Pension Credit
Lord Davies of Brixton Excerpts(1 year, 3 months ago)
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The Parliamentary Under-Secretary of State, Department for Work and Pensions (Baroness Sherlock) (Lab)
My Lords, the Government want all eligible pensioners to apply for pension credit. The Government have written to pensioners providing advice about claiming pension credit following the change to the winter fuel payment, alongside a range of other creative media campaigns. We are engaging directly with pensioners as well as with stakeholders, including devolved Governments, councils and charities, in a joint effort to raise awareness through our combined networks and channels.
Baroness Stedman-Scott (Con)
I say to the noble Lord: feel free. Having run a pension credit campaign, I can understand what the Minister is undertaking. Do the Government intend to guarantee that the DWP has the capacity to deal with what could well be a rapid uptake of applications for pension credit—with all the extra administration needed to process the claims —after this Government’s shameful decision to deprive pensioners who need it most of their winter fuel payment?
Baroness Sherlock (Lab)
My Lords, I was so with the noble Lord for the first 20 seconds—all the way. I am grateful for his congratulations to the department, and I shall take them back to my colleagues, who are doing a brilliant job on this front. We have written to around 12 million pensioners about the change to the winter fuel allowance, so a lot of work has been done out there to encourage people to apply—and it is having an effect. We have seen a 152% increase in pension credit claims received by the DWP in the eight weeks following the announcement on the winter fuel payment compared to the eight weeks before, and that will be updated towards the end of the month.
On the costs at the end, obviously, a lot of these claims have to be processed and we will not know for some time down the road. However, it is very clear that the DWP wants everybody who is eligible to do so to claim pension credit. As I have said before, if we end up with more people claiming the money to which they are entitled, that is a good thing. Pensioners deserve the money to which they are entitled.
Lord Davies of Brixton (Lab)
My Lords, I apologise to the House and to the noble Baroness, Lady Stedman-Scott, for jumping in too quickly. My noble friend the Minister gave the figure of 500 additional staff in an Answer to a Written Question from me earlier in the Session. What was not clear from her reply was when the 500 extra staff would be in post and fully trained to provide the service required to achieve the take-up of pension credit that we all want to see.
Women’s State Pension Age: PHSO Report
Lord Davies of Brixton Excerpts(1 year, 3 months ago)
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Baroness Sherlock (Lab)
My Lords, if I could persuade—with some trepidation—the noble and learned Baroness to share the details with me, I would be very happy to look into that.
Lord Davies of Brixton (Lab)
My Lords, the ombudsman made it clear that these women suffered from maladministration and that they are entitled to redress. I ask my noble friend to recognise the case for urgency, particularly because the delay is leaving the people affected prey to scammers, who are offering to assist them in making claims. This issue needs to be resolved as quickly as practical.
Baroness Sherlock (Lab)
My Lords, I am grateful to my noble friend for raising that last point. To be absolutely clear, because there has been no response to the report, there is no compensation scheme. Anyone claiming to offer it is scamming and nobody should touch it—please can that message go out loud and clear. I understand my noble friend’s general point, and I know he will understand the position that this Government are in. At the risk of boring myself, never mind the House, all I can do is repeat that the Government are looking very closely at the findings of the ombudsman and will respond as soon as is practicable.
Pensions Regulator Defined Benefit Funding Code of Practice 2024
Lord Davies of Brixton Excerpts(1 year, 3 months ago)
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Lord Davies of Brixton
That the Grand Committee takes note of the draft Pensions Regulator’s Defined Benefit Funding Code of Practice 2024, laid before the House on 29 July.
Relevant document: 2nd Report from the Secondary Legislation Scrutiny Committee
Lord Davies of Brixton (Lab)
I always appreciate a challenge, and I was quite interested to note that our Whips have got the idea that this debate will last half an hour, but I will not take up the whole 30 minutes.
First, I have to declare an interest: I am a fellow of the Institute and Faculty of Actuaries, or IFoA as it is now. Many members of the institute provide advice on funding of defined benefit or DB schemes, and they will be significantly affected by the code that is before us. However, I add with some emphasis that I no longer practise as an actuary, hence nothing of what I say must be regarded as constituting actuarial advice. It might sound like actuarial advice, but I assure those here that it is not; noble Lords have to get their own advice rather than take it from me. Nevertheless, I speak from experience as a scheme actuary who has undertaken scheme valuations including, in the past, under the Pensions Regulator or previous iterations.
We are talking about the regulator’s defined benefit code of practice—the code—issued under Part 3 of the Pensions Act 2004. I very much welcome the opportunity to make a few remarks about the code and to ask my noble friend the Minister some questions.
TPR has been producing codes of practice on funding going back to 2006, but it is worth pointing out that it first consulted on this iteration of the funding code more than four years ago, in March 2020, with a second attempt in December 2022. This version was published for consultation in March this year, so its final form comes after years of waiting and four Prime Ministers; the whole Covid epidemic; a significant shift in the financial position of many defined benefit schemes, with increased investment returns in particular; considerable discussion about how these funds should be invested in the light of the Mansion House reforms under the last Government; the pension review under this Government; and, not least, an increased appreciation of the risks to defined benefit schemes from climate change. So much has happened and the code has, in effect, had to hit a moving target. Unfortunately, I would argue that even this version has not really caught up with developments and events.
The new code, together with the Occupational Pension Schemes (Funding and Investment Strategy and Amendment) Regulations 2024, which we discussed in this Room last March and which came into force in April, gives trustees and advisers most of the tools and processes to follow for DB funding valuations with a valuation date on or after 22 September 2024. There has been a bit of time-shifting going on here, but it is not a concern. It is clear that there will be specific areas of the code where further clarification is required, which will be found out only in practice.
