needs. It is clear that this reform is working. UC claimants are able to find work faster and stay in work for longer than those under the system it replaces: 86% of people under UC are actively looking to increase the hours they work, compared with only 38% on jobseeker’s allowance.

Those changes are empowering people. They acknowledge that the benefits of work extend beyond the purely financial. The evidence is clear that good-quality work can serve as a basis for a healthier, happier society, with demonstrable links to better physical and mental health, and improvements in personal well-being. We are committed to doing all we can to ensure that as many people as possible are able to share in these advantages, with particular help announced last week for those with a disability or health condition. In response to the right reverend Prelate the Bishop of St Albans, I have to say that this is something on which we have very much been focusing, and as a Government we are proud of the progress that has already been made towards this objective. There are 600,000 more disabled people now in work, for instance, than there were four years ago.

I want to stress, however, that increasing the rate of employment alone has never been the limit of our vision for a wealthier, more affluent society. We also want to build a country where work changes lives. This is why we have radically reshaped the welfare rules we inherited to ensure that people are able to see their efforts reflected in rising levels of prosperity. For those already in work, our reforms mean that people are able to take on more hours and increase their income without fear of being penalised, and that those on lower incomes can take home more of their earnings. To this end, the Government have cut income tax for more than 30 million people and taken 4 million low earners out of income tax altogether. We plan to further increase the tax-free personal allowance to £12,500 by the end of this Parliament. The introduction of the national living wage has given the UK’s lowest earners their fastest pay rise in 20 years. Since 2010 the annual average income of the poorest fifth of households in this country has risen in real terms by more than £300, while the income of the richest fifth has fallen.

However, we are not complacent. We are reducing social rents until 2020, and lowering the cost of housing for tenants and their families. I respect the fact that a number of noble Lords have focused on housing as one of the key issues. The basic state pension is now at one of its highest rates relative to earnings for over two decades, reversing a trend of decline we saw between 1997 and 2010. The number of pensioners living in absolute poverty on a before-housing-costs basis has fallen by 100,000 since 2010. In contrast, severe poverty rose under Labour.

The results speak for themselves. Employment is now at near record levels, with 3 million more people in work than in 2010. The number of households where no one is working is down by 954,000 over the same period, with 608,000 fewer children living in a workless household than there were seven years ago. However, 14.5% of all UK households still remain workless. That is something that we have to tackle. The approach taken by previous Governments to tackling child poverty was to focus resources on increasing family incomes above a notional poverty line. This Government believe that making a lasting difference to the lives of disadvantaged children and families requires a different approach that goes beyond the safety net—referenced so eloquently by the noble Baroness, Lady Sherlock—of the welfare system to address the underlying reasons why people fall into poverty.

We want to focus on prevention, referenced so strongly and eloquently by the noble Lord, Lord Bird. Our approach is based on compelling evidence about the impact of worklessness and the problems associated with it on families and children. Analysis conducted by the Department for Work and Pensions shows that children who live in families where no adults work are significantly more disadvantaged, and achieve poorer educational and employment outcomes than others. Again, a number of noble Lords, quite rightly, referenced the importance of education. Despite employment being at near record levels, around one in eight children still lives in a workless household.

Improving Lives: Helping Workless Families, published in April, provided a framework for a continued focus on improving children’s outcomes, now and in the future. We set out nine statutory and non-statutory indicators to drive collective action in the areas that are important in tackling the disadvantages that can prevent families from moving on with their lives—for example, parental conflict. As my noble friend Lord Farmer stressed, parental conflict and family breakdown are so critical to all this, together with poor mental health, and drug and alcohol dependency.

If we are to deliver lasting change, we must continue to take action to support those who face the most complex employment barriers, whether or not they have children—people whose ability to work is, for example, frustrated by issues such as a disrupted education, a history of offending, addiction, insecure housing and serious problem debt. This is why our jobcentre work coaches offer individualised, tailored support to those with complex needs. This can include temporarily lifting work requirements where claimants are homeless, in treatment for drug or alcohol dependency, or are victims of domestic violence. It can also include early access to the new Work and Health programme, and referral to local services that can help claimants get their lives back on track. We also offer targeted support to claimants in particular circumstances. For example, we are trialling the individual placement and support approach to help back to work those dependent on drugs or alcohol, as recommended by Dame Carol Black.

People who are financially included are better able to find and remain in work, and are less likely to experience debt and financial difficulty. We therefore welcome the findings and recommendations of the Lords Select Committee Report, Tackling Financial Exclusion: A Country that Works for Everyone? In our response, we announced the creation of a financial inclusion policy forum to be jointly chaired by the Minister for Pensions and the Economic Secretary to the Treasury, and bringing together Ministers from other departments and representatives from financial service regulators, industry and consumer groups.

The noble Lord, Lord Bird, has asked a question of vital concern to all of us in your Lordships’ House, and I take this opportunity to commend him personally for all the work he has done to raise awareness of the issues involved through a lifetime spent campaigning on behalf of the homeless—and, of course, the creation of the Big Issue. In truth, entrenched disadvantage is not something that a single department or indeed, the Government alone can do. As the right reverend Prelate the Bishop of Carlisle said, causes of poverty are often hidden. We respond by saying that they require a cross-governmental approach, and one, as referenced by the right reverend Prelate the Bishop of St Albans, that must also be rural-proof.

The noble Baroness, Lady Tyler, referenced the need for a joined-up approach. The social mobility action plan issued by the Department for Education is something in which we, as a department, will be much involved. That is why the Department for Work and Pensions continues to work across government in order to support the most disadvantaged. In addition to the financial inclusion policy forum, DWP is represented at ministerial level on the Social Reform Committee, the inter-ministerial group on homelessness, gangs and violence against women and girls; and on the drug strategy group. For far too long, poverty and disadvantage have held back far too many people in our society. The Government are committed not only to changing this, but are already making tangible progress through the measures that I have outlined. I have no reservation in recommending our approach to building a society where everyone can realise their potential.

I just want to respond to the question asked by my noble friend Lord Farmer in relation to opportunity areas. We have a number of opportunity areas, and evidence is at the heart of the OA programme. I say to the noble Lord, Lord Bird, that in an ideal world we would not have reports or bother with the evidence, but we have to have the evidence to try to do the right thing. Sadly, some of us are weighed down by our reports, but they guide us. In addition to improving outcomes for young people in the opportunity areas, we are also looking to learn what works best in driving up social mobility, so we can spread effective practice to other areas.

In closing, I reference my noble friend Lady Bottomley who said that we can talk about the inevitability of the downward spiral, but I agree with her: let us concentrate on the ladders.

Pensions

Baroness Buscombe Excerpts

Wednesday 13th December 2017 Lords Chamber

[The Parliamentary Under-Secretary of State, Department for Work and Pensions (Baroness Buscombe) (Con)]

My Lords, I thank the noble Baroness, Lady Scott, for introducing and securing this debate, and thank all those who have contributed. I shall do my best to respond to the various issues raised.

Work and society have changed tremendously since the introduction of the contributory state pension in 1948, and this Government believe that state pension provision should reflect this. As the demographic balance in the UK shifts, and fewer people of working age are expected to support a growing number of pensioners, it has become clear that an increase in the state pension age is necessary for the welfare of all. Underpinning this belief is the basic fact that a welfare and pensions system is only as successful as it is sustainable. Those who are able to work should support those who are not, confident in the expectation of support when they reach their own retirement. Today’s workers provide for the support of today’s pensioners, fulfilling this essential tenet of the social security system, as it has existed ever since the creation of the welfare state over 70 years ago. For this to continue, however, we must take steps to ensure that our model is fit for the future. A policy that allows each generation to spend an increasing percentage of life over state pension age, financed by an increased level of public pension expenditure, would be unsustainable in the long run and unfair to subsequent generations of taxpayers.

