Pensions Bill

Lord German Excerpts

Monday 24th February 2014 Lords Chamber

[Lord German (LD)]

Will my noble friend allow me a moment’s intervention? I was present at that meeting, and I found it very interesting to have a representative of HMRC there. One of the principal conclusions I drew from that meeting was that there was an agreement between the LGA and HMRC that they would examine up front any arrangement for the distribution of additional funds from HMRC to local government pension funds, and would get the process sorted out in advance so that if money became available the method of distribution would be quick and would help them in their procedure. Can my noble friend confirm my understanding that HMRC is onside with this?

[Lord Freud]

My noble friend is probably way ahead of everyone in this Chamber at this moment on this matter, but I think I can simply answer yes to his understanding. As he says, whereas final decisions tend to get taken at a relatively late moment, if the processes are well organised, that matters less and they can be effectively activated.

The ending of contracting out is an inevitable consequence of the state pension reforms. We want to manage this as smoothly as possible and to minimise impacts on employers, schemes and individuals. I have set out why the override is necessary and why the amendments tabled by the noble Baroness and the noble Lord would make the override unworkable. Amendment 11 would in many cases allow trustees to block changes to the scheme and would increase the risk that employers would simply close their schemes. That is why I urge the noble Lord to withdraw his amendment.

Pensions Bill

Lord German Excerpts

Monday 20th January 2014 Grand Committee

[The Lord Bishop of Chester]

I am not used to being interrupted in my perorations, but I was coming to an end. Schedule 17 says that the Government,

“may impose duties on the trustees or managers of a relevant scheme”.

These amendments spell out what those duties might be, in the interests of transparency, with a view to try to encourage people to invest in these products with some certainty as to how much of their money is going to be invested. I hope that the Government will look sympathetically on the issues that have been raised.

[Lord German (LD)]

My Lords, I am grateful to the noble Lords, Lord Browne and Lord Lawson, for raising these issues, because they allow us to examine the approaches which might be taken in the regulations which may follow and to ask the Government to describe which of these approaches, or what combination of these approaches, they might take. It is quite clear, in my view, that there are two separate approaches: one based on regulation and the other based on openness, transparency and disclosure. There is no reason why you cannot have some of one and some of the other; where the balance is drawn is a matter for debate and discussion. Ultimately, this matter goes to the heart of the success of our pensions industry for savers. The saver must have trust in a system which has a long tail behind it to understand that his or her money is being invested wisely and will return on that investment to provide a pension.

Auto-enrolment will, in the long run, be a success only if the schemes into which people are enrolled are well run and invest people’s savings responsibly. This is particularly important in DC schemes because, in the end in those schemes, the saver bears the investment risk of that complex decision process, which is more often than not made entirely without the saver’s knowledge or input. I was very interested in the chain described by the noble Lord, Lord Lawson, which stretched from Manchester to Monte Carlo. I dare say that if you started to plan these chains out around the world, you would probably find that these decisions were taken in all sorts of places and the connections very wide. That helps demonstrate the length of the chain in investment decisions, particularly if you start with the saver.

Of course, auto-enrolled savers do not choose their own pension provider. Poor pension companies might not become immediately evident to the saver. The best governance of the system would ensure robust oversight of savers’ interests and, most importantly, open communication with savers. It is not always obvious that those in the investment chain place the obligation to protect the best interests of savers at the heart of their decisions, particularly if they are in Monte Carlo. Fundamentally, that means improving transparency and promoting the disclosure of clear and relevant information to savers, as well as ways in which savers can easily find out information about their own savings.

I hope that the Government will tell us a little bit today about how they propose to deal with these very important issues and which approaches they intend to take that might guide the legislation that is to follow in regulations. Could my noble friend say something about how they intend to make the application of the UK stewardship code applicable to all pension schemes into which people are auto-enrolled?

[Baroness Donaghy (Lab)]

I just want to say a few words about the culture within the financial services companies and how difficult it is, given that culture, to have any compliance rules that staff will obey if their jobs depend on selling products. I think it was the whistleblower Dave Penny, who worked for Lloyds TSB, who gave a long list of tricks of the trade that he had tried to warn against. We all know the fines that that company had to pay for using those tricks in both PPI and bond selling. Mr Penny said:

“A supposedly strict compliance regime is meaningless if the management style is putting immense pressure on staff to sell, sell, sell. To keep their jobs, staff will always find ways around compliance”.

That has not gone away just because of the massive fines and compensation that these companies have paid. Only a couple of months ago, a woman in her 60s received a cheque from her son for £35,000. She planned to put that into a stock market investment. That same day that the money arrived in her current account, she was called by a Lloyds employee, who told her that the money could be at risk—an extraordinary claim to make about funds left in the care of a clearing bank. The Lloyds customer said, “The woman at the other end of the line said that my money might not be safe in my current account over the weekend and recommended that I transfer it to a savings account where it would be less easy to steal. I was naturally very worried about this and the bank did not really explain why my money would not be safe in my current account. The whole thing caused me a great deal of distress and eventually my husband intervened, and called the bank to say I did not want to transfer my money to a savings account and went ahead with my original investment plans”.

Of course, there is a financial incentive to place money in an investment account in a bank, no matter how low the interest rates compared with a current account, which is the sole reason why that employee made the effort to contact that person. I realise that that is not of direct relevance to these amendments, except to say that compliance will not work unless you deal with the issue of the culture in these companies. We will see all these tricks of the trade happening again, particularly as the Government are going on the pot-follows-member formula. This will give many more opportunities for companies to salami-slice their charges as each of these small pots is transferred.