I will not repeat everything I said in March, but I want to emphasise my main point. I was talking about the regulations, but it applies to the code as well:
“The regulations are patently too prescriptive. The details that they require are not directed at the objective of protecting members’ benefits but are about establishing a system where box-ticking will take priority over the longer term and broader interests of scheme members”.—[Official Report, 26/3/24; col. GC 165.]
This version may well be better than earlier drafts but, given that the code is already in effect in practice, it should be understood that it is only one stage of the longer-term reassessment that is required, given the continued pace of developments in this sphere. We should not be under the delusion that this constitutes a job done.
There are positives that I want to recognise. The DWP tells us that the draft code has been revised to strike a balance between setting clear funding standards and maintaining flexibility for scheme-specific approaches. The move to a more principle-based rather than prescriptive approach to areas such as the low dependency investment allocation and assessment of the covenant is helpful and gives the trustees some flexibility. Other commentators have welcomed the redefinition of what constitutes significant maturity; clarification of what happens when the valuation is based on notional investment rather than actual investment; greater clarity on how to assess the employer covenant; and—this is particularly important—what applies when there are surplus assets. It is to be welcomed that the final version includes a section for open schemes, collating the guidance that is relevant to them across the code.
Nevertheless, the code remains a work in progress. The IFoA has said:
“The totality of the changes being introduced by the new code remain complex”,
and that there are still a few more steps on the journey to take. It says that it hopes
“the regulator will adopt a pragmatic approach when considering the first valuations under the new regime, due to the short implementation period for the final rules”,
emphasising the point that this is a work in progress.
My major concern remains that here we have 100 pages of detailed instructions and rules, albeit with quite a lot of repetition, not just on how to undertake a valuation under the terms of the legislation for a defined benefit scheme but about how such a fund should operate, particularly in the field of investment. It passed through my mind to go through the document quoting the minutiae that is dealt with—for example, telling us that we have to use a Macaulay duration calculation. I have resisted that temptation—I do not wish to delay people too much—but I have no doubt that the requirements, while well intentioned, are excessive. Although there are references to proportionality, what will happen in practice is that the code will suffer from what is described as procedural drift, where individuals become overreliant on routine processes, potentially leading to reduced understanding of the overall decision: failure to see the wood for the trees.
The underlying belief, as far as I can tell, is that detailed prescriptions and requirements are better than general principles. I do not know what evidence there is for such a belief. Is it true that detailed prescriptions and reporting requirements along the lines set out in the code make it any more likely that members will receive their benefits? I doubt it. As an overriding principle, given the inherent uncertainty about any attempt to forecast the future, there is no reason to believe that making an algorithm more complex improves the outcome.
One problem that concerns me, which I raised in the debate in March, is how the code reacts with Technical Actuarial Standard 300: Pensions. TAS is set by the Financial Reporting Council and lays down how any actuary in the UK should undertake technical actuarial work required by legislation to support decisions on funding, contribution requirements and benefit levels. I have the latest version here; it came into effect in April. The point is that the actuary who undertakes the valuation at the request of the trustees must comply with the professional standard. However, we are in the peculiar position where the code makes no reference to TAS, and TAS refers only by implication to the requirements of the code in an appendix.
It is a matter of concern that the 18 pages of TAS, only four of which refer to scheme funding, make more sense than the 100 pages in the code. What exactly in the code achieves anything that is not already achieved by those four pages in TAS 300? We are told that in its review of TAS 300, the Financial Reporting Council has deferred consideration of the provisions on funding and financing until the new legislation on funding and TPR’s revised code of practice are in place. I am not convinced that this will work. There must be a real question about who is responsible for setting technical standards on funding DB schemes—the Financial Reporting Council or the Pensions Regulator. Judging by the record, my vote goes to the Financial Reporting Council.
Having made that general point, to which I will no doubt return in future, I have three specific questions about how the code will deal with continuing developments in DB pensions. First, there must be a question of whether the code deals with whatever comes out of the first stage of the pensions review. We have been told that the first stage is due to report in the next few months and will consider further measures to support the pensions Bill. It will take account of the need to prioritise gilt market stability, liquidity and diversity. The objective, we are told, is to boost investment, increase saver returns and tackle waste in the pensions system. The problem is that this objective is not reflected adequately in the code. How and when will these issues be reconciled? How will what comes out of the pensions review be reconciled with what has been established in the code?
The second question arises from the improved state of DB funding, which has led to more schemes being run on—continuing rather than moving quickly to buyout. Because schemes will be running on and must, under the code, have the objective of being fully funded, this raises a question: when schemes move into surplus, what rules apply to that surplus? In discussions that people have initiated since we have seen the improvement in scheme funding, it has been suggested that schemes with a material surplus may invest in a greater allocation to growth assets. This aligns with the policies I have just referred to—of both the previous and the new Governments—which emphasise investing for UK growth. That objective is not adequately reflected in the code. In addition to the issue of investing surplus, there are other possible results of improved financial conditions for DB schemes. Not least of them is the possibility of improvements in members’ benefits, either through trustees exercising the discretionary powers that many of them have or through rule changes.
In the same way, some people are talking about the possibility of powers being used to refund sponsoring employers or to use the surplus in the scheme to cover the cost of accruing benefits. Unfortunately, the Pensions Regulator appears to have given insufficient thinking to such developments and to how its powers will be exercised when confronted with such issues. The code does touch on the issue, talking about covenant leakage but in a way that is clearly inadequate when faced with the challenges that will arise from these moves. Will the Government press the Pensions Regulator to give the issues that arise from the potential existence of scheme surplus further thought and more adequate thinking? I have already complained that the code is too complex. I am not suggesting that this should be in the code, which is complex enough, but it is an area to which the Pensions Regulator has to give considerably more thought, so that we know where it is coming from when confronted with these issues.