Women retiring today can still expect to receive the state pension for 23.5 years on average, almost three years longer than men. Even after equalising women’s state pension age with men’s, women will spend on average around two years more in receipt of their state pension because of their longer life expectancy. In response to the concerns raised during debates in both Houses on the Pensions Act 2011, we introduced a significant concession worth £1.1 billion, which ensured that no one would wait more than 18 months for their pension, when compared to the previous timetable. Any further concession would cost significantly more, and ask people of working age—more specifically, today’s younger people—to pay even more for it. It is the firm opinion of this Government that such an outcome simply cannot be justified.

Policy changes to the state pension system have been implemented over the past 22 years and supported by all three major political parties. Indeed, the noble Baroness’s party was in government when the 2011 Act was introduced, so it is disappointing that it has now chosen to distance itself from these necessary reforms, and talk about mistakes. The former Liberal Democrat Member of Parliament for Thornbury and Yate, for instance, who was Minister for Pensions under the coalition, has suggested that not enough was done to ensure that women were aware of the changes being made. We do not accept that argument. Since 1995, successive Governments have gone to great lengths to communicate changes to the state pension age. As my honourable friend in another place, the Minister for Pensions, has been clear in debates in the House of Commons, the Department for Work and Pensions has diligently communicated the timetable of these changes since they were set in train 22 years ago. This included writing to those affected by the 2011 Act throughout 2012 and 2013 to inform them of changes to their state pension age

Over the past 17 years, the DWP has provided over 19 million personalised state pension estimates. I do not think it is fair, therefore, for noble Lords somehow to suggest that these changes have been brought in by stealth. Indeed, as the noble Baroness’s friend in another place, the honourable Member of Parliament for Eastbourne, said just two weeks ago, there seems to be an “element of amnesia” to this debate.

The current arrangements represent the culmination of several decades of policy-making, to which all the major parties in this House have contributed. The noble Baroness’s party has yet to offer a clear alternative to our position. The official Opposition have outlined their ideas for potential changes to the Government’s policy and, with your Lordships’ permission, I will now address these. Noble Lords on the Benches opposite have suggested that the Government should set the pension credit qualifying age so that it precedes the state pension age as a means of compensating women affected by the changes we have discussed. While we acknowledge the good intentions that lie behind this proposal, we are clear that the unintended consequences of such a shift would render it unworkable.

Introducing a measure designed to benefit a specific group in this way would risk creating a new inequality. Any movement of the pension credit qualifying age would presumably have to be extended to cover not only women who are not affected by the 2011 Act but also men, if the Government’s actions are not be considered discriminatory. As a general point, it would also need to include housing benefit and help with council tax. If not, the proposal would risk providing money through pension credit with one hand and taking it away through higher housing costs with the other. To move women away from the working-age benefits system and the support available to them through their local jobcentre, in any case, would cause them to lose their link with the labour market, with an inevitable, negative effect on their household income and eventual pension pot. These women need support in the labour market, not exclusion from it—support that pension credit does not provide, with only a very small earnings disregard of over £5 a week.

The noble Lord, Lord McKenzie, or rather his party, has costed the option at over £800 million. However, we must also remember that the Labour Party manifesto committed to providing the 2.5 million women affected by the Pensions Act 2011 more generally with,

“some kind of compensation for their losses”.

It is not correct to say that these women have suffered losses of state pension. The position has always been that they will receive their state pension and other contributory benefits if they meet the entitlement conditions. The state pension they receive is determined under the rules in force on the date on which they meet these criteria. Making pension contributions in 1993, for instance, does not entitle someone to receive state pension according to the rules that were in force then. Paying state pension based on the pre-1995 rules, furthermore, would mean that pensioners would not receive all the additional benefits that have been introduced in the intervening years, or be protected under the triple lock.

The noble Lord opposite also suggested that we allow WASPI women early access to their state pension from the age of 64 at a reduced rate. Evidence submitted by the Government Actuary to the Work and Pensions Select Committee in April 2016, however, showed that it would be extremely complex to accurately predict the costs involved in this initiative. Within a matter of hours of suggesting it, I might add, two different versions of the policy were proposed. WASPI groups have rejected both. The introduction of a partial early payment in either form would involve bringing forward significant expenditure, even if the measure was assessed as cost-neutral in the long term. The wider impact on the economy cannot be ignored: adding even one year to people’s working lives would result in a sustained increase to GDP of over 1%—and 1% of GDP today is almost £20 billion.

The pension reforms we have undertaken have already greatly improved state pension provision for all, particularly women. Future pensioners stand to benefit not only from the introduction of the new state pension but also from the expansion of auto-enrolment and our Fuller Working Lives strategy. For many women, the new state pension is much more generous than the old system. By 2030, over 3 million women stand to gain an average of £550 extra per year as a result.

With respect, we cannot avoid the reality of the UK’s ageing population. The number of people over state pension age in this country is expected to grow by 4 million over the next 25 years, a rise of almost one-third. That is why the Government’s position remains firm and why we will not make any further concessions on this issue. Accelerating the increase in state pension age for both women and men has proved necessary in the light of increasing life expectancy and the increasing pressure on public resources. By 2035, the number of people aged 100 or over will have more than doubled. Failing to act on this evidence would not only be irresponsible but place a wholly unsustainable burden on future generations.

Our focus is to deliver a modern welfare system fit for the needs of the 21st century, which rewards work and targets support towards those who most need it. As part of this, we must ensure that the costs of an ageing population are shared out fairly. In this context, and given the financial pressures we face as a nation, we cannot, with regret, unpick a policy that has been in place for 22 years. It is simply not affordable. The average woman reaching state pension age last year will get a higher state pension income over her lifetime than at any point before. Let us celebrate the fact that longer life, better health and continued activity in later decades are reshaping the profile and participation of older people in our society. However, let us also accept that part of preparing the welfare system, and society at large, for the changes brought about by these advances must be to encourage older workers to benefit from fuller and longer working lives.

Kinship Carers: Two-child Limit Policy

Baroness Buscombe Excerpts

Monday 11th December 2017 Lords Chamber

[Baroness Sherlock]

To ask Her Majesty's Government why kinship carers who subsequently have their own child are not exempt from the two child limit.

[The Parliamentary Under-Secretary of State, Department for Work and Pensions (Baroness Buscombe) (Con)]

My Lords, the Government acknowledge the immense value of care provided by kinship carers. We are working to ensure that they are supported by enabling them to access benefit entitlement in the same way as parents. We have introduced a number of exceptions to the policy providing support for a maximum of two children, to protect claimants who are unable to make choices about the size of their family. These already protected certain groups, including kindship carers. The department will keep, and is keeping, the impact of its policies on kinship carers under consideration.

[Baroness Sherlock (Lab)]

My Lords, the reason why kinship carers were exempted from the two-child policy is that this House voted that it should be so. The Minister will be aware of the case, raised by my honourable friend Melanie Onn, of Alyssa Vessey. When Alyssa was 18, her mother died suddenly so she gave up college to care for her three younger siblings. This year, four years later, she has had her own baby. She applied for tax credits and a Sure Start maternity grant but she was turned down under the two-child policy. The reason is that the Government chose to implement the exemption in such a way that if Alyssa already had her own child and then took on her siblings she could get benefits for them, but because she took her siblings on and then had her own baby she was denied that support. Can the Minister explain this? When will the Government put it right?

[Baroness Buscombe]

My Lords, I think the noble Baroness opposite is aware that we are very much cognisant of this particular case. Indeed, my honourable friend in the other place who is the Minister responsible for this area, Caroline Dinenage MP, has responded with considerable sympathy with regard to this particular case. However, the Government believe all children should be treated equally and encourage parents to take the decision to have more children based on whether they can afford to support additional children.

