Pensions Bill
Lord Freud Excerpts(10 years, 5 months ago)
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The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud) (Con)
My Lords, the amendment tabled by the noble Baroness, Lady Hollis, concerns the position of spouses or civil partners of service personnel who accompany them on overseas postings, a group in which I know the noble Baroness has a keen interest. The amendment would enable people in this position to be credited with national insurance contributions for the full 10 tax years between 2000-01 and 2009-10.
We have already taken steps to shore up the contribution records of this group. In 2010, arrangements were put in place to allow the spouses of Armed Forces personnel to gain a national insurance credit for time spent accompanying their spouse or civil partner on postings abroad. These credits are awarded for tax years from 2010-11 and provide entitlement to all contributory benefits, including the state pension. Their main purpose was to provide access to contributory working-age benefits to spouses and partners who might have difficulty in finding employment when they return home. I confirm to the noble Lord, Lord McKenzie, that no changes are planned to those crediting arrangements.
The amendment would enable a person to meet the minimum qualifying period for the new state pension and therefore qualify for a reduced single-tier pension. However, if we were to combine the qualifying years that could be gained under the 2010 credits with those available under this amendment, a person could be credited with up to 16 qualifying years.
We should caution that the existing arrangements incur administrative costs for HM Revenue and Customs and the Ministry of Defence. Applications for the existing national insurance credits need to be validated by service welfare officers and processed by HMRC. Similar arrangements would need to be put in place for these new credits, but that would involve more onerous administration because any validation would relate to periods some years past.
The noble Lord, Lord Browne, made a point about difficulties with take-up of the current credits. We are not aware of any difficulties but, on the back of his concern, we will check with the MoD on that.
Currently, around 500 to 600 people a year have been awarded the credits that have been in place since 2010, but it is unclear how many are likely to benefit for pension purposes from the noble Baroness’s proposed retrospection measure.
Baroness Hollis of Heigham
The Minister obviously agrees with my noble friend’s figure of 500 to 600 people, but how many eligible non-recipients does he think there may be? In other words, what would be the total population, of which 500 to 600 are claiming? Does he know the answer to that? I certainly do not.
Lord Freud
Unless I am rapidly informed otherwise, I do not think that we know either at this stage. It is likely that most of the people in this group will have been at work or be covered by other credits during the past periods covered by the amendment. Over the course of a 50-year working life, we would expect many to build the 35 qualifying years to qualify for the full single-tier pension in their own right. That is where this problem lies. That said, I understand the concerns of the noble Baroness and would not want to ignore the position of this group of people if they have genuine difficulties in building the qualifying years that they need.
The Committee will understand the Government’s general concerns about going back in time to treat particular groups in different ways, because there are always issues of fairness and parity when you do that—the noble Lord, Lord McKenzie, talked about some of the relationships with people moving into UC and so forth—and that is the case even though special consideration is reserved for the Armed Forces and their families. However, turning to the point raised particularly by the noble Baroness, Lady Dean, and the noble Lord, Lord Browne, we will consider this further.
I have to warn noble Lords that this is a difficult matter, so I am not promising that anything will come out of that consideration. Sometimes, in saying that, one suggests that there is a solution, but we are finding this quite difficult. We are doing that exercise and I am sure—
Baroness Hollis of Heigham
Why is it difficult? I understand that when most people in civvy life claim X years ago to have done Y it is very hard to check that, but the one thing that the MoD will have is records. So why is it so difficult?
Lord Freud
I will be in a much better position to explain the difficulties in a little while. So, rather than presuming on this, I would say that we are considering it. It is difficult, and I am sure that we will have the opportunity to return to it on Report.
Lord Browne of Ladyton
I am extremely grateful to the Minister for giving way at this stage, and I am not ungrateful to him for his undertaking to consider this and report back. That is the most that we could have expected. However, I ask him to consider two things. First, there is certainty that the Ministry of Defence will have records—there is no question about that. Secondly, I direct his attention back to the provision in the guidance note issued on the covenant, in which the Government promised to keep the issue of access to benefits under review. It might be helpful if the Minister explored why that promise was made and what was in mind at that time. Clearly some consideration was given to it, which instructed that promise. Surely it was not just a cosmetic promise, with nobody having any idea what could possibly be offered in the future.
Lord Freud
Let me take the two issues there. It is not necessarily the case that the MoD will have records on this, especially of an accompanying partner. That is clearly one of the issues. I think what was envisaged was exactly to look at this kind of thing and other benefits, which is exactly what we are doing. We are, as I say, treating it very seriously, but that is not the same as being able to say that there is a ready solution. We will come back to this issue.
Lord McKenzie of Luton
I am not sure whether the Minister confirmed that, whatever happens with the impact of this amendment, there is no suggestion that the existing arrangements both in respect of the crediting and the easement of the first contribution condition are not going to continue post-April 2016.
Lord Freud
I am pleased to confirm that the crediting and the easement will continue post-2016.
Lord Browne of Ladyton
Can the Minister also confirm whether the Bill, if it becomes law as drafted, will have a regressive effect on the position of service spouses or civil partners, as is believed to be the case by at least one of my noble friends and suspected by another, and whether that will in fact be the case when the review is conducted?
Lord Freud
I will not answer what could in practice be a huge review of everything to make a hard statement on that, but I will write on that point. Having finished, I hope, all the questions asked, I ask the noble Baroness to withdraw her amendment.
Baroness Hollis of Heigham
My Lords, I thought this was short, sweet and simple. It is now long and less simple but still very sweet, in the sense that I think there is consensus all round the Committee. I welcome that and I am very grateful to the Minister for his responsiveness to the concerns that we raised. Clearly this amendment was a peg for the discussion that we have had. My noble friend Lady Dean is highly knowledgeable about service families and speaks from very real experience. I am very glad that my noble friend Lord McKenzie was able to get on record from the Minister what the Government’s intentions were about easement, which was very useful. I am still slightly surprised that we did not have this information about the eligible population base for claiming credits since 2010-11 and how many have actually claimed. Is it 500 of 5,000 or 500 of 700? We do not know and I would have expected that information, but I am sure that the Minister will write to us with that because it gives us some sense of how problematic it is when you rely on people to claim, as we have experienced with means-tested benefits for pensioners, for example.
Lord Freud
It is a little early to get into the practicalities, but I am sure that we can arrange, one way or the other —either from a spontaneous governmental unleashing of information or in response to an amendment —to get the latest information on the record at Report.
Baroness Hollis of Heigham
I thank the noble Lord. What I would love to see—I know that this has been done in the past because I have done it—is an amendment jointly in the names of my noble friend Lord Browne and the Minister, which will amaze and command total support. In that context, I ask leave to withdraw the amendment.
Lord Freud
My Lords, the amendments relate to the single-tier pension. I have to confirm that the noble Lord, Lord Whitty, is in a better place, but I think we all knew that. I covered quite a lot of this in detail on Monday, so I will keep my comments relatively brief.
The amendments describe a minimum entitlement at a level broadly equivalent to the state pension entitlement that a person with 40 qualifying years could receive under the current scheme through their basic state pension and the additional state pension. For someone on low earnings, that equates to around £180 a week. That is the question that the noble Lord, Lord Browne, was seeking an answer to.
I fully appreciate the sentiment behind wanting to set the rate higher than the illustrative rate of £144, which is from last year's effective equivalent rate. Indeed, under the Bill, future Governments will be free to make above-earnings ad hoc increases in the light of economic conditions at the time, but setting a starting rate that cannot be afforded within the current spending projections would instead force the hand of future Governments, siphoning off greater and greater amounts of GDP into pensions spending. Setting a minimum starting level of £180 a week would add a further £12 billion in real terms to the single-tier costs by 2030—that is a per annum figure. Over the longer term, it would increase annual pension expenditure by another two percentage points of GDP in 2060 and squeeze out other spending pressures from an ageing society.
Sustainability is a core principle of the reforms. Our proposals work within projected expenditure on the current system, and our current modelling, including the illustrative start rate of £144, stays within 1% of current expenditure until the late 2030s.
During Second Reading, much was made of the consensus following the Pensions Commission report, which recommended that the state move away from providing earnings-related pensions. I was pleased to see that the noble Baroness, Lady Donaghy, had moved her scepticism out from 10 years to 30 years in the space of a few weeks, so there is hope that we may move her to the 100-year objective. To this end, under previous reforms, the earnings-relation provided by the additional state pension was effectively being squeezed out of the system, moving over time to a flat-rate state pension but, as many respondents to the Green Paper pointed out, that was not doing enough to support private saving and underpin automatic enrolment.
I have said this before, so I will go on record twice on this. These reforms are not about increasing pensions expenditure. They are not about reducing it. They are about spending the money differently, so that we can move to a flat-rate pension quickly to tackle an urgent problem of undersaving.
To respond to the pointed question of the noble Lord, Lord McKenzie, about why the single tier does not lift many clear of the guarantee credit, that is largely because many people on the guarantee credit have a higher standard minimum guarantee. About 37% are entitled to one or more additional amounts—for instance, for disability—and we do not want to remove those additional amounts.
Lord McKenzie of Luton
I understand that point, but what does that do to the argument that this is all about having a very clear platform so that people know that it will pay to save and that they will be above means-tested benefit levels? On the basis of this information and what the Minister just said, 99% of people who will get STP will still be eligible for the guarantee credit. Indeed, annexe C to the impact assessment states that total spending on the guarantee credit and the savings credit will actually go up by the end of the period in the tabulation. That does not make sense to me. I understand that it is the additions that mean that guarantee credit is above the level of STP, but that seems totally to undermine the whole thrust of the rationale of the Bill.
Lord Freud
Despite the guarantee credit not changing a lot, there is roughly a halving of the overall reliance on means-tested benefits, so there is a move, but I acknowledge that it is not by any means a complete elimination of the use of means-tested benefits.
Baroness Sherlock
I think the Minister may be offering a rather dramatic understatement. It is not an elimination; it is a change of 1%. As we established in the Committee on Monday, most of the reduction in means-testing is related to the abolition of the savings credit, which is removing access to something for people. If my noble friend is right, he has hit on something quite extraordinary, which is that despite the Government saying that the STP will be pitched at a level above the means-tested level for the pension credit, it is in fact, according to his modelling, pitched at a level that will not lift anyone but the 1% who get it out of means-testing. Surely the whole argument collapses at that point.
Lord Freud
My Lords, the guarantee credit does go down in absolute terms. It is already a small percentage of the total. When one gets into arguments about data it gets very confusing, so I will set this issue out very clearly. As I understand it, the issue is about the number of people on means-testing as we look forward into the single tier over the decades. The subsidiary question behind that is what it does to the incentive to save. I will address those two questions with some proper data in a letter rather than trying to do so off the top of my head when I am not absolutely confident about providing exactly the right information.
The start rate of the full single-tier pension should not be viewed in isolation but in combination with the private pension income that some 6 million to 9 million people will gain from having been automatically enrolled in a workplace pension. An inflated start would be unaffordable and unsustainable, and I ask the noble Baroness to withdraw her amendment.
Baroness Sherlock
I am very grateful to the Minister for his offer to write to all Members of the Committee. Will he prioritise that letter and write it before the Committee next sits, rather than waiting until we come back at a later stage of the Bill?
Lord Freud
Yes; I am trying to get letters out at great speed. I am expecting to sign letters relating to the questions from Monday later today in order to get them to Members of the Committee as quickly as possible, so that is a three-day turnaround. I will aim to do something rapidly for today as well.
Lord Freud
I thank the noble Baroness, Lady Hollis, for tabling this amendment on an issue which I know is of great concern to her: access to contributory state benefits, including pensions, for those who have more than one job but do not earn above the national insurance low earnings limit in any one of them.
We have debated this issue over the years. She will be aware that I have equal concern about this issue. Before we get into the specifics, we have a policy to seize this issue head-on, and that is through universal credit. When you look at the debate this afternoon when we talked about the present system—JSA, tax credits, the problems of going through—universal credit basically combines in-work JSA where you are credited for your pension, and in-work benefits. Therefore, the low paid will be credited in the same way as people on JSA are currently credited. Our estimate is that 800,000 more people will be credited as a result of the adoption of universal credit. Noble Lords may well say that universal credit is taking its time coming in: one or two noble Lords have made that point to me. I can only say that we are going as fast as possible. We are rolling it out.
That is the fundamental solution. Any of the adjustments suggested today would be time-consuming changes to make. One has to take a strategic decision. Does one have a system that sweeps away these problems, or does one make itsy-bitsy changes with HMRC here or there? They all take time. I think it was the noble Baroness, Lady Dean, who said that HMRC is slow to make adjustments, but they are genuinely difficult to do. I have been involved in quite a few government change programmes now and even relatively modest changes are time-consuming and soak up the energy of the people doing them.
The question asked by the noble Lord, Lord McKenzie, about cutting into the RTI system ahead of universal credit is an interesting one. Clearly, we are looking very closely at how we use RTI in different ways. One of the issues in terms of a comprehensive solution for this relatively small group is that we have to be sure they are on the PAYE system in order to use it as a comprehensive cut through. My instinct—again, data are short here—is that this is not a comprehensive solution in the same way as catching them at the UC level. If you are not on PAYE, you can self-declare and get the system to work. I do not think that RTI is the solution.
As noble Lords have pointed out, the numbers are relatively small—some 50,000—but just because the numbers are small does not mean that we should not worry about the issue. That is what universal credit is trying to catch.
Baroness Hollis of Heigham
The Minister said that the numbers were small, which is to restate the 50,000 figure. I thought that my noble friend exploded that pretty effectively. Not only is that itself pretty doubtful, but we now have the issues associated with zero-hours contracts. We specifically asked whether they had been taken into account and what would now be a reasonable basis on which to go forward with shared information.
Lord Freud
My Lords, as I said even before the noble Baroness intervened, even though the numbers today are relatively small, I am not decrying that particular issue. I was referring to the 50,000 figure—the current estimate of those affected. Let me get on with my argument and not worry about that at the moment.
The drive to universal credit is to allow greater flexibility in the labour market, so zero-hour contracts work with universal credit. There may be elements of zero-hour contracts that are of concern, particularly if the balance of power between the employee and the employer is unfair, but universal credit works with that flexibility of the labour market.
Baroness Sherlock
I understand the argument the Minister is making, but let us suppose that the woman described by my noble friend is in a relationship with a civil partner or a husband. What is the most the husband could earn before she would effectively be excluded from universal credit? As they do not have children, if her earnings are low but his are at a reasonable level, she would no longer be able to benefit from his pension. So you cannot assume that she would be caught up in universal credit because her earnings are low.
Lord Freud
I accept that. This is for low-paid households. That is what universal credit is. There will be some people in higher paid households who will have to take a view on how to make their arrangements through voluntary NICs or whatever. I accept that point.
Lord McKenzie of Luton
The Minister proffers universal credit as a solution, but as I understand it, universal credit will generate only a class 3 credit, not a class 1 credit. Therefore, it would help towards pension entitlement but not to contributory JSA or ESA.
Lord Freud
The noble Lord is exactly right. It goes to the point of what we are discussing. It would get you the pension entitlement and the bereavement benefit entitlement but not the contributory entitlements. The current arrangements for crediting a person with national insurance contributions are comprehensive. They cover all the main reasons why someone may not be working, or working only a small number of hours, such as ill health and unemployment, or where people are caring for a child aged nought to 12 or for someone with a disability. They also cover those currently entitled to working tax credit, and we have recently introduced credits to protect the contribution record of working-age grandparents looking after their grandchildren.
Those who fall outside the scope of the crediting arrangements and who can afford to do so—higher paid households are clearly in that category—can make payments on a voluntary basis. The current rate of voluntary class 3 national insurance contribution is a very fair price at £13.55 a week, or £705 a year. The person could recoup the cost within four years of receiving basic state pension benefits.
Using this approach to establish whether a person’s combined earnings exceed the lower earnings limit would require the collation of tax and contribution returns for employees with multiple jobs. That clearly would place a burden on business and require HMRC to develop complicated IT which would take time and money and benefit a small number of people. We would also need to consider collecting the employer’s national insurance contributions in proportion to the earnings in each job, which would add considerable administrative complexity.
The question that one needs to consider is whether those who have aggregate earnings above the primary threshold should be credited or should pay a discount rate of national insurance. That is a question I address to the noble Baroness. It could be seen as quite unfair on someone who is earning just over the threshold in one job and has to pay full national insurance, whereas someone else just below might be credited.
Baroness Hollis of Heigham
That applies if someone is in one job and £1 below the PTT for these purposes; they will still be credited and not pay a penny. I do not see the difference at all.
Lord Freud
That is the issue about whether one wants to introduce this kind of system across for mini-jobs.
Baroness Hollis of Heigham
We already have. All my lifetime, I think, we have had exactly the same cliff edge between those who are below or above the PTT when that diverged from the LEL. That exists now, so there is no difference at all.
Lord Freud
Clearly, under universal credit, there would be a crediting arrangement for everyone within that system anyway, so I accept the point to that extent. I agree with the point on zero hours made by the noble Lord, Lord Browne, in that robust data are currently simply lacking and we are waiting to see the ONS data when they arrive. As I say, the universal credit system that is coming in adapts very elegantly to that kind of flexible labour market.
Lord Browne of Ladyton
Before the Minister moves off the question of the data, the fundamental point about the zero-hours contract estimate that I was attempting to make was that that was despite it being part of the Labour Force Survey. There was an apparently robust basis for a figure that turned out to be, potentially, 300% wrong. We are being asked to debate this against an estimate of a figure that every single part of our experience of life suggests to us is grossly wrong—that is, the figure of 50,000.
Lord Freud
The previous estimate for zero-hour contracts—which is what we are talking about—was that there were 250,000. Let us see the figures today for those on part-time work. I cannot remember the figure offhand—is it 1.5 million? There is a boundary, therefore, about what proportion of flexible working is formally on the zero-hour contracts. Rather than speculate on what the real figure is, I think that we should wait until the ONS comes out with a figure, if it is going to revise that.
On the pointed questions about self-employment rates raised by the noble Baroness, Lady Drake, rates of national insurance are clearly a matter for HM Treasury. However, we have not assumed that self-employed contributions will increase single-tier cost estimates.
I know that the noble Baroness has been a champion of this group and has genuine concerns about it losing out. As the new systems come into sharp focus—universal credit, RTI, single tier—there will be a chance to look at this issue properly when we know exactly what is happening, where the remaining issues are and then to find a precise way of dealing with it. It is simply too early, right now, to get a clean and elegant solution, but we do intend to look more broadly at crediting arrangements to examine the possibilities of modernising and simplifying the arrangements in that light. So there is a process. Her point is taken: it is just about what is the most efficient and effective way of solving a particular problem. What I do not know and cannot offer now is a timetable. It is something to be looked at some years—not a lot of years—in the future, in terms of exactly what should happen. I think that there will be a solution in the medium term. For those reasons, I ask the noble Baroness to withdraw her amendment.
Baroness Hollis of Heigham
I am extremely grateful to everybody who contributed, including the Minister. The debate was very interesting and revealing and a lot of new issues were raised that had not been raised on previous occasions when we have debated jobs below LEL. That suggests that it is worth going back to some of these issues, as the information that we get and the changes in the labour market make those new concerns increasingly relevant.
My noble friend Lady Drake spoke with all the appropriate authority of one of the pensions commissioners. She rightly emphasised—and sometimes I feel that we are simply retreading the same territory—that every pension issue has to be judged through the perspective of how it affects women, because if we get it right for women we get it right for everybody. Actually, that is not usually what we do; we tend to go on bulk numbers, which are made up by men because they are more reliably, through their working life, attached to a pay grade in the labour market that takes them over the LEL level. As a result, we ignore pockets of women here, there and everywhere, around the system, because, for very good reasons indeed, they do not conform to patterns of male working life.
I honour the Minister in his appreciation of the need to have the recognition of mini-jobs through universal credit. He has never tried to underestimate the significance of these issues, and I put it on record that I appreciate that. However, where we have got to today is not quite good enough.
My noble friend Lady Drake emphasised the need to put up the gender filter and, absolutely rightly, emphasised that women are locked out twice over—in their own ability to get into the NI system and by their ability to go through their husband or partner. They are suffering a double whammy. This Bill makes their default position disappear, which is why the problem has increased urgency from when we discussed it around the universal credit and welfare reform proposals some 18 months ago.
My noble friend Lord McKenzie emphasised the practical feasibility of doing this through HMRC arrangements. Given his lifetime of experience in working with businesses on issues like that, I think that his expertise should be taken very seriously by the department, which may not have had similar experience.
My noble friend Lady Dean, like my noble friend Lady Turner, has fought for women’s pensions since the 1990s, as far as I am aware. She got it absolutely right when she said that this amendment, or an alternative way in which to meet that need, would conform to the spirit of the Bill, and that it should not be left in the hope that, in four or five years down the line, the world may be different.
My noble friend Lord Browne made a devastating critique in talking about the inadequacy of the statistics, how every month the number seems to double—geometrically, not arithmetically—and that very soon we will find that the whole basis on which the Government have estimated their costings and needs, on the basis that it is a tiny minority, will be undermined. He certainly makes me even more uneasy about the neglect of this group than I was before we discussed the issue today.