--- Later in debate ---

[Lord Bates]

That was a plea for sympathy.

[Lord German]

No sympathy votes here.

[Lord Bates]

The noble Lord will therefore know that our position is that we do not comment on speculation in the press, even when it is in the Financial Times, and that the Minister’s announcement, which will be given to the House later this week, will be delivered first to the other place, and therefore we will have to respond to it.

Pensions Bill

Lord German Excerpts

Wednesday 15th January 2014 Grand Committee

[Lord German (LD)]

My Lords, I raised this issue at Second Reading and have no hesitation in raising it again. I rise to address the issues that have been spoken of already, particularly those in Amendment 66, which the noble Baroness, Lady Hollis, has tabled this afternoon.

I hope and I am sure that noble Lords will judge the issue of changes to bereavement benefits as changes which would improve rather than worsen the current set of arrangements. We are told that these measures are based on what people were told the Government would provide them with, and that they would provide them with the best support. The Government in turn have told us that they are not about reducing entitlement or making savings. Therefore, the test surely must be whether the changes provide a genuine improvement and are not a worsening of the provision. That is why I have this concern about the one implication of the changes, that bereaved parents will be required to go back to work six months after the death of the mother or father. I am afraid I am unable to see the logic or the compassion that I would expect in this change. In fact, I used the word “cruel” at Second Reading.

For the benefit of the bereaved child or children, I would wish for those bereaved parents with children to have full conditionality relaxed for the whole year. This does not rule out preparation for return to work; in fact, there could still be some limited conditionality after six months—for example, attending work-focused interviews only. It is worth making the comparison with kinship carers. I regard this as an anomaly in the proposed regulations. If a child after bereavement goes to live with an uncle, aunt or cousin, that uncle, aunt or cousin, who may have to forgo work to look after the bereaved child, is exempt from full conditionality for 12 months. Yet the bereaved parent, the mother or father, is given only a six-month relaxation. As we know, a 12-month relaxation will not be necessary for everyone. The noble Baroness, Lady Hollis, said this. Some bereaved parents may determine that their circumstances are different and may want to return to work earlier. One would hope that that is always in the best interests of them and their bereaved children, but that is their choice and not a requirement of the state. There is compelling evidence to suggest that we need to alter the proposed provision.

There are six facts from studies, which I want to draw out. The first is that bereaved children and young people are more likely to have a serious illness or accident than their non-bereaved peers during the first year following the death of a parent. The second fact drawn from the studies conducted in this area is that they have higher rates of substance and alcohol abuse than their non-bereaved peers. Thirdly, one-third will show clinical levels of mental health difficulty at some point during the first two years after the death of their parent, and those bereaved suddenly of a parent are three times more likely to develop depression than their non-bereaved peers. Fourthly, there is an increased risk of suicide attempt and hospitalisation for psychiatric disorder. The fifth element is that parentally bereaved children score lower at GCSE than their non-bereaved peers. In other words, it affects their life chances through the examination system. The death of a parent by the age of 16 is associated with girls failing to gain any sort of qualification, and with men and women being unemployed by the age of 30. Sixthly, bereaved children and young people are overrepresented in the criminal justice system.

Of course, the increased risks outlined above do not mean that every bereaved child will go on to develop such difficulties, but they show that, as a group, they are more vulnerable than those who have not been bereaved. The most reliable longitudinal study that we have, which looks at the impact on bereaved children over a period of two years, conducted by JW Worden, Children and Grief: When a Parent Dies, found that the capacity of the surviving parent to care for their child was—and I am sure that no noble Lord will be surprised by this—the most important factor in securing better outcomes, emotionally and behaviourally, for the children. This included the surviving parent’s availability to the child—obviously emotionally but, more than that, in terms of being able to spend time with them and continuing routines where possible. Successful interventions with families generally involve supporting parents to communicate with and be available to their children, all of which point to allowing the surviving parent as much time as possible to be with their child in the year following the death.

Clearly, the conditions for claiming universal credit are intended to be as close to having a job as possible. It is important to think through the parallels between those who are bereaved and claiming UC, and those who are bereaved while in employment. While most employers clearly would not be able to offer a full year off work to a newly bereaved parent, many parents choose to change jobs, or even stop working, if their employer cannot be flexible, so that they can meet the needs of their children better.

This is the most important of issues and the most difficult time for children—when they lose a parent. Given that this is an anomaly compared to when a bereaved child is placed with a kinship carer, I believe that the Government should think again on this very important issue. I hope my noble friend will consider that.

[Lord Browne of Ladyton (Lab)]

My Lords, I will speak to Amendments 62ZZA and 62ZB, in my name and that of my noble friend Lady Sherlock, to Amendments 59, 60, 61 and 66 in the name of my noble friend Lady Hollis and Amendment 62ZA in the name of the noble Baroness, Lady Meacher.

At Second Reading, this part of the Bill figured large. The mood of your Lordships’ House then was that these provisions merited further debate and possible revision. We were all particularly indebted to the right reverend Prelate the Bishop of Derby for his powerful contribution that day. A lifetime of providing pastoral care to those suffering bereavement amounts to a wealth of experience and knowledge that we ignore at our peril, particularly when the lessons drawn from it are supported by the best research, as the contribution of the noble Lord, Lord German, has just suggested.

I expect that a strong thread of the Minister’s response will be an argument that the principal aim of these reforms is to make bereavement payments more effective in the 21st-century context. The Government have concluded that doing so requires only short-term intervention to allow a bereaved spouse or civil partner the time to deal with the immediate costs of the death of a partner and to come to terms with the consequential emotional and financial implications. In the longer term, they argue, if support is needed to cope with the consequences of bereavement, the universal credit system will provide that long-term support.