[Baroness Pinnock (LD)]

My Lords, do the Government understand and accept that the callous restriction of this policy penalises children by putting a further 300,000 of them into poverty by 2022? Is that government policy?

[Baroness Buscombe]

My Lords, the Government are looking at this policy at the moment, as I have already said. We do not believe we are being callous. The Government’s view is that providing support for a maximum of two children in universal credit and child tax credit will ensure fairness between claimants on the one hand and, on the other hand, those taxpayers who support themselves solely through work.

[Lord Mackay of Clashfern (Con)]

My Lords, I had understood when this matter was discussed that the theory underlying the proposal was that those who by their own choice landed themselves with more than two children had to support the extra children with whom they had landed themselves. However, the case that we have just been talking about is not that; there was at the very least a moral obligation for that lady to take her siblings. It would therefore be right to say that it is not in accordance with the principle underlying the proposal that this case should be treated as it apparently has been so far. I hope the Government will reconsider it.

[Baroness Buscombe]

I thank my noble and learned friend for his question.

[Lord Foulkes of Cumnock (Lab)]

Reconsider it.

[Baroness Buscombe]

I have to say that we have already said that we have responded with enormous sympathy to this. The policy is currently under review, but it should also be made clear that the Government have assessed the impact of the policy from an equality and human rights perspective throughout its development and in its implementation, thus meeting our obligations under the public sector equality duty and ensuring compliance with human rights and other international obligations.

[The Lord Bishop of Carlisle]

My Lords, the Government have chosen to pursue a deficit-reduction strategy by opting for a fiscally cautious welfare policy. However, has the Minister considered that some British families are larger for reasons of faith or principle? Speaking on behalf of people of all faiths in this country, my question is: what plans does the Minister have for ensuring that such families and children are not discriminated against by the policy?

[Baroness Buscombe]

My Lords, as I have already said, there is nothing to stop anyone having a large family. There is total freedom of choice to have a large family. However, the Government’s view is that we have to be fair between those claimants on the one hand and, on the other hand, those taxpayers who support their own children solely through work.

[Baroness Hayman (CB)]

My Lords, will the Minister take the temperature of the House on this issue and listen with great care to the words of the noble and learned Lord, Lord Mackay of Clashfern? Can she really defend the Government’s view that this policy, which is a technical misinterpretation of the will of the House and Parliament when it put these provisions in, can possibly be, as she says, fair and in the interests of equality for the children in this or any other family in these very unusual and, I suspect, not very expensive situations?

[Baroness Buscombe]

Given her long experience and expertise in this House, the noble Baroness will understand that, as a Lords Minister, my position is somewhat constrained. As I said, my honourable friend in another place is very aware of this case, and this policy is being considered as we speak.

[Baroness Drake (Lab)]

Will the Government honour their promise to this House on 27 January 2016 that children in kinship care should be exempt from the two-child limit on benefits and tax credits? The limit is intended to deter people from having more than two children where they cannot afford them, not to deter or punish kinship carers who take on the care of vulnerable children who might otherwise go into care. That distinction was accepted by the Government. Will they please now implement the commitment that they gave to this House on 27 January 2016, quite explicitly and without reservation?

[Baroness Buscombe]

My Lords, I ought to make it clear that, as the noble Baroness will be aware, there is no punishment. If a family has already had two children of their own, there is nothing to stop them taking on other children as kinship carers. In that case, those children will be exemptions to this rule.

Local Welfare Assistance

Baroness Buscombe Excerpts

Monday 11th December 2017 Lords Chamber

[The Parliamentary Under-Secretary of State, Department for Work and Pensions (Baroness Buscombe) (Con)]

My Lords, since 2013 we have given local authorities the flexibility to develop their own local emergency provision for people in their areas. Local authorities are best placed to design and target this discretionary support, alongside their own local services, ensuring it reaches those who need it most at the right time.

[Baroness Lister of Burtersett (Lab)]

Ah, my Lords, the Pontius Pilate response. When the Government devolved crisis and community care support from the Social Fund to local authorities, they placed no duties on the authorities and refused to ring-fence the money. According to the Centre for Responsible Credit, about one in six authorities has abolished its scheme altogether, and many more have cut them back drastically, leading to some people facing destitution for lengthy periods. Will the Government now therefore accept, in the words of the Work and Pensions Committee, that they maintain,

“an ongoing obligation to ensure provision of a safety net which prevents vulnerable people from falling into severe hardship”,

starting with an urgent evaluation of what is now the final safety net?

[Baroness Buscombe]

My Lords, it is important to say that the national welfare system provides robust safeguards. These include: short-term benefit advances or universal credit advances for people in urgent financial need; Social Fund budgeting loans or universal credit budgeting advances to help with one-off and unforeseen expenses; and hardship payments for people who are sanctioned. But by abolishing the Social Fund crisis loans, which themselves had huge problems, we have now empowered local authorities to develop and deliver new provision to meet the needs of the most vulnerable people in their local communities.

[Lord Watts (Lab)]

My Lords, does the Minister think that it is irresponsible to delegate powers to local authorities and at the same time savage their budgets so that they cannot meet those responsibilities?

[Baroness Buscombe]

No, my Lords. The Government believe that councils are best placed to decide how to support local welfare needs. Local authorities in England will receive more than £200 billion to deliver those and other community services between this year and 2019-20, and will have the certainty to plan ahead through our four-year funding settlement.

[Lord Stoneham of Droxford (LD)]

According to the report from the Centre for Responsible Credit, in one year, my own city of Portsmouth has reduced the amount it spends on welfare assistance from £700,000 to £30,000. Do the Government intend to review the impact of these sorts of changes? If not, why not?

[Baroness Buscombe]

It is important that I stress again that, under the national system, there are strong safeguards in place. We expect local authorities to concentrate the funding on those facing the greatest difficulty in managing their income and to enable a more flexible response to an unavoidable need, perhaps through a mix of cash or goods and aligning with the wider range of local support that local authorities’ devolved administrations already offer. In short, the funding is to allow them to give flexible help to those in genuine need.

[Lord Howarth of Newport (Lab)]

The noble Baroness says that local authorities are best placed and they have £200 billion. Will she confirm that the Government have cut funding for local authorities by some 40% since 2010?

[Baroness Buscombe]

My Lords, perhaps I could quote the Local Government Association’s own study:

“Councils have managed the available budget effectively; reduced the potential for abuse, and created schemes which better meet the underlying needs of applicants and reduce repeat demand. This has enabled them to provide vital, timely support to some of their most vulnerable and deprived residents”.

[Baroness Lister of Burtersett]

My Lords, I still have not heard how those authorities that have abolished their schemes are going to meet the needs that the noble Baroness referred to. As she herself said, these are some of the most vulnerable people. There are 26 local authorities where there is no scheme that can meet those needs.

[Baroness Buscombe]

My Lords, the noble Baroness had already referenced the issue of ring-fencing. Government policy is not to ring-fence amounts in the local government finance settlement, as local councils are the best judge of needs and priorities within their areas. As I have already said, local authorities are in receipt of £200 billion. Part of that is to fund these emergency services, in addition to the safety net that we provide at national level.

[The Earl of Listowel (CB)]

My Lords, although recognising the tremendous work of local authorities to rise to the challenge, I have concerns which I hope the Minister shares. I listened to a very experienced, long-time child and family social worker in one of the committee rooms here two months ago. He expressed concerns about all the ancillary services being cut back for families, as the statutory services just about hold out. As these are cut, more and more children come into care, and more and more families are at risk of breaking down, so it is a very difficult situation. Of course the Government are doing important work to address these things, but we cannot deny that this is a huge challenge and is harming many people in this country.