The Minister is relying essentially on universal credit. I see why he would want to do that, but I am trying to do some back-of-the-envelope calculations. Let us take a group of women and say that the system comes into effect and is rolled out nationally in 2020. It may happen a year earlier than that, but it is unlikely to be more than a year earlier. Following the example of my noble friend Lord Browne, let us say that people leaving school at 18, or college or university, are going to a patchwork or portfolio life for much of the rest of their lives, given the increasing dominance of labour market flexibility. I calculate that when they come into the labour market, if at 2020 they subsequently need 35 years, which they will get through some universal credit arrangements—and thanks to my noble friend there is a big question mark over that—that means that they will qualify for a basic state pension in 2055. They therefore have to have been born in 1990 and are currently aged 23. Under the Minister’s own figures, as far as I can tell, any young woman or man who is older than that probably will not qualify under UC for a full pension by the time they retire.
Lord Freud
My Lords, I cannot leave that unchallenged. People will have inherited rights, including credits, before 2016. Clearly, many of the examples quoted by the noble Baroness related to people who had had children, so 12-plus years would be credited under the existing system to be pulled forward into the system with the foundation amount, building up beyond that. I also need to remind the noble Baroness that the intention with the universal credit schedule that we have announced is to bring in all people, certainly in the working population, by 2016 and 2017, with a group of ESA recipients left beyond that point for very good reason, because we need to deal with them very carefully. Therefore, under the timings that we have announced, the people about whom she is concerned would be brought in very shortly after the introduction of the single-tier pension.
Baroness Hollis of Heigham
I hope that the Minister is right but I do not believe that he is. It is very unlikely that the UC system will be sufficiently stable to be rolled out to the entire working-age population—the Government are not catching these people in their labour statistics—before about 2019 or 2020. I would like to be proved wrong but I very much doubt that I will be. Even somebody who has had two children, which means that they will have had 14 years-worth of credit under the new rules, would still be stuck at about 43 or 44 with no ability to add to those years if they came within this category of having no single job that took them above the LEL. Therefore, we wipe out people who are something like 20 years off their pension life, and they will go into retirement with a fairly trivial amount barely over the minimum qualifying amount. I do not think that the Minister can rely on that.
He is right that some women will manage. Particularly if they have children, they will be fine, but if they have no children, they may have a husband. They may both be on perfectly modest incomes but when, taken as a household, they are tested for their eligibility for working tax credits, where the threshold is relatively low, she will not qualify through that either under the joint claim.
Therefore, I am not at all confident but I would be delighted to receive the statistics from the Minister about the coverage, under the circumstances identified in today’s discussion, for those whom UC is intended to help.
The Minister wants a clean and elegant solution. The clean and elegant solution would be to get as many people as possible into the new system and not to rely on pension credit, a legacy system which will otherwise continue for 30 or 40 years. Unless we can get this group into the system as early as possible, he will not find clean and elegant solutions to sustain the Bill. I am glad that he is going to work on it. I hope that, certainly before Report, he can come back and give us an idea of how he is going to address this issue, even if it is about extending conditionality as a credit into JSA conditionality. That would work for me. I want some way of bringing these people in. I promise the Minister that, if he does not address it, this problem will not disappear; it will grow. It is his responsibility to bridge the deficit between where people are and where some of them may be when he has introduced UC three, four, five or six years down the road. Under the circumstances, I beg leave to withdraw the amendment.
Lord Freud
My Lords, there are three amendments that are closely related, of which this is the first. I welcome the fact that there seems to be general agreement in principle that what I will loosely call “derived entitlement”, established in the 1940s, is past its sell-by date and has no place in a modern state pension system.
I apologise for the fact that I am going to speak at some length, but it is important that I lay out the Government’s argument for removing derived entitlement by reference to the criteria for judging single tier as laid out by the noble Baroness, Lady Sherlock, at Second Reading: that is to say fairness, simplicity, sustainability, the provision of a decent standard of living for all and, at the same time, the encouragement of private saving through clarity of outcome.
First, we believe that fairness means ensuring an adequate state pension for people who have contributed to the system. That is why we are recycling the savings from aspects of the current system being abolished, including derived entitlement, to give a boost to individuals who have historically been excluded from additional state pension, such as carers, the self-employed and the low-paid. Indeed, around 650,000 women who reach state pension age in the first 10 years of single tier will receive an average of £8 per week more in state pension due to the single-tier valuation.
Sustainability and affordability are also key qualities that the Opposition have made it clear that they are looking for. Let me be absolutely clear that we are ending derived entitlement from principle and not to save costs. However, as we have been asked a number of times about this, and as affordability is one of the criteria of interest to the Opposition in judging single tier, I shall respond to the question raised by the noble Baroness, Lady Sherlock, and deal with the cost issue.
Our analysis shows that to continue running the basic pension derived entitlement provisions for people reaching state pension age up to 2030-31, the cohorts targeted in these amendments, would cost around £200 million per annum in the early 2030s, and those are just the costs for Great Britain. We do not think that it would be possible to restrict transitional protection to those ordinarily resident in the UK, as the noble Baroness, Lady Hollis, hoped. While it is difficult to quantify the cost for those overseas, we think it likely that it would cost about the same amount again as in the UK, meaning transitional protection for the first 15 cohorts could have further costs peaking at another £200 million a year.
Baroness Hollis of Heigham
Why does the Minister think that the courts would not support us in having transitional arrangements for those who are ordinarily resident? I am not a lawyer, but, in my somewhat limited experience of judicial reviews, there have been a number of challenges. The two criteria I lay down are: was Parliament’s intention was clear—Roe v Wade—and would it be a position that a reasonable person would think was not unreasonable. The addition of ordinarily resident would seem to fit the criteria for transitional arrangements. If the Minister could help us on why that is not the case, I would be interested.
Baroness Sherlock
My question is slightly different, but perhaps the Minister could answer them both at once. Are the costings net of any additional expenditure on pension credit?
Lord Freud
Yes, it is a net figure. On the legal position, clearly the noble Baroness will remember that we are in the European Union and there are definitions of which kind of payments are transportable, so to speak, and which ones can be restricted. That is where our legal issue comes from. Therefore, rather than go into huge detail on that—
Lord Freud
Perhaps I can make sure that the noble Baroness is briefed on that outside the Committee. The question of which types of benefit are transportable around the EU and which you can justifiably keep is immensely complicated. I think that the definition is that a social support you can keep within an area but a pension tends to be transportable. However, I can arrange a detailed legal session for the noble Baroness if she would like that.
Perhaps I may turn to the figures that the noble Baroness, Lady Sherlock, was talking about. Some 290,000 people would be affected at some point up to 2030, which represents less than 4% of those reaching state pension age up to that point. The 30,000 figure is a snapshot in 2020 of the number of people projected to be receiving less at that point in time. That is the explanation of those two sets of figures.
One point concerning payments abroad is that it does not seem fair on our taxpayers and pensioners who have made contributions to the UK, or indeed even affordable, to spend money on those claiming overseas who have never set foot in the UK.
Simplicity is another virtue that the noble Baroness, Lady Sherlock, concentrated on. If people are to save for their retirement or make sound decisions on purchasing voluntary contributions, they need clarity of outcome. Extending the derived entitlement provisions would run counter to the goal of achieving simplicity of outcome for tens of millions of today’s working-age people. At the moment, we are in the position where we can tell people shortly after April 2016 what they have, in the words of my colleague Steve Webb, banked to date.
The key to being able to do that is to have a full rate of single tier that people work towards and a base entitlement on an individual’s own record. At the moment, we will crystallise people’s national insurance record as at 2016, recognising past contributions, and we will move on from there into the single-tier system. We can say, “You’ve got this to date. If you get this many more qualifying years, then you will get the full rate of single tier”.
However, let us imagine what would happen if we were to put in place provisions that allowed people to continue to draw a pension based on someone else’s record. We would have to tell people, “This is what you’ve got on your record but if you’re married or divorced, or if you get married or divorced between now and state pension age, or you get divorced or are widowed after state pension age, then your entitlement might be different. We can’t tell you what it might be because you would have to look to your partner’s, or even ex-partner’s, record”.
Baroness Hollis of Heigham
My Lords, I support the Government's position on this, as I think we all do, but what will be the position for the reduced married women’s election, where you are effectively introducing—I was going to say inventing—a 60% dependency pension for a whole new group of women which is rather larger in number than the group we are talking about?
Lord Freud
Because we can at that point tell those married women exactly what they will be getting. The difference here is that it is very hard to trace those people to tell them definitively what they will be getting. That takes us back to today’s problem, which is, when you phone up to ask what your pension is going to be in three years’ time, we can give a guesstimate at best. That will remain the case if it is open for lots of people.
Turning to the aim of providing a decent standard of living, we already have an underpin that guarantees pensioners living in Great Britain a minimum amount of weekly income. I confirm the point made by the noble Baroness, Lady Sherlock, that the very purpose of pension credit is to provide support to people in Great Britain who, for whatever reason, have not built up sufficient savings or pension entitlement through their life.
If the current system were to carry on, we project that by 2020, fewer than 10% of people reaching pension age after 2016 would be on the standard minimum guarantee. We have also looked at the group of people who would, under the current system, have been claiming a basic state pension on their spouse’s record—either at the point of reaching state pension age or later, on bereavement. Even if the current system carried on for ever, 40% of the people in that group would be on guarantee credit. That group of people—this 40% of all of our people losing out from the removal of derived entitlement—will get their loss in state pension replaced pound for pound with more guarantee credit. But there will be people not on guarantee credit who experience a loss. If we look at the average changes to household income as a result of removing derived entitlement, we see that the median loss for households affected is about £6 a week. The mean average is about £10 a week. There will undoubtedly be examples where people do lose larger amounts, but again, pension credit is there for them.
I hope that by now it is clear why we have not put in place transitional arrangements and why we have no intention to undertake a review to this effect. We have, however, put in place some protection, specifically to ensure that women who had paid the reduced rate election within 35 years of pension age will get roughly what they thought they would receive. Putting in place protection for these individuals is right: they have clearly participated in the labour market and have contributed. The difference between them and the wider group of people who would have relied on derived entitlement is that those people made an explicit deal with the state.
Furthermore, to address the point raised by the noble Baroness, Lady Hollis, those who have paid a reduced rate election are, crucially, easily identifiable. The message of simplicity for the wider single-tier population will not be affected, and the size of the group enables a bespoke calculation. Were we to apply such blanket protection to everyone, we would simply be awarding everyone with any history of work or credits a 60% basic state pension and, later, a full basic state pension; clearly the costs would become an issue and would not be tenable. We would ultimately be awarding people with just one qualifying year a full basic state pension.
On the point about the married women’s pension, if their entitlement under normal transitional rules would be higher, we will give them that instead, but we are not looking at their husband’s record for that; we will be assuming that they have a full record and award them a pension accordingly. Indeed, we project that, with the vast majority of couples involved, the husband will already have 35 qualifying years. It may be possible for people who are long-term sick but not claiming benefits to apply for credits for a past period. It is not essential for a person to be receiving a benefit to qualify for credits for periods of incapacity, but they would need to meet the entitlement criteria for incapacity for work or limited capability for work each day within the meaning of the legislation that applied at the relevant time. Provided that medical evidence for the whole period can be obtained, it may be possible to apply to a local Jobcentre Plus for credits for past periods. Clearly, I cannot comment on people’s success in that regard or otherwise, but I am glad to be able occasionally to provide some new information to the noble Baroness.
For the individual with 30 years who is looking for work, perhaps after looking after grandchildren, and is now worried, in the example that the noble Baroness, Lady Hollis, gave, we have credits for national insurance for exactly that type of situation.
Baroness Hollis of Heigham
I was talking about someone who had cared for her grandchild before the credits were introduced.
Lord Freud
Okay. On the specific case of someone who has 30 years and wants to get 35, that is part of the issue that we discussed at length at the last sitting. That individual should be able to benefit from the transitional arrangements. I draw your Lordships’ attention to the analysis in our recent ad hoc publication, which shows that the equivalent of the married person’s pension would be achievable even for the majority of those reaching state pension age in the initial period to 2020 through the purchase of voluntary contributions to cover years back to 2006, or by working or engaging in an activity that earned credits between 2016 and pension age.
I turn to the suggestion that we review the possibility of putting in place transitional arrangements. Such a review would be unnecessary and unhelpful. Noble Lords will agree that, in the interval between Royal Assent and implementation of the new scheme, communications will be crucial. A review at a time when we are preparing the implementation of the new state pension system would create great uncertainty just when we are being urged to ensure that we provide clarity. We had a discussion on that matter on Monday.
I make the general point that one problem here is that we are moving from the current system because it is too complicated for anyone to understand. The risk of some of these arrangements is that we just re-import all the complexity that we are trying to get rid of. That is a real and substantial risk, which we believe we must try to avoid.
In summary, we have had to make decisions about how we move over to the new system. In a system where changes to society and to the existing pensions system mean that a majority of women and men already receive a full state pension, these provisions, designed for the post-war era, are now an anachronism. I hope that I have set out the case that our approach in this respect has been as fair, simple and sustainable as possible. I ask the noble Baroness to withdraw her amendment.
Baroness Hollis of Heigham
Thank you. I would like to push the Minister on the comments made by my noble friend Lady Sherlock, who rightly warned against hindsight and applying modern attitudes to labour market decisions made some time back. That discussion will be repeated when we come on to widows in a moment. The Minister’s references to women being eligible in certain situations to claim pension credit precisely missed the point raised by my noble friend. If someone is in a couple with a husband who has acquired full contributory years, possibly with some minor additional savings, they will be floated off pension credit, so they will not be entitled to claim it, nor will she be entitled to claim it in lieu unless she is indeed solo.
I am grateful for the Minister’s help on “ordinarily resident”. I should like to see the legal advice, because I think it is arguable which side of the bridge it falls on. We have had plenty of debate on that in the past.
The Minister cited the four tests raised by my noble friend on Second Reading. I remind him of the tests in the impact analysis in October 2013: what are the policy objectives and intended effects? Four were offered. It stated that the intended effect of state pension reform was that,
“individuals have a better understanding of the state pension system,”
and how much they can expect to receive,
“and therefore engage more actively with planning for retirement”.
The people we are talking about understood the rules perfectly well. It is the Government who have changed the rules around them, not that they have failed to do anything that the Government think that they should have done at the time. We fail the first test in the impact assessment.
The second test is that the,
“inequalities of state pension outcomes within the current system are reduced”.
Some are reduced, but the Minister is substituting new ones, including those involving the green stamp and the women I am talking about. The third test is that,
“individuals have reduced interaction with means-tested benefits in retirement”.
That is highly doubtful, given discussion on previous amendments. The amount so far established is pretty trivial. The final test is that,
“the state pension system is more affordable and sustainable in the long-term”,
whereas the Minister has been arguing that it is cost-neutral. He failed to address the fact that there appears to be adequate money—£700 million—to introduce a marriage allowance while taking away support for marriage when it comes to pension arrangements. It is a modern world when it comes to pensions; it is what I do not doubt that the Minister would call a Beveridge world when it comes to married women’s tax allowances. I noticed that he did not venture a comment on or pray the modern world in aid against the Beveridge assumptions behind the married women’s tax allowances, as he would no doubt have described them if we had proposed them and he was criticising them.
The Minister says that the present arrangements are an anachronism. I am sure that it will be a great comfort to those women who are going to lose their 60% entitlement virtually overnight to be told that they are an anachronism and that it is their fault that they cannot shape up in the limited time available to change their situation.
Women have always had a lousy pension deal; it has never worked for them. By refusing to permit a transitional arrangement, we are colluding in that lousy deal by picking off an easy, voiceless, vulnerable group. I have to say that I am disappointed by the Minister’s response, but I beg leave to withdraw the amendment.
Baroness Sherlock
My Lords, I shall speak briefly on this amendment. I was exceedingly brief last time, but since the Minister did not feel any compulsion to do likewise, I shall take my time this time round. The amendment again raises a particular question about transitional protection. I will not revisit the substantive debate that we have just had, but I want to highlight a couple of points. To do that, I want to use a case study given to us by DWP officials.
In this case, we have a couple who have been named Jack and Jill—a slight lack of imagination, but better than the DEL and AMI beloved of Treasury case studies. Jill reaches state pension age in 2020 and her husband Jack reaches state pension age in 2018. Conveniently, they have average life expectancy, so Jack survives until 2040 and Jill until 2044. In this case, Jill had 15 qualifying years of contributions.
Under the current system, Jill would get a married woman’s pension of £64. Under the new system she would get £62. But the real crunch comes when Jack sadly dies. At that point, Jill would receive £113 a week under the current system. Under the new system she would receive only £62 in single-tier pension. That is a huge difference and a real worry to the real Jills of this world, and even more so to those who outlive their husbands by more than two years. The Minister may say that Jill can claim pension credit, but the DWP did not tell me how much Jill has in the bank, so it may be that her savings would preclude that. Even if they do not, I have reason to believe that Jack always thought that his contributions would be enough to ensure that Jill got a pension without having to turn to means-tested benefits. I would be grateful if the Minister could comment on Jack and Jill.
There is some transitional protection in place and I want to be sure that I have understood it properly. If I understand the rules correctly, if the dependant—in other words the person seeking to benefit from the derived entitlement—reaches state pension age before 6 April 2016, he or she would be entitled to derived and inherited state pension as under the current system, but only based on the other person’s national insurance contributions as paid up to 4 April 2016. If he reaches state pension age before April 2016 but she does not then she gets no derived or inherited entitlement. In either case, it is possible for the surviving partner to receive 50% of the additional state pension accrued after 2002 and before April 2016, and between 50% and 100% of the additional state pension accrued under SERPS before 2002, depending on when the contributor reached or would have reached state pension age. I would be grateful if the Minister could confirm whether that is correct.
If it is, perhaps the Minister could answer a different question. He spent a lot of time in his response to the last amendment stressing the simplicity of this case in order to respond to a concern that I had made at Second Reading. I am flattered that he read it so carefully. However, does the Minister think that Jack and Jill’s case or the description that I have just outlined passes that simplicity test? If I am right, will the Government then tell the Committee two other things? First, what consultation have the Government done with the real Jacks and Jills of this world and, secondly and more crucially, what steps are the Government taking to identify and warn those couples who are in this situation and may still be married, widowhood not yet having broken in, what the impact of these changes will be so that they can start to make provision as soon as possible?
Lord Freud
My Lords, I have already set out the Government’s position on the issue of the ability of one individual to derive a pension based on another’s national insurance record. As the noble Baroness, Lady Sherlock, pointed out somewhat bitterly, I did that at some length, so I will try to be as brief as she was in dealing with this. I appreciate that the noble Baroness, Lady Hollis, wishes to discuss the three interrelated issues separately, so I want to address her specific concerns here.
It is the ability for individuals to receive a survivor’s state pension, often called a widow’s pension, to which we have now turned. Let me outline the different groups that this amendment concerns. These are, first, those who would otherwise have gained a married woman’s pension and, secondly, those who would not have been entitled to the married woman’s pension because they have more than the equivalent of a 60% basic state pension in their own right but less than 100%, so would otherwise have received a widow’s pension. There will also be some who, regardless of whether they derive any basic state pension, may have expected to inherit some additional state pension.
We are putting in place transitional arrangements for that last group for inherited additional state pension. This will mean that where a survivor is in a marriage or civil partnership with someone in the current system they will inherit additional state pension, as now. For those where both parties are in the single tier, the survivor will be able to inherit 50% of the protected payment, where one exists. This is what Clause 7 and Schedule 3 achieve.
Limiting inherited additional state pension and the ability to derive a widow’s pension will, however, mean that some people receive less. In terms of how much those losses are, we estimate that the figure will be about £8 per week in 2025. That is the median figure and is made up mostly of people receiving less by way of inherited additional state pension. This loss is also due to the fact that people cannot carry on building up additional state pension after 2016, limiting the potentially inheritable amount.
However, around three-quarters of people reaching state pension age in the first 10 years of single tier who would have inherited some additional state pension under the current system will receive more single-tier state pension over their lifetime than they would have in the current scheme. This is because the gain from current system inheritance at the point of bereavement—and, potentially, very late in retirement—will be more than offset by the gains in state pension as a result of the single-tier valuation and uprating arrangements.
I think that this particular point feeds through into the issue of fairness. We are giving less to some people but we are using those savings to fund higher entitlements at state pension age for many people. Many people will benefit when they are younger—and by that I mean at the point of state pension age as opposed to widowhood—and are more likely to spend the money than would be the case towards the end of their lives.
On the simplicity test, I have to acknowledge the point from the noble Baroness, Lady Sherlock, that there are elements of complexity in the transition. However, that is because of the current system, not because of the single-tier system.
On the related issue of communications, the core objective of our strategy on communications is to raise awareness of the changes, particularly among those significantly affected by the reforms or those reaching state pension age shortly after the reforms are introduced. As I said on Monday, I will be producing our communications package in the new year.
The noble Baroness, Lady Sherlock, mentioned two examples. I think that it would be best to take up the Jack and Jill example with officials later, but her second example seemed to be correct, and I have confirmation of that. I think that she interpreted correctly the different groups—that is, who is in single tier and who is out.
Baroness Sherlock
My Lords, when I used the example of Jack and Jill, I was not asking whether it was correct. Unless the officials have made a mistake—in which case I am sure they will let me know—I presume it to be so. I was simply using it to demonstrate how much somebody would lose under the system.