Broadly, those whom the Government consulted supported that approach, but significant reservations were expressed about the impact of the proposed changes on bereaved families. I believe, like many noble Lords and, perhaps surprisingly, the Pensions Minister himself, that there is a debate to be had about how long support should last, particularly in relation to bereaved families with children. On 29 October, on Report in the House of Commons, the Pensions Minister, Steve Webb, in restating the basic design of his reforms, said,

“there is a debate to be had about how long support should last”.—[Official Report, Commons, 29/10/13; col. 867.]

Thanks to the amendments before the Committee this evening, we have the chance to have part of that debate. I am indebted, once again, to my noble friends and other noble Lords who, in speeches moving and supporting the amendments, have set out the relevant differences in the proposed new financial support provisions compared to the status quo, saving me the need to repeat them and sparing your Lordships the tedium of having to listen to me do it. However, I have some points that complement their contributions and are worth emphasising.

The Bill—certainly this part of it—is cost-neutral, or at least broadly cost-neutral. It achieves its objective of paying out to all bereaved partners, regardless of age, mainly by reducing the level of support for bereaved families and by redistributing that money to those without children. The biggest beneficiaries are bereaved partners under 45—who are also the group most likely to be in work.

Secondly, the Government’s own figures on the number of families affected and what their numbers mean tell us some things, but not everything. The total number of deaths of people aged 25 to 64 in 2012, according to the ONS statistics, was about 73,000: 43,799 men and 29,413 women. The number of deaths increases with age, as one might expect. The number of people in receipt of each of the current three benefits includes 10,000-12,000 receiving bereavement support payments per annum. In November 2012, there were 21,000 people in receipt of one-year bereavement payments and 44,000 in receipt of the widowed parent’s allowance.

If I understand these statistics—and I might not—it appears that only half of bereaved partners in any one year are receiving bereavement benefits. This indicates that either bereaved partners are not claiming, they are not married or in civil partnerships, or they are unable to meet the national insurance contributions criteria. It would be interesting to know whether the Minister has any more detailed statistics than this. The estimated total expenditure of these benefits in 2013-14 is £575 million, falling to £531 million in 2016-17. The total is falling as the number of people dying below state pension age is falling and it is expected to continue to fall as people live longer. Importantly, however, as my noble friend Lady Hollis and the noble Baroness, Lady Finlay, reminded us very forcefully, behind these statistics each death is a great family tragedy. It is the loss of a loved partner or a loved parent, in some cases both.

This reform package includes a simplification of the conditions of entitlement and a relaxation of the qualifying national insurance contributions conditions. At this stage, I want to make two points. First, the contribution record of the deceased partner is still the principle qualification for these benefits, and that is important. This is not a case of something for nothing: it is a payment out for people who have paid in. Secondly, it is argued—although this is not reflected in any amendment before the Committee this afternoon—that in these reforms, the proposed contribution condition is more restrictive than at present. In particular, the proposed contribution condition requires Class 1 or Class 2 contributions, while the existing contribution condition allows payment of Class 3 contributions. Furthermore, unlike the current arrangements, it is argued, where the contributor dies before the end of the relevant year for the necessary contributions, there is no provision for earlier years to be aggregated and treated as if made in the relevant year. Will the Minister tell us whether this was intentional and, if so, why? Would the Government be sympathetic to an amendment that reflected the current rules?

As has already been explained by my noble friends, the existing system is replaced by the payment of a lump sum and monthly payments for one year to all bereaved spouses or civil partners regardless of age. We understand that the lump sum will be tax-free. Although the impact assessment assumes that the monthly payment will also be tax-free, we understand that this is still a matter about which the DWP is in discussion with the Treasury.

Amendment 62ZZA in the names of my noble friend Lady Sherlock and myself would ensure that both the lump sum and the instalment element of BSP would be tax-free. In the House of Commons, the Pensions Minister argued that if BSP is paid for just one year, it is easier to make the case that it is not a replacement for income, but a grant to meet the extra costs of bereavement. Therefore, he told us, it was easier to argue that it should be exempt from tax. Accepting that this is, of course, a matter for Her Majesty’s Treasury, a proper understanding of the effect of BSP requires more certainty than the Government are providing about its tax status. It would be helpful if the Minister could tell us when he hopes to have more clarity about this issue. Would it be helpful to the DWP if an amendment similar to our Amendment 62ZZA were passed on Report?

Amendment 59, in the name of my noble friend Lady Hollis engages directly with the Pensions Minister’s call for a debate about how long support should last. As explained by my noble friend, it seeks to extend the time of payment of BSP to a bereaved parent with children for at least three years or until the second year of schooling is complete for all dependent children, whichever is the longer period. The Childhood Bereavement Network states its confidence that this could be done cost-neutrally by adjusting down the monthly rate of BSP for parents and by reducing the lump sum for non-parents. Is the Minister willing to use his resources to test whether that brief is well founded? If it is, surely it significantly supports my noble friend’s amendment. She has shared not only her own experience of the effect of the loss of a parent on a child, but referred to research to which the noble Lord, Lord German, referred extensively. This demonstrated that the impact of a parent’s death on a child will be significant beyond a period of three years. This proposal is therefore evidence-based and, interestingly, is less generous than the current arrangements that my noble friend herself introduced.

The question that we are all asking is: to what extent are the Minister and the Government considering the needs of children in making this significant change of policy, by moving money from parents with children to those without? We hope that the Minister will engage with that question when he responds.

