Pensions and Benefits Uprating

Debate between Baroness Clark of Kilwinning and Steve Webb

Tuesday 25th February 2014 Commons Chamber

[Steve Webb]

I am listening with care to the hon. Lady. Just to set the record straight, one of her objections to the use of CPI is that it does not include housing costs. In fact, it does. It includes rents. Were we also to include owner-occupiers’ housing costs—the CPIH measure—we would have a lower measure than the one we are using.

[Katy Clark]

Obviously the Minister is aware that the range of factors taken into account has been smaller every year since the change was brought in. I oppose the orders not necessarily because they do or do not include housing costs—I understand the point he makes; he has made it before and we have debated it previously—but because the method does not reflect the real cost of living that people who rely on these benefits experience.

Every year since 2010 RPI has been higher than CPI and the gap between those figures has made a real difference to pensions and benefits. The danger with the change is the cumulative impact over many years. In 2010 the RPI figure was 4.6%. That went up to 5.6% in 2011, down to 2.6% in 2012, and was 3.2% last year. But the equivalent CPI figures were 3.1%, 5.2%, 2.2% and 2.7%. Every year there has been a gap, which has meant that some of the poorest and most vulnerable in our society have ended up with less money in their pocket.

The Prime Minister has made much of his decision to introduce a triple lock guarantee for the basic state pension. He has already pledged to retain it throughout the next Parliament should he have any success at the next general election. The guarantee ensures that the basic state pension will always rise in line with whatever is the greatest as between inflation, wages or 2.5%. The uncomfortable truth, however, as the Minister must accept, is that the triple lock was introduced alongside the change from RPI to CPI, so the basic state pension increases in 2012 and 2013 were lower than they would have been if the previous system had been used. By 2015, the basic state pension will therefore be £1.11 a week lower than it would have been if it had risen in line with RPI, so pensioners will be £106.60 worse off as a result.

That is how just one group is affected. If we look at other groups, such as carers, the situation is even worse. Next year, carer’s allowance will be £1.69 per week lower than it would have been under RPI, with carers £255.84 worse off by April 2015 as a result. Those receiving both the higher rate mobility and care components of disability living allowance will be £571.48 worse off by the same date.

--- Later in debate ---

[Steve Webb]

Clearly a whole raft of decisions are made about increases. The right hon. Member for East Ham mentioned rail fares, for example, and the train operators’ revenues and some of their costs are determined by RPI. The task that the Department for Work and Pensions has once a year is to look at what has happened to the general price level, and I have not heard a single argument in this debate that CPI is not the best single measure to use for that purpose.

[Katy Clark]

Surely the Minister accepts that benefit increases are at least in part about social justice. Since 2010 we have seen this Government take a range of steps that have increased inequality in this country. Surely he must accept that choosing CPI simply because it seems to be a smaller amount will push the poorest people even further below the poverty line.

[Steve Webb]

I fundamentally do not accept that. The hon. Lady says that we chose CPI simply because it is lower. As of the year to last September, we had only two possible measures to choose from—CPI and RPI—because the other variants of CPI and RPI were not established at that point. RPI has been discontinued as an official statistic, so how could we use it as the measure for the general increase in the price level? CPI is the target of the Bank of England and an internationally standard and accepted measure. If she thinks from a social justice point of view that benefits should be higher, which is an entirely legitimate thing to think, she should do that by setting them at whatever level she thinks is right, not by trying to pretend that inflation is something other than what the statisticians tell us it is. Those are two separate questions.

[Katy Clark]

Does the Minister not accept the point that has been made in a number of debates in recent years, which is that the inflation that the poorest experience, and indeed that pensioners experience, is far higher than CPI?

Pensions Bill

Debate between Baroness Clark of Kilwinning and Steve Webb

Tuesday 29th October 2013 Commons Chamber

[Steve Webb]

Apparently he is searching for silver bullets. In any case, we are already seeing consolidation. To give the House a sense of scale, let us consider small and medium occupational defined-contribution schemes for between 12 and 1,000 members. The number of such schemes fell by more than a third in three years—a dramatic fall—from 3,300 to 2,110. The number of micro-schemes, with between two and 11 members, fell by a fifth over the same period, from some 45,000 to 36,000. In a sense, the Opposition amendments seek to force the pace on scale, but it is already happening quite quickly. That is a welcome development, and once we implement our measures on scheme quality—which, subject to consultation, may include tough action on charges—there will be a seismic effect on the pensions industry.