[Baroness Buscombe]

My Lords, what the noble Earl has said about family breakdown and what this leads to is quite right. Indeed, that is why we have a strong focus now on the family parental conflict programme, to which we will be contributing £30 million in the coming two years. We have also invested up to £200 million in universal support, which provides budgeting advice and digital support to claimants, delivered by local authorities. This support is tailored to local needs and our work coaches, who gauge claimants’ financial needs from their first interview. We are doing a variety of things to help people at a local level. The noble Lord, Lord Foulkes, shakes his head, but we are doing an awful lot more than his Government ever achieved. I am proud of what we are doing.

[Baroness McIntosh of Hudnall (Lab)]

My Lords, will the noble Baroness please have another go at answering the question put to her by my noble friend Lord Howarth? Can she confirm that local authority budgets have been cut by 40%, and if she cannot, what figure does she think is the right one? Can she further say whether she thinks that—if that figure or anything like it is correct—it is at all likely that there has been no major impact on services that were previously provided?

[Baroness Buscombe]

My Lords, it is a great shame that under the Labour Government so much taxpayers’ money was wasted, leaving our local councils bereft of funds. We have worked hard to ensure that there are emergency provisions in place. Although there may be cuts to local authorities, we are ensuring that there is proper provision, but we are leaving it to local authorities to decide the best way to provide for the needs that people have at local level.

Pension Schemes Act 2015 (Transitional Provisions and Appropriate Independent Advice) (Amendment No. 2) Regulations 2017

Baroness Buscombe Excerpts

Wednesday 6th December 2017 Lords Chamber

Moved by

[Baroness Buscombe]

That the draft Regulations laid before the House on 10 July be approved.

Considered in Grand Committee on 29 November

Motion agreed.

Improving Lives: The Future of Work, Health and Disability

Baroness Buscombe Excerpts

Thursday 30th November 2017 Lords Chamber

[The Parliamentary Under-Secretary of State, Department for Work and Pensions (Baroness Buscombe) (Con)]

My Lords, with the leave of the House, I shall repeat a Statement made by my right honourable friend the Secretary of State for Work and Pensions in the House in Commons regarding work and health. The Statement is as follows:

“With permission, Mr Speaker, I would like to make a Statement on the Command Paper being published today by my department and the Department of Health.

Good work promotes good health. It enables people to be economically independent, and gives them more choices and opportunities to fulfil other ambitions in life. A country that works for everyone needs to ensure that all who can work or undertake meaningful activity have the chance to do so, and that the right care and support are in place to enable all to thrive in work throughout their lives.

Our labour market is in its strongest position for years, with the United Kingdom employment rate at a near-historic high of 75%, and over 530,000 more disabled people in work than four years ago. Despite this, only around half of disabled people are in work, but many disabled people and people with health conditions can and want to work. This means that too many people are missing the opportunity to develop their talents, and to connect with the world of work and the range of positive impacts that come with doing so—including good health and social outcomes. That is why it is important that we act now.

With around one in six working-age adults reporting a disability, it is clear that health and disability issues affect the working lives of millions of people. The majority of long-term health conditions are acquired in adulthood, and in an ageing population, inclusive work places are imperative. That is why, in our manifesto, this Government pledged to see 1 million more disabled people in work over the next 10 years. This is as much about preventing people from falling out of work as it is about supporting them into work. This requires a comprehensive and wide-ranging programme of action.

Last year, we published Improving Lives: The Work, Health and Disability Green Paper, setting out the Government’s new and ambitious approach to this issue; it marked the start of a new era in joint working between the welfare and health systems. Our 15-week consultation on the next 10 years of reform sought input from disabled people and those with health conditions, their families, employers and a range of stakeholders. The consultation was supported by 166 accessible events, and received around 6,000 responses.

Today, we are publishing Improving Lives: the Future of Work, Health and Disability, setting out our response to the Green Paper consultation and the next steps we will take to deliver our vision. Changes in the nature of work and more flexible working models benefit a wider range of people, and new advances in technology offer more opportunities than ever before. For example, accessible hardware and software, and developments in apps and wearable technology, make it easier for employers to offer flexibility and adaptations to their staff. Small businesses and large employers alike are already implementing these solutions for their employees, and it is for government to help to set the direction and stimulate good ideas.

We know that the barriers to moving into work and staying in work are different for each person, depending on the nature of their health condition or disability, their aspirations and individual circumstances. We need to work directly with people who experience these barriers to identify solutions that will work. We want to build an approach that is responsive and caters for every scenario, with the individual at its heart.

The change needed is not one that government can deliver on its own. Across the country, there are striking examples of what can be achieved when employers, charities and healthcare professionals work together locally, but government can help to create the conditions for success. In the workplace, employers should have the confidence to recruit and retain disabled people and those with health conditions, and to create healthy and inclusive workplaces where all employees can thrive and progress. The best employers have already realised the business benefits of hiring disabled people, and while there are many examples of good practice, we want to go further.

This Command Paper responds to what we heard in the consultation, and to the findings of Thriving at Work: The Stevenson/Farmer Review of Mental Health and Employers. We will improve advice and support for employers of all sizes, working in partnership with them—together with disabled people and other stakeholders—to bring together information and advice that meets businesses’ needs. We will also make significant enhancements to the Access to Work scheme, including increasing the capacity of its mental health support service.

To support a key recommendation of the Stevenson/Farmer review, we will establish a voluntary framework approach for large employers to report on mental health and disability within their workforce. We are also preparing a consultation on changes to statutory sick pay, and will run a cross-government programme of analysis and research to examine the incentives and expectations that influence employers’ decisions in this area. We will report back on this preliminary work next year.

We will build on the key role that the welfare system plays in supporting disabled people and those with health conditions to enter work where possible by developing a more personalised and tailored approach to employment support. We will continue to learn; for example, through voluntary trials to help us to build an effective offer of support that meets the needs of those in the support group. We will continue to improve the assessment process while building our evidence base, including working with external stakeholders, to take forward reform of the work capability assessment.

Health and care professionals are vital in supporting disabled people and those with health conditions to achieve their employment potential. We will work with and support health professionals with the tools and techniques they need to have supportive conversations with patients about work and health. We are doubling the number of work and health champions and investing around £39 million to more than double the number of employment advisers in Improving Access to Psychological Therapies services. We will also conduct large-scale randomised controlled trials delivering employment support in a health setting in the West Midlands and Sheffield City Region, beginning by March 2018.

Alongside this Command Paper, I am announcing the next steps for the Fit for Work service. Established in December 2014, it offers general health and work advice to employees, employers and GPs, through a phone line, webchat service and website. Since 2015, it has also provided occupational health assessments for employees at risk of long-term sickness absence, with advice on how they can be supported to return to work and remain in employment. However, referrals of cases to the service by employers and GPs have been much lower than expected. For instance, there have been only around 650 referrals per month in England and Wales, compared to the 34,000 forecast, and 100 a month in Scotland, compared with the estimated 4,200. By contrast, use of the advice line, webchats and Fit for Work website has exceeded expectations. I am therefore ending the contracts for the provision of the assessments service both in England and Wales and in Scotland while ensuring continued access to the Fit for Work online and phone services. These will continue to offer general health and work advice as well as support on sickness absence.

The Government are also announcing the appointment of an expert working group on occupational health to champion and drive a programme of work, taking an in-depth look at the sector. To inform policy development, we have commissioned research to better understand current market supply and delivery of occupational health provision. This research will look at local partnership models to integrate health and wider support, and will report in 2019. We will also take account of the lessons from the Fit for Work service as we move forward.

The Government are laying the foundations for a 10-year programme of change. Everyone has their own part to play to achieve this ambitious vision for a society in which all disabled people and people with long-term health conditions are able to go as far as their talents will take them. I commend this Statement to the House”.

My Lords, that concludes the Statement.

--- Later in debate ---

[Lord Addington (LD)]

My Lords, I thank the Minister for repeating the Statement. It is also time that I declared a few interests that are relevant here: I am president of the British Dyslexia Association and chairman of a company called Microlink PC. That is important because Microlink provides assistive technology and designs support for those who are disabled and in work or education, starting with education.