Pensions Bill

Lord German Excerpts

Wednesday 8th January 2014 Grand Committee

Moved by

[Lord German]

33A: Clause 20, page 10, line 5, at end insert “including those territories where reciprocal agreements have been reached with Great Britain”

[Lord German (LD)]

My Lords, the amendment is an attempt to find an alternative approach to the solution of the anomaly of what is known in common parlance as the frozen pensions issue. At Second Reading I asked my noble friend if I could see the correspondence between other Governments where there were UK pensioners receiving only the frozen pension, in order to try to identify whether the idea of moving forward on the basis of reciprocal arrangements was actually going to be productive and would produce some way forward. It is clearly an anomaly; there are currently approximately 600,000 UK pensioners living outside the UK who get their pensions uprated in the same way as if they were living in the UK. At the same time, we do not uprate the pensions of about 550,000 UK pensioners, most of whom live in Commonwealth countries. All, of course, have made the appropriate financial contribution for their pension and many of them have relocated to be near family members. Many of them are former members of the British Armed Forces.

--- Later in debate ---

[Lord Freud]

My Lords, as the noble Baroness, Lady Hollis, pointed out, the policy on the uprating of state pensions for pensioners abroad is a long-standing one. It has been regularly debated over the years. Clause 20 provides an enabling power for regulations to restrict the availability of annual uprates, as now, in the new state pension where the recipient is living overseas. The Government’s intention is that there will be no difference in treatment between the new and old state pensions as to overseas uprating, either generally or with regard to the UK’s various bilateral agreements. I can reassure noble Lords that all our existing legal obligations with regard to uprating of pensions under bilateral agreements—along with the European co-ordination regulations—will continue to be honoured. To treat the new single-tier pension differently from the current pension would clearly go against the spirit of these agreements. However, I should make it clear that there are no current plans to enter into any new social security bilateral agreements.

There are a number of factors to be considered behind that decision. These are the number of people moving between countries, the benefits available under the other country’s scheme, the compatibility of systems and how far and to what extent reciprocity can be achieved. Future costs are also considered in both the implementation and future operation of any agreement. A bilateral agreement with Australia existed in 2001 when Australia ended it because of a dispute around the current UK policy on uprating UK state pensions paid overseas. There are no plans to enter into a new bilateral agreement with Australia, as any agreement would not achieve reciprocity between it and the United Kingdom.

I shall pick up the Canadian point. Bilateral agreements cover social security matters only, rather than matters beyond this scope which might be described as mutually beneficial. DWP officials are not aware of a discussion or correspondence on this wider scope of mutually beneficial arrangements. I cannot confirm the figures provided by the noble Baroness, Lady Hollis, on whether four times more go to Australia than come back, but she is normally well informed.

I need to make information available on the numbers. We are in the process of updating and quality assuring our estimate of the cost of unfreezing pensions for 2014-15. The department has moved from modelling change to the case load at a population level to a more complex methodology, which takes account of individual characteristics and provides a more accurate estimate when applied to historic data. As a consequence, we now estimate that the cost of extending the uprating of pensions currently paid overseas is slightly reduced but it will still represent a substantial cost to UK taxpayers of more than £0.5 billion per annum. My noble friend is right in saying that this is somewhat below the previous estimate, based on general populations, of £700 million. The department has recently released a statistical publication that clarifies this matter, to which I can refer noble Lords if they need more information.

On the point of the noble Baroness, Lady Hollis, on whether people have full information, the department issues the following leaflets which include information on the impact of living outside the UK and the annual uprating increase for UK state pensions: leaflet BR 23, leaflet DWP040 and leaflet DWP026. The 040 leaflet is sent out with the state pension statement, for instance. Information is available on the government website and Social Security Abroad, leaflet NI138, issued by HMRC, also includes similar advice.

The amendment in the name of the noble Lord, Lord Browne, on reviewing overseas residents’ provision assumes that we would be able to identify and assess the behavioural link between uprating policy and migration patterns. The question about a review is whether it would raise expectations. The noble Lord posed the question about whether we would uprate if we had the money. The noble Baroness, Lady Hollis, was spot on when she raised the issue about making very difficult decisions on payments. Finding £500 million is not an easy business. Clearly, there will always be different priorities for £500 million per annum, as indeed the previous Government decided at a time when there appeared to be more money floating around than there appears to be today. I will not step on anyone’s grave in the collegiate atmosphere of this Committee.

The final question raised by the noble Lord, Lord Browne, was on the numbers of pension-age people moving abroad. That comes from the document from the ONS called Emigration from the UK, November 2012, which states:

“Only two per cent (or 6,000) of those emigrating were over the state pension age of 60 for women and 65 years for men”.

The report also interestingly indicates that 10% were aged between 45 and 59/64 years.

We are aware of research that suggests that a theoretical and economic case can be made to support the uprating of state pensions for all recipients abroad. However, it is notable that this analysis has not been able to provide evidence of a proven behavioural link between uprating and pensioner migration. In fact, we think it unlikely that any review would demonstrate that. In any case, the decision to emigrate abroad remains a personal choice for individuals. In the absence of that kind of evidence, we know that the cost of extending the uprating of pensions currently paid overseas remains significant at more than £0.5 billion per annum. The Government, like their predecessors over the past 60 years, believe that they must put the interests of pensioners living in the UK over the interests of those living overseas by restricting the availability of uprates to those living here or in a country where we have a legal or treaty obligation to provide them. I therefore ask the noble Lord to withdraw his amendment.