The third issue, which I will cover swiftly as we will debate it again on Thursday, is the impact of climate change. The code touches briefly on the issue, in paragraph 23 of the application module, but it is an issue on which the Pensions Regulator has to take much more of a lead. Will the Government encourage the regulator to pursue what needs to be done to enable schemes to confront the challenge of the greater risks that face the financial system, including defined benefits schemes, as a result of global warming?
Lord Davies of Brixton (Lab)
I thank the Minister for her long and detailed response. I think I need to use the formula used by Ministers: “I will read the entry in Hansard”. There was so much information in it, for which I thank her. I also thank noble Lords who came for the debate on Russian sanctions; I hope they found it informative to hear about pensions.
The phrase that had particular resonance with me was that used by the noble Baroness, Lady Altmann: “spurious accuracy”. When I was a trainee actuary, we were told specifically that making calculations more complex and difficult did not make them any better. Trying to forecast the future is difficult enough. Making complex calculations does not improve the outcome for members.
My major point is that current developments in pensions will require the code to be kept under review in any event, whether they are an increasing appreciation of the risks of climate change or the development of pension scheme surpluses. I welcome the remark about that. These changes accumulate and I hope that the Minister will enjoy further debates and discussions. I look forward, in particular, to the pensions Bill. Not many people say that, but I think we will have some interesting debates.
Motion agreed.
Social Fund Winter Fuel Payment Regulations 2024
Lord Davies of Brixton Excerpts(1 year, 5 months ago)
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Lord Davies of Brixton (Lab)
My Lords, these regulations are a mistake and I want my concern on the record. I want to make it clear from the start that the financial mess inherited by our Government is a result of 14 years of austerity and financial mismanagement, and I reject any suggestion that public sector workers are benefiting at the expense of pensioners. That is simply a crude attempt to divide working people, and we should reject it as such. I will therefore vote against the cynical regret Motion from the Official Opposition, and I say to the noble Baroness, Lady Stedman-Scott, that she does herself no favours attaching her name to the Motion.
There are several key points I wish to make. First, even if the case for austerity measures were accepted, the cut in winter fuel payment was not a necessary element in the July package; it was a choice. Secondly, whatever steps are taken to increase the take-up of pension credit, millions of the poorest pensioners will still suffer from an increase in fuel poverty—Age UK came out yesterday with a figure of 2.5 million. Thirdly, the effect of the triple lock should not be double counted and, in any event, it will fail to offset the effect of the cut in the winter fuel payment over the lifetime of the current Parliament. I urge the Government, even at this late hour, to hold back on any change, pending full consultation on an alternative approach to tackling fuel poverty, while retaining the advantages of a universal benefit.
It is important to understand more about why the Government wanted to include the measure in the July package, despite its obvious political downside. Unlike other possible options, it achieved in-year savings and used an existing structure for means testing the benefit, rather than having to create a new structure. However, they failed to appreciate the two adverse consequences of using the pension credit means test. First, it has a ceiling that everyone agrees is far too low. Secondly, there is no form of marginal relief, as it is not relevant for the purposes of means testing pension credit.
In response, the Government—my Government—have attempted to head off the widespread opposition to the regulations. First, they have argued that the winter fuel payment had to be cut as part of the July package to make the figures balanced. Secondly, they have argued that the impact would be offset by increasing the take-up of pension credit and, thirdly, that the impact would be ameliorated by the existence of the triple lock on the state pension. All of these arguments, regrettably, fail.
First, the cut was not necessary, even as part of the July package. There is of course a debate to be had about the need for austerity, particularly as an instant response. However, even if the need for the July package were to be accepted, the question as to whether it had to include the cut in the winter fuel payment is a separate issue. Posed in those terms, it is obvious there is no a priori reason that it had to be a necessary element of the package. Whatever risks the Government faced, they were addressed by taking the package as a whole and not by its individual elements. Despite the Government’s protestations about tough choices, there is no avoiding the fact that it was, nevertheless, a choice, thereby raising concerns about their attitudes to universalism and pensioners in general.
The second issue is pension credit, which other speakers have addressed. We know that the increase in the take-up of pension credit will be limited. It is important to acknowledge what the Government are doing to increase the take-up of pension credit, but, regrettably, there is a long history of ineffective take-up campaigns for means-tested benefits, going back to the 1940s, for national assistance, and beyond. There is no evidence that we now know more than they did in the past about how to overcome the intractable problems arising from stigma, complexity and a lack of knowledge. I am sure other speakers will go into detail on that.
My third point is about the triple lock, which does not offset the impact of the cut in the winter fuel payment. The Government suggested—not today but in other commentaries—that the triple lock increases to the state pension over their term in office would
“outstrip any reduction in the winter fuel payment”.
Unfortunately, this is an obvious case of double counting. I have done the sums, and almost all the pension increases that will occur over the coming five years are required to protect pensioners against the impact of inflation. Pensioners cannot spend that money twice, covering both increases in the cost of living and at the same time replacing the winter fuel payment. The purpose of the triple lock is to protect pensioners against inflation, keep state pensions in line with general living standards and nudge the pension gently upwards. I have calculated that, based on the latest OBR assumptions, the impact of the triple lock, taken by itself, means that the new state pension and the basic state pension will be barely 1% higher than they would have been, even with the statutory minimum increases. This is less than the winter fuel payment, which pensioners are losing because of this measure.
In all the debates on the cut in the winter fuel payment, I am not aware of anyone arguing that there is no case for change. The winter fuel payment is and always was an anomalous benefit, particularly as it affects high earners. A payment that, in practice, recipients can choose to spend as they wish should always have been included in taxable income. The fact that it was not is a historical accident, arising from how and when it was introduced, rather than a clear policy decision.
I therefore agree with the 2015 Labour manifesto, which said:
“We will stop paying Winter Fuel Payments to the richest five per cent of pensioners”.