Lord Freud
I am sorry, I was not referring to the Jack and Jill question; I was referring to the second example, where the noble Baroness asked me whether she had interpreted it correctly. I have the pleasure of telling her that, as always, she is absolutely correct, except of course where she disagrees with me.
I will not go into the arguments on simplicity and clarity or fairness, because the same arguments apply. In the light of my response, I hope that the noble Baroness will withdraw her amendment.
Baroness Hollis of Heigham
My Lords, my noble friend was referring to Jack and Jill. I assumed when I read this that HMRC, with perhaps unsuspected irony—perhaps the people who drafted this have young children—remembered that Jack fell down the hill and no doubt departed from this life, and Jill came tumbling after, thereby losing her 100% derived rights. I suspect that that is what HMRC may have intended, in which case it was all too accurate.
I simply think that what the Minister is doing is harsh, unnecessary and not costly to remedy. People made decisions and plans for their lives many years ago and he is now—this is the same point that my noble friend made about hindsight—projecting current takes on the labour market and women’s role in it back on to a previous generation who shared no such perceptions and perspectives. I think that in all decency we should give them a chance to remedy their situation through transitional arrangements.
We may revisit some of these issues when we come to bereavement payments, and I am sure that the noble Lord is looking forward to that. On that basis, I beg leave to withdraw the amendment.
Baroness Turner of Camden
I support what my noble friend has just been saying; nobody likes being dumped. I do not know whether noble Lords have seen from the newspapers lately that there has been a rise in the number of older women divorcing. It is quite remarkable; people who are quite elderly and approaching pension age are getting divorced, whereas formerly they simply put up with it. It can be quite a problem.
Lord Freud
My Lords, I will avoid the issue of divorce rates because I am aware of the quagmire in which I will incredibly rapidly end up if I say anything at all.
The final amendment tabled by the noble Baroness on the issue of derived entitlement focuses on the impact upon divorcees and people whose civil partnerships have been dissolved. Under the current system, divorcees can—through a somewhat complex mechanism colloquially known as “substitution”—use their former spouse’s or civil partner’s contribution record to qualify for a full, or enhanced, basic state pension. With the ability to derive a pension ending for post-2016 pensioners, we accept that some divorcees may be affected, and they are likely to be those divorced relatively late in their working life. We estimate that these individuals could number about 70,000 up to 2031.
Turning to the specific situation of divorced women, it is likely that single individuals who themselves have not achieved a record sufficient to build up a full basic state pension will be eligible to claim guarantee credit, which is considerably higher than the maximum a divorcee could derive from a former spouse through the current, complex substitution arrangements.
These provisions are extremely complex and, as with the married woman’s and widow’s pensions, there is no longer any substantial need for these arrangements because the vast majority of women will receive a pension in their own right.
I repeat that in designing the transition to single tier, we have had to make decisions about the way that we spend the money we have available and about how to achieve the simplicity needed for people to make decisions about their retirement plans. A safety net will remain in place and absolute losses will, on average, be relatively small. I therefore urge the noble Baroness to withdraw the amendment.
Baroness Hollis of Heigham
My Lords, the Minister is absolutely right to say that it is a problem for late divorcees, as it is for widows or for women who married in their 50s and expect but then have removed from them the married woman’s dependency pension. Those people do not have time to rebuild their lives. My calculation is that that involves perhaps fewer than 5,000 people a year.
What interests me is that, given that the impact analysis claims that the Bill is determined to reduce means-testing, I have checked back in my notes and in something like five out of the last six amendments to which he has spoken the Minister has referred to pension credit and top-up, thus re-importing back into the system pension credit means-testing for cohorts of people that he could perfectly well take out if he was willing to contemplate transitional arrangements. He is getting rid of complexity for him and giving it over to them, because they will be required to go through all the stumbling blocks of pension credit and a reluctance to claim a means-tested benefit, which we discussed at some length on Monday. His position is harsh and unfair on all three amendments, particularly when we take into account that the Government are willing to find money for the married women’s tax allowance—which he still has not addressed, after three amendments—but not on these amendments, when older women are losing rights around which they have built their lives. I beg leave to withdraw the amendment.
Baroness Sherlock
My Lords, I thank my noble friend Lord McKenzie for giving us the opportunity to touch on this issue and for setting out the challenges in his characteristically clear and well informed style. I shall be very interested to hear what the Minister has to say in response.
I would be grateful if the Minister would answer the following questions. First, will he clarify whether all the routes to gaining national insurance credits which are currently available will continue to be available in the new system on the same terms? Secondly, if not, or if there is any doubt about that, have the Government consulted on changes or will they commit to a public consultation before making any changes? I include within that any changes that are implied or necessitated by the switch to the new pension system or the universal credit system.
My noble friend raised an issue concerning the Government’s strategy. In particular, I am concerned about the categories of people who have actively to make claims for credits and will not get them automatically, even under universal credit. I think he cited all the ones that I have been able to identify, plus child benefit, which I had not noted. Will the Minister tell us whether the Government’s strategy will include elements targeted at those categories of person? Within that, will they consider how they engage with direct routes, rather than just generalised campaigns? My noble friend Lord Browne mentioned that the Armed Forces look for ways to make sure that members of the forces community can take up those credits. Will the Government consider other routes to that—for example, through adoption services or the ways in which the Government already communicate with those in receipt of maternity, paternity, adoption or sick pay? Is the department in discussions with other government departments about the way to take this forward?
My noble friend Lord McKenzie also mentioned take-up. It would be helpful if the Government could report on take-up now and under the new system and tell us how they will monitor that and report to Parliament on it. Finally, will the Minister tell the Committee whether the Government have considered ways in which people might actively be supported in claiming credits for past years, which might now become important, where they would not have been previously?
Lord Freud
I thank the noble Lord, Lord McKenzie, for this amendment. I hope that I shall be able to offer some reassurances about the current arrangements and those within the context of the work that we are planning. The existing arrangements provide for national insurance credits to cover a wide variety of contingencies and activities, as he acknowledged. They are generally available to people who are unable to work and pay contributions. This could be because they are unemployed, incapacitated or caring for others, but credits are also available to cover a range of other circumstances—for example, jury service or if an individual is employed but is in receipt of working tax credit.
Credits protect a person’s national insurance record and their future entitlement to benefits. Under the current system, all classes of credits protect the basic state pension, and in certain circumstances an earnings factor credit can be awarded to protect state second pension entitlement, mainly for caring responsibilities and long-term incapacity. I can confirm that the crediting arrangements will be brought forward to the new system and that people will still be able to get credits to protect their single-tier pension position.
Lord McKenzie of Luton
Before I do, will the Minister comment on the issue of universal credit being just a class 3 credit, whereas some of the benefits that will be subsumed into universal credit—ESA, JSA and the working tax credit—are class 1 credits? Is that not a diminution in the crediting opportunity?
Lord Freud
JSA is, I think, already a class 3, is it not? I have a comprehensive list of national insurance credits. Rather than running through them all, perhaps I should just forward it to the noble Lord and the Committee to make the point.
Lord McKenzie of Luton
I am grateful to the Minister. I think that I have the list, which probably came from the same source as his did. I was interested in the rationale for the universal credit just being a class 3 credit, because that is a change for somebody who would previously have been on JSA or ESA in particular. Has any assessment been made of the extent to which people are likely to lose out on their contributory JSA or ESA as a consequence of that?
Lord Freud
The principle is not to allow access to contributory benefits through claiming another benefit. That is fairly logical, if you think about it. If you were purely claiming unemployment benefits and you were on them for a year, you would automatically go into contributory unemployment. That is the logic that we are pursuing when we move to class 3 in universal credit.
Lord McKenzie of Luton
My Lords, I thank the Minister for his reply and my noble friend Lady Sherlock for her questions. On the latter point, I am not sure that the Minister specifically dealt with whether there would be individual strategies focused on those types of people whom we particularly need to reach, such as carers. On the issue that was just raised about not accessing the benefits through other benefits, the point about contributory ESA and contributory JSA, as I understand it, is that you cannot achieve them only by credits; there has to be a payment arrangement as well to qualify. If the credit is changed, that makes it potentially more difficult than it is at the moment. The Minister mentioned the earnings factor credits but, as I understand it, those disappear because S2P obviously disappears as well in the new regime.
I am comforted by the fact that deficiency notices, perhaps in their new form, are to be reactivated once we get to the stage where the April 2016 data are available, which is helpful. I suppose that, broadly, one accepts that there is going to be a big communications strategy. I see that my noble friend Lady Sherlock is poised to ask a question, so I will give her that opportunity.
Baroness Sherlock
Before my noble friend withdraws his amendment, the reason I asked the Minister generally at the beginning about whether all the currently available routes to gaining NI credits would continue on the same terms was precisely to try to draw out the kind of things that my noble friend has been highlighting. If the Minister finds anything else which could possibly fall under that category when he goes back and consults more with his officials, perhaps he might write to us.
Lord McKenzie of Luton
I am grateful to my noble friend and to the Minister. I am happy to read the record on this but, in the mean time, I beg leave to withdraw the amendment.
Lord Whitty
Before the Minister replies, the noble Baroness, Lady Greengross, who has an amendment in this group, has had to leave. She apologises.
Lord Freud
My Lords, the engagement of the guaranteed minimum 2.5% uplift in April this year saw the basic state pension reach a higher share of average earnings than at any time since 1992. Next year, in 2014-15, the basic state pension will be more than £8 a week higher than if it had been uprated by earnings alone in this Parliament.
This Government believe that, like the basic state pension, the single-tier pension should be uprated by at least earnings to ensure that it retains its value compared to wages, but there is flexibility in legislation for above-earnings increases. I therefore reassure the noble Lord, Lord McKenzie, that the triple lock could be used for the uprating of the single-tier pension, as it has been in this Parliament for the uprating of the basic state pension.
Clearly, the noble Lord would not—and the noble Baroness, Lady Sherlock, was generous enough not to—expect me to commit future Governments for the next 47 years. Looking back 47 years would take us back to 1966. That was a long time ago. Was it the summer of love? Perhaps that was 1967, but in any case it takes us back a long way. Therefore, I do not think that one could commit any Government to anything, and I am sure that there will be lots of different Governments over the next 47 years. However, when you look at the proportion of GDP taken up on the assumption of a triple lock, it is possible that Governments will want to stick to it. The Office for Budget Responsibility adjusts for the triple lock by applying a 0.3 of a percentage point premium to the annual uprating of the basic state pension over and above the earnings rate.
Clearly, the triple lock has insulated pensioners from periods when the inflation rate has been relatively high, and has been particularly important in the unusually uncertain economic climate that we have seen in recent years. The Government do not want to constrain future Administrations by placing a requirement to uprate by the triple lock in primary legislation. It must be up to future Governments to decide, based on their annual reviews, whether uprating above the minimum of earnings is applied.
In response to the noble Lord’s question, the expenditure figures include the impact of the minimum qualifying period and deferrals, but the chart in chapter 3 of the impact assessment—there is a loser’s chart there —does not. No savings are assumed from passporting.
On the provisional outcomes on the basis of earnings upratings, the White Paper set out the assumption that the triple lock would be extended until 2060, but we have nevertheless demonstrated the impact on earnings upratings on expenditure in our impact assessment. That is in chart B2 in the impact assessment, which shows that the triple lock uprating has a progressively greater impact on expenditure, and therefore pensioners’ incomes, over time.
The annual uprating process for the state pension is transparent, based on a review made by the Secretary of State with reference to the general level of earnings and the overall economic situation. The indices for earnings and prices are published by the Office for National Statistics before the uprating decision is announced and are readily available. As a result, we see no advantage in committing in legislation to providing a relatively straightforward calculation. I therefore ask the noble Lord to withdraw his amendment.
Lord McKenzie of Luton
My Lords, I am grateful to the Minister for that reply. I did not expect him to announce that it was going to be triple lock for the next 47 years; my noble friend Lady Sherlock made our position clear.
There is nothing wrong in looking back 47 years to 1966. England won the World Cup. Harold Wilson was Prime Minister and in his ascendancy. Those were halcyon days and well worth reflecting on.
As I said, the amendment was just a peg to get a debate to highlight that the Treasury is withdrawing quite a lot from the S2P. To an extent, we accept that that is a progressive measure. The Treasury has been chipping away at various bits and I have by no means listed them all. We will probably have another go at listing them in the interim, but in the mean time, I beg leave to withdraw the amendment.
Lord Browne of Ladyton
My Lords, I am content to join in commending my noble friend Lord Whitty and other noble Lords for bringing and developing this argument. They will forgive me if I do not join in the nostalgia for 1966. The removal of contracting out from April 2016 has significant implications for all occupational pension schemes. I shall make my speech short, given the time. It is bad enough to be between somebody and their dinner; it is impossible to be between somebody and Christmas.
It is clear just how significant are the figures quoted by the noble Lord, Lord German. I did not immediately recognise them, but they are in the same ball park as the figure, which I understand to be the Government’s figure, which suggest in excess of £5 billion a year going to the Treasury in extra NI contributions from 2016 when the new state pension scheme begins. Because of the scale of public service pension schemes, the lion’s share of that increase will come from them. It is far from clear, in the complexity of the Bill, how the increased NI contributions in the public sector can be met. Not surprisingly, those who have responsibility for these schemes—bearing in mind that they have just, in many cases, entered into agreements to reform them—are seriously concerned about the impact these changes will have on local authorities, health services, fire and rescue services and policing.
I note that in Committee in the Commons, Oliver Colvile correctly also put the Armed Forces Pension Scheme in the frame in the context of public service pension schemes. If that is correct, if the Minister is minded to accept Amendment 42, the definition of public service pension scheme will include the Armed Forces, which will answer more clearly the question asked by the noble Lord, Lord German, about what is a public service pension scheme. Rightly, Oliver Colvile was concerned that the defence budget should be spent on defending our country and should not be directed back to the Treasury. If it encourages the Minister to engage with this issue in a positive way, I promise not to tell noble and gallant Members of your Lordships’ House that this issue may impinge on that aspect of public policy. If he considers that, I will keep it quiet in the mean time until we see whether we can make some progress on this issue.
The Local Government Association has been in touch with all of us and has advised us that it supports my noble friend Lord Whitty’s amendments, which defer the end of contracting out for public service pension schemes until the tax year beginning 2018, and require the Government to credit public service pension schemes with amounts equivalent to the money lost through the end of contracting out.
It is understandable why it supports them, because, in the absence of an alternative from the Government, the choices they face are extremely unpalatable. They include loss of services or increased council tax, for example, or, as we are advised, the certainty that low-paid workers will leave the schemes or that settlements, including the settlement of the public service pension scheme, would have to be renegotiated. I am also told by those who know that it will mean the renegotiation of a lot of contracts in relation to privatised services, because assumptions were made about commitments in relation to pensions in the TUPE environment that no longer stand true.
It is not unreasonable in those circumstances to ask the Government how they will resolve the additional expenses and how they expect those who run public service schemes to deal with the increased cost and, for that matter, how they expect the individuals affected to deal with the increased costs. Will the Minister address the advice that we have been given and the concerns of those who run these schemes? Does he accept that there will be a perverse incentive unless this is resolved and that low-paid workers may decide to opt out of their public sector pension schemes? Does he accept that there is genuine worry that this will undermine agreements to reform that have already been reached? Does he accept that there is genuine concern that this will impact on existing contracts for provision of services by the private sector?
Lord Freud
As a consequence of ending the additional pension for those reaching pension age after 2016, we are ending contracting-out. This means that individuals in defined benefit schemes—public sector and private sector—and their employers will no longer be entitled to pay a lower rate of national insurance contributions by contracting out of the state second pension. At the moment, they receive a rebate of 1.4% for employees and 3.4% for employers on earnings up to £40,000.
The abolition of contracting out will result in additional national insurance revenue for the Exchequer. Of this, about £4 billion is national insurance contributions from public sector employers and employees. That is the money that the noble Lord, Lord Whitty, is most concerned about.
The extra information that I can provide to my noble friend Lord Flight is that the cost of the public sector schemes of paying extra employer national insurance is about £3 billion per annum. We do not have any breakdown of which schemes are at local authority level. I will speak to Her Majesty’s Treasury to find out whether any further information is available.
Noble Lords will know that the Government have not set a fixed spending envelope, nor one for individual departmental budgets, beyond 2015-16, and contracting out is abolished in 2016-17, so is outside the current settlement. Public sector employers will have to absorb the burden, as is always the case with tax changes. Any spending review in the next Parliament will, of course, consider the £4 billion cost in the round. This does not affect our commitments on protecting spending on health and education in this Parliament. Treasury officials have already met with Local Government Association officials concerning the impact on the local government pension scheme. This follows conversations between the Chief Secretary and the Local Government Association, and I would expect similar discussions to take place concerning other schemes when settlements are set.
Turning to the noble Lord’s amendments, I note that he moved back from 1966 to 1963, but then he would, would he not? The amendments would effectively defer the loss of the rebate to public service pension schemes for two years—until April 2018—but in doing so would defer the introduction of the single tier to more than 4 million people.
Amendments 19, 20 and 21 would change Clause 4 by redefining pre and post-commencement qualifying years, so that public service pension scheme members have them counted up to and from 2018 rather than 2016. Amendment 24 would change Schedule 1—the detail of the transition—to bring into account the old scheme and introduce the new scheme two years later for public sector workers, with a tidying-up clause in Amendment 43.
Benefits: Sanctions
Lord Freud Excerpts(10 years, 5 months ago)
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Lord McKenzie of Luton
To ask Her Majesty’s Government what has been the impact of the application of the new sanctions regime for jobseeker’s allowance and employment and support allowance claimants.
The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud) (Con)
The new sanctions regime was introduced in jobseeker’s allowance from 22 October 2012 and in employment and support allowance from 3 December 2012. We have released statistics on the sanctions up to the end of June 2013. They show that there has been little change in the volume of sanctions since the introduction of the new regime. Matthew Oakley is conducting a review of how we operate the sanctions system and will report back in due course.
Lord McKenzie of Luton (Lab)
My Lords, I thank the Minister for that reply. It is not a matter of dispute that the social security system should involve rights and responsibilities, but I suggest that the recent, delayed data show a record number of sanctions, and raise the question of whether the sanctions are being fairly applied—particularly the JSA and ESA three-year sanctions. I ask the Minister particularly about the case of Reilly and Wilson v the Secretary of State. He will be aware that the Supreme Court dismissed the Government’s appeal and determined that the Government had a duty of fairness to provide enough information to jobseekers on an individual basis about available back-to-work schemes for them to make informed representations should they so choose. Will the Minister give an assurance that this is now happening, and that it is happening before the DWP seeks to apply the sanctions regime?
Lord Freud
My Lords, as part of the Jobseekers (Back to Work Schemes) Act we passed earlier this year, we are having a review, which is being run by Matthew Oakley. He is concentrating on precisely the issues of communication that the noble Lord raised.
Lord Stoneham of Droxford (LD)
My Lords, one of the complications of the sanctions policy could be its impact on the Troubled Families programme. Will my noble friend confirm the number of instances of second-time sanctions, and how many of them were part of the Troubled Families programme?
Lord Freud
I thank my noble friend for giving me advance notice of that question. Only a small proportion of claimants are sanctioned two or more times. For high-level sanctions, only 5% received two sanctions and 1% received a third sanction. On the specific question about the Troubled Families programme, that provision is delivered by local authorities and unfortunately we do not have the data available at the present time.
Baroness Lister of Burtersett (Lab)
My Lords, given that the Social Security Advisory Committee warned that sanctions tend to impact disproportionately on the most vulnerable and disadvantaged, and given that a recent survey of citizens advice bureaux showed that the new sanctions regime is having a severe impact on physical and mental health, with one respondent saying,
“The strain has quite literally smashed our family to pieces”,
what steps are being taken to monitor the unintended consequences of sanctions, as called for by SSAC? Will the Minister undertake to report regularly on the impact of sanctions on these groups?
Lord Freud
As I just said, we are having one review, undertaken by Matthew Oakley. My colleague the Minister for Employment is also looking at this area very closely, and I am expecting the details of the review that she is overseeing to be published reasonably soon.
Baroness Sherlock (Lab)
My Lords, the Minister said that sanctions had not increased significantly. Perhaps he would look at a Written Answer given in another place to Mr Timms on 4 July, which suggested that the amount of money withheld from JSA in sanctions in 2009-10 was £11 million. Only halfway through 2012-13, it was £60 million. If it carried on at that rate, that would constitute a tenfold increase. Anyone who has ever been to a food bank will have heard horror stories about people being sanctioned for trivial or disgraceful reasons. Can the Minister please get a grip on this?
Lord Freud
My Lords, the relative figures are that since 2010 the volume of sanctions has run at between 3% and 5.5% whereas between 2005 and 2010 the rate was running between 2% and 4%. One of the most encouraging elements of the new regime is that the proportion of people on high-level sanctions has fallen quite steeply and is now down by 40% from 10,000 per calendar month to 6,000 per calendar month.
Baroness McIntosh of Hudnall (Lab)
My Lords, will the Minister tell the House whether the officials working in the DWP are working to targets, and whether this has any impact on the number of sanctions that are applied?