[Lord German]

My Lords, I thank noble Lords who have taken part in this debate. It is an interesting one because in the words, I think, of the noble Lord, Lord Browne, it is one that will not go away and will continue to raise its head. I am grateful to the noble Lord, Lord Browne, for reminding noble Lords that at Second Reading I did preface my remarks quite clearly by saying that I was not seeking to pay huge amounts of money to deal with this matter in the manner that many people have demanded or asked. It is a question of trying to find an alternative approach, which is what I was seeking to do with this amendment and in my earlier statements at Second Reading.

As many noble Lords have mentioned, people are putting pressure on noble Lords and Members of the other House to come up with some solutions. The challenge is to think of a way in which an approach might be developed, and I put one before noble Lords in this amendment. I hope it was quite clear that the amendment was not seeking any approach beyond a quid pro quo with another Government so that the message would be clear to any other Government seeking to approach the United Kingdom on this issue. Quite a number have approached the United Kingdom over the years, including some quite surprising places such as Mongolia. If we are going to go down this route, we need to ensure that there is a clear message that there will be no additional costs to United Kingdom plc.

I note what my noble friend said about reciprocity only being looked at from a social security angle. However, that raises another point, on which I echo some thoughts back to the noble Baroness, Lady Hollis. If income comes to UK plc, providing the UK Government can redistribute it accordingly, there may well be opportunities in any agreement beyond just simple social security. I think that has been consistently looked at as the approach for all these reciprocal arrangements, right back to the very beginning.

--- Later in debate ---

[Lord German]

Perhaps I could put inverted commas around the comments of the noble Baroness, Lady Hollis, and refer them, and the precise nature of this debate, to the Minister in Canada. I do not know what was in their mind. My noble friend the Minister here cannot know either, because of course they closed the door to any discussion with the officials from the Canadian Government. However, we need a discussion about this issue. It may well be that it is not with DWP Ministers; it may need to be at some other level.

I do not know the answer to the noble Baroness’s question. All I know is that the Canadian Government believe that they have a mutually beneficial offer to make. That seems to me to be worthy of further discussion; no more than that. I make it clear that I am very much in favour of managing expectations here. The amendment does not call for expenditure at the levels which we have seen before us, and I do not wish to see a reduction in social security expenditure for people currently living in this country as a result. However, when an offer of that sort is made, it is worthy of examination. If there were to be the sorts of things that would make it mutually beneficial, and the Canadian Government believe it to be mutually beneficial to adopt a procedure for Canadian UK pensioners, then it is worth at least finding out what is on the table. If it were to be a successful offer, that of course quite clearly sends the message to other Governments that they can come up with a deal that actually meets the expectations of this Government and the British people.

[Baroness Hollis of Heigham]

I am sorry to interrupt the noble Lord again; he is being very tolerant, for which I am grateful. Again, I am relying on my memory, which is probably faulty, but something in the order of 85% of overseas pensioners outside the EU are in the four major Anglo-Saxon countries. However, the countries in which most of us would recognise that there are anomalies are not so much the big four Anglo-Saxon countries, which have decent social security systems for poverty relief as a safety net and so on. This is about the mixed history of some Caribbean islands, which came in under the net, before 1979, for protection of overseas pensioners, while others did not. Once we started inflating pensions by the cost of living—I am not sure that this was accidental—bilateral relations disappeared at that point because they started to reflect the British cost of living. Those countries are so poor that they are looking for a form of aid in the form of pensions. How would the noble Lord justify coming to a mutually advantageous deal with a relatively wealthy country like Canada while, because an appropriately mutually advantageous offer could not be made with Caribbean islands, that opportunity would be refused to some of the poorer countries?

[Lord German]

We have gone a very long way from what might be the first step in this direction. We have not yet been able to answer that first question: what do any Government have ready to offer?

Incidentally, the Government’s figures are quite clear. They say that 85% of all those with frozen pensions live in Canada, New Zealand and Australia. Those are huge numbers. One of the interesting things when you look at these issues, as noble Lords will know, is that other countries produce information, which comes to you in emails. The noble Baroness, Lady Hollis, asked earlier about Australian pensions. I understand that they are means-tested, but only by 50% of total income over the threshold, so if the UK pension was increased by £20 then the Australian pension would be reduced by the equivalent of £10. As we know, it is not always as clear as we suggest.

My intention in tabling the amendment was simply to be able to examine the issue in a different way, and only then to consider it further. However, it seems to me that we need an answer. I have not yet heard the answer, although of course I could not expect to hear an answer from my noble friend since the discussion with officials was not allowed to take place. However, I encourage that discussion to take place, even if it is over a cup of tea with another group of officials at some stage. In a spirit of hope that this will happen, I beg leave to withdraw the amendment.

Amendment 33A withdrawn.

Pensions Bill

Lord German Excerpts

Wednesday 18th December 2013 Grand Committee

[Baroness Turner of Camden]

My Lords, I do not want to add anything to what my noble friend just said about public sector schemes, but at Second Reading I referred quite briefly to the fact that DB schemes have been under threat for a very long time. I can well remember when I was head of the pension committee of a well known charity that had a very good DB scheme. While I was there, there was a suggestion that in future new people would not be entered into the DB scheme. Gradually, it would be phased out. I spent a whole day persuading the executive not to go down that path. Time went on, and I ceased to be in that office. I went to a dinner on one occasion several years afterwards and somebody said, “Remember that? It’s all changed now. They waited until you’d gone and changed it”. It is absolutely dreadful, quite obviously, as far as my union is concerned.

I have tabled amendments further on that deal with the private sector. My noble friend dealt with the public sector, but also mentioned the private sector, for which we have very much the same cover as far as DB schemes are concerned. I am sure that a number of us have had letters from public sector unions that are very concerned about the future of their schemes, and they have every right to be. I hope very much that the Government will consider very carefully what has been said this afternoon. It is very important.