That was the right policy then, and something like it is the right policy now. In other words, those with the broadest shoulders should bear the burden of the cut, rather than the millions of the poorest pensioners who struggle to make ends meet. Given the case for change, the Government at this late stage should hold back on the cut to the winter fuel payment, pending a full consultation on an alternative approach to tackling fuel poverty while retaining the advantages of a universal benefit.
Lord Desai (CB)
My Lords, there seems to be rather a hurry to embrace economic rationality on the part of the new Government. We know what economic rationality always says: cutting income tax for the rich is good policy because that encourages growth, and cutting the benefits of the poor is good policy because that balances the budget. All through economics—the science that I teach—there has always been this root. The poor must be made to suffer because, as Malthus pointed out, if you give them more money, they will only breed more children. That is no good. Giving money to the poor is a loss, but give money to the rich and the rich will benefit.
I imagine that there is an idea that a big hole in the fiscal accounts was suddenly discovered. I do not think so: I think we all knew there was a fiscal hole. We have all been through the pandemic and through the last 15 years, when the economy has had a very low growth rate—in fact, practically no growth rate. We know all that. We also know the public accounts numbers that were available giving us the ratio of deficit to GDP. None of this was a surprise. If you want to really tackle the deficit, you need a 10-year horizon to do it. Do it rationally; do not do it quickly, do not do it in a haphazard fashion and do not just immediately say, “Oh, I have to make a very tough decision”. As soon as a politician says “tough decision”, you know the poor are going to suffer.
Pension Credit
Lord Davies of Brixton Excerpts(1 year, 5 months ago)
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Lord Davies of Brixton
To ask His Majesty’s Government how many people (1) claimed, and (2) were eligible to claim, Pension Credit in each of the past three financial years.
The Parliamentary Under-Secretary of State, Department for Work and Pensions (Baroness Sherlock) (Lab)
My Lords, in answer to the first part of the Question, the numbers of people claiming pension credit were: in 2019-20, 1.49 million, in 2021, 1.41 million, and in 2021-22, 1.35 million. In answer to the second part, we cannot know precisely how many people are eligible to claim pension credit because we do not hold data on their circumstances, but we make estimates based on surveying pensioners and extrapolating from there. On that basis, we estimate that in 2019-20, 2.26 million were eligible. No figures are available for 2020-21 because the pandemic restricted the number of face-to-face interviews that could be done, and that were necessary to collect the data. In 2021-22, there were 2.15 million.
Lord Davies of Brixton (Lab)
I thank my noble friend for her Answer and express my great pleasure at seeing her in her place. But, her Answer makes it clear that many of the poorest pensioners—not just those who fail to claim credit, but those with an income slightly higher than that—will suffer from the cut to the winter fuel payment. Does she agree that seeking a replacement for the anomalous tax-free cash payment should only follow a thorough and detailed review, rather than this rushed, information-lite and damaging decision?
Baroness Sherlock (Lab)
I thank my noble friend—for everything up to the “But”. The Government are having to take what is a difficult decision at this time for the very simple reason that we inherited a £22 billion pressure on public finances.
People with Disabilities: Access to Services
Lord Davies of Brixton Excerpts(1 year, 9 months ago)
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Lord Davies of Brixton (Lab)
It has truly been a privilege to sit and listen to this debate. Thanks are due to my noble friend Lady Hughes of Stretford for introducing it but all the other speakers have contributed so much. I have just two thoughts to advance: first, this is as much about mental as about physical disablement; secondly, I am going to say something about the challenge faced by disabled people in securing an adequate pension.
It is totally appropriate that we consider the mental health aspects. The noble Viscount, Lord Younger, has had to leave the Chamber but I can see that he is aware that it is Mental Health Awareness Week, so we need to include that in our thoughts. Of course, it arises in two ways. First, as I think a number of speakers have highlighted, coping with the situation creates mental health problems for people with physical disablement but, secondly, parallel to that are the problems faced by people who have mental health problems in coping with the situation as it is. My noble friend Lady Donaghy quite rightly drew attention to the excellent briefs that we receive because we are taking part in these debates. I will just highlight those from the Royal College of Psychiatrists and from the British Psychological Society, which clearly focus on the mental health aspects.
The royal college is particularly forthright about the reform of the disability benefits system. It points out the stark rise in the number of people facing mental problems and nails the canard that it is, in some way, due to more people taking a day off because it is a blue Monday. The royal college says:
“This increase is driven by serious issues such as poverty, housing and food insecurity and increased loneliness and isolation. These factors are known to put people at greater risk of having a mental illness and were compounded during the pandemic”.
It is absolutely clear that it is no easy ticket to be receiving support for a mental health problem. It stresses:
“Only those with conditions which significantly impact their ability to function and have lasted over a year can receive PIP”.
It would be good if the Minister could acknowledge the knowledge and experience of the royal college in assessing where we are in this situation.
The royal college also stresses the importance of getting the Mental Health Act on board and of having resources to support mental health services, not just in the health service but in schools and the employment service. The British Psychological Society echoes those concerns. It stresses the importance of more education and understanding within the public services, so that the people providing these services are more aware of the challenge faced by people with problems with their mental health.
Turning to pensions, I recall that, more than 40 years ago, I was a member of a body called the Occupational Pensions Board, which produced a report Occupational Pension Scheme Cover for Disabled People. I reread our report, and we quite rightly found that the difficulty faced by disabled people is not with the pension; it is with getting a job in the first place. When they have a job, they accrue a pension. I think I have learned a little more since then because, of course, being disabled interferes with your career pattern. It means often that you have periods out of work. Because of that, your earnings and earning prospects are lower and you have gaps. Because of those factors, you end up with a lower earnings-related pension, and we have a system that depends on earnings-related pensions. That is an issue which needs some further consideration in the context of the benefits system.