If a scheme cannot be used for auto-enrolment unless it delivers seriously low charges, many small, sub-scale schemes will fall by the wayside. The trends are already in that direction, and the measures we shall implement will substantively accelerate that. Rather than presume that scale is the right answer, we have to regulate the quality. If a small scheme can demonstrate that it is, for example, tailored to the characteristics of its membership and is delivering for them, great.

We do not want to kill good-quality small pension schemes, which is what the Opposition’s slightly bureaucratic amendment could do. Instead, we will say, “This is what we think good looks like. If you, as a big or small scheme, can deliver that, we will not tell you what to do. We will set parameters for what good looks like and you have to deliver.” Consolidation is already happening, and the quality requirements we are putting in place will deliver the outcomes that the hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East wants.

Moving on—I apologise for the jargon—to decumulation, or “turning pension pots into retirement income,” as I think I am required to call it, new clause 11 suggests that it should be a requirement on schemes to feed in an annuity broker at the end. The hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East touches on an important issue, albeit again in an overly rigid way. Getting pension pots into a good profile of retirement income is crucial, which is why we at the Department for Work and Pensions are working with our colleagues at the Treasury on annuities and decumulation. Decumulation is about more than annuities. That is not a snappy soundbite, but in other words, turning a pension pot into a retirement income has to be about the whole process of retirement, not just a single event on a single day that fixes one’s retirement income for perhaps 30 years.

The danger with the rigidity of new clause 11 is that it presumes a backward-looking annuity model. Annuities in their current form were designed for a world where people lived for 10 years with pensions and then died. We now have a world where people might annuitise in their early 60s, or want to stop contributing to their pension pot in their early 60s, and live into their 90s. There are serious questions about the suitability of annuities for everybody. For example, people with big pension pots might want to look at a mixture of draw-down. They might want to look at alternatives, deferral or a range of options. It would be a backward step to hardwire into primary legislation that the only good thing that can be done with a pension is to annuitise through this particular model. We should give people new options at decumulation, not hardwire them into the annuity model. Of course, even an annuity broker may not necessarily guarantee that someone will get, for example, an impaired life annuity or enhanced annuity for disability or low life expectancy.

There is a lot that needs looking at in this section of the market. The initiatives that the industry has already taken—for example, the ABI code that came into practice earlier this year—are welcome, but we need to go further. We need a creative approach to turning pension pots into pension income, not a single product hardwired into a primary legislation model. I understand where the hon. Gentleman is coming from and I believe that the annuity market is in need of further reform, but hardwiring into primary legislation does not seem to us to be the way to go.

The House will be pleased to know that there are two final sections left, both of which are brief. The hon. Member for Hayes and Harlington (John McDonnell), who does not appear to be in his place, tabled new clause 7, on rail pensions. The new clause relates to whether the Government should underwrite the shortfalls in the pension funds of employees who worked for the nationalised rail industry, which was then privatised, and where some companies, such as Jarvis Facilities, Relayfast and Fastline, went to the wall. We sympathise with any worker whose firm goes to the wall, but I say to the hon. Gentleman in absentia that the notion of protected persons in this case was simply that the terms of the pension scheme of the private employer would be as good as in the public sector. It was never a guarantee against the insolvency of the sponsoring employer. All private sector employees are covered by the Pension Protection Fund, provided that their firm pays the PPF levy. That is how these workers will get all or most, depending on their circumstances, of the pensions they were expecting. It would be wrong to give special treatment to that group when many other people work for firms that went to the wall and will not get that treatment.

[Katy Clark (North Ayrshire and Arran) (Lab)]

Does the hon. Gentleman not accept that to enable privatisations to go ahead—we are not just talking about the railways; the electricity sector and the miners were affected in similar ways—promises were made that people’s pensions would not suffer any detriment as a result of privatisation? Our experience is that privatised companies go bust more often than others. Surely we are reneging on those promises.