Lord Freud
We are not working to targets. We have made it absolutely plain that that is not our policy. We have had a study done on that by the head of JCP, Neil Couling, which reported in May and found that we did not run targets. Obviously, we collect management information, without which we could not give out the kind of data that is requested.
Baroness O'Cathain (Con)
My Lords, will my noble friend give us some indication of the sort of training given to those who deal with some of the rather disturbed people who go to jobseekers’ offices? I have seen several instances where the people in this very difficult situation get a bit disturbed about it and need a bit more sensitivity. I have mentioned this to the Minister before. I wonder whether the responsibility lies with the local authorities dealing with these issues or with the department.
Lord Freud
Jobcentre Plus advisers are well trained to look after their clients. One of the most difficult areas for them is always mental health, and that is something that we are looking to push further forward. We are introducing a mental health toolkit along the lines of that given to prime providers in the Work Programme.
Lord Touhig (Lab)
People with special educational needs and physical disabilities are particularly badly hit by these sanctions. Will the Minister respond to the question put to him by my noble friend Lady Lister? Will he come to the House and report regularly on the impact on people with these difficulties?
Lord Freud
My Lords, I said earlier that I hope that we will be announcing the context of the review that my colleague Esther McVey is looking to produce. When I have that information, I will, of course, bring it to this House.
Pensions Bill
Lord Freud Excerpts(10 years, 5 months ago)
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The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud) (Con)
My Lords, I thank the noble Baronesses, Lady Turner and Lady Greengross, for their amendments, which cut to the heart of the rationale for these reforms and provide an opportunity to discuss how this Government are committed to a decent and secure income for all pensioners.
Clause 1 is a landmark in the history of British state pensions. It creates a single state pension in place of the current two-tier system. It marks a return to the simplicity that Beveridge had in mind in 1942 and a withdrawal of the state from earnings-related pension provision. The fact is that we now need a new pension system to meet the needs of today’s working-age population. We estimate that 13 million people are not saving enough for retirement.
The single tier will provide a flat-rate pension above the level of the basic means test to most people in the future. This goes hand in hand with automatic enrolment and will help to give those saving today for their retirement far more clarity about what they can expect from the state. The reforms will also help to dispel any perception that people’s own savings could be offset by a corresponding loss of means-tested benefit.
The key point here is that the reforms are about restructuring spending to support saving. They are not about spending more or less on future pensioners, and they have been designed to stay within the amount that we were projected to have spent if we had rolled the current system forward. In designing the transition, we have been able to right some historic wrongs, as the Minister for Pensions has often said.
I turn to the question from the noble Baroness, Lady Turner, about what she calls the cliff-edge effect. Around three-quarters of pensioners retiring in the five first cohorts will see a change of less than £5 a week compared with if we rolled the current system forward.
Lord Freud
I think that in practice it will be a mean average. However, I will make that absolutely clear.
By withdrawing the facility to build a pension above the flat rate and modernising the system, removing elements such as savings credit and derived entitlement that no longer reflect the needs of the working-age population, we are able to fund the single-tier pension and improve the outcomes of groups such as the self-employed, carers and low earners, who have historically seen lower state pensions. It follows, therefore, that there are two means by which we could apply the new state pension to existing pensioners.
First, we could simply increase the pension of all existing pensioners to the full single-tier rate, if they are currently receiving less. In response to the question asked by my noble friend Lord Flight, we estimate that this would cost around £10 billion.
Baroness Hollis of Heigham
I think that by the time we have a rolling cohort, by definition that cannot be the case. I realise that we are pressing the Minister for information while he is on his feet. It would be very helpful if, perhaps towards the end, he could pick up points on which we have asked questions.
Lord Freud
I will confirm the precise parameters around that £10 billion figure to the Committee as soon as I have that information.
On the question raised by the noble Baroness, Lady Hollis, on rolling together from an 85 base, we do not have those particular costs, as she might imagine. However, we can look at the numbers, although it will be a very complex exercise, not least because some will have a current pension in excess of the £144 base we are using on an illustrative basis.
If we were to take those extra costs they would fall to today’s workers; the risk would be that that would undermine the trust between the generations, which is at the heart of our pay-as-you-go national insurance system.
The alternative would be to assess the single-tier entitlement of this group and pay this amount. If we did this, and fully brought forward the single-tier rules for existing pensioners, this would entail removing some pension already in payment, such as derived entitlement and the savings credit. I suspect that we would all agree that this would be totally unacceptable.
However, this Government are equally clear that it would be unacceptable for today's poorer pensioners to get left behind, and have taken many steps to ensure this is not the case. We have restored the earnings link to the basic state pension. The coalition’s introduction of triple-lock uprating on top means that the level of the basic state pension is now at its highest proportion of average earnings in more than 20 years.
To ensure that the poorest pensioners benefit from the triple lock, this year the pension credit standard minimum guarantee was increased by the same cash amount as the basic state pension, and that will happen next year. These measures have been particularly key in the unusually uncertain economic climate we have seen in recent years. In a time of austere spending decisions, we have protected key benefits for older people, including winter fuel payments.
The noble Baroness, Lady Greengross, is right to highlight the importance of effective monitoring of pensioner poverty and the effects of these reforms on retirement incomes; indeed, her sterling work as the co-chair of the All-Party Parliamentary Group for Ageing and Older People has continued to champion this cause. The latest figures, for 2011-12, show that the rate of relative poverty among pensioners is close to the lowest ever recorded. It is at 14%. I recall with slight irony that when we debated the Child Poverty Bill in 2009, the expression “eradication” was used about bringing the poverty figure for children down there to 10%. The DWP publishes annually the households below average income report, a national statistic which provides a full analysis of the levels of relative and absolute poverty for pensioners, and pensioner material deprivation. In addition, in order to look at the impact of the Government’s pension reforms as a whole, the Government published a framework for the analysis of future pension incomes in September 2013, which provides an overview of projected future retirement incomes.
I will pick up the question from my noble friend Lord Kirkwood, who asked for reassurance on the delivery plans for the single-tier state pension. As noble Lords are all aware, it will be introduced from 6 April 2016. The single-tier programme was set up in early 2012 to undertake early feasibility work and test deliverability of the policy as it was being developed. It is a DWP programme, with changes being delivered by the DWP and HMRC.
We are confident of delivering by April 2016 for several reasons. First, there is broad consensus on the main principles of the reform, which provides a helpful basis to plan for implementation. The main development of systems will commence once the Bill gets Royal Assent, at which point the key legislation will be settled. This will ease the challenge of developing systems while policy is likely to change.
Secondly, the key change needed to deliver single tier is to reform the way we calculate state pension, based on an individual’s national insurance contributions. We have long-standing experience of using national insurance contribution records held on HMRC systems to calculate pensions. Single tier is just a variant of that process. We will, however, aim to use this opportunity to make improvements to the way that we deliver our services.
Thirdly, both departments have the capacity to deliver the programme, have a good recent track record of making major changes to pensions calculations to tight timescales and have successfully delivered previous pension reform changes. The programme will use a process of phased development of systems and processes to minimise any risks to delivery of single tier. Both the DWP and HMRC will use existing staff who have expertise in dealing with NICs and pensions to deliver these reforms. HMRC also has experience of managing the end of contracting out for defined contribution schemes in 2012. This will stand it in good stead for introducing the changes for defined benefit schemes.
Finally, we will engage users and interested parties in a very practical way, helping us to test each stage of developments to make sure that they work to provide an accessible and easy-to-use service. The new systems will be tested in advance of April 2016, through the advance claims process. Additionally, we are building in contingency to ensure that the existing telephony channel can be used, just in case the digital solution does not work on day one.
A clear governance structure exists to manage the implementation. A DWP programme board, on which HMRC sits, is in place to oversee delivery of single-tier pension and delivery teams have been set up in both departments. Both departments believe that delivery of the single-tier reform is challenging but doable. The main change needed to deliver single tier is to reform the way we calculate state pension and that remains the focus of the programme. We do, however, need to take this opportunity to move to a more efficient and customer-focused business delivery that meets the government commitment to deliver more services digitally. To achieve this, the programme team is working closely with the Cabinet Office. The department is also building its capability in developing digital services through the appointment of a director-general with introduction of single tier as a digital service as his primary responsibility.
To conclude, I agree that reducing pensioner poverty is crucial. The steps already taken by this Government will help to do so and the measures in the Bill will provide for a more secure future for generations to come. I therefore ask the noble Baroness, Lady Turner, to withdraw her amendment.
Baroness Sherlock
My Lords, I wonder if I could just follow up on a couple of points. I thank the Minister for that response and I understand that, certainly at a £10 billion a year price tag, this would be a challenging reform to adopt. Could I ask him—I may have missed it and I apologise if I did—to respond to my questions about pension credit and passported benefits? If the Government are not going to able to bring existing pensioners into the new system can he give us a categorical assurance that pension credit will last throughout, and if so that the passported benefits on the back of that will come?
Lord Freud
My Lords, we are not changing the existing system for people who are on that system. Therefore that system, with the way that pension credit is set up, will not change for those people.
Baroness Sherlock
Forgive me, but may I therefore invite the Minister to put it this way: the Government have no plans to end savings credit, change its current value or change access to benefits currently passported on it?
Lord Freud
My Lords, I am happy so to confirm. As I say, for existing pensioners we have no plans to make any changes to the way that pension credit works. I have got a little bit more information. The cost of £10 billion is to get everyone on to single tier, and that is the cost to get all current pensioners to the illustrative £144 per week. I can confirm that cost is £10 billion per annum. This is a figure taken at 2016 and clearly that would reduce over time. The other issue that we discussed as we went through this was the 75% of people who see a change of less than £5 a week: this is not an average and most people will see only a small change compared to the current system.
Baroness Hollis of Heigham
I will first follow up on my noble friend’s point on savings credit. The Minister says that it will remain unchanged, but given that it is going to be CPI uprated, where the guaranteed pension credit is earnings related, at what point does the Minister expect savings credit to no longer exist because the guarantee has caught up with it? Therefore, although it is technically true that there will be no changes none the less it is surely also true that, X period of time on, given assumptions about inflation and so on, savings credit will in practice no longer exist.
Baroness Hollis of Heigham
In particular, my Lords, given that the Government are proposing to remove AIPs for those over 75, there is therefore going to be an annual means-testing of pensioners who, if they were 10 or 12 years younger, would have that £144 as of right.
Lord Freud
My Lords, I shall respond where I can. I think that I shall have to write on the future of the savings credit as a result of an earnings increase of guaranteed credit, as it is quite complicated. At this stage, I shall also have to write to confirm exactly where we are on the question of whether the figure is gross or net. In practice, I think that I will end up writing quite often on these figures because they are quite complicated and one wants to double-check them carefully. Offering responses on the hoof may be a little dangerous and I shall be reduced to writing more often than would be the case with some of the other things that we discuss. With those issues raised and with a process to deal with them, I again ask the noble Baroness to withdraw her amendment.
Baroness Turner of Camden
I thank everybody who has participated in this debate, which has been very interesting. It has demonstrated that there really is a bit of a problem here with current pensioners who feel that they have been neglected, and I think that they have some justification for feeling that. I am very interested in what the Minister had to say, particularly on pension credit. I shall look at that very carefully when we have the opportunity to read what he has said this afternoon.
I am surprised that there has not been a rather better reception for the amendment tabled by the noble Baroness, Lady Greengross. Quite frankly, I cannot see what there is for the Government to lose by having an annual review of pensioner poverty. I should have thought that it would be a very good idea, and it would certainly ease some of the concerns that pensioners have at the moment. In the mean time, I shall withdraw the amendment—
Lord Freud
I want to make it absolutely clear, if I did not do so in my answer, that that information is provided annually. I was by no means not accepting that amendment; I was just making the point that it was a good idea and, as such, had already been implemented.
Baroness Turner of Camden
I accept that the Government have the information and I am very grateful for that. On the other hand, we were hoping that there would be an opportunity in Parliament to discuss the results of a review annually. That would give us the opportunity, as parliamentarians, to see what the position was annually as far as poor pensioners were concerned. That was one of the aims of the noble Baroness’s amendment. However, I am very grateful for what the Minister has said this afternoon. We will look at it with a great deal of concern because we are still worried about what happens to existing pensioners. We know that some of them are upset and worried that they have been missed out in the pension review, which is what this Bill is all about. Therefore, I will certainly have a look at what has been said not only by the Minister but by everyone else in this very interesting debate. In the mean time, I beg leave to withdraw the amendment.
Lord Kirkwood of Kirkhope
My Lords, I wish to comment briefly on this group of amendments as much as anything to apologise for the fact that I should have declared an interest earlier. I am the chairman of the General Medical Council superannuation fund, as declared in the register of interests.
This is an important debate. We are all very familiar with the unintended consequences of different parts of the system affecting people in a way that might not have been fully appreciated, and I want to look carefully at what the noble Baroness, Lady Hollis, has said. However, on a more strategic basis relating to the policy contained in the Bill, no one is denied any accrued rights, and that is a quintessentially important protection in provision. I was concerned that that was not the case but the foundation calculation is based on actuarial calculations with which we are all familiar within the basic state pension. Therefore, of course we need to look at some of these anomalies, and that is what this Committee is for.
In passing, the debates in the other place have all been based on this being a nil-cost reform within its own terms. However, my position is that that does not take account of the substantial savings that the Government will make over a very long period. For my money, I am willing to look beyond the self-contained envelope if the case is made properly, but, for me, the absolutely important and cardinal thing is that accrued rights have been protected.
Amendment 4, in the name of the noble Lord, Lord McKenzie, is very important and well crafted but my real reason for speaking to it is that I think that everybody should be written to. Everybody who is subjected to this change should get a letter from the Pension Service, although obviously that cannot happen until Royal Assent and other mechanics have taken place. I was grateful for the very full answer earlier from the Minister, and I shall study it with great interest. That is the very least that is required. My noble friend Lord Paddick is absolutely correct that there is confusion. We are all slightly finding our way through some of these policy and operational matters. Within the terms of Amendment 4 as it is currently cast, I do not think it is unreasonable to ask for individual letters looking at the foundation costs and calculations that apply to each individual so that everybody knows where they are before this policy takes shape.
Lord Freud
My Lords, these amendments centre on the group of women who will receive a state pension under the existing system, while men born on the same day as them may be eligible for a single-tier pension. We recognise that people are concerned about this issue and we have already reviewed the position of this group of women. Having looked at the numbers, our analysis shows that about 90% of the women in this group will receive more in state pension and other benefits over the course of their retirement than a man born on the same day as them with the same national insurance record who will be getting a single-tier pension. To be specific, this comparison excludes pension credit but includes savings credit.
The reason is that those women reach state pension age between two and four years before their theoretical twin brothers. Indeed, almost half the group are already drawing their state pension and, on average, will have drawn up to £26,000 before their male twins have begun to draw their pensions. I am excluding from that the unemployed group to which the noble Baroness, Lady Hollis, drew our attention. This group of women were not affected by the Pension Act 2011 pension age changes; their state pension age was set back in 1995. We are increasing pension age to maintain sustainability and fairness between the generations. These interactions with pension credit are inevitable consequences of introducing single tier at a time of unequal pension ages. We do not want to wait until late 2018, when pension ages will have equalised, before introducing single tier.
In addition, being a single-tier pensioner, especially in the early years, does not necessarily mean people receiving a full single-tier pension. Under the current system, the median average entitlement for the women in this group is projected to be £125 per week. A similar valuation based on single-tier rules results in a figure of £131 per week—a difference of £6. These are median averages; about half the group would see no change in their entitlement at all. To pick up the point made by my noble friend Lord Paddick, these women have benefited from the triple lock. Basic state pension will be £8 higher per week in 2014-15 than if their pensions had been uprated by earnings since the start of this Parliament. Almost half these women already drawing their state pension are benefiting from the triple lock.
It is often assumed that the new system will simply be more generous than the current system but, as the Committee will be aware, and as we will discuss in depth later, that is not necessarily the case. We will put in place a minimum qualifying period and close access to the savings credit. We will also reduce the deferral increment rates and cease the ability to derive pension from a spouse’s record. Many people will gain from single tier but there are those who will receive less, compared to the current rules. In response to the questions on costings from the noble Baroness, Lady Sherlock, we assume that these women could choose the system that is better for them, although that is not necessarily an easy choice. However, that is the basis on which we have got to those particular costings.
Baroness Sherlock
On that point, have the Government therefore costed what might happen if they simply included this group in the system and not allowed them to choose?
Lord Freud
I will have to write with that estimate. There is every way of doing these estimates that one can imagine. That brings me to the amendment tabled by the noble Baroness, Lady Sherlock, and the noble Lord, Lord Browne, which is to review how many women in this cohort are projected to derive a pension based on their spouse’s record. We have published a paper on derived entitlement, which covers the projected outcomes for people as a result of removing these provisions. As one may expect, individuals reaching pension age in the few years before April 2016 will have similar national insurance records to those reaching pension age in the few years after April 2016. As such, we can assume that the proportion of women in the cohort under question retiring under the current system who benefit from derived entitlement is broadly similar to the proportion of women reaching pension age just after 2016 who may be disadvantaged.
Baroness Hollis of Heigham
Will the noble Lord write to us and spell that last comment out? If I understood it correctly, it was very revealing. He might like to repeat that last sentence for us and then perhaps enlarge on it in a subsequent letter.
Lord Freud
My Lords, it is now in Hansard. We will spend some time on derived entitlement in later clauses, rather than going through that issue now. We will, I know, spend an awful lot of time on derived entitlement thanks to a certain set of amendments from the noble Baroness, so I have no fear at all that I will not be utterly explicit on this matter before the end of this Committee.
At Second Reading, the noble Baroness, Lady Sherlock, recognised that a line had to be drawn somewhere, but she asked the House to think carefully about whether it is right that twins of different genders should find themselves in different positions. Equally, one could ask whether it would be fair for people who reach state pension age on the same day—for example, the 65 year-old man and the 61 year-old woman—to be in different positions. The noble Baroness, Lady Sherlock, is absolutely right that a line has to be drawn. We have been clear and consistent that only people reaching pension age after the new system is implemented may receive a single-tier pension.
The noble Baroness asked whether these women would lose out. It is not a question of this particular cohort losing out; they simply will not receive a single-tier pension, just like everyone else reaching pension age before 2016. The Government have not changed these women’s state pension age and so there has not been a change in the pension that these women were expecting. Regarding the leading question on discrimination raised by the noble Baroness, I can confirm that any difference in treatment is as a result of the legislation providing for the change in pension age, which is not in this Bill, and we are satisfied that there is no breach of Article 14 of the ECHR on grounds of sex. This is justifiable in helping to pursue legitimate aims and achieving them in a timely way to achieve an equality of state pension outcomes between men and women generally.
Baroness Sherlock
I am trying to address these questions as I go, otherwise I will forget them. Does that legal advice also cover domestic law?
Lord Freud
That legal advice covers the full gamut of the legal position. On pension sharing, the average number of share orders is currently running to around 100 a year, so there is in practice a negligible impact on the gains and losses. We have written to all the cohorts affected by equalisation—
Baroness Hollis of Heigham
We will come on to pension sharing later in much greater detail, but I am sure that the Minister will want to confirm to my noble friend that, as I understand it, the number of inquiries is 20,000-odd, compared to the number of take-ups. Secondly, I presume that what he is talking about is pension sharing in future only of the additional state pension, whereas of course at the moment anyone divorced can also take on the existing NI record—the basic state pension—of their former spouse if it is more favourable than their own. There are two sets of preferences or advantages to divorcees in play and only the first of those will continue, while the second will go.
Lord Freud
I can confirm what the noble Baroness says: I am talking about the additional pension, not the state pension.
To summarise: the women in this group are getting the pension that they expected when they expected it. We have produced analysis on this group of women as well as on the impact of changes to derived entitlement. We need a clear start for the changes and, in line with the 2010 reforms, believe that that should be based on reaching state pension age. I urge the noble Baroness to withdraw her amendment.
Baroness Sherlock
Before my noble friend responds, I think that the Minister has ticked off all my questions and said that in fact these were incidental in terms of differences between the 1951-53 group and the 1953-60 group. Given that, I wonder if he could come back to the question that I posed: how is it, then, that those who retire in the first 10 years after implementation are apparently mostly going to be better off, whereas those in this group immediately before that will actually be worse off if they move on to the new system?
Lord Freud
It will be easier if I push that analysis of the figures into the letter-writing process rather than trying to summarise it off the top of my head, because it is quite complicated.
Baroness Hollis of Heigham
The Minister has been generous in giving us access to his Box, but a lot of our queries and questions came up as we were writing our amendments, after we had talked to the Box. We therefore fully understand that the Minister is not able to give us some of the detail, which requires some fairly elaborate statistical cross-cutting behind the scenes.
Lord Freud
I thank the noble Baroness for that. I was going to suggest that we can come back to this. We have run some sessions with the team, who are doing a magnificent job. This is central stuff; all the things that we are covering today and on Wednesday are technical and difficult. One of the things that I could offer would be another session on this area between Committee and Report. I think that on Report we will want to boil down what the real issues are and what the real amendments should be, because otherwise we will spend a lot of time, sound and fury on issues that are not quite the point that anyone was trying to make.