I declare an interest, as in the register, with the Money and Mental Health Policy Institute, which is doing work on identifying the problems faced by people with mental health problems in the financial arena. It has recently produced a report on pensions that included a series of key recommendations, which I would like to highlight, regarding the issues faced by people who are mentally disabled in achieving a decent pension. It highlighted the importance of the Money and Pensions Service—MaPS—and calls for MaPS to put more effort into understanding and providing support for people with poor mental health. There is a need for specialist advice in this area and a need for MaPS to train the staff it has to acknowledge the problems that are faced. It is also important to ensure that, when advice is given, it is provided in an accessible way.
These issues come together. Poor pensions go with disability, and this needs to be acknowledged. I know the Minister has heard my speech on the gender pensions gap on more than one occasion; no doubt he will hear it again. Equally, we have a disability pensions gap, which needs to be addressed and acknowledged in a similar fashion.
Data Protection and Digital Information Bill
Lord Davies of Brixton ExcerptsMonday 22nd April 2024
(1 year, 9 months ago)
Grand CommitteeRead Full debate Data Protection and Digital Information Bill 2022-23 View all Data Protection and Digital Information Bill 2022-23 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 30-VI Sixth marshalled list for Grand Committee - (18 Apr 2024)
Lord Davies of Brixton (Lab)
Most of what needed to be said has been said excellently and clearly by the other speakers. I have just three specific questions that I urge the Minister to answer. However, an important point of context needs to be made first on the opposition of the finance industry to these proposals. It is clear and unambiguous. It could be thought that the finance industry just does not want to bothered and does not care about fraud, but in fact it is making the point that the Government have failed to come up with an overall fraud strategy. This is just a one-off idea thrown up. Some bright spark thought, “Well, we could put this into the Bill. We’ve always wanted to have this sort of overweening power. Let’s shove it in here and hope no one notices”. We need a proper fraud strategy, as other speakers have said. We lose a lot of money to fraud, so none of us are against appropriate measures to deal with it, but this is a one-off, completely ill-timed and ill-thought-out addition to the state’s powers.
I turn to my three questions. First, I have no doubt that the Minister has a predisposition to oppose the state being able to interfere in our private information—I do not doubt that that is his starting point in these discussions. The problem with this proposal is that there is no way of ring-fencing the information required for the purposes of the DWP from all the other information that is disclosed by looking at someone’s bank account. Their whole life can be laid out in their bank account and other statements. You cannot ring-fence the necessary information. This is a widespread, total intrusion into people’s privacy. Does the Minister accept that there is no way of ring-fencing the information required for the purposes of the DWP from all the other information that is available from looking at someone’s bank account?
Secondly, I have several times heard the Minister discuss improving take-up of pension credit. Does he believe that this will encourage people to claim the pension credit to which they are entitled? It will clearly discourage them. Has this been properly assessed? We know that one big reason why people do not claim pension credit is the state’s intrusion into their private affairs. People do not like it. For some people, seeing an extension of the state’s ability to intrude into their private affairs will discourage them from applying. As I say, the Minister has rhetorically encouraged people to claim their pension credit; in practice, this proposal will discourage people. Does he accept that?
Thirdly, we have three debates on this issue and I think this question may arise more in the next group, but I will ask it now, so that I can come back and ask it again later. People have referred to claimants, but this also covers the state pension. It is possible to defraud the state pension, but it is nevertheless an income. Pension or income—whatever you call it; I do not think we should get too hung up on the vocabulary—it is paid as a right and people are entitled to these benefits.
One of the other theories about our state system is about identical benefits. Some people, like me, who have never been contracted out of the state scheme, have a full state pension, but a lot of people were contracted out into private schemes and personal pensions. Now, because I have that state pension, the state can intrude into my bank account. The state is paying me the pension; it can look at my bank account under these provisions.
However, if my pension were payable by Legal & General Assurance Society or the BP pension fund, they would not have the right to demand access to my bank accounts. I am just pointing out that we would react in horror if this Act gave power to the BP pension fund to trawl through my bank accounts. We would react in horror if we were giving power to Legal & General Assurance Society to go through my bank accounts, yet the Government believe that the state should have this overweening power. Does the Minister accept that and does he think that it is wrong?
Baroness Buscombe (Con)
No. With respect, I am talking about Justice, which I think referenced 40 organisations. There was no list of what those organisations are in the information it sent me. There is also Big Brother Watch and many others.
I just think that everyone needs to take, if I may use the word, a proportionate approach to this. We are talking about tackling a really serious offence. I think all noble Lords agree that we have to tackle fraud but I am sure, and hope, that my noble friend can reassure everybody. The current powers that the DWP has to ensure benefit correctness are mostly over 20 years old. Over that time, fraud has evolved and become increasingly sophisticated. The system currently relies on self-verification for many factors, and that is one of the issues. I know it would sound so much better if people could find another way to check whether someone is being honest about their assets, but the problem is that a lot of this is to do with self-verification.
Lord Davies of Brixton (Lab)
The suggestion was made that this was carefully thought out and part of a long-term plan. Can the noble Baroness therefore explain why it was introduced into the Bill at such a late stage in going through the Commons, such that it did not receive any worthwhile consideration at all there?
Baroness Buscombe (Con)
I am sure my noble friend the Minister can talk about the particular timing of why it went into this Bill. Certainly in my time at DWP, the difficulty we had was finding the right Bill that we could add it to. This is one of the things that is really hard about being a Minister: you cannot just say, “This is something we have to do”. You have to find a route—like finding a route to market—to include a measure in a Bill that is relevant. This Bill is entirely relevant in terms of where we are now on data collection. The Minister and his team were right to choose this particular Bill.
I could go on.
Baroness Kidron (CB)
My Lords, in relation to the excellent speech of the noble Baroness, she mentioned “personal” accounts. I would like to double-check that business accounts, charitable accounts and other accounts that have one’s name or one’s partner’s name on, or are connected, do not go on ad infinitum.