As I went through this document and scanned the original one it became clear that we have hit the buffers, the point at which a great idea hits the practicalities and starts to fracture in terms of what can be done. My own disability—and the one that the group that I work for is concerned with—is regarded as an education disability. In fact, we are the biggest disability group, as those in the neurodiverse group make up 15% of the population. Very little in this document refers to this group. Our problems relate not to accessing buildings but to accessing systems involving, for example, computers or paperwork. This document does not really seem to have got hold of that. It has missed a group. It has also missed a group when it comes to access problems when dealing with, for example, form-filling and work and pensions support. Therefore, when the noble Baroness talks about assistive technology, will she make sure that every single government website is accessible through the assistive technology of voice recognition? If she cannot answer that, she has effectively already broken the terms of the Equality Act for this group.

To carry on in that vein, we all know that each group considers the problems they have to be the most serious, but other groups will emphasise the importance of other activities. However, one important question is: are people being maintained in work? Access to work—it is one thing that I can give a rousing cheer to—is probably the best kept secret. It is the most underused thing in the Government’s arsenal. Expanding that to support for maintaining people in work and allowing them to expand or change their roles will encourage people to stay on.

We have also been talking about mental health. A person with a disability generally suffers more stress, and stress can trigger or create mental health problems. Are we making sure that people are maintained and supported in jobs and allowed to expand their roles? Once again, I am not absolutely sure about that. There is a great deal of emphasis on getting people into work but not on maintaining them in work and giving them a career into the future. I would like to know where the emphasis is there.

So we seem to be missing a large group—dyslexics, dyspraxics and dyscalculics—and, to a lesser extent, those with high-functioning autism. They do not seem to have been referenced here, probably because, to be perfectly honest, they are a lower priority in the Department of Health. How will we access these groups? How will we make sure that individual support is available and that people can get the right support? Nearly 20 years ago when the noble Baroness, Lady Hollis, was the Minister in charge in this area, I had a ritual dance with her when we talked about the interview. Are the Government going to allow the person who conducts the interview to call in an expert? The interviewer will be awfully well trained but will an expert be brought in? If not, things will go wrong. Unless the noble Baroness can give me an assurance that some expertise will be structured in, the problems will continue. Expertise is needed to deal with the individual cocktail of needs in individual cases. Unless we can start to address these questions, we will continue to fail in this area.

[Baroness Buscombe]

I thank the noble Baroness opposite for her support thus far in terms of the overall response to the Command Paper, and I will do my best to reply to the many questions that she and the noble Lord, Lord Addington, have raised.

I want to make it clear that I welcome the noble Baroness’s constructive contribution. It is important to say that this is a programme aimed at helping people into work and to stay in work. I say immediately to the noble Lord, Lord Addington, that we will not ignore any group of people or any individuals. That is the purpose of bringing together, to the best of our ability, work, welfare and social interaction. This is a holistic approach which, I think all noble Lords will agree, we have been looking for and waiting for for years. We are very proud that we will be able to focus on work, health and disability as one. We say that work enables every person to be economically independent. It boosts their confidence and gives them more choices and opportunities to fulfil other ambitions in life.

The noble Baroness was very clear in her question about the finances. This is about more than just the over £50 billion that we are spending on those with disabilities or health conditions. As announced in SR15, we are increasing investment in employment support for people with disabilities or health conditions in real terms over this spending review period. This includes building the evidence base for what does and does not work, investing in Access to Work and rolling out a personal support package of tailored employment support initiatives. We have committed to invest £330 million of funding over four years in support for people with limited capability for work as part of the personal support package. Last year, we spent £104 million on the demand-led Access to Work scheme, up from £97 million in 2015-16. The number of people who had Access to Work support last year rose 8% to over 25,000. In addition, further customers received payments for support agreed in previous years.

We are investing up to £115 million of funding to develop new models of support to help people into work when they are managing a long-term health condition or disability. We will be providing an extra £15 million a year in 2017-18 and 2018-19 for our flexible support fund so that local managers can buy services, including mentoring, and better engage the third sector—which is a very important part of this holistic approach—in their community to help disabled people and those with health conditions.

With regard to the work capability assessment, it is important to say that in our manifesto we committed to legislate to give unemployed disabled people and people with health conditions personalised and tailored employment support. We heard broad support for WCA reform proposed in the Green Paper but there was no consensus on what the right model of WCA reform would look like. We know that we need to get reform right and will therefore focus on working with external stakeholders in testing new approaches to build on our evidence base for longer-term legislative change. This will require primary legislation, but noble Lords are all too aware of the constraints that there will be in that regard in the near future. In the meantime, we are delivering on our commitment to personalised and tailored employment support with the introduction of our new personal support package. We are also committed to continuing to improve the WCA. Recent reform included stopping reassessments for people on ESA and UC with the most severe lifelong conditions.

We want to reform statutory sick pay so that it supports more flexible working, which can help people remain in or return to work if they are unwell. With regard to disability employment, we have added 300 additional disability employment advisers and have begun introducing 200 new community partners. We absolutely accept what the noble Lord, Lord Addington, said about the importance of having work coaches with the right expertise and skills, and that is something on which we are very much focusing.

In terms of UC, we are also focusing our efforts and thoughts on in-work progression, which is very important. This is not about helping people into work and then leaving them there; it is about prevention, getting people into work and helping them to remain in work. That is one reason why it is very important that we have this very strong, joined-up approach with our colleagues in the NHS, asking how we can manage mental health, for example, in the short to medium term as well as in the long term. Of course, the Farmer/Stevenson review is an enormous encouragement to us. As noble Lords will know, we have already accepted all its recommendations.

The noble Lord, Lord Addington, asked about assistive technology, and he was absolutely right to do so. One individual who has particular difficulties said, “Without assistive technology such as voice recognition and the help of Access to Work in providing me with a support worker, I would not be able to compete in the job market and therefore would not be in employment”. His name is Tom and he sustained a serious neck injury in 2007. He is now using this brilliant technology and is thriving in work. We want all employers to reach the standards of the best and that is why we will work with them.

I hope that I have begun to answer some of the many questions noble Lords have asked. I reiterate that there are now around 600,000 more disabled people in work since 2014. We are making progress and this Command Paper will contribute to that.

[Lord Low of Dalston (CB)]

My Lords, I welcome the Government’s objective to get 1 million more disabled people into employment over the next 10 years. The Minister will recall the review, Halving the Gap, which I led with the noble Baronesses, Lady Grey-Thompson and Lady Meacher, with support from disability charities. That review looked specifically at the £30 a week cut to employment and support allowance and the corresponding limited capability for work component of universal credit. Over half of the disabled people who responded to our call for evidence said that the cut would push them further from the workplace rather than closer to it. Does the Minister agree that, in the light of that, it is time to reconsider this damaging cut, which can only have the effect of making it more difficult for the Government to achieve their objective?

[Baroness Buscombe]

As the noble Lord, Lord Low, will know, employment and support allowance was introduced in 2008 to replace incapacity benefit and income support. Since the ESA, as we call it, was introduced, we have conducted five independent reviews of the work capability assessment and have accepted and implemented the majority of recommendations. As to cuts, we spend more than £50 billion a year on benefits to support disabled people and people with health conditions, an increase of more than £7 billion since 2010. This is 2.5% of GDP and over 6% of government spending. This demonstrates that we are doing all we can to support the very people the noble Lord references.

[Lord Sterling of Plaistow (Con)]

My Lords, I come at this subject from two directions: I am chairman of Motability, which has been involved in this for 40-odd years; and I welcome this initiative for the simple reason that it is an all-party one that has nothing whatever to do with party politics. Everyone, in both Houses, has empathy with finding answers to these problems and difficulties.