[Lord German]

My Lords, I congratulate the noble Lord, Lord Whitty, on his success in having a ticket for the 1966 World Cup final—very exciting for those of us who can remember it—and for raising these issues. At Second Reading, I also raised the issue of public sector schemes and how we should try to deal with them. I want to address Amendment 41, which I will not support in its directive approach to the Government, but I echo some of the issues that the noble Lord raised as being significant to the discussion of the Bill. Undoubtedly, we will return to them later when we get to the appropriate clause, Clause 24.

The abolition of contracting out will result in additional national insurance revenue to the Exchequer: £6.1 billion in 2016, of which £3.7 billion comes from public sector employers and £1.5 billion from public sector employees. If you project those figures forward from the £6.1 billion in 2016, they go to £5.6 billion in 2020, £4.3 billion in 2030, £3.8 billion—which is the lowest point in projections—for 2040 and start to rise again to £4.7 billion in 2050 and back to £6 billion in 2060.

So far the Government have allocated some of the funding they see coming back to them already up front. They have allocated to the Dilnot proposals and to some employment measures; but that leaves a significant tranche of money, of the money available, for the Government to deal with as they see fit but also, I hope, to use to deal with some of the problems that affect public sector pension schemes.

The first question that we have to ask ourselves is: what is a public sector pension scheme? I am a recipient of the Local Government Pension Scheme, although I did not work for local government, because I worked for a charity that was a company limited by guarantee and a member of the Local Government Pension Scheme. I transferred my teacher’s pension scheme to the local government scheme, as it was, but I have never been an employee of local government. I was a councillor, but that was not a time when councillors were entitled to retirement benefit.

A public sector scheme, therefore, could mean a scheme that has private sector people within it. We need a definition of whether that is just one single member of a scheme, because it can work the other way round for a private scheme. Does a single member make it a public scheme, or does it mean a group of members or which organisation came into it? The effect of having no, or very little, room for manoeuvre in public sector pension schemes means that there is going to be an effect on the employers, or those public sector services which we all cherish.

The point about local authorities is probably the most relevant. I took the opportunity to try to work out, with some help, what might be the effect upon the small Welsh council, because they are smaller than those in England. I did choose not the one that I live in, but the one alongside it. The extra cost on that Welsh council, if it simply had to meet the cost of the reduction in NIC, would probably be a £33 rise in council tax. If you took a council in the south-west of England—which shall remain nameless, but is probably far west—you would see an increase in its expenditure of £2 million that it would have to find, simply in the first year of the new scheme. Of course, it is possible to work out the impact on a specific council by doing the figures—working out what is 3% of payroll or 3.4% adjusted. Not all their employers are in the scheme, but you can work out what might apply to each local authority in the land.

Some public sector pension schemes can make adjustments through their investment policies; but I think the noble Lord was probably right that not many public sector pension schemes have the ability to match and manage this change. Therefore I believe, quite sensibly, that it is important that the Government use some of the tranche of money that they will have available by not having to pay out national insurance contributions to smooth over the process of changing from one to another. Over time, pension schemes are able to make adjustments through their investment policies. These are important issues.

I have a plea to make to the Government, and I hope that my noble friend can help with this. I know that it is the Exchequer, and not the DWP, that will make this decision. As the Government have made some forward commitments in relation to this money and have forward-spent it in advance, I think that it would be right for them to say now that they are prepared to help these public sector schemes to smooth the transition over the period in which they can make those adjustments in order that we, the council tax residents and people who use public services, will not have to pay more for those services in the immediate future. These are crucial issues and I am grateful to the noble Lord, Lord Whitty, for raising them, but the Government are going to have to make some effort to compensate the way in which these changes impact upon the public services that we all cherish.

Pensions Bill

Lord German Excerpts

Monday 16th December 2013 Grand Committee

[Baroness Hollis of Heigham]

My Lords, I want to comment very briefly. I declare an interest, which I know is relevant to this amendment, as a board member of the Pensions Advisory Service. TPAS has recently completed a survey of just under 1,000 women on their pensions which makes the point absolutely for my noble friend’s request for an information and communication strategy to go out to prospective pensioners and pensioners. Of that 1,000 women, 36% did not know when their state pension would be paid; 74% did not know how much they would receive; 57% did not know whether there was a shortfall in their NI record; 25% do not know that the age is likely to change again; 54% have made no changes to their retirement plans; 27% wonder whether they will have to work longer; and 76% do not expect to be financially comfortable in retirement. I have before me a lot of quotes, some of which I may choose to use later on. Those figures suggest how wilfully uninformed far too many women are about what will happen to them over the next couple of years. That evidence from a TPAS sample substantiates my noble friend’s points.

[Lord German (LD)]

My Lords, I shall have to speak very quietly because I have lost my voice, so if anybody fails to hear to me, I will shout a bit louder after a few days. I just wanted to add to the important points made by the noble Lord. I can always remember receiving my state pension statement. It was a bit of a shock, because I always thought that I was so young that I would never receive one, but it did happen.

The most important aspect of this legislation is clarification of the words as they are written out, because this is a very complex set of arrangements and they need to have clarity of language. Those statements which I have seen are quite clear. I do not hold so negative a view as to how people will see the future world of their pensions. Just today, we have heard that we have now reached 2 million people enrolling in auto-enrolment for pensions—that is, 2 million more than there were 12 months or so ago who know about a pension because they have got into it. We have 3,500 employers. I welcome the British Heart Foundation, which has recently enrolled all its staff. So we know that people are becoming more involved and engaged with their pensions.