[Steve Webb]

Just to be clear, new clause 7 makes a specific suggestion regarding a private sector employer going to the wall. The promise was never, “You’ll get absolutely everything, even if your firm goes bankrupt”; it was that the terms of the pension would be as good as in the public sector. Clearly, in this case people are working for a private sector firm and could, if they wish, transfer their pension rights to somewhere else. They chose to keep them with the sponsoring employer.

Bear in mind that the money to pay for any shortfall in those pensions will come from the general taxpayer. Somebody is paying for that shortfall and many general taxpayers have no pension provision at all. If a private company knows that the pension fund is completely insured by the Government, that may influence its behaviour in a way we would not want. If feels unfair to say, “If your private employer used to be nationalised not only do you still have access to a very good pension scheme, but it is absolutely protected, whereas if you worked for any other private firm you are not protected.” I can understand why the hon. Member for Hayes and Harlington, given his trade union links, supports the railway workers—that is fair enough—but it seems like special pleading for that industry and I think there are many others who might make the same argument.

[Steve Webb]

Although the ABI code, for example, no longer requires the providers to send the application form with the wake-up letter, I gather the early evidence is that it has not substantially changed the proportion of people who shop around and then move to a new provider. I agree with my hon. Friend that there is a big agenda on decumulation—I apologise again for the word. It is not just about annuities. The new clause is too narrow and too prescriptive, but I assure my hon. Friend that we do not regard decumulation as a job done—on the contrary.

[Katy Clark]

I have been contacted by a number of constituents who are in difficulties because of the current regime. The Minister clearly accepts that there is a need for change. When will he come forward with proposals? He has been in post for a number of years and is clearly on top of his brief. We need the Government to act. When will they do so?

[Steve Webb]

My particular responsibility is automatic enrolment. We are about to put 10 million people into mainly defined-contribution pensions, the vast majority of whom, all things being equal, will then buy an annuity at the end. For understandable reasons, our focus in the past few years has been to get the infrastructure in place to get those 10 million people into pension saving and building up pension pots. Then, when they have a pension pot, we will ensure that they receive good value at the other end. There will be a set of people who will be auto-enrolled today and will retire tomorrow, but they are a minority. We need to get to grips with this issue. Annuity policy is led by our colleagues in the Treasury, which is why we are working closely with them. We hope to make further announcements soon.

Government amendment 31 relates to the Pension Protection Fund compensation cap. In Committee, we amended the Bill so that workers entering the PPF would have a more generous cap if they had been long-serving employees. The amendment applies the same provisions to people who are already in the PPF. We will not go back years and increase pensions retrospectively, but once the Bill and secondary legislation are passed we will increase their pensions going forward in line with the provisions we have already made for new employees going into the PPF.

Oral Answers to Questions

Debate between Baroness Clark of Kilwinning and Steve Webb

Monday 11th March 2013 Commons Chamber

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

From 8 April, people living in temporary accommodation will, in most cases, be unaffected by the removal of the spare room subsidy in the social rented sector. However, where a local authority’s own temporary accommodation is used, the spare room subsidy will be removed if the tenant is placed in accommodation that is larger than they need.

[Katy Clark]

In North Ayrshire the council owns 63% of the accommodation used as temporary accommodation, and the bedroom tax will apply to approximately two thirds of those properties. Will the Minister look again at the definition of temporary accommodation, given that this policy will simply mean that local authorities end up spending a lot more on less suitable accommodation from the private sector?

[Steve Webb]

We think that local authorities using their own stock to discharge their homelessness function should, wherever possible, house people in appropriately sized accommodation. If there are short-term problems in matching families to accommodation size, discretionary payments are available and can be used to support any shortfall a local authority may experience.

Pensions and Social Security

Debate between Baroness Clark of Kilwinning and Steve Webb

Thursday 23rd February 2012 Commons Chamber

[Steve Webb]

The volume of my ministerial correspondence on this issue has been very light. Almost all of it was with people who were afraid because they had seen speculation that we might water down our promises. I have been able to write reassuring letters to them to say that we will honour our promises in full.