From the Motability point of view, sadly, only 16% of our customers between the age of 16 and 64 have jobs. That happens to be identical with the figure for those with autism. I have a young grandson who is autistic and I have spent a great deal of time looking into some of these difficulties and problems.

One interesting factor is nervousness among the workforce. People do not know and feel nervous about having disabled people working with them. The more that you go round explaining the pros and cons, the better. People are worried about simple things such as, “Suppose he wants to go to the toilet. Who is going to take him?”, or “Where do we do this?”, or “How do we handle that?”. Once the workforce feels comfortable, it can change dramatically.

On the wider front, in the educational field—in the long term as against the short term—it should become law that everyone who teaches, no matter at what level, should know something about how to handle disabled people. A key factor is the huge amount of bullying in schools. If every single headmaster and headmistress of every single school was trained in how to handle disability, it would make all the difference. It should be a rule that they should have this training, otherwise they cannot be a headmaster or headmistress.

I raise that issue because there is a great shortage of educational psychologists. As a society, we try to get everyone else to be what we think is normal, but we do not adapt. If we adapted more closely, it would make all the difference. I cannot support more fully the fact that the Government—and, hopefully, everyone in this House—want to find the right answers.

[Baroness Buscombe]

My Lords, I thank my noble friend Lord Sterling for his contribution. I commend him and pay tribute to the work that he has done with Motability. The Government recognise the valuable service that Motability provides to those with disabilities and health conditions, and we look forward to continuing to work closely with it.

My noble friend recognises that not enough disabled people are in employment. We feel that we have come a long way, but we have a lot further to go. That is why we have set out this ambitious wish to have 1 million more people with disabilities employed over the next 10 years. That is why it is important that we work with groups such as Motability and others to make this happen.

My noble friend is absolutely right that this is not about party politics. Indeed, in welcoming this report, the Mayor for London said this morning that it is time to put party politics aside on this issue. It is, frankly, too important.

My noble friend referred to making employers less nervous. I agree. That is why we are working hard in that area to encourage more employers to come on board. We have launched the Disability Confident business leaders group and started roll-out of the Small Employer Offer and Community Partners. We know some employers want more help to be able confidently to support disabled people in work, and that is why we will do more to improve advice and support: researching and identifying solutions with employers to bring together advice that is easy to find and use; improving access to work by increasing the capacity of the mental health support service; trialling personal budgets; creating an expectation that equipment will move with individuals when they move jobs—which is very important and we have to be practical about it; warm words are not enough—and increasing the reach and effectiveness of Disability Confident.

I take on board my noble friend’s reference to not making it law but encouraging everyone to understand and work with those with disability from an early age. That would make all the difference in the world.

[Lord McKenzie of Luton (Lab)]

My Lords, in introducing the Statement, the Minister promulgated the importance of work being good for people’s health and well-being. We agree with that—it is Waddell and Burton going back over a decade. The Minister referred to “good work” when she focused on this issue. Can she say how “good work” is characterised for these purposes, as opposed to the opposite, particularly in the context of limited and variable-hours contracts?

[Baroness Buscombe]

My Lords, good work is about supporting people to stay in work as well as supporting them to move into employment; making them feel comfortable in healthier workplaces, while offering the right support for staff to help keep them productive and engaged in work; utilising the broad spectrum of the health system to promote good health; and helping individuals to better manage their conditions. We genuinely believe that people who are in work need proper support; otherwise, their roles will not be sustainable. Too many people are not staying in work once they are in there. Our true definition of good work is where people feel able to cope, continue to feel able to cope and can progress within the workplace. Good work for individuals is not being seen as having been given a job—that is good enough. That is not good enough for us, and that is what we must focus on.

On the issue of employment contracts and so on, we want to ensure that people are able to work in a way that is sustainable. Many people working on zero-hours contracts, for example, find that they are better able to cope with their work/life balance and so on in that environment.

[Baroness Manzoor (Con)]

My Lords, I, too, welcome the Command Paper. As the Minister has already said, it is a really important initiative and it is a holistic approach to tackling a very important issue. People with disabilities have a right to be able to access employment and to be supported in work. Therefore, I welcome the £115 million that the Minister has announced today for new models of working. I also liked, by the way, the aim of halving the disability gap by 2020, so I am keen that we continue to keep that focus in mind. What I am concerned about is that perhaps some employers may choose the less severe end of disabilities in focusing their efforts, rather than looking at the whole range of disabilities across the full spectrum.

[Baroness Buscombe]

I thank my noble friend for her question. The reality is that is why we are very pleased with the recommendations of the Stevenson/Farmer review. My noble friend is absolutely right that we have to encourage employers, large and small, to understand that what might superficially appear to be a lesser disability—or a more severe disability—should not enter the decision in terms of taking somebody on board. The reality is that we need to do more to work with people in occupational health and to find different ways to encourage employers to support those with disabilities. Also, one of the things we are very keen on is working with the third sector and charities—for example, the Samaritans, which is particularly close to my heart—to act as a backstop and support to employers so that employers can feel more confident about taking people with disabilities on board.

[Baroness Donaghy (Lab)]

My Lords, I support everything that my noble friend Lady Sherlock said. She mentioned that the Government have not done a cumulative impact assessment on the social security cuts, but the Equality and Human Rights Commission has. It says that, since 2010, households with a disabled adult and disabled child have lost over £5,500 pounds per year on average. How does the Government’s new strategy address these losses?

[Baroness Buscombe]

My Lords, I have to say that we do not recognise the findings of the EHRC, because the analysis does not provide a full picture; it looks only at a particular subset of disabled people and does not include analysis on changes beyond tax and welfare. It will, therefore, present a skewed picture.

[Lord Beecham (Lab)]

My Lords, can the noble Baroness indicate the extent to which the interesting proposals in the Statement would apply to people who are not technically employed—that is to say the people in the so-called gig economy?

[Baroness Buscombe]

My Lords, I think it is right to say that in the first instance, or at the moment, our focus is about getting as many people as possible into employment. The issue with the gig economy is that we then cannot ensure that all the support systems that need to be provided will be there, but that is certainly something I am sure will be at the forefront of the minds of those who are taking the Stevenson/Farmer review forward—and also working with the Matthew Taylor review—in terms of finding every way to ensure that whoever is doing whatever form of work in the United Kingdom is properly supported.

Pension Schemes Act 2015 (Transitional Provisions and Appropriate Independent Advice) (Amendment No. 2) Regulations 2017

Baroness Buscombe Excerpts

Wednesday 29th November 2017 Grand Committee

Moved by

[Baroness Buscombe]

That the Grand Committee do consider the Pension Schemes Act 2015 (Transitional Provisions and Appropriate Independent Advice) (Amendment No. 2) Regulations 2017.

[The Parliamentary Under-Secretary of State, Department for Work and Pensions (Baroness Buscombe) (Con)]

My Lords, these regulations were laid before the House on 10 July 2017. They will reduce confusion for pension scheme members and burdens for industry. They enact the conclusions of a call for evidence in 2015 concerning how a scheme determines whether or not a member is required to take financial advice prior to transferring their pension savings. Plainly put, the regulations simplify how trustees and scheme managers value members’ pensions in order to determine whether the requirement to take advice applies. There is no change in the actual value of the pensions themselves.

To better understand the provisions, it is helpful to first detail the wider context in which they operate. The provisions form part of a wider package of changes that as a whole simplify, but also expand, the protections available for members with potentially valuable guarantees attached to their pensions. Since they were introduced in April 2015, the pension freedoms have given individuals aged 55 and over greater choice in how and when they access their pension savings. Members who save into pension arrangements that provide potentially valuable guarantees can generally also exercise these new freedoms, where necessary by first transferring to a defined contribution scheme or converting to defined contribution savings.