Baroness Hollis of Heigham
I think that that is prudent. We are dealing with a lot of stats. Certainly, I read the evidence from people who were witnesses to the Committee in the other place, as well as some of the stuff that came out in the Minister’s interrogation and speeches in Committee. Some of the discrepancies between that and what I call the “Apple Green Paper”—as that White Paper is neither white nor green—are because they cut the stats in different ways, and it is very difficult, if you do not have research staff, to recalibrate them to address some of the questions. We are not in any sense trying to put the Minister on the spot; we just want to elucidate, as far as we can, the information, so that we have a shared common body of knowledge on which we can base our estimate and analysis of this Bill. As the noble Lord will agree, that is primarily the job of this House, above all others.
I thank the noble Lords, Lord Paddick and Lord Kirkwood, for commenting on this amendment. In response to the noble Lord, Lord Kirkwood, I took it for granted that there would be accrued rights. However, if there had not been, the courts would have rather a lot to say about that. In every pensions Bill we have ever done—the 2004 Act, and so on—that has been established. It is good that the calculations, certainly in the paper and all the rest of it, are so clear as to what people can expect. That is very welcome.
To the noble Lord, Lord Paddick, I say that the point that I was trying to make is not that all men were in the same position as all women between the ages of 60 and 65. However, essentially, of men who chose to take early retirement only about 2% or 3% chose to go on to JSA or incapacity benefit in that period. The others went on to IS and were topped up by PC. Those men who chose to take early retirement were effectively retiring at the same age as women. That may, to a degree, have been forced on them by unemployment, but they had a choice. They could have gone on to JSA but, perfectly sensibly, they chose not to do so. Instead they went into effectively a pension regime, originally from the age of 60, which was when the age for women was the same.
Of course, other men, who were in work, carried on building up their pension until age 65, primarily because those between 60 and 65 on PCs still carried on adding to their NI years, as I recall. However, those other men were able to build up their additional pension and thus protect it as they went through—essentially, SERPS. Women of that age would have had little, if any, entitlement to SERPS. They would have had entitlement—as will younger women—to S2P, primarily because of the extension of the credits that apply to them, particularly for childcare. Those were introduced quite late, so those women will not, for the most part, have had access to an additional state pension. Men who continue to work to 65, as most of them will—the noble Lord is right on that—will continue to build up that additional pension, which will be protected after they are 65.
The Government are taking a swings and roundabouts approach on this. I think that 167,000—originally 235,000 in 2009-10, and before that a higher figure—had the choice of the same pension as women, age for age. Women have had no such choice. That is why they face cliff edges in a way that men do not. The problem for us has been about cliff edges. The point that I was trying to push was that men did not face any cliff edges. Whatever their age when they retired after 60, they could have a smooth pension level that was the same as women, then they progressed quite nicely at 65; if that happens after 5 April 2016, they will move on to the new pension. Women have no such choice. If they tick their pension, the same as the men, at 63 the shutters come down and they can never move that next step on to the new state pension, which men could in their situation. Women have a cliff edge, while men have a nice smooth path down to paddling in the sea. That is what I was primarily concerned about.
The problem comes as we recognise that we should try to equalise the state pension age at the same time as the Government are introducing the new state pension. I recognise the difficulty. When I started work on this I took pretty much the Minister’s line—that this was on the one hand or on the other—but the more I worked on pension credit, the more I saw the number of people claiming it and how substantial their numbers were. Not 5,000 or 10,000 but a fifth of all men claiming pension credit claim it before they are 65. That means, in terms of savings and the rest of it, that many of them will have gone on to claim that after 65 under the old system. Given that substantial number, it is worth emphasising that women have had a double hit and men have had a smooth transition throughout. Whatever the Minister may argue—and I understand his stats—if you hold up the gender filter to this issue, you can see exactly, as my noble friend said in her speech, why women, rightly, feel hard done by. They are faced with a cliff edge and have no way of ameliorating it, unlike men have had over the past few years—in some cases the past five years—of their working-age lives.
However, we have gone as far as we can until we get further information from the Minister that may or may not help us to progress on this issue. With the consent of the Committee, I beg leave to withdraw the amendment.
Lord Freud
My Lords, I thank the noble Lord, Lord McKenzie, and the noble Baroness, Lady Greengross, for this opportunity for the Government to set out our actions to support people in this area. I need to point out that when the noble Lord, Lord McKenzie, says that he is offering some relief, I am reminded of the song by Tom Lehrer about sliding down the razor blade of life, but there we are.
On the noble Lord’s first question about the new class 3A voluntary NICs, we will have a debate in the new year, and will work with stakeholders to get a clear and simple offer to pensioners, which will include how we publicise that new scheme, so that information will be available.
Including financial education in the school curriculum and increasing young people’s financial capability is an issue of importance to this Government and apposite to the point raised by my noble friend Lord German. In July 2013, the Department for Education published a national curriculum framework with increased focus on financial literacy in both the mathematics and citizenship curricula. This will be taught in schools from September 2014. In 2012, we established the Money Advice Service to help people manage their money more effectively and better understand financial products, including pensions. The Money Advice Service is one of our key partners in providing information to individuals who are being automatically enrolled into workplace pensions. The department has also played an active role in developing the Money Advice Service’s new financial capability strategy to help tackle the knowledge gaps which can inhibit individuals from saving in pensions.
We know that the delivery of information and government policy around financial capability has the potential to build trust and engagement in pension saving, and we are proud of our progress in this area. Our Automatic Enrolment and Pensions Language Guide, developed with partners in the pensions and financial services industry, promotes a consistent and simplified use of language in order to ensure that individuals seeking advice can better understand the information. In October this year the Government published updated regulations setting out the information that occupational and personal pension schemes are obliged to provide to their members, and the frequency with which this is to be done.
I turn specifically to the state pension reforms in the Bill. We are committed to taking action to help people to understand the reforms that we are making and what it will mean for them. As noble Lords know, the current state pension system is fiendishly complicated. In a 2012 survey, in response to a simple true/false question, only one-third of people agreed that it was true that the Government provided a second state pension related to previous earnings. The noble Baroness, Lady Hollis, noted its complexity and gave lots of saddening statistics. That is precisely why we are reforming the system to make it—in principle—comprehensive to as many people as possible. We are tackling this systemic problem by creating a simpler state pension so that everyone can know both what counts towards their state pension and how much they can expect to receive. However, we recognise that the benefits of this simpler system can be realised only if we communicate the changes effectively to the public.
I turn to the noble Lord‘s amendment about the timely provision of individualised state pension information. The Department for Work and Pensions currently offers a state pension statement service, which allows people to request an estimate of how much state pension they may get, based on their national insurance record to date. Last year, 2012-13, over 600 statements were provided.
Lord Freud
Six hundred thousand statements were provided. I assure the noble Lord that we intend to continue to provide people with an on-demand state pension statement service after the introduction of single tier in 2016. Our intention is that the service will be predominantly, though not exclusively, digital—
Baroness Hollis of Heigham
Why on demand? Why not automatically, as a right?
Lord Freud
The cost of providing it to absolutely everyone in the country would be large and, in capacity terms, would be too great to be able to cover everyone on that basis.
Lord McKenzie of Luton
If there were increased demand because of the changes that are taking place in the broader communications strategy, what is the capacity to deliver individualised statements? How many could the department cope with?
Lord Freud
One of the issues here is that we will need to talk, or write, to people who cannot get the information in the digital way that we are planning as our primary way of communicating. Clearly we will be in a position to do that but, until we have the service up and running, it is difficult to estimate what the underlying demand might be.
Baroness Hollis of Heigham
The more the Minister describes this, the unhappier I get. The people who most need the information are those who least know that they need to know it—they do not know what they do not know. For me, that was the clear result from the TPAS survey: they did not know that changes were happening and they did not know when they were going to retire or how much they were going to get, and they had not done anything about it because they did not know what to do. That is the first problem: that those who request it—the Minister’s 600,000 a year—are those who are probably more alert to pension issues and more capable of responding in that way.
The second point if we are going to do this digitally is that we are talking about a group, particularly women, who may very well not have access to any such digital back-up at all. My housing association is already seeing issues with this in spades regarding the universal credit. I am doubly worried if, first, we are only responsive to requests and, secondly, if we propose to do this digitally, those who most need help will not get it and they will be the ones who suffer an impaired pension, even though, had the Government acted differently, they might have had enough time to turn the situation around.
Lord Freud
Well, my Lords, I can just take you through our plans in this area so let me continue to do that. For those who cannot get digital information, we will ensure that they can still get the information they need. Our statements will give individuals their up-to-date state pension position, including their foundation amount, based on their national insurance record to that point. Where appropriate, the statement will tell them how many further national insurance qualifying years they need to reach the full amount of single-tier pension. As noble Lords will appreciate, it takes a few months at the end of every tax year to ensure full consolidation of national insurance records. However, as now, people will still be able to get a statement based on their contributions up to the previous tax year, and we will update our statements to reflect people’s full record for their pre-2016 years as soon as the relevant data are in place.
PAYE records are now mainly electronic but we are working on an assumption that records on account should be ready by October 2016 for the April introduction. As for the timetable for sending out statements, we can give people accurate information on their single-tier position when all their contribution and credits to that point are recorded on their national insurance record. From Royal Assent, we will include simple information about single tier, including the relevance of this estimate in terms of working out their single-tier foundation amount. From implementation in April 2016, our intention is to provide an on-demand, largely digital, statement service.
Regarding the noble Lord’s question on querying the details, in practice relatively few people currently actually do query. However, we want to ensure that the default position is as simple as possible and we will, as now, ensure that where it is required people can get a detailed breakdown of the calculation. For people who are unable to access digital media, we will ensure that they receive the support they require in a non-digital way and we will work that up. To revert to the point on the implied question of issuing everyone with a statement, the issuance of a large number of unprompted statements—potentially millions of statements—would be expensive in terms of IT costs, production costs, postage and staff. Our evaluation of previous unprompted statement exercises show that there has been little, if any, benefit, and solicited statements are a better way of getting information to people.
I turn now to the amendment of the noble Baroness, Lady Greengross. We know that the statement service alone will not be sufficient to inform and educate the public about the simplifications to the state pension system. We are developing a wide-ranging communications strategy, informed and supported by work across government to build financial capability. This will sit alongside the work I described earlier around improving the provision of information across the pensions industry.
To communicate on the single-tier reforms, with HMRC we are already carrying out research, testing language and building on the lessons learnt from automatic enrolment. We are in contact with front-line workers and consumer representative groups. Clearly, it will be important to have an effective mechanism in place for assessing the impact of our communications activity. This will form a key part of our communications strategy. We will publish a detailed update of our communications strategy in the new year, setting out how we will raise awareness and understanding. We will of course communicate that with noble Lords from the outset.
I hope that I have assured the noble Lord and the noble Baroness that the Government are fully committed to ensuring people will continue to have access to information on their state pension position to enable them to plan effectively for their retirement and, as previously stated, we will share our communications strategy with noble Lords.
Baroness Hollis of Heigham
Will the Minister think about the possibility of, say, when someone hits the age of 50, a pension statement or whatever being sent out? The whole push of the Government’s programme has been that people should have enough time to be able to make good any shortfall in their record.
They cannot do it six months before they are due to retire. If a statement was sent at 50 and then the usual one was sent a year before retirement when people may or may not be in a position to consider voluntary NICs or something like that, even that would be helpful if a statement cannot be sent out each and every year. I take the point about cost and effort but people need some snapshots so that they know what the position is as they go along at the ages of 50, 55, 60, 64 or whatever. Otherwise, we will find that a hell of a lot of people are going to remain on pension credit and two legacy systems will be running for 40 years.
Lord Freud
My Lords, I shall try to consolidate where we are here. We will provide full information on our communication strategy, and noble Lords will see that. We know that how and when you communicate is very important, and having a generalised communication strategy may not be most appropriate. As the noble Baroness said, there are particular points where we might want to get over particular bits of information, as is currently the case where people are informed about, for instance, the number of years of national insurance contributions that they have made when they reach a certain age. I would imagine that a sensible communication strategy, which we will show to noble Lords, will incorporate that kind of thing.
To pick up the point made by the noble Lord, Lord McKenzie, on appeals, people can appeal but not until state pension age, not least because, as the noble Lord will be fully aware, before then the pension is often a guesstimate. We are not able to tell people in advance what they are likely to get because the issue is so fiendishly complicated. The real question, which the noble Lord may ask, is whether, when the matter becomes dramatically simpler, we can provide that information, but then there will probably be no need for appeals.
The department tried automatic statements between 2003 and 2006, when more than 17 million were sent out. We stopped this activity after research showed us that it had a limited impact.
One issue on which we need to communicate is shortfalls and the opportunity to buy voluntary NICs. Rather than generalised information, some very targeted bits of information, particularly around that area, are far more likely to get people to respond and focus their attention on their interests.
Baroness Hollis of Heigham
Perhaps I may give the noble Lord another example, and this will apply to other amendments later on. You begin to get an increasing degree of ill health among some people at the age of 50. Women are now very often entitled to a carer’s credit, which, as the Minister will know, is much less heavy in its requirements than the carer’s allowance. However, the take-up is very low. Most people do not know about it at all and it is very hard to claim it retrospectively. Only when the Minister says to people at, say, the age of 50, “You’ve got this but the following credits may be available to you under certain circumstances”, will we know whether women, as they approach 63, 64 or 65, have built up an NI record on their own. The Government cannot be passive about this; they have to provide appropriate information to allow people to know both what they need and what they can do about it. It seems that the Minister is basically responding to those who already know that there is an issue and not to those who do not but should.
Lord Freud
My Lords, just to wrap up this position, I do not think that any noble Lord in this Room will be under any illusion that we are not utterly determined to drive forward a transformation in both working-age and pension-age systems. One of the guiding principles for both those is simplicity so that people can understand what they are entitled to and there is an automatic process where you do not have to do so much work. It is an example of the kind of chaos that we have at the moment that people do not understand what their entitlement is. I am equally conscious of the figures in universal credit, where you have a clean working-age benefit. Two-thirds of the uplift of more than £2 billion per year that we are able to put through to people is due to giving them benefits that they do not currently claim. I do not think that there is any difference. Clearly, simplification and transformation are right at the heart of the Government’s strategy.
Lord McKenzie of Luton
My Lords, before I withdraw the amendment, can I check on two points? The Minister said that it would be possible to go to the previous year’s statement on the normal basis by 6 April 2016. Would that statement include any estimate of what life would be like under STP or would it just be on the old basis? I accept entirely the Government’s intent to communicate effectively on this. It would be crazy to develop a policy like this and then let it fall because there had been inadequate communication, so there is not a challenge on the Government’s intent here. However, how will they spot the difference between those who are digitally able and those who are not? How long will it take for them to realise that there is a group of people here or there who have not accessed the system and that they therefore need to do something else?
Lord Freud
I shall take the noble Lord’s second question first. We realise that some people today are not necessarily digitally able or on the net, but this is the way of the future and we are looking to increase digital take-up and access and a lot of investment is going into that. It is interesting that the divide currently seems to be at age 45, with people pre-45 tending to be relatively familiar and people post-45 tending to be less so—this tells us something about the nervousness in Lords committees. However, clearly, as the system moves ahead over the decades, more and more people will take digital involvement for granted. For those who cannot today, we will need to supply other means of support and we have said that we will do that.
Statements before April 2016 will contain information to help people understand what the amount stated will mean if they reach state pension age after 2016—in other words, what the foundation amount that they could expect represents.
Lord McKenzie of Luton
I am grateful for those further clarifications. I have just one final point—I promise no more. Is there a statutory underpinning for state pension statements? If there is not, should there be one?
Lord Freud
I complained about razor blades before. I am pleased to be able to inform the noble Lord that, no, there is not a statutory underpinning. I am not utterly sure as to why there should be one and whether that is a loss to the system.
I should be very interested if the noble Lord can explain why there should be one and to think about that.
Lord McKenzie of Luton
Perhaps I could write to the noble Lord. It just seems to me that one would have assumed that the Government were authorising some formal way to produce this information, or have an obligation to. Perhaps that is the difference here: the more we move to a statutory basis, it imposes a stricter obligation on the Government. We might reflect on that, but we have cantered around the issue, so I withdraw the razor blade and beg leave to withdraw the amendment.
Baroness Sherlock
My Lords, I shall say very little. I am so keen to hear the answer to that last question that I shall race through my contribution even more so than normal.
My noble friend Lady Hollis has done the Committee a service by opening up the question of the level at which the single-tier pension will be set at introduction. Both she and my noble friend Lady Drake have drawn attention to the rather dusty view taken by different bodies of the Government’s refusal to do this.
The Work and Pensions Select Committee was very clear about the fundamental importance of the principle that the STP should be set above the level of pension credit. That is primarily about means-testing, and I was grateful to my noble friend Lady Hollis for making the point that, contrary to what one would think from some of the headline messages, the percentage-point reduction in means-testing is really very small, being somewhere between 2% and 3%. That is not very surprising. One of the notes that we were given explaining means-testing and single tier confirmed what I think a number of us had expected, which is that, while there is a small reduction in the number of pensioner households claiming guarantee credit—pension credit—a considerable part of the reduction in means-testing on pension credit relates to those who would have received savings credit. It has always been very easy to reduce the number of people involved in means-testing: just make benefits less generous or take them away faster. You simply reduce the level at which you can get them. Taking a benefit away from people may reduce means-testing; it is not in itself an achievement. More interesting is what the combined effect is.
The Government’s response to the Select Committee was to confirm that it was indeed a principle of the STP that it should be set above the standard minimum guarantee and would be thus set, and that Parliament would be able to debate it as the regulations would be affirmative. However, as my noble friend Lady Drake said, the Delegated Powers Committee pointed out that this is the first time that this is being set not in primary legislation but simply in regulations which cannot be amended. I confess that this is not an area of expertise—along with many things that I talk about—but I presume that the reason for this is that, when Parliament is debating the introduction of a new system, it is impossible to understand the implications for anybody involved unless one knows the level at which it will be introduced.
I spent the entire weekend, apart from a brief outing to the marvellous Durham Johnston Christmas concert, going through all the details trying to understand the impact on different people of all these changes. They are all predicated on the assumption that this will be set at £144. If that assumption proves to be untrue, or indeed if the triple lock proves not to be the case, then I have no idea what the impact will be or who the winners and losers will be, and all our debates today and in the many joyous weeks that we have to look forward to will be rather academic. Can the Minister be tempted to give us some level of clarity, at least about what the minimum level might be, in order that we can understand better the assumptions that the Government are making? I raised this question at Second Reading and, I have to say, got a rather dusty reply. The Minister said simply:
“We will need to decide that closer to implementation when the level of the pension credit standard minimum guarantee for 2016-17 is known. I am afraid that I cannot reveal all tonight”.—[Official Report, 3/12/13; col. 192.]
So I confess that it is not with a hopeful heart that I await the Minister’s response, but I await with fascination his response to my noble friend Lady Drake.
Lord Freud
I shall start with the question from the noble Baroness, Lady Hollis, referring to the previous amendment regarding men coming off guarantee credit. I commit to write to her with the data on the numbers coming off.
The central principle that these reforms represent is that the full amount of the single-tier pension will be above the basic level of the means-tested support for a single person. This provides a clear foundation for both private saving and automatic enrolment, and it builds on the broad cross-party consensus that has characterised the debate that there has been on pension reform: people need to save more, and to do that they need to know what they are going to get. The reforms are therefore not so much about spending more or less money on future pensioners but about restructuring the system to provide clarity and confidence to help people today to plan for their retirement.
In the White Paper, published in January 2013, we used an illustrative start rate of £144, which was above the minimum guarantee and forecast to stay within the projected spending on the current system. Every extra pound added to the start rate increases annual costs by £500 million in the 2030s. A start rate of 2% above the standard minimum guarantee would incur significant additional costs.
On the question from the noble Baroness, Lady Drake, on the narrowing of the gap between the standard minimum guarantee and the start rate of the single tier, the Green Paper said explicitly that the precise value of that start rate would need to be set at a level that met the affordability principle. The start rate that we will fix will need to be set closer to implementation, when the Government will be able to factor in both the 2016-17 level of the standard minimum guarantee and the latest economic and forecasting data.
The Committee will note that the regulations to set the start rate will be subject to affirmative resolution and will therefore be debated in this House. The noble Baronesses, Lady Drake and Lady Sherlock, asked why this is being done by affirmative resolution as opposed to in the Bill, as is the existing position. The different approach was flagged up by the DPRRC, although, interestingly, it did not recommend that we changed our legislative approach. That approach is consistent with recent legislation, such as establishing both the ESA and universal credit, and it is driven by not currently knowing what rate to use, given the enormous costs involved of getting that rate out even by a small amount from what it should be, relative to the means-tested level.
On contracting out, there is not a clear distinction between the people who are contracted in and contracted out. We estimate that even by the 2030s about 80% of people will have been contracted out at some point. The analysis we have done in the IA, as the noble Baroness, Lady Drake, pointed out, is based on the net state pension outcome, not the gross.
The stated intention of the Government is that the start rate should be above the standard minimum guarantee, and it is the Government’s intention that it should remain above the standard minimum guarantee into the future. That is why the Bill sets out that the single-tier pension will be uprated by at least earnings growth. There is flexibility in the legislation for discretionary above-earnings uprating, depending on the fiscal circumstances at the time.