Lord Davies of Brixton (Lab)
Because of the way the amendments are grouped, I have the opportunity to repeat my questions. The first one is relatively straightforward. Does the Minister accept that introducing these provisions—obviously we are talking about Amendment 234 on pensions—will discourage people from claiming pension credit? Despite all the efforts of the Government to encourage people to claim pension credit, clearly this will discourage them. Have the Government made any effort to estimate what impact this will have? Obviously, it is a very difficult task, but have they thought about it and does the Minister accept that it will have a deterrent effect.
My second question relates to the issue I have already raised. The state pension or state pension equivalent is paid by the state, by a pension fund or by a personal pension provider. Does the Minister think it odd that there is a difference in treatment? Everyone is receiving their pension from the state, but with a person who receives their pension from a private pension scheme or personal pension provider there is not the same right to look at their bank accounts in relation to those benefits. Now I am not advocating that as a solution. The question is: does this not indicate the illogicality and extent of the Government’s powers over some people’s incomes that they do not have over other types of income? To me, particularly when it comes to the payment of a pension—a benefit paid as of right—this discontinuity points to the extent of the Government’s overreach.
Baroness Bennett of Manor Castle (GP)
My Lords, I must begin by joining the general applause for the characteristic tour de force from the noble Baroness, Lady Sherlock. I was having a flashback because it was the noble Baroness in debate on what is now the Pension Schemes Act 2021 who taught me how to cope with Committee stage very kindly a long time ago —and we are very used to that. I rise briefly to address this group, but I start by saying in relation to the last group that I entirely agree with the proposition that Clause 128 should not stand part: the spying clause should not be part of the Bill.
I have a couple of points to make on the amendments in this group, one of which was raised by the noble Lord, Lord Clement-Jones, on the last group and is about protecting the Government from themselves. The amendments put down by the noble Baroness, Lady Sherlock, are probing. However, if we were to restrict the Government’s use of these powers, they might end up at a vaguely manageable scale. It is worth raising that point when we look at these groups.
Viscount Younger of Leckie (Con)
That point is very much noted. I will certainly take it back. Clearly, we need to provide greater reassurance on the limits and scope, as well as on what we are trying to do. I regret that I am not able to give those answers in full to the Committee now but I hope that, today, I have already taken us further forward than we were before we started. That is quite an important point to make.
I shall touch on the benefits that are in scope of this measure, a point that was raised by the noble Baroness, Lady Sherlock. I think the noble Baroness wishes to restrict the power to working-age benefits, but pension-age benefits are not immune to fraud and error—I wanted to address that—and it is our duty to ensure that these benefits are paid correctly and in line with the benefit eligibility rules that Parliament has previously agreed. Every payment that the DWP makes has eligibility criteria to it. Parliament has considered these criteria in the passage of the relevant social security legislation, and the Government have a responsibility to check that payments are being made in line with those rules so that taxpayers’ money is spent responsibly.
Lord Davies of Brixton (Lab)
Pension benefits other than pension credit have eligibility criteria attached, but I do not know any eligibility criteria applying to pensions that you could discover from someone’s bank account.
Viscount Younger of Leckie (Con)
The example that the noble Lord will be aware of links to what the noble Lord, Lord Sikka, was saying about some pensioners who have moved abroad but, for whatever reason, have not told us that they have done so and continue to receive the uprating. The figure for the fraud aspect—or it could be error—linked to state pensions is £100 million.
Lord Davies of Brixton (Lab)
Presumably the DWP already knows the address of the bank account to which an overseas pension is being paid. Why does it need to know any more?
Viscount Younger of Leckie (Con)
My understanding is that it needs to have these powers to be able to cover the ground properly. I say again that these powers are limited, and whatever comes from the data that is requested from the third parties will end up being, we hope, limited. Even then, it may not be used by us because there is no need to do so.
The power covers all relevant benefits, grants and other payments set out in paragraph 16 of new Schedule 3B to the Social Security Administration Act 1992, as inserted by Schedule 11 to the Bill. To remove pension-age payments from the scope of the power would significantly undermine our power to tackle fraud and error where it occurs. Pension-age payments are not immune to fraud and error, as I have mentioned. I will give an example of that. The noble Baroness, Lady Sherlock, asked whether people would be notified of their bank accounts being accessed.
Occupational Pension Schemes (Funding and Investment Strategy and Amendment) Regulations 2024
Lord Davies of Brixton Excerpts(1 year, 10 months ago)
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Baroness Drake (Lab)
I thank the Minister for the clarity of his presentation—this is a complex set of regulations—and for the briefing session that he arranged for Peers, where I was able to ask quite a lot of questions. I support these regulations but I want to take this opportunity to ask three questions.
The regulations were preceded by a government consultation on an original draft, which was amended post the LDI crisis and in the wake of the Mansion House productive finance proposals. Importantly, these regulations remove an uncertainty as to whether the DWP would qualify a trustee’s independence to make investment decisions as they make it clear that trustees will retain the power to decide how to invest the scheme’s assets. That is welcome; otherwise, it would have significantly weakened the trustee’s powers to protect scheme members. Is not intervening on a trustee’s independence to make investment decisions now settled policy? Also, is any consideration being given to granting additional powers to the Pensions Regulator to override investment decisions when it is oversighting a scheme’s funding and investment strategy?
Secondly, the regulations now allow greater flexibility in investments and risk-taking than was originally proposed in the first draft, were it supportable. The DWP has made amendments to avoid, to use the Government’s own phrase, things that “inadvertently drive reckless prudence” —that sounds like an oxymoron—“and inappropriate risk aversion”. As the Minister said, it is now explicit that open schemes can take account of new entrants and future accrual when determining when the scheme will reach significant maturity; this gives them greater scope for scheme-specific flexibility.