The regulations debated here apply to these pension arrangements—“safeguarded benefits”, as they are known—which include typical defined benefit schemes, but more importantly for the purpose of this debate, safeguarded flexible benefits. I should explain these terms. Safeguarded flexible benefits are flexible in that there is a pot, which is cash-based, meaning that the pension freedoms apply, but they are also safeguarded because they include a promise in relation to the secure income they may provide in retirement. Normally, but not exclusively, safeguarded flexible benefits are personal pension contracts that include the option to take an annuity at a guaranteed rate. These are commonly referred to as a guaranteed annuity rate—GAR.

Because of the valuable guarantees offered by safeguarded benefits, legislation introduced an advice requirement alongside the pension freedoms. This requires trustees and scheme managers to check that members with safeguarded benefits valued as greater than £30,000 have taken financial advice before transferring or otherwise flexibly accessing those benefits. It is this legislative requirement—specifically, how pensions are valued for the purpose of determining whether or not it applies —that I am proposing to amend today.

The Government have become aware that the methodology prescribed in regulations for valuing members’ benefits against the £30,000 threshold has resulted in firms offering GARs having to provide two values for the member’s pension: the transfer value, which an individual will actually receive, and the actuarially calculated, but ultimately notional, value against which the £30,000 advice threshold is tested. Providers and consumer groups reported members with safeguarded flexible benefits experiencing confusion over why they were receiving two valuations. This means that there is always a potential risk that members may choose to take advice and access their pension, having wrongly believed that they would be entitled to the higher actuarially calculated value, when they would receive only the lower transfer value. The regulations debated here will, if approved, amend existing provisions so that trustees and scheme managers are required to treat the value of safeguarded benefits as equal to the transfer value of those benefits when determining whether or not the £30,000 threshold is met.

Trustees of typical defined benefit schemes will continue to use the same methodology, subject to limited exceptions to which I will come later. Meanwhile, those offering safeguarded flexible benefits, such as guaranteed annuity rates, produce only one valuation: the transfer value of the member’s benefits. For most schemes, this will be the cash value of the member’s pot. This single figure is easily explained and avoids confusion for members. It is also widely used within other communications and is already produced by firms. The instrument also contains transitional provisions to accommodate the changeover from one valuation methodology to another so that members are not disadvantaged.

Finally, the regulations make an amendment to the valuation methodology that removes an inconsistency in the treatment of defined benefit pension scheme savers. Specifically, it is for members of those defined benefit schemes which use higher cash equivalents than those required by legislation. We are working with actuaries to understand and manage the impacts of this measure, in order to understand and monitor its effects. We will be able to amend this requirement should it not function as intended.

Although the purpose and focus of this debate is, of course, the affirmative instrument to which I have just referred, it is worth explaining that the measures set out in these regulations form part of a package of regulatory changes. The Pension Schemes Act 2015 (Transitional Provisions and Appropriate Independent Advice) (Amendment) Regulations 2017 introduce a new requirement for trustees and scheme managers to send tailored communications informing all members with safeguarded flexible benefits of the availability of potentially valuable guarantees at precisely the point they are most engaged—that is, when they are considering whether to flexibly access and, therefore, potentially surrender those benefits. Although not within the scope of today’s debate, because they have already been made and laid by the negative procedure, on 6 July 2017, these requirements form an important partner to the regulations debated here by improving member protection through targeted and simplified communications.

I will explain the combined effect of these measures on members with a range of values of safeguarded flexible benefits such as GARs. First, there are those members who have pension pots with a transfer value of over £30,000, for whom the advice requirement still applies, only now they will also receive an indication of the guarantee’s value before they commit to incurring the expense of seeking and taking financial advice. Members who decide not to proceed with their original request to transfer, convert or take a lump sum payment will have therefore saved themselves, on average, £900. For those who still wish to proceed and access their savings, that option is of course still available. Members will receive a more detailed analysis of the implications of doing this, as they will have to pay for financial advice.

Secondly, there is a group of members who were previously required to look for financial advice but, under the new valuation methodology, would now not be required to attempt to find advice. These are typically members with pots in the range of £15,000 to £30,000. I have used the terms “look for” and “attempt to find” advisedly, because I contend that these members are better served by a combination of the new valuation method and risk warnings this package of regulations introduces. Under the current regime, many of these members are both deprived of any opportunity to appreciate their benefits and denied the ability to exercise an informed choice, because they cannot find a willing financial adviser to perform a transfer analysis for a pension pot with a transfer value of £15,000.

Replacing the requirement for members to take financial advice with a personalised risk warning therefore maintains protection while simplifying the process. It does this by removing an additional layer of cost for members, confusion about the money they stand to access from their pension savings through the use of two valuations, and consequent frustration. The combined package of regulations ensures that even members with small pots—typically below £15,000—are notified of the presence of potentially valuable guarantees in their pension scheme. These members would not have been required to take financial advice under the current regime, but they will now be sent a personalised risk warning before they transfer, convert or otherwise flexibly access their pension pot.

In conclusion, the Government are committed to the principle that those pension savers wishing to exercise choice over when and how they access their pension savings should be able and supported to do so. However, it is equally important to protect members through simplifying how they are told about their pension, while at the same time avoiding unnecessary burdens by removing needless complexity for members and industry alike.

These regulations form part of a package of changes which ensure both that more members receive timely and suitable information about their safeguarded flexible pension benefits and that industry can use a simpler method for valuing benefits for the purpose of the advice requirement. Taken together, these changes demonstrate that the Government have listened carefully to both stakeholders and consumer groups. They show that we are now meeting our commitment, made as part of our consultation exercises, not only to monitor the pension freedoms but to reform existing measures where needed. I therefore commend these regulations to the Committee.

--- Later in debate ---

[Lord McKenzie of Luton (Lab)]

My Lords, I thank the Minister for the introduction and explanation of the regulations. As ever, I am delighted to have the expertise of my noble friend Lady Drake alongside me on these occasions.

The regulations derive, as we have heard, from Section 48 of Pension Schemes Act 2015 and are an integral part of the pension freedoms introduced with effect from April 2015. They focus on the requirements on trustees or managers of a pension scheme in Great Britain to ensure that appropriate independent advice has been received before safeguarded benefits can be converted, one way or another, to flexible benefits.

These regulations, as we have heard, sit alongside other regulations, of the negative variety, which concern requirements for schemes to provide risk warnings where members have the benefit of a GAR—guaranteed annuity rate—which they might otherwise be in danger of relinquishing. Together with the transitional provisions for the advice requirements, these are described in the Explanatory Memorandum as a package and we comment on them on that basis.

The requirement to get regulated advice currently operates when an individual’s safeguarded benefits are valued at more than £30,000. It is suggested that the detail of this requires amendment because the basis of calculation is unduly complicated in some circumstances and can lead to situations where the calculation of the advice threshold exceeds £30,000 but the pension pot size is different. Having two different valuations is said to be confusing, and we understand that point.

The impact assessment explains that these complications exist because the valuation regulations currently applied were previously used only by occupational DB schemes and that the circumstances in which they now have to be applied do not generally have standardised processes in place to value GAR benefits in terms of the current value of the future income they offer. As we have heard, the solution offered by these regulations is to adopt the transfer value of the pot in the calculations determining whether the £30,000 threshold for getting regulated advice is reached.

On an ongoing basis, this will save individuals with safeguarded flexible benefits some £11 million per year in advice fees. As we have heard, it will remove some 12,000 people per year from the need to get advice before they access pension pots, although they will be brought within the risk warning arrangements. This seems to be taking matters in the wrong direction. Changing the basis of calculation might be administratively or arithmetically convenient, but what assessment have the Government undertaken of the appropriateness of removing so many people from the benefit of advice?