I point out to noble Lords that where a couple both receive the full amount of single-tier pension, as a household they will receive almost a third more under the new system than the couples’ rate of the standard minimum guarantee. To promise a single-tier start rate at 2% above the basic level of means-tested support would mean that we could not guarantee that the reforms would be cost-neutral. With these reforms, we aim not to increase the amount spent on pensions but to provide clarity to support private saving.
On the question from the noble Baroness, Lady Sherlock, on the decrease in the numbers of those who are means-tested being driven by the end of savings credit, clearly the answer is yes, in part. However, that money is being used to provide the flatter state pension that is central to these reforms and it allows us to provide the single tier in a cost-neutral package, while simplifying the system. Although there is no Baroness Castle to barrack us from in front or behind, or wherever she did it, it clearly makes sense to go to a system that is less—or as little—reliant on means-testing as possible. This is the way to do that and I urge the noble Baroness to withdraw her amendment.
Baroness Drake
Was I correct in understanding that the noble Lord confirmed that the figures that we have show that notional gainers and losers are based on the net state pension figures, not the gross, and that a certain category of payment was therefore excluded in that analysis? Those net figures will not include total additional payment entitlements.
Lord Freud
The noble Baroness is correct that the analysis is done on a net basis. I am dubious about whether a gross basis is even possible, so I will not promise to have an additional analysis done on a gross basis.
Baroness Drake
That prompts the obvious question: why not? However, will the Minister write to us on why the net rather than the gross figures are used, and why the gross figures cannot be used, so that we can fully understand the implications of the gainers and losers analysis with which we have been provided? Certainly I had not realised that there was that distinction. I was scrabbling at or delving into trying to understand this issue when I asked some of my questions at the briefing. However, I think the distinction between net and gross is quite significant, and it would be helpful to have an understanding of those two issues.
Lord Freud
I will certainly be pleased to write on the thinking behind why it is net. As I say, I am not in a position to commit to anything on the gross figures at this stage, but I will set out the latest position in that area in that letter.
Baroness Sherlock
It would be very helpful if the Minister could write and confirm that it was net. It would also be helpful if he confirmed that the gross figures were not available to him and explain why not. It would be helpful if he could simply clarify why they are not available or why he does not have them.
Lord Freud
For the noble Baroness’s sake, I shall repeat what I just said. I will write to confirm that they are net, although I hardly need to do so. I will write to say what the position is with gross analysis at this particular moment. I do not know whether that is to say that they are available, not available or whatever. I will just write to let the noble Baroness know the position.
Baroness Hollis of Heigham
I am sure that the Minister will understand our need for clarity on some of these issues—whether it is net or gross; mean, median or average and so on—because they completely reshape the statistical base on which some of us are trying to base some of our contributions. The Minister is patient in taking our comments on this point, but we really need to know and we have not always had the statistics in ways that have allowed us to read across in a straightforward and simple form. This is not the fault of the Box; it is simply because that is the way in which, classically, statistics have been collected.
I am grateful to my noble friend Lady Drake, who emphasised both the need to deliver the Green Paper promises of a substantial headspace between the pension credit regime and the new state pension, and the way in which this is becoming narrowed. As my noble friend Lady Sherlock said, it is becoming very hard to calculate. I was checking back on what the Select Committee on Work and Pensions actually called for, and I really do not understand why the Minister cannot do this for us. The committee said in paragraph 34:
“There is no certainty about how long the triple lock will be in place and we believe that it is important that there is as much clear water as possible between the rate of the STP and that of Pension Credit. There appears to be scope for a bigger differential (either at the outset or over time) given the increased National Insurance revenue that the Government will derive from the ending of contracting-out and the overall long-term savings which will be made on”,
pension credit,
“expenditure as a result of the introduction of the STP. We therefore recommend”—
and I do not understand why the Minister cannot go along with this—
“that, when the Bill is before Parliament in the summer”—
that is, in the prior discussions at the other end—
“the Government publishes an analysis of (a) the cost of setting the STP rate at a range of higher levels; and (b) the level at which the STP could be funded if the additional NI revenue was used for this purpose”.
The Minister says that the whole of this project has to be cost-neutral. Yes, to an extent, but of course it is cost-neutral within a growing demographic population. When he talks about it being cost-neutral, I am never sure how much he is looking at the rise in life expectancy and so on and therefore at the number of claimants coming through, particularly for the post-war bulge. After all, the GDP figures show a drop for this group in going to pensions of something like 8.9%—I think I am right; I am doing this from memory—or about 8.23%. That is a significant drop in projected GDP going to a cohort that will actually have increased in number. When the Government say that this has to be cost-neutral, therefore, it seems to me that in practice, unless I have misunderstood the Minister, that could be achieved only by allowing the real value of the new state pension to fall simultaneously with the real value of pension credit. Perhaps he might like to write to us to confirm whether that is the case. However, as I have said, I do not understand why he cannot respond to what seems to be an entirely appropriate piece of analysis that was recommended by the Select Committee. Perhaps he could write to us and explain why it cannot be done.
Baroness Hollis of Heigham
My noble friend is exactly right and I thank him for that. Perhaps the Minister could write to us on why this is not possible. Why we cannot follow previous legislation in doing pension Bills, I do not understand.
Lord Freud
Maybe to save myself a bit of ink in letters, I should point out that we have done the range of start rates. In the White Paper, we showed it at the £144 point and the £145 point, and to increase the figure by £1 would cost £500 million by 2030.
Baroness Hollis of Heigham
On what price basis—is that in real terms, in today’s money? What are we talking about?
Lord Freud
Clearly, a quote done at that time would be using the money of the day. We would not be doing it in cash terms; we would be doing it in today’s money, or the money of that day. Yes, it was 2013-14 money.
On the question of neutrality, the reforms would cost no more than the current system overall and will not be more generous to future pensioners, so the additional national insurance revenue will not be recycled within the state pension system but will contribute to other reforms such as the cap on social care costs and the employment allowance, as announced in the Budget 2013.
Baroness Hollis of Heigham
My Lords, I have to say that I am not persuaded by those responses but at this point, I will withdraw the amendment.
Lord Freud
I thank the noble Baroness, Lady Hollis, for this amendment on voluntary national insurance contributions. Of course, I register what was a very moving excerpt from the letter that the noble Lord, Lord Browne, received today. A number of noble Lords may remember the significant concession that the noble Baroness, Lady Hollis, secured—or introduced —during the passage of the 2000 Act to smooth the cliff edge resulting from the reduction to 30 years of the number of qualifying years needed for the full basic state pension.
Lord Browne of Ladyton
I am grateful to the Minister. On this side, we heard 2000.
Lord Freud
My Lords, I must have swallowed my “eight”. I apologise for my grammar. I add that there is no cliff edge with these reforms.
I welcome the opportunity to put on the record that single-tier pensioners will continue to be able to fill gaps in their national insurance record by buying back qualifying years of voluntary national insurance contributions. These will be taken into account regardless of when they are paid. If they correspond to a pre-2016 tax year, they will be included in the calculation of a person’s foundation amount. If they are paid in respect of a post-2016 year, they will count towards their total single-tier amount.
Given that we are in the process of reforming the state pension system, the Government have recently made changes to the arrangements for voluntary contributions to ensure that people can wait until they are able to request their foundation amount after implementation, before making decisions on buying additional years. We have adjusted the rules for people reaching state pension age under single tier to extend the time limits for paying voluntary contributions to 5 April 2023, for the tax years from 2006-07 to 2015-16. Usually, contributions are paid at a higher rate if more than two years have elapsed from the year in which they were due, but this rule will be suspended until 6 April 2019. This will mean that a person retiring after 2016 will have had a considerable amount of time, up to 17 years since the relevant gap occurred, in which to decide whether to pay voluntary contributions.
So people will be able to buy after the state pension age point. They can buy back as many as they need, right down to 2006, so if someone reaches their state pension age in, for instance, 2018, they can buy 12 years. I hope that I have addressed the noble Baroness’s points, and ask her to withdraw the amendment.
Baroness Hollis of Heigham
My Lords, what the Minister has said is what I expected to be the case. However, he has failed to say whether the changes that we made in 2008 will be sustained—that is, whether, either before 2016 or after it, you can buy back years that were missed before 2006. I am perfectly well aware that you can go back to 2006 and carry on buying back to that date right up until April 2023, and I am pleased that the Minister was able to confirm that for us, but can you buy back years that were missed in, say, 2000 or 2003, up to 2006, which was sustained as a result of the 2008 Act? This all came into being in the first place because NIRS2 was flaky, and we turned mechanical failure into a moral virtue.
Lord Freud
No, let me provide clarity. The system does not let people buy back years before the 2006-07 point. We have relaxed the time limits because of the uncertainty around the new system. However, it is an insurance system, with the basic principle that you cannot insure after the event.
Lord Browne of Ladyton
I may need to go and do some research, but my understanding of the 2008 Act was that there were circumstances in which you could buy back beyond the six years for a further six years, under very limited circumstances. It was open to married women in particular, I think, though I am not entirely sure and I will need to go back and check all this. However, maybe the Minister may just conclude this debate on the point at which the six-year limit is fine.
Lord Freud
My Lords, I thought that I had just said that we had made that concession a general one in practice.
Lord McKenzie of Luton
My Lords, I wonder if I could help my noble friend Lady Hollis here, although on this issue I am not sure why I should, as I was the Minister dealing with this and she was on the Back Benches giving me a hard time. My recollection, although I have not gone back over the detail, is that there was the opportunity to buy back outside of the six years, but you had a limited period in which to do that. I have forgotten what the deadlines were and I do not know whether that time has expired now; maybe it has and we are therefore back to the usual six years, with the extension that the Minister has explained. There were two systems and there was a limited opportunity to go back—for any length of time, as I recall—and you had to go back within a fixed period of time.
Lord Freud
Without indulging in too much nostalgia, particularly as I was not present in 2008—or was not present here—that relaxation was because of the change from 39 qualifying years to 30. That was specifically introduced to exclude the cliff edge, and the concession was only for people reaching their state pension age before 2008. As I said, I do not think that we need to get over-nostalgic. As they move through into the new single-tier system, both before and afterwards, people now have a broad ability to purchase extensive voluntary national insurance contributions, and of course we are adding to that capability with the new class 3A voluntary contributions. Therefore, there will now be a substantial opportunity for people to buy state pension.
Baroness Hollis of Heigham
My Lords, I am sorry but I really disagree with the Minister on this. My noble friend Lord Browne showed rather movingly how losing the 60% dependency pension along with a failure to claim credits and the limitations on buyback that will continue to happen interlock to ensure that a woman who has done “the right thing” by her family at every point that she has been asked to make a decision, putting her family interest ahead of her own, will end up with an inadequate, incomplete and pretty minimal basic state pension. That was why we fought quite hard in those years to enable people to buy back missing years. I can see no moral difference between a rich kid living in Antibes having the money paid for them by their father as they sail around the place and a woman who failed to complete a year’s contributions because she accompanied her husband when he moved jobs or because she was caring for somebody and was not eligible for carer’s credit and is not allowed to buy back. The time limit of six years or so is entirely arbitrary to suit the convenience of the DWP and to try to impose this measure on people’s very different and complicated lives.
I still think that our position was right and that the position taken by the department and the Minister is wrong. By 2030 or so this will not be an issue, but a lot of people are going to retire in 2016 and their missing years will not be from 2006 to 2016 but from 1995 or 2000. The Minister is now telling us that those people cannot buy back the missing years, even at an appropriate price, although it will be no problem for somebody 10 years down the road to buy back years from 15 years beforehand. That inconsistency, as well as a failure to recognise the problems that many women have had in the past—which have bedevilled pension issues—in building up a coherent NI record, will remain with us if the Minister is not able to move on this front.
Lord Freud
Perhaps I may respond to a clearly impassioned speech by pointing out that we have announced the introduction of the purchase of voluntary national insurance class 3A contributions, and that is there precisely for the reasons that concern the noble Baroness. There will now be an opportunity to buy voluntary NICs and we will give full details of that.
Baroness Hollis of Heigham
Forgive me, but class 3A is for the additional state pension and not for the BSP. It will also be actuarially neutral, which means that it is going to be infinitely more costly. Nor have we heard any details. Unless I am mistaken, I do not think that this addresses the fact that a diminishing cohort of women will have spotty NI records by virtue of putting their family first at key points in their lives, just as my noble friend so eloquently described to us. The Minister has made no provision for them at all.
Lord Freud
My Lords, I need to point out that we have a comprehensive means-tested system. People who have fallen through the net will be supported by that system. That is the way in which we have devised the support network for people who do not have a contributory record.
Baroness Hollis of Heigham
My Lords, I shall withdraw the amendment, but I would have thought that the Minister would do everything possible to reduce the number of people having to fall back on pension credit as a safety net as opposed to getting them into the new system provided they pay their way. They have taken on these family responsibilities and are willing to pay for it, and the Minister is saying no.
Lord Freud
My Lords, under the single-tier pension we will be merging two schemes: the basic state pension, which requires 30 qualifying years for the full rate, and the state second pension, which you can contribute to for up to nearly 50 years.
Requiring 35 qualifying years for the full single-tier pension strikes the right balance. It will enable the majority of people who contribute to achieve a full state pension through either work or the comprehensive system of credits available to people unable to work, while still retaining the contributory principle. This leaves considerable leeway for people to have gaps of up to around 15 years in their working life and still qualify for the full rate. In 2020, the significant majority of single-tier pensioners—around 85%—will have 35 qualifying years or more. Our analysis suggests that in 2020 around 90% of male and 80% of female single-tier pensioners will have 35 or more qualifying years.
There is a simple response to the point that the noble Lord, Lord Browne, raised about expectations. In the existing system, we have no such thing as a full state pension. We have £110 basic, plus who knows how much additional pension. It is complex and people do not know what to expect. That is exactly the point that the single-tier pension will address.
In the early years after implementation, people in Great Britain with between 30 and 34 qualifying years are just as likely as those with 35 or more qualifying years to have a higher state pension under single tier than under the current system. The transition calculation provides for a “better of” comparison at April 2016 so that the person receives the higher of their national insurance valuations based on old and new scheme rules, with the old rules being based on 30 qualifying years.
That will, in fact, advantage some people because, where someone does not have the 35 years needed for the full level of single-tier pension, they will receive a pro rata amount according to the number of qualifying years that they have built up, provided that they meet the minimum qualifying period. Someone with 30 qualifying years would therefore get a single-tier valuation of 30-35ths of the full rate, or around £123 per week, as my noble friend Lord Stoneham pointed out, less any adjustment for contracting out based on the illustrative single-tier rate of £144. In many cases, the single-tier valuation will be higher than the valuation that people would get under the current system, as 30 qualifying years of basic state pension gives an income of £107 a week in 2012-13 terms.
Furthermore, where someone’s foundation amount in 2016 is below the full single-tier rate, people will have the opportunity to increase this amount by gaining additional single-tier qualifying years before reaching state pension age through work, paying voluntary contributions or receiving national insurance credits. The current broad range of credits will be mirrored under single tier, and when universal credit is in place, it will extend credits to an additional 800,000 people who do not receive them under legacy benefits.
These arrangements recognise people’s contribution records in the existing scheme and allow people to have significant gaps in their national insurance record while still ensuring that 80% of new single-tier pensioners reaching state pension age by the mid-2030s receive the full rate of the single-tier pension.
The amendment tabled by the noble Baroness, Lady Sherlock, and the noble Lord, Lord Browne, would require the Government to conduct a review of a phased transition for the move between 30 and 35 years for a full pension. I hope that I have reassured noble Lords that there is little evidence that such transitional arrangements are needed. However, I need to point out that, if a review were to recommend a single-tier pension based on a 30-qualifying-year requirement, this would carry with it cost implications. The estimated cost of such a system, compared to a 35-year model, would be around £700 million per annum in 2030 and £2.9 billion per year by 2060.
Furthermore, to reinforce the point about uncertainty raised by the noble Lord, Lord Browne, a delay in defining the qualifying requirements for the new system, which a review would necessitate, would introduce uncertainty for those closest to retirement. The period following Royal Assent will be a crucial time for the delivery of single tier, and making fundamental changes at that point might well delay implementation. This moves back to the amendment raised by the noble Lord, Lord McKenzie, about the importance of communicating the reforms and a clean communication. The point on the move from 30 years to 35 seems more of a communications issue than one of principle. To this end, helping people to understand how they may be affected, we have been conducting field work on communicating the impacts of the policy. I therefore ask noble Lords to withdraw these amendments.
Baroness Turner of Camden
I thank everyone who has participated in the debate because it has been very interesting. However, I have listened very carefully to the Minister and I remain unconvinced. Many people will wonder why on earth there is the change to 35 years when they were used to 30 years for the basic state pension that they have in operation now. They do not understand why there should be this difference and neither, in fact, do I. The Government have produced some information about costs, as has the Minister this evening, that seem quite fantastic to me. I will look at them very carefully because I will probably want to come back again, perhaps in a different way, when we look at the whole thing on Report. I will look carefully at what everyone has said in the debate because it is an issue that is of interest and concern to many people, otherwise I would not have put it down. However, in the mean time I beg leave to withdraw the amendment.
Housing: Underoccupancy Charge
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Baroness Hollis of Heigham (Lab)
My Lords, in asking the Question standing in my name on the Order Paper, I declare an interest as chair of a housing association.
The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud) (Con)
My Lords, moving into the private rented sector is one of a number of options available to people affected by the removal of the spare room subsidy. The published impact assessment considered tenant responses, including moves. Savings from the policy are expected to be around £500 million a year. There is currently no reason to amend this assessment. The independent evaluation that is currently under way will provide more detail of the individual behavioural responses that are being made.
Baroness Hollis of Heigham
My Lords, the Minister wants social tenants with a spare bedroom to free up their homes for the waiting list by moving to smaller flats, mostly in the private rented sector, where rents and therefore housing benefit will be £50 a week or more higher. If they move, the Minister will not make his savings. If they do not move and are fined, the Minister will not make his policy of helping those on the waiting list. The Minister can have his savings or he can have his policy, but he cannot have both. Which does he want?
Lord Freud
My Lords, you have to look at the whole transaction, a bit like a housing chain. If a single person moves into the private rented sector out of a large social sector home, clearly that frees up room for people to move into that home from the private rented sector. That is where either you get a much more efficient allocation or you get the savings.
Lord German (LD)
My Lords, in Questions to the Prime Minister on 27 November on the spare room subsidy clawback, Mr Cameron said that,
“what we have done is to exempt disabled people who need an extra room”.—[Official Report, Commons, 27/11/13; col. 254.]
For families with a disabled child, there is a blanket exemption. However, households with a disabled adult are subject to the vagaries of local councils using the discretionary housing payment, which has not been great. Does my noble friend agree that now is the time to make a clear exemption, as we do for disabled children, for households with a disabled adult who need a spare room, so that the Prime Minister’s statement of 27 November can be carried out?
Lord Freud
My Lords, the difference between children and adults is that adults can adapt their circumstances in a way that children cannot. We have gone through a judicial review of this policy as it relates to disabled adults. The judges found that it was impossible to reach a coherent definition and that the discretionary housing payment system was created to look after people in those circumstances.
Baroness Farrington of Ribbleton (Lab)
My Lords, the Minister recently told the House that a review would be conducted and the results published. I think that the date that he gave was after the next general election. Does he accept that there is grave concern all around the House about the result of this policy and will he undertake an interim review as soon as possible to satisfy the concerns raised by Members of your Lordships’ House?
Lord Freud
I am pleased to confirm that, as I have said in the past, the interim review is due to be published in the spring of 2014. I will be most pleased to discuss the findings of that review with Members of the House, who I suspect will be keen to have that dialogue.
Baroness Browning (Con)
My Lords, the National Debtline has announced today that the most rapid growth in personal debt is in the area of rent arrears. In the context of the Question asked by the noble Baroness, Lady Hollis, will my noble friend agree to examine on a regular basis the way in which personal debt is accounted for by rent arrears and to identify exactly why that is and what remedies might be brought in to suppress the increase of personal debt in this way?
Lord Freud
My Lords, my noble friend is absolutely right that personal debt in this country is a major problem. There has been a series of important reviews of that in recent weeks. I am looking at it very closely in the context in particular of the introduction of universal credit. That is one of the factors in the review that I mentioned in response to the last question and I will keep it very much in mind.
Lord Best (CB)
My Lords, will the noble Lord join me in correcting a mistaken view that some have expressed that reducing support for people in council houses and housing association properties who are deemed to have a spare room is only repeating a measure already in place for private sector tenants? Does he agree that the arrangements for private sector tenants are quite different, in that people are given a sum of money—the maximum that they can spend—and are sent out to find a property on the private market, balancing the number of bedrooms against the location and other factors? In particular, a major difference between the two sectors is that in the private rented sector these measures apply only to new and future tenancies and have not been applied retrospectively to people in existing tenancies—namely, the 660,000 people who find themselves covered by a measure that relates to the past and not, as in the private sector, one that relates to future tenancies.
Lord Freud
My Lords, clearly there is a difference between the structures of the social and the private rented sector arrangements but the objective is the same. The taxpayer provides the appropriate amount of money to house that individual or family in the same way in the private rented sector as in the social rented sector.