The second thing relates to something which happened to me last Friday. I was doing Lords outreach with two schools and the pension question came up. I do not know whether it had been planted by a teacher in advance but it came up. It is quite clear that when these matters are scrutinised, young people are beginning to realise that if we do not put those matters right they, too, will be having to pay more. I always save for my grandchildren, who are enthusiastic to hear that they will be paying to sustain me into older life—but, of course, I am not a recipient of the new single-tier pension. However, when we talk about this issue I wonder whether we should also try to include in it education from a younger age, so that when people receive any financial education within their school life, they can understand that pensions are not a matter for tomorrow or for when you are retiring; they are a matter for the day on which you start to pay and earn. This is a probing amendment but it is very important that, along with other measures which are going on, pensions are seen as an issue for all from now on and not one for when you are retired.

[Baroness Greengross]

My amendment is about a public education programme, which is necessary as so many people are in the same position, as has been outlined in noble Lords’ statements. Amendment 30 seeks to ensure that individuals are made aware of both their responsibilities and expected outcomes here; for example, in terms of state pension contribution years and amounts, and what outcomes they can expect and when. Given longer life expectancy and extended working patterns, it is not unreasonable to increase the number of national insurance contributory years from 30 to 35. People who have contributed for less than 35 years but for at least the minimum qualifying period of seven to 10 years are going to receive a proportion of the pension. However, it is absolutely critical that this change is clearly communicated to all individuals so that they can ensure that any years outside of work—for example, because of ill health or caring responsibilities—are counted as years of contribution and so that they can make appropriate private pension arrangements, should they wish to do so.

Housing: Underoccupancy Charge

Lord German Excerpts

Thursday 12th December 2013 Lords Chamber

[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.

Universal Credit

Lord German Excerpts

Tuesday 10th December 2013 Lords Chamber

[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.

Pensions Bill

Lord German Excerpts

Tuesday 3rd December 2013 Lords Chamber

[Lord German (LD)]

My Lords, the noble Baroness, Lady Sherlock, has set me quite a challenge in making pensions interesting, although I might venture to say that the capping of pension charges has appeared on the front pages of a large number of newspapers in recent weeks. I must say to her that calling my honourable friend Steve Webb a sinner is perhaps a step too far.

This Bill will transform the state pension system by introducing its new single flat-rate pension. I, too, pay tribute at the outset to all those who have contributed to its happening. I particularly want to acknowledge the hard work and dedication of my honourable friend the Pensions Minister, Steve Webb, not just for bringing this Bill to Parliament but for bringing to fruition a policy which reflects my party’s long-standing aspiration for a citizen’s pension. We have worked for that for many years.

The new single-tier state pension will particularly benefit women and the self-employed. It will also make it easier for people to understand what they will receive from the state when they retire. It will help to promote private saving and build on the base of auto-enrolment, which in itself has had a most encouraging start. Under the current state pension, a woman on average receives £40 less a week than a man. The new single-tier system will treat men and women alike. The Institute for Fiscal Studies estimates that of women arriving at state pension age in the first four years of this policy—between 2016 and 2020—61% will see their pension income increased as a result, and that there will be further progress as time passes by.

The IFS analysis also shows that the gains are greatest for those who have spent periods not in work, caring for children, and for those men and women who have had long periods of self-employment. The new system will fully count time spent out of work caring for children, which is of particular benefit to women, who are still more likely to take time out of work as a result of starting a family. The new system also benefits self-employed people, who currently lose out as a result, among other things, of irregular working patterns and the difficulty of applying a means test to them.

The benefit of simplicity cannot be overvalued. Simplification is very worthwhile. It enables people easily to understand their future position in respect of a state pension, which in turn should act as a spur to help people save more for their retirement. Coupled with automatic enrolment, we should see the quality and cost of private saving schemes improve. That is why the Government’s proposal to cap pension charges is so important. It is a crucial part of the mix in creating a strong, good-value and sustainable future pensions offer.

Reading through speeches from the other House and responses from a wide variety of interest groups, there would appear to be broad support for the single-tier proposal, and in particular for where it will stand when brought fully to fruition. At that point, the vast majority of people will have 30 or more qualifying years, and they will get at least as good a pension from the single-tier proposal as they would had the current system continued. However, as with so many policy changes, transitioning from one system to another is where we find the most difficulties.

Of course, as pensions provision has a long timespan tail, transitioning becomes even more difficult. The Government have made significant changes to the transitioning arrangements from when they first appeared as a policy proposal, but I know that your Lordships’ House will wish to examine and probe to see if the best balance, in the light of all the circumstances, has been struck. This is a complex issue, but there are some broad issues in the Bill that I would now like to highlight.

The first relates to public sector contracting out in pensions. As it stands, the Bill provides for private sector pension schemes to be able to amend their rules to accommodate the loss of income from national insurance contribution rebates. These permitted scheme changes can go no further than recouping the loss of these rebates, but can be used more than once to achieve any objective—perhaps by staging changes according to the strength of their overall funds. But this ability to modify does not apply to public sector pension schemes.

Public sector schemes cannot alter contribution levels into their funds, nor can they alter the benefits offered. Yet there will be a reduction to these schemes in national insurance contributions, of 1.4% from employees and 3.4% from employers. Meanwhile, the Government retain this money—which some estimate at £5.5 billion a year from 2016 onwards—for, among things, forward-funding the requirements of this new pension.