[Katy Clark (North Ayrshire and Arran) (Lab)]

I apologise for missing the beginning of the Minister’s opening remarks. Will not the change mean a reduction from 5.6%, which would have been the uprating had we used RPI? Is the Minister aware that we have a Back-Bench debate on the matter because more than 100,000 people have signed a petition against the changes, particularly as they affect pensions? It therefore surely cannot be the case that people are happy about the changes.

[Steve Webb]

The hon. Lady may not have been in the Chamber when I referred to next week’s debate, when we will debate such issues at greater length. I was not aware that it was Labour party policy to revert to RPI—its view for now is that CPI is appropriate. She might want to raise that with the right hon. Member for East Ham (Stephen Timms), who is on the Opposition Front Bench. For the reasons I have given, our judgment is that the CPI basket of goods matches the spending patterns of pensioners. The Institute for Fiscal Studies has confirmed that modelling and people’s response to price changes is better with CPI than in RPI. No index is perfect, but there is a good case for using CPI.

Funnily enough, when I attended a National Pensioners Convention event in the House a few months ago, the people there all demanded CPI, which shows how the debate has moved on. I am sure the hon. Lady has a press release saying that more is being demanded, but the tenor of the debate was that there was speculation that we would not honour our triple-lock promise. They said: “Minister, will you guarantee us the triple lock—prices, earnings or 2.5%? Will it be the 5.2% that we have just seen?” That was commendable realism on the part of the National Pensioners Convention—that is its role in life—but things may have moved on now it has banked the 5.2% in the current environment. In fact, 5.2% is the biggest cash increase ever and one of the biggest real-terms increases in a long time. I am proud to stand by that figure.

Restoring the earnings link for the basic state pension was an early action by this coalition Government, putting an end to 30 years of deterioration in the value of the foundation of retirement income relative to average earnings. Better than that, we went one further with our triple guarantee to pay the highest of the growth in earnings, prices or 2.5%, so that even in times of slow earnings growth, we will not see a repeat of the small rises, such as the 75p rise in 2000, presided over by the Labour party.

In line with the triple guarantee, the new rate for the basic state pension, received by more than 11 million people in this country, will be £107.45 a week for a single person, an increase of £5.30 a week. My hon. Friends in the coalition may be interested to know that that means that from April 2012, the basic state pension is forecast to be 17.1% of average earnings, which is a higher share of average earnings than in any year of the previous Labour Government from 1997.

Oral Answers to Questions

Debate between Baroness Clark of Kilwinning and Steve Webb

Monday 24th October 2011 Commons Chamber

[Steve Webb]

Let me point out that the bulk of crisis loans will remain available under a UK-wide scheme. The devolution of the social fund relates principally to community care grants and a small amount of crisis loans. In our view, that money is better handled locally, close to the communities in question, and we hope that the Scottish Parliament will take the opportunity to have the money that is available and to spend it in Scotland, which is what it always tells us it wants.

[Katy Clark (North Ayrshire and Arran) (Lab)]

18. What recent assessment he has made of the capacity of the Jobcentre Plus network to administer the benefits system during periods of rising unemployment.

Social Security

Debate between Baroness Clark of Kilwinning and Steve Webb

Thursday 17th February 2011 Commons Chamber

[Steve Webb]

My hon. Friend is quite right. One of my first tasks as a Minister was quite strange. I had to write ministerial letters to say why we the Government—meaning my predecessors—had frozen people’s SERPS pensions, which was precisely because the RPI was negative, yet inflation was not.

[Katy Clark (North Ayrshire and Arran) (Lab)]

When the Chancellor announced the change in his emergency Budget last June, he said that it would save more than £6 billion a year by the end of this Parliament. If that is true, it must surely mean that individuals will be worse off.

[Steve Webb]

Just to be clear, my right hon. Friend the Chancellor was talking about the CPI indexation of all social security benefits, not just pensions. Clearly, compared with previous plans, benefits for people of working age will generally increase by less over the Parliament, which will lead to significant savings. I should mention therefore in passing that any political party that went into the election promising to reverse that would also have to indicate where many billions of pounds would come from over the course of a Parliament. However, specifically for pensioners, the earnings link in the long-term is much more generous than the reduction from the CPI change.