Universal Credit
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The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud) (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 universal credit. The Statement is as follows:
“Universal credit is a major and challenging reform which will transform the welfare state in Britain for the better, ultimately accounting for £70 billion of benefit spending each year, with 3 million people better off. Rightly, for a programme of this scale, the Government’s priority has been, and continues to be, its safe and secure delivery. This has been demonstrated throughout our approach to date, which started with the successful launch of the pathfinder in April 2013 and has continued with the controlled expansion of universal credit, starting as planned in October 2013 and running through to spring 2014.
What is more, we are already pushing ahead with the cultural and business change required as part of universal credit, retraining 25,000 Jobcentre Plus advisers, implementing digital jobcentres and rolling out the new claimant commitment, which is now on track to be in place in half of all jobcentres by the end of this year and across the country by the spring.
Yesterday, I announced and discussed at length with the Work and Pensions Select Committee our plans for the next stage of implementing universal credit, following my department’s work over recent months with the Government Digital Service to assess delivery options. That work has explored the use of the latest digital technologies, and assessed the utility of the work we have done to date, through the universal credit pathfinder, going forward. The conclusions of this work were set out yesterday.
First, as part of the wider transformation in developing digital services, the department will further develop the work started by GDS to test and implement an enhanced digital service. This will be capable of delivering the full scope of universal credit and will make provision for all claimant types. Meanwhile, we will expand our current service and develop functionality so that, from next summer, we progressively start to take claims for universal credit from couples and, in the autumn, from families.
Once the service is safely tested in the 10 live universal credit areas, we will expand the rollout to cover the north-west of England. This will enable us to learn from the live running of universal credit at scale and for more claimant types, including the more vulnerable and complex, while extending to more people the positive benefits of universal credit.
Ninety per cent of people in the pathfinder are claiming universal credit online and 78% are confident about their ability to budget with monthly payments. It pays to work, with 65% of claimants reporting that UC offers better work incentives than JSA, and it is less complex, upheld by the 65% who agreed that it was easier to understand their obligations.
As we progress with the future delivery of this flagship programme, we will continue the same careful approach—test, learn and implement—rolling out through the regions. On this basis, our current planning assumption is that the universal credit service will be fully available in each part of Great Britain during 2016, with our having closed down new claims to the legacy benefits that it replaced and the vast majority of the remaining legacy caseload moving to universal credit during 2016 and 2017. Final decisions on these elements of the programme will be informed by the development of the enhanced digital solution”.
Lord Freud
My Lords, as I said in the Statement, we are planning to have all new claims for the six legacy benefits that UC replaces moved on in 2016. By 2017, we will take the remainder. An exception in the group is those currently on ESA, and the OBR estimates that 600,000 to 700,000 of them will be left on it. We think that it is much safer to deal with that group very carefully later; it is the most vulnerable group. I know that noble Lords in this Chamber have been extraordinarily concerned about this group and some of this reflects that concern.
On development, I remind noble Lords that we have reset this programme. We moved in early. The National Audit Office made the point that there were very high levels of ministerial and senior departmental engagement here, which led to the reset that we announced. As I said, we have written off £40 million, which is much below the estimates of hundreds of millions of pounds that have been put around.
Lord Forsyth of Drumlean (Con)
My Lords, will my noble friend resist the bullying from the opposition Benches to move this programme at a speed that would result in difficulties? Will he gently remind them that the system he inherited was one where the poorest people in the land effectively paid marginal rates of tax of more than 95%? The Secretary of State is to be congratulated on taking this very complex system and making it worth while for people to be in work as opposed to being out of work and on benefits, and doing it with sensitivity that takes account of the needs of all groups. He should ignore the opposition, who considerably failed in government to tackle this appalling problem.
Lord Freud
My Lords, if you do these major cultural transformations, it is absolutely vital that you do them at the pace at which you can. One thing we are doing, which is a development from our thinking in 2010, is a huge programme of testing, learning and implementing. In particular, one thing we have introduced in the past two years—thanks, I must acknowledge, to help from this Chamber—is very substantial work with local authorities on the local support service framework. I think that will support the vulnerable in a way that they have never been supported in this country in the past.
Lord Touhig (Lab)
My Lords, on 6 November last year, in answer to a Question I put to him on the IT system for universal credit, the Minister confidently told the House that,
“the universal credit programme remains on schedule … to go live in October 2013”.—[Official Report, 6/11/12; col. 888.]
Having already admitted that the Government have written off £40 million in IT costs, what does he say now and how confident is he that it will go live in 2016?
Lord Freud
My Lords, I need to remind the noble Lord that the system went live, as he put it, earlier than October—it went live last April. We have a pathfinder which is learning extraordinary amounts. In particular, I remind noble Lords that we have established that the link between universal credit and the real-time information system works. The real-time information system that we were able to announce earlier is now fully up and running, with 99% of people on PAYE feeding through into it.
Lord Martin of Springburn (CB)
I do not rise to criticise universal credit but to put on record the great worry in the community-based housing associations that levels of arrears will rise. That is a worry for them. Could the Minister look into that?
Lord Freud
I thank the noble Lord for that. We have spent a lot of time bottoming out this issue. Clearly, incorporating housing benefit into universal credit is an absolutely central part of what we are trying to do, but it was essential that we did not get to a position that undermined the finances of the social housing industry. That is why we ran the demonstration housing projects. From those, we have created a system which means that we will have switchbacks after two months and an early alert after one month. There is a very effective underpinning for the finances of housing associations.
Lord German (LD)
My Lords, I share the disappointment that this programme has slipped. Quite frankly, I am sure all noble Lords would have liked it to be on time. However, there has been an appalling record in the introduction of very large-scale IT systems. In the past—I point to the record of the previous Government—they have hurt many people and cost many, many more millions of pounds than this. Surely my noble friend can identify now that this is something with which we need to take the greatest care. We must ensure that we move forward in a step-by-step way, being safe, not harming anybody and not putting anybody at risk. We must share the disappointment of it not being as quick as we wanted but in the end it must be the right service for the right people at the right time doing the right job.
Lord Freud
My Lords, as the Secretary of State mentioned in the other House, one thing that influenced us a lot was what happened with tax credits, which was why we took the decision to move in early and do this reset. Tax credits were announced in 2001 and rolled out from 2003. In the first three years of operations, £6 billion was overpaid and 400,000 claimants received their payments late, a third of cases monitored by Citizens Advice had their payments reduced below the poverty line, and IT systems were deemed unstable and not fit for purpose by the PAC. We have not done that. We have moved in early and made sure that we go safely and securely, and that when we introduce a system it is one that will not let people down.
Baroness Hollis of Heigham (Lab)
My Lords, I hope very much that the Minister is right; we will be cheering him on if he is. Most of us, I am sure, support universal credit but the House has made its views clear on utility bills when they are entirely online and people cannot have a paper back-up. The more we learn about the potential instability of the IT system that will handle universal credit, the more I would urge the Minister to ensure that there is a paper system as back-up for those whose entire income may come, or not, depending on the stability of the IT system. If the Minister is wrong on this, they will go hungry. Can he ensure that we have a paper trail, at least while the system is bedding down?
Lord Freud
My Lords, we already have an electronic payments system, so nothing is different or will change in the actual payments system. I think that the noble Baroness was asking: is there a proper back-up to the IT information systems? Clearly, in any IT system—and in today’s legacy systems, which are kept on computers, albeit somewhat older ones—we need to record that information and make sure that we have back-ups in case of loss. We will maintain that principle.
Baroness Lister of Burtersett (Lab)
My Lords, Howard Shipley told the Work and Pensions Committee that the next stage is couples. That will be a complicated issue as couples come together and divide, and may have children. Things happen. This sort of software is not something that you get on the back of a cigarette packet. Surely it was understood before we got this far that couples come together and separate. Does the Minister accept that the evidence from single people about budgeting monthly tells us nothing about what it will be like for mothers trying to budget on behalf of families monthly?
Lord Freud
Clearly, these groups behave differently and one thing that we are determined to understand is how each of those different groups will behave. It is a question not just of our operational management of the systems but of what the behavioural responses are. That is what “test and learn” is about. We have a system and we have built a long way into the couples. It is quite tough to do it—it is tougher and there are a lot more issues than with singles—but that system is rolling out from next summer and we will be looking very closely at the behavioural responses.
Pensions Bill
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Lord Freud
That it be an instruction to the Grand Committee to which the Pensions Bill has been committed that they consider the bill in the following order:
Clauses 1 to 5, Schedules 1 and 2, Clauses 6 and 7, Schedules 3 and 4, Clauses 8 and 9, Schedule 5, Clauses 10 and 11, Schedule 6, Clause 12, Schedule 7, Clause 13, Schedules 8 and 9, Clause 14, Schedule 10, Clause 15, Schedule 11, Clauses 16 to 23, Schedule 12, Clause 24, Schedules 13 and 14, Clauses 25 to 30, Schedule 15, Clauses 31 and 32, Schedule 16, Clauses 33 to 41, Schedule 17, Clauses 42 and 43, Schedule 18, Clauses 44 to 47, Schedule 19, Clauses 48 to 52.
Pensions Bill
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The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud) (Con)
My Lords, the Bill contains important reforms to both state and private pensions, as well as to bereavement benefits, and representsa fundamental step forward in tackling a number of significant challenges facing today’s working-age population.
Before I turn to the provisions in the Bill, I would like to commend my colleague, the Minister of State for Pensions, Steve Webb, who has been instrumental in delivering the Bill before us and who continues to make such an important contribution to improving the pensions landscape. I also pay tribute to the noble Lord, Lord Turner, and the noble Baroness, Lady Drake, whose work as former pension commissioners provides the framework for much of what we will discuss today. Pension reform has traditionally proved the ability of the legislature to build consensus on an issue, and I am sure that noble Lords will endeavour to continue in this vein.
Automatic enrolment is a product of this consensus and is creating a substantial shift in the landscape of pension saving. The latest figures from the Pensions Regulator confirm that 1.9 million people had been automatically enrolled into a workplace pension by the end of October this year, and we expect to see a total of between 6 million and 9 million people newly participating or saving more in a workplace pension by the time automatic enrolment is fully rolled out, but this Bill was introduced to Parliament because we should not stop here.
In the latest DWP report Attitudes to Pension: The 2012 Survey, only 21% of respondents felt that they knew,
“enough about pensions to decide with confidence how to save for retirement”.
No fewer than 17 Social Security Acts covering pensions since 1975 and thousands of lines of secondary legislation have meant that considerable complexity has built up in the state pension system over time.
At the core of the Bill, therefore, is the provision for the new single-tier pension: a flagship reform which will simplify the current state pension system and provide a firm foundation for pension saving. These reforms will replace the current, two-tiered pension system with a simpler single-tier state pension for future pensioners—those who reach state pension age on or after 6 April 2016.
The full rate of the new state pension will be set above the basic means test. This will help to clarify the incentive to save privately for retirement without the need for the complex savings credit element of state pension credit. The savings credit will therefore close to those reaching state pension age on or after 6 April 2016. The introduction of the single-tier pension thus reduces means-testing in the pension system, halving the proportion of new pensioners qualifying for pension credit.
There will be far less variation in state pension payments under the new system. We estimate that more than 80% of people reaching state pension age by the mid- 2030s will receive the full single-tier pension. Those who have historically done poorly in the current system, such as the self-employed, carers and those with interrupted work histories, who are often women, will benefit from the introduction of the single-tier pension. Around 650,000 women who reach state pension age in the first 10 years after the single-tier pension is introduced will receive an average of £8 per week more in state pension due to the single-tier valuation.
There will be a minimum qualifying period for entitlement to the new single-tier pension. This period will be set out in regulations, but I am able to advise noble Lords that the Government have today announced that this is to be set at 10 years, in line with the assumptions made in the White Paper and the impact assessment. Integral to the single-tier reforms is the closure of the state second pension for people reaching state pension age on or after 6 April 2016. Contracting out of the state second pension for defined benefit schemes will therefore come to an end in April 2016 and all employees will pay the same rate of national insurance and become entitled to state pension in the same way. As part of the simplification of the system, the outdated provisions which allow a spouse or civil partner to boost their state pension on the basis of the record of their partner or ex-partner will end. These provisions, introduced in the 1940s, are no longer appropriate for today’s society, where the vast majority of men and women get a full basic state pension in their own right.
In addition to reforming the state pension system to make it simpler, the Government are taking action on state pension age to ensure the system remains affordable and fair between generations in light of continuing increases in life expectancy across all socioeconomic groups. The Pensions Act 2007 set the original timetable for increasing the state pension age to 66, 67, and 68. Since then, the average life expectancy of a man reaching age 65 in 2013 has increased by over a year. We are therefore bringing forward the increase in state pension age to 67 by eight years, so that it gradually increases from 66 to 67 between 2026 and 2028. No one will experience a rise in state pension age of more than 1 year compared to the original timetable that was set by the Pensions Act 2007 and I can assure noble Lords that this will not affect anyone whose pension age was changed by the Pensions Act 2011.
The fact that people are living longer is to be welcomed. Yet continued increases in life expectancy place a great deal of pressure on the pensions system. The Bill therefore also provides for a regular review of the state pension age so that is it considered once every Parliament. This will ensure that the state pension age is examined in an open and transparent way on a regular basis and prevent future Governments from needing to take emergency action. As part of these reviews, the Government of the day will ask the Government Actuary and an independently led review to report on life expectancy and a whole range of other factors relevant to setting the state pension age. The Government will then consider what adjustments, if any, should be made to pensionable age. This is not an automatic mechanism for future increases, however, and any resulting proposals to change the state pension age would still need to be set out in primary legislation.
I turn now to Part 3 of the Bill, which provides for the abolition of the assessed income period in pension credit. The assessed income period was introduced as part of pension credit in 2003 and was a new approach to case maintenance for customers aged 65 and over. This was based on the assumption that pensioners were more likely to have relatively stable incomes with fewer changes in their circumstances and so a lighter touch maintenance and review regime was deemed appropriate. However, it has proved more complex than originally anticipated and the assessed income period has allowed inaccuracies to build up in the system. As customers with an assessed income period do not need to inform the department if they experience changes in their capital or the make-up of their retirement income, an increase—for example, a windfall—can legitimately be ignored until the end of the period. Many see this as unfair, particularly in the current economic climate. The Bill will therefore abolish the assessed income period from April 2016. Older customers will be protected through the continuation of existing indefinite assessed income periods for those aged over 75.
Moving on from state pensions, the Bill contains measures to reform the bereavement benefits system through the introduction of the bereavement support payment, which will both simplify and modernise the current complex payment and contribution system of bereavement benefits. The current system was introduced at a time when women were not seen as workers and when widows were left destitute. However, society has changed. Women are no longer expected to be dependent on their partners and we now have an expectation for people to work, with universal credit to support those who cannot.
However, we recognise that many working-age people, regardless of income, do not make contingencies for the loss of a spouse or civil partner and are unprepared for the significant financial impact in the period immediately following the bereavement. We have therefore designed the new payment to focus on this period. It will support people with the additional financial pressures associated with bereavement, helping them plan during the readjustment period and better understand what they will receive from the state while encouraging a supported return to work for those without employment. An additional £110 million will be invested in bereavement benefits during the first four years of reform, so that existing recipients are protected over the course of the next Parliament and those who claim the new bereavement support payment get the help they need when they need it most.
Finally, the Bill contains a number of private pensions measures. As I said earlier, 13 million people are currently not saving enough to ensure an adequate income in retirement. Furthermore, the number of employees saving into a workplace pension has declined from 12.9 million in 1997 to 12.1 million in 2012. It is expected that automatic enrolment will see between 6 million and 9 million people either starting to save or saving more into workplace pensions, and the introduction of the single-tier pension will ensure that the state provides a good platform for private saving. Measures in the Bill are therefore designed to build on these reforms and give people greater confidence in pension saving.
As a result of more people saving into a private pension we expect to see more dormant pension pots as people move jobs—up to 50 million by 2050. The Bill therefore contains powers to introduce a pot-follows-member system of automatic transfers of small pension pots. This will help people to better keep track of their pension savings and ensure that they reap the benefits of consolidating those small pots.
The automatic enrolment of people into pension schemes and the introduction of automatic transfers make it all the more important that schemes used for workplace pensions are well governed, well administered and offer value for money. The Bill therefore extends powers to set minimum quality requirements for workplace pension schemes and to limit or prohibit charges to allow the Government to respond to the recent consultations on these issues accordingly. In addition, the Bill contains a number of measures to clarify and strengthen existing private pensions legislation, including a power to prohibit the offering of incentives to transfer pension rights. Finally, the Bill gives the Pensions Regulator a new objective to minimise the impact on the sustainable growth of an employer when regulating defined benefit pension scheme funding, and it also makes changes to the calculation of the Pension Protection Fund’s compensation cap to reflect long service.
Following further work done by my department and the report from the esteemed Delegated Powers and Regulatory Reform Committee, I plan to bring forward a small number of amendments during the Committee stage. I will ensure that noble Lords are made aware of those in good time. I very much look forward to an informed and constructive debate on the reforms and measures in the Bill, both this afternoon and over the coming months. I particularly look forward to hearing the maiden speech from my noble friend Lord Balfe, who I am sure will make an erudite contribution to this afternoon’s discussion.
To sum up, this Bill introduces significant reforms to state and private pensions and will bring our pensions system into the 21st century. It will allow security in old age and provide a firm foundation for today’s working-age people so they can save with confidence for their retirement, an ambition with which I am sure noble Lords will wholeheartedly agree. I commend this Bill to the House. I beg to move.
Lord Freud
My Lords, I expected an interesting and valuable debate and I got one. I congratulate my noble friend Lord Balfe on his remarkable maiden speech, which I know we all enjoyed. I hope we provided him with adequate intellectual stimulation this evening of a kind he will remember. Whether we met the challenge set by the noble Baroness, Lady Sherlock, in making the topic interesting, at least we will, as my noble friend Lord Paddick pointed out, have all gained an extra hour in our lives during this debate.
I shall focus first on the transition which many noble Lords rightly focused on. There are some tough issues around it. People who have contributed to or been credited into the national insurance system have expectations, so we cannot switch to the new system overnight. I assure the noble Baroness, Lady Sherlock, that this is not a hard, fast transition. It is pretty difficult to design a transition that strikes the right balance and takes account of people’s expectations as far as possible while also ensuring that those who are part of the transition—in other words, those who will retire over the next 50 years—will see the benefits of the single-tier pension. I believe this Bill has been successful in this difficult endeavour, and for that reason I expect it to outlast by a considerable factor the 10 years predicted by the noble Baroness, Lady Donaghy.
The foundation amount allows people to see the value of their pre-2016 national insurance record in one figure, which gives simplicity to the single tier but also recognises past contributions. It is a smooth transition. For the vast majority of people reaching state pension age in the years after single-tier is introduced, their outcomes are similar to what they would have got under the old system. Nearly three-quarters of those reaching state pension age in the first five years will see a change in their state pension of less than £5 a week. Of those who see a larger change, five times as many gain as lose. Those who see this boost are likely to be those who have traditionally been badly served by the state pension system: women, carers and the self-employed.
While moving to a modern system based purely on individual entitlement, the transition provides, for example, for inheritance of additional state pension where one member of the couple is in the current system. There is also transitional protection for those who paid the married woman’s stamp. Difficult decisions and trade-offs have been necessary to redesign the state pension within its cost-neutral envelope, and inevitably this means that while some people get more than they would have done under the current system had it continued into the future, some people get less.
I shall move on to as many of the specific points as I can—there were a lot. The noble Baroness, Lady Donaghy, said I would delight the 1951 to 1953 generation of women by moving. I think I might delight them a little bit. Ninety per cent of these women will get more in state pension and other benefits over their lives by drawing their pension in the current system at their state pension age than they would if we gave them a state pension at 65 and single-tier pension. The women in this cohort will reach state pension age between two and four years before a man born on the same day, which means that they will get between £13,000 and £26,000 more state pension than a man of equivalent age. To correct the point made by the noble Baroness, Lady Dean, it is not a double whammy. They have not seen their state pension age rise, except for the equalisation under the 1995 Act. The only change this group has seen recently is in the triple lock.
The noble Baroness, Lady Sherlock, raised derived entitlement. We will clearly go into this in some detail, but we estimate that in 2020 fewer than 30,000 married and widowed women—less than 5% of single-tier pensioners—will be affected by loss of derived entitlement to a basic state pension based on their spouse’s national insurance record. I know this is an area we will debate in great detail.
Baroness Hollis of Heigham
This is an area of some concern to a lot of us. Will the Minister be kind enough to give us all the stats he has, including how many of those getting the married women’s 60% were born or live overseas, do not have UK residence and so on, which was the argument in the Commons? We are very short of detail on this.
Lord Freud
My Lords, as I hope everyone in the Chamber knows, I have arranged to run a series of briefings at the appropriate time—about a week ahead of every Committee session—particularly to try to go through this detail. It really is extraordinarily complex, to reuse a tired word. One needs to go through it with examples and graphs and so on, which is much better. We will get all the information that we can, but we will do it in that context and will then be able to look at it in Committee on the basis of that process.
The noble Baroness, Lady Sherlock, and the noble Lord, Lord Browne, asked what the start rate will be. We will need to decide that closer to implementation when the level of the pension credit standard minimum guarantee for 2016-17 is known. I am afraid that I cannot reveal all tonight.