However, I note that these regulations also no longer require schemes of significant maturity that are making low-dependency investment allocation broadly to match cash flow from investment with schemes’ liabilities. The Government have made it clear that schemes can invest a reasonable amount in a wide range of assets beyond government and corporate bonds, even after significant maturity has been reached—for example, when the scheme’s years to duration of liabilities is around only five to 15. The DWP has explicitly removed the original draft Regulation 5(2)(a), which required in schemes of significant maturity that assets be invested in such a way that cash flow from investments broadly matched the payment of pensions under the scheme.
Why, when a scheme has reached significant maturity, would retaining the requirement that assets be invested in such a way that cash flow from the investments broadly matches the payment of pensions be considered “reckless prudence” or “inappropriate risk aversion”—the premise on which the original draft Regulation 5(2)(a) was withdrawn? When a scheme is in significant maturity, you need prudence and risk aversion because of the need for cash flow. In fact, in many closed DC schemes, the alignment of employers’ desire to remove DB liabilities and volatility from their balance sheets with trustees’ desire to protect benefits over the long term is increasingly leading to investments held broadly matching liabilities, as well as to consideration of a path to buy- out and buy-in for many schemes. It is rather rowing against what is happening in many instances. I fear that greater flexibility of access to surplus may not provide a sufficient incentive for schemes to change their course.
This is my third and final point. The requirement to assess the current and future development and resilience of the employer covenant is now on a legal basis and has to be embedded in the funding and investment strategy agreed by employers and trustees, which is welcome. It reflects the increasing importance given to covenants by trustees but the assessment of an employer covenant can be contested ground between employer and trustee, particularly where there is a question of whether there has been a material change to the strength of the employer covenant. Given this novel legal territory, which is of itself welcome, what powers does the regulator have to address such disagreements of view between the trustee and employer on the covenant, given that they have to agree them in order to proceed with a funding and investment strategy? How, if there are disagreements—and there could well be—will the regulator address those?
Lord Davies of Brixton (Lab)
I need to tell the Committee that I have an interest to declare: I am a fellow of the Institute of Actuaries. However, I should add—with some emphasis—that nothing of what I will say subsequently must be regarded as actuarial advice. It might sound like actuarial advice but I assure noble Lords that it is not. I speak from my experience as a scheme actuary having undertaken scheme valuations, including those under the TPR or previous iterations of where we are.
Unfortunately, I was unable to attend the briefing session due to other business in the House. It might have been better if I had attended because I have reservations about these regulations. They are going to go through and be implemented but, in expressing some doubts, I trust that it will affect the environment in which they are implemented.
In this context, we have to acknowledge the report published today by the House of Commons Work and Pensions Committee—Defined Benefit Pension Scheme, its third report of the 2023-24 Session—which comments in some detail on the role and functioning of the TPR. I want to take this opportunity to highlight some of the report, in which doubts are expressed about the way the TPR operates. For example, Mary Starks undertook an independent review of the TPR and said:
“TPR’s statutory objective to minimise calls on the PPF may drive it to be overly risk averse, particularly given the PPF’s strong funding position”.
I will return to that.
Other comments are that the TPR’s objectives have not changed to reflect the significant changes that there have been in the defined benefit landscape. The concept of excessive prudence is widely held within the pensions industry. The PLSA, the Pensions and Lifetime Savings Association, says that
“it would be helpful to give TPR a greater focus on member outcomes as a whole”,
while the Railways Pension Scheme trustee corporation suggested that an objective should be made explicitly to
“protect and promote the provision of past and future service benefits under occupational pension schemes of, or in respect of, members of such schemes”.
So there is a significant train of thought coming from the industry that the TPR has failed to acknowledge its role in pension provision.
A particular problem highlighted in the first comment is the position of the PPF, the Pension Protection Fund. In giving evidence to the Select Committee, its chief executive, Oliver Morley, said that the objective of the TPR to protect the PPF was
“looking a bit anachronistic now, given the scale of the reserves and the funding level”.
I am not asking the Committee to accept or endorse these comments at the moment but, at the very least, they emphasise that the role of the TPR is a matter of detailed discussion. The regulations before us are firmly within a concept of its role, which many commentators now say is outdated. I have held this view for some time; it is good to see that it is now accepted more widely.
This was the conclusion of the Select Committee:
“TPR’s approach to scheme funding has been driven by its objective to protect the PPF. We agree with those who told us that the objective now looks redundant, given the PPF has £12 billion in reserves”.
As I said, this is at the very least an issue that should be confronted, but it is not confronted by the regulations before us. The regulations are patently too prescriptive. The details that they require are not directed at the objective of protecting members’ benefits but are about establishing a system where box-ticking will take priority over the longer term and broader interests of scheme members.
I have also argued for some time that the TPR misunderstands its role. There is a sort of assumption in its thinking that the calculation of technical provisions represents the best valuation basis. New readers may well find that this is getting into deep water but the point is that the actuary who undertakes the valuation at the request of the trustees must comply with the appropriate professional standard: Technical Actuarial Standard 300. This is the latest version, coming into effect in April.
It is notable that these requirements, which any actuary valuing the solvency of a pension fund should follow, do not mention technical provisions. In essence, the technical provisions are there to trigger action by the regulator; they are not there to substitute for the scheme actuary’s solvency valuation. We have what is in effect a dual basis. The scheme actuary working for the trustees will advise what they believe to be the appropriate contribution rate. Parallel to that, there is the system of technical provisions that, if triggered, require a separate valuation to be undertaken to calculate the recovery plan.
They are quite separate operations but the TPR consistently confuses the two. The end result is that, by overemphasising the role of technical provisions, schemes are being forced into this problem of excessive care, or excessive protection, of the members. It is not at all clear to me that this bureaucratic overweight on the operation of pension schemes ultimately favours the members in any way. In effect, it forces schemes—LPI is just one example—to invest in gilts, which is bad for members; there is no question about that. It is good for the Pension Protection Fund, and good for a Government who are concerned about being held up as not caring about the protection of members, but members’ benefits are drawn from the scheme so the scheme should be funded in accordance with the actuarial solvency standards, as set out by the Financial Reporting Council.