It is accepted that individuals will no longer have to meet the cost of advice, but they will not be getting the benefit of that advice either. Of course, fewer requirements for regulated advice means fewer fees paid by individuals, but will the Minister remind us about the circumstances in which individuals can access their pension pot to pay for advice, the limits and the tax treatment? Do the Government have any information about the extent to which this is used?

The Explanatory Memorandum makes reference to the potential for inconsistent treatment of members regarding when advice is required when schemes can exercise more generous transfers. Will the Minister tell us how this issue is to be dealt with? We support the concept of risk warnings and the principle of informing members of their safeguarded flexible benefits. This should be the responsibility of ceding schemes and should happen before proceeding to transfer, convert or flexibly access scheme benefits. It should apply to survivors with safeguarded benefits.

We agree that those already required to take advice should be included in the risk warnings. We support there being no de minimis exemption on the basis of pot size. On timing, which my noble friend raised, it is proposed that the risk warning should be sent at least 14 days before any live request completes. Why can the warning not be sent, as my noble friend asked, as soon as a member request to transfer or access the flexible benefits is received?

The Government’s response to the consultation on these matters has confirmed the approach to the content of the risk warning and the inclusion of two comparable pension illustrations tailored to the member’s age, pot size and contribution rate and with details of guarantees available.

Paragraph 44 states that the Government are not convinced of the need to explain the difference between personalised tax warnings and the statutory money purchase illustrations. Will the Minister expand on the rationale for this position?

Can the Minister also confirm that she is confident that there should be no confusion arising from obligations in respect of retirement wake-up packs and personalised risk warnings? The written element of the risk warning is, according to the impact assessment, to include the signposting to free and impartial guidance—Pension Wise currently or SFGB, or whatever it is going to be called, in due course. As my noble friend has said, this is about the weakest indication of support, bearing in mind that many would previously have had to take advice. As my noble friend proposes, is this not the type of situation now potentially covered by amendments to the Financial Guidance and Claims Bill where individuals can be defaulted to the guidance service with an obligation to demonstrate that they have received guidance before proceeding?

We will not oppose these regulations, although in some respects we consider them a missed opportunity. However, they illustrate the complexity of aspects of our pensions system and the importance of ensuring that individuals are fully supported to understand the value of their pension entitlements.

[Baroness Buscombe]

I thank all noble Lords and the noble Baroness, Lady Drake, for taking part in the debate. I will do my level best to respond to the questions as fully as I am able. The noble Lord, Lord Jones, first asked about the legal term “survivor”. “Survivor” in the regulations means a person who has survived the member and has a right to future benefits or is entitled to benefits under the scheme in respect of that member. The noble Baroness, Lady Drake, and the noble Lord, Lord Jones, referred to survivors. I want to make clear that these regulations apply to both members and survivors. Where an individual inherits a member’s subsisting rights in respect of safeguarded benefits and those benefits exceed the advice threshold of £30,000 the survivor is also required to take financial advice. Survivors who inherit a member’s safeguarded flexible benefits will also receive a personalised risk warning should they decide to transfer, convert or flexibly access their inherited pension rights. The risk warning is sent to whoever is making a decision about their pension saving at the point they are most engaged in that decision.

In response to the question from the noble Baroness, Lady Drake, about what is included in the definition of safeguarded flexible benefits, the simplest description of a safeguarded flexible benefit is a cash pot with some form of promise or guarantee that the member can convert their pot into a pension income at a predetermined rate. We have framed the definition in fairly general terms, rather than specifically to the types of pension arrangements it covers, such as guaranteed annuity rates, in order to limit the scope for omissions or avoidance. Those uncertain whether the regulations apply should seek appropriate legal expertise and advice.

I turn to the question of what GARs in occupational schemes are not money purchase. GARs that are included in the rules of the pension scheme irrespective of whether this was reflected in the terms of a contract between the trustee and a third party, such as an insurer, are not money purchase. In this situation, the scheme would be liable to fund benefits over and above what the scheme assets—including the contract—can provide. So the benefits are technically non-money purchase and are, therefore, safeguarded benefits.

The noble Baroness also asked about members who are told about their guarantees too late. The question was, why not require schemes to tell members about their guarantees earlier on? The regulations laid alongside these regulations will require trustees and scheme managers to send members information about their valuable guarantees at precisely the point that the member is most engaged in considering what to do with their pension savings. This, we believe, makes them more effective at increasing awareness of guarantees among members than forcing schemes to send regular information long before members’ retirement, when they may not be actively considering a decision.

--- Later in debate ---

[Lord McKenzie of Luton]

Just on that point, is it the Government’s position that they would support those amendments as currently carried and included in the Bill?

[Baroness Buscombe]

I thank the noble Lord for the question. Yes, the Government will accept the amendment in the other place but of course we cannot speak for other Members in the other place, who may think differently. Certainly, the expectation is that the amendment will see Royal Assent.

There was a suggestion that our legislation is reducing protection for members of defined benefit schemes, but these regulations have no impact on the vast majority of such schemes or their members. They will still be subject to the same requirement for regulated financial advice where their benefits exceed the same threshold, and the same valuations will continue to apply. In the small proportion of schemes that choose to offer more generous transfer values than are required by law, members whose defined benefit pensions are worth in the region of £20,000 to £30,000 are being treated more fairly. They will not be forced to take advice when members with the same rights in other defined benefit schemes are not. These members can of course opt to take advice and will be able to seek guidance, which can signal the option of advice before transferring.

There was a question about whether we were reducing member protection and making it easier for savers to surrender their guarantees. We remain committed to the principle of the advice safeguard. That is why the threshold to whom it is applied remains the same—those with safeguarded benefits with a value of over £30,000—and with the introduction of these regulations, for the majority of members with safeguarded benefits there will be no change in how their pension is valued and calculated for the purpose of the advice requirement.

However, where a pot is cash-based but has a safeguarded element, such as the option of a guaranteed annuity rate, these regulations deliver simplification and clarity. Trustees and scheme managers now have to produce only one valuation of the member’s pot. A single figure is easily explained and avoids confusing members because it makes it clearer what the members may receive if they proceed to transfer, convert or otherwise flexibly access their savings. At the same time, parallel regulations introduce new protections that are timely—sent at the point members are making a decision—and increase the total number of members informed that their pots contain guarantees.

The noble Lord, Lord McKenzie, asked about the work that has been done on assessing the impact of the regulations. The Department for Work and Pensions estimates that there will be approximately 12,400 individuals per year who no longer need to try to find advice. The noble Lord said that he felt that these regulations were a missed opportunity. I reconfirm, as I said at the outset of this brief debate, that it is very important to take on board the fact that the Department for Work and Pensions is continually reviewing and assessing the impact of regulations, following the protection freedoms. If it is found that more needs to be done, changed or amended, we will certainly do that through secondary legislation.

The regulations debated here today simplify how trustees and scheme managers value members’ pensions when determining whether the requirement to take advice applies. Pension schemes with members who hold safeguarded flexible benefits—mainly but not exclusively personal pension contracts that include the option of an annuity at a guaranteed rate—can use the transfer value of the member’s pot, instead of undertaking a complex actuarial calculation.

Representatives of consumers and industry have both sought and supported the simplification of the current valuation method that these regulations deliver, and both groups will benefit from its implementation. Consumers with safeguarded flexible benefits will be less confused when they inquire about transferring or accessing their pot because they will receive only one valuation, and the difficulties for industry when valuing these guarantees will be removed.

Finally, these regulations form part of a package of measures. If approved, they will come into force alongside a new requirement to send all members tailored communications, ensuring that all members are told about their valuable benefits in a more timely and accessible manner. There will also no longer be a cohort of individuals who are required to seek financial advice, but are often unable to locate an adviser willing to advise on their pension savings. I hope I have set out for the Committee the need for these regulations and have responded to the matters raised. I commend these draft regulations to the Committee.

Motion agreed.