A helping hand to employers has been introduced to allow them from next April to offset the first £2,000 against their national insurance bill. This means that many small companies will pay no national insurance at all. Some of the retained government finance has already been committed to meeting the financial demands of other age-related policies, such as funding the care proposal cap outlined in the Dilnot report. Roughly on a 5:7 to 2:7 ratio, two-sevenths of the retained money has been allocated and five-sevenths remains to be allocated. That is an annual unallocated multibillion-pound sum.

I recognise that this could be seen as a decision to be taken by the Chancellor of the Exchequer at some stage in the future, at the beginning or after the beginning of the single-tier proposal. However, just as the current Chancellor has allocated support in certain areas in advance of retaining the current national insurance contribution rebates, I would like to understand why the Government cannot go further at this time.

By way of example, if we were in times of plenty, with public sector pension funds running strong surpluses, pension schemes would be able to deal with the changes in contributions. However, many funds are not. I wonder if my noble friend would agree that without the power to amend their schemes, any shortfalls will have to be made up by the public sector organisations responsible; and that this could mean local authorities, who are currently so stretched for resources to meet the urgent demands of their communities, having to find the extra cash needed to sustain their pension funds. It would therefore make sense for the Government to give some forward commitment to pension funds to enable them to bridge the transfer to the new regime.

There are also mixed schemes, with both private and public contributors, which will be treated as a public sector scheme, and others with public and private sector contributors that perhaps will be treated as a private sector scheme. I will quote my own example, and declare an interest. I receive a pension from a public sector pension scheme, but my contributions are, and were, made by a charity—a company limited by guarantee—which obviously was not in the public sector. Some of these anomalies are not immediately obvious, and I believe that we need further clarification on this very important issue during the course of the Bill through your Lordships’ House.

I am sure that my noble friend will be pleased to note that I do not intend to press for a review of the overseas frozen pensions issue, as raised by Clause 20. I am well aware of the costs to the Exchequer, and of the European Court of Justice decision. However, this issue is an anomaly and I can understand the feelings of many UK pensioners living in those countries, where no agreement was reached so many decades ago. Will the Minister tell the House how many Governments of countries with whom there was no such agreement have expressed an opinion on this matter to the UK Government—and, if so, whether any of them had a deal to offer? I would be grateful if the Minister could make any such correspondence available.

This Bill, not unusually, has tacked on to it a measure that is only loosely related to its principle—that of bereavement benefit. The current system pays people a relatively small lump sum and then a taxable weekly benefit over a longer period of time. It also uses a complex system of contribution conditions that makes it difficult to calculate what people will receive.

We are told that the reforms in the Bill are based on what people have told the Government would provide them with the most support. I understand that the Government believe they are not about reducing entitlement or saving money. However, there is one part of the reforms that is particularly harsh—and, some might argue, cruel. The Government will expect parents of bereaved children to look for work just six months after the child’s mother or father has died. Kinship carers, by contrast, will be exempt from full work-search requirements for a year after a child comes to live with them, to allow the child to settle. As charities have pointed out, this could lead to the perverse situation where a father caring for his daughter after his wife's death would be required to work within six months, whereas if the child went to live with an auntie, a full year could be dedicated to helping her adjust. Subjecting widows and widowers to full conditionality at such an early stage in their grief may be counterproductive; it may increase stress and anxiety, which in turn may lengthen time away from work.

In most families, the current weekly payments of bereavement benefit assist with general living expenses, with many finding those essential to meet basic living costs. Where the person who died was the main breadwinner, the benefit goes some way to replacing their income, allowing some continuity with arrangements for looking after the children. For others, it allows the surviving parent more flexibility to work fewer hours or to change jobs or even sector to fit with their new responsibilities as sole carer of their child. Requiring bereaved parents to complete a readjustment in just six months is harsh indeed, and I hope that the Government will reconsider it.

We will have an opportunity to examine this matter as well as other matters related to transition issues during the Bill’s passage through this House. We on these Benches will not lose sight of the value of this measure to our country.

This Bill is to be welcomed. It sets in train a new pensions settlement for the people of this country. It treats men and women, employed and self-employed, equally. It is easy to understand and simplifies the complexities that are a huge fault in the current system. It will help people of working age to make sensible choices about the need for additional saving for retirement. Whatever changes are sought, I hope your Lordships will recognise that this vision of a better pension is a goal worth pursuing.

Universal Credit: National Rollout

Lord German Excerpts

Monday 28th October 2013 Lords Chamber

[Lord Freud]

My Lords, first, I take the opportunity to congratulate the noble Lord on taking up a slightly more relaxed lifestyle on the Back Benches with this portfolio. I pay tribute to him for his formidable contribution over many years from the Front Bench. To deal with his latest and just as formidable contribution, I remind noble Lords that the NAO said in its report:

“Spending so far is a small proportion of the total budget … and it is still entirely feasible that [universal credit] goes on to achieve considerable benefits for society”.

[Lord German (LD)]

Would my noble friend agree that the introduction of universal credit represents one of the largest system changes we have ever seen in the public sector in this country, sitting as it does on a hugely complex IT platform? Given the significance of universal credit in that it will always make work pay more than being on benefits, does my noble friend agree that getting it right is more important than making mistakes as we go along? But, if he will forgive my impatience, when will we see the first families with children being able to receive universal credit?

[Lord Freud]

My Lords, I entirely agree with the sentiment. When you are introducing a large cultural change like this, it is important to do it in a careful and controlled way, and to make sure that it is safe and secure. That is how we have been introducing our series of changes, such as child maintenance, PIP and benefit cap. I am not in a position, until we announce Howard Shiplee’s plans later this year, to give a timetable of when couples and children are brought into the migration strategy.