Women’s State Pension Age
Lord Davies of Brixton Excerpts(1 year, 10 months ago)
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Lord Davies of Brixton (Lab)
The House should thank the Minister for bringing us the Oral Statement and answering the questions. We should, however, be under no illusion that this is only a minor element of the issues raised by the 1950s women arising from the increase in their retirement age. This stage is not about any form of restitution of the pension they have lost, it is simply about a failure on the part of the DWP to provide the people affected with adequate information. What is clear from the ombudsman’s report is that the DWP failed to adequately inform those concerned. That is what the report finds. It also finds that it constituted maladministration. Those points, those issues, were identified in the stage 1 report. So that part is not a surprise. The Government have known that for some time.
This stage identifies that that maladministration amounted to an injustice, and it suggests that those who were affected by that injustice are entitled to a remedy. The Secretary of State said in the Commons yesterday—he said it 26 times, by my count—that there would be “no undue delay”. Well, “undue delay” implies to me that there will be a delay. The Secretary of State argued—it has been repeated by the noble Viscount today—that the reason for this delay is the complexity of the issues.
I am afraid I do not have much sympathy at all for this issue of complexity. The issues are clear and straightforward: a group of women were told later than they should have been about the change in their retirement age and, because of that, they suffered detriment—a loss of autonomy and a loss of life chances. That is the injustice. That is all clear. It does not need any further assessment or thought. It absolutely leaps off the page in the ombudsman’s report.
My question for the Minister is: whatever the need for delay to work up the fine details of any deal, will he not accept that it is now time to acknowledge there was maladministration, as identified some time ago by the ombudsman? Will he recognise the injustice that is set out in this report? Will the Government commit to implementing some remedy in the light of the maladministration and the injustice?
Viscount Younger of Leckie (Con)
As I made clear earlier, the report came out only on Thursday. We have said very clearly that we want to have enough time to be able to look carefully at all the details in the report. This touches on some of the points that the noble Lord has made.
Could I just say that the story the noble Lord has presented is not entirely the actual story? For example, it is important to remember the state pension age changes were considered by the courts during the ombudsman’s investigation. In 2019 and 2020, the High Court and the Court of Appeal respectively found no fault with the actions of the DWP. The courts made it clear that under successive Governments, dating back to 1995—and I make the point about successive Governments—the action taken was entirely lawful and did not discriminate on any grounds. During these proceedings, the Court of Appeal held that the High Court was entitled to conclude, as a fact, that there had been
“adequate and reasonable notification given by the publicity campaigns implemented by the Department over a number of years”.
Just to add to that, to be helpful to the noble Lord, since 1995 the Government have used various methods to communicate the state pension age changes, including leaflets explaining the legislative changes, advertising campaigns to raise awareness and directly writing to those affected. So I would just make the point that that is one of the complexities and that it is not all as the noble Lord says. As I have made clear before, this is one of many complex issues that we need to look at as a result of the production of this report.
Guaranteed Minimum Pensions Increase Order 2024
Lord Davies of Brixton Excerpts(1 year, 11 months ago)
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Lord Davies of Brixton (Lab)
My Lords, I feel obliged to make a contribution. As I said last year, if I was on “Mastermind” my specialist subject would be the GMP. I was waiting to pounce on the Minister if he missed anything out, but he provided a very comprehensive— I leave it to others to judge whether it was a clear—explanation of the system that applies.
The only thing I want to add is that, post 2016, retirees lose out on these increases and some of them are very angry about it. However, as the Minister indicated, they gain in other ways. The continued accrual post 2016 more than compensates for the loss of these increases—except, that is, for those who retired in the year 2016-17, because they did not get any additional accrual that counted towards their pension. I pointed that out at the time when the Act was going through but, as happens all too often, nobody listened.
Baroness Janke (LD)
I thank the Minister for his explanation, which was indeed very clear on a fairly complicated issue. We support this order but, at the same time, I would like to use this opportunity to raise some issues relating to pensions.
First, I welcome the Government’s support for retaining the triple lock. Although there has been a reduction of the numbers, there are still 1.7 million pensioners in poverty and the value of the state pension is still lower in the UK than in comparable countries.
The next thing I would like an update on is: what has happened about the large number of pensioners who are entitled to pension credit but do not take it up? Some of us had frequent meetings with the Minister’s predecessor about this. There were many suggestions as to how awareness could be raised and the potential benefits of the scheme promoted among poorer pensioners. Can the Minister update us on what measures have been taken to improve take-up and what level of success the campaign has achieved to date?
We also welcome the measures to expand auto-enrolment by giving powers to end the lower earnings limit and increase the eligible age range. Can the Minister provide us with a progress report on the implementation of these measures? Are the Government planning to review the rate of contribution, which quite a few people say is too low?
Have the Government taken any action on the pensions gender gap? The average pension for a woman aged 65 is one-fifth of a 65 year-old man’s, and women receive £29,000 less in state pension than men over 20 years. This deficit is set to continue, with all else being equal, closing by only 3% by 2060. What is the Government’s response to the embedded unfairness in this system? Will the Minister tell us what progress has been made in the Government’s plans to streamline tax administration, perhaps to enable low-paid workers, who are typically women, to receive pensions tax relief on their contributions?
A lack of awareness of the value of pension assets and pension complexity, as well as the increasing number of online divorces, has led to many divorced women having no pension savings at all. Women’s pension rights are much harder hit than men’s by divorce, so has any progress been made to ensure the fair sharing of pension benefits after divorce? I look forward to the Minister’s response.