The noble Baroness, Lady Dean, asked about cost-neutrality. The reforms are designed to be cost-neutral in terms of spending on persons. The spending on the single tier should be within 1% of projected spend on pensions until the late 2030s. In the longer term, after that, the single tier will slow the rate of increase in pension spending, helping to make it a sustainable system.
The noble Baroness, Lady Sherlock, raised the savings credit. One of the things that the single tier does is to clarify savings incentives, so that people will know what pension to expect from the state and be able to plan the additional provision that they want. The issue of passporting was raised by the noble Baroness and the noble Lord, Lord McKenzie. Clearly, passporting will be through the guarantee credit, not the savings credit, although in practice the numbers are not that different. On the difference between being on the single tier and being on a credit, and whether you get various passporting, that is always the case when you have a system of passporting. However, it is worth bearing in mind that when you look at the relative rates for members of a couple, the single-tier rate is much higher than the credit guarantee rate; the single tier comes out at £288 for a couple in 2012-13 prices, against £216.55 at 2012-13 prices. So there is a very big gap for couples on that passporting issue.
My noble friend Lord German asked me for the latest correspondence on bilateral agreements. I regret that I just do not have that information to hand right now. I will search the cellars of the DWP to see if I can do any better and write; it is probably very heavily buried there.
Several noble Lords—the noble Lord, Lord Whitty, my noble friend Lord German and the noble Baroness, Lady Donaghy—raised the abolition of the rebate and the costs that would go to the public sector employers. The noble Lord, Lord Whitty, asked whether we would talk to the LGA. The Chief Secretary to the Treasury has met with the LGA and I can confirm that Her Majesty’s Treasury is happy to meet with them.
We will spend a lot of time on multi-jobs in Committee. One point to make is that the effect of welfare reforms will naturally be to improve coverage. All adults on universal credit, many of whom will be the lower paid that the noble Baroness, Lady Hollis, is rightly concerned about, will get their pension correctly that way. In that way, the crediting system is extremely comprehensive. By the 2040s, more than 80% of people will receive the full single-tier amount based on the 35 qualifying years. Clearly, we will be reviewing the crediting arrangements in the light of reforms and will look at the position of these people as part of the review. The noble Baroness is as familiar as I am with the quite revolutionary opportunities which Governments can look at, now or in the future, around RTI when that is built in. I know that we will spend a lot of time on that.
A lot of noble Lords raised the age review and some of the relevant issues: the noble Baronesses, Lady Sherlock and Lady Hollis, and my noble friend Lord Paddick. Clearly, one point of having a review is that longevity on its own is not the only factor. That is exactly what is being realised here. We have debated that in the past, and I know that we will debate it further.
On equity release and the AIP change, income-related benefits take account of any income and capital generated by liquidating assets. However, equity release may not necessarily result in a reduction in eligibility for means-tested benefits and will depend on overall income and capital.
The right reverend Prelate the Bishop of Derby and the noble Baroness, Lady Sherlock, raised bereavement support. This is clearly driven substantially by the change in the welfare system when you have universal credit as a basic bedrock for people. Bereavement benefits were another way of producing that kind of income in an entirely different way. We are now targeting this support for the period of financial need, as we heard that it was required; we did a survey on that. One therefore needs to separate it from bereavement, and maybe the right reverend Prelate’s point about what we call it is relevant there. It is a financial support which is underpinned by the universal credit but, clearly, we do not offset it against universal credit which, if it went on for a long time, we would do. By not offsetting it, we are targeting help at those with the greatest need, whether they are a widow or parent or not. It is a very progressive structure in that way. It means that 62% of the very poorest are actually better off. We will go into this in great detail in Committee; I will not do so now. However, that is the structure and the thinking behind it.
The noble Baroness, Lady Sherlock, and my noble friend Lord German raised conditionality. The structure is that all recipients of bereavement benefits—not just partners, but also if you lose a child—have access to Jobcentre Plus, purely on a voluntary basis, for the first three months; no conditionality for the next three months; and at the end of the six months, advisers will use their discretion to ensure that individuals’ capability and requirements are taken into account.
We will have a major debate in Committee and, I suspect, beyond on the pot-follows-member approach versus the aggregator approach. At this stage I will make a few minor protests about why we have chosen the former rather than the latter. However, I will make an impassioned defence as we go through it in great detail. The pot-follows-member approach maximises the consolidation, is in the best interests of savers and will reduce by half the number of dormant pots by 2050. We estimate that an aggregator approach would achieve just half the cumulative administrative savings for the industry by 2050. We will spend more time on that.
The question from my noble friend Lord Brooke is a suitable last question: what more is there on which to legislate? We will probably have some open questions left after the Bill on how much people are saving. Quite a few noble Lords suggested that perhaps people are not saving quite enough for what they anticipate they will want to spend when they retire. There is also the nature of the savings vehicles—we talked about defined ambition. Those are the two big areas in pensions. I suspect that there are probably several more, but perhaps I would pick those two.
I close by thanking all noble Lords who contributed to the debate, which was informed, measured and interesting. As I said, we will hold a number of briefing sessions. I am keen that in this debate we deal with the real issues on an informed basis and do not waste time. That is what these sessions are for—so that we have full information. I will endeavour to make sure that noble Lords have all the information they need to make the contributions they want to make. In particular, I want to make sure that the noble Baroness, Lady Hollis, is able to table all the many amendments that we all look forward to.
The Bill does a remarkable job of creating a pension system fit for the 21st century—nine times as long as the noble Baroness, Lady Donaghy, thinks. It is a return to the simplicity of Beveridge’s model for the state pension, it strengthens the private pension system, and it will enable today’s and tomorrow’s working-age population to plan for and build towards a secure retirement income. I commend the Bill to the House and ask for it to be given a Second Reading.
Disabled People: Mobility Benefits
Lord Freud Excerpts(10 years, 5 months ago)
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Lord Wigley
To ask Her Majesty’s Government what assessment they have made of the number of disabled people who have had access to adapted cars removed as a result of changes to their entitlement to mobility benefits.
The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud) (Con)
My Lords, no such assessment has been made. The controlled approach to the reassessment of recipients of disability living allowance began only on 28 October 2013. There is not enough information yet to assess the effect this phase will have on Motability customer numbers, including those with adapted cars. In addition, the vast majority of reassessments will not start until October 2015.
Lord Wigley (PC)
My Lords, does the Minister recall that exactly 12 months ago his department estimated that by 2018 there would be 428,000 fewer enhanced mobility claimants aged 16 to 64 on the new PIP system, compared with the old system? Does he appreciate the anxiety this has caused to those dependent on these payments to finance their Motability vehicles? Will he update the House on the latest position, and do everything in his power to lift the threat felt by those people whose degree of disability almost certainly will mean that they should not lose their Motability entitlement but who, until they know, will inevitably fear the worst?
Lord Freud
My Lords, I emphasise that we are looking to create a thorough assessment under PIP that is balanced and also looks after some of the gaps in DLA, particularly concerning people with mental health problems, who have not done as well under DLA as they should do under PIP. With regard to the concerns about the transition, we are working with Motability to put together a package of £2,000 per person for those who move off the enhanced DLA but not into PIP so that they can purchase a second-hand car at the appropriate time.
Baroness Thomas of Winchester (LD)
Will my noble friend tell me why his department took no notice of the responses to the 11th-hour consultation on the key moving-about descriptor in the PIP assessment? This descriptor enables a claimant to have enough points for the enhanced rate of mobility, which opens the door to the Motability car. Responses to the consultation were overwhelmingly against what the Government have proposed. I wonder why they bothered to have the consultation if they are not going to take any notice of it.
Lord Freud
My Lords, I emphasise that a lot of attention was paid to that consultation, as to all consultations. The issue that the department had to deal with was whether there was a better suggestion for drawing a line and, in practice, we could not find one within the consultation responses. I remind noble Lords that, as a result of activity in this Chamber, we toughened up the definition with,
“reliably, safely, repeatedly and in a timely manner”,
locked into how it operates.
Baroness Hollis of Heigham (Lab)
My Lords, nearly 30% of those who get enhanced mobility payments turn them into a Motability car, so approximately 100,000 to 120,000 people stand to lose their car. We know that when they go to appeal, 60% win their appeal but in the process, given the time it takes, they will have lost their car before having the additional expense of starting all over again. Will the Minister therefore ensure that anyone going to appeal does not lose their car until the appeal has been heard?
Lord Freud
My Lords, that is not the process which we are going through. It is difficult to draw a line between people with enhanced mobility and those on Motability. That is one of the things that we will be looking at as we do this review, which will report towards the end of next year—before large volumes of people are due to go in, so we will be able to look at this closely.
Lord Forsyth of Drumlean (Con)
My Lords, can my noble friend indicate whether he is satisfied that every penny that is available to Motability goes to those in greatest need? Can he tell the House what the salary is of the highest paid director?
Lord Freud
My Lords, Motability puts out a report and accounts. I was looking through the latest the other day, which was from 2012, and its highest paid director was paid something more than £800,000.
Baroness Grey-Thompson (CB)
My Lords, I declare an interest in that I am in receipt of DLA but not of a Motability car. Regardless of whether the Government know the figures of who will be affected, this will affect a significant number of people. I travelled on a train this morning from Darlington to London. There were two spaces for wheelchairs and no accessible toilet on board. Can the Minister explain what consultation there has been with other government departments to ensure that when this huge number of people is affected, the public transport system will be able to cope?
Lord Freud
My Lords, we have had a very thorough consultation on this. I cannot bring to mind right now the exact level of consultation with the transport department. I will need to write to the noble Baroness with that information.
Baroness Sherlock (Lab)
My Lords, I wonder whether the Minister realises just how worried disabled people are. The whole transition to PIP has been in chaos. The Atos work capability assessment is a disaster, the bedroom tax is hitting them, disabled kids have had their benefits cut, and 100,000 people have signed a petition demanding a cumulative impact assessment of the Government’s changes. Is the Minister proud of the Government’s record?
Lord Freud
My Lords, we are handling an extraordinarily difficult economic and financial position. As noble Lords are of course aware, we have had a decline in GDP of 7.2% from its peak in 2008-09. That is more or less the same level as what happened in the 1930s. Handling that decline has been enormously difficult and one of the most interesting things about the way we have handled it generally is that, unlike every other developed country, we have spread the inevitable difficulties across the whole economy, rather than, as elsewhere, the poor being hit far worse than the rich. That has not happened in the adjustment that we have made in this country.
Lord Alton of Liverpool (CB)
My Lords, pursuing the point made by the noble Baroness about the role of Atos Healthcare, in confirming the amounts of money that are involved in this process, will the Minister confirm to the House that in the past 12 months alone, £114 million has been paid to Atos Healthcare; that, over the distance, more than £700 million has been paid to it; and that he has had to call in PricewaterhouseCoopers in order to assess its role? Will he tell us what that has cost and when the National Audit Office will now report on the tendering arrangements involving Atos Healthcare that it has decided to investigate?
Lord Freud
My Lords, that is a series of very specific questions, some of the answers to which are not yet in the public arena. I will have a look at which of those I can answer appropriately in that context.
Housing: Underoccupancy Charge
Lord Freud Excerpts(10 years, 6 months ago)
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Baroness Hollis of Heigham
To ask Her Majesty’s Government what assessment they have made of the impact of the underoccupancy charge on the stability of communities.
The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud) (Con)
My Lords, the impact of the removal of the spare room subsidy on the stability of communities will be assessed over the next two years as part of the independent evaluation currently being undertaken by a consortium which is being led by Ipsos MORI and which includes the Cambridge Centre for Housing and Planning Research and the Institute for Fiscal Studies.
Baroness Hollis of Heigham (Lab)
My Lords, I thank the Minister for his reply. Good social housing requires stable communities where neighbours look out for each other. That is one of the differences between social housing and the scattered private rented sector. How will half a million disabled families cope without their neighbours’ support because they are forced to move by the bedroom tax? How will frail elderly relatives cope when their middle-aged children who care for them have to move away because of the bedroom tax? Ministers quote the changes to the private rented sector in 2008 but those changes were not retrospective, whereas these are, and that is what is so wrong. Will the Minister undertake to ensure, as a transitional arrangement, that the bedroom tax applies only to new lettings and will he lift the bedroom tax for existing tenants and help us to maintain stable communities on which our civic life is based?
Lord Freud
My Lords, the policy is in position and is going through. The latest figures came out last week and showed that it now affects approximately 523 million people—
Lord Freud
I am sorry; I meant 523,000 people. That is a quite substantial reduction. While we do not yet have evidence of how people are responding to the policy—we will get that through our study—it is suggested that some behavioural changes are taking place. It is interesting that the numbers not in employment came down by 10% between May and August.
Lord Skelmersdale (Con)
My Lords, is it not a fact that we would not be in this position today if the last Labour Government had not allowed housebuilding to fall to the lowest levels since the 1920s?
Lord Freud
My Lords, clearly there are issues with housing. There is a great deal of overcrowding. There are various figures for this but between 250,000 and approaching 400,000 homes are overcrowded, and there are long waiting lists. Also, the economic signals seem odd. The provision of single-bedroomed homes falls very far short of demand, with 61% of people wanting, or meeting the size requirements for, one-bedroomed accommodation.
Lord Harris of Haringey (Lab)
My Lords, has the noble Lord seen a report in one of my local newspapers, the Haringey Independent, where one Di Alexander, who chairs a housing association and happens to be the father of the Chief Secretary to the Treasury, said that the bedroom tax,
“is particularly unfair in that it penalises both our tenants and ourselves for not being able to magic up a supply of smaller properties”?
Has the noble Lord also seen the report of the Chartered Institute of Housing on the pilots of capping benefits in the London Borough of Haringey? It points out that,
“2,300 children live in households whose income has been capped”,
resulting in,
“instability in education, increasing tensions within the home, sudden relocation and loss of social and educational opportunities or networks”,
which, it says, is extremely serious. Will he comment on the fact that, according to that study, the cost to local authorities and others of achieving a saving of £60,000 per week was £960,000 over just a four-month period? Does that really make sense?
Lord Freud
My Lords, it is simply too early to reach judgments about how the introduction of the benefit cap and the removal of the spare room subsidy bed in. The kind of savings that we were looking for from those policies seems to be being borne out by the very early initial figures that we are now seeing.
Baroness Maddock (LD)
My Lords, does my noble friend have the latest figures for the use by local authorities of housing discretionary payments? The last time I looked at this, local councils were not using that money to help people in the short term. I would be grateful if he could update us on that.
Lord Freud
Again, my Lords, it is hard to reach definitive conclusions. We now have £180 million for discretionary housing payments for this year, including £20 million that is by demand, to be bid for. So far, we have had just 13 bids in for that money. Last year, some discretionary housing payment money was returned. We are monitoring this extraordinarily closely to make sure that councils are able to deal with their hard cases.
Baroness Lister of Burtersett (Lab)
My Lords, there is a body of research showing the importance to families in poverty of local social networks to help them get by in poverty and even get out of poverty. Will the Minister explain how weakening those social networks through the bedroom tax contributes to the Government’s anti-poverty policy and the big society?
Lord Freud
My Lords, there is a misunderstanding here about the nature of the provision of a lot of social housing. Some 61% of people in social housing are single: they are not the families envisaged. Those are the people, by and large, who are affected by the removal of the spare room subsidy. We are looking at that very closely indeed.
The Countess of Mar (CB)
My Lords, will the Minister say what protection there is for the frail elderly, perhaps living on their own, or the sick or disabled, who do not know their way around the system and do not understand that they can appeal against any decisions that are made?
Lord Freud
My Lords, I emphasise absolutely that this policy deliberately excludes those who are retired—pensioners. The reason for that is that it is very tough to ask older people to make the kind of changes that are possible for younger people to make, so it is in that sense a flow measure. We are trying to get people to move down to appropriately sized homes—if they cannot afford to stay in their larger homes—when they are capable of doing so.
Baroness Gardner of Parkes (Con)
My Lords, I think most Members of the House believe that it is desirable for people to have the size of accommodation that they need and to free up accommodation for those many families with children about whom the noble Lord, Lord Harris, spoke. However, I have been told that one of my suggestions—about having a lodger—could prove to be very difficult to act on, because some local authorities will not allow you to have a lodger. Can the Government do anything to ensure that all local authorities will allow people who wish to have a lodger to do so?
Lord Freud
My Lords, I am grateful for my noble friend’s point. There is a bit of confusion around about sub-tenancies as opposed to lodgers. My understanding is that most housing associations and local authorities will accept lodgers. We have been carrying out an exercise in communication to ensure that people are thoroughly aware of that option.
Lord McAvoy (Lab)
My Lords, the Minister has repeatedly said in the past that the implementation of the bedroom tax was only “what the last Labour Government did”. However, my noble friend Lady Hollis has exposed that, because there was no retrospection when we brought out those regulations. The Minister has also complained that the last Labour Government did not build enough one-bedroomed houses or other suitable houses. In that case, why impose hardship, pain and suffering on thousands of disabled people as a result of the bedroom tax?
Lord Freud
My Lords, let me make absolutely clear that this is not a retrospective measure. It was brought in in this April and it capped the amount of benefit that we would pay people, reflecting whether they had spare bedrooms.
Unemployment: Youth Unemployment
Lord Freud Excerpts(10 years, 6 months ago)
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Lord Roberts of Llandudno
To ask Her Majesty’s Government what steps they will take to create all-party consensus to tackle long-term youth unemployment.
The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud) (Con)
My Lords, we are providing young people with the help they need to get back to work through Jobcentre Plus, the youth contract, the Work Programme, traineeships and apprenticeships. Our approach is working. Over the past year, the number of JSA claimants aged 18 to 24 has dropped by 84,800. We have also made £55 million available to cities for them to develop new and innovative ways of reducing long-term youth unemployment.
Lord Roberts of Llandudno (LD)
I am sorry that the Minister does not seem to share my deep concern about the problem of youth unemployment. Is he aware that 21% of young people aged between 16 and 24 are currently out of work? Does he know that long-term youth unemployment has more than quadrupled in the past 10 years? Some 115,000 18 to 24 year-olds have been out of work for two years or more. Whichever parties are in government in 2015, they will have to tackle long-term unemployment. We have tried to tackle this problem over the past 10 to 20 years. We must tackle it together and we must share the concern. If we cannot share the concern, is it not time to put our differences aside and to work together to resolve this nightmare situation for thousands of our young people? Will the Minister lead us in arranging some measure of co-operation?
Lord Freud
My Lords, the short answer is no. The policies of the previous Government were extraordinarily expensive. The Future Jobs Fund was introduced by the previous Government. At the time, I was in the department as an independent adviser, and that shocked me somewhat. It cost £6,500 for each job and half the people were back on benefits at the end. That is more or less the same performance as the work experience programme, which costs only one-20th.
I agree that the figures about which my noble friend is so concerned are a real concern and have been for a long time. I look at the figures for the unemployed and inactive youth. In 1997, it was 1.1 million youngsters. By 2010, after the longest boom in our history, it had risen to 1.4 million. Under this Government, in the worst recession since not the 1930s but the 1920s, it has come down 89,000 to 1.2 million. That is the way in which to have proper policies to handle the structural problem of youth unemployment.
Baroness Farrington of Ribbleton (Lab)
My Lords, will the Minister publicly offer advice to young people who are unemployed and living in regions which this Government seem to be bypassing? They cannot move to where they are offered employment because of the constrictions on property that they could afford to rent if they were in work due to the Minister’s self-confessed lack of suitable one-bedroomed accommodation. This Government are fostering a north-south divide and the anger of the young in the north has to be heard to be believed.
Lord Freud
My Lords, clearly, it is important to see mobility among the young who are looking for where there is work. However, it is as important for them that they equip themselves to do work, which can be done through work experience, training and apprenticeships. We are putting enormous efforts into getting those programmes right.
Lord Brooke of Alverthorpe (Lab)
Is the noble Lord misleading the House to a degree in quoting the figures? He referred to figures from 1997 which included and counted 16 to 18 year-olds who were unemployed, not in education and not undertaking any training. Now, because the Government no longer pay any benefits to 16 to 18 year-olds, there are literally thousands and thousands of people—the department does not know how many—who are not in employment, not counted and not included in the figures. What are you going to do to follow them?
Lord Freud
My Lords, I am counting inactive people in the figures I am using, which are the best ones available. Clearly, under the previous Government many people were put in government training schemes and were not counted. We can play with numbers as much as we like but I am not playing with numbers—I am giving a very clear, long-term run of the most important set of figures on how we handle the structural problem of youth exclusion from the labour market.
Lord Dobbs (Con)
My Lords, it is said that on a clear day some people in this Palace can see as far as Croydon. Will the Minister raise the sights of this House and get it to look as far, perhaps, as Greece or Italy, where the promise that unemployment could be solved by huge amounts of public debt has led not only to disaster but almost to despair? Does he accept that burying a future generation of our children in huge public debt is not only inept and does not solve the problem but, frankly, is immoral?
Lord Freud
My Lords, my noble friend underlines our problem in his question. We have got to get this economy out of the mire of running a deficit of more than £100 billion every year so that it is rebalanced and we are economically self-sufficient within this generation. If we are not and we go on borrowing to the extent that we can, the people who pick up that tab will not just be our children but our grandchildren and our great-grandchildren. That is not something we should want to leave to future generations.